e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
April 30, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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000-27999
(Commission File No.)
Finisar Corporation
(Exact name of Registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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94-3038428
(I.R.S. Employer
Identification No.)
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1389 Moffett Park Drive
Sunnyvale, California
(Address of principal
executive offices)
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94089
(Zip
Code)
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Registrants telephone number, including area code:
408-548-1000
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common stock, $.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. Check one:
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer 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
As of October 29, 2006, the aggregate market value of the
voting and non-voting common equity held by non-affiliates of
the registrant was approximately $1,059,903,914, based on the
closing sales price of the registrants common stock as
reported on the Nasdaq Stock Market on October 27, 2006 of
$3.72 per share. Shares of common stock held by officers,
directors and holders of more than ten percent of the
outstanding common stock have been excluded from this
calculation because such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of November 30, 2007, there were 308,634,829 shares
of the registrants common stock, $.001 par value,
issued and outstanding.
INDEX TO
ANNUAL REPORT ON
FORM 10-K
FOR THE
FISCAL YEAR ENDED APRIL 30, 2007
i
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.
In this Annual Report on
Form 10-K
for the fiscal year ended April 30, 2007, Finisar
Corporation is restating its consolidated balance sheet as of
April 30, 2006 and the related consolidated statements of
operations, stockholders equity, and cash flows for the
fiscal years ended April 30, 2006 and April 30, 2005,
as well as the Selected Consolidated Financial Data
for the fiscal years ended April 30, 2006, April 30,
2005, April 30, 2004 and April 30, 2003 as set forth
in Item 6 of this report as a result of information
developed through an independent investigation of our historical
stock option grants conducted by the Audit Committee of our
Board of Directors. On a voluntary basis, we are also including
restated consolidated statement of operations and consolidated
balance sheet data for the fiscal years ended April 30,
2002, April 30, 2001, and April 30, 2000 in Item 6.
This restatement is more fully described in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and in Note 2,
Restatement of Consolidated Financial Statements, of
the Notes to the Consolidated Financial Statements. In addition,
we are restating our unaudited quarterly financial information
and unaudited consolidated financial statements for the interim
periods of fiscal 2006 and the first quarter of fiscal 2007 in
Note 27, Quarterly Financial Data
(Unaudited), of the Notes to the Consolidated
Financial Statements. Our consolidated statement of operations
for the fiscal year ended April 30, 2007 has not been
restated, and the restatement had no impact on our previously
reported revenues for any fiscal period or on our previously
reported cash position as of the end of any fiscal period.
The table below reflects the impact, by year, of the restatement:
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Restatement Adjustments
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Gross
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Stock-Based
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Net
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Stock-Based
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Compensation
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Stock-Based
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Payroll
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Total
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Income Tax
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After-Tax
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Compensation
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Capitalized to
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Compensation
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Tax
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Pre-Tax
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(Benefit)
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Non-Cash
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Fiscal Year Ended
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Charge
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Inventory
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Charge
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Charge
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Charges
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Provision
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Charge
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(In thousands)
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April 30, 2000
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$
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5,416
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$
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(124
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$
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5,292
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$
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0
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$
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5,292
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$
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(2,112
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$
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3,180
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April 30, 2001
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27,160
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(563
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26,597
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175
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26,772
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(10,906
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15,866
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April 30, 2002
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31,780
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(568
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31,212
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22
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31,234
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13,018
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44,252
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April 30, 2003
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24,482
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835
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25,317
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3
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25,320
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25,320
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April 30, 2004
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13,087
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72
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13,159
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(14
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13,145
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13,145
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Cumulative Effect at April 30, 2004
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101,925
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(348
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101,577
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186
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101,763
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101,763
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April 30, 2005
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3,440
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236
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3,676
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(55
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3,621
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3,621
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April 30, 2006
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7,303
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(484
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6,819
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1,425
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8,244
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(134
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8,110
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Total
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$
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112,668
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$
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(596
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$
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112,072
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$
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1,556
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$
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113,628
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$
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(134
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$
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113,494
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Financial information included in the Companys reports on
Form 10-K,
Form 10-Q
and
Form 8-K
filed by Finisar prior to November 28, 2006 and the related
reports of its independent registered public accounting firm,
included in the
Forms 10-K,
and all earnings and press releases and similar communications
issued by the Company prior to November 28, 2006 should not
be relied upon and are superseded in their entirety by this
report and other reports on
Forms 10-Q
and
Forms 8-K
filed by the Company with the Securities and Exchange Commission
on or after November 28, 2006.
1
Overview
We are a leading provider of optical subsystems and components
that connect local area networks, or LANs, storage area
networks, or SANs, and metropolitan area networks, or MANs. Our
optical subsystems consist primarily of transceivers which
provide the fundamental optical-electrical interface for
connecting the equipment used in building these networks. These
products rely on the use of 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.
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 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,
Hewlett-Packard Company, Huawei and Qlogic.
We also provide network performance test and monitoring systems
primarily to leading storage equipment manufacturers such as
Brocade, EMC, Emulex, Hewlett-Packard Company, and Qlogic for
testing and validating equipment designs and, to a lesser
degree, to operators of networking and storage data centers for
testing, monitoring and troubleshooting the performance of their
installed systems.
We were incorporated in California in April 1987 and
reincorporated in Delaware in November 1999. Our principal
executive offices are located at 1389 Moffett Park Drive,
Sunnyvale, California 94089, and our telephone number at that
location is
(408) 548-1000.
Industry
Background and Markets
Optical
Subsystems and Components
Industry
Background
Computer networks are frequently described in terms of the
distance they span and by the hardware and software protocols
used to transport and store data. The physical medium through
which signals are best transmitted over these networks depends
on the amount of data or bandwidth to be transmitted, expressed
as gigabits per second, or Gbps, and the distance involved.
Voice-grade copper wire can only support connections of about
1.2 miles without the use of repeaters to amplify the
signal, whereas optical systems can carry signals in excess of
60 miles without further processing. Early computer
networks had relatively limited performance requirements, short
connection distances and low transmission speeds and, therefore,
relied almost exclusively on copper wire as the medium of
choice. At speeds of more than 1 Gbps, the ability of copper
wire to transmit more than 300 meters is limited due to the loss
of signal over distance as well as interference from external
signal generating equipment. The proliferation of electronic
commerce, communications and broadband entertainment has
resulted in the digitization and accumulation of enormous
amounts of data. Thus, while copper continues to be the primary
medium used for delivering signals to the desktop, even at
1Gbps, the need to quickly transmit, store and retrieve large
blocks of data across networks in a cost-effective manner has
required enterprises and service providers to use fiber optic
technology to transmit data at higher speeds over greater
distances and to expand the capacity, or bandwidth, of their
networks.
A LAN typically consists of a group of computers and other
devices that share the resources of one or more processors or
servers within a small geographic area and are connected through
the use of hubs (used for broadcasting data within a LAN),
switches (used for sending data to a specific destination in a
LAN) and routers (used as gateways to route data packets between
two or more LANs or other large networks). In order to switch or
route optical signals to their ultimate destination, they must
first be converted to electrical signals which can be processed
by the switch, router or other networking equipment and then
retransmitted as an optical signal to the next switching point
or ending destination. As a result, data networking equipment
typically contains multiple
2
connection points, or ports, in which various types of
transceivers or transponders are used to transmit and receive
signals to and from other networking equipment over various
distances using a variety of networking protocols.
LANs typically use the Ethernet protocol to transport data
packets across the network at distances of up to 500 meters
at speeds of 1 to 10 Gbps. Because most residential and business
subscriber traffic begins and ends over Ethernet, it has become
the de facto standard user interface for connecting to the
public network. And, while Ethernet was originally
developed as a data-oriented protocol, it has evolved to support
a wide range of services including digital voice and video as
well as data. In response to continually increasing bandwidth
and performance requirements, the Gigabit Ethernet standard,
which allows LANs to operate at 1 Gbps, was introduced in 1998.
A 10 Gbps version of Ethernet, or 10GigE, was
introduced in 2002. A version based on the Synchronous Optical
Network, or SONET, and the Synchronous Digital Hierarchy, or
SDH, communications standards capable of transmitting at 10
Gbps, OC-192, became available at approximately the same time.
While early 10 Gbps applications were focused on aggregating
longer distance applications, more recently, demand has emerged
for 10GigE-based systems that can transport data up to 300
meters over multimode fiber typically installed in most
commercial buildings.
A SAN is a high-speed subnetwork imbedded within a LAN where
critical data stored on devices such as disk arrays, optical
disks and tape backup devices is made available to all servers
on the LAN thereby freeing the network servers to deliver
business applications, increasing network capacity and improving
response time. SANs were originally developed using the Fibre
Channel protocol designed for storing and retrieving large
blocks of data. A SAN based on the Fibre Channel protocol
typically incorporates the use of file servers containing
host-bus adapters, or HBAs, for accessing multiple storage
devices through one or more switches, thereby creating
multiple paths to that storage. The Fibre Channel interconnect
protocol, operating at 1 Gbps, was introduced in 1995 to address
the speed, distance and connectivity limitations of copper-based
storage solutions using the Small Computer Interface, or SCSI,
interface protocol while maintaining backward compatibility with
the installed base of SCSI-based storage systems. The original
Fibre Channel specifications also included the capability for
data transmission at 2, 4, 8 and 10 Gbps. Since its introduction
in 2003, small and medium size storage networks have been
developed based on the Internet Small Computer System Interface
protocol, or iSCSI. Other solutions designed to reduce the cost
of storage networks allow for the direct attachment of storage
systems to the network without requiring a host, also
known as Network Attached Storage, or NAS.
Due to the cost effectiveness of the optical technologies
involved, transceivers for both LANs and SANs have been
developed using vertical cavity surface emitting lasers, or
VCSELs, to transmit and receive signals at the
850 nanometer, or nm, wavelength over relatively short
distances through multi-mode fiber. Most LANs and SANs operating
today at 1, 2 and 4 Gbps over distances of up to 70 meters,
incorporate this VCSEL technology. The same technology has
recently been employed to build LANs and iSCSI-based SANs
operating at 10 Gbps and, beginning in 2008, will be used to
build Fibre Channel-based SANs operating at 8 Gbps.
A MAN is a regional data network typically covering an area of
up to 50 kilometers in diameter that allows the sharing of
computing resources on a regional basis within a town or city.
The portion of a MAN that connects a LAN or SAN to a public data
network is frequently referred to as the First Mile. MANs
typically use the SONET and SDH communications standards to
encapsulate data to be transmitted over fiber optic cable due to
the widespread use of this standard in legacy telecommunication
networks. However, MANs can also be built using the Ethernet
standard, also known as Metro Ethernet, which can typically
result in savings to the network operator in terms of network
infrastructure and operating costs.
A wide area network, or WAN, is a geographically dispersed data
communications network that typically includes the use of a
public shared user network such as the telephone system,
although a WAN can also be built using leased lines or
satellites. Similar to MANs, a terrestrial WAN uses the
SONET/SDH communications standard to transmit information over
longer distances due to its use in legacy telecommunication
networks.
Transceivers and transponders used in building MANs and WANs
typically require the use of Fabry Perot, or FP, distributed
feedback, or DFB, and externally modulated lasers operating at
wavelengths of 1310nm or 1550nm in order to send signals longer
distances through single mode fiber.
3
Addressable
Markets
According to industry analyst Lightcounting Inc., total sales of
transceiver and transponder products in 2006 were approximately
$1.8 billion. Of this total, approximately
$500 million represented sales of transceivers used for LAN
and SAN applications incorporating optical technologies to
generate and receive signals up to 500 meters, approximately
$385 million represented sales of transceivers for longer
distance MANs using the Ethernet and Fibre Channel protocols and
approximately $615 million represented sales of
transceivers and transponders used in building MANs that are
compliant with the SONET/SDH protocol. Approximately
$300 million was related to products used in building
fiber-to-the-home/curb
networks and parallel optics applications such as backplanes for
switches and routers.
According to Lightcounting, the market for transceivers and
transponders operating at 10 to 40 Gbps represented
approximately $500 million in 2006. Of this total market,
approximately $90 million was for short distance LAN
applications, $100 million was for longer distance MANs
using the Ethernet protocol, and $310 million represented
sales of transceivers and transponders for SONET/SDH networks.
We believe that the market for these higher speed products will
grow faster than other segments of the transceiver and
transponder market in order to address the increasing bandwidth
and storage demands required by future networks.
Our future revenue potential for optical products will
ultimately depend on the growth, or lack thereof, in our
underlying markets, the extent to which we are able to offer new
products, particularly for higher-speed applications, which will
expand our addressable market, the willingness of customers to
devote resources to qualifying these new products, our market
share and average selling prices.
Additional markets exist for optical products designed primarily
for longer distance WAN applications such as laser and detector
modules, dispersion compensators, channel monitors,, optical
amplifiers, reconfigurable optical add-drop multiplexers, or
ROADMs, and line card applications for very long-haul
transmission. Additional opportunities may exist for the
application of our underlying optical technologies to
non-communications markets. We may decide to enter one or more
of these markets in the future.
Demand
for Optical Subsystems and Components Used in LANs and
SANs
The demand for optical subsystems and components used in
building LANs and SANs are driven primarily by spending within
the business enterprise. That demand is heavily influenced by
the growth in information generated by a business enterprise
which must be stored and retrieved in a timely manner and made
available to users located over a wide geographic area. With the
evolution of the internet, the amount of data to be
stored has increased to the point where the cost of managing and
protecting this data has become the primary cost of a typical
information technology department. According to a recent study
by industry analyst IDC, the total amount of external and
internal disk storage will grow 57% per year between 2006 and
2011.
To handle this growth in storage, SANs capable of transmitting
at 2 Gbps began being deployed in 2001 while SANs operating at 4
Gbps became the dominant SAN solution in 2006. Equipment
providers have begun developing solutions operating at 8 Gbps
although we believe the widespread use of transceivers operating
at these higher speeds will not begin until 2008. Industry
analyst Gartner Group estimates that Fibre Channel SAN storage
will grow 44% per year through 2011 but will decline from
approximately 60% of total networked storage to less than 30% by
2011. With the introduction of lower cost 10 Gbps transceivers,
industry analysts believe that, over time, iSCSI and NAS-based
solutions may become more popular than Fibre Cannel SANs due to
their lower cost and ease of installation and administration.
Because SANs enable the sharing of resources thereby reducing
the required investment in storage infrastructure, the continued
growth in stored data is expected to result in the ongoing
centralization of storage and the need to deploy larger SANs.
The centralization of storage, in turn, is increasing the demand
for higher-bandwidth solutions to provide faster, more efficient
interconnection of data storage systems with servers and LANs as
well as the need to connect at higher speeds over longer
distances for disaster recovery applications.
The future demand for equipment used to build SANs and the
optical products to connect them will be influenced by a number
of factors including:
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the need to connect increasing numbers of storage devices and
servers to a growing number of users;
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the need to provide switched access to multiple storage systems
simultaneously;
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the increasingly mission-critical nature of stored data and the
need for rapid access to this data;
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the increase in bandwidth needed to store and retrieve larger
files containing graphics and video content;
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the expense and complexity associated with managing increasingly
large amounts of data storage;
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the increasing cost of downtime and the growing importance of
disaster recovery capabilities;
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the limitations of copper wiring in terms of speed versus
distance;
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the migration of smaller discrete SAN islands to single
integrated SANs;
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an increase in demand for higher bandwidth solutions as larger
SANs serve a greater number of users across longer distances;
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an increase in the number of
IP-based
SANs deployed by small and medium sized businesses due to the
lower cost and complexity associated with using the iSCSI or the
emerging FCoE protocol in conjunction with networking equipment
capable of operating at 10Gbps; and
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the growing popularity of blade servers and file virtualization
which is expected to slow growth in the number of optical ports
while accelerating demand for transceivers capable of
transmitting and receiving signals at higher speeds.
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Demand
for Optical Subsystems Used in Metropolitan Area
Networks
The demand for products used to build Metropolitan Area Networks
is driven primarily by service providers as they seek to upgrade
or build new networks to handle the growth in the bandwidth
demands of business and residential users. These users now have
extensive gigabyte per second transmission capacity in their
buildings and local networks to connect to the public network.
This has resulted in new choke points in
todays network infrastructure: in the First
Mile or local loop for network access and in
MANs themselves, where islands of data are connected by a
copper straw reducing transmission rates to megabits
per second or slower over a combination of twisted pair copper
wire, T-1 lines, frame relay and wireless links. These choke
points are being eliminated with the deployment of equipment
using Gigabit Ethernet and 10GigE transceivers and transponders.
Since the 10GigE standard was ratified in June 2002, a number of
optical products have been introduced for this protocol. These
devices include transceivers packaged in various physical form
factors, such as Xenpak, XPAK and X2, all of which use a
parallel data transmission method known as XAUI. These products
have historically focused on the use of 10GigE links for
aggregating data traffic for MAN applications.
Another solution, known as XFP, supports 10GigE directly through
a high-speed serial interface in a smaller physical form factor.
The XFP standard combines the advantages of smaller size and
lower power requirements with the flexibility to handle data
traffic transmitted on 10GigE LANs and Fibre Channel-based SANs,
as well as MANs and WANs using equipment supporting the
SONET/SDH protocols. We currently offer products based on the
XFP and XPAK form factors and are currently seeking to be
qualified for products based on the other form factors used for
other 10GigE applications.
Demand for all of these products is tied closely to the demand
for bandwidth. According to Cisco Systems, the amount of
bandwidth usage devoted to transmitting IP traffic will grow at
an estimated compound growth rate of 37% per year between 2006
and 2011 resulting in a five-fold increase in bandwidth over
this period. And, while business driven internet traffic
represented approximately 33% of total IP traffic in 2006, Cisco
Systems estimates that it will represent almost 67% of total IP
traffic in 2011.
The amount of bandwidth to be added during the next several
years and the networks to be built or upgraded to accommodate
this growth will be influenced by several trends including:
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The increasing number of subscribers to wireline and wireless
services;
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The rollout of competitive broadband networks by the telephony
companies to offer voice, data, and video services to compete
with cable networks; and
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The increased availability of video-centric services such as
video-on-demand,
video-telephony/conferencing,
video-mail and high definition television, or HDTV.
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The proliferation of video-based services is expected to have a
significant impact on the amount of additional bandwidth to be
required in the future. It is estimated that the amount of data
contained in 30 minutes of video transmission is roughly
equivalent to one year worth of
e-mail
traffic generated by the average user. The deployment of high
quality video services such as HDTV will have an even greater
impact. About 2 Mbps is required to deliver Standard
Definition TV while 9 Mbps is required for High Definition
TV. Whereas network designers can safely over subscribe
bandwidth higher in the network, this cannot be done when
allocating bandwidth to a single enterprise establishment,
household or local serving area, especially for video service.
This means that, in order to receive HDTV
video-on-demand
service, each household would need a minimum of 20 Mbps
since several HDTVs are likely to be in use at the same time.
Standard transceivers allow point-to-point communications over a
single wavelength. Multiplexing technologies are being used to
supply multi-gigabit bandwidth using transceivers that operate
at very specific wavelengths so they can be bundled into systems
that supply multiple wavelengths. Systems using coarse
wavelength multiplexing, or CWDM, typically use only eight
wavelengths, spaced 20 nm apart, while systems using dense
wavelength division multiplexing, or DWDM, use up to 64
wavelengths. While offering less capacity than DWDM systems,
CWDM systems are also far less complex than DWDM systems that
must be cooled and highly controlled, further adding to their
cost. We believe that new technologies such as 10GigE used in
conjunction with CWDM are likely to be the preferred solution in
many MAN applications with DWDM solutions deployed where network
congestion is particularly severe. Transponders that utilize
tunable lasers in order to minimize the amount of inventory that
must be maintained by systems builders to build such networks
are expected to become increasingly popular.
Cable networks have historically been able to deploy bandwidth
to the end user using a combination of coaxial cable and fiber
optic technologies enabling them to offer
video-on-demand
services as well as to broadcast signals. With the deployment of
Voice-Over-Internet Protocol, or VoIP, technology these networks
have been able to offer a single point of contact for the end
customer for voice, data and video services giving them a
distinct competitive advantage over telephony-based networks
that have been limited to offering internet access and telephony
services only. In response, telephony-based carriers have begun
to upgrade their networks in order to be able to offer internet
protocol television, or IPTV, services allowing them to provide
a competitive bundled service offering. The network
architectures being adopted by these carriers vary but are
largely referred to as fiber-to-the-home, or FTTH, or
fiber-to-the-curb, or FTTC, with FTTX used as a more general
term for describing these network architectures based on the
deployment of fiber optics closer to the end user in order to be
able to increase the amount of bandwidth required to deliver
these new services. The buildout of these networks has only
recently begun. Nevertheless, we believe that the construction
of these next generation networks for MANs will stimulate the
use of modular optical transceivers as the technology of choice
as equipment designers develop next generation systems.
Demand
for Optical Products Used in Wireless Networks
Wireless networks typically use fiber optic transmission to
backhaul wireless traffic to the central office for switching.
The deployment of next generation wireless networks, or 3G, is
also expected to increase demand for connectivity using fiber
optic technologies as a result of the increase in the number of
subscribers served as well as new video services available to
users of mobile devices that require greater bandwidth.
Network
Testing and Monitoring Equipment
Industry
Background
Customers who use equipment to test and monitor the performance
of packet-based networks such as Ethernet LANs and Fibre Channel
SANs include original equipment manufacturers, or OEMs, who
require extensive testing in the development of their products
to ensure system performance and reliability, and operators of
data centers who require their networks to be tested or
monitored on an ongoing basis to ensure maximum uptime and to
optimize performance in order to minimize the investment in
expensive upgrades. Manufacturers of equipment for both LANs and
SANs typically focus on the design and development of their own
products and turn to specialized
6
independent suppliers for state-of-the-art test equipment in
order to accelerate the time required to develop new products.
These products consist of protocol analyzers, data generators,
bit-error rate testers and load testers, for Ethernet as well as
a wide array of storage-related protocols including Fibre
Channel, iSCSI, SAS/SATA, PCIExpress, the Consumer Electronics
ATA protocol, or CE-ATA and the emerging Fiber Channel Over
Ethernet protocol, or FCoE. Industry analyst Dell Oro
estimates that Fibre Channel-based equipment currently
represents approximately 60% of the total sales of these
products while iSCSI-based equipment represents approximately
30%. Most Fibre Channel equipment being sold today is designed
to operate at 4 Gbps transmission rates, but new products
operating at 8 Gbps became available at the end of fiscal 2007.
Testing solutions for the SAS-SATA protocol used in the disk
drive industry are expected to migrate from 3 Gbps to 6 Gbps
during 2007.
Addressable
Markets
According to industry analyst Frost and Sullivan, the market for
testing and monitoring products sold primarily to developers of
equipment for LANs and SANs in 2006 totaled approximately
$122 million, of which approximately $78 million was
related to equipment sales to developers of equipment for SANs
and $44 million was for LANs. This market is focused on the
analysis of the data packets transmitted in these networks.
Because of our early work in developing the Fibre Channel
standard in 1995, we have generally invested more heavily in
equipment used in the development of SANs. Our revenues totaled
$39 million in calendar 2006, but we do not yet have
products which address all aspects of these markets. We are
targeting to offer a generator/load tester for Fibre Channel
applications and a protocol analyzer and data generator for
SAS/SATA applications during fiscal 2008. Our entry into the 6
Gbps SAS/SATA market will be tied to the finalization of
specifications for that protocol which are not expected until
the middle of 2008.
The market for the sale of equipment and installation services
to data centers for monitoring their LANs, SANs and WANs is
substantially larger than the market for selling test equipment
to developers of networking equipment but also requires a much
larger investment in sales and marketing. For example, according
to a report from industry analyst Frost and Sullivan, the end
user market for such equipment for LANs and WANs totaled
approximately $174 million in 2006 while the market for
monitoring SANs is considerably smaller with the market
fragmented among various manufacturers of SAN networking
equipment who offer some monitoring capabilities. While we offer
a product called THG to monitor Ethernet LANs, we have not made
a substantial investment in that product, focusing instead on
equipment for various storage protocols. In addition, while we
have developed a product for monitoring end user SANs called
Netwisdom, we have not sold a substantial number of systems to
date due to the difficulties of penetrating that end user market
with a sales channel that is largely geared toward selling to
manufacturers. We have recently entered into agreements with
certain OEMs who sell test equipment to end users to increase
sales of this product.
Additional markets exist for testing and monitoring equipment
which analyzes the characteristics of optical signals used to
carry data packets over LANs, SANs and WANs. We do not currently
offer products for these applications although these markets are
considerably larger than the market for data packet testing and
analysis.
Our future revenue potential for testing and monitoring products
will ultimately depend on the growth, or lack thereof, in our
underlying markets, the extent to which we are able to offer new
products, particularly for new protocols which will expand our
addressable market, new products which will operate at higher
data transmission speeds, our market share and average selling
prices.
Demand
for High-Speed Data Communication Test and Monitoring
Systems
The market for testing equipment for LANS and SANs used by
developers and manufacturers is expected to increase due to
higher transmission speeds offset in part by a decrease in the
demand for lower speed legacy products.
The market for testing and monitoring Gigabit Ethernet LANs is
well established. As higher speed transmission protocols such as
10GigE are introduced, system testing becomes more difficult,
requiring increasingly sophisticated and specialized test
systems capable of capturing data at high speeds, filtering the
data and identifying various types of intermittent errors and
other network problems. We believe that 10GigE will continue to
drive new
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product designs by OEMs as well as the need to test and monitor
that equipment in data centers and will be an important driver
of demand for high performance, easy-to-use test systems for
LANs. While we currently offer products for testing Gigabit
Ethernet LANs, sales of these products currently represent a
relatively small percentage of our total revenue as we focus our
resources primarily on the SAN test and monitoring markets.
The market for Fibre Channel-based test solutions required by
OEMs to develop their storage networking solutions will begin to
migrate from 4 Gbps solutions to 8 Gbps solutions in 2007.
However, with the availability of lower cost 10 Gbps
transceivers, testing solutions based on iSCSI and NAS will
become increasingly important in the future. Major inroads have
been made by these protocols into the SAN market. Gigabit
Ethernet iSCSI is easier to manage in terms of network
connectivity and, in terms of performance, a SAS 3 Gbps disk
drive is three times as fast as a 4 Gbps Fibre Channel disk
drive. Certain disk drive manufacturers have announced they will
not offer a 8 Gbps Fibre Channel drive in the future and will
only offer a 6 Gbps SAS solution. While Fibre Channel will
continue to remain the most robust solution for large SANs, we
believe that the demand for testing iSCSI and SAS/SATA product
solutions may increase at the expense of Fibre Channel in the
future.
The market for testing and monitoring SANs within data centers
is fragmented with each system manufacturer supplying testing
and monitoring systems for the equipment it supplies. Because a
typical SAN integrates equipment based on multiple protocols,
including Ethernet, and a variety of equipment is used to build
a SAN, including storage arrays, file servers, switches and disk
drives, the typical data center operator has had to rely on a
disparate array of testing and monitoring tools, none of which
provide a single unbiased view of the performance of the
network. The need for such a capability has become more critical
with the ongoing accumulation of data which must be stored and
managed and the growing number of users who are connected to and
dependent on the information residing at these data centers. We
believe there is a growing market for testing and monitoring
solutions for data center operators that offer a single
correlated view of network traffic and that alert data center
operators even before network performance becomes an issue.
Business
Strategy
We have become a leading supplier of optical products to
manufacturers of LAN and SAN networking equipment due in part to
our early work in the development of the Fibre Channel standard
in the mid-1990s as well as our pioneering work in developing
transceivers using VCSEL technology. As part of our business
strategy, we continue to actively serve on various standards
committees in helping to influence the use of new cost-effective
optical technologies.
During the late 1990s through 2000, demand for storage and
networking equipment and the optical components and subsystems
that connect them was driven by new applications for the
internet economy, and the storage and networking capacity that
was built was far in excess of end user demand. With the
resulting inventory correction in 2001, we identified several
important trends that we believed would have a significant
influence on how the optical subsystems and components industry
would evolve in the future. Among these trends were:
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industry consolidation involving the combination of key
competitors;
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a reduction in the number of suppliers of optical subsystems to
large customers as these customers sought to ensure the
financial health of their supply chain;
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a preference by large OEMs to use suppliers who are able to
offer a broad product line;
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the need for telecom carriers to enhance their legacy networks
in order to compete more effectively with CATV networks who were
going to bundle their voice, data and video services;
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the expanded use of pluggable transceivers by telecom carriers
in building out these networks over time;
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ongoing pricing pressures which would require lower costs of
production; and
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a tighter supply chain as a result of the increasing use of
customer and supplier inventory hubs which are intended to
minimize future inventory corrections, but which also require
suppliers to be able to respond more quickly to greater than
expected demand.
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To address these trends, we made a number of important strategic
decisions in order to develop a vertically integrated business
model to achieve lower costs of production and to broaden our
product portfolio to enhance our competitive position . Among
those decisions were the following:
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May 2001: We acquired a former disk drive
facility in Ipoh, Malaysia and developed an optical transceiver
manufacturing capability in order to provide low-cost, off-shore
production and to improve our ability to respond quickly to
increased demand from customers;
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March 2003: We acquired Genoa Corporation in
Fremont, California along with its state-of-the-art wafer
fabrication facility in order to develop an internal source of
long wavelength lasers (both Fabry Perot and DFB type) and
achieve lower production costs for transceivers used in MAN
applications;
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April 2004: We acquired a division of
Honeywell Inc. engaged in the manufacture of VCSELs to gain
access to an internal source of short-wavelength lasers to
achieve lower production costs for transceivers used in LAN and
SAN applications;
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Fiscal
2001-2005: We
invested in critical technologies and new products to develop a
broader product portfolio;
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January 2005: We acquired certain assets of
the fiber optics division of Infineon Technologies AG to gain
access to new customers and broaden our product portfolio,
particularly for 10GigE applications;
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November 2005: We acquired certain assets of
Big Bear Networks, Inc. related to 10GigE and 40 Gbps
applications;
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Fiscal 2006: We undertook a major
consolidation effort to rationalize our cost structure; and
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Fiscal 2007: We acquired AZNA, LLC and Kodeos
Communications, Inc. to add critical technologies to cost
effectively extend the transmission distance of 10 Gbps products
and to broaden our product portfolio for 10 Gbps
applications based on the 300 pin form factor used in SONET/SDH
networks.
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As a result of these actions, we have developed a vertically
integrated business model that operates best when the factory
and laser production facilities are highly utilized. In order to
maintain our position as a leading supplier of fiber optic
subsystems and components and network performance test and
monitoring systems, we are continuing to pursue the following
business strategies:
Continue to Invest in or Acquire Critical
Technologies. Our years of engineering
experience, our multi-disciplinary technical expertise and our
participation in the development of industry standards have
enabled us to become a leader in the design and development of
fiber optic subsystems and network performance test systems. We
have developed and acquired critical skills that we believe are
essential to maintain a technological lead in our markets
including high speed semiconductor laser design and wafer
fabrication, complex logic and mixed signal integrated circuit
design, optical subassembly design, software coding, system
design, and manufacturing test design. As a result of these
technological capabilities, we have been at the forefront of a
number of important breakthroughs in the development of
innovative products for fiber optic applications including the
first transceiver incorporating digital diagnostics (1995), the
first CWDM GBIC transceiver (2001), the first DWDM GBIC
transceiver (2002) and the first 4 Gbps transceiver to ship
in volume (2004). We have also been a pioneer in the use of the
XFP small form factor for 10GigE applications, having shipped
the first product based on this protocol in 2002, the first 40
km and 80 km versions in 2004 and a DWDM version in 2005. In the
field of network performance testing and monitoring, we
introduced the first Fibre Channel analyzer (1997), the first IP
storage (iSCSI) protocol analyzer (2001), the first blade-based
analysis system for multi-protocol SANs (2003), the first 4 Gbps
and 10 Gbps Fibre Channel analyzers (2004), and the first 8 Gbps
Fibre Channel analyzer (2007). In the process of investing in or
acquiring critical technologies, we have obtained 668 issued
U.S. patents with another 823 patent applications pending
in addition to numerous foreign patents and patent applications.
We intend to maintain our technological leadership through
continual enhancement of our existing products and the
development or acquisition of new products, especially those
capable of higher speed transmission of data, with greater
capacity, over longer distances.
9
Expand Our Broad Product Line of Optical
Subsystems. We offer a broad line of optical
subsystems which support a wide range of speeds, fiber types,
voltages, wavelengths and distances and are available in a
variety of industry standard packaging configurations, or form
factors. Our optical subsystems are designed to comply with key
networking protocols such as Fibre Channel, Gigabit Ethernet,
10GigE and SONET and to plug directly into standard port
configurations used in our customers products. The breadth
of our optical subsystems product line is important to many of
our customers who are seeking to consolidate their supply
sources for a wide range of networking products for diverse
applications, and we are focused on the ongoing expansion of our
product line to add key products to meet our customers
needs, particularly for 10 Gigabit Ethernet and SONET
applications. Where time-to-market considerations are especially
important in order to secure or enhance our supplier
relationships with key customers, we may elect to acquire
additional product lines.
Expand Our Broad Product Line of Network Performance Test and
Monitoring Systems. We offer a broad line of
systems to assist our OEM customers in efficiently designing and
testing their storage networking systems and sell storage-based
monitoring systems to operators of data centers. We believe our
test systems enable original equipment manufacturers to focus
their attention on the development of new products, reduce
overall development costs and accelerate time to market. Our
monitoring solutions for these networks provide real time
feedback to data center operators enabling them to detect
network bottlenecks and other performance related hardware
issues.
Leverage Core Competencies Across Multiple, High-Growth
Markets. We believe that fiber optic technology
will remain the transmission technology of choice for multiple
data communication markets, including Gigabit and 10-Gigabit
Ethernet-based LANs and MANs, Fibre Channel-based SANs and
SONET-based MANs and WANs. These markets are characterized by
differentiated applications with unique design criteria such as
product function, performance, cost, in-system monitoring, size
limitations, physical medium and software. We intend to target
opportunities where our core competencies in high-speed data
transmission protocols can be leveraged into leadership
positions as these technologies are extended across multiple
data communications applications and into other markets and
industries such as automotive and consumer electronics products.
Strengthen and Expand Customer
Relationships. Over the past 20 years, we
have established valuable relationships and a loyal base of
customers by providing high-quality products and superior
service. Our service-oriented approach has allowed us to work
closely with leading data and storage network system
manufacturers, understand and address their current needs and
anticipate their future requirements. We intend to leverage our
relationships with our existing customers as they enter new,
high-speed data communications markets.
Continue to Strengthen Our Low-Cost Manufacturing
Capabilities. We believe that new markets can be
created by the introduction of new, low-cost, high value-added
products. Lower product costs can be achieved through the
introduction of new technologies, product design or market
presence. Access to low-cost manufacturing resources is a key
factor in the ability to offer a low-cost product solution. We
acquired a manufacturing facility in Ipoh, Malaysia in order to
take advantage of low-cost, off-shore labor while protecting
access to our intellectual property and know-how. In addition,
access to critical underlying technologies, such as our VCSEL
manufacturing capability, enables us to accelerate our product
development efforts to be able to introduce new low cost
products more quickly. We continue to seek ways to lower our
production costs through improved product design, improved
manufacturing and testing processes and increased vertical
integration.
Products
In accordance with the guidelines established by the Statement
of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), we have
determined that we operate in two segments: optical subsystems
and components; and network test and monitoring systems. We
provide a broad line of complementary products within each of
these segments.
10
Optical
Subsystems and Components
Our optical subsystems are integrated into our customers
systems and used for both short- and intermediate-distance fiber
optic communications applications.
Our family of optical subsystem products consists of
transmitters, receivers and transceivers principally based on
the Gigabit Ethernet, Fibre Channel and SONET protocols. A
transmitter converts electrical signals into optical signals for
transmission over fiber optics. Receivers incorporating photo
detectors convert incoming optical signals into electric
signals. A transceiver combines both transmitter and receiver
functions in a single device. Our optical subsystem products
perform these functions with high reliability and data integrity
and support a wide range of protocols, transmission speeds,
fiber types, wavelengths, transmission distances, physical
configurations and software enhancements.
Our high-speed fiber optic subsystems are engineered to deliver
value-added functionality and intelligence. Most of our optical
subsystem products include a microprocessor with proprietary
embedded software that allows customers to monitor transmitted
and received optical power, temperature, drive current and other
link parameters of each port on their systems in real time. In
addition, our intelligent optical subsystems are used by some
enterprise networking and storage system manufacturers to
enhance the ability of their systems to diagnose and correct
abnormalities in fiber optic networks.
For SAN applications which rely on the Fibre Channel standard,
we currently provide a wide range of optical subsystems for
transmission applications at 1, 2 and 4 Gbps and have begun
shipping products operating at 8 Gbps. We currently provide
optical subsystems for data networking applications based on the
Ethernet standard for transmiting signals at 1 to 10 Gbps using
the SFP, SFP+ and XFP form factor. More recently, we have become
qualified for shipping products for short-distance 10 Gbps
Ethernet solutions using the more popular X2 form factor and the
XAUI electrical interface. For SONET-based MANs, we supply
optical subsystems which are capable of transmitting at 2.5, 10
and 40 Gbps. We also offer products that operate at less than 1
Gbps.
We offer a full line of optical subsystems for MANs using WDM
technologies. Our CWDM subsystems include every major optical
transport component needed to support a MAN, including
transceivers, optical add/drop multiplexers, or OADMs, for
adding and dropping wavelengths in a network without the need to
convert to an electrical signal and multiplexers/demultiplexers
for SONET, Gigabit Ethernet and Fibre Channel protocols.
CWDM-based optical subsystems allow network operators to scale
the amount of bandwidth offered on an incremental basis, thus
providing additional cost savings during the early stages of
deploying new
IP-based
systems. We offer DWDM-based transceivers in the SFP and XFP
form factor and, with the acquisition of Kodeos and AZNA, now
offer a tunable 300 pin 10Gbps transponder as well as other
subassemblies for DWDM solutions.
As a result of several acquisitions, we have gained access to
leading-edge technology for the manufacture of a number of
active and passive optical components including VCSELs, FP
lasers, DFB lasers, PIN detectors, fused fiber couplers,
isolators, filters, polarization beam combiners, interleavers
and linear semiconductor optical amplifiers. Most of these
optical components are used internally in the manufacture of our
optical subsystems. We currently sell VCSELs and limited
quantities of other components in the so-called merchant
market to other subsystems manufacturers.
Of the estimated $1.8 billion market for transceivers and
transponders in calendar 2006, our sales of transceiver and
transponder products for LAN, SAN and MAN applications totaled
approximately $358 million, excluding sales of optical
components. Of this amount, approximately $212 million was
from sales of products for LAN and SAN applications,
$85 million was from sales of products for longer distance
Ethernet and Fibre Channel applications and $61 million was
from sales of SONET/SDH transceivers and transponders. Sales of
transceivers and transponders operating at 10 to 40 Gbps totaled
approximately $31 million in calendar 2006.
We do not currently offer products for all segments of the
transceiver and transponder market. For example, we did not
offer any products used in building fiber-to-the-home/curb
networks or for parallel optics applications such as backplanes
for switches and routers which totaled approximately
$300 million in 2006. We did not offer a number of products
for the faster growing 10- to 40 Gbps market applications. Of
the $615 million telecom transceiver market in 2006,
approximately $250 million, consisted of sales of a 300 pin
transponder for 10 Gbps applications. While we did offer a 10
Gbps product based on the pluggable-XFP form factor for
client-side
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applications, the majority of the OEMs in this market segment
currently use a 300 pin-based solution due to the longer
distances involved and the ability to incorporate a tunable
laser in that product. We did not offer a solution for this
longer distance market until late in fiscal 2007 as a result of
an acquisition. In addition, we did not offer a number of
products for 10 Gbps Ethernet applications which use the XAUI
electrical interface until the end of fiscal 2007. According to
LightCounting, the market for these products was approximately
$170 million in 2006. OEM customers who purchase these
products are in the process of transitioning from a legacy form
factor known as Xenpak to a form factor called X2. We were
qualified for only one X2 product at fiscal year-end but are
seeking to be qualified for several other variations of the X2
product in fiscal 2008. And while we are not qualified for
product solutions designed for the fiber-to-the-home market, we
introduced a transceiver for that market at the end of fiscal
2007 and may seek to become qualified for that product in fiscal
2008 depending on the expected profitability of that product
line. According to LightCounting, that market was approximately
$260 million in calendar 2006.
Network
Performance Test and Monitoring Systems
Our testing and monitoring solutions allow engineers, service
technicians and network managers to generate and capture data at
high speeds, filter the data and identify various types of
intermittent errors and other network problems for SANs, LANs,
wireless networks, voice-over-internet protocol applications and
newly emerging technologies including 10GigE, iSCSI, FCIP, SAS
and SATA. Our test and monitoring products have historically
been sold primarily to system manufacturers who use such
equipment in the development of new products for SANs. We
believe we have a significant share of this market and a much
smaller share of the market for testing and monitoring solutions
for LANs.
Our products for testing and monitoring solutions include our
Xgig product platform for Fibre Channel and Gigabit Ethernet
SANs (iSCSI and FCIP), probes which tap and analyze network
traffic, and other specialized equipment for testing SANs and
LANs at high speeds or for network functionality and reliability.
The Xgig is the industrys first blade based
approach to testing and monitoring data networks and allows
multiple protocols to be tested within the same hardware
platform. Separate blades exist for the following capabilities:
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traffic analysis (analyzers) at 1, 2, 4 and 10 Gbps that capture
data traffic into a large memory buffer so that the data can be
analyzed by developers to detect problems on a Fibre Channel
network;
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jammers that inject errors into data networks to simulate how
the network responds and recovers from such problems; and
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bit-error rate testers, or BERTs, that debug and test switches
and disk array products.
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Our line of probes are typically sold to operators of data
centers for monitoring their installed networks on a continuous
basis. They include the following:
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our THG product line and Surveyor software for monitoring
Gigabit Ethernet networks; and
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Netwisdom which provides a comprehensive view of SAN performance
including routers, switches and file servers which are typically
used in a SAN network.
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We also offer other specialized test equipment including
generators for generating Fibre Channel traffic to stress SAN
networks which are typically used in conjunction with an
analyzer.
Customers
To date, our revenues have been principally derived from sales
of optical subsystems and components to a broad base of original
equipment manufacturers. Sales to these customers accounted for
91% of our total revenues in fiscal 2007, 89% in fiscal 2006,
and 86% in fiscal 2005, with the remainder of revenues in each
year representing sales of network performance test and
monitoring systems. Sales of products for LAN and SAN
applications represented 60%, 61% and 59% of our total optical
subsystems revenues in fiscal 2007, 2006 and 2005, respectively.
Our test and monitoring systems are sold to original equipment
manufacturers for testing and validating equipment designs and
to operators of data centers for testing, monitoring and
troubleshooting the performance of their
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Ethernet and storage-based networks. Most of our test and
monitoring revenues in 2007 were derived from sales of test
equipment to manufacturers of SAN networking equipment. Sales to
our top three customers represented approximately 33% of our
total revenues in fiscal 2007, 34% in fiscal 2006 and 39% in
fiscal 2005. Sales to Cisco Systems accounted for 21%, 22% and
28% of our total revenues in fiscal 2007, 2006 and 2005,
respectively. No other customer accounted for more than 10% of
our total revenues in any of these years.
Technology
The development of high quality fiber optic subsystems and
components and network performance test and monitoring systems
for high-speed data communications requires multidisciplinary
expertise in the following technology areas:
High Frequency Integrated Circuit Design. Our
fiber optic subsystems development efforts are supported by an
engineering team that specializes in analog/digital integrated
circuit design. This group works in both silicon, or Si CMOS,
and silicon germanium, or SiGe BiCMOS, semiconductor
technologies where circuit element frequencies are very fast and
can be as high as 40 Gbps. We have designed proprietary circuits
including laser drivers, receiver pre-and
post-amplifiers
and controller circuits for handling digital diagnostics at 1,
2, 4, 8, 10 and 40 Gbps. These advanced semiconductor devices
provide significant cost advantages and will be critical in the
development of future products capable of even faster data rates.
Optical Subassembly Design. We established
ourselves as a low-cost design leader beginning with our initial
Gbps optical subsystems in 1992. From that base we have
developed single-mode laser alignment approaches and low-cost,
all-metal packaging techniques for improved EMI performance and
environmental tolerance. We develop our own component and
packaging designs and integrate these designs with proprietary
manufacturing processes that allow our products to be
manufactured in high volume.
Complex Logic Design. Our network test and
monitoring equipment designs are based on field programmable
gate arrays, or FPGAs. Our network products are being used to
operate with clock frequencies of up to 212.5 megahertz, or
MHz, and logic densities up to 6 million gates per chip.
Our test systems use FPGAs that are programmed by the host PC
and therefore can be configured differently for different tests.
All of our logic design is done in the very high density logic,
or VHDL, hardware description language which will enable
migration to application specific integrated circuits, or ASICs,
as volumes warrant. We develop VHDL code in a modular fashion
for reuse in logic design which comprises a critical portion of
our intellectual property. This re-usable technology base of
logic design is available for use in both our test system and
optical subsystem product lines and allows us to reduce the time
to market for our new and enhanced products. For our optical
transceivers, we have developed controller integrated circuits
containing up to 100,000 gates based on the use of VHDL and
mixed signal designs.
Software Technology. We devote substantial
engineering resources to the development of software technology
for use in all of our product lines. We have developed software
to control our test systems, analyze data collected by our test
systems, and monitor, maintain, test and calibrate our optical
subsystems. A majority of our software technology and expertise
is focused on the use of object-oriented development techniques
to develop software subsystems that can be reused across
multiple product lines. We have created substantial intellectual
property in the area of data analysis software for our Fibre
Channel test equipment. This technology allows us to rapidly
sort, filter and analyze large amounts of data using a
proprietary database format. This database format is both,
hardware platform-independent and protocol-independent. This
independence allows all of the software tools developed for our
existing test products to be utilized in all of our new test
products that collect data traces. Because the database format
is also protocol-independent, new protocols can be added quickly
and easily. Another important component of our intellectual
property is our graphical user interface, or GUI, design. Many
years of customer experience with our test products have enabled
us to define a simple yet effective method to display complex
protocols in clear and concise GUIs for intuitive use by
engineers.
System Design. The design of all of our
products requires a combination of sophisticated technical
competencies optical engineering, high-speed digital
and analog design, ASIC design and software engineering. We have
built an organization of people with skills in all of these
areas. It is the integration
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of these technical competencies that enables us to produce
products that meet the needs of our customers. Our combination
of these technical competencies has enabled us to design and
manufacture optical subsystems with built-in optical test
multiplexing and network monitoring, as well as test systems
that integrate optical and protocol testing with user interface
software.
Manufacturing System Design. The design skills
gained in our test systems group are also used in the
manufacture of our optical subsystems. We utilize our high-speed
FPGA design blocks and concepts and GUI software elements to
provide specialized manufacturing test systems for our internal
use. These test systems are optimized for test capacity and
broad test coverage. We use automated, software-controlled
testing to enhance the field reliability of all Finisar
products. All of our products are subjected to temperature
testing of powered systems as well as full functional tests.
Optoelectronic Device Design and Wafer
Fabrication. The ability to manufacture our own
optical components can provide significant cost savings while
the ability to create unique component designs, enhances our
competitive position in terms of performance, time-to-market and
intellectual property. We design and manufacture a number of
active components that are used in our optical subsystems. Our
acquisition of Honeywells VCSEL Optical Products business
unit in March 2004 provided us with wafer fabrication capability
for designing and manufacturing all of the 850 nm VCSEL
components used in our short distance transceivers for LAN and
SAN applications. These applications represented 60% of our
optical subsystem revenues in fiscal 2007. The acquisition of
Genoa Corporation in April 2003 provided us with a
state-of-the-art foundry for the manufacture of PIN detectors
and 1310 nm FP lasers used in our longer distance transceivers.
During fiscal 2007, we also began fabricating DFB lasers at this
facility, although we continue to rely on third-party suppliers
for a portion of our DFB laser requirements. These longer
distance transceiver products comprised approximately 40% of our
optical subsystem revenues in fiscal 2007.
Competition
Several of our competitors in the optical subsystems and
components market have recently been acquired or announced plans
to be acquired. These announcements reflect an ongoing
realignment of industry capacity with market demand in order to
restore the financial health of the optics industry. Despite
this trend, the market for optical subsystems and components for
use in LANs, SANs and MANs as well as the market for testing and
monitoring systems remains highly competitive. We believe the
principal competitive factors in these markets are:
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product performance, features, functionality and reliability;
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price/performance characteristics;
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timeliness of new product introductions;
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breadth of product line;
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adoption of emerging industry standards;
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service and support;
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size and scope of distribution network;
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brand name;
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access to customers; and
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size of installed customer base.
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Competition in the market for optical subsystems and components
varies by market segment. Our principal competitors for optical
transceivers sold for applications based on the Fibre Channel
and Ethernet protocols include Avago Technologies (formerly part
of Agilent Technologies), JDS Uniphase and Intel. Our
principal competitors for optical transceivers sold for MAN and
telecom applications based on the SONET/SDH protocols include
Opnext, Optium and Sumitomo. Our principal competitors for
testing solutions include Agilent Technologies and LeCroy. Our
principal competitors for monitoring solutions for storage
networks include networking equipment suppliers such as Brocade
and Cisco as well as storage systems suppliers such as EMC and
IBM.
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We believe we compete favorably with our competitors with
respect to most of the foregoing factors based, in part, upon
our broad product line, our sizeable installed base, our
significant vertical integration and our low-cost manufacturing
facility in Ipoh, Malaysia. We believe that the recent
introduction of a number of products for 10GigE applications has
strengthened our position in the optical subsystem market. We
believe that the addition of our new Xgig product line for
testing and monitoring multiple network protocols within the
same hardware platform combined with unique software solutions
for monitoring and troubleshooting SANs has strengthened our
competitive position within the network test and monitoring
market.
Sales,
Marketing and Technical Support
For sales of our optical subsystems and components, we utilize a
direct sales force augmented by one world-wide distributor, one
domestic distributor, 17 domestic manufacturers
representatives and three international manufacturers
representatives. For sales of our network test and monitoring
systems, we utilize a direct sales force augmented by 10
domestic manufacturers representatives and 21
international resellers. Our direct sales force maintains close
contact with our customers and provides technical support to our
manufacturers representatives. In our international
markets, our direct sales force works with local resellers who
assist us in providing support and maintenance in the
territories they cover.
Our marketing efforts are focused on increasing awareness of our
product offerings for optical subsystems and network test and
monitoring systems and our brand name. Key components of our
marketing efforts include:
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continuing our active participation in industry associations and
standards committees to promote and further enhance Gigabit
Ethernet, Fibre Channel and SAS/SATA technologies, promote
standardization in the LAN, SAN and MAN markets, and increase
our visibility as industry experts;
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leveraging major trade show events and LAN, SAN, and MAN
conferences to promote our broad product lines; and
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promoting our products for network test and monitoring solutions
for storage and networking data centers in industry publications
and other electronic media.
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In addition, our marketing group provides marketing support
services for our executive staff, our direct sales force and our
manufacturers representatives and resellers. Through our
marketing activities, we provide technical and strategic sales
support to our direct sales personnel and resellers, including
in-depth product presentations, technical manuals, sales tools,
pricing, marketing communications, marketing research, trademark
administration and other support functions.
A high level of continuing service and support is critical to
our objective of developing long-term customer relationships. We
emphasize customer service and technical support in order to
provide our customers and their end users with the knowledge and
resources necessary to successfully utilize our product line.
Our customer service organization utilizes a technical team of
field and factory applications engineers, technical marketing
personnel and, when required, product design engineers. We
provide extensive customer support throughout the qualification
and sale process. In addition, we provide many resources through
our World Wide Web site, including product documentation and
technical information. We intend to continue to provide our
customers with comprehensive product support and believe it is
critical to remaining competitive.
Backlog
A substantial portion of our revenues is derived from sales to
OEMs pursuant to individual purchase orders with short lead
times or through hub arrangements where revenue is generated
upon pulling inventory that resides at these customers or their
subcontract manufacturers. Commitments under these arrangements
remain subject to negotiation with respect to quantities and
delivery schedules and are generally cancelable without
significant penalties. In addition, visibility as to future
customer demand is limited in those situations in which we have
installed a hub. Manufacturing capacity and availability of key
components can also impact the timing and amount of revenue
ultimately recognized under such sale arrangements. Accordingly,
we do not believe that the backlog of undelivered product under
these purchase orders are a meaningful indicator of our future
financial performance.
15
Manufacturing
We manufacture most of our optical subsystems at our production
facility in Ipoh, Malaysia. This facility consists of
640,000 square feet, of which 240,000 square feet is
suitable for cleanroom operations. The acquisition of this
facility in May 2001 has allowed us to transfer most of our
manufacturing processes from contract manufacturers to a
lower-cost manufacturing facility and to maintain greater
control over our intellectual property. We expect to continue to
use contract manufacturers for a portion of our manufacturing
needs. We conduct a portion of our new product introduction
operations at our Ipoh, Malaysia facility. We manufacture
certain passive optical components used in our long wavelength
products for MAN applications in Shanghai, China. We continue to
conduct a portion of our new product introduction activities at
our Sunnyvale facility where we also conduct supply chain
management for certain components, quality assurance and
documentation control operations. During fiscal 2007, we
relocated our wafer fabrication operations for the manufacture
of VCSELs used in LAN and SAN applications from a facility in
Richardson that we leased from Honeywell, Inc. to a leased
facility in Allen, Texas. We conduct wafer fabrication
operations for the manufacture of long wavelength FP and DFB
lasers at our facility in Fremont, California.
We design and develop a number of the key components of our
products, including photodetectors, lasers, ASICs, printed
circuit boards and software. In addition, our manufacturing team
works closely with our engineers to manage the supply chain. To
assure the quality and reliability of our products, we conduct
product testing and burn-in at our facilities in conjunction
with inspection and the use of testing and statistical process
controls. In addition, most of our optical subsystems have an
intelligent interface that allows us to monitor product quality
during the manufacturing process. Our facilities in Sunnyvale,
Fremont, Allen and Malaysia are qualified under ISO
9001-9002.
Although we use standard parts and components for our products
where possible, we currently purchase several key components
from single or limited sources. Our principal single source
components purchased from external suppliers include ASICs and
certain DFB lasers that we do not manufacture internally. In
addition, all of the short wavelength VCSEL lasers used in our
LAN and SAN products are currently produced at our facility in
Allen, Texas. Generally, purchase commitments with our
single or limited source suppliers are on a purchase order
basis. We generally try to maintain a buffer inventory of key
components. However, any interruption or delay in the supply of
any of these components, or the inability to procure these
components from alternate sources at acceptable prices and
within a reasonable time, would substantially harm our business.
In addition, qualifying additional suppliers can be
time-consuming and expensive and may increase the likelihood of
errors.
We use a rolling
12-month
forecast of anticipated product orders to determine our material
requirements. Lead times for materials and components we order
vary significantly, and depend on factors such as the demand for
such components in relation to each suppliers
manufacturing capacity, internal manufacturing capacity,
contract terms and demand for a component at a given time.
Research
and Development
In fiscal 2007, 2006 and 2005, our research and development
expenses were $64.4 million, $54.1 million and
$64.2 million, respectively. We believe that our future
success depends on our ability to continue to enhance our
existing products and to develop new products that maintain
technological competitiveness. We focus our product development
activities on addressing the evolving needs of our customers
within the LAN, SAN and MAN markets, although we also are
seeking to leverage our core competencies by developing products
for other markets, including the automotive and consumer
electronics industries. We work closely with our original
equipment manufacturers and system integrators to monitor
changes in the marketplace. We design our products around
current industry standards and will continue to support emerging
standards that are consistent with our product strategy. Our
research and development groups are aligned with our various
product lines, and we also have specific groups devoted to ASIC
design and test, subsystem design, and test equipment hardware
and software design. Our product development operations include
the active involvement of our manufacturing engineers who
examine each product for its manufacturability, predicted
reliability, expected lifetime and manufacturing costs.
We believe that our research and development efforts are key to
our ability to maintain technical competitiveness and to deliver
innovative products that address the needs of the market.
However, there can be no assurance
16
that our product development efforts will result in commercially
successful products, or that our products will not be rendered
obsolete by changing technology or new product announcements by
other companies.
Intellectual
Property
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 and licensing arrangements, to
establish and protect our proprietary rights. Notably, patents
issuing to Finisar in 2005 and 2006 were rated by IEEE Spectrum
as number 1 and 6, respectively, in the Telecom Equipment sector
for patent power. We currently own 700 issued U.S. patents
and 821 patent applications with additional foreign
counterparts. We cannot assure you that any patents will issue
as a result of pending patent applications or that our issued
patents will be upheld. 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. We are currently engaged in pending
litigation to enforce certain of our patents (see
Item 3. Legal Proceedings), 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. This litigation could
result in substantial costs and diversion of resources and could
significantly harm our business.
The networking industry is characterized by the existence of a
large number of patents and frequent litigation based on
allegations of patent infringement. 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 such 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 require us to enter
into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing
agreements, if required, may not be available on terms
acceptable to us, if at all. 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.
Employees
As of April 30, 2007, we employed approximately
3,908 full-time employees, 723 of whom were located in the
United States and 3,185 of whom were located at our production
facilities in Ipoh, Malaysia, Shanghai, China and Singapore
where we conduct research and development activities. We also
from time to time employ part-time employees and hire
contractors. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work
stoppage. We believe that there is a positive employee relations
environment within the company.
Available
Information
Our website is located at www.finisar.com. Electronic copies of
our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available, free of charge, on our website as soon as
practicable after we electronically file such material with the
Securities and Exchange Commission. The contents of our website
are not incorporated by reference in this Annual Report on
Form 10-K.
17
OUR FUTURE PERFORMANCE IS SUBJECT TO A VARIETY OF RISKS,
INCLUDING THOSE DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED AND THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE. YOU SHOULD ALSO REFER
TO THE OTHER INFORMATION CONTAINED IN THIS REPORT, INCLUDING OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES.
We
have incurred significant net losses, our future revenues are
inherently unpredictable, our operating results are likely to
fluctuate from period to period, and if we fail to meet the
expectations of securities analysts or investors, our stock
price could decline significantly
We incurred net losses of $45.4 million, $33.0 million
and $117.7 million in our fiscal years ended April 30,
2007, 2006 (as restated) and 2005 (as restated), respectively.
Our operating results for future periods are subject to numerous
uncertainties, and we cannot assure you that we will be able to
achieve or sustain profitability on a consistent basis.
Our quarterly and annual operating results have fluctuated
substantially in the past and are likely to fluctuate
significantly in the future due to a variety of factors, some of
which are outside of our control. 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. Some of the factors that could cause our
quarterly or annual operating results to fluctuate include
market acceptance of our products, market demand for the
products manufactured by our customers, the introduction of new
products and manufacturing processes, manufacturing yields,
competitive pressures and customer retention.
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 at any time.
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.
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 2010 totaling
$100 million, our
21/2%
convertible subordinated notes due 2010 totaling
$50 million, and our
51/4%
convertible subordinated notes due 2008 totaling
$100 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. We may not be able to cover our anticipated debt
service obligations from our cash flow. This may materially
hinder our ability to make payments on the notes. 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 when due.
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If we
are unsuccessful in pending litigation, our payment obligations
under our outstanding convertible subordinated notes could be
accelerated
The Trustee for all of our outstanding convertible subordinated
notes has notified us that, in the opinion of the Trustee, we
are in default under the indentures governing the respective
series of notes as a result of our failure to timely file
periodic reports with the Securities and Exchange Commission
(the SEC). Although neither the Trustee nor the
holders of any of the notes have declared the unpaid principal,
and accrued interest, on any of the notes to be due and payable,
the Trustee has stated in its notices that it reserves the right
to exercise all available remedies, which would include
acceleration of the notes. We do not believe that we were in
default under the terms of the indentures on the basis that the
plain language of each indenture requires only that we file with
the Trustee reports that have actually been filed with the SEC
and that, since the reports in question have not yet been filed
with the SEC, we are under no obligation to file them with the
Trustee. In anticipation of the assertion by the Trustee or the
noteholders that Events of Default had occurred, and
a potential attempt to accelerate payment on one or more series
of the notes, we instituted litigation seeking a judicial
declaration that we are not in default under the indentures.
Should we be unsuccessful in this litigation, the Trustee or the
noteholders could attempt to accelerate payment on one or more
series of the notes. As of October 31, 2007, there was
$250.3 million in aggregate principal amount of notes
outstanding and an aggregate of approximately $558,000 in
accrued interest.
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, unless our payment obligations under
our outstanding convertible subordinated notes is accelerated.
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.
Failure
to accurately forecast our revenues could result in additional
charges for obsolete or excess inventories or non-cancelable
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
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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. Poor manufacturing
yields over a prolonged period of time could adversely affect
our ability to deliver our subsystem products to our customers
and could also affect our sale of components to customers in the
merchant market. Our inability to supply enough lasers or other
key 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 several key components used in the
manufacture of our products from single or limited sources, and
we rely on a single independent contract manufacturer 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 two product
families, and our revenues will decline if the market does not
continue to accept either of these product
families
We currently derive substantially all of our revenue from sales
of our optical subsystems and components and network test and
monitoring systems. We expect that revenue from these products
will continue to account for substantially all 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 either our optical subsystems
and components or our network test and monitoring systems, our
revenues will decline significantly. Factors that may affect the
market acceptance of our products include the continued growth
of the markets for LANs, SANs and MANs and, in particular,
Gigabit Ethernet and Fibre Channel-based technologies, as well
as the performance, price and total cost of ownership of our
products and the availability, functionality and price of
competing products and technologies.
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
20
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 our revenues. For example, sales to our
top five customers represented 42% of our revenues in fiscal
2007. Our success will depend on our continued ability to
develop and manage relationships with significant customers.
Although we are attempting to expand our customer base, we
expect that significant customer concentration will continue for
the foreseeable future.
The markets in which we sell our optical subsystems and
components products are dominated by a relatively small number
of systems manufacturers, thereby limiting the number of our
potential customers. 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:
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our customers can stop purchasing our products at any time
without penalty;
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our customers are free to purchase products from our
competitors; and
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our customers are not required to make minimum purchases.
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Sales are typically made 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.
Our
market is 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,
changes in customer requirements and evolving industry standards
with respect to the protocols used in data communications
networks. We expect that new technologies will emerge as
competition and the need for higher and more cost-effective
bandwidth increases. 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, we
expect the SAN market to begin migrating from 4 Gbps to 8
Gbps product solutions in fiscal 2008 and that our ability to
achieve sustained revenue growth in the markets for LAN, MAN and
telecom applications will depend to a large extent on our
ability to successfully develop and introduce new 10 Gbps
transceiver and transponder solutions during this same period.
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
21
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:
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changing product specifications and customer requirements;
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unanticipated engineering complexities;
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expense reduction measures we have implemented, and others we
may implement, to conserve our cash and attempt to achieve and
sustain profitability;
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difficulties in hiring and retaining necessary technical
personnel;
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difficulties in reallocating engineering resources and
overcoming resource limitations; and
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changing market or competitive product requirements.
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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. 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 test and monitoring systems for use in LANs, SANs and
MANs 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. 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, JDS Uniphase, Intel,
Opnext, Optium, Sumitomo and a number of smaller vendors. For
network test and monitoring systems, we compete primarily with
Agilent Technologies and LeCroy. 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 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 price
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
22
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 test and monitoring 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. Our gross margins are
generally lower for newly introduced products and improve as
unit volumes increase. 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 them in their equipment.
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 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
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,
we operate smaller facilities in China and Singapore and rely on
two 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;
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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.
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Any of these factors could significantly impair our ability to
source our contract manufacturing requirements internationally.
23
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 and the
Chinese yuan. 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 and
Singapore 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.
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Past
and future acquisitions could be difficult to integrate, disrupt
our business, dilute stockholder value and harm our operating
results
Since October 2000, we have completed the acquisition of ten
privately-held companies and certain businesses and assets from
six other companies. 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.
Several of our past acquisitions have been material, and
acquisitions that we may complete in the future may be material.
In 12 of our 16 acquisitions, we issued common stock or notes
convertible into common stock as all or a portion of the
consideration. The issuance of stock in any future transactions
would dilute our stockholders percentage ownership.
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.
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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 2007, we recorded minority equity investments in
early-stage technology companies, totaling $52.4 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. We may be required to write off all or a portion of the
$11.3 million in such investments remaining on our balance
sheet as of April 30, 2007 in future periods.
We
face risks of regulatory actions and inquiries into our
historical stock option grant practices and related accounting,
which could require significant management time and attention,
and that could have a material adverse effect on our business,
results of operations and financial condition
As a result of our investigation into our historical stock
option grant practices and the restatement of our prior
financial statements, we may be subject to greater risks
associated with litigation, regulatory proceedings and
government inquiries and enforcement actions, as described in
Item 3. Legal Proceedings. We have voluntarily
informed the SEC of the results of this investigation, and have
been cooperating with, and continue to cooperate with, inquiries
from the SEC. We are unable to predict what consequences, if
any, that any inquiry by any regulatory agency may have on us.
Any civil or criminal action commenced against us by a
regulatory agency could result in administrative orders against
us, the imposition of significant penalties
and/or fines
against us,
and/or the
imposition of civil or criminal sanctions against certain of our
officers, directors
and/or
employees. Any regulatory action could result in the filing of
additional restatements of our prior financial statements or
require that we take other actions, and could divert
managements attention from other business concerns and
harm our business.
We
have been named as a party to derivative action lawsuits, and we
may be named in additional litigation, all of which will require
significant management time and attention and result in
significant legal expenses and may result in an unfavorable
outcome which could have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
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 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 for the State
of California for the County of Santa Clara. Plaintiffs in
all cases have alleged that certain current or former officers
and directors of the Company caused it to grant stock options at
less than fair market value, contrary to our public
25
statements (including statements in our 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 our 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 Audit Committee in June
2007. On August 28, 2007, we and the individual defendants
filed motions to dismiss the complaint. A hearing on the motions
has been set for January 8, 2008. 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.
We are
subject to other 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. 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 be 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 fail to recover
$1 billion and payment is required under the guaranty, we
would be responsible to pay our pro rata portion of the
shortfall, up to the amount of the self-insured retention under
our insurance policy, which may be up to $2 million. The
timing and amount of payments that we could be required to make
under the proposed settlement would depend on several factors,
principally the timing and amount of any payment that the
insurers may be required to make pursuant to the $1 billion
guaranty. While the court was considering final approval of the
settlement, the Second Circuit Court of Appeals vacated the
class certification of plaintiffs claims against the
underwriters in six cases designated as focus or test cases. All
proceedings in all of the lawsuits have been stayed, and the
plaintiffs and issuers have stated that they are prepared to
discuss how the settlement might be amended or renegotiated to
comply with the Second Circuit decision. There is no assurance
that the settlement will be amended or renegotiated to comply
with the Second Circuits ruling, and then approved. If the
settlement is not amended or renegotiated 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.
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. Our failure to attract and retain these qualified
employees could significantly harm our business. The loss of the
services
26
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. 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. 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 require us to enter
into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing
agreements, if required, may not be available on terms
acceptable to us, if at all. 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.
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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,
51/4%
convertible subordinated notes due 2008 in the principal amount
of $100.3 million, and
21/2%
convertible subordinated notes due 2010 in the principal amount
of $50 million. The
51/4% 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 $5.52 per share. The $50 million in
principal amount of our
21/2% notes
become 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 Companys
common stock reaching $4.92 for a period of time. An aggregate
of approximately 42,000,000 shares of common stock would be
issued upon the conversion of all outstanding convertible
subordinated notes at these exchange rates, which would
significantly 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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28
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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.
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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.
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.
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Item 1B.
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Unresolved
Staff Comments
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None.
Our principal facilities are located in California, Texas,
Malaysia and China.
29
We lease a 92,000 square foot building in Sunnyvale,
California for our corporate headquarters under a lease that
expires in February 2020. We conduct research and development,
sales and marketing, general and administrative and limited
manufacturing operations at our Sunnyvale facilities.
We own a 640,000 square foot manufacturing facility in
Ipoh, Malaysia, where we conduct our principal manufacturing
operations. The land upon which the facility is located is
subject to a long term lease that expires in June 2055.
We lease facilities totaling approximately 44,000 square
feet, in Fremont, California under leases that expire in March
2009. We conduct wafer fabrication operations at these
facilities. We are currently negotiating an extension of this
lease.
We lease approximately 18,250 square feet of general office
space in Scotts Valley, California under a lease that expires in
November 2010. We acquired this leased facility in connection
with our acquisition of InterSAN in May 2005. In fiscal 2006, we
consolidated a portion of the facility and recognized a
restructuring charge for this activity. A portion of this
facility is currently vacant.
We lease approximately 26,400 square feet of general office
space in Eden Prairie, Minnesota under a lease that expires in
March 2010. We acquired this leased facility in connection with
our acquisition of I-TECH in April 2005. We consolidated the
former I-TECH operations at our other facilities in the first
quarter of fiscal 2006. The facility is currently vacant.
We lease approximately 57,000 square feet of general office
and manufacturing space in Shanghai, China to house the
operations of our subsidiary, Transwave Fiber (Shanghai), Inc.
This lease expires in August 2008.
We lease a 160,000 square foot facility in Allen, Texas,
where we conduct the principal manufacturing operations for our
AOC Division under a lease that expires in February 2020. A
portion of this facility consisting of approximately
35,000 square feet is currently subleased.
We lease approximately 16,000 square feet of general office
space in Austin, Texas, to house the operations of our Medusa
Technologies Division. This lease expires in July 2008.
We lease approximately 13,600 square feet of general office
space in Singapore under a lease that expires in October 2008.
We conduct research and development and logistics operations at
this facility.
We lease approximately 25,000 square feet of general office
space in Boston, Massachusetts under a lease that expires in
December 2009. We acquired this leased facility in connection
with our acquisition of AZNA, LLC in March 2007.
We lease a 18,000 square foot facility in Plainfield, New
Jersey and a 2,500 square foot facility in Champaign,
Illinois under leases that expire in August 2009 and July 2008,
respectively. We acquired these leased facilities in connection
with our acquisition of Kodeos Communications, Inc. in April
2007.
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Item 3.
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Legal
Proceedings
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Matters
Related to Historical Stock Option Grant Practices
On November 30, 2006, we announced that we had undertaken a
voluntary review of our historical stock option grant practices
subsequent to our 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
our 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 we would likely need to restate
our 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. Our
management, in conjunction with the Audit Committee, conducted a
further review to finalize revised measurement dates and
determine the appropriate accounting adjustments to our
historical financial statements, which are reflected in this
report. The announcement of the investigation, and related
30
delays in filing our 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 July 29, 2007 (the July
10-Q)
and this annual report on
Form 10-K
for the fiscal year ended April 30, 2007 (the 2007
10-K), have resulted in the initiation of regulatory
proceedings as well as civil litigation and claims.
Nasdaq
Determination of Non-compliance
On December 13, 2006, we received a Staff Determination
notice from the Nasdaq Stock Market stating that the Company was
not in compliance with Marketplace Rule 4310(c)(14) because
we did not timely file the October
10-Q and,
therefore, that our common stock was subject to delisting from
the Nasdaq Global Select Market. We received similar Staff
Determination Notices with respect to our failure to timely file
the January
10-Q, the
July 10-Q
and the
2007 10-K.
In response to the original Staff Determination Notice, we
requested a hearing before a Nasdaq Listing Qualifications Panel
(the Panel) to review the Staff Determination and to
request additional time to comply with the filing requirements
pending completion of the Audit Committees investigation.
The hearing was held on February 15, 2007. The Company
thereafter supplemented its previous submission to Nasdaq to
include the subsequent periodic reports in its request for
additional time to make required filings. On April 4, 2007,
the Panel granted us additional time to comply with the filing
requirements until June 11, 2007 for the October
10-Q and
until July 3, 2007 for the January
10-Q. We
appealed the Panels decision to the Nasdaq Listing and
Hearing Review Counsel (the Listing Council),
seeking additional time to make the filings. On May 18,
2007, the Listing Council agreed to review the Panels
April 4, 2007 decision and stayed that decision pending
review of our appeal. On October 5, 2007, the Listing
Council granted us an exception until December 4, 2007 to
file our delinquent periodic reports and restatement. On
November 26, 2007, we filed an appeal with the Nasdaq Board
of Directors seeking a review of the Listing Councils
decision and a stay of the decision, including the Listing
Councils December 4, 2007 deadline. On
November 30, 2007, the Nasdaq Board of Directors agreed to
review the Listing Councils decision and stayed the
decision pending further consideration by the Board. We believe
that the filing of this report, and the simultaneous filing of
the other delinquent reports on
Form 10-Q,
will satisfy the conditions of the Listing Councils
decision and that our common stock will continue to be listed on
the Nasdaq Global Select Market.
Securities
and Exchange Commission Inquiry
In November 2006, we informed the staff of the SEC of the
voluntary investigation that had been undertaken by the Audit
Committee of our Board of Directors. We were subsequently
notified by the SEC that the SEC was conducting an informal
inquiry regarding our historical stock option grant practices.
We are cooperating with the SECs review.
Stock
Option Derivative Litigation
Following our announcement on November 30, 2006 that the
Audit Committee of the Board of Directors had voluntarily
commenced an investigation of our historical stock option grant
practices, we were 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 for the State of California for the County of
Santa Clara. Plaintiffs in all cases have alleged that
certain of our current or former officers and directors caused
us 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 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 our 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 Audit Committee
in June 2007. On August 28, 2007, we and the individual
defendants filed motions to dismiss the complaint. A hearing on
the motions has been set for January 11, 2008.
31
Trust Indenture
Litigation
On January 4, 2007, we received three substantially
identical purported notices of default from U.S. Bank
Trust National Association, as trustee (the
Trustee) for our 21/2% Convertible Senior
Subordinated Notes due 2010, our 21/2% Convertible
Subordinated Notes due 2010 and our 51/4% Convertible
Subordinated Notes due 2008 (collectively, the
Notes). The notices asserted that our failure to
timely file the October
10-Q with
the SEC and to provide a copy to the Trustee constituted a
default under each of the three indentures between us and the
Trustee governing the respective series of Notes (the
Indentures). The notices each indicated that, if we
did not cure the purported default within 60 days, an
Event of Default would occur under the respective
Indenture. As previously reported, we had delayed filing the
October 10-Q
pending the completion of the review of our historical stock
option grant practices conducted by the Audit Committee of its
Board of Directors.
We do not believe that we are in default under the terms of the
Indentures. We contend that the plain language of each Indenture
requires only that we file with the Trustee reports that have
actually been filed with the SEC, and that, since the October
10-Q had not
yet been filed with the SEC, we were under no obligation to file
it with the Trustee.
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, we filed a lawsuit in the Superior Court for
the State 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 we are not in default under the three
Indentures, based on our position as described above. The
Trustee filed an answer to the complaint generally denying all
allegations and also filed a notice of removal of the state case
to the United States District Court for the Northern District of
California. On October 12, 2007, the action was remanded
back to state court in which it was commenced because the
Trustees notice of removal was not timely.
As expected, on March 16, 2007, we received three
additional notices from the Trustee asserting that Events
of Default under the Indentures had occurred and were
continuing based on our failure to cure the alleged default
within the 60 day cure period.
On April 24, 2007, we received three substantially
identical purported notices of default from the Trustee for each
of the Indentures, asserting that our failure to timely file the
January 10-Q with the SEC and to provide a copy to the Trustee
constituted a default under each of the Indentures. The notices
each indicated that, if we did not cure the purported default
within 60 days, an Event of Default would occur
under the respective Indenture. We do not believe that we are in
default under the terms of the Indentures for the reasons
described above.
On June 21, 2007, we filed a second declaratory relief
action against the Trustee in the Superior Court of California
for the County of Santa Clara. The second action is
essentially identical to the first action filed on March 2,
2007 except that it covers the notices asserting Events of
Default received in April 2007 and any other notices of
default that the Trustee may deliver in the future with respect
to our delay in filing, and providing copies to the Trustee, of
periodic reports with the SEC. The Trustee filed an answer to
the complaint generally denying all allegations and filed a
notice of removal to the United States District Court for the
Northern District of California. We have filed a motion to
remand to state court, which was heard and taken under
submission on November 2, 2007.
On July 9, 2007, we received three substantially identical
purported notices of default from the Trustee for each of the
Indentures, asserting that our failure to timely file this
Form 10 K report with the SEC and to provide a copy to the
Trustee constituted a default under each of the Indentures. As
before, the notices each indicated that, if we did not cure the
purported default within 60 days, an Event of
Default would occur under the respective Indenture. We do
not believe that we are in default under the terms of the
Indentures for the reasons described above.
To date, neither the Trustee nor the holders of at least 25% in
aggregate principal amount of one or more series of the Notes
have declared all unpaid principal, and any accrued interest, on
the Notes to be due and payable, although the Trustee stated in
its notices that it reserved the right to exercise all available
remedies. As of October 31, 2007, there was
$250.3 million in aggregate principal amount of Notes
outstanding and an aggregate of approximately $558,000 in
accrued interest.
32
Patent
Litigation
DirecTV
Litigation
On April 4, 2005, we 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 our
U.S. Patent No. 5,404,505 (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 our patent had been willfully
infringed and awarded us 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 us 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 us costs of
$147,282 associated with the litigation. The Court declined to
award us attorneys fees. The Court denied our motion for
injunctive relief, but ordered DirecTV to pay us a compulsory
ongoing license fee 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 our
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 us 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 prevails on appeal. The Court granted
DirecTVs motion, and payments under the compulsory license
are being made into an escrow account pending the outcome of the
appeal. As of October 12, 2007, DirecTV has deposited
approximately $28 million into escrow. These escrowed funds
represent DirecTVs compulsory royalty payments for the
period from June 17, 2006 through September 30, 2007.
DirecTV has 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. We cross-appealed, raising
issues related to the denial of our motion for 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
have been consolidated. The parties were ordered to participate
in the appellate courts mandatory mediation program, which
occurred on February 13, 2007 without resolution. The
parties have filed their respective briefs with the appellate
court. A third party, New York Intellectual Property Law
Association (NYIPLA) filed an amicus brief
urging the appellate court to vacate the portion of trial
courts judgment denying our motion for a permanent
injunction and ordering DirecTV to pay royalties pursuant to a
compulsory license. Over DirecTVs objection, the appellate
court accepted NYIPLAs amicus brief. On
November 19, 2007, the Court of Appeals denied
NYIPLAs motion to file a reply brief. Oral arguments have
been set for January 7, 2008. Subsequent to the oral
arguments, it is anticipated that a decision from the appellate
court will be issued between March 2008 and November 2008.
Comcast
Litigation
On July 7, 2006, Comcast Cable Communications Corporation,
LLC (Comcast) filed a complaint against us in the
United States District Court, Northern District of California,
San Francisco Division. Comcast seeks a declaratory
judgment that our 505 patent is not infringed and is
invalid. The 505 patent is the same patent alleged by us
in our lawsuit against DirecTV. Our motion to dismiss the
declaratory judgment action was denied on November 9, 2006.
As a result, on November 22, 2006, we 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. Discovery is now underway. The
parties have been ordered to a mediation and settlement
conference on December 13, 2007. A jury trial has been
scheduled for March 3, 2008.
EchoStar
Litigation
On July 10, 2006, EchoStar Satellite LLC, EchoStar
Technologies Corporation and NagraStar LLC (collectively,
EchoStar) filed an action against us in the United
States District Court for the District of Delaware seeking
33
a declaration that EchoStar does not infringe, and has not
infringed, any valid claim of our 505 patent. The
505 patent is the same patent that is in dispute in
the DirecTV and Comcast lawsuits. On October 24, 2006, we
filed a motion to dismiss the action for lack of a justiciable
controversy. The Court denied our motion on September 25,
2007. We filed our answer and counterclaim on October 10,
2007. No scheduling order has been entered in the case, and
discovery has not yet begun.
XM/Sirius
Litigation
On April 27, 2007, we 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 our 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 Direct TV
appeal and the
re-examination
of the 505 patent described below. The defendants
motion for a stay was denied. Discovery is now underway. The
claim construction hearing has been set for February 6,
2008, and the trial has been set for September 15, 2008.
Requests
for Re-Examination of the 505 Patent
Three requests for re-examination of our 505 patent have
been filed with the United States Patent and Trademark Office
(PTO). The 505 patent is the patent that is in
dispute in the DirecTV, EchoStar, Comcast and XM/Sirius
lawsuits. On December 11, 2006, the PTO entered an order
granting the first request and, on March 21, 2007, the PTO
entered an order granting the second request. The third request,
filed on August 1, 2007, was partially granted on
September 28, 2007. We expect that the PTO will take steps
to consolidate these requests into one request for
re-examination. Alternately, the PTO may consolidate the first
two requests and keep the third separate because it is directed
to different claims than the first two requests. 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 our
position in the DirecTV, EchoStar, Comcast, XM/Sirius lawsuits.
Resolution of one or more re-examination requests of the
505 Patent is likely to take more than 15 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 our common stock from November 17, 1999 through
December 6, 2000. The complaint named as defendants
Finisar, Jerry S. Rawls, our President and Chief Executive
Officer, Frank H. Levinson, our former Chairman of the Board and
Chief Technical Officer, Stephen K. Workman, our Senior Vice
President and Chief Financial Officer, 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, 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 our stock
sold in the offerings and (ii) the underwriter had entered
into agreements with customers whereby the underwriter agreed to
allocate shares of our stock sold in the offerings to those
customers in exchange for which the customers agreed to purchase
additional shares of our 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,
we 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
34
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 be 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 fail
to recover $1 billion and payment is required under the
guaranty, we would be responsible to pay its pro rata portion of
the shortfall, up to the amount of the self-insured retention
under our insurance policy, which may be up to $2 million.
The timing and amount of payments that we could be required to
make under the proposed settlement would depend on several
factors, principally the timing and amount of any payment that
the insurers may be required to make pursuant to the
$1 billion guaranty. The Court gave preliminary approval to
the settlement in February 2005 and held a hearing in April 2006
to consider final approval of the settlement. 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, on December 14, 2006, the Court
ordered a stay of all proceedings in all of the lawsuits pending
the outcome of the plaintiffs petition to the Second
Circuit Court of Appeals for a rehearing en banc and resolution
of the class certification issue. On April 6, 2007, the
Second Circuit Court of Appeals denied the plaintiffs
petition for a rehearing, but clarified that the plaintiffs may
seek to certify a more limited class. Subsequently, and
consistent with these developments, the Court entered an order,
at the request of the plaintiffs and issuers, to deny approval
of the settlement, and the plaintiffs filed an amended complaint
in an attempt to comply with the decision of the Second Circuit
Court of Appeals. The plaintiffs and issuers have stated that
they are prepared to discuss how the settlement might be amended
or renegotiated to comply with the Second Circuit decision. If
an amended or modified settlement is not reached, and thereafter
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.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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There were no matters submitted to a vote of our security
holders during the quarter ended April 30, 2007.
35
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Since our initial public offering on November 11, 1999, our
common stock has traded on the Nasdaq National Market under the
symbol FNSR. The following table sets forth the
range of high and low closing sales prices of our common stock
for the periods indicated:
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High
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Low
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Fiscal 2007 Quarter Ended:
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April 30, 2007
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$
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3.86
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$
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3.06
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January 28, 2007
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$
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4.02
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$
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3.01
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October 29, 2006
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$
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4.13
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$
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2.68
|
|
July 30, 2006
|
|
$
|
5.32
|
|
|
$
|
2.61
|
|
Fiscal 2006 Quarter Ended:
|
|
|
|
|
|
|
|
|
April 30, 2006
|
|
$
|
5.13
|
|
|
$
|
2.49
|
|
January 29, 2006
|
|
$
|
2.72
|
|
|
$
|
1.49
|
|
October 30, 2005
|
|
$
|
1.54
|
|
|
$
|
0.87
|
|
July 31, 2005
|
|
$
|
1.30
|
|
|
$
|
1.01
|
|
The closing price of our common stock as reported on the Nasdaq
National Market on June 30, 2007 was $3.78. The approximate
number of stockholders of record on June 30, 2007 was 425.
We estimate that there are approximately 45,000 beneficial
owners of our common stock.
We have never declared or paid dividends on our common stock and
currently do not intend to pay dividends in the foreseeable
future so that we may reinvest our earnings in the development
of our business. The payment of dividends in the future will be
at the discretion of the Board of Directors.
|
|
Item 6.
|
Selected
Financial Data
|
The Audit Committee has completed its investigation, including
review of all stock option grants made by us during the period
commencing on November 11, 1999, the date of our initial
public offering, through September 8, 2006 (the
Review Period). Based on the Audit Committees
investigation, we confirmed that we had incorrectly accounted
for stock options granted in 105 out of 151 granting actions, or
69.5% of such actions, during the Review Period, and that
recognition of additional non-cash stock-based compensation
expense was necessary with respect to certain grants. Based on
the Audit Committees investigation, with the concurrence
of management, we determined that we should have recognized
approximately $112.1 million of pre-tax stock-based
compensation expense and $1.6 million of payroll related
taxes for the fiscal years 2000 through 2006 that were not
accounted for in our previously issued financial statements, and
$387,000 for fiscal 2007. Upon the adoption of Statement of
Financial Accounting Standards, or SFAS, 123R on May 1,
2006, we recorded an additional $1.2 million cumulative
benefit from change in accounting principle, net of tax,
reflecting the net cumulative impact of estimated forfeitures
related to unvested stock options as of May 1, 2006 that
were previously not included in the determination of historic
stock-based compensation expense under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued
to Employees, (APB 25), in periods prior
to May 1, 2006.
Therefore, we are restating our consolidated balance sheet as of
April 30, 2006 and the related consolidated statements of
operations, stockholders equity, and cash flows for the
fiscal years ended April 30, 2006 and April 30, 2005,
as well as the Selected Consolidated Financial Data
for the fiscal years ended April 30, 2006, April 30,
2005, April 30, 2004 and April 30, 2003 as set forth
below. On a voluntary basis, we are also including restated
consolidated statement of operations and consolidated balance
sheet data for the fiscal years ended April 30, 2002, April
30 2001, and April 30, 2000. This restatement is more fully
described in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations
and in Note 2, Restatement of Consolidated Financial
Statements, of Notes to the Consolidated Financial
Statements. The restatement had no impact on our
36
previously reported revenues for any fiscal period or on our
previously reported cash position as of the end of any fiscal
period.
The impact of the restatement is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement Adjustments
|
|
|
|
Gross
|
|
|
Stock-Based
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
|
|
|
Compensation
|
|
|
Stock-Based
|
|
|
Payroll
|
|
|
Total
|
|
|
Income Tax
|
|
|
After-Tax
|
|
|
|
Compensation
|
|
|
Capitalized to
|
|
|
Compensation
|
|
|
Tax
|
|
|
Pre-Tax
|
|
|
(Benefit)
|
|
|
Non-Cash
|
|
Fiscal Year Ended
|
|
Charge
|
|
|
Inventory
|
|
|
Charge
|
|
|
Charge
|
|
|
Charges
|
|
|
Provision
|
|
|
Charge
|
|
|
|
(In thousands)
|
|
|
April 30, 2000
|
|
$
|
5,416
|
|
|
$
|
(124
|
)
|
|
$
|
5,292
|
|
|
$
|
0
|
|
|
$
|
5,292
|
|
|
$
|
(2,112
|
)
|
|
$
|
3,180
|
|
April 30, 2001
|
|
|
27,160
|
|
|
|
(563
|
)
|
|
|
26,597
|
|
|
|
175
|
|
|
|
26,772
|
|
|
|
(10,906
|
)
|
|
|
15,866
|
|
April 30, 2002
|
|
|
31,780
|
|
|
|
(568
|
)
|
|
|
31,212
|
|
|
|
22
|
|
|
|
31,234
|
|
|
|
13,018
|
|
|
|
44,252
|
|
April 30, 2003
|
|
|
24,482
|
|
|
|
835
|
|
|
|
25,317
|
|
|
|
3
|
|
|
|
25,320
|
|
|
|
|
|
|
|
25,320
|
|
April 30, 2004
|
|
|
13,087
|
|
|
|
72
|
|
|
|
13,159
|
|
|
|
(14
|
)
|
|
|
13,145
|
|
|
|
|
|
|
|
13,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Effect at April 30, 2004
|
|
|
101,925
|
|
|
|
(348
|
)
|
|
|
101,577
|
|
|
|
186
|
|
|
|
101,763
|
|
|
|
|
|
|
|
101,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2005
|
|
|
3,440
|
|
|
|
236
|
|
|
|
3,676
|
|
|
|
(55
|
)
|
|
|
3,621
|
|
|
|
|
|
|
|
3,621
|
|
April 30, 2006
|
|
|
7,303
|
|
|
|
(484
|
)
|
|
|
6,819
|
|
|
|
1,425
|
|
|
|
8,244
|
|
|
|
(134
|
)
|
|
|
8,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,668
|
|
|
$
|
(596
|
)
|
|
$
|
112,072
|
|
|
$
|
1,556
|
|
|
$
|
113,628
|
|
|
$
|
(134
|
)
|
|
$
|
113,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth selected financial data for each
of the fiscal years ended April 30, 2006, 2005, 2004 and
2003 as restated. These tables should be reviewed in conjunction
with the Consolidated Financial Statements in Item 8.
Financial Statements and Supplementary Data as well as
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003 (a)
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
381,263
|
|
|
$
|
325,956
|
|
|
$
|
241,582
|
|
|
$
|
160,025
|
|
|
$
|
136,846
|
|
Network test and monitoring systems
|
|
|
37,285
|
|
|
|
38,337
|
|
|
|
39,241
|
|
|
|
25,593
|
|
|
|
29,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
418,548
|
|
|
|
364,293
|
|
|
|
280,823
|
|
|
|
185,618
|
|
|
|
166,482
|
|
Cost of revenues
|
|
|
270,272
|
|
|
|
250,186
|
|
|
|
206,836
|
|
|
|
147,102
|
|
|
|
135,183
|
|
Amortization of acquired developed technology
|
|
|
6,002
|
|
|
|
17,671
|
|
|
|
22,268
|
|
|
|
19,239
|
|
|
|
21,983
|
|
Impairment of acquired developed technology
|
|
|
|
|
|
|
853
|
|
|
|
3,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
142,274
|
|
|
|
95,583
|
|
|
|
48,063
|
|
|
|
19,277
|
|
|
|
9,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
64,559
|
|
|
|
54,412
|
|
|
|
64,232
|
|
|
|
70,101
|
|
|
|
71,514
|
|
Sales and marketing
|
|
|
36,122
|
|
|
|
33,144
|
|
|
|
30,456
|
|
|
|
21,193
|
|
|
|
27,879
|
|
General and administrative
|
|
|
35,641
|
|
|
|
30,864
|
|
|
|
23,684
|
|
|
|
17,328
|
|
|
|
16,973
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
(105
|
)
|
|
|
(1,719
|
)
|
Acquired in-process research and development
|
|
|
5,770
|
|
|
|
|
|
|
|
1,558
|
|
|
|
6,180
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
1,814
|
|
|
|
1,747
|
|
|
|
1,104
|
|
|
|
572
|
|
|
|
758
|
|
Impairment of tangible assets
|
|
|
|
|
|
|
|
|
|
|
18,798
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003 (a)
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,586
|
|
Restructuring costs
|
|
|
|
|
|
|
3,064
|
|
|
|
287
|
|
|
|
382
|
|
|
|
9,378
|
|
Other acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
143,906
|
|
|
|
123,231
|
|
|
|
140,281
|
|
|
|
115,873
|
|
|
|
135,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,632
|
)
|
|
|
(27,648
|
)
|
|
|
(92,218
|
)
|
|
|
(96,596
|
)
|
|
|
(126,251
|
)
|
Interest income
|
|
|
6,204
|
|
|
|
3,482
|
|
|
|
2,396
|
|
|
|
3,171
|
|
|
|
4,689
|
|
Interest expense
|
|
|
(16,044
|
)
|
|
|
(15,842
|
)
|
|
|
(14,468
|
)
|
|
|
(28,872
|
)
|
|
|
(11,388
|
)
|
Loss on convertible debt exchange
|
|
|
(31,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(724
|
)
|
|
|
9,346
|
|
|
|
(12,582
|
)
|
|
|
(4,347
|
)
|
|
|
(51,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of change in
accounting principle
|
|
|
(43,802
|
)
|
|
|
(30,662
|
)
|
|
|
(116,872
|
)
|
|
|
(126,644
|
)
|
|
|
(184,264
|
)
|
Provision for income taxes
|
|
|
2,810
|
|
|
|
2,367
|
|
|
|
856
|
|
|
|
334
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(46,612
|
)
|
|
|
(33,029
|
)
|
|
|
(117,728
|
)
|
|
|
(126,978
|
)
|
|
|
(184,493
|
)
|
Cumulative effect of change in accounting principle to adopt
SFAS 123R, net of tax
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of an accounting change to adopt
SFAS 142, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(45,399
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(117,728
|
)
|
|
$
|
(126,978
|
)
|
|
$
|
(645,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of an accounting change
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.94
|
)
|
Cumulative effect of an accounting change to adopt SFAS 123R
|
|
$
|
0.00
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Cumulative effect of an accounting change to adopt SFAS 142
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(3.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share basic
and diluted
|
|
|
307,804
|
|
|
|
290,518
|
|
|
|
232,210
|
|
|
|
216,117
|
|
|
|
195,666
|
|
|
|
|
(a) |
|
Net loss in fiscal 2003 reflects our adoption of Statements of
Financial Accounting Standards Nos. 141 and 142 on
May 1, 2002. As a result of our adoption of these
statements, reported net loss decreased by approximately
$127.8 million, or $0.65 per share, due to the cessation of
the amortization of goodwill and the amortization of acquired
workforce and customer base. |
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$
|
132,472
|
|
|
$
|
118,786
|
|
|
$
|
102,362
|
|
|
$
|
143,398
|
|
|
$
|
119,438
|
|
Working capital
|
|
|
118,383
|
|
|
|
157,712
|
|
|
|
91,464
|
|
|
|
173,054
|
|
|
|
150,187
|
|
Total assets
|
|
|
546,672
|
|
|
|
506,470
|
|
|
|
486,700
|
|
|
|
495,053
|
|
|
|
424,026
|
|
Long-term liabilities
|
|
|
220,198
|
|
|
|
263,447
|
|
|
|
265,274
|
|
|
|
233,732
|
|
|
|
101,531
|
|
Total stockholders equity
|
|
|
185,671
|
|
|
|
176,129
|
|
|
|
144,271
|
|
|
|
203,007
|
|
|
|
275,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
325,956
|
|
|
$
|
|
|
|
$
|
325,956
|
|
|
$
|
241,582
|
|
|
$
|
|
|
|
$
|
241,582
|
|
Network test and monitoring systems
|
|
|
38,337
|
|
|
|
|
|
|
|
38,337
|
|
|
|
39,241
|
|
|
|
|
|
|
|
39,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
364,293
|
|
|
|
|
|
|
|
364,293
|
|
|
|
280,823
|
|
|
|
|
|
|
|
280,823
|
|
Cost of revenues
|
|
|
247,126
|
|
|
|
3,060
|
|
|
|
250,186
|
|
|
|
205,631
|
|
|
|
1,205
|
|
|
|
206,836
|
|
Amortization of acquired developed technology
|
|
|
17,671
|
|
|
|
|
|
|
|
17,671
|
|
|
|
22,268
|
|
|
|
|
|
|
|
22,268
|
|
Impairment of acquired developed technology
|
|
|
853
|
|
|
|
|
|
|
|
853
|
|
|
|
3,656
|
|
|
|
|
|
|
|
3,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
98,643
|
|
|
|
(3,060
|
)
|
|
|
95,583
|
|
|
|
49,268
|
|
|
|
(1,205
|
)
|
|
|
48,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
51,903
|
|
|
|
2,509
|
|
|
|
54,412
|
|
|
|
62,799
|
|
|
|
1,433
|
|
|
|
64,232
|
|
Sales and marketing
|
|
|
31,925
|
|
|
|
1,219
|
|
|
|
33,144
|
|
|
|
29,783
|
|
|
|
673
|
|
|
|
30,456
|
|
General and administrative
|
|
|
29,408
|
|
|
|
1,456
|
|
|
|
30,864
|
|
|
|
23,374
|
|
|
|
310
|
|
|
|
23,684
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
162
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,558
|
|
|
|
|
|
|
|
1,558
|
|
Amortization of purchased intangibles
|
|
|
1,747
|
|
|
|
|
|
|
|
1,747
|
|
|
|
1,104
|
|
|
|
|
|
|
|
1,104
|
|
Impairment of tangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,798
|
|
|
|
|
|
|
|
18,798
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
3,064
|
|
|
|
|
|
|
|
3,064
|
|
|
|
287
|
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
118,047
|
|
|
|
5,184
|
|
|
|
123,231
|
|
|
|
137,865
|
|
|
|
2,416
|
|
|
|
140,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(19,404
|
)
|
|
|
(8,244
|
)
|
|
|
(27,648
|
)
|
|
|
(88,597
|
)
|
|
|
(3,621
|
)
|
|
|
(92,218
|
)
|
Interest income
|
|
|
3,482
|
|
|
|
|
|
|
|
3,482
|
|
|
|
2,396
|
|
|
|
|
|
|
|
2,396
|
|
Interest expense
|
|
|
(15,842
|
)
|
|
|
|
|
|
|
(15,842
|
)
|
|
|
(14,468
|
)
|
|
|
|
|
|
|
(14,468
|
)
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Other income (expense), net
|
|
|
9,346
|
|
|
|
|
|
|
|
9,346
|
|
|
|
(12,582
|
)
|
|
|
|
|
|
|
(12,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(22,418
|
)
|
|
|
(8,244
|
)
|
|
|
(30,662
|
)
|
|
|
(113,251
|
)
|
|
|
(3,621
|
)
|
|
|
(116,872
|
)
|
Provision for income taxes
|
|
|
2,501
|
|
|
|
(134
|
)
|
|
|
2,367
|
|
|
|
856
|
|
|
|
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,919
|
)
|
|
$
|
(8,110
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(114,107
|
)
|
|
$
|
(3,621
|
)
|
|
$
|
(117,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
(0.09
|
)
|
|
|
(0.03
|
)
|
|
|
(0.11
|
)
|
|
|
(0.49
|
)
|
|
|
(0.02
|
)
|
|
|
(0.51
|
)
|
Shares used in computing net loss per share basic
and diluted
|
|
|
290,518
|
|
|
|
290,518
|
|
|
|
290,518
|
|
|
|
232,210
|
|
|
|
232,210
|
|
|
|
232,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
April 30, 2006
|
|
|
April 30, 2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
|
118,786
|
|
|
|
|
|
|
|
118,786
|
|
|
|
102,362
|
|
|
|
|
|
|
|
102,362
|
|
Working capital
|
|
|
158,672
|
|
|
|
(960
|
)
|
|
|
157,712
|
|
|
|
91,799
|
|
|
|
(19
|
)
|
|
|
91,780
|
|
Total assets
|
|
|
505,874
|
|
|
|
596
|
|
|
|
506,470
|
|
|
|
486,588
|
|
|
|
112
|
|
|
|
486,700
|
|
Long-term liabilities
|
|
|
263,581
|
|
|
|
(134
|
)
|
|
|
263,447
|
|
|
|
265,274
|
|
|
|
|
|
|
|
265,274
|
|
Total stockholders equity
|
|
|
176,955
|
|
|
|
(826
|
)
|
|
|
176,129
|
|
|
|
144,290
|
|
|
|
(19
|
)
|
|
|
144,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
160,025
|
|
|
$
|
|
|
|
$
|
160,025
|
|
|
$
|
136,846
|
|
|
$
|
|
|
|
$
|
136,846
|
|
|
|
|
|
Network test and monitoring systems
|
|
|
25,593
|
|
|
|
|
|
|
|
25,593
|
|
|
|
29,636
|
|
|
|
|
|
|
|
29,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
185,618
|
|
|
|
|
|
|
|
185,618
|
|
|
|
166,482
|
|
|
|
|
|
|
|
166,482
|
|
|
|
|
|
Cost of revenues
|
|
|
143,585
|
|
|
|
3,517
|
|
|
|
147,102
|
|
|
|
130,501
|
|
|
|
4,682
|
|
|
|
135,183
|
|
|
|
|
|
Amortization of acquired developed technology
|
|
|
19,239
|
|
|
|
|
|
|
|
19,239
|
|
|
|
21,983
|
|
|
|
|
|
|
|
21,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
22,794
|
|
|
|
(3,517
|
)
|
|
|
19,277
|
|
|
|
13,998
|
|
|
|
(4,682
|
)
|
|
|
9,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
62,193
|
|
|
|
7,908
|
|
|
|
70,101
|
|
|
|
60,295
|
|
|
|
11,219
|
|
|
|
71,514
|
|
|
|
|
|
Sales and marketing
|
|
|
20,063
|
|
|
|
1,130
|
|
|
|
21,193
|
|
|
|
20,232
|
|
|
|
7,647
|
|
|
|
27,879
|
|
|
|
|
|
General and administrative
|
|
|
16,738
|
|
|
|
590
|
|
|
|
17,328
|
|
|
|
15,201
|
|
|
|
1,772
|
|
|
|
16,973
|
|
|
|
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
(105
|
)
|
|
|
|
|
|
|
(105
|
)
|
|
|
(1,719
|
)
|
|
|
|
|
|
|
(1,719
|
)
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Acquired in-process research and development
|
|
|
6,180
|
|
|
|
|
|
|
|
6,180
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
Amortization of other purchased intangibles
|
|
|
572
|
|
|
|
|
|
|
|
572
|
|
|
|
758
|
|
|
|
|
|
|
|
758
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,586
|
|
|
|
|
|
|
|
10,586
|
|
|
|
|
|
Restructuring costs
|
|
|
382
|
|
|
|
|
|
|
|
382
|
|
|
|
9,378
|
|
|
|
|
|
|
|
9,378
|
|
|
|
|
|
Other acquisition costs
|
|
|
222
|
|
|
|
|
|
|
|
222
|
|
|
|
198
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
106,245
|
|
|
|
9,628
|
|
|
|
115,873
|
|
|
|
114,929
|
|
|
|
20,638
|
|
|
|
135,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(83,451
|
)
|
|
|
(13,145
|
)
|
|
|
(96,596
|
)
|
|
|
(100,931
|
)
|
|
|
(25,320
|
)
|
|
|
(126,251
|
)
|
|
|
|
|
Interest income
|
|
|
3,171
|
|
|
|
|
|
|
|
3,171
|
|
|
|
4,689
|
|
|
|
|
|
|
|
4,689
|
|
|
|
|
|
Interest expense
|
|
|
(28,872
|
)
|
|
|
|
|
|
|
(28,872
|
)
|
|
|
(11,388
|
)
|
|
|
|
|
|
|
(11,388
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(4,347
|
)
|
|
|
|
|
|
|
(4,347
|
)
|
|
|
(51,314
|
)
|
|
|
|
|
|
|
(51,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of change in
accounting principle
|
|
|
(113,499
|
)
|
|
|
(13,145
|
)
|
|
|
(126,644
|
)
|
|
|
(158,944
|
)
|
|
|
(25,320
|
)
|
|
|
(184,264
|
)
|
|
|
|
|
Provision for income taxes
|
|
|
334
|
|
|
|
|
|
|
|
334
|
|
|
|
229
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(113,833
|
)
|
|
|
(13,145
|
)
|
|
|
(126,978
|
)
|
|
|
(159,173
|
)
|
|
|
(25,320
|
)
|
|
|
(184,493
|
)
|
|
|
|
|
Cumulative effect of an accounting change to adopt
SFAS 142, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460,580
|
)
|
|
|
|
|
|
|
(460,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(113,833
|
)
|
|
$
|
(13,145
|
)
|
|
$
|
(126,978
|
)
|
|
$
|
(619,753
|
)
|
|
$
|
(25,320
|
)
|
|
$
|
(645,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of an accounting change
|
|
$
|
(0.53
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.94
|
)
|
|
|
|
|
Cumulative effect of an accounting change to adopt SFAS 142
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2.35
|
)
|
|
$
|
|
|
|
$
|
(2.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.53
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(3.17
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(3.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share basic
and diluted
|
|
|
216,117
|
|
|
|
216,117
|
|
|
|
216,117
|
|
|
|
195,666
|
|
|
|
195,666
|
|
|
|
195,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
April 30, 2004
|
|
|
April 30, 2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
|
143,398
|
|
|
|
|
|
|
|
143,398
|
|
|
|
119,438
|
|
|
|
|
|
|
|
119,438
|
|
Working capital
|
|
|
172,892
|
|
|
|
162
|
|
|
|
173,054
|
|
|
|
149,967
|
|
|
|
220
|
|
|
|
150,187
|
|
Total assets
|
|
|
494,705
|
|
|
|
348
|
|
|
|
495,053
|
|
|
|
423,606
|
|
|
|
420
|
|
|
|
424,026
|
|
Long-term liabilities
|
|
|
233,732
|
|
|
|
|
|
|
|
233,732
|
|
|
|
101,531
|
|
|
|
|
|
|
|
101,531
|
|
Total stockholders equity
|
|
|
202,845
|
|
|
|
162
|
|
|
|
203,007
|
|
|
|
274,980
|
|
|
|
220
|
|
|
|
275,200
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2002
|
|
|
2001
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
112,333
|
|
|
$
|
|
|
|
$
|
112,333
|
|
|
$
|
158,333
|
|
|
$
|
|
|
|
$
|
158,333
|
|
Network test and monitoring systems
|
|
|
34,932
|
|
|
|
|
|
|
|
34,932
|
|
|
|
30,467
|
|
|
|
|
|
|
|
30,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
147,265
|
|
|
|
|
|
|
|
147,265
|
|
|
|
188,800
|
|
|
|
|
|
|
|
188,800
|
|
Cost of revenues
|
|
|
136,626
|
|
|
|
6,831
|
|
|
|
143,457
|
|
|
|
131,551
|
|
|
|
4,186
|
|
|
|
135,737
|
|
Amortization of acquired developed technology
|
|
|
27,119
|
|
|
|
|
|
|
|
27,119
|
|
|
|
10,900
|
|
|
|
|
|
|
|
10,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(16,480
|
)
|
|
|
(6,831
|
)
|
|
|
(23,311
|
)
|
|
|
46,349
|
|
|
|
(4,186
|
)
|
|
|
42,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
54,372
|
|
|
|
13,972
|
|
|
|
68,344
|
|
|
|
33,696
|
|
|
|
11,023
|
|
|
|
44,719
|
|
Sales and marketing
|
|
|
21,448
|
|
|
|
7,377
|
|
|
|
28,825
|
|
|
|
16,673
|
|
|
|
9,661
|
|
|
|
26334
|
|
General and administrative
|
|
|
19,419
|
|
|
|
3,054
|
|
|
|
22,473
|
|
|
|
10,160
|
|
|
|
1,902
|
|
|
|
12062
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
11,963
|
|
|
|
|
|
|
|
11,963
|
|
|
|
13,542
|
|
|
|
|
|
|
|
13542
|
|
Acquired in-process research and development
|
|
|
2,696
|
|
|
|
|
|
|
|
2,696
|
|
|
|
35,218
|
|
|
|
|
|
|
|
35218
|
|
Amortization of goodwill and other purchased intangibles
|
|
|
129,099
|
|
|
|
|
|
|
|
129,099
|
|
|
|
53,122
|
|
|
|
|
|
|
|
53122
|
|
Other acquisition costs
|
|
|
3,119
|
|
|
|
|
|
|
|
3,119
|
|
|
|
1,130
|
|
|
|
|
|
|
|
1130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
242,116
|
|
|
|
24,403
|
|
|
|
266,519
|
|
|
|
163,541
|
|
|
|
22,586
|
|
|
|
186,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(258,596
|
)
|
|
|
(31,234
|
)
|
|
|
(289,830
|
)
|
|
|
(117,192
|
)
|
|
|
(26,772
|
)
|
|
|
(143,964
|
)
|
Interest income
|
|
|
6,127
|
|
|
|
|
|
|
|
6,127
|
|
|
|
14,233
|
|
|
|
|
|
|
|
14,233
|
|
Interest expense
|
|
|
(6,195
|
)
|
|
|
|
|
|
|
(6,195
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Other income (expense), net
|
|
|
1,360
|
|
|
|
|
|
|
|
1,360
|
|
|
|
18,546
|
|
|
|
|
|
|
|
18,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(257,304
|
)
|
|
|
(31,234
|
)
|
|
|
(288,538
|
)
|
|
|
(84,429
|
)
|
|
|
(26,772
|
)
|
|
|
(111,201
|
)
|
Benefit for income taxes
|
|
|
(38,566
|
)
|
|
|
13,018
|
|
|
|
(25,548
|
)
|
|
|
1,020
|
|
|
|
(10,906
|
)
|
|
|
(9,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(218,738
|
)
|
|
$
|
(44,252
|
)
|
|
$
|
(262,990
|
)
|
|
$
|
(85,449
|
)
|
|
$
|
(15,866
|
)
|
|
$
|
(101,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
$
|
(1.21
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.63
|
)
|
Shares used in computing net loss per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
181,136
|
|
|
|
181,136
|
|
|
|
181,136
|
|
|
|
160,014
|
|
|
|
160,014
|
|
|
|
160,014
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
April 30, 2002
|
|
|
April 30, 2001
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
|
144,097
|
|
|
|
|
|
|
|
144,097
|
|
|
|
146,111
|
|
|
|
|
|
|
|
146,111
|
|
Working capital
|
|
|
222,603
|
|
|
|
1,058
|
|
|
|
223,661
|
|
|
|
249,000
|
|
|
|
13,530
|
|
|
|
262,530
|
|
Total assets
|
|
|
1,041,281
|
|
|
|
1,255
|
|
|
|
1,042,536
|
|
|
|
1,029,995
|
|
|
|
13,705
|
|
|
|
1,043,700
|
|
Long-term liabilities
|
|
|
106,869
|
|
|
|
|
|
|
|
106,869
|
|
|
|
45,354
|
|
|
|
|
|
|
|
45,354
|
|
Total stockholders equity
|
|
|
879,002
|
|
|
|
1,058
|
|
|
|
880,060
|
|
|
|
941,851
|
|
|
|
13,530
|
|
|
|
955,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30, 2000
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
46,774
|
|
|
$
|
|
|
|
$
|
46,774
|
|
Network test and monitoring systems
|
|
|
20,373
|
|
|
|
|
|
|
|
20,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
67,147
|
|
|
|
|
|
|
|
67,147
|
|
Cost of revenues
|
|
|
34,190
|
|
|
|
439
|
|
|
|
34,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
32,957
|
|
|
|
(439
|
)
|
|
|
32,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,806
|
|
|
|
840
|
|
|
|
14,646
|
|
Sales and marketing
|
|
|
7,122
|
|
|
|
4,012
|
|
|
|
11,134
|
|
General and administrative
|
|
|
3,516
|
|
|
|
1
|
|
|
|
3,517
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
5,530
|
|
|
|
|
|
|
|
5,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
29,974
|
|
|
|
4,853
|
|
|
|
34,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2,983
|
|
|
|
(5,292
|
)
|
|
|
(2,309
|
)
|
Interest income
|
|
|
3,704
|
|
|
|
|
|
|
|
3,704
|
|
Interest expense
|
|
|
(452
|
)
|
|
|
|
|
|
|
(452
|
)
|
Other income (expense), net
|
|
|
(99
|
)
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6,136
|
|
|
|
(5,292
|
)
|
|
|
844
|
|
Provision for income taxes
|
|
|
3,255
|
|
|
|
(2,112
|
)
|
|
|
1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,881
|
|
|
$
|
(3,180
|
)
|
|
$
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
Shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
113,930
|
|
|
|
113,930
|
|
|
|
113,930
|
|
Diluted
|
|
|
144,102
|
|
|
|
113,930
|
|
|
|
113,930
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
April 30, 2002
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
|
320,735
|
|
|
|
|
|
|
|
320,735
|
|
Working capital
|
|
|
342,711
|
|
|
|
2,236
|
|
|
|
344,947
|
|
Total assets
|
|
|
364,920
|
|
|
|
2,236
|
|
|
|
367,156
|
|
Long-term liabilities
|
|
|
524
|
|
|
|
|
|
|
|
524
|
|
Total stockholders equity
|
|
|
352,422
|
|
|
|
2,236
|
|
|
|
354,658
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Managements discussion and analysis of financial condition
and results of operations, or MD&A, is provided as a
supplement to the accompanying consolidated financial statements
and footnotes to help provide an understanding of our financial
condition, changes in our financial condition and results of
operations. The MD&A is organized as follows:
|
|
|
|
|
Forward-looking statements. This section
discusses how forward-looking statements made by us in the
MD&A and elsewhere in this report are based on
managements present expectations about future events and
are inherently susceptible to uncertainty and changes in
circumstances.
|
|
|
|
Restatement of Previously Issued Financial
Statements. This section provides information
regarding the Audit Committees review of our historical
stock option granting practices and accounting, and the
resulting restatement of our previously issued financial
statements.
|
|
|
|
Business Overview. This section provides an
introductory overview and context for the discussion and
analysis that follows in MD&A.
|
|
|
|
Critical Accounting Policies and
Estimates. This section discusses those
accounting policies that are both considered important to our
financial condition and operating results and require
significant judgment and estimates on the part of management in
their application.
|
|
|
|
Results of Operations. This section provides
analysis of the Companys results of operations for the
three fiscal years ended April 30, 2007. A brief
description is provided of transactions and events that impact
comparability of the results being analyzed.
|
|
|
|
Financial Condition and Liquidity. This
section provides an analysis of our cash position and cash
flows, as well as a discussion of our financing arrangements and
financial commitments.
|
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 set forth under Item 1A. Risk
Factors. The following discussion should be read together
with our consolidated financial statements and related notes
thereto included elsewhere in this document.
Restatement
of Previously Issued Financial Statements
In this Annual Report on
Form 10-K,
we are restating our consolidated balance sheet as of
April 30, 2006 and the related consolidated statements of
operations, stockholders equity, and cash flows for the
fiscal years ended April 30, 2006 and 2005, as a result of
our review of information developed through an independent
investigation of our historical stock option grants conducted by
our Audit Committee. This restatement is more fully described in
Note 2, Restatement of Consolidated Financial
Statements, to the Consolidated Financial Statements. In
addition, we are restating the unaudited quarterly financial
information and financial statements for the interim periods of
the
44
fiscal year ended April 30, 2006 and for the quarter ended
July 30, 2006. We also are including our unaudited restated
consolidated statements of operations and consolidated balance
sheet data for the fiscal years ended April 30, 2004, 2003,
2002, 2001 and 2000 in Item 6 of this report. This
restatement has no impact on our previously reported revenue or
cash positions for any period.
Origin
of the Investigation
In late August 2006, our management commenced a preliminary
internal review of certain of our historical stock options
granted since our initial public offering in November 1999. The
review was voluntarily initiated by us due to widespread media
attention concerning the stock option grant practices of many
companies and was not in response to a news report or an
investigation concerning Finisar by the SEC or any other
governmental agency.
After managements report on the results of this initial
review, the Audit Committee directed management to conduct a
further analysis of certain stock option grants. Thereafter,
management reviewed documentation and materials regarding
additional option grants and, in early November, identified
potential issues with respect to certain annual grants to
employees. As a result, the Audit Committee determined that it
should undertake a more comprehensive investigation of our
historical practices for granting and accounting for stock
options from the date of our initial public offering through
September 8, 2006 (the Review Period). On
November 30, 2006, we issued a press release and filed a
Current Report on
Form 8-K
announcing the commencement of this review of our historical
stock option granting practices and related accounting, and
disclosing that our previously-filed financial statements could
no longer be relied upon. We also informed the staff of the SEC
of the commencement of the investigation into our historical
stock option granting practices and related accounting.
Scope
of the Investigation
The investigation was commenced under the authority of the Audit
Committee, composed of three independent directors, two of whom
also served as members of the Compensation Committee during a
portion of the Review Period, although they were generally not
involved with the approval of grants of stock options to
non-officer employees. Accordingly, the Board of Directors
determined that the members of the Audit Committee were
independent for purposes of the investigation and that, based on
the facts known at that time, none of the Audit Committee
members had conflicts of interest precluding them from acting as
independent members of the Audit Committee.
The investigation was conducted with the assistance of
independent counsel and forensic accountants (collectively, the
Investigation Team). Under the direction of the
Audit Committee, the Investigation Team reviewed our practices
and processes for granting options to officers and directors,
and for new hire and annual grants to non-officer employees.
Specifically, the Investigation Team initially examined:
|
|
|
|
|
All grants made to members of the Board of Directors, employees
at the level of Vice President or higher, and grants made
outside of the delegated authority of the Stock Plan Committee
described below, including grants to individuals who
subsequently left the Company;
|
|
|
|
Large annual or performance grants, and grants made at one time
to more than 50 existing or newly hired employees between 2000
and 2006;
|
|
|
|
Grants made to individuals who became Finisar employees as a
result of acquisitions by Finisar between 2000 and 2006;
|
|
|
|
Grants that were entered in our stock option accounting database
with a grant date that did not match the date of the original
authorizing document (i.e. minutes of meetings of the Board of
Directors or the Compensation Committee, or unanimous written
consents or actions of the Stock Plan Committee); and
|
|
|
|
Grants as to which potentially inconsistent evidence of the
measurement date was discovered during the course of the
investigation.
|
The only grants made during the Review Period that were not
initially reviewed by the Investigation Team were grants made in
blocks of less than 50 to non-officer,
non-director
grantees. In the course of reviewing grants made in blocks to 50
or more grantees, the Investigation Team expanded the scope of
the investigation to review
45
four additional grants to less than 50 non-officer,
non-director
grantees. The Investigation Team reviewed approximately 95% of
all options granted by Finisar during the Review Period.
Approximately 3.1 million files of data were collected from
electronic sources and screened using pre-determined key word
searches developed by the Investigation Team and reviewed by our
independent auditors, and approximately 755,000 documents were
then reviewed. The Investigation Team gathered and reviewed
metadata from certain documents, reviewed electronic and hard
copy documents from our human resources files, computer hard
drives from 16 custodians, payroll and other human resources
files and data storage systems, stock administration files,
documents, including minutes of meetings of the Board of
Directors and committees of the Board, and other relevant
documentation maintained by our finance or legal departments.
A total of 40 interviews of 33 persons were conducted by
the Investigation Team. These interviews included all present
and former Board members since the date of our initial public
offering, all currently employed officers (and one former
officer) who either received options or who were involved with
the authorization of stock option grants or the administration
of the stock option granting process during the Review Period,
and all employees who were involved with the authorization of
stock option grants or the administration of the stock option
granting process during the Review Period. Representatives of
our independent auditors and outside legal counsel were also
interviewed.
At the conclusion of the investigation by the Investigation
Team, a Working Group was formed to address the accounting
implications of the results of the investigation by the
Investigation Team. The Working Group was composed of managers
from our accounting and legal departments with assistance from
independent third parties engaged to assist in the assessment of
the historical accounting treatment of stock option grants, as
tax advisors and in the calculation of the revised stock-based
compensation expense based on the revised measurement dates. At
no point during the Review Period were any of the members of the
Working Group involved in the administration of our stock option
granting process. Other than the Chief Financial Officer, no
members were involved in determining to whom options were
granted, the number of shares comprising each grant, or the date
of grant. While our Chief Financial Officer was involved in
communications concerning several of the grants at issue which
occurred during the Review Period, he did not approve any of
those grants.
In addition to reviewing data provided by the Investigation
Team, the Working Group performed additional procedures to
facilitate its understanding of the documents, the underlying
stock option grants, our historical stock option granting
practices, and the accounting implications thereof, Additional
testing and analyses of our hiring, termination, leave of
absence, and grant notification practices regarding stock
options was performed.
The Audit Committee considered the scope of the Investigation
Teams review to have been substantively and procedurally
thorough. The Investigation Team identified 94 Grant
Dates dates on which our records show a stock
option grant had occurred during the Review Period. Of the 94
Grant Dates, the Investigation Team reviewed 44 Grant
Dates of Interest based on the size of the grant or some
other factor. These 44 Grant Dates reviewed represented 95% of
all options granted during the Review Period. The Working Group
performed a subsequent review of 100% of the option grants
during the Review Period and identified 151 separate stock
option granting actions (Granting Actions) made on
the 95 original Grant Dates (Grant Dates) during the
Review Period. The Investigation Team noted that none of the
past or present members of our Board of Directors, nor our Chief
Executive, received any grants during the Review Period on a
date for which the measurement date was ultimately revised,
except in the case of one grant to two of our Board members
where the date of approval of the grant by the Board of
Directors differed from the date on which the grant was
recorded. In that instance, the exercise price was higher on the
date on which the grant was erroneously recorded than on the
date the options were approved by the Board of Directors, and,
as a result, we did not recognize any additional stock-based
compensation expense on this grant.
Neither the Board of Directors nor Company management placed any
restrictions on the scope of the Audit Committees review
nor did the Audit Committee place any restrictions on the review
conducted by the Investigation Team or the Working Group. Both
the Board of Directors and Company management cooperated fully
with the Audit Committee and its advisors.
46
Findings
and Remedial Measures
Based on the results of the investigation by the Audit
Committee, and additional work performed by the Working Group,
we found evidence that we previously used incorrect measurement
dates when accounting for stock option grants pursuant to APB 25
and related interpretations. We have concluded that revised
measurement dates are required for 105, or 70%, of the 151
Granting Actions during the Review Period, and that it is
necessary to modify the accounting measurement dates for
approximately 71% of the stock option grants awarded during the
Review Period to employees and consultants. This consists of
options to purchase approximately 75.9 million shares of
common stock. Certain historic grants were also determined to be
subject to variable accounting. Revising option grant
measurement dates results in total additional stock-based
compensation expense of $107.6 million to be recognized in
the fiscal years 2000 through 2006. Approximately 85% of this
total additional stock-based compensation expense, or
$91.1 million, is attributable to six key Granting Actions
that occurred between June 2000 and August 2003, representing
approximately 21 million shares, or 20% of all options
granted during the Review Period. Three of these six key
Granting Actions were performance grants, and three were New
Hire grants, as such grant types are discussed below.
In addition, we identified modifications to certain stock
options related to extended leaves of absence that should have
been accounted for by applying modification accounting as
required by the provisions of FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation, or FIN 44. This resulted in
approximately $5.1 million of additional stock-based
compensation expense, of which $4.9 million is attributable
to one leave of absence. Therefore, as a result of the
investigation, we have identified a total of $112.1 million
in additional pre-tax, non-cash, stock-based compensation
expense for the fiscal years 2000 through 2006
($112.7 million prior to the consideration of payroll tax
charges and inventory capitalization), and had approximately
$3.6 million of deferred stock-based compensation expense
to be amortized as of April 30, 2006. As described in
Note 2, Summary of Significant Accounting
Policies, to Consolidated Financial Statements, on
May 1, 2006, we adopted Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004),
Share-Based Payment
(SFAS 123R). As required by SFAS 123R,
the unamortized deferred compensation expense of
$3.6 million at May 1, 2006 has been reclassified to
additional paid-in capital.
These adjustments for stock-based compensation, shown before any
related payroll tax charges, inventory capitalization or income
tax effects, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003(1)
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Total
|
|
|
Stock-based compensation expense resulting from revised
measurement dates
|
|
$
|
5,416
|
|
|
$
|
27,160
|
|
|
$
|
31,741
|
|
|
$
|
24,441
|
|
|
$
|
8,296
|
|
|
$
|
3,257
|
|
|
$
|
7,303
|
|
|
$
|
107,614
|
|
Other leaves of absence
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
41
|
|
|
|
4,791
|
|
|
|
183
|
|
|
|
|
|
|
|
5,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,416
|
|
|
$
|
27,160
|
|
|
$
|
31,780
|
|
|
$
|
24,482
|
|
|
$
|
13,087
|
|
|
$
|
3,440
|
|
|
$
|
7,303
|
|
|
$
|
112,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the acceleration of $13.1 million in deferred
stock-based compensation expense related to our previous option
exchange program. See the Section entitled Option Exchange
Program below for a further discussion of this program. |
Consistent with our historical accounting policy, we use the
graded, or accelerated, amortization method to determine the
amount of stock-based compensation expense for each reporting
period.
In accordance with the applicable accounting guidance, we
immediately expensed the unamortized deferred stock-based
compensation expense associated with options with revised
measurement dates that were cancelled as part of our stock
option exchange program in fiscal 2003. As a result, on the date
of the cancellation, we recognized $13.1 million of
deferred stock-based compensation. See the discussion of the
option exchange program below under Option Exchange
Program.
Of the $112.7 million total restated stock-based
compensation expense arising from the investigation,
$101.9 million, or 90.5%, has been expensed by the end of
our fiscal year ended on April 30, 2004. This is primarily
attributable to (i) the fact that the intrinsic value of
the revised option awards was greater in the early years
47
of the Review Period, (ii) we used graded, or accelerated,
amortization method to recognize stock-based compensation and
(iii) as a result of the deferred compensation expense
recognized upon the cancellation of options as part of our stock
option exchange program in fiscal 2003. Only 3% and 6%,
respectively, of the total restated stock-based compensation
expense impacted our 2005 and 2006 fiscal years, respectively.
During the course of the investigation, we reviewed the
effectiveness of our internal control over financial reporting,
using the criteria set forth in Internal Control
Integrated Framework issued by COSO. Based on this
assessment, as a result of the conclusions reached in the
investigation, we identified certain material weaknesses in our
internal control over financial reporting related to our stock
option granting practices and the related accounting, which we
believe have been remediated by April 30, 2007. See our
discussion in Item 9A Controls and Procedures,
below.
Specifically, in the case of grants which were approved pursuant
to the authority delegated to our Chief Executive Officer as the
Stock Plan Committee, the Audit Committee found process-related
deficiencies. These deficiencies resulted in the Company
erroneously treating the stated grant date as the measurement
date for financial accounting purposes. The grants in this
category included performance grants, grants to newly hired
employees and grants to employees hired in connection with
acquisitions of other companies by Finisar. The Audit Committee
concluded that twelve performance grants either lacked
contemporaneous evidence to verify the date selected or, in the
case of two grants, were selected retrospectively to capture a
more favorable price. The Audit Committee found that 86 grants
to newly hired employees lacked contemporaneous evidence of
grant date selection. Additionally, the Audit Committee found
that four grants to employees of acquired companies were
recorded on a date other than that specified in the acquisition
agreements. In eight Granting Actions, a grant date was properly
approved on a grant date that was prior to the recorded grant
date, effectively repricing the grant, resulting in variable
accounting. Finally, a grant to three of our officers, including
a grant to our Chief Financial Officer, was erroneously included
in a large, broad-based performance grant Granting Action by the
Stock Plan Committee. The Audit Committee was unable to locate
conclusive evidence that a grant to these officers was approved
by the Board of Directors or Compensation Committee prior to the
Granting Action by the Stock Plan Committee. Nonetheless, the
Audit Committee considers these grants to be valid obligations
of the Company. The Audit Committee found no evidence of
intentional misconduct or malfeasance on the part of Company
personnel involved in selecting and approving the grant dates or
administering the stock option granting process. Additionally,
the Chief Executive Officer did not benefit from any of these
grants.
In fiscal 2007, prior to the commencement of and not in response
to the internal review that led to the investigation by the
Audit Committee, the Audit Committee recommended, and the Board
of Directors adopted, new policies and procedures with regard to
grants of equity compensation awards to Board members, officers,
and non-officer employees alike. Under these policies and
procedures:
|
|
|
|
|
All stock option grants and other equity awards to executive
officers are to be granted by the Compensation Committee.
|
|
|
|
All other awards are generally to be granted by the Compensation
Committee, although grants to non-executive officers may be
granted by the Board.
|
|
|
|
Except in special circumstances, all awards are to be granted at
regular quarterly meetings of the Compensation Committee.
|
|
|
|
Awards are to be approved at meetings of the Compensation
Committee or the Board of Directors, and not by unanimous
written consent.
|
|
|
|
The effective date of each award approved at a regular quarterly
meeting will be the later of the third trading day following the
public announcement of our financial results for the preceding
quarter or the date of the meeting.
|
|
|
|
The key terms of each award are to be communicated to the
recipient promptly following the award.
|
The remedial measures described above provide for training and
education in those rules and the designation of a finance
department employee to be responsible for the accounting for
stock options and other forms of equity compensation.
48
Management determined that the revised option granting
procedures and controls that were implemented in August 2006
were effective in enabling us to appropriately determine
measurement dates and properly account for stock option grants
made subsequent to August 2006.
In connection with the completion of its investigation, and in
light of the findings from the investigation, the Audit
Committee recommended that the Board consider, and the Board of
Directors unanimously adopted, certain remedial measures,
including the following:
|
|
|
|
|
The implementation of a cross-functional training program for
certain key employees concerning (i) the Companys
equity compensation programs and related improvements in equity
compensation controls, processes and procedures, (ii) the
accounting implications of the Companys equity
compensation programs and (iii) the legal implications of
the equity compensation programs.
|
|
|
|
The appointment of a designated finance department employee to
be responsible for the accounting for stock options and other
forms of equity compensation.
|
|
|
|
The adoption of additional policies to assure that grants will
be recorded promptly in the Companys option accounting
database, and that grantees will receive prompt written
notification of their grants.
|
|
|
|
The adoption of policies to assure that there will be a specific
date to complete the generation of a list of recommended equity
grant recipients and number of option shares prior to the
submission of the recommendations to the Compensation Committee
for approval.
|
|
|
|
Implementation of a requirement that our Internal Audit
Department review our compliance with the controls and
procedures regarding equity compensation at least annually and
report the results of its review to the Audit Committee.
|
We believe that these changes, together with the new policies
and procedures adopted before the commencement of the
investigation, remediated the past material weaknesses in our
internal control over financial reporting related to our stock
option granting practices and the related accounting and reduced
to remote the likelihood that any incorrect measurement dates or
any material error in accounting for stock option grants could
have occurred during the fiscal year ended April 30, 2007
and not have been detected as part of our financial reporting
close process. As a result, we concluded that we maintained
effective internal control over financial reporting as of
April 30, 2007.
Overview
of Our Historical Stock Option Granting Practices
During the period prior to and immediately after our initial
public offering, the Board of Directors approved all stock
option grants, either at duly convened meetings of the Board of
Directors or pursuant to approval by written consent. Our
practice has been to grant stock options, except where
prohibited, to nearly all full-time employees in connection with
their joining us, as well as annual grants to most employees in
connection with annual performance reviews (performance
grants). To facilitate the granting of options to our
rapidly growing workforce, in February 2000, the Board of
Directors established a Stock Plan Committee composed solely of
our Chief Executive Officer, and delegated authority to the
Stock Plan Committee to grant options to newly hired and
existing non-officer employees subject to certain limitations
and established parameters. For example, the Board of Directors
delegated authority to the Stock Plan Committee to approve
grants in amounts equal to or less than 100,000 shares per
employee to persons who were not officers or directors. The
Compensation Committee was delegated the authority to approve
grants to officers, and to employees in amounts that exceeded
the authority of the Stock Plan Committee, while the full Board
retained authority to approve grants to members of the Board of
Directors and grants made in connection with the acquisition of
or merger with other companies. During the Review Period, our
Chief Executive Officer made recommendations to the Board and
the Compensation Committee regarding stock option grants to
officers, and, in his role as sole member of the Stock Plan
Committee, approved all stock option grants to non-officer
employees, except for grants in excess of his granting authority.
Grants made to our existing executive officers (as defined by
Section 16(b) of the Securities Exchange Act of 1934, or
Section 16(b) officers), were generally
approved by the Compensation Committee, and were either approved
at and recorded in the minutes of a meeting of the Compensation
Committee, or by written resolution
49
approved by all of the members of the Compensation Committee and
set forth in a unanimous written consent, or UWC, of the
Compensation Committee signed by all members of the Compensation
Committee. During the Review Period, the Board of Directors had
sole authority to grant stock options to employees as part of an
acquisition or merger, and to approve options granted to members
of the Board of Directors. Stock option grants approved by the
Board of Directors were either approved at and recorded in
minutes of meetings of the Board of Directors, or approved by
written resolution set forth in a UWC signed by all members of
the Board of Directors. The Board also sometimes approved grants
to newly-hired employees, officers, and other individuals.
Since our initial public offering, we have, from time to time,
consulted with outside legal counsel about the design and
implementation of our stock option plans, the establishment of
the Stock Plan Committee to whom authority to make certain
grants was delegated and about some individual grants. Outside
counsel also typically drafted minutes of Board of Directors and
Compensation Committee meetings where stock options were
granted, as well as UWCs of the Board and Compensation Committee
to approve stock option grants. Outside counsel did not prepare
or review documentation of actions by the Stock Plan Committee.
The Stock Plan Committee approved 105 of the 151 Granting
Actions. Fifteen Granting Actions were approved by the
Compensation Committee, of which 11 were recorded in minutes of
meetings of the Compensation Committee and four were approved by
UWC. The Board directly approved stock options in 14 Granting
Actions, of which seven were approved by UWC and seven were
recorded in minutes of meetings of the Board of Directors. There
were 12 Granting Actions by the Board relating to options
assumed in connection with acquisitions of other companies by
us, and five Granting Actions by the Board related to options
granted to employees of acquired companies.
Details
of Restatement
Consistent with the applicable accounting literature and recent
guidance provided in a letter provided by the SECs Chief
Accountant to Lawrence Salva, Chairman, Committee on Corporate
Reporting, Financial Executives International and Sam Ranzilla,
Chairman, Center for Public Company Audit Firms, American
Institute of Certified Public Accountants dated
September 19, 2006, the Working Group organized the 151
separate Granting Actions made on the 95 original Grant Dates
into categories based on the grant type and the process by which
the grant was approved and finalized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Granting
|
|
|
Percent of
|
|
|
Number of
|
|
|
Percent of
|
|
Grant Type
|
|
Actions
|
|
|
Total
|
|
|
Option Shares
|
|
|
Total
|
|
|
Acquisition-Related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Options
|
|
|
12
|
|
|
|
8.0
|
%
|
|
|
1,591,133
|
|
|
|
1.5
|
%
|
Target Employees
|
|
|
6
|
|
|
|
4.0
|
%
|
|
|
4,513,308
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition-related
|
|
|
18
|
|
|
|
12.0
|
%
|
|
|
6,104,441
|
|
|
|
5.7
|
%
|
Director
|
|
|
5
|
|
|
|
3.3
|
%
|
|
|
785,000
|
|
|
|
0.8
|
%
|
Officer
|
|
|
15
|
|
|
|
9.9
|
%
|
|
|
11,045,000
|
|
|
|
10.3
|
%
|
Performance
|
|
|
14
|
|
|
|
9.3
|
%
|
|
|
51,476,145
|
|
|
|
48.1
|
%
|
New Hire/Promotion
|
|
|
97
|
|
|
|
64.2
|
%
|
|
|
26,388,923
|
|
|
|
24.7
|
%
|
Option Exchange Program
|
|
|
2
|
|
|
|
1.3
|
%
|
|
|
11,144,690
|
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
151
|
|
|
|
100
|
%
|
|
|
106,944,199
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Working Group reviewed evidence developed through the Audit
Committees investigation related to each grant, and, based
upon the relevant facts and circumstances, applied the
applicable accounting standards to determine, for every grant
within each category, whether the measurement date required
adjustment. If the measurement date was not the originally
assigned grant date, accounting adjustments were made as
required, resulting in additional non-cash stock-based
compensation expense related to the intrinsic value, that is,
the difference between the exercise price and the closing sales
price of our common stock on the revised measurement date.
50
We have concluded that of the 151 Granting Actions made on 95
Grant Dates, 105 Granting Actions on 63 Grant Dates require
revised measurement dates. The remaining 46 Granting Actions on
32 Grant Dates require no change to the original grant date. The
following is a summary of the revised Granting Actions by type
of grant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Percent of
|
|
|
Option Shares
|
|
|
|
|
|
|
|
|
|
Revised
|
|
|
Total
|
|
|
With Revised
|
|
|
|
|
|
Stock-based
|
|
|
|
Granting
|
|
|
Granting
|
|
|
Measurement
|
|
|
Percent of
|
|
|
Compensation
|
|
Grant Type
|
|
Actions
|
|
|
Actions
|
|
|
Dates
|
|
|
Total Grants
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Acquisition-Related
Assumed Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Target Employees
|
|
|
4
|
|
|
|
2.6
|
%
|
|
|
3,872,806
|
|
|
|
3.6
|
%
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition-related
|
|
|
4
|
|
|
|
2.6
|
%
|
|
|
3,872,806
|
|
|
|
3.6
|
%
|
|
|
1,459
|
|
Director(1)
|
|
|
1
|
|
|
|
0.7
|
%
|
|
|
60,000
|
|
|
|
0.1
|
%
|
|
|
|
|
Officer
|
|
|
2
|
|
|
|
1.3
|
%
|
|
|
735,000
|
|
|
|
0.7
|
%
|
|
|
1,992
|
|
Performance
|
|
|
12
|
|
|
|
7.9
|
%
|
|
|
47,215,703
|
|
|
|
44.1
|
%
|
|
|
56,988
|
|
New Hire/Promotion
|
|
|
86
|
|
|
|
57.0
|
%
|
|
|
24,028,510
|
|
|
|
22.5
|
%
|
|
|
47,175
|
|
Option Exchange Program
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
105
|
|
|
|
69.5
|
%
|
|
|
75,912,019
|
|
|
|
71.0
|
%
|
|
$
|
107,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
While one properly approved grant to two of our Board members
was not measured on the appropriate date, it did not result in
any incremental stock-based compensation expense. |
The grants giving rise to the total $107.6 million in
additional non-cash stock-based compensation expense based on
revised measurement dates are categorized and summarized as
follows:
New Hire
and Promotional Grants
During the Review Period, we granted options to purchase a total
of 26.4 million shares to newly-hired employees. During the
Review Period, grants made to newly-hired employees (New
Hire grants) generally were approved by the Stock Plan
Committee on a periodic basis. While details of stock option
grants were generally set forth in the offer letter to the
prospective employee, the grant date was determined when the
grant was approved by the Stock Plan Committee after the date on
which the employee commenced employment with us. New Hire grants
were generally made to all new employees who had joined Finisar
since the last date on which the Stock Plan Committee approved
and awarded grants to newly hired employees. Additionally, New
Hire grants include grants made to a smaller number of existing
employees who received promotions or some other employment
adjustment since the last date on which the Stock Plan Committee
awarded and approved New Hire grants. The evidence available to
support the original grant date for options granted to newly
promoted or other existing employees generally differed from the
evidence supporting the measurement date for New Hire grants.
Thus, we differentiated between awards made as a result of a
promotion or adjustment and New Hire grants. This
differentiation based on award type resulted in application of
different measurement dates for grants originally made on an
original grant date. We also found that offer letters to our
Malaysia and Shanghai employees did not always include all of
the details of the option grant to be made to newly-hired
employees in such locations required to determine the proper
measurement date, i.e., the number of shares underlying each
option to be granted to the newly-hired employee once the option
has been approved by the Stock Plan Committee. Accordingly, for
those grants we required additional supporting evidence to
determine the appropriate measurement date.
None of the Grant Dates recorded for New Hire grants preceded
the commencement of employment of any newly-hired employee.
However, in multiple instances, evidence suggested that New Hire
grants were approved by the Stock Plan Committee at a later date
than the stated grant date. In some cases, the identity of all
grantees as set forth in such Granting Action was not known or
specified with finality until after the stated grant date.
Moreover, our Stock Plan Committees process for finalizing
and documenting these grants was often completed after the
originally assigned grant date. In some cases, no
contemporaneous, direct evidence of the date of approval by the
51
Stock Plan Committee was located. Additionally, in several
instances, the evidence showed that the Stock Plan Committee
retrospectively selected a grant date with a more favorable
price. Based on all available facts and circumstances, we
determined that the originally recorded measurement dates for
the New Hire grants made by our Stock Plan Committee during the
Review Period cannot be relied upon in isolation as the correct
measurement dates.
New Hire grants to non-officer,
non-director
employees that required Board of Directors or Compensation
Committee approval because the size of the individual grant
exceeded the authority delegated to the Stock Plan Committee
were typically approved by UWC of the Board or Compensation
Committee. We were unable to locate documents demonstrating
contemporaneous Board of Directors or Compensation Committee
approval on the date designated in the UWC as the effective date
of the grant. In some cases, the UWC was prepared after the
selected grant date. Additionally, in several instances, no
direct evidence confirmed the date on which the UWC was executed
by each Board or Compensation Committee member.
APB 25 defines the measurement date for determining stock-based
compensation expense as the first date on which both
(1) the number of shares that an individual employee is
entitled to receive and (2) the option or purchase price,
are known with finality. In 77 of the 97 New Hire Granting
Actions, reliable objective evidence suggested a single specific
date on which approval was reached on the final number of shares
comprising each stock option, the identity of those individuals
entitled to receive each stock option and the exercise price of
the stock option. Such evidence primarily consisted of
electronic data such as emails and files attached to emails or
written agreements, including offer letters. We utilized this
evidence to revise measurement dates for 66 New Hire Granting
Actions covering options to purchase 14.7 million shares of
common stock. This resulted in incremental stock-based
compensation expense of $13.6 million on a pre-tax basis,
amortized over the respective awards vesting terms.
In 14 New Hire Granting Actions, where no other reliable
objective evidence points to a single specific date on which the
number of shares, the identity of all individuals entitled to
receive those shares and the price had become final, we have
determined the date on which information concerning the grant
was first entered into our options software accounting database
to be the most reliable measurement date. We use a commonly
available third party accounting software program to monitor and
administer our equity award programs and to track and account
for our stock option grants. For grants where reliable objective
evidence was not recovered in the investigation to support a
specific measurement date, the revised measurement date was
based on the date these grants were recorded into our stock
options software accounting database. The date on which
information concerning the option was entered into this option
software database was utilized to revise measurement dates for
New Hire grants covering 4.0 million shares of common
stock. This resulted in incremental stock-based compensation
expense of $27.3 million on a pre-tax basis, amortized over
the respective awards vesting terms.
In six New Hire Granting Actions, the evidence suggests that the
Stock Plan Committee selected an initial grant date, then
subsequently chose a later grant date when the underlying stock
price was lower than on the earlier grant date. In those cases,
the fair market value of our common stock on the initial
measurement date was higher than the later-selected date on
which the option grant was recorded. Based on the evidence, we
concluded that such grants should be deemed to have been
repriced and subject to variable accounting from the date of
repricing as required by the provisions of FASB Interpretation
No. 44, Accounting for Certain Transactions
Involving Stock Compensation,
(FIN 44) and the provisions of Emerging
Issues Task Force
No. 00-23,
Issues Related to the Accounting for Stock Compensation
under APB Opinion No. 25 and FASB Interpretation
No. 44,
(EITF 00-23).
After considering forfeitures, we have adjusted the measurement
of compensation cost for these options that are subject to
variable accounting, covering 5.4 million shares of common
stock. This has resulted in incremental stock-based compensation
of $6.3 million on a pre-tax basis, amortized over the
respective awards vesting terms through April 30,
2006. Under FAS 123, and upon the adoption of FAS 123R
on May 1, 2006, these options are not treated as variable
awards.
Upon review of all such New Hire grants, we have determined that
the correct measurement date for financial accounting purposes
was different than the stated grant date for 86 New Hire
Granting Actions covering 24 million shares, or 91% of all
New Hire grants made during the Review Period. For grants
representing 22.1 million shares, the market price of our
common stock on the revised measurement date was higher than the
option exercise price. This resulted in our recording of
approximately $47.2 million in non-cash stock-based
compensation expense
52
relating to New Hire grants (representing 42% of the total
additional non-cash-based compensation expense recorded).
Performance
Grants
Performance grants were broad-based stock option grants that
were usually linked to the annual employee performance appraisal
process. Approval of these grants to non-officer employees was
generally delegated to our Chief Executive Officer, as the sole
member of the Stock Plan Committee. This delegated authority
included determining the number of options to be granted to each
individual employee. During the annual review process, each
employee was awarded a performance ranking. This performance
ranking then corresponded to a range of option awards, or at
times during the Review Period a set schedule, that was
pre-determined by the Chief Executive Officer. The Stock Plan
Committee determined the number of shares underlying the stock
options awarded to the employee based upon this range or
schedule corresponding to the performance ranking achieved by
the employee. The Stock Plan Committee selected the grant date,
which in all cases appears to have been a date after the start
of the performance appraisal process, but prior to the date when
the identity of the grantees and number of options allocated to
each grantee were known with finality.
We determined that for all performance grants, changes to the
list of approved individual employee grants continued to be made
after the Stock Plan Committee approved the grant date. In some
cases, the list of employees included in a particular Granting
Action was not prepared until after the stated grant date, and,
in some cases, changes were made to the number of shares
comprising individual awards
and/or the
identity of the employee receiving an award, indicating the
grant was not finalized at the stated grant date.
In eleven of the 14 total performance grant Granting Actions,
reliable objective evidence suggested a single specific date on
which the Stock Plan Committee had approved the final number of
shares comprising each stock option, the identity of those
individuals entitled to receive each stock option and the
exercise price of the stock option. In nine of these performance
grant Granting Actions, for options covering 36.7 million
shares, we found that not all actions had been taken, (i.e., the
final number of shares comprising each stock option
and/or the
identity of those individuals entitled to receive each stock
option), were completed as of the stated grant date, and the
details of the grants changed after the stated grant date. We
revised the measurement date to correspond with the date on
which evidence was located to indicate that approval of the
details of each grant was final. Since the market price of our
common stock on the revised measurement date was higher than the
option exercise price for eight of the performance grant
Granting Actions, covering 23.6 million shares, we recorded
additional stock-based compensation expense of
$29.5 million.
In two performance grant Granting Actions, no reliable objective
evidence points to a single specific date on which the number of
shares comprising each stock option, the identity of all
individuals entitled to receive each stock option and the
exercise price had become final. Therefore, we have determined
the date on which information concerning the grant was entered
into our stock option database is the most reliable measurement
date for calculating additional stock-based compensation expense
under APB 25. The date on which information concerning the grant
was entered into our stock option database was utilized as the
measurement date for these performance grants covering
7.6 million shares of common stock. The market price of our
common stock on the revised measurement date was higher than the
option exercise price for one of these Granting Actions, and
accordingly, we recorded incremental stock-based compensation
expense of $27.5 million.
In one performance grant Granting Action, the evidence suggests
that the Stock Plan Committee selected a grant date, then
subsequently chose a later grant date when the closing sales
price of our common stock was lower than on the earlier date.
Accordingly, the fair market value of our common stock on the
initial measurement date was higher than the recorded option
exercise price. Based on the evidence, we concluded that the
grant, covering approximately 2.8 million shares, should be
deemed to have been repriced and subject to variable accounting,
from the date of repricing as required by the provisions of
FIN 44 and
EITF 00-23.
After considering the movement in our stock prices and
forfeitures, there was no incremental stock-based compensation
expense recognized on this award through April 30, 2006.
Under FAS 123, and upon the adoption of FAS 123R on
May 1, 2006, these options are not treated as variable
awards.
53
We also found one performance grant to an employee as part of an
annual Granting Action that was added after the original grant
date. We deemed it necessary to determine whether such action
suggested that the entire Granting Action was still subject to
change (and hence the requisite Granting Action had not been
completed pursuant to the requirements of APB 25), or whether
the change related solely to the one so-called
straggler, which would not affect the measurement
date of all other awards made in that Granting Action. We found
reliable objective evidence that the straggler grant
represented a separate Granting Action, predominantly based on
the fact that this straggler was added to our stock
option database nearly six weeks after all other grantees in the
performance grant, and, as such, did not affect the finality of
the previously completed Granting Action.
Upon review of all such performance grants, we determined that
the correct measurement date for financial accounting purposes
was different than the stated grant date for 12 performance
grant Granting Actions, representing 47.2 million shares,
or 92% of all Performance grants made during the Review Period.
For grants representing 34.0 million shares, the market
price of our common stock on the revised measurement date was
higher than the option exercise price. As a result, we are
recording a total of approximately $57 million in
additional non-cash stock-based compensation expense relating to
this category (representing 51% of the total additional
non-cash-based compensation expense recorded).
Acquisition-Related
Awards
We made multiple acquisitions of other companies during the
Review Period. These acquisitions sometimes resulted in option
grants being awarded to employees of the acquired companies, in
one of three forms:
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|
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existing options held by the acquired company employees to
purchase stock of the acquired company, that were assumed by us
and became options to acquire our common stock (Assumed
Options);
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|
option grants made to induce employees of the target company to
join us, the details of which were set forth in the acquisition
agreements between us and the acquired company; and
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|
option grants made to employees of the acquired company that
followed the form of our New Hire grants, and were made to
provide an incentive to such employee sometime after the
acquired company employee became our employee (but which options
were not required to be granted by the terms of the related
acquisition agreements).
|
Assumed Options were assumed by us at a set, formula driven
ratio, as set forth in the acquisition documents, and as
approved by our Board of Directors and were recorded in our
stock option database at this preset valuation. We determined
that for all Assumed Options, the fair value of these options
was appropriately measured as required by EITF Issue
No. 99-12,
Determination of the Measurement Date for the Market Price
of Acquirer Securities Issued in a Purchase Business
Combination and included in the purchase price, and the
intrinsic value of the unvested portion of those options, as
measured on the date the close of the business combination, was
deducted from the purchase price and recognized as compensation
expense.
Options provided as inducements to employees of the acquired
company to accept our offer of employment post-acquisition
(Target Employees) were set forth and approved by
our Board of Directors as part of the acquisition documents, or
sometimes in related employment agreements and in one case were
approved by the Compensation Committee prior to the acquisition
but with an effective date specified as the date the key
individual became an employee of Finisar. If the details
concerning these grants were described in the acquisition
agreements or in the related employment agreements approved
prior to the closing date of the acquisition, we determined that
the appropriate measurement date was the closing date of the
respective acquisition. The evidence indicates that some of
these option grants were originally recorded with a grant date
that was different than the date specified in the respective
acquisition agreements. We found that three grants required
revised measurement dates because they were recorded on a date
other than the date specified by the acquisition agreements or
related employment agreements. The exercise price of the stock
on two of these grants was lower on the recorded date than the
fair market value of our common stock on the date specified in
the particular acquisition agreement. This resulted in
additional stock-based compensation expense of approximately
$1.4 million (representing 1.2% of the total additional
stock-based compensation expense recorded).
54
We determined that one grant, representing an option to purchase
750,000 shares of our common stock, made to a Target
Employee of an acquired company was effectively repriced. This
grant was originally approved by the Compensation Committee with
a grant date corresponding to the date of commencement of
employment, and then approved again with a lower exercise price
at a later date, causing the recorded grant date as entered into
our stock option database to differ from the date evidence shows
approval was first given for the grant. This repricing on a
later grant date resulted in the application of variable
accounting. Although there was no initial intrinsic value for
this grant, the application of variable accounting resulted in a
total of approximately $93,000 in additional non-cash
stock-based compensation expense being recorded by us
(representing 0.08% of the total additional non-cash-based
compensation expense recorded). All unexercised options in this
award were cancelled in fiscal 2005.
Director
Grants
During the Review Period, grants made to our directors were
approved by the Board of Directors at and recorded in the
minutes of the Board of Directors, except for one Grant Date,
when the grant was approved by resolution set forth in a UWC
signed by all of the members of the Board of Directors. There
were five grants to members of the Board of Directors,
representing options to purchase 785,000 shares of our
common stock, that were properly approved by the Board of
Directors at meetings of the Board. None of these five grants
required changes to the measurement date that resulted in the
recordation of any additional stock-based compensation expense.
Of these five grants, one Granting Action, representing grants
made to two of our Board members, had a different grant date
recorded in our stock option accounting database than the date
on which the Board approved the grant; however, because the
exercise price of the options recorded in the stock option
accounting database was higher than the price on the correct
grant date, no additional compensation expense resulted from
this error. Unlike those revised grants we concluded should be
subject to variable accounting, there was no repricing action
taken by the approver, in this instance the Board of Directors,
and the mistake appears to have been a clerical error made when
the grant documentation was finalized. Accordingly, we have
corrected the clerical error and recorded the grant date as the
date the Board actually approved the grant, at the exercise
price on the date of approval, and accordingly, no incremental
stock-based compensation expense is incurred.
For the one grant to directors that was approved by UWC of the
Board, although the UWC was deemed effective as of a date
earlier than the date signed by the directors, the UWC was sent
electronically to the directors on the effective date of the
consent. In addition, the evidence indicates that details of the
grant, including identification of the grantee and the number of
shares subject to each option grant, were orally approved by the
members of the Board on, or in advance of, the effective date of
the UWC. Accordingly, we determined that the details of such
grant had been agreed to by the members of the Board of
Directors on or before the effective date of the grant, and the
Audit Committee considered that the date of execution of the UWC
did not change the grant date.
Officer
Grants
Grants made to our Section 16(b) officers during the Review
Period were, except for one instance described below, either
approved by the Board of Directors or the Compensation
Committee, at a meeting of the Board of Directors or
Compensation Committee held in person or by telephone, or
approved by resolution set forth in a UWC signed by all of the
members of the Board of Directors or Compensation Committee. For
all grants approved by UWC, the Investigation Team determined
that evidence supported the effective date of the UWC as the
appropriate grant date. The evidence obtained in the course of
the investigation indicates that details of the grant, including
the identification of the grantee and number of shares subject
to each individual grant, were orally approved by the members of
the Board of Directors or Compensation Committee, as applicable,
on, or in advance of, the effective date of the UWC. Some UWCs
were deemed effective as of a date earlier than the date the UWC
was sent to or signed by the directors, although generally such
UWCs were sent electronically to the directors to sign either on
the effective date of the consent or within one day after the
consent; however, the directors did not always sign the consents
on the effective date of the consent. However, because the
evidence shows that all such grants had been agreed to by all
members of the Board or Compensation Committee, as applicable,
on or before the effective date of the grant, the Audit
Committee considered that the date of execution of the UWC did
not change the grant date.
Fourteen grants to officers, representing options to purchase
10.8 million shares of our common stock, were properly
approved during the Review Period, and required no change to the
grant date. In one case, a grant to an
55
officer was documented by UWC, but recorded in our stock option
accounting database on a date other than the date the evidence
indicates that final approval of the grant was made, resulting
in the option having a lower exercise price than the fair market
value of our common stock on the effective date. Unlike those
revised grants we concluded should be subject to variable
accounting, there was no repricing action taken by the approver,
in this instance the Compensation Committee, and the mistake
appears to have been a clerical error made when the grant
documentation was finalized. Accordingly, we have corrected the
clerical error made to the grant date as recorded in the stock
option accounting database and the related grant documentation.
In one instance, a broad-based annual performance grant of
options to purchase a total of 2,540,000 shares made in
June 2000 by the Stock Plan Committee erroneously included
grants of options to purchase an aggregate of
235,000 shares to three Section 16(b) officers
(including our Chief Financial Officer). The Audit Committee has
not located conclusive evidence that the three officer grants
were separately approved by the Board of Directors or the
Compensation Committee. Nonetheless, the Audit Committee
considers these grants to be valid obligations of the Company.
This grant was made shortly after the Board of Directors
established the Stock Plan Committee. Based on the evidence,
initially there was some confusion about the limits of the Chief
Executive Officers authority, acting as the Stock Plan
Committee, to make option grants, and the grantees had no reason
to doubt his authority to make these grants. The measurement
date for these options was revised along with the grants to
non-officers in this performance Granting Action.
Awards
Subject to Variable Accounting
As noted above under the discussions of new hire, performance,
and acquisition-related awards, we concluded that certain
revised option awards were repriced and thus subject to variable
accounting. To the extent these awards have intrinsic value on
the original grant date, as determined in the investigation, the
amount of this intrinsic value, net of any forfeitures, is the
minimum fixed-portion of stock-based compensation
expense to be recorded for these grants, regardless of the fact
that the award becomes subject to variable accounting when
repriced. In addition to the fixed-portion of the stock-based
compensation expense for awards and from the date of the
repricing, the variable stock-based compensation attributable to
these awards is recomputed at each reporting date based on the
difference between the option exercise price and the then market
value of our common stock. Such variable accounting continues
until the option is exercised, forfeited or otherwise cancelled.
These grants are not treated as variable under the
disclosure-only provisions of FAS 123, or under
FAS 123R, which we adopted on May 1, 2006. Under
FAS 123 and FAS 123R, the total stock-based
compensation expense for such repricings, which are
considered modifications, is the sum of the original grant date
fair value plus any incremental fair value of the option award
as of the modification date.
The following table reflects the amount of additional
stock-based compensation expense included in the total
additional stock-based compensation expense of
$112.1 million recorded as a result of the investigation
that relates to the options discussed above that we determined
were subject to variable accounting (in thousands):
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|
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|
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|
|
|
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Fiscal Year Ended April 30,
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|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Total
|
|
|
Fixed portion of variable stock-based compensation related to
initial intrinsic value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31
|
|
|
$
|
323
|
|
|
$
|
126
|
|
|
$
|
53
|
|
|
$
|
(11
|
)
|
|
$
|
522
|
|
Variable stock-based compensation
|
|
|
|
|
|
|
272
|
|
|
|
(265
|
)
|
|
|
3
|
|
|
|
1,392
|
|
|
|
(757
|
)
|
|
|
5,206
|
|
|
|
5,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
272
|
|
|
$
|
(234
|
)
|
|
$
|
326
|
|
|
$
|
1,518
|
|
|
$
|
(704
|
)
|
|
$
|
5,195
|
|
|
$
|
6,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
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|
Improperly
Recorded Leaves of Absences
Our stock option plans provide that vesting of options held by
employees ceases during leaves of absence taken by the employee,
and that the options held by such employees do not continue to
vest during such leaves of absence. During the review and
testing of personnel files related to leave of absences, we
found that leaves of absence taken by employees were not always
recorded in our stock option accounting database. Thus, in some
instances, vesting of the option continued to be recorded during
the leave of absence, which resulted in accelerated vesting for
certain stock option awards. Pursuant to FASB Interpretation 44,
such continuation
and/or
subsequent acceleration of
56
vesting constitutes a modification of the option grant that
results in a new measurement date for such grant. This
modification results in additional stock-based compensation
expense, measured on the modification date, which is generally
the date that the leave commenced, but only expensed to the
extent that the employee actually received a benefit that such
employee would not otherwise have received absent the
modification.
We identified 113 unrecorded leaves of absence. In 79 cases, the
employee remained employed by us for a period of time beyond the
vesting period of the option and for a period of time at least
equal to the amount of the acceleration provided as a result of
the leave of absence. Therefore, the employee received no
additional benefit from accelerated vesting. In 34 instances,
the employee terminated his or her employment with us. In eleven
of these instances we determined that the employee benefited
from accelerated vesting or extended exercise periods and the
related options had intrinsic value on the date of modification.
This resulted in $5.1 million of additional stock-based
compensation expense. One leave of absence, to a
section 16(b) officer, accounted for $4.9 million of
that $5.1 million additional expense.
Other
Modifications
We also reviewed other instances where modifications were made
to employee stock options such as accelerations or extensions of
vesting periods related to termination of employees. We found 33
instances of accelerated vesting or extended exercise periods
which required the calculation of stock-based compensation
expense because the price per share of our common stock on the
date of the modification was higher than the exercise price of
the related options. The amount of stock-based compensation
expense calculated for these modifications is $452,000 and had
been previously recognized in the Companys financial
statements.
Option
Exchange Program
On November 8, 2002, we announced a voluntary stock option
exchange program for eligible option holders. Under the program,
eligible holders of our options who elected to participate had
the opportunity to tender for cancellation outstanding options
in exchange for new options to be granted on a future date at
least six months and one day after the date of cancellation. In
order to participate in the exchange program, however, the
employee had to tender all options granted within six months of
the commencement of the offer (i.e., all options granted after
May 7, 2002) for cancellation and replacement with new
stock options. Members of our Board of Directors were not
eligible to participate in the program. The option exchange
program terminated on December 17, 2002 and the shares were
cancelled the next day. As of that date, holders of options to
purchase an aggregate of 11,816,890 shares of common stock
tendered their shares for cancellation. On June 19, 2003,
new options to purchase an aggregate of 11,144,690 shares
of common stock were granted. Under the applicable accounting
guidance, all unamortized deferred stock-based compensation
expense related to cancelled options should be immediately
expensed when the options are cancelled.
The Working Group verified that all options tendered in the
exchange program were appropriately cancelled and replaced with
new options that were granted six months and one day later. The
Working Group also determined that none of the revisions to
measurement dates of stock options as a result of the
investigation caused any other grant dates to fall within the
period that was six months prior to or following the
cancellation date of the option exchange program. Accordingly,
none of the option grants made as part of the option exchange
program are subject to variable accounting as a result of
revisions to measurement dates.
Of the options to purchase approximately 75.9 million
shares of common stock for which we have revised the measurement
date, 11.8 million options were cancelled as part of the
option exchange program. Accordingly, of the $112.1 million
additional stock-based compensation expense recorded as part of
the restatement, $13.1 million was expensed in connection
with the option exchange program concurrent with the
cancellation of such options.
57
Summary
of Stock-Based Compensation Adjustments
The impact on the consolidated statement of operations from
recognizing stock-based compensation expense through
April 30, 2006 resulting from the investigation is
summarized as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
Restatement Adjustments
|
|
|
|
Gross
|
|
|
Stock-Based
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
|
|
|
Compensation
|
|
|
Stock-Based
|
|
|
Payroll
|
|
|
Total
|
|
|
Income Tax
|
|
|
After-Tax
|
|
|
|
Compensation
|
|
|
Capitalized to
|
|
|
Compensation
|
|
|
Tax
|
|
|
Pre-Tax
|
|
|
(Benefit)
|
|
|
Non-Cash
|
|
Fiscal Year Ended
|
|
Charge
|
|
|
Inventory
|
|
|
Charge
|
|
|
Charge
|
|
|
Charges
|
|
|
Provision
|
|
|
Charge
|
|
|
|
(In thousands)
|
|
|
April 30, 2000
|
|
$
|
5,416
|
|
|
$
|
(124
|
)
|
|
$
|
5,292
|
|
|
$
|
0
|
|
|
$
|
5,292
|
|
|
$
|
(2,112
|
)
|
|
$
|
3,180
|
|
April 30, 2001
|
|
|
27,160
|
|
|
|
(563
|
)
|
|
|
26,597
|
|
|
|
175
|
|
|
|
26,772
|
|
|
|
(10,906
|
)
|
|
|
15,866
|
|
April 30, 2002
|
|
|
31,780
|
|
|
|
(568
|
)
|
|
|
31,212
|
|
|
|
22
|
|
|
|
31,234
|
|
|
|
13,018
|
|
|
|
44,252
|
|
April 30, 2003
|
|
|
24,482
|
|
|
|
835
|
|
|
|
25,317
|
|
|
|
3
|
|
|
|
25,320
|
|
|
|
|
|
|
|
25,320
|
|
April 30, 2004
|
|
|
13,087
|
|
|
|
72
|
|
|
|
13,159
|
|
|
|
(14
|
)
|
|
|
13,145
|
|
|
|
|
|
|
|
13,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Effect at April 30, 2004
|
|
|
101,925
|
|
|
|
(348
|
)
|
|
|
101,577
|
|
|
|
186
|
|
|
|
101,763
|
|
|
|
|
|
|
|
101,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2005
|
|
|
3,440
|
|
|
|
236
|
|
|
|
3,676
|
|
|
|
(55
|
)
|
|
|
3,621
|
|
|
|
|
|
|
|
3,621
|
|
April 30, 2006
|
|
|
7,303
|
|
|
|
(484
|
)
|
|
|
6,819
|
|
|
|
1,425
|
|
|
|
8,244
|
|
|
|
(134
|
)
|
|
|
8,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,668
|
|
|
$
|
(596
|
)
|
|
$
|
112,072
|
|
|
$
|
1,556
|
|
|
$
|
113,628
|
|
|
$
|
(134
|
)
|
|
$
|
113,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the $112.1 million recognized through fiscal
2006, $3.6 million of unamortized deferred compensation
remained as of April 30, 2006. As required by
SFAS 123R, which was adopted on May 1, 2006, the
unamortized deferred compensation of $3.6 million has been
reclassified to additional paid-in capital, along with the
unamortized deferred compensation for stock options assumed from
past acquisitions, in our consolidated balance sheet. Upon the
adoption of Statement of Financial Accounting Standards, or
SFAS, 123R on May 1, 2006, we recorded an additional
$1.2 million cumulative benefit from a change in accounting
principle, net of tax, reflecting the net cumulative impact of
estimated forfeitures related to unvested stock options as of
May 1, 2006 that were previously not included in the
determination of historic stock-based compensation expense under
APB 25 in periods prior to May 1, 2006.
Impact
of Judgments and Interpretations on Restatement
Values
We reviewed evidence gathered through the investigation by the
Investigation Team, together with additional work performed by
the Working Group. Based on the relevant facts and
circumstances, we applied the applicable accounting standards to
determine whether the measurement date required adjustment. For
all grants, we considered the best available evidence to
determine the most appropriate measurement date. We reviewed the
evidence available concerning each stock option grant and
developed and documented a methodology, under the direction of
the Audit Committee, to determine the most appropriate
measurement date for financial accounting purposes for each
previously granted stock option. We then used the software tool
in the program used for our stock option accounting database to
compute the revised stock-based compensation expense. The
strongest evidence of the appropriate measurement date available
for each Granting Action (i.e. when the essential actions
necessary to grant the stock option were completed, including
the final determination of the number of shares to be granted to
each employee, the identity of the employee, and exercise price)
was used as the correct measurement date to determine the market
price of the option shares pursuant to APB 25 and its related
interpretations. The specific circumstances surrounding each
such grant were considered in determining the evidentiary level
of support for a given grant measurement date.
We ranked the level of persuasiveness of each type of evidence.
Written records, such as email messages, notes, spreadsheets and
other information pertaining to specific grant dates,
acquisition agreements and minutes of Board and Compensation
Committee meetings were deemed to be the most persuasive. Based
on this evidence, we selected dates that represent the earliest
information available whereby both (1) the number of shares
to which an individual employee is entitled as the option grant
and (2) the option or purchase price, if any, are known
with
58
finality. Evidence was also considered reliable when it provided
compelling support for the specific measurement date. Evidence
was considered inconclusive when it suggested the possibility of
an alternative measurement date, or dates, or range of dates,
but insufficient documentary evidence was available to identify
a specific date on which the Granting Actions were complete. We
found objective reliable evidence on which to establish a
measurement date for 89% of the total option shares awarded
during the Review Period. These grants represent 49%, or
$52.8 million, of the total non-cash stock-based
compensation expense being recognized through April 30,
2006 as a result of the selection of revised measurement dates.
For the remaining grants, representing $54.8 million of the
total non-cash stock-based compensation expense being recognized
through April 30, 2006, no contemporaneous documentary
evidence was found to establish a new measurement date other
than the date that the grant was entered into our stock option
accounting database. Two Granting Actions, comprising
$53.9 million, represent 98% of the total incremental
stock-based compensation expense attributable to grants for
which we used the date that data was entered into our stock
option accounting database to establish the revised measurement
date.
Where the evidence did not clearly support a specific
measurement date, we selected the measurement date indicated by
the best available evidence. However, when one or more potential
alternative measurement dates or a range of dates were
identified, significant judgment was applied in selecting a
specific measurement date. In those cases, we also performed a
sensitivity analysis to quantify the potential divergence in
stock-based compensation expense associated with the alternative
dates or ranges for such awards. In the sensitivity analysis, a
date range was established indicating the earliest date on which
the available evidence indicated that all essential actions
necessary to grant the option could have been completed,
including the final determination of the number of shares to be
granted to each employee, the identity of the employee, and the
exercise price. The endpoint in the range was the last date on
which all essential actions necessary to grant the option could
have been completed, which was often the date the grant was
first entered into our stock option accounting database. An
upper and lower stock-based compensation expense was then
computed based upon the highest and lowest closing price of our
common stock during this date range, and the results were
compared to the stock-based compensation expense calculated
using the date of grant selected by the Working Group for each
Granting Action, based upon the best available evidence.
Based on our sensitivity analysis for all Granting Actions in
the Review Period, a review or assessment of the judgments and
interpretations applied to the various grants resulted in a
possible range of pre-tax stock-based compensation expense of
$97.5 million to $132.5 million had we selected an
alternative measurement date. Our final conclusion resulted in
$107.6 million in additional pre-tax stock-based
compensation expense related to revised measurement dates. The
following table reflects the range of stock-based compensation
expense that would have been incurred at the high and low end of
the sensitivity range, by grant type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granting
|
|
|
|
|
|
Low End
|
|
|
|
|
|
High End
|
|
Grant Type
|
|
Actions
|
|
|
Shares
|
|
|
of Range
|
|
|
As Restated
|
|
|
of Range
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Acquisition-Related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Options
|
|
|
12
|
|
|
|
1,591,133
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Target Employees
|
|
|
6
|
|
|
|
4,513,308
|
|
|
|
1,459
|
|
|
|
1,459
|
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition-related
|
|
|
18
|
|
|
|
6,104,441
|
|
|
|
1,459
|
|
|
|
1,459
|
|
|
|
1,459
|
|
Director
|
|
|
5
|
|
|
|
785,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
15
|
|
|
|
11,045,000
|
|
|
|
1,992
|
|
|
|
1,992
|
|
|
|
1,992
|
|
Performance
|
|
|
14
|
|
|
|
51,476,145
|
|
|
|
56,541
|
|
|
|
56,988
|
|
|
|
78,188
|
|
New Hire/Promotion
|
|
|
97
|
|
|
|
26,388,923
|
|
|
|
37,478
|
|
|
|
47,175
|
|
|
|
50,886
|
|
Option Exchange Program
|
|
|
2
|
|
|
|
11,144,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
151
|
|
|
|
106,944,199
|
|
|
$
|
97,470
|
|
|
$
|
107,614
|
|
|
$
|
132,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Similar to the actual revised stock-based compensation expense,
had we applied an alternative judgment to select the appropriate
measurement dates, approximately 91% of the potentially higher
or lower stock-based compensation expense determined by this
sensitivity analysis would have been fully expensed by the end
of our fiscal 2004. This is primarily attributable to
(i) the fact that the intrinsic value of the revised option
awards was
59
greater in the early years of the Review Period, (ii) we
used graded, or accelerated, amortization method to recognize
stock-based compensation expense and (iii) as a result of
the deferred compensation expense recognized upon the
cancellation of options as part of our stock option exchange
program in fiscal 2003.
Tax
Impact of Restatement Items
In connection with the restatement of our consolidated financial
statements due to stock option adjustments, we recorded deferred
tax benefits on the non-cash stock-based compensation expense
over the option vesting periods for grants to individuals who
were employed in tax jurisdictions where a tax deduction was
available. The tax impact of the restatement for stock-based
compensation expense reduced (increased) the tax provision for
the fiscal years ended April 30, 2000, 2001, 2002, 2003,
2004, 2005 and 2006 by $2.1 million, $10.9 million,
$(13.0) million, $0, $0, $0, and $134,000, respectively. As
a result of the restated stock-based compensation expense our
deferred tax assets attributable to stock-based compensation as
of April 30, 2006 increased by $9.7 million with a
corresponding increase in our tax valuation allowance.
We have determined that in connection with the additional
stock-based compensation expense recorded as a result of the
investigation, a related expense for payroll taxes should have
been recorded. We have recorded this payroll tax expense in the
period of exercise of the related option as a result of our
obligation to withhold taxes upon the exercise of nonqualified
stock options. Our employers liability for taxes is joint
and several along with the employee. As applicable, a portion of
the liability has been subsequently released in the periods the
respective statute of limitation lapsed. We have recorded a
charge to opening retained earnings for the 2005 fiscal year of
$186,000 related to payroll taxes, an incremental payroll tax
benefit of $55,000 in fiscal 2005 and a payroll tax expense of
$1.4 million in fiscal 2006, resulting in a
$1.6 million payroll tax liability at April 30, 2006.
An additional $387,000 was recognized in fiscal 2007, resulting
in a $2.0 million payroll tax liability at April 30,
2007.
Internal Revenue Code Section 162(m) limits the
deductibility of compensation in excess of $1.0 million
that is not performance-based and that is paid to the Chief
Executive Officer and the four other named executive officers in
our annual proxy statement. Stock-based compensation expense for
non-qualified stock options (including incentive stock options
deemed to be non-qualified as a result of any re-measurement)
was assumed to be deductible at the time of exercise, subject to
limitations under Section 162(m) and local country law.
Based on our review of the option grants remeasured in
connection with the investigation, no revised compensation
expense, when considered in connection with any other
non-performance based compensation, exceeded the limits imposed
by 162(m).
Because virtually all holders of options issued by us were
neither involved in nor aware of our accounting treatment of
stock options, we have taken and intend to take actions to
address certain adverse tax consequences that may be incurred by
the holders of certain incorrectly priced options. The primary
adverse tax consequence is that incorrectly priced stock options
vesting after December 31, 2004 may subject the option
holder to a penalty tax under Internal Revenue Code
Section 409A (and, as applicable, similar penalty taxes
under California and other state tax laws).We presently estimate
that we will incur a liability to option holders of
approximately $7.0 million, of which approximately
$5.7 million will be recognized as additional stock
compensation expense in future periods, with the remainder being
recorded in additional paid-in capital as a cash settlement of a
portion of the related option grants.
Impact
on SFAS 123 Disclosure
As a consequence of the stock option adjustments discussed
above, the compensation expense that we disclosed in our
footnotes under the fair value method has been restated. We
previously applied APB 25 and its related interpretations and
provided the required pro forma disclosures under SFAS 123
and its related interpretations through our fiscal year ended
April 30, 2006. For SFAS 123 pro forma disclosure
purposes, stock-based compensation expense determined under the
fair value method was adjusted to include the incremental
expense resulting from the modifications to the measurement
dates of affected options. During the investigation we also
identified and corrected errors in certain valuation assumptions
used in the
Black-Scholes
model to estimate the fair value of our grants under
SFAS 123 in fiscal years prior to 2004. As a result of the
incremental stock compensation expense arising from the
modifications to the measurement dates and the corrections in
the pre-2004
Black-Scholes
valuation assumptions, our pro-forma stock-based compensation
expense under the fair value method decreased
60
$185,000 and $2.7 million during the years ended
April 30, 2006 and 2005, respectively. Beginning in our
fiscal year ended April 30, 2007, we adopted SFAS 123R.
Restatements
and Impact on the Consolidated Financial
Statements
The following table summarizes the additional stock-based
compensation expense recorded on an annual basis for the fiscal
years ended April 30, 2000 through April 30, 2006 as a
result of the investigation into our historical stock option
grant practices and related issues. The table categorizes by
type of grant and other adjustments detailed above that led to
the determination that additional stock-based compensation
should have been recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Total
|
|
|
Acquisition Related Grants
|
|
$
|
|
|
|
$
|
1,263
|
|
|
$
|
2,013
|
|
|
$
|
(1,914
|
)
|
|
$
|
364
|
|
|
$
|
(254
|
)
|
|
$
|
(13
|
)
|
|
$
|
1,459
|
|
New Hire Grants
|
|
|
5,416
|
|
|
|
13,441
|
|
|
|
10,436
|
|
|
|
9,658
|
|
|
|
2,214
|
|
|
|
644
|
|
|
|
5,366
|
|
|
|
47,175
|
|
Director Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer Grants
|
|
|
|
|
|
|
1,157
|
|
|
|
889
|
|
|
|
281
|
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
1,992
|
|
Performance Grants
|
|
|
|
|
|
|
11,299
|
|
|
|
18,403
|
|
|
|
16,416
|
|
|
|
6,053
|
|
|
|
2,867
|
|
|
|
1,950
|
|
|
|
56,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SBC Expense from Revised Measurement Dates
|
|
|
5,416
|
|
|
|
27,160
|
|
|
|
31,741
|
|
|
|
24,441
|
|
|
|
8,296
|
|
|
|
3,257
|
|
|
|
7,303
|
|
|
|
107,614
|
|
Leaves of Absence & Other Adjustments
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
41
|
|
|
|
4,791
|
|
|
|
183
|
|
|
|
|
|
|
|
5,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revised SBC Charges
|
|
|
5,416
|
|
|
|
27,160
|
|
|
|
31,780
|
|
|
|
24,482
|
|
|
|
13,087
|
|
|
|
3,440
|
|
|
|
7,303
|
|
|
|
112,668
|
|
Inventory Capitalization
|
|
|
(124
|
)
|
|
|
(563
|
)
|
|
|
(568
|
)
|
|
|
835
|
|
|
|
72
|
|
|
|
236
|
|
|
|
(484
|
)
|
|
|
(596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax Non-Cash Charge
|
|
|
5,292
|
|
|
|
26,597
|
|
|
|
31,212
|
|
|
|
25,317
|
|
|
|
13,159
|
|
|
|
3,676
|
|
|
|
6,819
|
|
|
|
112,072
|
|
Payroll Tax Charge
|
|
|
|
|
|
|
175
|
|
|
|
22
|
|
|
|
3
|
|
|
|
(14
|
)
|
|
|
(55
|
)
|
|
|
1,425
|
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pre-Tax Charge
|
|
|
5,292
|
|
|
|
26,772
|
|
|
|
31,234
|
|
|
|
25,320
|
|
|
|
13,145
|
|
|
|
3,621
|
|
|
|
8,244
|
|
|
|
113,628
|
|
Income Tax (benefit)
|
|
|
(2,112
|
)
|
|
|
(10,906
|
)
|
|
|
13,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net SBC Expense Adjustment
|
|
$
|
3,180
|
|
|
$
|
15,866
|
|
|
$
|
44,252
|
|
|
$
|
25,320
|
|
|
$
|
13,145
|
|
|
$
|
3,621
|
|
|
$
|
8,110
|
|
|
$
|
113,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Overview
We are a leading provider of optical subsystems and components
that connect local area networks, or LANs, storage area
networks, or SANs, and metropolitan area networks, or MANs. Our
optical subsystems consist primarily of transceivers which
provide the fundamental optical-electrical interface for
connecting the equipment used in building these networks. These
products rely on the use of digital 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. 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 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, Hewlett-Packard Company, Huawei and Qlogic.
We also provide network performance test and monitoring systems
to original equipment manufacturers for testing and validating
equipment designs and, to a lesser degree, to operators of
networking and storage data centers for testing, monitoring and
troubleshooting the performance of their installed systems. We
sell these products primarily to leading storage equipment
manufacturers such as Brocade, EMC, Emulex, Hewlett-Packard
Company, IBM and Qlogic.
Since October 2000, we have completed the acquisition of ten
privately-held companies and certain businesses and assets from
six other companies in order to broaden our product offerings
and provide new sources of revenue,
61
production capabilities and access to advanced technologies that
we believe will enable us to reduce our product costs and
develop innovative and more highly integrated product platforms
while accelerating the timeframe required to develop such
products.
We recognize revenue when persuasive evidence of an arrangement
exists, title and risk of loss pass to the customer, which is
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, we allocate revenue to the separate elements based
upon each elements fair value as determined by the list
price for such element.
We sell our products through our direct sales force, with the
support of our manufacturers representatives, directly to
domestic customers and indirectly through distribution channels
to international customers. The evaluation and qualification
cycle prior to the initial sale for our optical subsystems may
span a year or more, while the sales cycle for our test and
monitoring systems is usually considerably shorter.
The market for optical subsystems and components is
characterized by declining average selling prices resulting from
factors such as industry over-capacity, increased competition,
the introduction of new products and the growth in unit volumes
as manufacturers continue to deploy network and storage systems.
We anticipate that our average selling prices will continue to
decrease in future periods, although the timing and amount of
these decreases cannot be predicted with any certainty.
Our cost of revenues consists of materials, salaries and related
expenses for manufacturing personnel, manufacturing overhead,
warranty expense, inventory adjustments for obsolete and excess
inventory and the amortization of acquired developed technology
associated with acquisitions that we have made. We have been
manufacturing our optical subsystem products at our subsidiary
in Ipoh, Malaysia, since fiscal 2002. We manufacture VCSELs used
in our LAN/SAN products at our facility in Allen, Texas. We
manufacture long wavelength FP and certain DFB lasers used in
our MAN and telecom products at our facility in Fremont, CA. We
manufacture certain passive components used in our MAN and
telecom products at our facility in Shanghai, China. We conduct
manufacturing engineering, supply chain management, quality
assurance and documentation control at our facility in
Sunnyvale, California. As a result of building a vertically
integrated business model, our manufacturing cost structure has
become more fixed. While this can be beneficial during periods
when demand is strong, it can be more difficult to reduce costs
during periods when demand for our products is weak, product mix
is unfavorable or selling prices are generally lower. While we
undertook measures to reduce our operating costs in order to
become profitable toward the end of fiscal 2006, there can be no
assurance that we will be able to reduce our cost of revenues
enough to sustain profitability during periods of weak demand or
when our product mix is unfavorable or when average selling
prices are low.
Our gross profit margins vary among our product families, and
are generally higher on our network test and monitoring 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 and SAN applications. Our overall gross
margins have fluctuated from period to period as a result of
overall revenue levels, shifts in product mix, the introduction
of new products, decreases in average selling prices and our
ability to reduce product costs.
Research and development expenses consist primarily of salaries
and related expenses for design engineers and other technical
personnel, the cost of developing prototypes and fees paid to
consultants. We charge all research and development expenses to
operations as incurred. We believe that continued investment in
research and development is critical to our long-term success.
Sales and marketing expenses consist primarily of commissions
paid to manufacturers representatives, salaries and
related expenses for personnel engaged in sales, marketing and
field support activities and other costs associated with the
promotion of our products.
General and administrative expenses consist primarily of
salaries and related expenses for administrative, finance and
human resources personnel, professional fees, and other
corporate expenses.
62
In connection with the grant of stock options to employees
between August 1, 1998 and October 15, 1999, we
recorded deferred stock compensation representing the difference
between the deemed value of our common stock for accounting
purposes and the exercise price of these options at the date of
grant. In connection with the assumption of stock options
previously granted to employees of companies we acquired, we
recorded deferred compensation representing the difference
between the fair market value of our common stock on the date of
closing of each acquisition and the exercise price of the
unvested portion of options granted by those companies which we
assumed. Deferred stock compensation is presented as a reduction
of stockholders equity, with accelerated amortization
recorded over the vesting period, which is typically three to
five years. The amount of deferred stock compensation expense
related to these grants steadily decreased over time and was
fully amortized at the end of fiscal 2005. In fiscal 2007, we
commenced a voluntary review of our historical stock option
granting practices and related accounting, and recorded
additional stock option related compensation expense for fiscal
years ended April 30, 2000 through 2006.
Acquired in-process research and development represents the
amount of the purchase price in a business combination allocated
to research and development projects underway at the acquired
company that had not reached the technologically feasible stage
as of the closing of the acquisition and for which we had no
alternative future use.
A portion of the purchase price in a business combination is
allocated to goodwill and intangibles. Prior to May 1,
2002, goodwill and purchased intangibles were amortized over
their estimated useful lives. Subsequent to May 1, 2002,
goodwill and intangible assets with indefinite lives are no
longer amortized but subject to annual impairment testing.
Impairment charges consist of write downs to the carrying value
of intangible assets and goodwill arising from various business
combinations to their implied fair value.
Restructuring costs generally include termination costs for
employees associated with a formal restructuring plan and the
cost of facilities or other unusable assets abandoned or sold.
Other acquisition costs primarily consist of incentive payments
for employee retention included in certain of the purchase
agreements of companies we acquired and costs incurred in
connection with transactions that were not completed.
Other income and expenses generally consist of bank fees, gains
or losses as a result of the periodic sale of assets and
other-than-temporary decline in the value of investments.
Recent
Acquisitions
Acquisition
of Assets of Data Transit Corp.
On August 6, 2004, we completed the purchase of
substantially all of the assets of Data Transit Corp. in
exchange for a cash payment of $500,000 and the issuance of a
convertible promissory note in the original principal amount of
$16.3 million. Transaction costs totaled $682,000. The note
was subsequently converted into an aggregate of
15,082,865 shares of our common stock. The acquisition was
accounted for as a purchase and, accordingly, the results of
operations of the acquired assets (beginning with the closing
date of the acquisition) and the estimated fair value of assets
acquired were included in our consolidated financial statements
beginning in the second quarter of fiscal 2005.
Acquisition
of Transceiver and Transponder Product Line From Infineon
Technologies AG
On January 31, 2005, we acquired certain assets of
Infineons fiber optics business unit associated with the
design, development and manufacture of optical transceiver and
transponder products in exchange for 34 million shares of
our common stock. We did not acquire any employees or assume any
liabilities as part of the acquisition, except for obligations
under customer contracts. The 34 million shares of our
common stock issued to Infineon were valued at approximately
$59.5 million based on the closing price of our common
stock on January 31, 2005. The acquisition was accounted
for as a purchase and, accordingly, the results of operations of
the acquired assets
63
(beginning with the closing date of the acquisition) and the
estimated fair value of assets acquired were included in our
consolidated financial statements beginning in the fourth
quarter of fiscal 2005.
Acquisition
of I-TECH Corp.
On April 8, 2005, we completed the acquisition of I-TECH
Corp., a privately-held network test and monitoring company. The
acquisition agreement provided for the merger of I-TECH with a
wholly-owned subsidiary of Finisar and the issuance by Finisar
to the sole holder of I-TECHs common stock of convertible
promissory notes in the aggregate principal amount of
approximately $12.1 million. During fiscal 2006, we issued
10,107,550 shares of common stock upon the conversion of
all of the principal and interest on these notes. The results of
operations of
I-TECH
(beginning with the closing date of the acquisition) and the
estimated fair value of assets acquired were included in our
consolidated financial statements beginning in the fourth
quarter of fiscal 2005.
Acquisition
of InterSAN, Inc.
On May 12, 2005, we completed the acquisition of InterSAN,
Inc., a privately-held company located in Scotts Valley,
California. Under the terms of the acquisition agreement,
InterSAN merged with a wholly-owned subsidiary of Finisar and
the holders of InterSANs securities received
7,132,229 shares of Finisar common stock having a value of
approximately $8.8 million at the time of the acquisition.
The results of operations of InterSAN (beginning with the
closing date of the acquisition) and the estimated fair value of
assets acquired were included in our consolidated financial
statements beginning in the first quarter of fiscal 2006.
Acquisition
of Big Bear Networks, Inc.
On November 15, 2005, we completed the purchase of certain
assets of Big Bear Networks, Inc. in exchange for a cash payment
of $1.9 million. The acquisition was accounted for as a
purchase and, accordingly, the results of operations of the
acquired assets (beginning with the closing date of the
acquisition) and the estimated fair value of assets acquired
were included in our consolidated financial statements for the
third quarter of fiscal 2006.
Acquisition
of AZNA LLC
On March 26, 2007, we completed the acquisition of AZNA LLC
(AZNA), a privately-held company located in
Wilmington, Massachusetts for a purchase price of
$19.7 million, consisting of convertible promissory notes
in the aggregate principal amount of $17.0 million and cash
of $2.7 million. The results of operations of AZNA
(beginning with the closing date of the acquisition) and the
estimated fair value of assets acquired were included in our
consolidated financial statements beginning in the fourth
quarter of fiscal 2007.
Acquisition
of Kodeos Communications, Inc.
On April 11, 2007, we completed the acquisition of Kodeos
Communications, Inc., a privately-held company located in South
Plainfield, New Jersey for $7.4 million in cash, with
additional consideration of up to $3.5 million in cash
payable to holders of certain equity interests contingent on
technical and financial performance. The results of operations
of Kodeos (beginning with the closing date of the acquisition)
and the estimated fair value of assets acquired were included in
our consolidated financial statements beginning in the fourth
quarter of fiscal 2007.
Critical
Accounting Policies
The preparation of our financial statements and related
disclosures require that we make estimates, assumptions and
judgments that can have a significant impact on our net revenue
and operating results, as well as on the value of certain
assets, contingent assets and liabilities on our balance sheet.
We believe that the estimates, assumptions and judgments
involved in the accounting policies described below have the
greatest potential impact on our financial statements and,
therefore, consider these to be our critical accounting
policies. See Note 1 to our consolidated financial
statements included elsewhere in this report for more
information about these critical accounting policies, as well as
a description of other significant accounting policies. We
believe there have been no material changes to out critical
accounting policies during the fiscal year ended April 30,
2007 compared to prior
64
years, except for the adoption of Financial Accounting Standards
Board Statement No. 123R, Share-Based Payment
(SFAS 123R).
Share-Based
Payments
Restatement
of Consolidated Financial Statements
In calculating the amount of incremental share-based
compensation expense to record, we made certain interpretations
and assumptions and drew certain conclusions from and regarding
the independent investigation findings by the Audit Committee.
There is the risk that the interpretations and assumptions we
made could be disputed by others after the fact or that we did
not draw the correct conclusions from the findings. There is a
further risk that the investigation findings themselves were
inaccurate or incomplete. All of these risks are particularly
acute as to grants for which there was inconclusive evidence to
support the grant measurement date. Where we had incomplete
documentation, we considered the guidance provided in a letter
provided by the SECs Chief Accountant to Lawrence Salva,
Chairman, Committee on Corporate Reporting, Financial Executives
International and Sam Ranzilla, Chairman, Center for Public
Company Audit Firms, American Institute of Certified Public
Accountants dated September 19, 2006. Specifically, we used
all reasonably available relevant information to form reasonable
conclusions as to the most likely option granting actions that
occurred and the dates on which such actions occurred in
determining the parameters of the restatement.
For grants with inconclusive evidence of a measurement date, we
performed a sensitivity analysis to determine the potential
accounting impact of alternative measurement dates. The
sensitivity analysis showed that a decision by us to select an
alternative measurement date in some cases would have made the
restated compensation expense higher and in some cases would
have made the restated compensation expense lower. This analysis
resulted in a possible range of pre-tax share-based compensation
cost of $97.5 million to $132.5 million, as compared
with our final conclusion of $107.6 million in additional
pre-tax expense for grants with revised measurement dates. The
possible range of pre-tax share-based compensation cost by year
based on the sensitivity analysis is as follows:
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|
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Sensitivity Analysis
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Low
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Actual
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|
|
High
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Fiscal Year Ended
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Estimate
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|
Adjustment
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|
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Estimate
|
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(In thousands)
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April 30, 2000
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$
|
3,769
|
|
|
$
|
5,416
|
|
|
$
|
5,587
|
|
April 30, 2001
|
|
|
23,958
|
|
|
|
27,160
|
|
|
|
28,353
|
|
April 30, 2002
|
|
|
29,410
|
|
|
|
31,741
|
|
|
|
43,461
|
|
April 30, 2003
|
|
|
22,455
|
|
|
|
24,441
|
|
|
|
33,375
|
|
April 30, 2004
|
|
|
7,790
|
|
|
|
8,296
|
|
|
|
9,866
|
|
April 30, 2005
|
|
|
2,881
|
|
|
|
3,257
|
|
|
|
4,211
|
|
April 30, 2006
|
|
|
7,207
|
|
|
|
7,303
|
|
|
|
7,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
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$
|
97,470
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|
|
$
|
107,614
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|
|
$
|
132,525
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption
of FAS 123R
On May 1, 2006, we adopted the fair value recognition
provisions of SFAS 123R. Prior to that date, we accounted
for share-based payments under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related
Interpretations, as permitted by FASB Statement No. 123,
Accounting for Share-based Compensation
(SFAS 123). In accordance with APB 25 no
compensation cost was required to be recognized for options
granted that had an exercise price equal to the market value of
the underlying common stock on the date of grant.
We adopted SFAS 123R using the
modified-prospective-transition method. Under that transition
method, share-based compensation expense recognized in our
consolidated statement of operations for the year ended
April 30, 2007 includes (i) compensation expense for
stock-based awards granted prior to, but not yet vested as of,
May 1, 2006 based on the grant date fair value estimated in
accordance with the provisions of SFAS 123 and
(ii) compensation expense for the stock-based awards
granted subsequent to April 30, 2006 based on the grant
date
65
fair value estimated in accordance with the provisions of
FAS 123R. Compensation expense for all grants made prior to
the adoption of SFAS 123R that are expected-to-vest will
continue to be recognized using the graded amortization
attribution method; all grants subsequent to the adoption of
SFAS 123R will be recognized using the straight-line
attribution method, provided that the amount of compensation
cost recognized at any date is no less than the portion of the
grant-date value of the award that is vested at that date. In
our stock-based compensation expense required under APB 25 and
the pro forma information required under SFAS 123 for the
periods prior to fiscal 2007, we accounted for forfeitures as
they occurred. Upon adoption of SFAS 123R on May 1,
2006, we adjusted retained earnings by approximately
$1.2 million. This adjustment reflects the cumulative
effect of adoption of SFAS 123R on retained earnings and
represents our estimate of previously recognized stock-based
compensation expense that will be reversed when stock options
granted prior to May 1, 2006 are forfeited. The results for
the prior periods have not been restated for the adoption of
SFAS 123R consistent with the provisions of the accounting
standard.
As a result of adopting SFAS 123R in the year ended
April 30, 2007, our net loss in fiscal 2007 is
$9.2 million higher than if we had continued to account for
share-based compensation under APB 25 as we did in the
comparable prior year period. Basic and diluted loss per share
for the year ended April 30, 2007 was lower by $0.03 than
if we had not adopted SFAS 123R. We have not recognized,
and do not expect to recognize in the near future, any tax
benefit related to employee stock based compensation cost as a
result of the full valuation allowance on our net deferred tax
assets and our net operating loss carryforwards. Total
compensation cost capitalized in inventory was $410,000 as of
April 30, 2007. Share-based compensation cost of
$6.8 million and $3.7 million was recognized in
accordance with APB 25 for the years ended April 30, 2006
and 2005, respectively.
Share-based compensation recognized in the financial statements
by line item caption is as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(As restated)
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|
|
(As restated)
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|
|
Cost of revenues
|
|
$
|
3,517
|
|
|
$
|
2,597
|
|
|
$
|
1,251
|
|
Research and development
|
|
|
3,969
|
|
|
|
1,936
|
|
|
|
1,448
|
|
Sales and marketing
|
|
|
1,956
|
|
|
|
1,014
|
|
|
|
669
|
|
General and administrative
|
|
|
2,379
|
|
|
|
1,272
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
11,821
|
|
|
$
|
6,819
|
|
|
$
|
3,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Share-based compensation cost capitalized in inventory
|
|
$
|
410
|
|
|
$
|
596
|
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with FAS 123R, the fair value of each option
award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model with the weighted
average assumptions noted in the table in Note 16 of the
notes to the consolidated financial statements. The expected
term of options granted is derived from historical data on
employee exercise and post-vesting employment termination
behavior. The risk-free rate for periods within the contractual
life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant. Expected volatility is
based on the historical volatility of our stock.
For options granted prior to May 1, 2006, and valued (on a
pro forma basis) in accordance with FAS 123, the expected
volatility used to estimate the fair value of the options was
based solely on the historical volatility on our stock.
For options granted after April 30, 2006, and valued in
accordance with FAS 123R, the expected volatility used to
estimate the fair value of the options was based on the
historical volatility of our stock; we used the straight-line
method for expense attribution and we estimate forfeitures and
only recognize expense for those shares expected to vest. Our
estimated forfeiture rate in fiscal 2007, based on our
historical forfeiture experience, is approximately 17%.
66
The Black-Scholes-Merton option valuation model requires the
input of highly subjective assumptions, including the expected
life of the share-based award and stock price volatility. The
assumptions used in calculating the fair value of share-based
compensation 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, our share-based compensation expense
could have been materially different. In addition, we are
required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. If our
actual forfeiture rate is materially different from our
estimate, the share-based compensation expense could be
materially different.
Revenue
Recognition, Warranty and Sales Returns
Our revenue recognition policy follows SEC Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition.
Specifically, we recognize 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. For units of
accounting which include more than one deliverable, we generally
recognize all revenue and cost of revenue for the unit of
accounting over the period in which the last undelivered item is
delivered.
At the time revenue is recognized, we establish an accrual for
estimated warranty expenses associated with our sales, recorded
as a component of cost of revenues. Our standard warranty period
usually extends 12 months from the date of sale although it
can extend for longer periods of three to five years for certain
products sold to certain customers. Our warranty accrual
represents our best estimate of the amounts necessary to settle
future and existing claims on products sold as of the balance
sheet date. While we believe that our warranty accrual is
adequate and that the judgment applied is appropriate, such
amounts estimated to be due and payable could differ materially
from what actually transpire in the future. If our actual
warranty costs are greater than the accrual, costs of revenue
will increase in the future. We also provide an allowance for
estimated customer returns, which is netted against revenue.
This provision is based on our historical returns, analysis of
credit memo data and our return policies. If the historical data
used by us to calculate the estimated sales returns does not
properly reflect future returns, revenue could be overstated.
Allowance
for Doubtful Accounts
We evaluate the collectability of our accounts receivable based
on a combination of factors. In circumstances where, subsequent
to delivery, we become aware of a customers potential
inability to meet its obligations, we record a specific
allowance for the doubtful account to reduce the net recognized
receivable to the amount we reasonably believe will be
collected. For all other customers, we recognize an allowance
for doubtful accounts based on the length of time the
receivables are past due. A material adverse change in a major
customers ability to meet its financial obligations to us
could result in a material reduction in the estimated amount of
accounts receivable that can ultimately be collected and an
increase in our general and administrative expenses for the
shortfall.
Slow
Moving and Obsolete Inventories
We make inventory commitment and purchase decisions based upon
sales forecasts. To mitigate the component supply constraints
that have existed in the past and to fill orders with
non-standard configurations, we build inventory levels for
certain items with long lead times and enter into certain
longer-term commitments for certain items. We permanently write
off 100% of the cost of inventory that we specifically identify
and consider obsolete or excessive to fulfill future sales
estimates. We define obsolete inventory as inventory that will
no longer be used in the manufacturing process. We periodically
discard obsolete inventory. Excess inventory is generally
defined as inventory in excess of projected usage, and is
determined using our best estimate of future demand at the time,
based upon information then available to us. In making these
assessments, we are required to make judgments as to the
67
future demand for current or committed inventory levels. We use
a 12-month
demand forecast, and in addition to the demand forecast, we also
consider:
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parts and subassemblies that can be used in alternative finished
products;
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parts and subassemblies that are unlikely to be engineered out
of our products; and
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known design changes which would reduce our ability to use the
inventory as planned.
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Significant differences between our estimates and judgments
regarding future timing of product transitions, volume and mix
of customer demand for our products and actual timing, volume
and demand mix may result in additional write-offs in the
future, or additional usage of previously written-off inventory
in future periods for which we would benefit from a reduced cost
of revenues in those future periods.
Investment
in Equity Securities
For strategic reasons, we may make minority investments in
private or public companies or extend loans or receive equity or
debt from these companies for services rendered or assets sold.
Our minority investments in private companies are primarily
motivated by our desire to gain early access to new technology.
Our investments in these companies are passive in nature in that
we generally do not obtain representation on the boards of
directors. Our investments have generally been part of a larger
financing in which the terms were negotiated by other investors,
typically venture capital investors. These investments are
generally made in exchange for preferred stock with a
liquidation preference that helps protect the underlying value
of our investment. At the time we made our investments, in most
cases the companies had not completed development of their
products and we did not enter into any significant supply
agreements with the companies in which we invested. In
determining if and when a decline in the market value of these
investments below their carrying value is other-than-temporary,
we evaluate the market conditions, offering prices, trends of
earnings and cash flows, price multiples, prospects for
liquidity and other key measures of performance. Our 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. As of April 30, 2007, the carrying
value of these investments totaled $11.3 million. Future
adverse changes in market conditions or poor operating results
at any of the companies in which we hold a minority position
could result in losses or an inability to recover the carrying
value of these investments.
Restructuring
Accrual
During the second quarter of fiscal 2006, we consolidated our
Sunnyvale facilities into one building and permanently exited a
portion of our Scotts Valley facility. As a result of these
activities, we recorded restructuring charges of approximately
$3.1 million. These restructuring charges included $290,000
of miscellaneous costs required to effect the closures and
approximately $2.8 million of non-cancelable facility lease
payments. Of the $3.1 million in restructuring charges,
$1.9 million related to our optical subsystems and
components segment and $1.2 million related to our network
test and monitoring systems segment.
The facilities consolidation charges were calculated using
estimates that were based upon the remaining future lease
commitments for vacated facilities from the date of facility
consolidation, net of estimated future sublease income. The
estimated costs of vacating these leased facilities were based
on market information and trend analyses, including information
obtained from third party real estate sources. As of
April 30, 2007, $898,000 of committed facilities payments
remains accrued and are expected to be fully utilized by fiscal
2011.
Goodwill,
Purchased Intangibles and Other Long-Lived Assets
Our long-lived assets include significant investments in
goodwill and other intangible assets. In June 2001, the
Financial Accounting Standards Board, or FASB, issued Statement
of Financial Accounting Standards, or SFAS 141
Business Combinations and SFAS 142
Goodwill and Other Intangible Assets. SFAS 141
requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of
accounting. SFAS 141
68
also included guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from
business combinations completed after June 30, 2001.
SFAS 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. SFAS 142
requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to
be amortized over their estimated useful lives.
SFAS 142 requires that goodwill be tested for impairment at
the reporting unit level at adoption and at least annually
thereafter, utilizing a two-step methodology. The initial step
requires us to determine the fair value of each reporting unit
and compare it to the carrying value, including goodwill, of
such unit. We operate two reporting units, optical subsystems
and components and network test and monitoring systems. If the
fair value of the reporting unit exceeds the carrying value, no
impairment loss would be recognized. However, if the carrying
value of the reporting unit exceeds its fair value, the goodwill
of the unit may be impaired. The amount, if any, of the
impairment would then be measured in the second step.
During the fourth quarters of fiscal 2005, 2006 and 2007, we
performed the required annual impairment testing of goodwill and
indefinite-lived intangible assets and determined that no
impairment charge was required. At April 30, 2007 our
investment in goodwill and intangible assets was $123.8 and
$24.0 million, respectively.
We are required to make judgments about the recoverability of
our long-lived assets, other than goodwill, whenever events or
changes in circumstances indicate that the carrying value of
these assets may be impaired or not recoverable. In order to
make such judgments, we are required to make assumptions about
the value of these assets in the future including future
prospects for earnings and cash flows. If impairment is
indicated, we write those assets down to their fair value which
is generally determined based on discounted cash flows.
Judgments and assumptions about the future are complex,
subjective and can be affected by a variety of factors including
industry and economic trends, our market position and the
competitive environment of the businesses in which we operate.
During the second quarter of fiscal 2005, we determined that the
remaining intangible assets related to certain purchased passive
optical technology, acquired from New Focus, Inc. in May 2002,
were obsolete, and had a fair value of zero. Accordingly, an
impairment charge of $3.7 million was recorded against the
remaining net book value of these assets during that quarter.
During the second quarter of fiscal 2006, we determined that
there had been an impairment in the value of intangible assets
associated with certain products acquired in the acquisition of
Genoa Corporation in April 2003 and in the acquisition of
Transwave Fiber Inc. in May 2001, and we recorded an impairment
charge of $853,000 related to these assets.
69
Results
of Operations
The following table sets forth certain statement of operations
data as a percentage of total revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As restated
|
|
|
As restated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
|
91.1
|
%
|
|
|
89.5
|
%
|
|
|
86.0
|
%
|
Network test and monitoring systems
|
|
|
8.9
|
|
|
|
10.5
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenues
|
|
|
64.6
|
|
|
|
68.7
|
|
|
|
73.7
|
|
Amortization of acquired developed technology
|
|
|
1.4
|
|
|
|
4.9
|
|
|
|
7.9
|
|
Impairment of acquired developed technology
|
|
|
|
|
|
|
0.2
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
34.0
|
|
|
|
26.2
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
15.4
|
|
|
|
14.9
|
|
|
|
22.9
|
|
Sales and marketing
|
|
|
8.6
|
|
|
|
9.1
|
|
|
|
10.8
|
|
General and administrative
|
|
|
8.5
|
|
|
|
8.5
|
|
|
|
8.4
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Acquired in-process research and development
|
|
|
1.4
|
|
|
|
|
|
|
|
0.6
|
|
Amortization of purchased intangibles
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.4
|
|
Impairment of tangible assets
|
|
|
|
|
|
|
|
|
|
|
6.6
|
|
Restructuring costs
|
|
|
|
|
|
|
0.8
|
|
|
|
0.1
|
|
Other acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
34.3
|
|
|
|
33.8
|
|
|
|
49.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(0.4
|
)
|
|
|
(7.6
|
)
|
|
|
(32.8
|
)
|
Interest income
|
|
|
1.5
|
|
|
|
0.9
|
|
|
|
0.9
|
|
Interest expense
|
|
|
(3.8
|
)
|
|
|
(4.3
|
)
|
|
|
(5.2
|
)
|
Loss on convertible debt exchange
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(0.2
|
)
|
|
|
2.6
|
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of change in
accounting principle
|
|
|
(10.5
|
)
|
|
|
(8.4
|
)
|
|
|
(41.6
|
)
|
Provision for income taxes
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(11.1
|
)
|
|
|
(9.1
|
)
|
|
|
(41.9
|
)
|
Cumulative effect of adoption of accounting principle, net of tax
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(10.8
|
)%
|
|
|
(9.1
|
)%
|
|
|
(41.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Fiscal Years Ended April 30, 2007 and 2006
Revenues. Revenues increased
$54.3 million, or 14.9%, to $418.5 million in fiscal
2007 compared to $364.3 million in fiscal 2006. Sales of
optical subsystems and components and network test and
monitoring systems represented 91.1% and 8.9%, respectively, of
total revenues in fiscal 2007, compared to 89.5% and 10.5%,
respectively, in fiscal 2006.
Optical subsystems and components revenues increased
$55.3 million, or 17.0%, to $381.3 million in fiscal
2007 compared to $326.0 million in fiscal 2006. Of the
total increase in optical subsystems and components
70
revenues, sales of products for short distance LAN/SAN
applications increased $28.1 million, or 14.1%, and sales
of products for MAN and telecom applications increased
$27.2 million, or 21.5%. The increase in revenues from the
sale of these products was primarily the result of an increase
in the volume of units sold to new and existing customers.
Network test and monitoring systems revenues decreased
$1.1 million, or 2.7%, to $37.3 million in fiscal 2007
compared to $38.3 million in fiscal 2006. The decrease in
revenues was primarily due to a decrease in demand resulting
from a product lifecycle transition as OEM system manufacturers
complete their transition from 4Ghz to 6-8Ghz models.
Amortization of Acquired Developed
Technology. Amortization of acquired developed
technology, a component of cost of revenues, decreased
$11.7 million, or 66.0%, in fiscal 2007 to
$6.0 million compared to $17.7 million in fiscal 2006.
The decrease reflects the impairment charges recorded in fiscal
2006 and 2005 as well as the roll-off of certain fully amortized
assets during fiscal 2007.
Impairment of Acquired Developed
Technology. Impairment of acquired developed
technology, a component of cost of revenues, decreased from
$853,000 in fiscal 2006 to $0 in fiscal 2007. The fiscal 2006
charges reflected the write off of technology for the linear
optical amplifier product acquired with our acquisition of the
assets of Genoa Corporation in April 2003 and technology related
to the broadband lightsource product acquired with our
acquisition of Transwave Fiber Inc., in May 2001. Each of these
products was discontinued during the second quarter of fiscal
2006.
Gross Profit. Gross profit increased
$46.7 million, or 48.8%, to $142.3 million in fiscal
2007 compared to $95.6 million in fiscal 2006. Gross profit
as a percentage of total revenue was 34.0% in fiscal 2007
compared to 26.2% in fiscal 2006. We recorded reserve charges of
$12.1 million for obsolete and excess inventory in fiscal
2007 and $9.3 million in fiscal 2006. We sold inventory
that was reserved in previous periods resulting in a benefit of
$4.1 million in fiscal 2007 and $3.6 million in fiscal
2006. As a result, we recognized a net non-cash reserve charge
of $8.0 million in fiscal 2007 compared to
$5.7 million in fiscal 2006. Manufacturing overhead
includes non-cash stock-based compensation expense of
$3.5 million in fiscal 2007 and $2.6 million in fiscal
2006. Excluding the amortization and impairment of acquired
developed technology, the net impact of excess and obsolete
inventory reserve charges and stock-based compensation expense,
gross profit would have been $159.8 million, or 38.2% of
revenue, in fiscal 2007, compared to $121.6 million, or
33.4% of revenue in fiscal 2006. The increase in adjusted gross
profit margin was primarily due to the 14.9% increase in revenue
driven by increases in unit volume with no increase in
manufacturing spending coupled with decreases in material costs.
Manufacturing overhead costs included duplicate manufacturing
facility costs of $1.0 million in fiscal 2007 and
$2.8 million in fiscal 2006 at our Advanced Optical
Components Division as a result of our move to a new
manufacturing facility in Texas, accelerated depreciation
charges of $1.7 million in fiscal 2006 for abandoned
leasehold improvements and equipment, and $1.3 million of
severance related charges in fiscal 2006, all of which adversely
impacted our gross profit margin.
Research and Development Expenses. Research
and development expenses increased $10.1 million, or 18.6%,
to $64.6 million in fiscal 2007 compared to
$54.4 million in fiscal 2006. The increase was primarily
due to increased personnel related spending, project materials
and new product related scrap related to the development of new
higher data rate transceiver products. Included in research and
development expenses in fiscal 2006 were charges of
$1.9 million related to abandoned leasehold improvements
and equipment. Research and development expenses include
non-cash stock-based compensation expense of $4.0 million
in fiscal 2007 and $1.9 million in fiscal 2006. Research
and development expenses as a percent of revenues increased to
15.4% in fiscal 2007 compared to 14.9% in fiscal 2006.
Sales and Marketing Expenses. Sales and
marketing expenses increased $3.0 million, or 9.0%, to
$36.1 million in fiscal 2007 compared to $33.1 million
in fiscal 2006. The increase in sales and marketing expenses was
primarily due to personnel related costs required to support our
revenue growth. Sales and marketing expenses include non-cash
stock-based compensation expense of $1.9 million in fiscal
2007 and $1.0 million in fiscal 2006. Sales and marketing
expenses as a percent of revenues decreased to 8.6% in fiscal
2007 compared to 9.1% in fiscal 2006.
71
General and Administrative Expenses. General
and administrative expenses increased $4.8 million, or
15.5%, to $35.6 million in fiscal 2007 compared to
$30.9 million in fiscal 2006. The increase was primarily
due to professional services expense of $5.5 million
related to the investigation of our historical stock option
granting practices. General and administrative expenses include
non-cash stock-based compensation expense of $2.4 million
in fiscal 2007 and $1.3 million in fiscal 2006. Also
included in general and administrative costs in fiscal 2006 were
accelerated depreciation charges of $130,000 related to
abandoned equipment, accelerated amortization charges of
$648,000 related to abandoned patents, and $237,000 for
reduction in force. General and administrative expenses as a
percent of revenues increased to 8.5% in fiscal 2007 compared to
8.5% in fiscal 2006.
Acquired In-process Research and
Development. In-process research and development,
or IPR&D, expenses were $5.8 million in fiscal 2007,
compared to $0 in fiscal 2006. The fiscal 2007 IPR&D
charges were related to the fourth quarter acquisitions of AZNA
LLC and Kodeos Communications Inc.
Amortization of Purchased
Intangibles. Amortization of purchased
intangibles increased $67,000, or 3.8%, to $1.8 million in
fiscal 2007 compared to $1.7 million in fiscal 2006. The
slight increase was due to purchased intangibles related to our
acquisitions of AZNA and Kodeos in the fourth quarter of fiscal
2007.
Restructuring Costs. During the second quarter
of fiscal 2006, we completed the consolidation of our Northern
California facilities. The restructuring charges included the
remaining value of non-cancelable lease obligations of
$2.8 million for our abandoned corporate office located in
Sunnyvale and a portion of our facility in Scotts Valley and
moving costs of $290,000.
Interest Income. Interest income increased
$2.7 million, or 78.2%, to $6.2 million in fiscal 2007
compared to $3.5 million in fiscal 2006. The increase was
primarily the result of increasing investment balances and
rising interest rates during fiscal 2007.
Interest Expense. Interest expense increased
$202,000, or 1.3%, to $16.0 million in fiscal 2007 compared
to $15.8 million in fiscal 2006. Interest expense is
primarily related to our convertible subordinated notes due in
2008 and 2010. Interest expense related to these notes was
$13.8 million and $13.5 million in fiscal 2007 and
2006, respectively, of which, $4.8 million and
$4.5 million respectively, represented the amortization of
the beneficial conversion feature of these notes.. In fiscal
2007, $84,000 of interest expense was related to convertible
promissory notes issued in connection with our acquisition of
AZNA and the financing liability recorded as a result of the
sale-leaseback of one of our corporate facilities. In fiscal
2006, $2.3 million of interest expense was related to
convertible promissory notes issued in connection with our
acquisitions of Data Transit and I-TECH, a minority investment
in Cyoptics and a financing liability recorded as a result of
the sale-leaseback of one of our corporate facilities. The
principal and interest balances associated with the Data
Transit, I-TECH and Cyoptics notes were converted into shares of
our common stock in fiscal 2006.
Loss on Convertible Debt Exchange. In fiscal
2007, we exchanged $100 million of our
21/2%
convertible subordinated notes due in 2010 for $100 million
of new
21/2%
convertible senior subordinated notes also due in 2010. Among
other features, the new notes eliminated a put option that would
have allowed the holders to require the redemption of the debt
on October 15, 2007 for cash or shares. As a result of the
exchange, we recorded a non-cash charge for the extinguishment
of the original notes of $31.6 million in fiscal 2007.
Other Income (Expense), Net. Other income
(expense), net, consisted of a net expense of $724,000 in fiscal
2007 compared to income of $9.3 million in fiscal 2006. In
the third quarter of fiscal 2006, we recorded a gain of
$11.0 million on the sale of a minority equity investment.
Except for the gain in fiscal 2006, other expense primarily
consists of non-cash amortization of subordinated loan costs.
Provision for Income Taxes. We recorded an
income tax provision of $2.8 million for fiscal 2007
compared to $2.4 million for fiscal 2006. The income tax
provision in fiscal 2007 and 2006 is primarily the result of
establishing a deferred tax liability to reflect tax
amortization of goodwill for which no book amortization has
occurred. Due to the uncertainty regarding the timing and extent
of our future profitability, we have recorded a valuation
allowance to offset potential income tax benefits associated
with our operating losses. As a result, we did not record any
income tax benefit in either fiscal 2007 or 2006. There can be
no assurance that deferred tax assets subject to the valuation
allowance will ever be realized.
72
Cumulative effect of adoption of
SFAS 123R. Upon the adoption of Statement of
Financial Accounting Standards, or SFAS, 123R on May 1,
2006, we recorded an additional $1.2 million cumulative
benefit from change in accounting principle, net of tax,
reflecting the net cumulative impact of estimated forfeitures
related to unvested stock options as of May 1, 2006 that
were previously not included in the determination of historic
stock-based compensation expense under APB 25 in periods prior
to May 1, 2006.
Comparison
of Fiscal Years Ended April 30, 2006 and 2005
Revenues. Revenues increased
$83.5 million, or 29.7%, to $364.3 million in fiscal
2006 compared to $280.8 million in fiscal 2005. Sales of
optical subsystems and components and network test and
monitoring systems represented 89.5% and 10.5%, respectively, of
total revenues in fiscal 2006, compared to 86.0% and 14.0%,
respectively, in fiscal 2005.
Optical subsystems and components revenues increased
$84.4 million, or 34.9%, to $326.0 million in fiscal
2006 compared to $241.6 million in fiscal 2005. Our
acquisition on January 31, 2005, of certain assets of
Infineons fiber optics business unit contributed
$26.1 million in revenues in fiscal 2006 compared to
$4.9 million in fiscal 2005. Excluding the effect of the
Infineon acquisition, sales of optical subsystems and components
increased $63.2 million, or 26.7%, in fiscal 2006. Of the
total increase in optical subsystems and components revenues of
$84.4 million, sales of products for short distance LAN/SAN
applications increased $57.7 million, or 40.0%, and sales
of products for MAN and telecom applications increased
$27.0 million, or 28.0%. The increase in revenues from the
sale of these products was primarily the result of an increase
in the volume of units sold to new and existing customers.
Network test and monitoring systems revenues decreased $904,000,
or 2.3%, to $38.3 million in fiscal 2006 compared to
$39.2 million in fiscal 2005. The decrease in revenues was
primarily due to a decrease in demand resulting from a product
lifecycle transition as OEM system manufacturers complete their
transition from 2Ghz to 4Ghz models, partially offset by
revenues related to acquired businesses.
Amortization of Acquired Developed
Technology. Amortization of acquired developed
technology, a component of cost of revenues, decreased
$4.6 million, or 20.6%, in fiscal 2006 to
$17.7 million compared to $22.3 million in fiscal
2005. The decrease reflects the impairment charges recorded in
fiscal 2006 and 2005 as well as the roll-off of certain fully
amortized assets during fiscal 2006.
Impairment of Acquired Developed
Technology. Impairment of acquired developed
technology, a component of cost of revenues, decreased
$2.8 million, or 76.7%, in fiscal 2006 to $853,000 compared
to $3.7 million in fiscal 2005. Included in the balances in
fiscal 2006 was an impairment charge of $853,000 to write off
technology for the linear optical amplifier product acquired
with our acquisition of the assets of Genoa Corporation in April
2003 and technology related to the broadband lightsource product
acquired with our acquisition of Transwave Fiber Inc., in May
2001. Each of these products was discontinued during the second
quarter of fiscal 2006. Included in the balances for fiscal 2005
was an impairment charge of $3.7 million to write off the
remaining book value of certain passive optical technology
associated with our acquisition of assets of New Focus, Inc. in
May 2002.
Gross Profit. Gross profit increased
$47.5 million, or 98.9%, to $95.6 million in fiscal
2006 compared to $48.0 million in fiscal 2005. Gross profit
as a percentage of total revenue was 26.2% in fiscal 2006
compared to 17.1% in fiscal 2005. We recorded charges of
$9.3 million for obsolete and excess inventory in fiscal
2006 and $11.3 million in fiscal 2005. We sold inventory
that was written-off in previous periods resulting in a benefit
of $3.6 million in fiscal 2006 and $9.3 million in
fiscal 2005. As a result, we recognized a net charge of
$5.7 million in fiscal 2006 compared to $2.0 million
in fiscal 2005. Manufacturing overhead includes non-cash
stock-based compensation expense of $2.6 million in fiscal
2006 and $1.3 million in fiscal 2005. Excluding the
amortization and impairment of acquired developed technology,
the net impact of excess and obsolete inventory charges and
stock-based compensation expense, gross profit would have been
$122.4 million, or 33.6% of revenue, in fiscal 2006,
compared to $77.2 million, or 27.5% of revenue in fiscal
2005. The increase in adjusted gross profit margin was primarily
due to the 29.7% increase in revenue driven by increases in unit
volume compared to an increase in manufacturing spending of
17.8% combined with decreases in material costs. Manufacturing
overhead in fiscal 2006 included accelerated depreciation
charges of $1.7 million for abandoned leasehold
improvements and equipment and duplicate manufacturing facility
costs of $2.8 million at our Advanced Optical Components
73
Division as a result of our move to a new manufacturing facility
in Texas which adversely impacted our gross profit margin.
Research and Development Expenses. Research
and development expenses decreased $9.8 million, or 15.3%,
to $54.4 million in fiscal 2006 compared to
$64.2 million in fiscal 2005. The decrease was primarily
due to $5.5 million in reductions in spending for materials
used to develop new products, $2.7 million in reductions in
temporary labor and consulting services, and $913,000 in
reductions in facility and corporate allocations as a result of
corporate cost reductions. Research and development expense
include non-cash stock-based compensation expense of
$2.0 million in fiscal 2006 and $1.4 million in fiscal
2005. Also included in research and development expenses in
fiscal 2006 were charges of $1.9 million related to
abandoned leasehold improvements and equipment. Research and
development expenses as a percent of revenues decreased to 14.9%
in fiscal 2006 compared to 22.9% in fiscal 2005.
Sales and Marketing Expenses. Sales and
marketing expenses increased $2.7 million, or 8.8%, to
$33.1 million in fiscal 2006 compared to $30.5 million
in fiscal 2005. The increase in sales and marketing expenses was
primarily due to a $1.2 million increase in
personnel-related costs and a $1.6 million increase in
commission expense as a result of increased revenues, offset by
reductions in marketing costs. Sales and marketing expense
include non-cash
stock-based
compensation expense of $1.0 million in fiscal 2006 and
$668,000 in fiscal 2005. Sales and marketing expenses as a
percent of revenues decreased to 9.1% in fiscal 2006 compared to
10.8% in fiscal 2005.
General and Administrative Expenses. General
and administrative expenses increased $7.2 million, or
30.3%, to $30.9 million in fiscal 2006 compared to
$23.7 million in fiscal 2005. The increase was primarily
due to an increase in legal expense of $2.5 million as a
result of patent related litigation. Personnel related costs
increased $1.7 million, including $237,000 for reduction in
force related expenses, and our allowance for aged receivables
based on a formula used to quantify receivables that might not
be collectable increased $1.1 million primarily as a result
of higher revenues, although actual bad debt write-offs were
less than $100,000 in fiscal 2006. Also included in general and
administrative costs in fiscal 2006 were accelerated
depreciation charges of $130,000 related to abandoned equipment
and accelerated amortization charges of $648,000 related to
abandoned patents. General and administrative expenses include
non-cash stock-based compensation expense of $1.3 million
in fiscal 2006 and $308,000 in fiscal 2005. General and
administrative expenses as a percent of revenues remained 8.5%
in fiscal 2006 and 8.4% in fiscal 2005.
Amortization of (Benefit from) Deferred Stock
Compensation. We recorded no expense for
amortization of deferred stock compensation costs in fiscal
2006, compared to $162,000 in fiscal 2005. The benefit from
deferred stock compensation is related to the termination of
employees during a period with deferred compensation associated
with their stock options and the effects of the graded vested
method of amortization which accelerates the amortization of
deferred compensation.
Acquired In-process Research and
Development. In-process research and development,
or IPR&D, expenses decreased $1.6 million, or 100%, to
$0 in fiscal 2006 compared to $1.6 million in fiscal 2005.
In fiscal 2005, $318,000 was related to the acquisition of Data
Transit, $1.1 million was related to the acquisition of
Infineons optical transceiver products, and $114,000 was
related to the acquisition of I-TECH.
Amortization of Purchased
Intangibles. Amortization of purchased
intangibles increased $643,000, or 58.2%, to $1.7 million
in fiscal 2006 compared to $1.1 million in fiscal 2005. The
increase was due to purchased intangibles related to our
acquisitions of Infineon, I-Tech and InterSAN.
Impairment of Tangible Assets. During the
quarter ended January 31, 2005, we recorded an impairment
charge if $18.8 million to write down the carrying value of
one of our 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 our retention 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 fourth quarter of fiscal 2005 as a financing
transaction under which the sale will not be recorded until the
option expires or is otherwise terminated. At April 30,
2006, the carrying value of the financing liability, included in
other long-term liabilities, was $12.0 million and the
current portion of the financing liability, included in the
current portion of long-term liabilities, was $297,000.
74
Restructuring Costs. During the second quarter
of fiscal 2006, we completed the consolidation of our Northern
California facilities. The restructuring charges included the
remaining value of non-cancelable lease obligations of
$2.8 million for our abandoned corporate office located in
Sunnyvale and a portion of our facility in Scotts Valley and
moving costs of $290,000. We recorded a restructuring charge of
$287,000 in fiscal 2005 to adjust the operating lease liability
for our Hayward facility that was closed in fiscal 2003.
Interest Income. Interest income increased
$1.1 million, or 45.3%, to $3.5 million in fiscal 2006
compared to $2.4 million in fiscal 2005. The increase was
primarily the result of increasing investment balances and
rising interest rates during fiscal 2006.
Interest Expense. Interest expense increased
$1.4 million, or 9.5%, to $15.8 million in fiscal 2006
compared to $14.5 million in fiscal 2005. Interest expense
is primarily related to our convertible subordinated notes due
in 2008 and 2010. Interest expense related to these notes was
$13.5 million and $13.3 million, of which,
$4.5 million and $4.3 million was the amortization of
the beneficial conversion feature of these notes in fiscal 2006
and 2005, respectively. The increase in interest expense in
fiscal 2006 was primarily related to notes associated with the
acquisitions of Data Transit and I-TECH, a minority investment
in Cyoptics and a financing liability recorded as a result of
the sale-leaseback of one of our corporate facilities. The
principal and interest balances associated with the Data
Transit, I-TECH and Cyoptics notes were converted into shares of
common stock in fiscal 2006.
Other Income (Expense), Net. Other income
(expense), net, decreased $21.9 million, or 174.3%, to
income of $9.3 million in fiscal 2006 compared to an
expense of $12.6 million in fiscal 2005. In the third
quarter of fiscal 2006, we recorded a gain on the sale of a
minority equity investment of $11.0 million. In the fourth
quarter of fiscal 2005, we recorded an impairment charge of
$10.0 million to write-off a minority equity investment in
a company. The remaining expense in fiscal 2006 and 2005
primarily consisted of our proportional share of losses
associated with a minority investment and amortization of
subordinated loan costs.
Provision for Income Taxes. We recorded an
income tax provision of $2.4 million for fiscal 2006
compared to $856,000 for fiscal 2005. The income tax provision
in fiscal 2006 and 2005 is primarily the result of establishing
a deferred tax liability to reflect tax amortization of goodwill
for which no book amortization has occurred. Due to the
uncertainty regarding the timing and extent of our future
profitability, we have recorded a valuation allowance to offset
potential income tax benefits associated with our operating
losses. As a result, we did not record any income tax benefit in
either fiscal 2006 or 2005. There can be no assurance that
deferred tax assets subject to the valuation allowance will ever
be realized.
Liquidity
and Capital Resources
At April 30, 2007, cash, cash equivalents and
available-for-sale investments totaled
$132.5 million compared to $118.8 million at
April 30, 2006. Restricted securities, used to secure
future interest payments on our convertible debt were $625,000
at April 30, 2007 compared to $5.5 million at
April 30, 2006. At April 30, 2007, total short and
long term debt was $267.6 million, compared to
$247.8 million at April 30, 2006. The increase in debt
during fiscal 2007 was primarily due to the issuance of
convertible promissory notes in connection with our acquisition
of AZNA.
Net cash provided by operating activities totaled
$29.0 million in fiscal 2007, compared to cash used of
$1.6 million in fiscal 2006 and $28.0 million in
fiscal 2005. Cash provided by operating activities in fiscal
2007 was primarily a result of operating losses adjusted for
non-cash related items. Working capital uses of cash in fiscal
2007 included cash inflows of $9.9 million offset by
outflows of $22.3 million. Cash inflows were primarily due
to a $3.8 million increase in accounts payable, a
$2.4 million decrease in account receivable, and a
$2.2 million increase in deferred income taxes. The
increase in accounts payable was primarily due to increases in
the dollar volume of payments as a result of increased unit
volumes over the prior year and timing of payments. The decrease
in accounts receivable was primarily due to the sale of
receivables, partially offset by increase in revenues. The
increase in deferred income taxes was primarily due to the book
and tax differences associated with the amortization of goodwill
related to certain asset acquisitions. Cash outflows were
primarily due to an $17.4 million increase in inventories,
a $6.2 million increase in other assets, and a $700,000
decrease in accrued compensation. The increases in inventories
was due to increases in revenues and unit volume. The increase
in other assets was primarily due to
75
investments in our patent portfolio. The decrease in accrued
compensation was primarily due to lower commission accrual.
Net cash used in investing activities totaled $38.0 million
in fiscal 2007, compared to cash provided by investing
activities of $12.8 million in fiscal 2006, and cash used
in investing activities of $27.9 million in fiscal 2005.
Cash provided by investing activities in fiscal 2007 was
$6.7 million, offset by cash used in investing activities
of $44.7 million. Cash provided by investing activities in
fiscal 2007 primarily consisted of maturity of restricted
securities of $5.0 million and proceeds from the sale of
property and equipment of $1.7 million. The use of cash in
investing activities in fiscal 2007 was primarily related to our
acquisitions of AZNA LLC and Kodeos Communications, Inc.,
purchases of equipment for our manufacturing facility in
Malaysia to support increased production volumes and net
purchases of short-term investments of $11.7 million. Cash
provided by investing activities in fiscal 2006 primarily
consisted of proceeds of $11.0 million received from the
sale of a minority investment and net sales of short-term
investments of $17.4 million. The use of cash in investing
activities in fiscal 2006 was primarily due to purchases of
equipment and facility improvements in Malaysia to support
increased production volumes, the acquisition of InterSAN, Inc.
and the acquisition of certain assets of Big Bear Networks.
Net cash provided by financing activities was $1.8 million
in fiscal 2007, compared to $22.7 million in fiscal 2006
and $15.5 million in fiscal 2005. Cash provided by
financing activities in fiscal 2007 primarily consisted of
proceeds of $4.1 million from the exercise of employee
stock options and purchases of stock under our employee stock
purchase plan offset by repayments of an equipment loan by our
bank. Cash provided by financing activities in fiscal 2006
primarily consisted of $9.9 million in proceeds from the
equipment loan and proceeds of $14.0 million from the
exercise of employee stock options and purchases of stock under
our employee stock purchase plan. Cash provided by financing
activities in fiscal 2005 included $12.9 million in
proceeds from the sale-leaseback of one of our corporate offices
and proceeds of $2.5 million from the exercise of stock
options, offset by repayments of borrowings on our convertible
notes.
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 require additional
financing to fund our operations in the future, including the
repayment of our outstanding convertible subordinated notes. The
volatility 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.
At April 30, 2007, we had contractual obligations of
$346.9 million as shown in the following table (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
4-5
|
|
|
After
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Short-term debt
|
|
|
1,897
|
|
|
$
|
1,897
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt
|
|
|
5,638
|
|
|
|
|
|
|
|
4,145
|
|
|
|
1,493
|
|
|
|
|
|
Convertible debt
|
|
|
267,200
|
|
|
|
66,950
|
|
|
|
100,250
|
|
|
|
100,000
|
|
|
|
|
|
Interest on debt
|
|
|
18,695
|
|
|
|
9,346
|
|
|
|
8,066
|
|
|
|
1,283
|
|
|
|
|
|
Lease commitment under sale-leaseback agreement
|
|
|
45,474
|
|
|
|
3,096
|
|
|
|
6,403
|
|
|
|
6,695
|
|
|
|
29,280
|
|
Operating leases
|
|
|
5,174
|
|
|
|
2,275
|
|
|
|
2,553
|
|
|
|
346
|
|
|
|
|
|
Purchase obligations
|
|
|
2,798
|
|
|
|
2,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
346,876
|
|
|
$
|
86,362
|
|
|
$
|
121,417
|
|
|
$
|
109,817
|
|
|
$
|
29,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt consists of $1.9 million representing the
current portion of a note payable to a financial institution.
76
Long-term debt consists of the long-term portion of a note
payable to a financial institution in the principal amount of
$5.6 million.
Convertible debt consists of two series of convertible
subordinated notes in the aggregate principal amount of
$100.3 million due October 15, 2008, and
$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 October 15, 2010. The two
series of convertible subordinated 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 two
series of notes are redeemable by us, in whole or in part, after
October 15, 2004 and October 15, 2007, respectively.
The convertible senior subordinated notes are convertible at the
option of the holders, at any time on or prior to maturity, into
shares of our common stock at a rate equal to approximately
305 shares of common stock per $1,000 principal of the
notes, subject to adjustment in certain circumstances. However,
the convertible senior subordinated notes contain provisions
known as net share settlement which require that, upon
conversion of the notes, we will pay holders in cash for up to
the principal amount of the converted notes and that any amounts
in excess of the cash amount will be settled in shares of our
common stock. Annual interest payments on the convertible
subordinated notes are approximately $9.0 million annually.
Convertible notes also include two convertible promissory notes
in the aggregate principal amount of approximately
$17.0 million that were issued as in connection with the
AZNA acquisition. The convertible promissory notes are payable,
at our option, in cash or shares of our common stock.
Interest on debt consists of the scheduled interest payments on
our short-term, long-term, and convertible debt.
The lease commitment under sale-leaseback agreement includes the
principal amount of $12.0 million related to the
sale-leaseback of our corporate office building, which we
entered into in the fourth quarter of fiscal 2005.
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 $2.8 million has been expensed and recorded
on the balance sheet as non-cancelable purchase obligations as
of April 30, 2007.
On November 1, 2007, the Company entered into an amended
letter of credit reimbursement agreement with Silicon Valley
Bank that will be available to the Company through
October 26, 2008. The terms of the new amended agreement
are substantially unchanged from the previous agreement,
although, the bank has waived the SEC filing requirement
covenant until the Company is current with its filing
requirements. Under the terms of the amended agreement, Silicon
Valley Bank is providing a $15 million letter of credit
facility covering existing letters of credit issued by Silicon
Valley Bank and any other letters of credit that may be required
by us. Outstanding letters of credit secured by this agreement
at April 30, 2007 totaled $11.3 million.
Off-Balance-Sheet
Arrangements
At April 30, 2007 and April 30, 2006, 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.
Pending
Adoption of New Accounting Standards
Fair
Value Measurements
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value
Measurements. SFAS 157 replaces the different definitions
of fair value in the accounting literature with a single
definition. It defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date. SFAS 157 is effective for fair-value
measurements already required or permitted by other standards
for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal
years. We are currently in the process of
77
determining the impact of adopting the provisions of
SFAS 157 on our financial position, results of operations
and cash flows.
Fair
Value Option for Financial Assets and Liabilities
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (FAS 159). FAS 159 permits companies to
choose to measure many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The provisions of
FAS 159 become effective for fiscal years beginning after
November 15, 2007. We believe that the adoption of
SFAS 159 will not have a material effect on our financial
statements.
Accounting
for Electronic Equipment Waste Obligations
In June 2005, the FASB issued FSP
No. FAS 143-1,
Accounting for Electronic Equipment Waste Obligations
(FSP 143-1).
FSP 143-1
provides guidance in accounting for obligations associated with
Directive 2002/96/EC (the Directive) on Waste
Electrical and Electronic Equipment adopted by the European
Union.
FAS 143-1
is required to be applied to the later of the first reporting
period ending after June 6, 2005 or the date of the
Directives adoption into law by the applicable EU member
countries in which we have significant operations. The Directive
distinguishes between new and historical
waste. New waste relates to products put on the market after
August 13, 2005.
FSP 143-1
directs commercial users to apply the provisions of FASB
Statement No. 143, Accounting for Asset Retirement
Obligations, and the related FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations, for the
measurement and recognition of the liability and asset
retirement obligation associated with the historical waste
management requirements of the Directive. Additionally,
FSP 143-1
provides guidance for the accounting by producers for the
financing of the obligations of historical waste held by private
households.
We adopted
FAS 143-1
in the first quarter of fiscal 2006 and concluded that no
significant liability had been incurred as of April 30,
2006. We believe that the adoption of
FSP 143-1
will not have a material effect on our financial statements.
Accounting
for Income Taxes
In June 2006, the FASB issued Interpretation, or FIN,
No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of SFAS No. 109,
or FIN 48. FIN 48 clarifies the accounting for
uncertain taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement of a tax position taken or
expected to be taken in an enterprises tax return. In
addition, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure related to uncertain income tax
positions. FIN 48 is effective for the fiscal years
beginning after December 15, 2006 for all public companies.
Accordingly, we were required to adopt FIN 48 as of
May 1, 2007. The adoption of FIN 48 will not have a
material impact on our consolidated financial statements.
|
|
Item 7A.
|
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. We recorded losses of $237,000 in
fiscal 2007, $2.1 million in fiscal 2006, and
$1.8 million in fiscal 2005, for investments accounted for
under the equity method. For these non-quoted investments, our
policy is to regularly
78
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. There were
no impairment losses on these assets during fiscal 2007 or 2006.
We recognized impairment on these assets of $10.0 million
in fiscal 2005. 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.
The following table summarizes the expected maturity, average
interest rate and fair market value of the available-for-sale
debt securities held by us (and related receivables) and debt
securities issued by us as of April 30, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
2010 and
|
|
|
|
|
|
Market
|
|
|
|
2008
|
|
|
2009
|
|
|
Thereafter
|
|
|
Total Cost
|
|
|
Value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
$
|
68,078
|
|
|
$
|
8,182
|
|
|
$
|
2,510
|
|
|
$
|
78,770
|
|
|
$
|
78,670
|
|
Average interest rate
|
|
|
3.09
|
%
|
|
|
4.36
|
%
|
|
|
5.20
|
%
|
|
|
|
|
|
|
|
|
Restricted securities
|
|
$
|
625
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
625
|
|
|
$
|
625
|
|
Average interest rate
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
100,250
|
|
|
$
|
|
|
|
$
|
100,250
|
|
|
$
|
99,248
|
|
Average interest rate
|
|
|
|
|
|
|
5.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
61,970
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
2.50
|
%
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
123,941
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
2.50
|
%
|
|
|
|
|
|
|
|
|
The following table summarizes the expected maturity, average
interest rate and fair market value of the available-for-sale
debt securities held by us (and related receivables) and debt
securities issued by us as of April 30, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
2009 and
|
|
|
|
|
|
Market
|
|
|
|
2007
|
|
|
2008
|
|
|
Thereafter
|
|
|
Total Cost
|
|
|
Value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
$
|
51,972
|
|
|
$
|
16,490
|
|
|
$
|
5,714
|
|
|
$
|
74,176
|
|
|
$
|
73,600
|
|
Average interest rate
|
|
|
2.65
|
%
|
|
|
4.14
|
%
|
|
|
4.38
|
%
|
|
|
|
|
|
|
|
|
Restricted securities
|
|
$
|
3,705
|
|
|
$
|
1,815
|
|
|
$
|
|
|
|
$
|
5,520
|
|
|
$
|
5,415
|
|
Average interest rate
|
|
|
2.24
|
%
|
|
|
2.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100,250
|
|
|
$
|
100,250
|
|
|
$
|
218,727
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
5.25
|
%
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
104,260
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
2.50
|
%
|
|
|
|
|
|
|
|
|
We have subsidiaries located in China, Malaysia, Europe and
Singapore. Due to the relative volume of transactions through
these subsidiaries, we do not believe that we have significant
exposure to foreign currency exchange risks. We currently do not
use derivative financial instruments to mitigate this exposure.
In July 2005, China and Malaysia changed the system by which the
value of their currencies are determined. Both currencies moved
from a fixed rate pegged to the U.S. dollar to a managed
float pegged to a basket of currencies. We expect that this will
have a minor negative impact on our future costs. We continue to
review this issue and may consider hedging certain foreign
exchange risks through the use of currency forwards or options
in future years.
79
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
FINISAR
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS INDEX
80
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Finisar Corporation
We have audited the accompanying consolidated balance sheets of
Finisar Corporation as of April 30, 2007 and April 30,
2006 (restated), and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended April 30, 2007 (2006
and 2005, restated). Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Finisar Corporation at April 30, 2007
and 2006 (restated), and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended April 30, 2007 (2006 and 2005, restated), in
conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Company has restated its previously issued
financial statements as of April 30, 2006 and for the years
ended April 30, 2006 and 2005 to correct for errors in
share-based compensation and related tax effects.
As discussed in Note 3 to the consolidated financial
statements, on May 1, 2006 the Company adopted the fair
value recognition provisions of Statement of Financial
Accounting Standards No. 123R, Share-Based Payment,
using the modified-prospective-transition method.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Finisar Corporations internal control
over financial reporting as of April 30, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated December 3, 2007
expressed an unqualified opinion thereon
San Jose, California
December 3, 2007
81
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
(note 2)
|
|
|
|
(In thousands except
|
|
|
|
per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
56,106
|
|
|
$
|
63,361
|
|
Short-term investments
|
|
|
56,511
|
|
|
|
33,507
|
|
Restricted investments, short-term
|
|
|
625
|
|
|
|
3,705
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,607 and $2,198 at April 30, 2007 and 2006
|
|
|
55,969
|
|
|
|
57,388
|
|
Accounts receivable, other
|
|
|
7,752
|
|
|
|
8,963
|
|
Inventories
|
|
|
77,670
|
|
|
|
53,570
|
|
Prepaid expenses
|
|
|
4,553
|
|
|
|
4,112
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
259,186
|
|
|
|
224,606
|
|
Long-term investments
|
|
|
19,855
|
|
|
|
21,918
|
|
Property, plant and improvements, net
|
|
|
84,071
|
|
|
|
82,225
|
|
Restricted investments, long-term
|
|
|
|
|
|
|
1,815
|
|
Purchased technology, net
|
|
|
18,351
|
|
|
|
14,972
|
|
Other purchased intangible assets, net
|
|
|
5,647
|
|
|
|
4,184
|
|
Goodwill, net
|
|
|
128,949
|
|
|
|
124,532
|
|
Minority investments
|
|
|
11,250
|
|
|
|
15,093
|
|
Other assets
|
|
|
19,363
|
|
|
|
17,125
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
546,672
|
|
|
$
|
506,470
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
40,187
|
|
|
$
|
34,221
|
|
Accrued compensation
|
|
|
10,550
|
|
|
|
10,932
|
|
Other accrued liabilities
|
|
|
12,590
|
|
|
|
13,129
|
|
Deferred revenue
|
|
|
5,473
|
|
|
|
5,070
|
|
Current portion of other long-term liabilities
|
|
|
2,255
|
|
|
|
2,333
|
|
Convertible notes
|
|
|
66,950
|
|
|
|
|
|
Non-cancelable purchase obligations
|
|
|
2,798
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
140,803
|
|
|
|
66,894
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Convertible notes, net of beneficial conversion feature of
$7,184 and $11,975 at April 30, 2007 and 2006
|
|
|
193,066
|
|
|
|
238,275
|
|
Other long-term liabilities
|
|
|
21,042
|
|
|
|
21,253
|
|
Deferred income taxes
|
|
|
6,090
|
|
|
|
3,919
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
220,198
|
|
|
|
263,447
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding at April 30,
2007 and 2006
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 750,000,000 shares
authorized, 308,632,366 shares issued and outstanding at
April 30, 2007 and 305,512,111 shares issued and
outstanding at April 30, 2006
|
|
|
309
|
|
|
|
306
|
|
Additional paid-in capital
|
|
|
1,529,322
|
|
|
|
1,487,464
|
|
Deferred stock compensation
|
|
|
|
|
|
|
(3,616
|
)
|
Accumulated other comprehensive income
|
|
|
11,162
|
|
|
|
1,698
|
|
Accumulated deficit
|
|
|
(1,355,122
|
)
|
|
|
(1,309,723
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
185,671
|
|
|
|
176,129
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
546,672
|
|
|
$
|
506,470
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
82
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
|
|
|
(note 2)
|
|
|
(note 2)
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
381,263
|
|
|
$
|
325,956
|
|
|
$
|
241,582
|
|
Network test and monitoring systems
|
|
|
37,285
|
|
|
|
38,337
|
|
|
|
39,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
418,548
|
|
|
|
364,293
|
|
|
|
280,823
|
|
Cost of revenues
|
|
|
270,272
|
|
|
|
250,186
|
|
|
|
206,836
|
|
Amortization of acquired developed technology
|
|
|
6,002
|
|
|
|
17,671
|
|
|
|
22,268
|
|
Impairment of acquired developed technology
|
|
|
|
|
|
|
853
|
|
|
|
3,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
142,274
|
|
|
|
95,583
|
|
|
|
48,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
64,559
|
|
|
|
54,412
|
|
|
|
64,232
|
|
Sales and marketing
|
|
|
36,122
|
|
|
|
33,144
|
|
|
|
30,456
|
|
General and administrative
|
|
|
35,641
|
|
|
|
30,864
|
|
|
|
23,684
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Acquired in-process research and development
|
|
|
5,770
|
|
|
|
|
|
|
|
1,558
|
|
Amortization of purchased intangibles
|
|
|
1,814
|
|
|
|
1,747
|
|
|
|
1,104
|
|
Impairment of tangible assets
|
|
|
|
|
|
|
|
|
|
|
18,798
|
|
Restructuring costs
|
|
|
|
|
|
|
3,064
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
143,906
|
|
|
|
123,231
|
|
|
|
140,281
|
|
Loss from operations
|
|
|
(1,632
|
)
|
|
|
(27,648
|
)
|
|
|
(92,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,204
|
|
|
|
3,482
|
|
|
|
2,396
|
|
Interest expense
|
|
|
(16,044
|
)
|
|
|
(15,842
|
)
|
|
|
(14,468
|
)
|
Loss on convertible debt exchange
|
|
|
(31,606
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(724
|
)
|
|
|
9,346
|
|
|
|
(12,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of change in
accounting principle
|
|
|
(43,802
|
)
|
|
|
(30,662
|
)
|
|
|
(116,872
|
)
|
Provision for income taxes
|
|
|
2,810
|
|
|
|
2,367
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(46,612
|
)
|
|
|
(33,029
|
)
|
|
|
(117,728
|
)
|
Cumulative effect of accounting change in accounting principle,
net of taxes
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(45,399
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(117,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.51
|
)
|
Cumulative effect of accounting change in accounting principle
|
|
$
|
0.00
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share basic
and diluted
|
|
|
307,804
|
|
|
|
290,518
|
|
|
|
232,210
|
|
See accompanying notes.
83
FINISAR
CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
from
|
|
|
Stock
|
|
|
Income
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Compensation
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at April 30, 2004, as previously reported
|
|
|
222,531,335
|
|
|
$
|
222
|
|
|
$
|
1,259,759
|
|
|
$
|
(481
|
)
|
|
$
|
(162
|
)
|
|
$
|
710
|
|
|
$
|
(1,057,203
|
)
|
|
$
|
202,845
|
|
Cumulative effect of restatement (see note 2)
|
|
|
|
|
|
|
|
|
|
|
112,309
|
|
|
|
|
|
|
|
(10,384
|
)
|
|
|
|
|
|
|
(101,763
|
)
|
|
|
162
|
|
Balance at April 30, 2004, restated (note 2)
|
|
|
222,531,335
|
|
|
|
222
|
|
|
|
1,372,068
|
|
|
|
(481
|
)
|
|
|
(10,546
|
)
|
|
|
710
|
|
|
|
(1,158,966
|
)
|
|
|
203,007
|
|
Stock-based compensation expense related to Note 2
|
|
|
|
|
|
|
|
|
|
|
(2,120
|
)
|
|
|
|
|
|
|
5,738
|
|
|
|
|
|
|
|
|
|
|
|
3,618
|
|
Issuance of common stock for completion of milestones related to
acquisition of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transwave
|
|
|
144,806
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
Issuance of common stock related to acquisition of certain assets
|
|
|
34,000,000
|
|
|
|
34
|
|
|
|
52,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,496
|
|
Exercise of warrants, stock options, net of repurchase of
unvested shares
|
|
|
1,654,422
|
|
|
|
2
|
|
|
|
1,452
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,468
|
|
Issuance of common stock through employee stock purchase plan
|
|
|
600,715
|
|
|
|
1
|
|
|
|
1,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,016
|
|
Payments received on stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467
|
|
Unrealized gain (loss) on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
(465
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,728
|
)
|
|
|
(117,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005, restated (note 2)
|
|
|
258,931,278
|
|
|
$
|
259
|
|
|
$
|
1,425,133
|
|
|
|
|
|
|
$
|
(4,808
|
)
|
|
$
|
381
|
|
|
$
|
(1,276,694
|
)
|
|
$
|
144,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense related to Note 2
|
|
|
|
|
|
|
|
|
|
|
6,111
|
|
|
|
|
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
7,303
|
|
Issuance of common stock of conversion of convertible notes
|
|
|
28,785,022
|
|
|
$
|
29
|
|
|
|
33,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,505
|
|
Issuance of common stock related to acquisition of InterSan
|
|
|
7,132,229
|
|
|
|
7
|
|
|
|
8,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,816
|
|
Exercise of warrants, stock options, net of repurchase of
unvested shares
|
|
|
9,434,333
|
|
|
|
10
|
|
|
|
12,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,859
|
|
Issuance of common stock through employee stock purchase plan
|
|
|
1,229,249
|
|
|
|
1
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,087
|
|
Unrealized gain (loss) on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,397
|
|
|
|
|
|
|
|
1,397
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,029
|
)
|
|
|
(33,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2006, restated (note 2)
|
|
|
305,512,111
|
|
|
$
|
306
|
|
|
$
|
1,487,464
|
|
|
|
|
|
|
$
|
(3,616
|
)
|
|
$
|
1,698
|
|
|
$
|
(1,309,723
|
)
|
|
$
|
176,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense related to Note 2
|
|
|
|
|
|
|
|
|
|
|
(3,616
|
)
|
|
|
|
|
|
|
3,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants, stock options, net of repurchase of
unvested shares
|
|
|
2,260,837
|
|
|
|
2
|
|
|
|
3,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,639
|
|
Issuance of common stock through employee stock purchase plan
|
|
|
860,025
|
|
|
|
1
|
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,681
|
|
Stock-based compensation expense related to employee stock
options and employee stock purchases
|
|
|
|
|
|
|
|
|
|
|
11,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,637
|
|
Beneficial conversion on issuance of debt
|
|
|
|
|
|
|
|
|
|
|
29,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,733
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,213
|
)
|
Unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,645
|
|
|
|
|
|
|
|
5,645
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,819
|
|
|
|
|
|
|
|
3,819
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,399
|
)
|
|
|
(45,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2007
|
|
|
308,632,973
|
|
|
$
|
309
|
|
|
$
|
1,529,322
|
|
|
|
|
|
|
|
|
|
|
$
|
11,162
|
|
|
$
|
(1,355,122
|
)
|
|
$
|
185,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
84
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As Restated
|
|
|
As Restated
|
|
|
|
|
|
|
(Note 2)
|
|
|
(Note 2)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(45,399
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(117,728
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
26,893
|
|
|
|
33,467
|
|
|
|
28,841
|
|
Compensation expense related to modification of existing options
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Stock-based compensation expense
|
|
|
11,822
|
|
|
|
6,819
|
|
|
|
3,838
|
|
Acquired in-process research and development
|
|
|
5,770
|
|
|
|
|
|
|
|
1,558
|
|
Amortization of beneficial conversion feature of convertible
notes
|
|
|
4,791
|
|
|
|
4,527
|
|
|
|
4,256
|
|
Amortization of purchased technology and other purchased
intangibles
|
|
|
1,814
|
|
|
|
1,747
|
|
|
|
1,103
|
|
Amortization of acquired developed technology
|
|
|
6,002
|
|
|
|
17,672
|
|
|
|
22,269
|
|
Amortization of discount on restricted securities
|
|
|
(92
|
)
|
|
|
(160
|
)
|
|
|
(244
|
)
|
Loss (gain) on sale of equipment
|
|
|
1,214
|
|
|
|
(153
|
)
|
|
|
1,174
|
|
Gain on sale of minority investment
|
|
|
(1,198
|
)
|
|
|
(10,967
|
)
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
31,606
|
|
|
|
|
|
|
|
|
|
Loss on retirement of assets
|
|
|
|
|
|
|
|
|
|
|
329
|
|
Share of losses of equity investee
|
|
|
237
|
|
|
|
2,118
|
|
|
|
1,766
|
|
Impairment of minority investments
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
853
|
|
|
|
3,656
|
|
Impairment of assets
|
|
|
|
|
|
|
|
|
|
|
18,798
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,449
|
|
|
|
(14,683
|
)
|
|
|
(13,290
|
)
|
Inventories
|
|
|
(17,364
|
)
|
|
|
(18,651
|
)
|
|
|
3,455
|
|
Other assets
|
|
|
(6,230
|
)
|
|
|
(5,288
|
)
|
|
|
(5,266
|
)
|
Deferred income taxes
|
|
|
2,176
|
|
|
|
2,287
|
|
|
|
1,632
|
|
Accounts payable
|
|
|
3,768
|
|
|
|
3,537
|
|
|
|
970
|
|
Accrued compensation
|
|
|
(737
|
)
|
|
|
6,230
|
|
|
|
69
|
|
Other accrued liabilities
|
|
|
1,375
|
|
|
|
596
|
|
|
|
1,911
|
|
Deferred revenue
|
|
|
114
|
|
|
|
1,525
|
|
|
|
2,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
29,011
|
|
|
|
(1,553
|
)
|
|
|
(27,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, equipment and improvements
|
|
|
(22,340
|
)
|
|
|
(22,887
|
)
|
|
|
(21,202
|
)
|
Purchases of short and long-term investments
|
|
|
(164,796
|
)
|
|
|
(245,916
|
)
|
|
|
(177,642
|
)
|
Sale/maturity of short and long-term investments
|
|
|
153,141
|
|
|
|
263,344
|
|
|
|
177,776
|
|
Maturity of restricted securities
|
|
|
4,951
|
|
|
|
3,750
|
|
|
|
6,381
|
|
Acquisition of subsidiaries, net of cash assumed
|
|
|
(10,708
|
)
|
|
|
(1,213
|
)
|
|
|
694
|
|
Acquisition of product line assets
|
|
|
|
|
|
|
3,868
|
|
|
|
(13,694
|
)
|
Proceeds from sale of property and equipment
|
|
|
512
|
|
|
|
914
|
|
|
|
743
|
|
Proceeds from sale of minority investment
|
|
|
1,198
|
|
|
|
10,967
|
|
|
|
|
|
Purchases of, and loan to, minority investments, net of loan
repayments
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(38,042
|
)
|
|
|
12,827
|
|
|
|
(27,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of a note
|
|
|
|
|
|
|
9,897
|
|
|
|
|
|
Financing liability related to sale-leaseback of building
|
|
|
|
|
|
|
|
|
|
|
12,900
|
|
Repayments of liability related to sale-leaseback of building
|
|
|
(296
|
)
|
|
|
(243
|
)
|
|
|
(360
|
)
|
Repayments of borrowings under notes
|
|
|
(2,036
|
)
|
|
|
(944
|
)
|
|
|
|
|
Payment received on stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
467
|
|
Proceeds from exercise of stock options and stock purchase plan,
net of repurchase of unvested shares
|
|
|
4,108
|
|
|
|
13,946
|
|
|
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,776
|
|
|
|
22,656
|
|
|
|
15,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(7,255
|
)
|
|
|
33,930
|
|
|
|
(40,441
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
63,361
|
|
|
|
29,431
|
|
|
|
69,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
56,106
|
|
|
$
|
63,361
|
|
|
$
|
29,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
9,514
|
|
|
$
|
9,449
|
|
|
$
|
9,013
|
|
Cash paid for taxes
|
|
$
|
659
|
|
|
$
|
40
|
|
|
$
|
42
|
|
Supplemental schedule of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible promissory note on asset purchase
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible promissory note on acquisition of
subsidiary
|
|
$
|
16,950
|
|
|
$
|
|
|
|
$
|
12,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible promissory note for minority investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants and assumption of options
in connection with acquisitions
|
|
$
|
|
|
|
$
|
8,816
|
|
|
$
|
52,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon conversion of promissory note
|
|
$
|
|
|
|
$
|
33,505
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Summary
of Significant Accounting Policies
|
Description
of Business
Finisar Corporation is a leading provider of optical subsystems
and components that connect local area networks, or LANs,
storage area networks, or SANs, and metropolitan area networks,
or MANs. Our optical subsystems consist primarily of
transceivers which provide the fundamental optical-electrical
interface for connecting the equipment used in building these
networks. These products rely on the use of digital
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. 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 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, Hewlett-Packard Company,
Huawei, and Qlogic.
We also provide network performance test and monitoring systems
primarily to leading storage equipment manufacturers such as
Brocade, EMC, Emulex, Hewlett-Packard Company, and Qlogic for
testing and validating equipment designs and, to a lesser
degree, to operators of networking and storage data centers for
testing, monitoring and troubleshooting the performance of their
installed systems.
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.
|
|
2.
|
Restatement
of Consolidated Financial Statements
|
The Audit Committee of the Board of Directors (Audit
Committee) has completed a review of the Companys
stock option granting practices and accounting. Based on the
results of this review, the Company concluded that the
accounting measurement dates under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), for certain stock option grants
awarded made from the date of the Companys initial public
offering on November 11, 1999 through September 30,
2006 (the Review Period) differ from the measurement
dates previously used to determine any share-based compensation
expense during the seven fiscal years ended April 30, 2006.
The Company is restating its consolidated balance sheet as of
April 30, 2006 and the related consolidated statements of
operations, stockholders equity, and cash flows for the
fiscal years ended April 30, 2006 and 2005 as a result of
the Companys review of information developed through the
independent investigation of the Companys historical stock
option grants. In addition, the Company is restating the
share-based compensation expense that the Company discussed in
its footnotes under the fair value method as presented in
Note 16, Stockholders Equity, and the
unaudited quarterly financial information and financial
statements for the interim period ended July 30, 2006 and
all interim periods of fiscal 2006 in Note 27,
Quarterly Financial Data (Unaudited), of this report.
Background
of the Audit Committee Investigation
In late August 2006, management commenced a preliminary internal
review of certain of the Companys historical stock options
granted since the Companys initial public offering on
November 11, 1999. The review was voluntarily initiated by
us due to widespread media attention concerning the stock option
grant practices of many companies and was not in response to a
news report or an investigation concerning Finisar by the
Securities and Exchange Commission or any other governmental
agency. After managements report on the results of this
initial review, the Audit Committee directed management to
conduct a further analysis of certain stock option grants.
Thereafter, management reviewed documentation and materials
regarding additional option grants and, in early
86
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
November, identified potential issues with respect to certain
annual grants to employees. As a result, the Audit Committee
determined that it should undertake a more comprehensive
investigation of our historical practices for granting and
accounting for stock options during the Review Period. On
November 30, 2006, the Company issued a press release and
filed a Current Report on
Form 8-K
announcing the commencement of this review of its historical
stock option granting practices and related accounting, and
disclosing that the Companys previously-filed financial
statements could no longer be relied upon. The Company also
informed the staff of the Securities and Exchange Commission of
the commencement of the investigation into its historical stock
option granting practices and related accounting. The Audit
Committees investigation was conducted with the assistance
of independent counsel and forensic accountants.
The scope of the Audit Committees investigation was
extensive, and included the review of all stock option grants
during the Review Period . In addition, the investigation
involved testing and analyses of the Companys hiring,
termination, leave of absence, and grant notification practices
regarding stock options during the Review Period.
Findings
Based on the results of the investigation, the Company found
evidence that it previously used incorrect measurement dates
when accounting for stock option grants pursuant to Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, or APB 25, and related interpretations.
The Company concluded that revised measurement dates are
required for approximately 71% of the stock option grants
awarded during the Review Period. Revising option grant
measurement dates resulted in total additional stock-based
compensation charges of $107.6 million to be recognized in
the fiscal years 2000 through 2006. Approximately 85% of this
total additional stock-based compensation expense, or
$91.1 million, is attributable to six key Granting Actions
that occurred between June 2000 and August 2003, representing
approximately 21 million shares, or 20% of all options
granted during the Review Period. Three of these six key
Granting Actions were performance grants, and three were New
Hire grants, as such grant types are defined below. The Audit
Committee determined that the incorrect measurement dates were
the result of process-related deficiencies and that the
individuals involved in the option granting process reached a
thorough understanding of the relevant accounting rules. The
Audit Committee found no evidence of intentional misconduct or
malfeasance on the part of the Company personnel involved in
selecting and approving the grant dates or administering the
stock option granting process.
The reasons for the revised measurement dates varied with the
particular facts and circumstances of each affected grant,
including: grants that were not approved until after the stated
grant date; grants that were dated and priced at a time when
lists of grant recipients and share allocations were not yet
finalized; grants that were not accurately and timely
documented; grant dates that appeared to have been selected
retrospectively, in some cases apparently due to price
considerations; and grants that were completed and subsequently
modified.
In addition, the Company identified modifications to certain
stock options related to extended leaves of absence that should
have been accounted for by applying modification accounting as
required by the provisions of FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation, or FIN 44. This resulted in
$5.1 million of additional stock-based compensation
expense, of which $4.9 million is attributable to one leave
of absence. Therefore, as a result of the investigation, the
Company identified a total of $112.1 million in additional
pre-tax, non-cash, stock-based compensation charges for the
fiscal years 2000 through 2006 ($112.7 million prior to the
consideration of payroll tax charges and inventory
capitalization) and had approximately $3.6 million of
deferred stock-based compensation expense to be amortized as of
April 30, 2006. On May 1, 2006, we adopted Statement
of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). As required by SFAS 123R,
the unamortized deferred compensation expense of
$3.6 million at May 1, 2006 has been reclassified to
additional paid-in capital.
87
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
With respect to grants that the Company determined had been
completed and later repriced, the Company applied variable
accounting in accordance with APB 25 and FASB Interpretation
No. 44, Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25
(FIN 44).
Restatement
of Financial Statements
Following the conclusion of the Audit Committees
investigation, with the concurrence of management, the Company
determined that it should have recognized approximately
$112.1 million of pre-tax share-based compensation expense
during the Review Period that was not accounted for in the
Companys previously issued financial statements. In
addition, the Company should have recorded approximately
$1.6 million of payroll tax expense. Therefore, the Company
is restating financial information in this report for the fiscal
years ended as of April 30, 2006 and for the fiscal years
ended April 30, 2006 and 2005.
To reflect this previously unrecognized non-cash expense the
Company has recognized additional share-based compensation
expense and payroll tax expense, that has the overall effect of
increasing the accumulated deficit, and common stock and
additional paid-in capital. The table below reflects the impact,
by year, of the restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement Adjustments
|
|
|
|
Gross
|
|
|
Stock-Based
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
|
|
|
Compensation
|
|
|
Stock-Based
|
|
|
Payroll
|
|
|
Total
|
|
|
Income Tax
|
|
|
After-Tax
|
|
|
|
Compensation
|
|
|
Capitalized
|
|
|
Compensation
|
|
|
Tax
|
|
|
Pre-Tax
|
|
|
(Benefit)
|
|
|
Non-Cash
|
|
Fiscal Year Ended
|
|
Charge
|
|
|
to Inventory
|
|
|
Charge
|
|
|
Charge
|
|
|
Charges
|
|
|
Provision
|
|
|
Charge
|
|
|
|
(In thousands)
|
|
|
April 30, 2000
|
|
$
|
5,416
|
|
|
$
|
(124
|
)
|
|
$
|
5,292
|
|
|
$
|
0
|
|
|
$
|
5,292
|
|
|
$
|
(2,112
|
)
|
|
$
|
3,180
|
|
April 30, 2001
|
|
|
27,160
|
|
|
|
(563
|
)
|
|
|
26,597
|
|
|
|
175
|
|
|
|
26,772
|
|
|
|
(10,906
|
)
|
|
|
15,866
|
|
April 30, 2002
|
|
|
31,780
|
|
|
|
(568
|
)
|
|
|
31,212
|
|
|
|
22
|
|
|
|
31,234
|
|
|
|
13,018
|
|
|
|
44,252
|
|
April 30, 2003
|
|
|
24,482
|
|
|
|
835
|
|
|
|
25,317
|
|
|
|
3
|
|
|
|
25,320
|
|
|
|
|
|
|
|
25,320
|
|
April 30, 2004
|
|
|
13,087
|
|
|
|
72
|
|
|
|
13,159
|
|
|
|
(14
|
)
|
|
|
13,145
|
|
|
|
|
|
|
|
13,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Effect at April 30, 2004
|
|
|
101,925
|
|
|
|
(348
|
)
|
|
|
101,577
|
|
|
|
186
|
|
|
|
101,763
|
|
|
|
|
|
|
|
101,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2005
|
|
|
3,440
|
|
|
|
236
|
|
|
|
3,676
|
|
|
|
(55
|
)
|
|
|
3,621
|
|
|
|
|
|
|
|
3,621
|
|
April 30, 2006
|
|
|
7,303
|
|
|
|
(484
|
)
|
|
|
6,819
|
|
|
|
1,425
|
|
|
|
8,244
|
|
|
|
(134
|
)
|
|
|
8,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,668
|
|
|
$
|
(596
|
)
|
|
$
|
112,072
|
|
|
$
|
1,556
|
|
|
$
|
113,628
|
|
|
$
|
(134
|
)
|
|
$
|
113,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cumulative effect of share-based compensation pre-tax
adjustments was to increase additional paid-in capital by
$112.3 million and to increase accumulated deficit by
$101.8 million on the Companys consolidated balance
sheet as of April 30, 2004. The restatement had no impact
on the Companys previously reported cash flows or revenues.
88
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables are detailed restated financial statements
for the April 30, 2006 consolidated balance sheet and
consolidated statements of operations and consolidated
statements of cash flows for the years ended April 30 2006 and
2005.
Consolidated
Balance Sheet Impact
The following table reconciles the Companys consolidated
balance sheet as previously reported to the as restated amounts
as of April 30, 2006:
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2006
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,361
|
|
|
$
|
|
|
|
$
|
63,361
|
|
Short-term investments
|
|
|
33,507
|
|
|
|
|
|
|
|
33,507
|
|
Restricted investments, short-term
|
|
|
3,705
|
|
|
|
|
|
|
|
3,705
|
|
Accounts receivable, net of allowances
|
|
|
57,388
|
|
|
|
|
|
|
|
57,388
|
|
Accounts receivable, other
|
|
|
8,963
|
|
|
|
|
|
|
|
8,963
|
|
Inventories
|
|
|
52,974
|
|
|
|
596
|
|
|
|
53,570
|
|
Prepaid expenses
|
|
|
4,112
|
|
|
|
|
|
|
|
4,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
224,010
|
|
|
|
596
|
|
|
|
224,606
|
|
Long-term investments
|
|
|
21,918
|
|
|
|
|
|
|
|
21,918
|
|
Property, plant and improvements, net
|
|
|
82,225
|
|
|
|
|
|
|
|
82,225
|
|
Restricted investments, long-term
|
|
|
1,815
|
|
|
|
|
|
|
|
1,815
|
|
Purchased technology, net
|
|
|
14,972
|
|
|
|
|
|
|
|
14,972
|
|
Other purchased intangible assets, net
|
|
|
4,184
|
|
|
|
|
|
|
|
4,184
|
|
Goodwill, net
|
|
|
124,532
|
|
|
|
|
|
|
|
124,532
|
|
Minority investments
|
|
|
15,093
|
|
|
|
|
|
|
|
15,093
|
|
Other assets
|
|
|
17,125
|
|
|
|
|
|
|
|
17,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
505,874
|
|
|
$
|
596
|
|
|
$
|
506,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
34,221
|
|
|
$
|
|
|
|
$
|
34,221
|
|
Accrued compensation
|
|
|
9,376
|
|
|
|
1,556
|
|
|
|
10,932
|
|
Other accrued liabilities
|
|
|
13,129
|
|
|
|
|
|
|
|
13,129
|
|
Deferred revenue
|
|
|
5,070
|
|
|
|
|
|
|
|
5,070
|
|
Current portion of other long-term liabilities
|
|
|
2,333
|
|
|
|
|
|
|
|
2,333
|
|
Non-cancelable purchase obligations
|
|
|
1,209
|
|
|
|
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
65,338
|
|
|
|
1,556
|
|
|
|
66,894
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
238,275
|
|
|
|
|
|
|
|
238,275
|
|
Other long-term liabilities
|
|
|
21,253
|
|
|
|
|
|
|
|
21,253
|
|
Deferred income taxes
|
|
|
4,053
|
|
|
|
(134
|
)
|
|
|
3,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
263,581
|
|
|
|
(134
|
)
|
|
|
263,447
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
306
|
|
|
|
|
|
|
|
306
|
|
Additional paid-in capital
|
|
|
1,371,180
|
|
|
|
116,284
|
|
|
|
1,487,464
|
|
Deferred stock compensation
|
|
|
|
|
|
|
(3,616
|
)
|
|
|
(3,616
|
)
|
Accumulated other comprehensive income
|
|
|
1,698
|
|
|
|
|
|
|
|
1,698
|
|
Accumulated deficit
|
|
|
(1,196,229
|
)
|
|
|
(113,494
|
)
|
|
|
(1,309,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
176,955
|
|
|
|
(826
|
)
|
|
|
176,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
505,874
|
|
|
$
|
596
|
|
|
$
|
506,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statements of Operations Impact
The following table reconciles the Companys consolidated
statements of operations as previously reported to the as
restated amounts for the years ended April 30, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
325,956
|
|
|
$
|
|
|
|
$
|
325,956
|
|
|
$
|
241,582
|
|
|
$
|
|
|
|
$
|
241,582
|
|
Network test and monitoring systems
|
|
|
38,337
|
|
|
|
|
|
|
|
38,337
|
|
|
|
39,241
|
|
|
|
|
|
|
|
39,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
364,293
|
|
|
|
|
|
|
|
364,293
|
|
|
|
280,823
|
|
|
|
|
|
|
|
280,823
|
|
Cost of revenues
|
|
|
247,126
|
|
|
|
3,060
|
|
|
|
250,186
|
|
|
|
205,631
|
|
|
|
1,205
|
|
|
|
206,836
|
|
Amortization of acquired developed technology
|
|
|
17,671
|
|
|
|
|
|
|
|
17,671
|
|
|
|
22,268
|
|
|
|
|
|
|
|
22,268
|
|
Impairment of acquired developed technology
|
|
|
853
|
|
|
|
|
|
|
|
853
|
|
|
|
3,656
|
|
|
|
|
|
|
|
3,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
98,643
|
|
|
|
(3,060
|
)
|
|
|
95,583
|
|
|
|
49,268
|
|
|
|
(1,205
|
)
|
|
|
48,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
51,903
|
|
|
|
2,509
|
|
|
|
54,412
|
|
|
|
62,799
|
|
|
|
1,433
|
|
|
|
64,232
|
|
Sales and marketing
|
|
|
31,925
|
|
|
|
1,219
|
|
|
|
33,144
|
|
|
|
29,783
|
|
|
|
673
|
|
|
|
30,456
|
|
General and administrative
|
|
|
29,408
|
|
|
|
1,456
|
|
|
|
30,864
|
|
|
|
23,374
|
|
|
|
310
|
|
|
|
23,684
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
162
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,558
|
|
|
|
|
|
|
|
1,558
|
|
Amortization of purchased intangibles
|
|
|
1,747
|
|
|
|
|
|
|
|
1,747
|
|
|
|
1,104
|
|
|
|
|
|
|
|
1,104
|
|
Impairment of tangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,798
|
|
|
|
|
|
|
|
18,798
|
|
Restructuring costs
|
|
|
3,064
|
|
|
|
|
|
|
|
3,064
|
|
|
|
287
|
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
118,047
|
|
|
|
5,184
|
|
|
|
123,231
|
|
|
|
137,865
|
|
|
|
2,416
|
|
|
|
140,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(19,404
|
)
|
|
|
(8,244
|
)
|
|
|
(27,648
|
)
|
|
|
(88,597
|
)
|
|
|
(3,621
|
)
|
|
|
(92,218
|
)
|
Interest income
|
|
|
3,482
|
|
|
|
|
|
|
|
3,482
|
|
|
|
2,396
|
|
|
|
|
|
|
|
2,396
|
|
Interest expense
|
|
|
(15,842
|
)
|
|
|
|
|
|
|
(15,842
|
)
|
|
|
(14,468
|
)
|
|
|
|
|
|
|
(14,468
|
)
|
Other income (expense), net
|
|
|
9,346
|
|
|
|
|
|
|
|
9,346
|
|
|
|
(12,582
|
)
|
|
|
|
|
|
|
(12,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(22,418
|
)
|
|
|
(8,244
|
)
|
|
|
(30,662
|
)
|
|
|
(113,251
|
)
|
|
|
(3,621
|
)
|
|
|
(116,872
|
)
|
Provision for income taxes
|
|
|
2,501
|
|
|
|
(134
|
)
|
|
|
2,367
|
|
|
|
856
|
|
|
|
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,919
|
)
|
|
$
|
(8,110
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(114,107
|
)
|
|
$
|
(3,621
|
)
|
|
$
|
(117,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
(0.09
|
)
|
|
|
(0.03
|
)
|
|
|
(0.11
|
)
|
|
|
(0.49
|
)
|
|
|
(0.02
|
)
|
|
|
(0.51
|
)
|
Shares used in computing net loss per share basic
and diluted
|
|
|
290,518
|
|
|
|
290,518
|
|
|
|
290,518
|
|
|
|
232,210
|
|
|
|
232,210
|
|
|
|
232,210
|
|
90
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statements of Cash Flows Impact
The following table reconciles the Companys consolidated
statements of cash flows as previously reported to the restated
amounts for the years ended April 30 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,919
|
)
|
|
$
|
(8,110
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(114,107
|
)
|
|
$
|
(3,621
|
)
|
|
$
|
(117,728
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
33,467
|
|
|
|
|
|
|
|
33,467
|
|
|
|
28,841
|
|
|
|
|
|
|
|
28,841
|
|
Compensation expense related to modification of existing options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Stock-based compensation expense related to employee stock
options and employee stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
6,819
|
|
|
|
6,819
|
|
|
|
162
|
|
|
|
3,676
|
|
|
|
3,838
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,558
|
|
|
|
|
|
|
|
1,558
|
|
Amortization of beneficial conversion feature of convertible
notes
|
|
|
4,527
|
|
|
|
|
|
|
|
4,527
|
|
|
|
4,256
|
|
|
|
|
|
|
|
4,256
|
|
Amortization of purchased technology and other purchased
intangibles
|
|
|
1,747
|
|
|
|
|
|
|
|
1,747
|
|
|
|
1,103
|
|
|
|
|
|
|
|
1,103
|
|
Amortization of acquired developed technology
|
|
|
17,672
|
|
|
|
|
|
|
|
17,672
|
|
|
|
22,269
|
|
|
|
|
|
|
|
22,269
|
|
Amortization of discount on restricted securities
|
|
|
(160
|
)
|
|
|
|
|
|
|
(160
|
)
|
|
|
(244
|
)
|
|
|
|
|
|
|
(244
|
)
|
Loss (gain) on sale of equipment
|
|
|
(153
|
)
|
|
|
|
|
|
|
(153
|
)
|
|
|
1,174
|
|
|
|
|
|
|
|
1,174
|
|
Gain on sale of minority investment
|
|
|
(10,967
|
)
|
|
|
|
|
|
|
(10,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on retirement of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
329
|
|
Share of losses of equity investee
|
|
|
2,118
|
|
|
|
|
|
|
|
2,118
|
|
|
|
1,766
|
|
|
|
|
|
|
|
1,766
|
|
Impairment of minority investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
Impairment of intangible assets
|
|
|
853
|
|
|
|
|
|
|
|
853
|
|
|
|
3,656
|
|
|
|
|
|
|
|
3,656
|
|
Impairment of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,798
|
|
|
|
|
|
|
|
18,798
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(14,683
|
)
|
|
|
|
|
|
|
(14,683
|
)
|
|
|
(13,290
|
)
|
|
|
|
|
|
|
(13,290
|
)
|
Inventories
|
|
|
(18,651
|
)
|
|
|
|
|
|
|
(18,651
|
)
|
|
|
3,455
|
|
|
|
|
|
|
|
3,455
|
|
Other assets
|
|
|
(5,288
|
)
|
|
|
|
|
|
|
(5,288
|
)
|
|
|
(5,266
|
)
|
|
|
|
|
|
|
(5,266
|
)
|
Deferred income taxes
|
|
|
2,421
|
|
|
|
(134
|
)
|
|
|
2,287
|
|
|
|
1,632
|
|
|
|
|
|
|
|
1,632
|
|
Accounts payable
|
|
|
3,537
|
|
|
|
|
|
|
|
3,537
|
|
|
|
970
|
|
|
|
|
|
|
|
970
|
|
Accrued compensation
|
|
|
4,805
|
|
|
|
1,425
|
|
|
|
6,230
|
|
|
|
124
|
|
|
|
(55
|
)
|
|
|
69
|
|
Other accrued liabilities
|
|
|
596
|
|
|
|
|
|
|
|
596
|
|
|
|
1,911
|
|
|
|
|
|
|
|
1,911
|
|
Deferred revenue
|
|
|
1,525
|
|
|
|
|
|
|
|
1,525
|
|
|
|
2,899
|
|
|
|
|
|
|
|
2,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,553
|
)
|
|
|
|
|
|
|
(1,553
|
)
|
|
|
(27,988
|
)
|
|
|
|
|
|
|
(27,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, equipment and improvements
|
|
|
(22,887
|
)
|
|
|
|
|
|
|
(22,887
|
)
|
|
|
(21,202
|
)
|
|
|
|
|
|
|
(21,202
|
)
|
Purchases of short and long-term investments
|
|
|
(245,916
|
)
|
|
|
|
|
|
|
(245,916
|
)
|
|
|
(177,642
|
)
|
|
|
|
|
|
|
(177,642
|
)
|
Sale/maturity of short and long-term investments
|
|
|
263,344
|
|
|
|
|
|
|
|
263,344
|
|
|
|
177,776
|
|
|
|
|
|
|
|
177,776
|
|
Maturity of restricted securities
|
|
|
3,750
|
|
|
|
|
|
|
|
3,750
|
|
|
|
6,381
|
|
|
|
|
|
|
|
6,381
|
|
Acquisition of subsidiaries, net of cash assumed
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
(1,213
|
)
|
|
|
694
|
|
|
|
|
|
|
|
694
|
|
Acquisition of product line assets
|
|
|
3,868
|
|
|
|
|
|
|
|
3,868
|
|
|
|
(13,694
|
)
|
|
|
|
|
|
|
(13,694
|
)
|
Proceeds from sale of property and equipment
|
|
|
914
|
|
|
|
|
|
|
|
914
|
|
|
|
743
|
|
|
|
|
|
|
|
743
|
|
Proceeds from sale of minority investment
|
|
|
10,967
|
|
|
|
|
|
|
|
10,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of, and loan to, minority investments, net of loan
repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
12,827
|
|
|
|
|
|
|
|
12,827
|
|
|
|
(27,944
|
)
|
|
|
|
|
|
|
(27,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of a note
|
|
|
9,897
|
|
|
|
|
|
|
|
9,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing liability related to sale-leaseback of building
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,900
|
|
|
|
|
|
|
|
12,900
|
|
Repayments of liability related to sale-leaseback of building
|
|
|
(243
|
)
|
|
|
|
|
|
|
(243
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
(360
|
)
|
Repayments of borrowings under notes
|
|
|
(944
|
)
|
|
|
|
|
|
|
(944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment received on stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467
|
|
|
|
|
|
|
|
467
|
|
Proceeds from exercise of stock options and stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase plan, net of repurchase of unvested shares
|
|
|
13,946
|
|
|
|
|
|
|
|
13,946
|
|
|
|
2,484
|
|
|
|
|
|
|
|
2,484
|
|
Proceeds from issuance of convertible debt, net of issue costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
22,656
|
|
|
|
|
|
|
|
22,656
|
|
|
|
15,491
|
|
|
|
|
|
|
|
15,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
33,930
|
|
|
|
|
|
|
|
33,930
|
|
|
|
(40,441
|
)
|
|
|
|
|
|
|
(40,441
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
29,431
|
|
|
|
|
|
|
|
29,431
|
|
|
|
69,872
|
|
|
|
|
|
|
|
69,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
63,361
|
|
|
$
|
|
|
|
$
|
63,361
|
|
|
$
|
29,431
|
|
|
$
|
|
|
|
$
|
29,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Stockholders Equity Impact
The cumulative effect of the restatement on stockholders
equity as of April 30, 2004, and the restatement amounts
for the years ended April 30, 2006 and 2005, are provided
in the Consolidated Statement of Stockholders Equity in
the accompanying Consolidated Financial Statements.
SFAS 123
Disclosure Impact
As a consequence of the stock option adjustments discussed
above, the pro forma stock-based compensation expense under the
fair value method has been restated. The Company has applied
APB 25 and its related interpretations and provided the
required pro forma disclosures under SFAS 123 and its
related interpretations through the fiscal year ended
April 30, 2006. For SFAS 123 pro forma disclosure
purposes, stock-based compensation expense determined under the
fair value method was adjusted to include the incremental
expense resulting from the modification to the measurement dates
of the affected options. During the investigation the Company
also identified and corrected errors in certain valuation
assumptions used in the Black-Scholes model to estimate the fair
value of option grants under SFAS 123 in fiscal years prior
to 2004. A table illustrating the impact of the components above
is presented in footnote 16 of this report.
The following table presents the effect of the related
adjustments on the pro forma calculation of the net loss and net
loss per share for the years ended April 30, 2006 and 2005,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net loss
|
|
$
|
(24,919
|
)
|
|
$
|
(8,110
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(114,107
|
)
|
|
$
|
(3,621
|
)
|
|
$
|
(117,728
|
)
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APB 25 stock-based compensation expense, included in net loss,
net of tax
|
|
|
|
|
|
|
6,819
|
|
|
|
6,819
|
|
|
|
162
|
|
|
|
3,676
|
|
|
|
3,838
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense determined under fair value
based method, net of tax
|
|
|
(10,241
|
)
|
|
|
185
|
|
|
|
(10,056
|
)
|
|
|
(20,360
|
)
|
|
|
2,680
|
|
|
|
(17,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(35,160
|
)
|
|
$
|
(1,106
|
)
|
|
$
|
(36,266
|
)
|
|
$
|
(134,305
|
)
|
|
$
|
2,735
|
|
|
$
|
(13,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.09
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(0.12
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing reported and pro forma net
loss basic and diluted
|
|
|
290,518
|
|
|
|
290,518
|
|
|
|
290,518
|
|
|
|
232,210
|
|
|
|
232,210
|
|
|
|
232,210
|
|
92
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Basis of
Presentation and Summary of Significant Accounting
Policies
|
Basis
of Presentation
These consolidated financial statements include the accounts of
Finisar Corporation and its wholly-owned subsidiaries
(collectively Finisar or the Company).
Intercompany accounts and transactions have been eliminated in
consolidation.
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). The first three quarters of fiscal 2007 ended on
July 30, 2006, October 29, 2006, and January 28,
2007. The first three quarters of fiscal 2006 ended on
July 31, 2005, October 30, 2005 and January 29,
2006, respectively. The first three quarters of fiscal 2005
ended on August 1, 2004, October 31, 2004 and
January 30, 2005, respectively.
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 previously reported
net income or retained earnings.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
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.
Revenue
Recognition
The Companys revenue transactions consist predominately of
sales of products to customers. The Company follows the
Securities and Exchange Commission (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 over 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
93
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 us. Accounts receivable from distributors are
recognized and inventory is relieved when title to inventories
transfers, typically upon shipment from us at which point we
have a legally enforceable right to collection under normal
payment terms.
Segment
Reporting
Statement of Financial Accounting Standards (SFAS) No. 131
Disclosures about Segments of an Enterprise and Related
Information 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 and monitoring
systems.
Concentrations
of Credit Risk
Financial instruments which potentially subject Finisar to
concentrations of credit risk include cash, cash equivalents,
short-term, long-term and restricted investments and accounts
receivable. Finisar places its cash, cash equivalents and
short-term, long-term and restricted investments with
high-credit quality financial institutions. Such investments are
generally in excess of Federal Deposit Insurance Corporation
(FDIC) insurance limits. Concentrations of credit risk, with
respect to accounts receivable, exist to the extent of amounts
presented in the financial statements. Generally, Finisar does
not require collateral or other security to support customer
receivables. Finisar 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 been within managements
expectations. The Companys five largest customers
represented 33.3% and 34.7% of total accounts receivable at
April 30, 2007 and 2006. One optical subsystems and
components customer, Jabil Circuit, represented 15.8% of total
accounts receivable at April 30, 2007 and another optical
subsystems and components customer, Cisco Systems, represented
8.7% of total accounts receivable at April 30, 2006.
Current
Vulnerabilities Due to Certain Concentrations
Finisar sells products primarily to customers located in North
America. During fiscal 2007, 2006 and 2005, sales of optical
subsystems and components to Cisco Systems represented 20.8%,
22.3% and 27.8%, respectively, of total revenues. No other
customer accounted for more than 10% of total revenues in any of
these fiscal years.
Included in the Companys consolidated balance sheet at
April 30, 2007, are the net assets of the Companys
manufacturing operations, substantially all of which are located
in Malaysia and which total approximately $62.3 million.
Foreign
Currency Translation
The functional currency of our 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.
94
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
Costs
Advertising costs are expensed as incurred. Advertising is used
infrequently in marketing the Companys products.
Advertising costs during fiscal 2007, 2006 and 2005 were
$75,000, $252,000, and $580,000, respectively.
Shipping
and Handling Costs
The Company records costs related to shipping and handling in
cost of sales for all periods presented.
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
The Company determines the appropriate classification of
securities at the time of purchase and reevaluates such
classification as of each balance sheet date. Realized gains and
losses and declines in value judged to be other than temporary
are determined based on the specific identification method and
are reported in the Consolidated Statements of Operations.
Available-for-sale investments are initially recorded at cost
and periodically adjusted to fair value through comprehensive
income.
Restricted
Investments
Restricted investments consist of interest bearing securities
with maturities of greater than three months from the date of
purchase and investments held in escrow under the terms of the
Companys convertible subordinated notes. In accordance
with SFAS 115, the Company has classified its restricted
investments as held-to-maturity. Held-to-maturity securities are
stated at amortized cost.
Other
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 of Financial Instruments
The carrying amounts of certain of the Companys financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued compensation and other
accrued liabilities, approximate fair value
95
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
because of their short maturities. As of April 30, 2007 and
2006, the fair value of the Companys convertible
subordinated debt based on quoted market prices was
approximately $285.2 million and $323.0 million,
respectively.
Inventories
Inventories are stated at the lower of cost (determined on a
first-in,
first-out basis) or market.
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 unlikely 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.
Property,
Equipment and Improvements
Property, equipment and improvements are stated at cost, net of
accumulated depreciation and amortization. Property, plant,
equipment and improvements 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 life of the building lease. Land is carried at
acquisition cost and not depreciated. Leased land is depreciated
over the life of the lease.
Goodwill,
Purchased Technology, 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 seven years. The amortization of
goodwill ceased with the adoption of SFAS 142 beginning in
the first quarter of fiscal 2003.
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 property, improvements
and assigned intangible 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.
Stock-Based
Compensation Expense
On May 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS 123R),
which requires the measurement and recognition of compensation
expense for all share-based payment awards made to employees and
directors including employee stock options and employee stock
purchases related to the Employee Stock Purchase Plan
(employee stock purchases) based on estimated fair
values. SFAS 123R supersedes the Companys previous
accounting under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25), as allowed under Statement
of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123),
for periods beginning in fiscal 2007. In March 2005, the SEC
issued Staff Accounting Bulletin No. 107
(SAB 107) relating to SFAS 123R. The
Company has applied the provisions of SAB 107 in its
adoption of SFAS 123R.
96
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company adopted SFAS 123R using the modified
prospective transition method, which requires the application of
the accounting standard as of May 1, 2006, the first day of
the Companys fiscal year 2007. In accordance with the
modified prospective transition method, the Companys
consolidated financial statements for prior periods have not
been restated to reflect, and do not include, the impact of
SFAS 123R.
SFAS 123R requires companies to estimate the fair value of
share-based payment awards on the date of grant using an
option-pricing model. 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 condensed
consolidated statement of operations. Prior to the adoption of
SFAS 123R, the Company accounted for stock-based awards to
employees and directors using the intrinsic value method in
accordance with APB 25 as allowed under SFAS 123.
Stock-based compensation expense recognized under SFAS 123R
for the year ended April 30, 2007 was $11.2 million
which consisted of stock-based compensation expense related to
employee stock options and employee stock purchases, net of
approximately $410,000 which was capitalized in inventory. See
Note 16 for additional information.
The Company adopted SFAS 123R using the
modified-prospective-transition method. Under that transition
method, share-based compensation expense recognized in the
Companys consolidated statement of operations for the year
ended April 30, 2007 includes (i) compensation expense
for stock-based awards granted prior to, but not yet vested as
of, May 1, 2006 based on the grant date fair value
estimated in accordance with the provisions of FAS 123 and
(ii) compensation expense for the stock-based 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 all grants made prior
to the adoption of SFAS 123R that are expected-to-vest will
continue to be recognized using the graded amortization
attribution method; all grants subsequent to the adoption of
FAS 123R will be recognized using the straight-line
attribution method, provided that the amount of compensation
cost recognized at any date is no less than the portion of the
grant-date value of the award that is vested at that date. In
the stock-based compensation expense required under APB 25 and
the pro forma information required under SFAS 123 for the
periods prior to fiscal 2007, the Company accounted for
forfeitures as they occurred. Upon adoption of SFAS 123R on
May 1, 2006, the Finisar adjusted retained earnings by
approximately $1.2 million. This adjustment reflects the
cumulative effect of adoption of SFAS 123R on retained
earnings and represents the estimate of previously recognized
stock-based compensation expense that will be reversed when
stock options granted prior to May 1, 2006 are forfeited.
The results for the prior periods have not been restated for the
adoption of SFAS 123R consistent with the provisions of the
accounting standard.
On November 10, 2005, the Financial Accounting Standards
Board (FASB) issued FASB Staff Position
No. 123R-3
Transition Election Related to Accounting for Tax Effects
of Share-Based Payment Awards. The Company has elected to
adopt the alternative transition method provided in the FASB
Staff Position for calculating the tax effects of stock-based
compensation pursuant to SFAS 123R. The alternative
transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool
(APIC pool) related to the tax effects of employee
stock-based compensation, and to determine the subsequent impact
on the APIC pool and condensed consolidated statements of cash
flows of the tax effects of employee stock-based compensation
awards that are outstanding upon adoption of SFAS 123R.
Net
Loss Per Share
Basic and diluted net loss per share are presented in accordance
with SFAS No. 128 Earnings Per Share for all
periods presented. Basic net loss per share has been computed
using the weighted-average number of shares of common stock
outstanding during the period. Diluted net 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), convertible
redeemable preferred stock (on an if-converted basis) and
convertible notes (on an as-if-converted basis) outstanding
during the period.
97
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the calculation of basic and
diluted net loss per share (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(45,399
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(117,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding total
|
|
|
307,814
|
|
|
|
290,522
|
|
|
|
232,274
|
|
Weighted-average shares outstanding subject to
repurchase
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic and diluted
|
|
|
307,814
|
|
|
|
290,522
|
|
|
|
232,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents related to potentially dilutive
securities excluded from computation above because they are
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
16,229
|
|
|
|
10,800
|
|
|
|
4,521
|
|
Stock subject to repurchase
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Conversion of convertible subordinated notes
|
|
|
34,520
|
|
|
|
58,647
|
|
|
|
58,647
|
|
Conversion of convertible notes
|
|
|
4,705
|
|
|
|
|
|
|
|
14,981
|
|
Warrants assumed in acquisition
|
|
|
469
|
|
|
|
471
|
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities
|
|
|
55,923
|
|
|
|
69,918
|
|
|
|
79,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
Financial Accounting Standards Board Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive
Income (SFAS 130) establishes rules for
reporting and display of comprehensive income 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.
The components of comprehensive loss for the fiscal years ended
April 30, 2007, 2006 and 2005 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
Net loss
|
|
$
|
(45,399
|
)
|
|
$
|
(33,029
|
)
|
|
$
|
(117,728
|
)
|
Foreign currency translation adjustment
|
|
|
3,819
|
|
|
|
1,397
|
|
|
|
136
|
|
Change in unrealized gain (loss) on securities, net of
reclassification adjustments for realized gain/(loss)
|
|
|
5,645
|
|
|
|
(80
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(35,935
|
)
|
|
$
|
(31,712
|
)
|
|
$
|
(118,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the determination of net loss was a gain (loss) on
foreign exchange transactions of $(265,000), $722,000, and
$(63,000) for the fiscal years ended April 30, 2007, 2006
and 2005, respectively. The gain in fiscal
98
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2006 includes the transfer of $964,000 of cumulative translation
adjustment to other income (expense), net on the statement of
operations related to the liquidation of the Companys
German subsidiary.
The components of accumulated other comprehensive loss, net of
taxes, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net unrealized gains/(losses) on available-for-sale securities
|
|
$
|
5,069
|
|
|
$
|
(576
|
)
|
Cumulative translation adjustment
|
|
|
6,093
|
|
|
|
2,274
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
11,162
|
|
|
$
|
1,698
|
|
|
|
|
|
|
|
|
|
|
Pending
Adoption of New Accounting Standards
Fair
Value Measurements
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value
Measurements. SFAS 157 replaces the different definitions
of fair value in the accounting literature with a single
definition. It defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date. SFAS 157 is effective for fair-value
measurements already required or permitted by other standards
for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal
years. The Company is currently in the process of determining
the impact of adopting the provisions of SFAS 157 on its
financial position, results of operations and cash flows.
Fair
Value Option for Financial Assets and Liabilities
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (FAS 159). FAS 159 permits companies to
choose to measure many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The provisions of
FAS 159 become effective for fiscal years beginning after
November 15, 2007. The Company believes that the adoption
of SFAS 159 will not have a material effect on its
financial statements.
Accounting
for Electronic Equipment Waste Obligations
In June 2005, the FASB issued FSP
No. FAS 143-1,
Accounting for Electronic Equipment Waste Obligations
(FSP 143-1).
FSP 143-1
provides guidance in accounting for obligations associated with
Directive 2002/96/EC (the Directive) on Waste
Electrical and Electronic Equipment adopted by the European
Union.
FAS 143-1
is required to be applied to the later of the first reporting
period ending after June 6, 2005 or the date of the
Directives adoption into law by the applicable EU member
countries in which we have significant operations. The Directive
distinguishes between new and historical
waste. New waste relates to products put on the market after
August 13, 2005.
FSP 143-1
directs commercial users to apply the provisions of FASB
Statement No. 143, Accounting for Asset Retirement
Obligations, and the related FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations, for the
measurement and recognition of the liability and asset
retirement obligation associated with the historical waste
management requirements of the Directive. Additionally,
FSP 143-1
provides guidance for the accounting by producers for the
financing of the obligations of historical waste held by private
households.
We adopted
FAS 143-1
in the first quarter of fiscal 2006 and concluded that no
significant liability had been incurred as of April 30,
2006. The Company believes that the adoption of
FSP 143-1
will not have a material effect on its financial statements.
99
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting
for Income Taxes
In June 2006, the FASB issued Interpretation, or FIN,
No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of SFAS No. 109,
or FIN 48. FIN 48 clarifies the accounting for
uncertain taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement of a tax position taken or
expected to be taken in an enterprises tax return. In
addition, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure related to uncertain income tax
positions. FIN 48 is effective for the fiscal years
beginning after December 15, 2006 for all public companies.
Accordingly, the Company was required to adopt FIN 48 as of
May 1, 2007. The adoption of FIN 48 will not have a
material impact on its consolidated financial statements.
|
|
4.
|
Business
Combinations and Asset Acquisitions
|
Acquisition
of Assets of Data Transit Corp.
On August 6, 2004, the Company completed the purchase of
substantially all of the assets of Data Transit Corp. in
exchange for a cash payment of $500,000 and the issuance of a
convertible promissory note in the original principal amount of
$16.3 million. Transaction costs totaled $682,000. The
acquisition of Data Transit expanded the Companys product
offering for testing and monitoring systems, particularly those
systems based on the SAS and SATA protocols used in the disk
drive industry. The goodwill recorded in connection with this
acquisition reflected the incremental earnings associated with
selling this new test and monitoring capability, the underlying
know-how for making these products which the Company plans to
incorporate into its XGig product platform and cost synergies
associated with integrating the operations of Data Transit with
the Companys Network Tools Division. The principal balance
of the note issued in this acquisition bore interest at 8% per
annum. During fiscal 2006, the Company issued
15,082,865 shares of common stock upon the conversion of
all of the principal and interest on this note (see
Note 12). The acquisition was accounted for as a purchase
and, accordingly, the results of operations of the acquired
assets (beginning with the closing date of the acquisition) and
the estimated fair value of assets acquired were included in the
Companys consolidated financial statements beginning in
the second quarter of fiscal 2005.
Acquisition
of Transceiver and Transponder Product Line From Infineon
Technologies AG
On January 31, 2005, the Company acquired certain assets
from Infineon Technologies AG related to Infineons fiber
optics business unit associated with the design, development and
manufacture of optical transceiver and transponder products in
exchange for 34 million shares of the Companys common
stock. The acquisition expanded the Companys product
offering and customer base for optical transceivers and
transponders and expanded its portfolio of intellectual property
used in designing and manufacturing these products as well as
those to be developed in the future. The goodwill recorded in
connection with this acquisition reflected the value to be
realized associated with cost savings resulting from integrating
these products with the Companys Optics Division as well
as the incremental growth in revenue and earnings from the sale
of future products. The Company did not acquire any employees or
assume any liabilities as part of the acquisition, except for
obligations under customer contracts. The acquisition was
accounted for as a purchase and, accordingly, the results of
operations of the acquired assets (beginning with the closing
date of the acquisition) and the estimated fair value of assets
acquired were included in the Companys consolidated
financial statements beginning in the fourth quarter of fiscal
2005.
Acquisition
of I-TECH Corp.
On April 8, 2005, the Company completed the acquisition of
I-TECH Corp., a privately-held network test and monitoring
company based in Eden Prairie, Minnesota. The acquisition
expanded the Companys product offering for testing and
monitoring systems, particularly for those systems relying on
the use of the Fibre Channel protocol, and expanded its
portfolio of intellectual property used in designing and
manufacturing these products as well as those to be developed in
the future. The goodwill recorded in connection with this
acquisition reflected the
100
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
underlying patents and know-how used in manufacturing future
products and cost synergies associated with integrating the
operations of I-TECH with the Companys Network Tools
Division. The acquisition agreement provided for the merger of
I-TECH with a wholly-owned subsidiary of Finisar and the
issuance by Finisar to the sole holder of I-TECHs common
stock of promissory notes in the aggregate principal amount of
approximately $12.1 million. During fiscal 2006, the
Company issued 10,107,550 shares of common stock upon the
conversion of all of the principal and interest on these notes
(see Note 12). The results of operations of I-TECH
(beginning with the closing date of the acquisition) and the
estimated fair value of assets acquired were included in the
Companys consolidated financial statements beginning in
the fourth quarter of fiscal 2005.
Acquisition
of InterSAN, Inc.
On May 12, 2005, the Company completed the acquisition of
InterSAN, Inc., a privately-held company located in Scotts
Valley, California. Under the terms of the acquisition
agreement, InterSAN merged with a wholly-owned subsidiary of
Finisar and the holders of InterSANs securities received
7,132,229 shares of Finisar common stock having a value of
approximately $8.8 million at the time of the acquisition.
The results of operations of InterSAN (beginning with the
closing date of the acquisition) and the estimated fair value of
assets acquired were included in the Companys consolidated
financial statements beginning in the first quarter of fiscal
2006.
Acquisition
of Big Bear Networks, Inc.
On November 15, 2005, the Company completed the purchase of
certain assets of Big Bear Networks, Inc. in exchange for a cash
payment of $1.9 million. The acquisition expanded the
Companys product offering and customer base for optical
transponders and its portfolio of intellectual property used in
designing and manufacturing these products as well as those to
be developed in the future. The acquisition was accounted for as
a purchase and, accordingly, the results of operations of the
acquired assets (beginning with the closing date of the
acquisition) and the estimated fair value of assets acquired
were included in the optical subsystems and components segment
of the Companys consolidated financial statements
beginning in the third quarter of fiscal 2006.
Acquisition
of AZNA LLC
On March 26, 2007, the Company completed the acquisition of
AZNA LLC (AZNA), a privately-held company located in
Wilmington, Massachusetts for $19.7 million. Under the
terms of the agreement, Finisar acquired all outstanding
securities of AZNA in exchange for the issuance of convertible
promissory notes in the aggregate principal amount of
$17.0 million and cash payment of $2.7 million. One of
the notes issued, for $1.4 million, and portion of the cash
paid, $1.5 million, were placed in escrow for one year
following the closing date to satisfy indemnification provisions
of the purchase agreement. In addition, the Company may be
required to pay additional cash consideration of up to
$1.8 million to certain of AZNAs equity interest
holders contingent upon their continuing employment with the
Company for a 12 month period subsequent to the closing
date. When, and if, paid, this consideration will be recorded as
compensation expense. The acquisition is expected to broaden the
Companys product offering and increase its competitive
advantage in cost, reach and capabilities in telecom
applications. AZNA designs and develops photonic components and
subsystems for the communications and instrumentation
industries. Its proprietary technology, chirp managed lasers
(CMLs), manage the inherent chirp associated with
the direct modulation of these lasers by integrating a standard
DFB laser chip with a passive optical spectrum reshaper filter
to achieve longer reach and more dispersion tolerance. The
Companys products enable telecommunications equipment
manufacturers to provide longer reach optical transmitter
solutions at lower cost, better performance and less complexity
compared to those based on external modulators. The results of
operations of AZNA (beginning with the closing date of the
acquisition) and the estimated fair value of assets acquired
were included in the Companys consolidated financial
statements beginning in the fourth quarter of fiscal 2007.
101
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Acquisition
of Kodeos Communications, Inc.
On April 11, 2007, the Company completed the acquisition of
Kodeos Communications, Inc. (Kodeos), a
privately-held company located in South Plainfield, New Jersey
for a cash payment of $7.4 million, with additional
consideration of up to $3.5 million in cash to be paid to
certain Kodeos shareholders and employees, contingent upon
reaching certain technical and financial performance milestones
during the period from the closing date to December 31,
2007. The Company expects to extend its technologys
capabilities in datacom and telecom applications with
Kodeos Maximum Likelihood Sequence Estimator
(MSLE) technology. The MLSE is used on the receiver
side of the optical link and increases the distortion tolerance,
transmission distance and performance of 300-pin transponder.
The results of operations of Kodeos (beginning with the closing
date of the acquisition) and the estimated fair value of assets
acquired were included in the Companys consolidated
financial statements beginning in the fourth quarter of fiscal
2007.
The following is a summary of business combinations
(BC) and asset acquisitions (AA) made by
the Company during the three-year period ended April 30,
2007. All of the business combinations were accounted for under
the purchase method of accounting:
Acquisition
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Entity Name
|
|
Type
|
|
Description of Business
|
|
Segment
|
|
Acquisition Date
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
AZNA LLC (Azna)
|
|
BC
|
|
Optical components
|
|
1
|
|
March 26, 2007
|
Kodeos Communications, Inc. (Kodeos)
|
|
BC
|
|
Optical components
|
|
1
|
|
April 11, 2007
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
Big Bear Networks, Inc. (Big Bear)
|
|
AA
|
|
Optical components
|
|
1
|
|
November 15, 2005
|
InterSAN, Inc. (InterSAN)
|
|
BC
|
|
Network test and monitoring products
|
|
2
|
|
May 12, 2005
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
Data Transit Corp. (Data Transit)
|
|
AA
|
|
Network test and monitoring software
|
|
2
|
|
August 6, 2004
|
Infineon Technologies AG (Infineon) transceiver and
transponder product lines
|
|
AA
|
|
Optical components
|
|
1
|
|
January 31, 2005
|
I-TECH Corp. (I-TECH)
|
|
BC
|
|
Network test and monitoring products
|
|
2
|
|
April 8, 2005
|
|
|
|
(1) |
|
Optical Subsystems and Components |
|
(2) |
|
Network Test and Monitoring Systems |
102
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the consideration paid by the
Company for each of these business combinations and asset
acquisitions. For transactions in which shares of Finisar common
stock were issued at closing, the value of the shares was
determined in accordance with
EITF 99-12,
Determination of the Measurement Date for the Market Price of
Acquirer Securities Issued in a Purchase Business
Combination, using the average closing price of Finisar
common stock for the five day period ending two days after the
announcement of the transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
|
Convertible
|
|
|
Cash Including
|
|
|
Total
|
|
Entity Name
|
|
Value
|
|
|
Shares(1)
|
|
|
Note
|
|
|
Acquisition Costs
|
|
|
Consideration
|
|
|
|
$ (000)
|
|
|
|
|
|
$ (000)
|
|
|
$ (000)
|
|
|
$ (000)
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azna
|
|
|
|
|
|
|
|
|
|
|
16,950
|
|
|
|
3,006
|
|
|
|
19,956
|
|
Kodeos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,592
|
|
|
|
7,592
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
InterSAN
|
|
|
8,816
|
|
|
|
7,132,229
|
(C)
|
|
|
|
|
|
|
1,212
|
|
|
|
10,028
|
|
Big Bear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,918
|
|
|
|
1,918
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Transit
|
|
|
|
|
|
|
|
|
|
|
16,270
|
|
|
|
1,510
|
|
|
|
17,780
|
|
Infineon
|
|
|
52,496
|
|
|
|
34,000,000
|
(C)
|
|
|
|
|
|
|
1,861
|
|
|
|
54,357
|
|
I-TECH
|
|
|
|
|
|
|
|
|
|
|
12,061
|
|
|
|
861
|
|
|
|
12,922
|
|
|
|
|
(1) |
|
Shares of common stock (C) or warrants to purchase common
stock (W). |
The following is a summary of the initial purchase price
allocation for each of the Companys business combinations
and asset acquisitions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets Acquired
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
In-process
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
|
|
|
Developed
|
|
|
Research &
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
Entity Name
|
|
Assets
|
|
|
Technology
|
|
|
Development
|
|
|
Base
|
|
|
Tradename
|
|
|
Goodwill
|
|
|
Total
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azna
|
|
$
|
4,573
|
|
|
$
|
7,300
|
|
|
$
|
4,200
|
|
|
$
|
2,856
|
|
|
$
|
72
|
|
|
$
|
955
|
|
|
$
|
19,956
|
|
Kodeos
|
|
|
130
|
|
|
|
2,080
|
|
|
|
1,570
|
|
|
|
350
|
|
|
|
|
|
|
|
3,462
|
|
|
|
7,592
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
InterSAN
|
|
|
(4
|
)
|
|
|
429
|
|
|
|
|
|
|
|
1,529
|
|
|
|
|
|
|
|
8,074
|
|
|
|
10,028
|
|
Big Bear
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,918
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Transit
|
|
|
1,813
|
|
|
|
6,414
|
|
|
|
318
|
|
|
|
2,100
|
|
|
|
758
|
|
|
|
6,377
|
|
|
|
17,780
|
|
Infineon
|
|
|
8,306
|
|
|
|
4,567
|
|
|
|
1,126
|
|
|
|
864
|
|
|
|
|
|
|
|
39,494
|
|
|
|
54,357
|
|
I-TECH
|
|
|
1,319
|
|
|
|
1,084
|
|
|
|
114
|
|
|
|
750
|
|
|
|
|
|
|
|
9,655
|
|
|
|
12,922
|
|
The amounts allocated to current technology were determined
based on discounted cash flows which result from the expected
sale of products that were being manufactured and sold at the
time of the acquisition over their expected useful life. The
amounts allocated to in-process research and development
(IPRD) were determined through established valuation
techniques in the high-technology industry and were expensed
upon acquisition because technological feasibility had not been
established and no future alternative uses existed. Research and
development costs to bring the products from the acquired
companies to technological feasibility are not expected to have
a material impact on the Companys future results of
operations or cash flows. Goodwill represents the excess of
purchase consideration over the fair value of the assets,
including identifiable intangible assets, net of the
103
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fair value of liabilities assumed. Intangible assets related to
the acquisitions, excluding goodwill, are amortized to expense
on a straight-line basis over their estimated useful lives
ranging from three to five years. For income tax purposes,
intangible assets including goodwill related to the asset
acquisitions are amortized to expense on a straight-line basis,
generally over 15 years.
The following is a summary of the weighted average amortization
period for intangible assets acquired in fiscal 2007 and 2006
(in years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
Base
|
|
|
Tradename
|
|
|
Other
|
|
|
Total
|
|
|
Acquired in fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azna
|
|
|
5.0
|
|
|
|
8.0
|
|
|
|
1.0
|
|
|
|
0.8
|
|
|
|
5.3
|
|
Kodeos
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
0.7
|
|
|
|
5.0
|
|
Acquired in fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersan
|
|
|
3.0
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
The consolidated statements of operations of Finisar presented
throughout this report include the operating results of the
acquired companies from the date of each respective acquisition.
|
|
5.
|
Purchased
Intangible Assets Including Goodwill
|
The following table reflects changes in the carrying amount of
goodwill by reporting unit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical Subsystems
|
|
|
Network Test and
|
|
|
Consolidated
|
|
|
|
and Components
|
|
|
Monitoring Systems
|
|
|
Total
|
|
|
Balance at April 30, 2004
|
|
$
|
44,620
|
|
|
$
|
16,000
|
|
|
$
|
60,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition related to achievement of milestones
|
|
|
256
|
|
|
|
|
|
|
|
256
|
|
Addition related to acquisition of subsidiary
|
|
|
43,546
|
|
|
|
15,268
|
|
|
|
58,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
$
|
88,422
|
|
|
$
|
31,268
|
|
|
$
|
119,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition (reduction) related to acquisition of subsidiary
|
|
|
(3,996
|
)
|
|
|
8,838
|
|
|
|
4,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2006
|
|
$
|
84,426
|
|
|
$
|
40,106
|
|
|
$
|
124,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition related to acquisition of subsidiary
|
|
|
4,417
|
|
|
|
|
|
|
|
4,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2007
|
|
$
|
88,843
|
|
|
$
|
40,106
|
|
|
$
|
128,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarters of fiscal 2005, 2006 and 2007, the
Company performed the required annual impairment testing of
goodwill and indefinite-lived intangible assets and determined
that no impairment charge was required.
During fiscal 2005, the Company recorded additional goodwill in
the optical subsystems and components reporting unit in the
amount of $256,000 as a result of achievement of certain
milestones specified in the Transwave acquisition agreement. In
fiscal 2005, the Company recorded the following additional
goodwill in conjunction with several companies acquired in
fiscal 2005: $43.5 million in conjunction with the Infineon
acquisition, $9.0 million in conjunction with the I-TECH
acquisition, and $6.3 million in conjunction with the Data
Transit acquisition.
During fiscal 2006, the Company recorded a $4.0 million
reduction of goodwill in the optical subsystems and components
reporting unit. The reduction was primarily due to a
reassessment of the allocation of the purchase price of assets
related to the acquisition of the transceiver and transponder
business of Infineon Technologies AG, which was completed in the
fourth quarter of fiscal 2005. The reassessment included the
reduction of the purchase
104
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
price by $8.0 million related to inventory Infineon
repurchased from the Company, and lower than expected VAT and
other transaction costs of $332,000. These reductions were
offset by the reduced allocation of the purchase price to a
minority investment of $4.2 million and additional payments
of $184,000 associated with the Infineon acquisition. The
Company recorded additional goodwill of $8.8 million in the
network test and monitoring systems reporting unit. The addition
was due to $8.1 million recorded in connection with the
acquisition of InterSAN, additional payments of $112,000 for the
I-TECH acquisition and $59,000 for the Data Transit acquisition,
an adjustment related to I-TECH inventory of $225,000, and an
adjustment to an I-TECH accrual of $367,000.
During fiscal 2007, the Company recorded goodwill of
$4.4 million in the optical subsystems and components
reporting unit related to the acquisitions of AZNA and Kodeos.
The following table reflects intangible assets subject to
amortization as of April 30, 2007 and April 30, 2006
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2007
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Purchased technology
|
|
$
|
111,846
|
|
|
$
|
(93,495
|
)
|
|
$
|
18,351
|
|
Trade name
|
|
|
3,697
|
|
|
|
(3,171
|
)
|
|
|
526
|
|
Customer Relationships
|
|
|
6,964
|
|
|
|
(1,843
|
)
|
|
|
5,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
122,507
|
|
|
$
|
(98,509
|
)
|
|
$
|
23,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2006
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Purchased technology
|
|
$
|
102,466
|
|
|
$
|
(87,494
|
)
|
|
$
|
14,972
|
|
Trade name
|
|
|
3,625
|
|
|
|
(3,056
|
)
|
|
|
569
|
|
Customer Relationships
|
|
|
5,243
|
|
|
|
(1,628
|
)
|
|
|
3,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
111,334
|
|
|
$
|
(92,178
|
)
|
|
$
|
19,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense on these intangible assets for fiscal
2007 was $7.8 million compared to $19.4 million for
fiscal 2006 and $23.4 million for fiscal 2005.
During the second fiscal quarter of 2005, the Company determined
that the remaining intangible assets related to certain
purchased passive optical technology, acquired from New Focus,
Inc., in May 2002, were obsolete, and had a fair value of zero.
Accordingly, an impairment charge of $3.7 million was
recorded against the remaining net book value of these assets
during the second quarter of fiscal 2005.
During the second quarter of fiscal 2006, the Company determined
that the remaining intangible assets related to certain
purchased optical amplifier technology acquired from Genoa
Corporation in April 2003 and certain intangible assets related
to passive optical technology acquired from Transwave Fiber,
Inc., in May 2001, had been impaired and had a fair value of
zero. Accordingly, an impairment charge of $853,000 was recorded
against the remaining net book value of these assets in the
optical subsystems and components reporting unit during the
second quarter of fiscal 2006.
During the third quarter of fiscal 2007, the Company determined
that the remaining intangible assets related to certain customer
relationships acquired from InterSAN, Inc. in May 2005 had been
impaired and had a fair value of zero. Accordingly, an
impairment charge of $619,000 was recorded against the remaining
net book value of these assets in the network test and
monitoring systems reporting unit during the third quarter of
fiscal 2007.
105
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated amortization expense for each of the next five fiscal
years ending April 30, is as follows (dollars in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
|
2008
|
|
$
|
8,249
|
|
2009
|
|
|
5,481
|
|
2010
|
|
|
3,811
|
|
2011
|
|
|
3,336
|
|
2012 and beyond
|
|
|
3,121
|
|
|
|
|
|
|
|
|
$
|
23,998
|
|
|
|
|
|
|
Unrestricted
Securities
The following is a summary of the Companys
available-for-sale investments as of April 30, 2007 and
2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
|
Investment Type
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
As of April 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
62,643
|
|
|
$
|
9
|
|
|
$
|
(94
|
)
|
|
$
|
62,558
|
|
|
|
|
|
Government agency
|
|
|
12,200
|
|
|
|
26
|
|
|
|
(18
|
)
|
|
|
12,208
|
|
|
|
|
|
Mortgage-backed
|
|
|
3,626
|
|
|
|
1
|
|
|
|
(21
|
)
|
|
|
3,606
|
|
|
|
|
|
Municipal
|
|
|
300
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,769
|
|
|
$
|
36
|
|
|
$
|
(136
|
)
|
|
$
|
78,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
3,607
|
|
|
$
|
5,169
|
|
|
$
|
|
|
|
$
|
8,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
82,376
|
|
|
$
|
5,205
|
|
|
$
|
(136
|
)
|
|
$
|
87,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
11,079
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,079
|
|
|
|
|
|
Short-term investments
|
|
|
56,603
|
|
|
|
3
|
|
|
|
(95
|
)
|
|
|
56,511
|
|
|
|
|
|
Long-term investments
|
|
|
14,694
|
|
|
|
5,202
|
|
|
|
(41
|
)
|
|
|
19,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,376
|
|
|
$
|
5,205
|
|
|
$
|
(136
|
)
|
|
$
|
87,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
|
Investment Type
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
As of April 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
51,925
|
|
|
$
|
1
|
|
|
$
|
(357
|
)
|
|
$
|
51,569
|
|
|
|
|
|
Government agency
|
|
|
16,826
|
|
|
|
|
|
|
|
(160
|
)
|
|
|
16,666
|
|
|
|
|
|
Mortgage-backed
|
|
|
5,125
|
|
|
|
1
|
|
|
|
(54
|
)
|
|
|
5,072
|
|
|
|
|
|
Municipal
|
|
|
300
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74,176
|
|
|
$
|
2
|
|
|
$
|
(578
|
)
|
|
$
|
73,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
18,176
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
18,175
|
|
|
|
|
|
Short-term investments
|
|
|
33,745
|
|
|
|
1
|
|
|
|
(239
|
)
|
|
|
33,507
|
|
|
|
|
|
Long-term investments
|
|
|
22,255
|
|
|
|
1
|
|
|
|
(338
|
)
|
|
|
21,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,176
|
|
|
$
|
2
|
|
|
$
|
(578
|
)
|
|
$
|
73,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company monitors its investment portfolio for impairment on
a periodic basis in accordance with FASB Staff Position (FSP)
FAS 115-1
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. In the event that the
carrying value of an investment exceeds its fair value and the
decline in value is determined to be other-than-temporary, an
impairment charge is recorded and a new cost basis for the
investment is established. In order to determine whether a
decline in value is other-than-temporary, the Company evaluates,
among other factors: the duration and extent to which the fair
value has been less than the carrying value; the Companys
financial condition and business outlook, including key
operational and cash flow metrics, current market conditions and
future trends in its industry; the Companys relative
competitive position within the industry; and the Companys
intent and ability to retain the investment for a period of time
sufficient to allow for any anticipated recovery in fair value.
The decline in value of these investments, shown in the table
above as Gross Unrealized Losses, is primarily
related to changes in interest rates and is considered to be
temporary in nature. The number of investments that have been in
a continuous unrealized loss position for more than twelve
months is not material.
The following is a summary of the Companys
available-for-sale investments as of April 30, 2007 and
2006 by contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amortized
|
|
|
Market
|
|
|
Amortized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Mature in less than one year
|
|
$
|
66,151
|
|
|
$
|
66,069
|
|
|
$
|
50,005
|
|
|
$
|
49,788
|
|
Mature in one to five years
|
|
|
8,992
|
|
|
|
8,994
|
|
|
|
19,046
|
|
|
|
18,740
|
|
Mature in various dates
|
|
|
3,626
|
|
|
|
3,606
|
|
|
|
5,125
|
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,769
|
|
|
$
|
78,669
|
|
|
$
|
74,176
|
|
|
$
|
73,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross realized gains and losses for fiscal 2007, 2006, and
2005 were immaterial. Realized gains and losses were calculated
based on the specific identification method.
107
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Securities
The Company has purchased and pledged to a collateral agent, as
security for the exclusive benefit of the holders of the
21/2%
convertible subordinated notes, U.S. government securities,
which will be sufficient upon receipt of scheduled principal and
interest payments thereon, to provide for the payment in full of
the first eight scheduled interest payments due on each series
of notes. These restricted securities are classified as held to
maturity and are held on the Companys consolidated balance
sheet at amortized cost. The following table summarizes the
Companys restricted securities as of April 30, 2007
and April 30, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gain/(Loss)
|
|
|
Value
|
|
|
As of April 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
|
$
|
625
|
|
|
$
|
|
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term less than 1 year
|
|
|
625
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
625
|
|
|
$
|
|
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
|
$
|
5,520
|
|
|
$
|
(105
|
)
|
|
$
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term less than 1 year
|
|
|
3,705
|
|
|
|
(51
|
)
|
|
|
3,654
|
|
Long term 1 to 3 years
|
|
|
1,815
|
|
|
|
(54
|
)
|
|
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,520
|
|
|
$
|
(105
|
)
|
|
$
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority investments is comprised of several investments in
other companies accounted for under the cost method and one
investment in another company accounted for under the equity
method.
Cost
Method Investments
Included in minority investments at April 30, 2007 and
April 30, 2006 is $11.3 million representing the
carrying value of the Companys minority investment in
three privately held companies accounted for under the cost
method. During the quarter ended July 31, 2005, the Company
evaluated the valuation of a minority investment acquired on
January 31, 2005 as part of the Infineon acquisition and
determined the value of the investment to be zero. As a result,
the Company reclassified the purchase price originally allocated
to the investment to goodwill. Included in minority investments
at April 30, 2005 is $15.4 million representing the
carrying value of the Companys minority investment in four
privately held companies accounted for under the cost method.
These four minority investments include a $1.0 million cash
investment in and a $3.75 million convertible promissory
note issued to CyOptics, Inc., which occurred during the second
and fourth quarters of fiscal 2005 (see Note 12), and a
$4.2 million investment in a private company, which was
acquired through the acquisition of Infineons transceiver
and transponder product line in the fourth quarter of fiscal
2005. During fiscal 2006 and 2005, the Company recorded charges
of $0.0 million and $10.0 million, respectively, for
impairments in the value of these minority investments, which
were recorded in other income (expense), net.
The Companys investments in these early stage companies
was primarily motivated by its desire to gain early access to
new technology. The Companys investments were passive in
nature in that the Company generally did not obtain
representation on the board of directors of the companies in
which it invested. At the time the Company made its investments,
in most cases the companies had not completed development of
their products and the Company did
108
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
not enter into any significant supply agreements with any of the
companies in which it invested. 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.
Equity
Method Investments
Included in minority investments is $0 and $3.8 million at
April 30, 2007 and 2006, respectively, representing the
carrying value of the Companys minority investment in one
private company accounted for under the equity method. The
Company had a 22.7% ownership interest in this company at
April 30, 2006. For fiscal 2007 and 2006, the Company
recorded expenses of $237,000 and $2.1 million,
respectively, representing its share in the losses of this
company, which were recorded in other income (expense), net.
Conversion
of Equity Method Investment to Available-for-Sale
Securities
During the first quarter of fiscal 2007, the Companys
ownership percentage in its equity method investee decreased
below 20%. Additionally, the investee became a publicly traded
company. The Company classified this investment as
available-for-sale securities in accordance with SFAS 115.
As of April 30, 2007, an unrealized gain of
$5.2 million is included in accumulated other comprehensive
income. As of April 30, 2007, the fair market value of this
investment included in long-term available-for-sale investments
was $8.8 million.
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(As restated)
|
|
|
Raw materials
|
|
$
|
21,597
|
|
|
$
|
19,133
|
|
Work-in-process
|
|
|
27,336
|
|
|
|
21,479
|
|
Finished goods
|
|
|
28,737
|
|
|
|
12,958
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
77,670
|
|
|
$
|
53,570
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2007, the Company recorded charges of
$12.1 million for excess and obsolete inventory and sold
inventory components that were written-off in prior periods of
$4.1 million, resulting in a net charge to cost of revenues
of $8.0 million. In fiscal 2006, the Company recorded
charges of $9.3 million for excess and obsolete inventory
and sold inventory components that were written-off in prior
periods of $3.6 million, resulting in a net charge to cost
of revenues of $5.7 million. In fiscal 2005, the Company
recorded charges of $11.3 million for excess and obsolete
inventory and sold inventory components that were written-off in
prior periods with an approximate original cost of
$9.3 million, resulting in a net charge to cost of sales of
$2.0 million.
The Company makes inventory commitment and purchase decisions
based upon sales forecasts. To mitigate the component supply
constraints that have existed in the past and to fill orders
with non-standard configurations, the Company builds inventory
levels for certain items with long lead times and enters into
certain longer-term commitments for certain items. The Company
permanently writes off 100% of the cost of inventory that is
specifically identified and considered 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. The Company periodically discards
obsolete inventory. Excess inventory is generally defined as
inventory in excess of projected usage, and is determined using
the Companys best estimate of future demand at the time,
based upon information then available.
109
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In making these assessments, the Company is required to make
judgments as to the future demand for current or committed
inventory levels. The Company uses a
12-month
demand forecast and in addition also considers:
|
|
|
|
|
parts and subassemblies that can be used in alternative finished
products;
|
|
|
|
parts and subassemblies that are unlikely to be engineered out
of our products; and
|
|
|
|
known design changes which would reduce our ability to use the
inventory as planned.
|
Significant differences between the Companys estimates and
judgments regarding future timing of product transitions, volume
and mix of customer demand for the Companys products and
actual timing, volume and demand mix may result in additional
write-offs in the future, or additional usage of previously
written-off inventory in future periods for which the Company
would benefit by a reduced cost of revenues in those future
periods.
|
|
9.
|
Property,
Equipment and Improvements
|
Property, equipment and improvements consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
9,747
|
|
|
$
|
9,747
|
|
Buildings
|
|
|
11,365
|
|
|
|
10,929
|
|
Computer equipment
|
|
|
37,475
|
|
|
|
34,149
|
|
Office equipment, furniture and fixtures
|
|
|
3,196
|
|
|
|
3,182
|
|
Machinery and equipment
|
|
|
135,238
|
|
|
|
118,327
|
|
Leasehold improvements
|
|
|
12,795
|
|
|
|
7,445
|
|
Contruction-in-process
|
|
|
444
|
|
|
|
5,888
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
210,260
|
|
|
|
189,667
|
|
Accumulated depreciation and amortization
|
|
|
(126,189
|
)
|
|
|
(107,442
|
)
|
|
|
|
|
|
|
|
|
|
Property, equipment and improvements (net)
|
|
$
|
84,071
|
|
|
$
|
82,225
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
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 fourth quarter ending April 30, 2005 as a
financing transaction under which the sale will not be recorded
until the option expires or is otherwise terminated. At
April 30, 2007 and April 30, 2006, the carrying value
of the financing liability, included in other long-term
liabilities, was $11.6 million and $12.0 million,
respectively and the current portion of the financing liability,
included in the current portion of other long-term liabilities,
was $358,000 and $300,000, respectively.
|
|
11.
|
Letter of
Credit Reimbursement Agreement
|
On December 25, 2006, the Company entered into an amended
letter of credit reimbursement agreement with Silicon Valley
Bank that will be available to the Company through
October 26, 2007. Under the terms of the amended agreement,
Silicon Valley Bank is providing a $15 million letter of
credit facility covering existing letters of credit issued by
Silicon Valley Bank and any other letters of credit that may be
required by the Company. The cost related to the credit facility
consisted of a loan fee of $31,250, plus the banks out of
pocket expenses associated
110
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
with the credit facility. The credit facility is unsecured with
a negative pledge on all assets, including intellectual
property. The negative pledge requires that the Company will not
create a security in favor of a subsequent creditor without the
approval of Silicon Valley Bank. The agreement requires the
Company to maintain its primary banking and cash management
relationships with Silicon Valley Bank or SVB Securities and to
maintain a minimum unrestricted cash and cash equivalents
balance, net of any outstanding debt and letters of credit
exposure with Silicon Valley Bank, of $40 million at all
times. At April 30, 2007 the Company was not in compliance
with its SEC filing requirements under the terms of this
agreement but had obtained a waiver from the bank through
October 26, 2007. Outstanding letters of credit secured by
this agreement at April 30, 2007 totaled $11.3 million.
On November 1, 2007, the Company entered into an amended
letter of credit reimbursement agreement with Silicon Valley
Bank that will be available to the Company through
October 25, 2008. The terms of the new amended agreement
are substantially unchanged from the previous agreement,
although, the bank has waived the SEC filing requirement
covenant until the Company is current with its filing
requirements.
|
|
12.
|
Non-recourse
Accounts Receivable Purchase Agreement
|
On December 25, 2006, the Company entered into an amended
non-recourse accounts receivable purchase agreement with Silicon
Valley Bank that will be available to the Company through
October 26, 2007. Under the terms of the agreement, the
Company may sell to Silicon Valley Bank up to $20 million
of qualifying receivables whereby all right, title and interest
in the 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 0.50% and a non-refundable
administrative fee of 0.25% of the face amount of each invoice.
During fiscal 2007 and 2006, the Company sold receivables
totaling $14.7 million and $15.5 million, respectively.
On November 1, 2007, the Company entered into an amended
non-recourse accounts receivable purchase agreement effective
October 26, 2007 with Silicon Valley Bank that will be
available to the Company through October 25, 2008. The
terms of the new amended agreement are substantially unchanged
from the previous agreement.
The Companys future commitments at April 30, 2007
include minimum payments under non-cancelable operating lease
agreements, a lease commitment under a sale-leaseback agreement,
non-cancelable purchase obligations, and non-cancelable purchase
commitments as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Fiscal Year
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Operating leases
|
|
$
|
5,174
|
|
|
$
|
2,275
|
|
|
$
|
1,452
|
|
|
$
|
1,100
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
Lease commitment under sale-leaseback agreement
|
|
|
45,474
|
|
|
|
3,096
|
|
|
|
3,166
|
|
|
|
3,237
|
|
|
|
3,310
|
|
|
$
|
3,385
|
|
|
$
|
29,280
|
|
Purchase obligations
|
|
|
2,798
|
|
|
|
2,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
53,446
|
|
|
$
|
8,169
|
|
|
$
|
4,618
|
|
|
$
|
4,337
|
|
|
$
|
3,657
|
|
|
$
|
3,385
|
|
|
$
|
29,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense under the non-cancelable operating leases was
approximately $3.1 million, $5.1 million and
$4.6 million for the years ended April 30, 2007, 2006,
and 2005, respectively. The Company subleases a portion of its
facilities that it considers to be in excess of its
requirements. Sublease income was $279,000, $221,000, and
$20,000 for the years ended April 30, 2007, 2006, and 2005,
respectively. Certain leases have scheduled rent increases which
have been included in the above table. Other leases contain
provisions to adjust rental rates for
111
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
inflation during their terms, most of which are based on
to-be-published indices. Rents subject to these adjustments are
included in the above table based on current rates.
Purchase obligations consist of standby repurchase obligations
and are related to excess materials purchased and held by the
Companys manufacturing subcontractors at their facilities
on behalf of the Company to fulfill the subcontractors
obligations under the Companys purchase orders. The
Companys purchase obligations of $2.8 million has
been expensed and recorded on the balance sheet as
non-cancelable purchase obligations as of April 30, 2007.
The Companys convertible subordinated and senior
subordinated notes as of April 30, 2007 and 2006 are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Due in
|
|
Description
|
|
Amount
|
|
|
Rate
|
|
|
Fiscal Year
|
|
|
As of April 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes due 2008
|
|
$
|
100,250
|
|
|
|
5.25
|
%
|
|
|
2009
|
|
Convertible subordinated notes due 2010
|
|
|
50,000
|
|
|
|
2.50
|
%
|
|
|
2011
|
|
Convertible senior subordinated notes due 2010
|
|
|
100,000
|
|
|
|
2.50
|
%
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes due 2008
|
|
$
|
100,250
|
|
|
|
5.25
|
%
|
|
|
2009
|
|
Convertible subordinated notes due 2010
|
|
|
150,000
|
|
|
|
2.50
|
%
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys convertible subordinated and senior
subordinated notes are due by fiscal year as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Convertible notes
|
|
$
|
250,250
|
|
|
$
|
|
|
|
$
|
100,250
|
|
|
$
|
|
|
|
$
|
150,000
|
|
As of April 30, 2007 and 2006, the fair value of the
Companys convertible subordinated and convertible senior
subordinated notes based on quoted market prices was
approximately $285.2 million and $323.0 million,
respectively.
Convertible
Subordinated Notes due 2008
On October 15, 2001, the Company sold $125 million
aggregate principal amount of
51/4%
convertible subordinated notes due October 15, 2008.
Interest on the notes is
51/4%
per annum on the principal amount, payable semiannually on April
15 and October 15. The notes are convertible, at the option
of the holder, at any time on or prior to maturity into shares
of the Companys common stock at a conversion price of
$5.52 per share, which is equal to a conversion rate of
approximately 181.159 shares per $1,000 principal amount of
notes. The conversion price is subject to adjustment. The notes
may be redeemed by the Company for a cash payment of 100.75% of
the principal amount on or after October 15, 2007, together
with accrued and unpaid interest.
Because the market value of the stock rose above the conversion
price between the day the notes were priced and the day the
proceeds were collected, the Company recorded a discount of
$38.3 million related to the intrinsic value of the
beneficial conversion feature. This amount is being amortized to
interest expense over the life of the
112
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
convertible notes, or sooner upon conversion. During fiscal
2007, 2006 and 2005, the Company recorded interest expense
amortization of $4.8 million, $4.5 million and
$4.3 million, respectively.
The notes are subordinated to all of the Companys existing
and future senior indebtedness and effectively subordinated to
all existing and future indebtedness and other liabilities of
its subsidiaries. Because the notes are subordinated, in the
event of bankruptcy, liquidation, dissolution or acceleration of
payment on the senior indebtedness, holders of the notes will
not receive any payment until holders of the senior indebtedness
have been paid in full. The indenture does not limit the
incurrence by the Company or its subsidiaries of senior
indebtedness or other indebtedness. The Company may redeem the
notes, in whole or in part, at any time up to, but not
including, the maturity date at specified redemption prices,
plus accrued and unpaid interest, if the closing price of the
Companys common stock exceeds $5.56 per share for at least
20 trading days within a period of 30 consecutive trading days.
Upon a change in control of the Company, each holder of the
notes may require the Company to repurchase some or all of the
notes at a repurchase price equal to 100% of the principal
amount of the notes plus accrued and unpaid interest. The
Company may, at its option, pay all or a portion of the
repurchase price in shares of the Companys common stock
valued at 95% of the average of the closing sales prices of its
common stock for the five trading days immediately preceding and
including the third trading day prior to the date the Company is
required to repurchase the notes. The Company cannot pay the
repurchase price in common stock unless the Company satisfies
the conditions described in the indenture under which the notes
have been issued.
The notes were issued in fully registered form and are
represented by one or more global notes, deposited with the
trustee as custodian for DTC and registered in the name of
Cede & Co., DTCs nominee. Beneficial interests
in the global notes will be shown on, and transfers will be
effected only through, records maintained by DTC and its
participants.
Unamortized debt issuance costs associated with these notes were
$791,000 and $1.3 million at April 30, 2007 and 2006,
respectively. Amortization of prepaid loan costs are classified
as other income (expense), net on the consolidated statements of
operations. Amortization of prepaid loan costs were $542,000 in
each of the years ended April 30, 2007, 2006, and 2005.
Convertible
Subordinated Notes due 2010
On October 15, 2003, the Company sold $150 million
aggregate principal amount of
21/2%
convertible subordinated notes due October 15, 2010.
Interest on the notes is
21/2%
per annum, payable semiannually on April 15 and October 15.
The notes are convertible, at the option of the holder, at any
time on or prior to maturity into shares of the Companys
common stock at a conversion price of $3.705 per share, which is
equal to a conversion rate of approximately 269.9055 shares
per $1,000 principal amount of notes. The conversion price is
subject to adjustment.
At issuance of the notes the Company purchased and pledged to a
collateral agent, as security for the exclusive benefit of the
holders of the notes, approximately $14.4 million of
U.S. government securities, which will be sufficient upon
receipt of scheduled principal and interest payments thereon, to
provide for the payment in full of the first eight scheduled
interest payments due on the notes. At April 30, 2007 and
2006, approximately $625,000 and $5.5 million,
respectively, of cash and U.S. government securities
remained pledged as security for the note holders.
The notes are subordinated to all of the Companys existing
and future senior indebtedness and effectively subordinated to
all existing and future indebtedness and other liabilities of
its subsidiaries. Because the notes are subordinated, in the
event of bankruptcy, liquidation, dissolution or acceleration of
payment on the senior indebtedness, holders of the notes will
not receive any payment until holders of the senior indebtedness
have been paid in full. The indenture does not limit the
incurrence by the Company or its subsidiaries of senior
indebtedness or other indebtedness. The Company may redeem the
notes, in whole or in part, at any time up to, but not
including, the maturity date at specified redemption prices,
plus accrued and unpaid interest, if the closing price
113
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the Companys common stock exceeds $5.56 per share for
at least 20 trading days within a period of 30 consecutive
trading days.
Upon a change in control of the Company, each holder of the
notes may require the Company to repurchase some or all of the
notes at a repurchase price equal to 100% of the principal
amount of the notes plus accrued and unpaid interest. The
Company may, at its option, pay all or a portion of the
repurchase price in shares of the Companys common stock
valued at 95% of the average of the closing sales prices of its
common stock for the five trading days immediately preceding and
including the third trading day prior to the date the Company is
required to repurchase the notes. The Company cannot pay the
repurchase price in common stock unless the Company satisfies
the conditions described in the indenture under which the notes
have been issued.
The notes were issued in fully registered form and are
represented by one or more global notes, deposited with the
trustee as custodian for DTC and registered in the name of
Cede & Co., DTCs nominee. Beneficial interests
in the global notes will be shown on, and transfers will be
effected only through, records maintained by DTC and its
participants.
In separate, privately-negotiated transactions on
October 6, 2006, the Company exchanged $100 million in
principal amount of its outstanding
21/2%
convertible notes due in 2010 for a new series of notes
described below. The exchange primarily resulted in the
elimination the
single-day
put option which would have allowed the holders of the original
notes to require the Company to repurchase some or all of the
notes, for cash or common stock of the Company (at the option of
the Company), on October 15, 2007. In accordance with the
provisions of Emerging Issues Task Force (EITF)
96-19,
Debtors Accounting for a Modification or Exchange of
Debt Instruments,
(EITF 96-19)
and
EITF 05-07,
Accounting for Modifications to Conversion Options Embedded
in Debt Instruments and Related Issues,
(EITF 05-07)
the exchange was treated as the extinguishment of the original
debt and issuance of new debt. Accordingly, the Company recorded
a non-cash loss on debt extinguishment of $31.6 million
during the second quarter of fiscal 2007 which included
$1.9 million of unamortized debt issuance costs related to
the $100 million of the notes that were exchanged. The
remaining $50 million in principal amount of the original
notes have not been modified, and have been classified as a
current liability as a result of the put option. On
October 15, 2007, none of the note holders exercised the
right to require the Company to repurchase these notes.
Unamortized debt issuance costs associated with these notes were
$809,000 and $3.1 million at April 30, 2007 and 2006,
respectively. Amortization of prepaid loan costs are classified
as other income (expense), net on the consolidated statements of
operations. Amortization of prepaid loan costs were $468,000 in
fiscal 2007, $702,000 in fiscal 2006, and $707,000 in fiscal
2005.
Convertible
Senior Subordinated Notes due 2010
On October 6, 2006, the Company entered into separate,
privately-negotiated, exchange agreements with certain holders
of its existing
21/2% Convertible
Subordinated Notes due 2010 (the Old Notes),
pursuant to which holders of an aggregate of $100 million
of the Old Notes agreed to exchange their Old Notes for
$100 million in aggregate principal amount of a new series
of
21/2% Convertible
Senior Subordinated Notes due 2010 (the New Notes),
plus accrued and unpaid interest on the Old Notes at the day
prior to the closing of the exchange. Interest on the New Notes
is
21/2%
per annum, payable semiannually on April 15 and October 15.
The New Notes become convertible, at the option of the holder,
upon the Companys common stock reaching $4.92 for a period
of time at a conversion price of $3.28 per share, which is
equal to a rate of approximately 304.9055 shares of Finisar
common stock per $1,000 principal amount of the New Notes. The
conversion price is subject to adjustment. As noted above, this
exchange was treated as the issuance of new debt under
EITF 96-19
and 05-07.
The New Notes contain a net share settlement feature which
requires that, upon conversion of the New Notes into common
stock of the Company, Finisar will pay holders in cash for up to
the principal amount of the converted New Notes and that any
amounts in excess of the cash amount will be settled in shares
of Finisar common stock.
114
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The New Notes are subordinated to all of the Companys
existing and future senior indebtedness and effectively
subordinated to all existing and future indebtedness and other
liabilities of its subsidiaries. Because the New Notes are
subordinated, in the event of bankruptcy, liquidation,
dissolution or acceleration of payment on the senior
indebtedness, holders of the New Notes will not receive any
payment until holders of the senior indebtedness have been paid
in full. The indenture does not limit the incurrence by the
Company or its subsidiaries of senior indebtedness or other
indebtedness. The Company may redeem the New Notes, in whole or
in part, at any time up to, but not including, the maturity date
at specified redemption prices, plus accrued and unpaid
interest, if the closing price of the Companys common
stock exceeds $4.92 per share for at least 20 trading days
within a period of 30 consecutive trading days.
Upon a change in control of the Company, each holder of the New
Notes may require the Company to repurchase some or all of the
New Notes at a repurchase price equal to 100% of the principal
amount of the New Notes plus accrued and unpaid interest. The
Company may, at its option, pay all or a portion of the
repurchase price in shares of the Companys common stock
valued at 95% of the average of the closing sales prices of its
common stock for the five trading days immediately preceding and
including the third trading day prior to the date the Company is
required to repurchase the New Notes. The Company cannot pay the
repurchase price in common stock unless the Company satisfies
the conditions described in the indenture under which the New
Notes have been issued.
The New Notes were issued in fully registered form and are
represented by one or more global notes, deposited with the
trustee as custodian for DTC and registered in the name of
Cede & Co., DTCs nominee. Beneficial interests
in the global notes will be shown on, and transfers will be
effected only through, records maintained by DTC and its
participants.
The Company has agreed to use its best efforts to file a shelf
registration statement covering the New Notes and the common
stock issuable upon conversion of the stock and keep such
registration statement effective until two years after the
latest date on which the Company issued New Notes (or such
earlier date when the holders of the New Notes and the common
stock issuable upon conversion of the New Notes are able to sell
their securities immediately pursuant to Rule 144(k) under
the Securities Act). If the Company does not comply with these
registration obligations, the Company will be required to pay
liquidated damages to the holders of the New Notes or the common
stock issuable upon conversion. The Company will not receive any
of the proceeds from the sale by any selling security holders of
the New Notes or the underlying common stock. As of
April 30, 2007 the Company had not complied with the
registration requirements under this agreement. Accordingly, it
had accrued a liability of $124,000 for liquidated damages
payable under this agreement.
The Company considered the embedded derivative in the New Notes,
that is, the conversion feature, and concluded that that it is
indexed to the Companys common stock and would be
classified as equity under
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock, were
it to be accounted for separately and thus is not required to be
bifurcated and accounted for separately from the debt.
The Company also considered the Companys call feature and
the holders put feature in the event of a change in
control under the provisions of
EITF 00-19
and related guidance, and concluded that they need not be
accounted for separately from the debt.
During fiscal year 2007 the Company incurred fees of
approximately $2 million related to the exchange
transactions which were capitalized and will be amortized over
the life of the New Notes.
Unamortized debt issuance costs associated with the New Notes
were $1.7 million and $0 at April 30, 2007 and 2006,
respectively. Amortization of prepaid loan costs are classified
as other income (expense), net on the consolidated statement of
operations. Amortization of prepaid loan costs were $240,000 in
fiscal 2007 and $0 in fiscal 2006 and 2005.
115
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible
Note Acquisition of Assets of Data Transit
Corp.
On August 6, 2004, the Company completed the purchase of
substantially all of the assets of Data Transit Corp. in
exchange for a cash payment of $500,000 and the issuance of a
convertible promissory note in the original principal amount of
$16.3 million. Transaction costs totaled $682,000. The
principal balance of the note bore interest at 8% per annum and
was due and payable, if not earlier converted, on the second
anniversary of its issuance. Generally, the terms of the
convertible promissory note provided for automatic conversion of
the outstanding principal and interest into shares of Finisar
common stock on a biweekly basis, commencing on the later of the
effectiveness of a registration statement covering the resale of
the shares or one year after the closing date. The conversion
price was the average closing bid price of the stock for the
three days preceding the date of conversion. The amount of
principal and interest converted on each conversion date was
based on the average trading volume of our common stock over the
preceding 14 days.
During the first quarter of fiscal 2006, the Company issued
5,144,609 shares of common stock upon the conversion of
$4.2 million of principal and $1.1 million of interest
related to this convertible promissory note. During the second
quarter of fiscal 2006, the Company issued 9,938,256 shares
of common stock upon the conversion of $12.1 million of
principal and $191,000 of interest related to this convertible
promissory note. As of April 30, 2007, all of the principal
and interest on this note had been converted into shares of
common stock.
Convertible
Note Acquisition of I-TECH Corp.
On April 8, 2005, the Company completed the acquisition of
I-TECH CORP, a privately-held network test and monitoring
company, in exchange for the issuance of two promissory notes to
the sole holder of I-TECHs common stock. The promissory
notes, which had an aggregate principal amount of approximately
$12.1 million and an interest rate of 3.35%, were
convertible into shares of Finisar common stock upon the
occurrence of certain events and at the election of the Company
and the holder of the notes.
During the first quarter of fiscal 2006, the Company issued
9,834,541 shares of common stock upon the conversion of
$11.1 million of principal and $65,000 of interest related
to one of these convertible promissory notes resulting in the
complete conversion of the note. During the third quarter of
fiscal 2006, the Company issued 99,860 shares of common
stock upon the conversion of $157,000 of principal and $22,000
of interest related to the remaining promissory note. During the
fourth quarter of fiscal 2006, the Company issued
173,149 shares of common stock upon the conversion of
$843,000 of principal and $9,000 of interest related to the
remaining promissory note. As of April 30, 2007, all of the
principal and interest on these notes had been converted into
shares of common stock.
Convertible
Note Minority Investment in CyOptics,
Inc.
On April 29, 2005, the Company entered into a Series F
Preferred Stock Purchase Agreement (the SPA) with
CyOptics, Inc. Pursuant to the SPA, the Company issued a
convertible promissory note in the principal amount of
approximately $3.8 million and an interest rate of 3.35% as
consideration for the purchase of 24,298,580 shares of
CyOptics Series F Preferred Stock.
The terms of the note provided for four weekly conversions of
equal portions of the outstanding principal of the note into
shares of our common stock, commencing on June 14, 2005.
The number of shares to be issued upon each conversion was
determined by dividing the amount converted by the average
closing bid price of the Companys common stock for either
(i) the four trading days immediately prior to the
conversion, or (ii) the trading day prior to the
conversion, as selected by the holder of the note.
During the first quarter of fiscal 2006, the Company issued
3,594,607 shares of common stock upon the conversion of the
full $3.8 million of principal and $19,000 of interest
related to this convertible promissory note. As of
April 30, 2007, all of the principal and interest on this
note had been converted into shares of common stock.
116
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible
Note Acquisition of AZNA LLC
On March 26, 2007, the Company completed the acquisition of
AZNA LLC, a privately-held optical subsystems and components
company, in exchange for the issuance of two promissory notes to
the majority holder of AZNAs equity interest. The
promissory notes, which have an aggregate principal amount of
approximately $17.0 million and an interest rate of 5.0%.
The notes are payable, at the Companys option, in cash or
shares of Finisar common stock, with the value of such shares to
be based on the trading price of the stock at the time the
shares are registered for re-sale pursuant to the Securities Act
of 1933, as amended. The exact number of shares of Finisar
common stock to be issued pursuant to the convertible promissory
notes is dependent on the trading price of Finisars common
stock on the dates of conversion of the notes, but shall not
exceed in the aggregate 9.99% of either the total shares
outstanding or voting power outstanding of the Company as of the
date of the notes. The Company will be obligated to repay the
notes in cash if the registration of the underlying shares is
delayed more than 12 months after the closing. Because the
number of shares to be issued is based upon the market price of
the Companys common stock, cannot be determined prior to
conversion.
In December 2005, the Company entered into a note and security
agreement with a financial institution. Under this agreement,
the Company borrowed $9.9 million at an interest rate of
5.9% per annum. The note is payable in 60 equal monthly
installments beginning in January 2006 and is secured by certain
property and equipment of the Company. The Companys bank
issued an irrevocable transferable standby letter of credit in
the amount of $9.9 million for the benefit of the lender
under the letter of credit facility described in Note 11.
The agreement allows for periodic reductions of the amount
required under the irrevocable transferable standby letter of
credit at the discretion of the lender. At April 30, 2007,
the remaining principal balance outstanding under this note was
$7.5 million and the amount of the letter of credit
securing this loan was $7.8 million.
Common
Stock and Preferred Stock
As of April 30, 2007, Finisar is authorized to issue
750,000,000 shares of $0.001 par value common stock
and 5,000,000 shares of $0.001 par value preferred
stock. The board of directors has the authority to issue the
undesignated preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof.
The holder of each share of common stock has the right to one
vote and is entitled to receive dividends when and as declared
by the Companys Board of Directors. The Company has never
declared or paid dividends on its common stock.
Common stock subject to future issuance as of April 30,
2007 is as follows:
|
|
|
|
|
Conversion of convertible notes
|
|
|
34,520,004
|
|
Exercise of outstanding warrants
|
|
|
468,694
|
|
Exercise of outstanding options
|
|
|
46,119,115
|
|
Available for grant under stock option plans
|
|
|
28,815,162
|
|
Reserved for issuance under the employee stock purchase plan
|
|
|
10,060,097
|
|
|
|
|
|
|
|
|
|
119,983,072
|
|
|
|
|
|
|
Warrants
In connection with the acquisition of Shomiti Systems, Inc.
(Shomiti) in fiscal 2001, the Company assumed
warrants to purchase stock of Shomiti. Upon completion of the
acquisition, these warrants entitled the holders to
117
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purchase 10,153 shares of Finisar common stock at an
exercise price of $11.49 per share. The warrants expire at
various dates through 2007. None of the warrants have been
exercised to date.
In conjunction with the acquisition of Genoa in fiscal 2003, the
Company assumed warrants to purchase stock of Genoa and issued
warrants to purchase stock of Finisar. The assumed warrants
entitle the holders to purchase 29,766 shares of Finisar
common stock at an exercise price of $15.25 per share and expire
at various dates through 2011. None of the assumed warrants have
been exercised to date. The warrants issued by the Company
entitle the holders to purchase 999,835 shares of Finisar
common stock at an exercise price of $1.00 per share and expire
at various dates through 2011. During fiscal 2007, 2006, and
2005, warrants issued by the Company to purchase 2,011, 471,627,
and 21,845 shares of Finisar common stock were exercised,
respectively. At April 30, 2007, warrants to purchase
428,775 shares of Finisar common stock at an exercise price
of $1.00 per share were still outstanding.
Preferred
Stock
The Company has authority to issue up to 5,000,000 shares
of preferred stock, $0.001 par value. The preferred stock
may be issued in one or more series having such rights,
preferences and privileges as may be designated by the
Companys board of directors. In September 2002, the
Companys board of directors designated 500,000 shares
of its preferred stock as Series RP Preferred Stock, which
is reserved for issuance under the Companys stockholder
rights plan described below. As of April 30, 2007 and 2006,
no shares of the Companys preferred stock were issued and
outstanding.
Stockholder
Rights Plan
In September 2002, Finisars board of directors adopted a
stockholder rights plan. Under the rights plan, stockholders
received one share purchase right for each share of Finisar
common stock held. The rights, which will initially trade with
the common stock, effectively allow Finisar stockholders to
acquire Finisar common stock at a discount from the then current
market value when a person or group acquires 20% or more of
Finisars common stock without prior board approval. When
the rights become exercisable, Finisar stockholders, other than
the acquirer, become entitled to exercise the rights, at an
exercise price of $14.00 per right, for the purchase of
one-thousandth of a share of Finisar Series RP Preferred
Stock or, in lieu of the purchase of Series RP Preferred
Stock, Finisar common stock having a market value of twice the
exercise price of the rights. Alternatively, when the rights
become exercisable, the board of directors may authorize the
issuance of one share of Finisar common stock in exchange for
each right that is then exercisable. In addition, in the event
of certain business combinations, the rights permit the purchase
of the common stock of an acquirer at a 50% discount. Rights
held by the acquirer will become null and void in each case.
Prior to a person or group acquiring 20%, the rights can be
redeemed for $0.001 each by action of the board of directors.
The rights plan contains an exception to the 20% ownership
threshold for Finisars founder, former Chairman of the
Board and former Chief Technical Officer, Frank H. Levinson.
Under the terms of the rights plan, Dr. Levinson and
certain related persons and trusts are permitted to acquire
additional shares of Finisar common stock up to an aggregate
amount of 30% of Finisars outstanding common stock,
without prior Board approval.
Employee
Stock Purchase Plan
The Company has an Employee Stock Purchase Plan, which includes
its sub-plan, the International Employee Stock Purchase Plan
(together the Purchase Plan), under which
15,750,000 shares of the Companys common stock have
been reserved for issuance. Eligible employees may purchase a
limited number of shares of common stock at a discount of 15% to
the market value at certain plan-defined dates. During the
fiscal year ended April 30, 2007 and 2006, the Company
issued 860,025 and 1,229,249 shares, respectively. At
April 30, 2007, 10,060,097 shares were available for
issuance under the Purchase Plan.
118
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The employee stock purchase plan permits eligible employees to
purchase Finisar common stock through payroll deductions, which
may not exceed 20% of the employees total compensation.
Stock may be purchased under the plan at a price equal to 85% of
the fair market value of Finisar common stock on either the
first or the last day of the offering period, whichever is lower.
Employee
Stock Option Plans
During fiscal 1989, Finisar adopted the 1989 Stock Option Plan
(the 1989 Plan). The 1989 Plan expired in April 1999
and no further option grants have been made under the 1989 Plan
since that time. Options granted under the 1989 Plan had an
exercise price of not less than 85% of the fair value of a share
of common stock on the date of grant (110% of the fair value in
certain instances) as determined by the board of directors.
Options generally vested over five years and had a maximum term
of 10 years.
Finisars 1999 Stock Option Plan was adopted by the board
of directors and approved by the stockholders in September 1999.
An amendment and restatement of the 1999 Stock Option Plan,
including renaming it the 2005 Stock Incentive Plan (the
2005 Plan), was approved by the board of directors
in September 2005 and by the stockholders in October 2005. A
total of 21,000,000 shares of common stock were initially
reserved for issuance under the 2005 Plan. The share reserve
automatically increases on May 1 of each calendar year by a
number of shares equal to 5% of the number of shares of
Finisars common stock issued and outstanding as of the
immediately preceding April 30, subject to certain
restrictions on the aggregate maximum number of shares that may
be issued pursuant to incentive stock options. The types of
stock-based awards available under the 2005 Plan includes stock
options, stock appreciation rights, restricted stock units and
other stock-based awards which vest upon the attainment of
designated performance goals or the satisfaction of specified
service requirements or, in the case of certain restricted stock
units or other stock-based awards, become payable upon the
expiration of a designated time period following such vesting
events. To date, only stock options have been granted under the
2005 Plan. Options generally vest over five years and have a
maximum term of 10 years. All options granted under the
2005 Plan are immediately exercisable. As of April 30, 2007
and 2006, 6,066 and 3,700 shares were subject to
repurchase, respectively.
119
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of activity under the Companys employee stock
option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Options Outstanding
|
|
|
|
Available
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-Average
|
|
|
|
|
|
|
for Grant
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Options for Common Stock
|
|
Shares
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
$ (000)
|
|
|
Balance at April 30, 2004
|
|
|
4,866,391
|
|
|
|
43,573,024
|
|
|
$
|
2.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
11,142,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(14,797,398
|
)
|
|
|
14,797,398
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(1,662,577
|
)
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
7,911,103
|
|
|
|
(7,911,103
|
)
|
|
$
|
2.55
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
30,000
|
|
|
|
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(12,940
|
)
|
|
|
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
|
9,139,672
|
|
|
|
48,796,742
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
12,946,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(11,275,720
|
)
|
|
|
11,275,720
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(8,965,154
|
)
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
9,257,346
|
|
|
|
(9,257,346
|
)
|
|
$
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2006
|
|
|
20,067,862
|
|
|
|
41,849,962
|
|
|
$
|
2.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
15,275,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(8,974,558
|
)
|
|
|
8,974,558
|
|
|
$
|
3.44
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(2,259,152
|
)
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
2,446,253
|
|
|
|
(2,446,253
|
)
|
|
$
|
2.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2007
|
|
|
28,815,162
|
|
|
|
46,119,115
|
|
|
$
|
2.58
|
|
|
|
7.11
|
|
|
$
|
69,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the difference between the exercise price and the
value of Finisar common stock at April 30, 2007. |
The following table summarizes significant ranges of outstanding
and exercisable options as of April 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
(In years)
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.05 $ 1.15
|
|
|
7,162,137
|
|
|
|
7.12
|
|
|
$
|
1.07
|
|
|
|
3,334,913
|
|
|
$
|
1.03
|
|
$ 1.18 $ 1.50
|
|
|
6,747,585
|
|
|
|
6.55
|
|
|
|
1.40
|
|
|
|
4,136,967
|
|
|
|
1.46
|
|
$ 1.58 $ 1.76
|
|
|
6,237,765
|
|
|
|
7.60
|
|
|
|
1.75
|
|
|
|
3,101,825
|
|
|
|
1.75
|
|
$ 1.77 $ 1.80
|
|
|
8,429,162
|
|
|
|
6.30
|
|
|
|
1.79
|
|
|
|
6,678,420
|
|
|
|
1.80
|
|
$ 1.84 $ 3.10
|
|
|
8,667,414
|
|
|
|
8.14
|
|
|
|
2.67
|
|
|
|
2,977,992
|
|
|
|
2.49
|
|
$ 3.14 $ 3.84
|
|
|
5,540,606
|
|
|
|
7.14
|
|
|
|
3.46
|
|
|
|
2,539,839
|
|
|
|
3.72
|
|
$ 4.01 $21.69
|
|
|
3,027,146
|
|
|
|
7.01
|
|
|
|
8.84
|
|
|
|
1,214,822
|
|
|
|
14.98
|
|
$21.71 $22.5
|
|
|
307,300
|
|
|
|
3.27
|
|
|
|
22.10
|
|
|
|
307,300
|
|
|
|
22.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,119,115
|
|
|
|
7.11
|
|
|
$
|
2.43
|
|
|
|
24,292,078
|
|
|
$
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys vested and expected-to-vest stock options and
exercisable stock options as of April 30, 2007 are
summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
($000s)
|
|
|
Vested and expected-to-vest options
|
|
|
39,818,887
|
|
|
$
|
2.59
|
|
|
|
6.87
|
|
|
$
|
62,253
|
|
Exercisable options
|
|
|
24,292,078
|
|
|
$
|
2.83
|
|
|
|
6.04
|
|
|
$
|
39,113
|
|
The aggregate intrinsic value in the preceding table represents
the total pretax intrinsic value, based on the Companys
closing stock price of $3.62 as of April 30, 2007, which
would have been received by the option holders had all option
holders exercised their options as of that date. The total
number of in-the-money options exercisable as of April 30,
2007 was approximately 20.8 million.
Valuation
and Expense Information under SFAS 123R and
SFAS 123
On May 1, 2006, the Company adopted SFAS 123R, which
requires the measurement and recognition of compensation expense
for all stock-based payment awards made to the Companys
employees and directors including employee stock options and
employee stock purchases under its 1999 Employee Stock Purchase
Plan based on estimated fair values.
As a result of adopting SFAS 123R, the Companys net
loss for the year ended April 30, 2007, was
$9.0 million higher than if the Company had continued to
account for stock-based compensation under APB 25. Basic and
diluted loss per share for the year ended April 30, 2007
would have been lower by $0.03 had the Company continued to
account for stock-based compensation under APB 25.
The total stock-based compensation capitalized as part of
inventory as of April 30, 2007 was $410,000.
As of April 30, 2007, total compensation cost related to
unvested stock options not yet recognized was $16.9 million
which is expected to be recognized over the next 27 months
on a weighted-average basis.
Upon adoption of SFAS 123R, the Company began estimating
the value of employee stock options on the date of grant using
the Black-Scholes option-pricing model with a straight-line
attribution method to recognize
stock-based
compensation expense. Compensation expense for all stock-based
payment awards granted prior to the adoption of SFAS 123R
was recognized using the Black-Scholes option-pricing model with
a multiple-option approach for the purpose of the pro forma
financial information in accordance with SFAS 123.
The fair value of options granted in fiscal 2007, 2006, and 2005
was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Option Plans
|
|
|
Employee Stock Purchase Plan
|
|
|
|
Year Ended April 30,
|
|
|
Year Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected term (in years)
|
|
|
5.25
|
|
|
|
3.19
|
|
|
|
3.28
|
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
0.46
|
|
Volatility
|
|
|
98
|
%
|
|
|
107
|
%
|
|
|
117
|
%
|
|
|
69
|
%
|
|
|
68
|
%
|
|
|
99
|
%
|
Risk-free interest rate
|
|
|
4.73
|
%
|
|
|
4.40
|
%
|
|
|
3.50
|
%
|
|
|
4.45
|
%
|
|
|
4.18
|
%
|
|
|
2.85
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The expected term represents the period that the Companys
stock-based awards are expected to be outstanding and was
determined based on the Companys historical experience
with similar awards, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and
expectations of future employee behavior as influenced by
changes to the terms of its stock-based awards.
121
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The calculated the volatility factor is based on the
Companys historical stock prices.
The Company bases the risk-free interest rate used in the
Black-Scholes option-pricing model on constant maturity bonds
from the Federal Reserve in which the maturity approximates the
expected term.
The Black-Scholes option-pricing model calls for a single
expected dividend yield as an input. The Company has not issued
any dividends.
As stock-based compensation expense recognized in the
consolidated statement of operations for fiscal 2007 is based on
awards ultimately expected to vest, it has been reduced for
estimated forfeitures. SFAS 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. Forfeitures were estimated based on historical
experience. In the Companys pro forma information required
under SFAS 123 for the periods prior to fiscal 2007, the
Company accounted for forfeitures as they occurred.
The weighted-average grant-date per share fair value of options
granted in fiscal 2007, 2006, and 2005 was $2.64, $1.13, and
$0.92, respectively. The weighted-average estimated per share
fair value of shares granted under the Purchase Plan in fiscal
2007, 2006, and 2005 was $0.90, $0.64 , and $0, respectively.
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, our recorded and pro forma
stock-based compensation expense could have been materially
different from that depicted above and below. In addition, we
are required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. If our
actual forfeiture rate is materially different from our
estimate, the stock-based compensation expense could be
materially different.
The following table summarizes the pro forma information
regarding option grants made to the Companys employees and
directors and employee stock purchases related to the Purchase
Plan had the Company applied the fair value recognition
provisions of SFAS 123 (in thousands, except per-share
amounts):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
Net loss
|
|
$
|
(33,029
|
)
|
|
$
|
(117,728
|
)
|
Add:
|
|
|
|
|
|
|
|
|
APB 25 stock-based compensation expense, included in net loss,
net of tax
|
|
|
6,819
|
|
|
|
3,838
|
|
Less:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense determined under fair value
based method, net of tax
|
|
|
(10,056
|
)
|
|
|
(17,680
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(36,266
|
)
|
|
$
|
(131,570
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.11
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(0.12
|
)
|
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
Shares used in computing reported and pro forma net
loss basic and diluted
|
|
|
290,518
|
|
|
|
232,210
|
|
122
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Employee
Benefit Plan
|
The company maintains a defined contribution retirement plan
under the provisions of Section 401(k) of the Internal
Revenue Code which covers all eligible employees. Employees are
eligible to participate in the plan on the first day of the
month immediately following twelve months of service with
Finisar.
Under the plan, each participant may contribute up to 20% of his
or her pre-tax gross compensation up to a statutory limit, which
was $15,500 for calendar year 2007. All amounts contributed by
participants and earnings on participant contributions are fully
vested at all times. Finisar may contribute an amount equal to
one-half of the first 6% of each participants
contribution. The Companys expenses related to this plan
were $1,255,000, $949,000, and $906,000 for fiscal years ended
April 30, 2007, 2006, and 2005, respectively.
The expense (benefit) for income taxes consists of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
157
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
86
|
|
|
|
|
|
|
|
(64
|
)
|
Foreign
|
|
|
392
|
|
|
|
80
|
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
|
80
|
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,019
|
|
|
|
2,123
|
|
|
|
1,500
|
|
State
|
|
|
156
|
|
|
|
164
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,175
|
|
|
|
2,287
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
2,810
|
|
|
$
|
2,367
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
U.S
|
|
$
|
(47,591
|
)
|
|
$
|
(35,033
|
)
|
|
$
|
(108,975
|
)
|
Foreign
|
|
|
3,789
|
|
|
|
4,371
|
|
|
|
(7,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(43,802
|
)
|
|
$
|
(30,662
|
)
|
|
$
|
(116,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the income tax provision at the federal
statutory rate and the effective rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
2007
|
|
|
As Restated
|
|
|
As Restated
|
|
|
Expected income tax provision (benefit) at U.S. federal
statutory rate
|
|
|
(35.00
|
)%
|
|
|
(35.00
|
)%
|
|
|
(35.00
|
)%
|
Deferred compensation
|
|
|
0.00
|
|
|
|
0.65
|
|
|
|
0.16
|
|
Stock compensation expense
|
|
|
3.90
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Loss on debt extinguishment
|
|
|
23.76
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Non-deductible interest
|
|
|
4.92
|
|
|
|
5.17
|
|
|
|
4.34
|
|
Valuation allowance
|
|
|
10.07
|
|
|
|
40.70
|
|
|
|
29.70
|
|
Foreign loss with no tax benefit
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
2.12
|
|
Foreign (income) taxed at different rates
|
|
|
(2.84
|
)
|
|
|
(4.73
|
)
|
|
|
0.00
|
|
In-process R&D
|
|
|
1.25
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Other
|
|
|
0.36
|
|
|
|
0.93
|
|
|
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.42
|
%
|
|
|
7.72
|
%
|
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of deferred taxes consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
|
|
|
2006
|
|
|
|
2007
|
|
|
As Restated
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve
|
|
$
|
7,387
|
|
|
$
|
5,374
|
|
Accruals and reserves
|
|
|
9,272
|
|
|
|
8,865
|
|
Tax credits
|
|
|
16,633
|
|
|
|
16,109
|
|
Net operating loss carryforwards
|
|
|
146,060
|
|
|
|
144,074
|
|
Gain/loss on investments under equity or cost method
|
|
|
11,862
|
|
|
|
11,791
|
|
Depreciation and amortization
|
|
|
|
|
|
|
625
|
|
Purchase accounting for intangible assets
|
|
|
11,115
|
|
|
|
8,716
|
|
Stock compensation
|
|
|
10,741
|
|
|
|
9,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
213,070
|
|
|
|
204,916
|
|
Valuation allowance
|
|
|
(201,356
|
)
|
|
|
(204,916
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
11,714
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill amortization for tax
|
|
|
(6,090
|
)
|
|
|
(3,919
|
)
|
Tax basis difference on convertible debt
|
|
|
(10,696
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(17,804
|
)
|
|
|
(3,919
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets (liabilities)
|
|
|
(6,090
|
)
|
|
|
(3,919
|
)
|
|
|
|
|
|
|
|
|
|
The Companys valuation allowance increased/(decreased)
from the prior year by approximately ($3.6) million,
$9.97 million, and $57.0 million in fiscal 2007, 2006
and 2005, respectively.
124
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Approximately $17.7 million of the valuation allowance at
April 30, 2007 is attributable to acquired tax attributes
that, when realized, will first reduce unamortized goodwill,
next other non-current intangible assets of acquired
subsidiaries, and then income tax expense.
A deferred tax liability has been established to reflect tax
amortization of goodwill for which no financial statement
amortization has occurred under generally accepted accounting
principles, as promulgated by SFAS 142.
At April 30, 2007, the Company had federal, state and
foreign net operating loss carryforwards of approximately
$437.6 million, $155.2 million and $0.5 million,
respectively, and federal and state tax credit carryforwards of
approximately $9.8 million, and $10.5 million,
respectively. The net operating loss and tax credit
carryforwards will expire at various dates beginning in 2009, if
not utilized. 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 in 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.
The Companys manufacturing operations in Malaysia operate
under a tax holiday which expires in fiscal 2011. This tax
holiday has had no effect on the Companys net loss and net
loss per share in fiscal 2005, 2006, and 2007 due to net
operating losses sustained in fiscal 2004 and 2005 and net
operating loss carryforwards realized in fiscal 2007
As of April 30, 2007, federal income taxes were not
provided for $870,000 of cumulative undistributed earnings of
foreign subsidiaries which are considered permanently reinvested
offshore. The determination of the amount of unrecognized
federal deferred tax expense is not practicable as of
April 30, 2007.
In June 2006, the FASB issued Interpretation, or FIN,
No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of SFAS No. 109,
or FIN 48. FIN 48 clarifies the accounting for
uncertain taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement of a tax position taken or
expected to be taken in an enterprises tax return. In
addition, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure related to uncertain income tax
positions. FIN 48 is effective for the fiscal years
beginning after December 15, 2006 for all public companies.
Accordingly, the Company was required to adopt FIN 48 as of
May 1, 2007. The adoption of FIN 48 did not have a
material impact on our consolidated financial statements.
Short Cut
Election
In November 2005, the FASB issued Staff Position
No. FAS 123(R)-3, Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment
Awards (FSP 123R-3). The Company has
elected to adopt the alternative transition method provided in
FSP 123R-3 for calculating the tax effects of stock-based
compensation under SFAS 123R. The alternative transition
method includes simplified methods to establish the beginning
balance of the additional
paid-in-capital
pool (APIC pool) related to the tax effects of
stock-based compensation, and for determining the subsequent
impact on the APIC pool and consolidated statements of cash
flows of the tax effects of stock-based compensation awards that
are outstanding upon adoption of SFAS 123R.
|
|
19.
|
Segments
and Geographic Information
|
The Company designs, develops, manufactures and markets optical
subsystems, components and test and monitoring 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 and
monitoring systems.
Optical subsystems consist primarily of transceivers sold to
manufacturers of storage and networking equipment for storage
area networks (SANs) and local area networks (LANs), and
metropolitan access networks (MAN) applications. Optical
subsystems also include multiplexers, de-multiplexers and
optical add/drop modules for use in MAN applications. Optical
components consist primarily of packaged lasers and
photo-detectors which
125
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are incorporated in transceivers, primarily for LAN and SAN
applications. Network test and monitoring 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 and monitoring systems are sold to both manufacturers
and end-users of the equipment.
Both of the Companys operating segments and its corporate
sales function report to the President 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.
Information about reportable segment revenues and income are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
381,263
|
|
|
$
|
325,956
|
|
|
$
|
241,582
|
|
Network test and monitoring systems
|
|
|
37,285
|
|
|
|
38,337
|
|
|
|
39,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
418,548
|
|
|
$
|
364,293
|
|
|
$
|
280,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
25,757
|
|
|
$
|
32,929
|
|
|
$
|
28,157
|
|
Network test and monitoring systems
|
|
|
1,136
|
|
|
|
1,512
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
26,893
|
|
|
$
|
34,441
|
|
|
$
|
29,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
|
17,806
|
|
|
|
(2,901
|
)
|
|
|
(36,883
|
)
|
Network test and monitoring systems
|
|
|
(5,852
|
)
|
|
|
(1,412
|
)
|
|
|
(7,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
11,954
|
|
|
|
(4,313
|
)
|
|
|
(44,385
|
)
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired developed technology
|
|
|
(6,002
|
)
|
|
|
(17,671
|
)
|
|
|
(22,268
|
)
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
(162
|
)
|
In-process research and development
|
|
|
(5,770
|
)
|
|
|
|
|
|
|
(1,558
|
)
|
Amortization of other intangibles
|
|
|
(1,814
|
)
|
|
|
(1,747
|
)
|
|
|
(1,104
|
)
|
Impairment of assets
|
|
|
|
|
|
|
|
|
|
|
(18,798
|
)
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
(853
|
)
|
|
|
(3,656
|
)
|
Restructuring costs
|
|
|
|
|
|
|
(3,064
|
)
|
|
|
(287
|
)
|
Loss on debt extinguishment
|
|
|
(31,606
|
)
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
(9,840
|
)
|
|
|
(12,360
|
)
|
|
|
(12,072
|
)
|
Other non-operating income (expense), net
|
|
|
(724
|
)
|
|
|
9,346
|
|
|
|
(12,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unallocated amounts
|
|
|
(55,756
|
)
|
|
|
(26,349
|
)
|
|
|
(72,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(43,802
|
)
|
|
$
|
(30,662
|
)
|
|
$
|
(116,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of total assets by segment (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Restated)
|
|
|
Optical subsystems and components
|
|
$
|
392,260
|
|
|
$
|
350,129
|
|
Network test and monitoring systems
|
|
|
76,885
|
|
|
|
72,422
|
|
Other assets
|
|
|
77,527
|
|
|
|
83,919
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
546,672
|
|
|
$
|
506,470
|
|
|
|
|
|
|
|
|
|
|
Cash, short-term, restricted and minority investments are the
primary components of other assets in the above table.
The following is a summary of operations within geographic areas
based on the location of the entity purchasing the
Companys products (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues from sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
269,451
|
|
|
$
|
202,962
|
|
|
$
|
184,829
|
|
Rest of the world
|
|
|
149,097
|
|
|
|
161,331
|
|
|
|
95,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,548
|
|
|
$
|
364,293
|
|
|
$
|
280,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues generated in the U.S. 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):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
237,691
|
|
|
$
|
233,498
|
|
Malaysia
|
|
|
26,589
|
|
|
|
21,649
|
|
Rest of the world
|
|
|
3,351
|
|
|
|
2,984
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
267,631
|
|
|
$
|
258,131
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of capital expenditure by reportable
segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Optical subsystems and components
|
|
$
|
22,057
|
|
|
$
|
22,747
|
|
Network test and monitoring systems
|
|
|
284
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
22,341
|
|
|
$
|
22,887
|
|
|
|
|
|
|
|
|
|
|
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
127
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, which are
reflected in this report. The announcement of the investigation,
and related delays in filing its 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 July 29, 2007 (the July
10-Q)
and this annual report on
Form 10-K
for the fiscal year ended April 30, 2007 (the
2007 10-K),
have resulted in the initiation of regulatory proceedings as
well as civil litigation and claims.
Nasdaq
Determination of Non-compliance
On December 13, 2006, the Company received a Staff
Determination notice from the Nasdaq Stock Market stating that
the Company was not in compliance with Marketplace
Rule 4310(c)(14) because it did not timely file the October
10-Q and,
therefore, that its common stock was subject to delisting from
the Nasdaq Global Select Market. The Company received similar
Staff Determination Notices with respect to its failure to
timely file the January
10-Q, the
July 10-Q
and the 2007
10-K. In
response to the original Staff Determination Notice, the Company
requested a hearing before a Nasdaq Listing Qualifications Panel
(the Panel) to review the Staff Determination and to
request additional time to comply with the filing requirements
pending completion of the Audit Committees investigation.
The hearing was held on February 15, 2007. The Company
thereafter supplemented its previous submission to Nasdaq to
include the subsequent periodic reports in its request for
additional time to make required filings. On April 4, 2007,
the Panel granted the Company additional time to comply with the
filing requirements until June 11, 2007 for the October
10-Q and
until July 3, 2007 for the January
10-Q. The
Company appealed the Panels decision to the Nasdaq Listing
and Hearing Review Counsel (the Listing Council),
seeking additional time to make the filings. On May 18,
2007, the Listing Council agreed to review the Panels
April 4, 2007 decision and stayed that decision pending
review of the Companys appeal. On October 5, 2007,
the Listing Council granted the Company an exception until
December 4, 2007 to file its delinquent periodic reports
and restatement. On November 26, 2007, the Company filed an
appeal with the Nasdaq Board of Directors seeking a review of
the Listing Councils decision and a stay of the decision,
including the Listing Councils December 4, 2007
deadline. On November 30, 2007, the Nasdaq Board of
Directors agreed to review the Listing Councils decision
and stayed the decision pending further consideration by the
Board. The Company believes that the filing of this report, and
the simultaneous filing of its delinquent reports on
Form 10-Q,
will satisfy the conditions of the Listing Councils
decision and that its common stock will continue to be listed on
the Nasdaq Global Select Market.
Securities
and Exchange Commission Inquiry
In November 2006, the Company informed the staff of the
Securities and Exchange Commission (the SEC) of the
voluntary investigation that had been undertaken by the Audit
Committee of the Board of Directors. The Company was
subsequently notified by the SEC that the SEC was conducting an
informal inquiry regarding the Companys historical stock
option grant practices. The Company is cooperating with the
SECs review.
Stock
Option Derivative Litigation
Following the announcement by the Company 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 for the State of
California for the County of Santa Clara. Plaintiffs in
128
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
all cases have alleged that certain current or former officers
and directors of the Company caused it 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 Audit Committee in June
2007. On August 28, 2007, the Company and the individual
defendants filed motions to dismiss the complaint. A hearing on
the motions has been set for January 11, 2008.
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
21/2% Convertible
Senior Subordinated Notes due 2010, its
21/2% Convertible
Subordinated Notes due 2010 and its
51/4% 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 and to provide a copy to the Trustee 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. As previously reported, the Company had delayed
filing the October
10-Q pending
the completion of the review of its historical stock option
grant practices conducted by the Audit Committee of its Board of
Directors.
The Company believes that it is not in default under the terms
of the Indentures. The Company contends 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, and
that, since the October
10-Q had not
yet been filed with the SEC, the Company was under no obligation
to file it with the Trustee.
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 for the State 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 is
not in default under the three Indentures, based on the
Companys position as described above. The Trustee filed an
answer to the complaint generally denying all allegations and
also filed a notice of removal of the state case to the United
States District Court for the Northern District of California.
On October 12, 2007, the action was remanded back to the
state court in which it was commenced because the Trustees
notice of removal was not timely.
As expected, on March 16, 2007, the Company received three
additional notices from the Trustee asserting that Events
of Default under the Indentures had occurred and were
continuing based on the Companys failure to cure the
alleged default within the
60-day cure
period.
On April 24, 2007, the Company received three substantially
identical purported notices of default from the Trustee for each
of the Indentures, asserting that the Companys failure to
timely file the January
10-Q with
the SEC and to provide a copy to the Trustee constituted a
default under each of 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. The Company believes that it is not in
default under the terms of the Indentures for the reasons
described above.
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
is essentially identical to the first action filed on
March 2, 2007 except that it covers the notices asserting
Events of Default received in April 2007 and any
other notices of default that the Trustee may deliver in the
future with respect to the Companys delay in filing, and
providing copies to the Trustee, of periodic reports with the
SEC. The Trustee filed an answer to the complaint
129
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
generally denying all allegations and filed a notice of removal
to the United States District Court for the Northern District of
California. The Company has filed a motion to remand to state
court, which was heard and taken under submission on
November 2, 2007.
On July 9, 2007, the Company received three substantially
identical purported notices of default from the Trustee for each
of the Indentures, asserting that the Companys failure to
timely file this
Form 10-K
report with the SEC and to provide a copy to the Trustee
constituted a default under each of the Indentures. As before,
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. The
Company believes that it is not in default under the terms of
the Indentures for the reasons described above.
To date, neither the Trustee nor the holders of at least 25% in
aggregate principal amount of one or more series of the Notes
have declared all unpaid principal, and any accrued interest, on
the Notes to be due and payable, although the Trustee stated in
the notices that it reserved the right to exercise all available
remedies. As of April 30, 2007 and October 31, 2007,
there was $250.3 million in aggregate principal amount of
Notes outstanding and an aggregate of approximately $558,000 in
accrued interest.
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 (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 favor of the Company 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 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 prevails on
appeal. The Court granted DirecTVs motion and payments
under the compulsory license are being made into an escrow
account pending the outcome of the appeal. As of
October 12, 2007, DirecTV has deposited approximately
$28 million into escrow. These escrowed funds represent
DirecTVs compulsory royalty payments for the period from
June 17, 2006 through September 30, 2007.
DirecTV has 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 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 have been consolidated. The
parties were ordered to participate in the appellate
courts mandatory mediation program, which occurred on
February 13, 2007 without resolution. The parties have
filed their respective briefs with the appellate court. A third
party, New York Intellectual Property Law Association
(NYIPLA) filed an amicus brief urging the
appellate court to vacate
130
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the portion of trial courts judgment denying the
Companys motion for a permanent injunction and ordering
DirecTV to pay royalties pursuant to a compulsory license. Over
DirecTVs objection, the appellate court accepted
NYIPLAs amicus brief. On November 19, 2007,
the Court of Appeals denied NYIPLAs motion to file a reply
brief. Oral arguments have been set for January 7, 2008.
Subsequent to the oral arguments, it is anticipated that a
decision from the appellate court will be issued between March
2008 and November 2008.
Comcast
Litigation
On July 7, 2006, Comcast Cable Communications Corporation,
LLC (Comcast) filed a complaint against the Company
in the United States District Court, Northern District of
California, San Francisco Division. Comcast seeks 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. Discovery is now underway. The
parties have been ordered to a mediation and settlement
conference on December 13, 2007. A jury trial has been scheduled
for March 3, 2008.
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. No
scheduling order has been entered in the case, and discovery has
not yet begun.
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 DirectTV appeal and the
re-examination of the 505 patent described below. The
defendants motion for a stay was denied. Discovery is now
underway. The claim construction hearing has been set for
February 6, 2008, and the trial has been set for
September 15, 2008.
Requests
for Re-Examination of the 505 Patent
Three requests for re-examination of the Companys
505 patent have been filed with the United States Patent
and Trademark Office (PTO). The 505 patent is
the patent that is in dispute in the DirecTV, EchoStar, Comcast
and XM/Sirius lawsuits. On December 11, 2006, the PTO
entered an order granting the first request and, on
March 21, 2007, the PTO entered an order granting the
second request. The third request, filed on August 1, 2007,
was partially granted on September 28, 2007. The Company
expects that the PTO will take steps to consolidate these
requests into one request for re-examination. Alternately, the
PTO may consolidate the first two requests and keep the third
separate because it is directed to different claims than the
first two requests. 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
DirecTV, EchoStar, Comcast and
131
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
XM/Sirius lawsuits. Resolution of one or more re-examination
requests of the 505 Patent is likely to take more than
15 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 Finisar, Jerry S. Rawls, the Companys President
and Chief Executive Officer, Frank H. Levinson, the
Companys former Chairman of the Board and Chief Technical
Officer, Stephen K. Workman, the Companys 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
be 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 fail to recover $1 billion and payment is
required under the guaranty, the Company would be responsible to
pay its pro rata portion of the shortfall, up to the amount of
the self-insured retention under the Companys insurance
policy, which may be up to $2 million. The timing and
amount of payments that the Company could be required to make
under the proposed settlement would depend on several factors,
principally the timing and amount of any payment that the
insurers may be required to make pursuant to the $1 billion
guaranty. The Court gave preliminary approval to the settlement
in February 2005 and held a hearing in April 2006 to consider
final approval of the settlement. 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, on December 14, 2006, the Court ordered a stay
of all proceedings in all of the lawsuits pending the outcome of
the plaintiffs petition to the Second Circuit Court of
Appeals for a rehearing en banc and resolution of the class
certification issue. On April l 6, 2007, the Second Circuit
Court of Appeals denied the plaintiffs petition for a
rehearing, but clarified that the plaintiffs may seek to certify
a more limited class. Subsequently, and consistent with these
developments, the Court entered an order, at the request of the
plaintiffs and issuers, to deny approval of the settlement, and
the plaintiffs filed an amended complaint in an attempt to
comply with the decision of the Second Circuit Court of Appeals.
If an amended or modified 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, however, 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.
The Company cannot predict the outcome of the legal proceedings
discussed above. No amount of loss, if any, is considered
probable or measurable and no loss contingency has been recorded
at the balance sheet date.
132
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
21.
|
Gain on
Sale of a Minority Investment
|
In November 2005, the Company received cash payments from
Goodrich Corporation totaling $11.0 million related to the
sale of the Companys equity interest in Sensors Unlimited,
Inc. The Company had not valued this interest for accounting
purposes. Accordingly, the Company recorded a gain of
$11.0 million related to this transaction in the third
quarter of fiscal 2006 and classified this amount as other
income (expense), net on the consolidated statement of
operations.
In April 2007, the Company received a final cash payment from
Goodrich Corporation totaling $1.2 million for funds that
had been held in escrow related to the sale of the
Companys equity interest in Sensors Unlimited, Inc. The
Company had not valued this interest for accounting purposes.
Accordingly, the Company recorded a gain of $1.2 million
related to this transaction in the fourth quarter of fiscal 2007
and classified this amount as other income (expense), net on the
consolidated statement of operations.
|
|
22.
|
Restructuring
and Assets Impairments
|
The Company recorded a restructuring charge of $287,000 in
fiscal 2005 to adjust the operating lease liability for its
Hayward facility that was closed in fiscal 2003. As of
April 30, 2007 all payments associated with the operating
lease on this facility have been paid.
During the second quarter of fiscal 2006, the Company
consolidated its Sunnyvale facilities into one building and
permanently exited a portion of its Scotts Valley facility. As a
result of these activities, the Company recorded restructuring
charges of approximately $3.1 million. These restructuring
charges included $290,000 of miscellaneous costs required to
effect the closures and approximately $2.8 million of
non-cancelable facility lease payments. Of the $3.1 million
in restructuring charges, $1.9 million related to its
optical subsystems and components segment and $1.2 million
related to its network test and monitoring systems segment.
As of April 30, 2007, $898,000 of committed facilities
payments related to restructuring activities remains accrued and
is expected to be fully utilized by the end of fiscal 2011.
The facilities consolidation charges were calculated using
estimates and were based upon the remaining future lease
commitments for vacated facilities from the date of facility
consolidation, net of estimated future sublease income. The
estimated costs of vacating these leased facilities were based
on market information and trend analyses, including information
obtained from third party real estate sources.
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
period are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Beginning balance
|
|
$
|
1,767
|
|
|
$
|
2,963
|
|
Additions during the period based on product sold
|
|
|
2,264
|
|
|
|
1,753
|
|
Settlements
|
|
|
(1,031
|
)
|
|
|
(354
|
)
|
Changes in liability for pre-existing warranties, including
expirations
|
|
|
(1,182
|
)
|
|
|
(2,595
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,818
|
|
|
$
|
1,767
|
|
|
|
|
|
|
|
|
|
|
133
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Frank H. Levinson, the Companys former Chairman of the
Board and Chief Technical Officer and a current member of the
Companys board of directors, is a member of the board of
directors of Fabrinet, Inc., a privately held contract
manufacturer. In June 2000, the Company entered into a volume
supply agreement, at rates which the Company believes to be
market, with Fabrinet under which Fabrinet serves as a contract
manufacturer for the Company. In addition, Fabrinet purchases
certain products from the Company. During the fiscal years ended
April 30, 2007, 2006 and 2005, the Company recorded
purchases from Fabrinet of approximately $77.2 million,
$72.1 million, and $52.3 million, respectively, and
Fabrinet purchased products from the Company totaling
approximately $42.8 million, $27.0 million, and
$24.0 million, respectively. At April 30, 2007 and
2006, the Company owed Fabrinet approximately $1.5 million
and $10.0 million, respectively, and Fabrinet owed the
Company approximately $2.1 million and $7.6 million,
respectively.
In connection with the acquisition by VantagePoint Venture
Partners of the 34 million shares of common stock held by
Infineon Technologies AG that the Company had previously issued
to Infineon in connection with its acquisition of
Infineons optical transceiver product lines, the Company
entered into an agreement with VantagePoint under which the
Company agreed to use its reasonable best efforts to elect a
nominee of VantagePoint to the Companys board of
directors, provided that the nominee was reasonably acceptable
to the boards Nominating and Corporate Governance
Committee as well as the full board of directors. In June 2005,
David C. Fries, a Managing Director of VantagePoint, was elected
to the board of directors pursuant to that agreement. The
Company also agreed to file a registration statement to provide
for the resale of the shares held by VantagePoint and certain
distributees of VantagePoint. As a result of the reduction in
VantagePoints holdings of the Companys common stock
following distributions by VantagePoint to its partners, the
Companys obligations regarding the election of a nominee
of VantagePoint to the Companys board of directors have
terminated and we are no longer obligated to maintain a
registration statement for the resale of shares held by
VantagePoint and certain distributees of VantagePoint.
|
|
25.
|
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 is minimal. Accordingly, the Company has not recorded
any liabilities for these agreements as of April 30, 2007.
To date, the Company has not incurred material costs to defend
lawsuits or settle claims related to these indemnification
agreements.
134
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Subsequent
Events (Unaudited)
|
Because virtually all holders of options issued by the Company
were neither involved in nor aware of the accounting treatment
of stock options, the Company has taken and intends to take
actions to address certain adverse tax consequences that may be
incurred by the holders of certain incorrectly priced options.
The primary adverse tax consequence is that incorrectly priced
stock options vesting after December 31, 2004 may
subject the option holder to a penalty tax under Internal
Revenue Code Section 409A (and, as applicable, similar
penalty taxes under California and other state tax laws).The
Company presently estimates that it will incur a liability to
option holders of approximately $7.0 million, of which
approximately $5.7 million will be recognized as additional
stock compensation expense in future periods, with the remainder
being recorded in additional paid-in capital as a cash
settlement of a portion of the related option grants.
|
|
27.
|
Quarterly
Financial Data (Unaudited)
|
FINISAR
CORPORATION
FINANCIAL
INFORMATION BY QUARTER (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
Jan. 28,
|
|
|
Oct. 29,
|
|
|
July 30,
|
|
|
April 30,
|
|
|
Jan. 29,
|
|
|
Oct. 30,
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
88,204
|
|
|
$
|
98,007
|
|
|
$
|
99,009
|
|
|
$
|
96,043
|
|
|
$
|
91,938
|
|
|
$
|
84,199
|
|
|
$
|
77,449
|
|
|
$
|
72,370
|
|
Network test and monitoring systems
|
|
|
8,393
|
|
|
|
9,512
|
|
|
|
9,180
|
|
|
|
10,200
|
|
|
|
10,466
|
|
|
|
9,336
|
|
|
|
9,173
|
|
|
|
9,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
96,597
|
|
|
|
107,519
|
|
|
|
108,189
|
|
|
|
106,243
|
|
|
|
102,404
|
|
|
|
93,535
|
|
|
|
86,622
|
|
|
|
81,732
|
|
Cost of revenues
|
|
|
63,922
|
|
|
|
66,634
|
|
|
|
68,995
|
|
|
|
70,721
|
|
|
|
67,021
|
|
|
|
62,311
|
|
|
|
59,895
|
|
|
|
60,959
|
|
Impairment of acquired developed technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853
|
|
|
|
|
|
Amortization of acquired developed technology
|
|
|
1,466
|
|
|
|
1,512
|
|
|
|
1,505
|
|
|
|
1,519
|
|
|
|
2,593
|
|
|
|
4,003
|
|
|
|
5,421
|
|
|
|
5,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
31,209
|
|
|
|
39,373
|
|
|
|
37,689
|
|
|
|
34,003
|
|
|
|
32,790
|
|
|
|
27,221
|
|
|
|
20,453
|
|
|
|
15,119
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
17,571
|
|
|
|
16,593
|
|
|
|
16,000
|
|
|
|
14,395
|
|
|
|
14,816
|
|
|
|
12,412
|
|
|
|
14,158
|
|
|
|
13,026
|
|
Sales and marketing
|
|
|
8,781
|
|
|
|
9,068
|
|
|
|
9,439
|
|
|
|
8,834
|
|
|
|
8,665
|
|
|
|
8,566
|
|
|
|
7,451
|
|
|
|
8,462
|
|
General and administrative
|
|
|
12,164
|
|
|
|
8,871
|
|
|
|
7,092
|
|
|
|
7,514
|
|
|
|
8,846
|
|
|
|
7,113
|
|
|
|
6,839
|
|
|
|
8,066
|
|
Acquired in-process research and development
|
|
|
5,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
277
|
|
|
|
925
|
|
|
|
313
|
|
|
|
299
|
|
|
|
365
|
|
|
|
453
|
|
|
|
453
|
|
|
|
476
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
44,563
|
|
|
|
35,457
|
|
|
|
32,844
|
|
|
|
31,042
|
|
|
|
32,692
|
|
|
|
28,544
|
|
|
|
31,965
|
|
|
|
30,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
(13,354
|
)
|
|
$
|
3,916
|
|
|
$
|
4,845
|
|
|
$
|
2,961
|
|
|
$
|
98
|
|
|
$
|
(1,323
|
)
|
|
$
|
(11,512
|
)
|
|
$
|
(14,911
|
)
|
Interest income
|
|
|
1,882
|
|
|
|
1,668
|
|
|
|
1,399
|
|
|
|
1,255
|
|
|
|
1,076
|
|
|
|
858
|
|
|
|
765
|
|
|
|
783
|
|
Interest expense
|
|
|
(4,152
|
)
|
|
|
(4,071
|
)
|
|
|
(3,900
|
)
|
|
|
(3,921
|
)
|
|
|
(4,087
|
)
|
|
|
(3,838
|
)
|
|
|
(3,830
|
)
|
|
|
(4,087
|
)
|
Loss on convertible debt exchange
|
|
|
|
|
|
|
|
|
|
|
(31,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
431
|
|
|
|
(345
|
)
|
|
|
(440
|
)
|
|
|
(370
|
)
|
|
|
269
|
|
|
|
10,498
|
|
|
|
(821
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of
change in accounting principle
|
|
|
(15,193
|
)
|
|
|
1,168
|
|
|
|
(29,702
|
)
|
|
|
(75
|
)
|
|
|
(2,644
|
)
|
|
|
6,195
|
|
|
|
(15,398
|
)
|
|
|
(18,815
|
)
|
Provision for income taxes
|
|
|
780
|
|
|
|
772
|
|
|
|
627
|
|
|
|
631
|
|
|
|
575
|
|
|
|
541
|
|
|
|
657
|
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(15,973
|
)
|
|
|
396
|
|
|
|
(30,329
|
)
|
|
|
(706
|
)
|
|
|
(3,219
|
)
|
|
|
5,654
|
|
|
|
(16,055
|
)
|
|
|
(19,409
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(15,973
|
)
|
|
$
|
396
|
|
|
$
|
(30,329
|
)
|
|
$
|
507
|
|
|
$
|
(3,219
|
)
|
|
$
|
5,654
|
|
|
$
|
(16,055
|
)
|
|
$
|
(19,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
Jan. 28,
|
|
|
Oct. 29,
|
|
|
July 30,
|
|
|
April 30,
|
|
|
Jan. 29,
|
|
|
Oct. 30,
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
(In thousands, except per share data)
|
|
|
Net income (loss) per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before effect of accounting change
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
Cumulative effect of change in accounting principle
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.00
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net income (loss)
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
Net income (loss) per share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before effect of accounting change
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
Cumulative effect of change in accounting principle, net of tax
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.00
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net income (loss)
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
308,623
|
|
|
|
308,538
|
|
|
|
307,558
|
|
|
|
306,499
|
|
|
|
302,316
|
|
|
|
297,265
|
|
|
|
289,968
|
|
|
|
272,228
|
|
Diluted
|
|
|
308,623
|
|
|
|
324,350
|
|
|
|
307,558
|
|
|
|
324,474
|
|
|
|
302,316
|
|
|
|
307,681
|
|
|
|
289,968
|
|
|
|
272,228
|
|
The following tables reflect the adjustments related to the
restatements for periods not derived from the audited
consolidated financial statements herein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 30, 2006
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
96,043
|
|
|
$
|
|
|
|
$
|
96,043
|
|
Network test and monitoring systems
|
|
|
10,200
|
|
|
|
|
|
|
|
10,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
106,243
|
|
|
|
|
|
|
|
106,243
|
|
Cost of revenues
|
|
|
69,950
|
|
|
|
771
|
|
|
|
70,721
|
|
Amortization of acquired developed technology
|
|
|
1,519
|
|
|
|
|
|
|
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
34,774
|
|
|
|
(771
|
)
|
|
|
34,003
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14,059
|
|
|
|
336
|
|
|
|
14,395
|
|
Sales and marketing
|
|
|
8,669
|
|
|
|
165
|
|
|
|
8,834
|
|
General and administrative
|
|
|
7,376
|
|
|
|
138
|
|
|
|
7,514
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
299
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
30,403
|
|
|
|
639
|
|
|
|
31,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
4,371
|
|
|
|
(1,410
|
)
|
|
|
2,961
|
|
Interest income
|
|
|
1,255
|
|
|
|
|
|
|
|
1,255
|
|
Interest expense
|
|
|
(3,921
|
)
|
|
|
|
|
|
|
(3,921
|
)
|
Other income (expense), net
|
|
|
(370
|
)
|
|
|
|
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 30, 2006
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Income (loss) before income taxes and cumulative effect of
change in accounting principle
|
|
|
1,335
|
|
|
|
(1,410
|
)
|
|
|
(75
|
)
|
Provision for income taxes
|
|
|
2,155
|
|
|
|
(1,524
|
)
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(820
|
)
|
|
|
114
|
|
|
|
(706
|
)
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
|
|
|
|
(1,213
|
)
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(820
|
)
|
|
$
|
1,327
|
|
|
$
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before effect of accounting change
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Cumulative effect of change in accounting principle
|
|
$
|
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Net income (loss)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Net income (loss) per share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before effect of accounting change
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Cumulative effect of change in accounting principle
|
|
$
|
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Net income (loss)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Shares used in computing net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
306,499
|
|
|
|
306,499
|
|
|
|
306,499
|
|
Diluted
|
|
|
306,499
|
|
|
|
306,499
|
|
|
|
324,474
|
|
137
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
April 30, 2006
|
|
|
January 29, 2006
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
91,938
|
|
|
|
|
|
|
$
|
91,938
|
|
|
$
|
84,199
|
|
|
|
|
|
|
$
|
84,199
|
|
Network test and monitoring systems
|
|
|
10,466
|
|
|
|
|
|
|
|
10,466
|
|
|
|
9,336
|
|
|
|
|
|
|
|
9,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
102,404
|
|
|
|
|
|
|
|
102,404
|
|
|
|
93,535
|
|
|
|
|
|
|
|
93,535
|
|
Cost of revenues
|
|
|
65,306
|
|
|
|
1,715
|
|
|
|
67,021
|
|
|
|
61,331
|
|
|
|
980
|
|
|
|
62,311
|
|
Amortization of acquired developed technology
|
|
|
2,593
|
|
|
|
|
|
|
|
2,593
|
|
|
|
4,003
|
|
|
|
|
|
|
|
4,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
34,505
|
|
|
|
(1,715
|
)
|
|
|
32,790
|
|
|
|
28,201
|
|
|
|
(980
|
)
|
|
|
27,221
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,216
|
|
|
|
1,600
|
|
|
|
14,816
|
|
|
|
11,525
|
|
|
|
887
|
|
|
|
12,412
|
|
Sales and marketing
|
|
|
7,934
|
|
|
|
731
|
|
|
|
8,665
|
|
|
|
8,119
|
|
|
|
447
|
|
|
|
8,566
|
|
General and administrative
|
|
|
7,987
|
|
|
|
859
|
|
|
|
8,846
|
|
|
|
6,644
|
|
|
|
469
|
|
|
|
7,113
|
|
Amortization of purchased intangibles
|
|
|
365
|
|
|
|
|
|
|
|
365
|
|
|
|
453
|
|
|
|
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
29,502
|
|
|
|
3,190
|
|
|
|
32,692
|
|
|
|
26,741
|
|
|
|
1,803
|
|
|
|
28,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
5,003
|
|
|
|
(4,905
|
)
|
|
|
98
|
|
|
|
1,460
|
|
|
|
(2,783
|
)
|
|
|
(1,323
|
)
|
Interest income
|
|
|
1,076
|
|
|
|
|
|
|
|
1,076
|
|
|
|
858
|
|
|
|
|
|
|
|
858
|
|
Interest expense
|
|
|
(4,087
|
)
|
|
|
|
|
|
|
(4,087
|
)
|
|
|
(3,838
|
)
|
|
|
|
|
|
|
(3,838
|
)
|
Other income (expense), net
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
10,498
|
|
|
|
|
|
|
|
10,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2,261
|
|
|
|
(4,905
|
)
|
|
|
(2,644
|
)
|
|
|
8,978
|
|
|
|
(2,783
|
)
|
|
|
6,195
|
|
Provision for income taxes
|
|
|
575
|
|
|
|
|
|
|
|
575
|
|
|
|
675
|
|
|
|
(134
|
)
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,686
|
|
|
$
|
(4,905
|
)
|
|
$
|
(3,219
|
)
|
|
$
|
8,303
|
|
|
$
|
(2,649
|
)
|
|
$
|
5,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
302,316
|
|
|
|
302,316
|
|
|
|
302,316
|
|
|
|
297,265
|
|
|
|
297,265
|
|
|
|
297,265
|
|
Diluted
|
|
|
326,781
|
|
|
|
302,316
|
|
|
|
302,316
|
|
|
|
307,681
|
|
|
|
307,681
|
|
|
|
307,681
|
|
138
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
October 30, 2005
|
|
|
July 31, 2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$
|
77,449
|
|
|
|
|
|
|
$
|
77,449
|
|
|
$
|
72,370
|
|
|
|
|
|
|
$
|
72,370
|
|
Network test and monitoring systems
|
|
|
9,173
|
|
|
|
|
|
|
|
9,173
|
|
|
|
9,362
|
|
|
|
|
|
|
|
9,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
86,622
|
|
|
|
|
|
|
|
86,622
|
|
|
|
81,732
|
|
|
|
|
|
|
|
81,732
|
|
Cost of revenues
|
|
|
59,698
|
|
|
|
197
|
|
|
|
59,895
|
|
|
|
60,791
|
|
|
|
168
|
|
|
|
60,959
|
|
Impairment of acquired developed technology
|
|
|
853
|
|
|
|
|
|
|
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired developed technology
|
|
|
5,421
|
|
|
|
|
|
|
|
5,421
|
|
|
|
5,654
|
|
|
|
|
|
|
|
5,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
20,650
|
|
|
|
(197
|
)
|
|
|
20,453
|
|
|
|
15,287
|
|
|
|
(168
|
)
|
|
|
15,119
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14,141
|
|
|
|
17
|
|
|
|
14,158
|
|
|
|
13,021
|
|
|
|
5
|
|
|
|
13,026
|
|
Sales and marketing
|
|
|
7,501
|
|
|
|
(50
|
)
|
|
|
7,451
|
|
|
|
8,371
|
|
|
|
91
|
|
|
|
8,462
|
|
General and administrative
|
|
|
6,768
|
|
|
|
71
|
|
|
|
6,839
|
|
|
|
8,009
|
|
|
|
57
|
|
|
|
8,066
|
|
Amortization of purchased intangibles
|
|
|
453
|
|
|
|
|
|
|
|
453
|
|
|
|
476
|
|
|
|
|
|
|
|
476
|
|
Restructuring costs
|
|
|
3,064
|
|
|
|
|
|
|
|
3,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
31,927
|
|
|
|
38
|
|
|
|
31,965
|
|
|
|
29,877
|
|
|
|
153
|
|
|
|
30,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(11,277
|
)
|
|
|
(235
|
)
|
|
|
(11,512
|
)
|
|
|
(14,590
|
)
|
|
|
(321
|
)
|
|
|
(14,911
|
)
|
Interest income
|
|
|
765
|
|
|
|
|
|
|
|
765
|
|
|
|
783
|
|
|
|
|
|
|
|
783
|
|
Interest expense
|
|
|
(3,830
|
)
|
|
|
|
|
|
|
(3,830
|
)
|
|
|
(4,087
|
)
|
|
|
|
|
|
|
(4,087
|
)
|
Other income (expense), net
|
|
|
(821
|
)
|
|
|
|
|
|
|
(821
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income loss before income taxes
|
|
|
(15,163
|
)
|
|
|
(235
|
)
|
|
|
(15,398
|
)
|
|
|
(18,494
|
)
|
|
|
(321
|
)
|
|
|
(18,815
|
)
|
Provision for income taxes
|
|
|
657
|
|
|
|
|
|
|
|
657
|
|
|
|
594
|
|
|
|
|
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,820
|
)
|
|
$
|
(235
|
)
|
|
$
|
(16,055
|
)
|
|
$
|
(19,088
|
)
|
|
$
|
(321
|
)
|
|
$
|
(19,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.07
|
)
|
Shares used in computing net loss per share basic
and diluted
|
|
|
289,968
|
|
|
|
289,968
|
|
|
|
289,968
|
|
|
|
272,228
|
|
|
|
272,228
|
|
|
|
272,228
|
|
139
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 30, 2006
|
|
|
January 29, 2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,472
|
|
|
$
|
|
|
|
$
|
63,472
|
|
|
$
|
54,228
|
|
|
$
|
|
|
|
$
|
54,228
|
|
|
|
|
|
Short-term investments
|
|
|
40,394
|
|
|
|
|
|
|
|
40,394
|
|
|
|
62,090
|
|
|
|
|
|
|
|
62,090
|
|
|
|
|
|
Restricted investments, short-term
|
|
|
3,725
|
|
|
|
|
|
|
|
3,725
|
|
|
|
3,728
|
|
|
|
|
|
|
|
3,728
|
|
|
|
|
|
Accounts receivable, net of allowances
|
|
|
65,572
|
|
|
|
|
|
|
|
65,572
|
|
|
|
48,244
|
|
|
|
|
|
|
|
48,244
|
|
|
|
|
|
Accounts receivable, other
|
|
|
9,773
|
|
|
|
|
|
|
|
9,773
|
|
|
|
6,842
|
|
|
|
|
|
|
|
6,842
|
|
|
|
|
|
Inventories
|
|
|
52,440
|
|
|
|
149
|
|
|
|
52,589
|
|
|
|
48,039
|
|
|
|
442
|
|
|
|
48,481
|
|
|
|
|
|
Prepaid expenses
|
|
|
3,492
|
|
|
|
|
|
|
|
3,492
|
|
|
|
4,850
|
|
|
|
|
|
|
|
4,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
238,868
|
|
|
|
149
|
|
|
|
239,017
|
|
|
|
228,021
|
|
|
|
442
|
|
|
|
228,463
|
|
|
|
|
|
Long-term investments
|
|
|
34,024
|
|
|
|
|
|
|
|
34,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and improvements, net
|
|
|
82,202
|
|
|
|
|
|
|
|
82,202
|
|
|
|
79,582
|
|
|
|
|
|
|
|
79,582
|
|
|
|
|
|
Restricted investments, long-term
|
|
|
1,827
|
|
|
|
|
|
|
|
1,827
|
|
|
|
3,634
|
|
|
|
|
|
|
|
3,634
|
|
|
|
|
|
Purchased technology, net
|
|
|
13,460
|
|
|
|
|
|
|
|
13,460
|
|
|
|
17,558
|
|
|
|
|
|
|
|
17,558
|
|
|
|
|
|
Other purchased intangible assets, net
|
|
|
3,878
|
|
|
|
|
|
|
|
3,878
|
|
|
|
4,556
|
|
|
|
|
|
|
|
4,556
|
|
|
|
|
|
Goodwill, net
|
|
|
122,960
|
|
|
|
1,572
|
|
|
|
124,532
|
|
|
|
132,484
|
|
|
|
|
|
|
|
132,484
|
|
|
|
|
|
Minority investments
|
|
|
11,250
|
|
|
|
|
|
|
|
11,250
|
|
|
|
15,696
|
|
|
|
|
|
|
|
15,696
|
|
|
|
|
|
Other assets
|
|
|
17,392
|
|
|
|
|
|
|
|
17,392
|
|
|
|
16,990
|
|
|
|
|
|
|
|
16,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
525,861
|
|
|
$
|
1,721
|
|
|
$
|
527,582
|
|
|
$
|
498,521
|
|
|
$
|
442
|
|
|
$
|
498,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
35,531
|
|
|
$
|
|
|
|
$
|
35,531
|
|
|
$
|
37,618
|
|
|
$
|
|
|
|
$
|
37,618
|
|
|
|
|
|
Accrued compensation
|
|
|
10,011
|
|
|
|
1,719
|
|
|
|
11,730
|
|
|
|
7,252
|
|
|
|
403
|
|
|
|
7,655
|
|
|
|
|
|
Other accrued liabilities
|
|
|
13,483
|
|
|
|
20
|
|
|
|
13,503
|
|
|
|
17,292
|
|
|
|
|
|
|
|
17,292
|
|
|
|
|
|
Deferred revenue
|
|
|
5,415
|
|
|
|
|
|
|
|
5,415
|
|
|
|
5,433
|
|
|
|
|
|
|
|
5,433
|
|
|
|
|
|
Current portion of other long-term liabilities
|
|
|
2,284
|
|
|
|
|
|
|
|
2,284
|
|
|
|
2,229
|
|
|
|
|
|
|
|
2,229
|
|
|
|
|
|
Convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
Non-cancelable purchase obligations
|
|
|
1,693
|
|
|
|
|
|
|
|
1,693
|
|
|
|
1,390
|
|
|
|
|
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
68,417
|
|
|
|
1,739
|
|
|
|
70,156
|
|
|
|
72,057
|
|
|
|
403
|
|
|
|
72,460
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
239,423
|
|
|
|
|
|
|
|
239,423
|
|
|
|
237,127
|
|
|
|
|
|
|
|
237,127
|
|
|
|
|
|
Other long-term liabilities
|
|
|
20,612
|
|
|
|
|
|
|
|
20,612
|
|
|
|
23,220
|
|
|
|
|
|
|
|
23,220
|
|
|
|
|
|
Deferred income taxes
|
|
|
4,518
|
|
|
|
(60
|
)
|
|
|
4,458
|
|
|
|
3,483
|
|
|
|
(134
|
)
|
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
264,553
|
|
|
|
(60
|
)
|
|
|
264,493
|
|
|
|
263,830
|
|
|
|
(134
|
)
|
|
|
263,696
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
|
|
299
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,376,535
|
|
|
|
112,209
|
|
|
|
1,488,744
|
|
|
|
1,359,953
|
|
|
|
112,424
|
|
|
|
1,472,377
|
|
|
|
|
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,662
|
)
|
|
|
(3,662
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
13,098
|
|
|
|
|
|
|
|
13,098
|
|
|
|
297
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
Accumulated deficit
|
|
|
(1,197,049
|
)
|
|
|
(112,167
|
)
|
|
|
(1,309,216
|
)
|
|
|
(1,197,915
|
)
|
|
|
(108,589
|
)
|
|
|
(1,306,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
192,891
|
|
|
|
42
|
|
|
|
192,933
|
|
|
|
162,634
|
|
|
|
173
|
|
|
|
162,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
525,861
|
|
|
$
|
1,721
|
|
|
$
|
527,582
|
|
|
$
|
498,521
|
|
|
$
|
442
|
|
|
$
|
498,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
FINISAR
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
October 30, 2005
|
|
|
July 31, 2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,165
|
|
|
$
|
|
|
|
$
|
33,165
|
|
|
$
|
29,180
|
|
|
$
|
|
|
|
$
|
29,180
|
|
Short-term investments
|
|
|
62,493
|
|
|
|
|
|
|
|
62,493
|
|
|
|
72,604
|
|
|
|
|
|
|
|
72,604
|
|
Restricted investments, short-term
|
|
|
3,710
|
|
|
|
|
|
|
|
3,710
|
|
|
|
3,732
|
|
|
|
|
|
|
|
3,732
|
|
Accounts receivable, net of allowances
|
|
|
44,911
|
|
|
|
|
|
|
|
44,911
|
|
|
|
43,350
|
|
|
|
|
|
|
|
43,350
|
|
Accounts receivable, other
|
|
|
2,914
|
|
|
|
|
|
|
|
2,914
|
|
|
|
4,723
|
|
|
|
|
|
|
|
4,723
|
|
Inventories
|
|
|
40,890
|
|
|
|
98
|
|
|
|
40,988
|
|
|
|
37,486
|
|
|
|
35
|
|
|
|
37,521
|
|
Prepaid expenses
|
|
|
3,287
|
|
|
|
|
|
|
|
3,287
|
|
|
|
3,486
|
|
|
|
|
|
|
|
3,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
191,370
|
|
|
|
98
|
|
|
|
191,468
|
|
|
|
194,561
|
|
|
|
35
|
|
|
|
194,596
|
|
Property, plant and improvements, net
|
|
|
79,028
|
|
|
|
|
|
|
|
79,028
|
|
|
|
84,798
|
|
|
|
|
|
|
|
84,798
|
|
Restricted investments, long-term
|
|
|
3,612
|
|
|
|
|
|
|
|
3,612
|
|
|
|
5,425
|
|
|
|
|
|
|
|
5,425
|
|
Purchased technology, net
|
|
|
21,554
|
|
|
|
|
|
|
|
21,554
|
|
|
|
27,821
|
|
|
|
|
|
|
|
27,821
|
|
Other purchased intangible assets, net
|
|
|
5,016
|
|
|
|
|
|
|
|
5,016
|
|
|
|
5,476
|
|
|
|
|
|
|
|
5,476
|
|
Goodwill, net
|
|
|
132,275
|
|
|
|
|
|
|
|
132,275
|
|
|
|
132,217
|
|
|
|
|
|
|
|
132,217
|
|
Minority investments
|
|
|
16,172
|
|
|
|
|
|
|
|
16,172
|
|
|
|
16,689
|
|
|
|
|
|
|
|
16,689
|
|
Other assets
|
|
|
16,678
|
|
|
|
|
|
|
|
16,678
|
|
|
|
17,127
|
|
|
|
|
|
|
|
17,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
465,705
|
|
|
$
|
98
|
|
|
$
|
465,803
|
|
|
$
|
484,114
|
|
|
$
|
35
|
|
|
$
|
484,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
32,927
|
|
|
$
|
|
|
|
$
|
32,927
|
|
|
$
|
32,827
|
|
|
$
|
|
|
|
$
|
32,827
|
|
Accrued compensation
|
|
|
5,668
|
|
|
|
141
|
|
|
|
5,809
|
|
|
|
6,667
|
|
|
|
136
|
|
|
|
6,803
|
|
Other accrued liabilities
|
|
|
15,429
|
|
|
|
|
|
|
|
15,429
|
|
|
|
15,422
|
|
|
|
|
|
|
|
15,422
|
|
Deferred revenue
|
|
|
4,974
|
|
|
|
|
|
|
|
4,974
|
|
|
|
6,560
|
|
|
|
|
|
|
|
6,560
|
|
Current portion of other long-term liabilities
|
|
|
628
|
|
|
|
|
|
|
|
628
|
|
|
|
2,599
|
|
|
|
|
|
|
|
2,599
|
|
Convertible notes
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Non-cancelable purchase obligations
|
|
|
1,390
|
|
|
|
|
|
|
|
1,390
|
|
|
|
2,009
|
|
|
|
|
|
|
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
62,016
|
|
|
|
141
|
|
|
|
62,157
|
|
|
|
67,084
|
|
|
|
136
|
|
|
|
67,220
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
236,043
|
|
|
|
|
|
|
|
236,043
|
|
|
|
247,043
|
|
|
|
|
|
|
|
247,043
|
|
Other long-term liabilities
|
|
|
13,930
|
|
|
|
|
|
|
|
13,930
|
|
|
|
13,571
|
|
|
|
|
|
|
|
13,571
|
|
Deferred income taxes
|
|
|
2,868
|
|
|
|
|
|
|
|
2,868
|
|
|
|
2,218
|
|
|
|
|
|
|
|
2,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
252,841
|
|
|
|
|
|
|
|
252,841
|
|
|
|
262,832
|
|
|
|
|
|
|
|
262,832
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
296
|
|
|
|
|
|
|
|
296
|
|
|
|
285
|
|
|
|
|
|
|
|
285
|
|
Additional paid-in capital
|
|
|
1,356,586
|
|
|
|
108,145
|
|
|
|
1,464,731
|
|
|
|
1,344,031
|
|
|
|
109,193
|
|
|
|
1,453,224
|
|
Deferred stock compensation
|
|
|
|
|
|
|
(2,248
|
)
|
|
|
(2,248
|
)
|
|
|
|
|
|
|
(3,589
|
)
|
|
|
(3,589
|
)
|
Accumulated other comprehensive income
|
|
|
184
|
|
|
|
|
|
|
|
184
|
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
Accumulated deficit
|
|
|
(1,206,218
|
)
|
|
|
(105,940
|
)
|
|
|
(1,312,158
|
)
|
|
|
(1,190,398
|
)
|
|
|
(105,705
|
)
|
|
|
(1,296,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
150,848
|
|
|
|
(43
|
)
|
|
|
150,805
|
|
|
|
154,198
|
|
|
|
(101
|
)
|
|
|
154,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
465,705
|
|
|
$
|
98
|
|
|
$
|
465,803
|
|
|
$
|
484,114
|
|
|
$
|
35
|
|
|
$
|
484,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
Schedule II
Consolidated Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Deductions
|
|
|
End of
|
|
|
|
of Period
|
|
|
Expenses
|
|
|
Write-Offs
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2007
|
|
$
|
2,198
|
|
|
$
|
(387
|
)
|
|
$
|
(204
|
)
|
|
$
|
1,607
|
|
Year ended April 30, 2006
|
|
$
|
1,378
|
|
|
$
|
805
|
|
|
$
|
(15
|
)
|
|
$
|
2,198
|
|
Year ended April 30, 2005
|
|
|
1,669
|
|
|
|
(234
|
)
|
|
|
57
|
|
|
|
1,378
|
|
142
|
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosures
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Stock
Option Grant Practices and Restatement
As discussed in Note 2 to Notes to the Consolidated
Financial Statements of this report, and in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations, an independent investigation
related to our historical stock option granting practices was
carried out by the Audit Committee of the Board of Directors
during fiscal 2007 and through mid fiscal 2008. As a result of
the findings from this investigation, we concluded that we used
incorrect measurement dates for financial accounting purposes
for a majority of stock option grants made in prior periods.
Therefore, we have recorded additional non-cash stock-based
compensation expense and related tax effects with regard to past
stock option grants, substantially all of which relate to
options granted between November 11, 1999, the date of our
initial public offering, and September 8, 2006, the first
grant to occur following changes in the process by which options
are granted. We are restating our consolidated balance sheet as
of April 30, 2006 and the related consolidated statements
of operations, stockholders equity and cash flows for the
fiscal years ended April 30, 2006 and April 30, 2005
as well as the quarter ended July 30, 2006 to record this
additional stock-based compensation and related tax expense.
Evaluation
of Disclosure Controls and Procedures
Attached as exhibits to this report are certifications of our
Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), which are required in accordance with
Rule 13a-14
under the Securities Exchange Act of 1934, as amended (the
Exchange Act). This Controls and
Procedures section includes information concerning the
controls and controls evaluation referred to in the
certifications, and it should be read in conjunction with the
certifications for a more complete understanding of the topics
presented.
We carried out an evaluation, under the supervision, and with
the participation, of our management, including the CEO and CFO,
of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act. As described below under
Managements Annual Report on Internal Control Over
Financial Reporting, we concluded that we had deficiencies
in controls relating to stock option granting and that all
individuals involved in the granting of stock options lacked a
thorough understanding of relevant accounting rules related to
the accounting for stock options. These control deficiencies
were determined to be material weaknesses in our internal
control over financial reporting. However, we have concluded
that, with the adoption of the new policies and procedures
described below, these material weaknesses were remediated as of
April 30, 2007 and, therefore, our disclosure controls and
procedures were effective as of that date.
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for our
Company. Internal control over financial reporting is defined in
Rule 13a-15(f)
under the Exchange Act as a process designed by, and under the
supervision of, a companys principal executive and
principal financial officers, and effected by a companys
board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles, and includes those policies and
procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
143
|
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our CEO and CFO, we conducted an
assessment of the effectiveness of our internal control over
financial reporting as of April 30, 2007. In making this
assessment, our management used the criteria set forth in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment,
management determined that we maintained effective internal
control over financial reporting, as of April 30, 2007.
The effectiveness of internal control over financial reporting
as of April 30, 2007 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included herein.
Remediation
of Past Material Weaknesses in Internal Control Over Financial
Reporting
During the course of the investigation into our historical stock
option granting practices and related accounting, we reviewed
the effectiveness of our internal control over financial
reporting, using the criteria set forth in Internal
Control Integrated Framework issued by COSO.
Based on this assessment, as a result of the conclusions reached
in the investigation, we identified certain material weaknesses
in our internal control over financial reporting related to our
stock option granting practices and the related accounting.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the Companys annual or interim financial
statements will not be prevented or detected on a timely basis.
Management identified and reported to our Audit Committee and
independent registered public accounting firm the following
material weaknesses in our internal control over financial
reporting.
First, prior to and during fiscal 2006, we did not maintain
effective controls over the accounting for, and disclosure of,
our stock-based compensation expense and did not have sufficient
safeguards in place to monitor our control practices regarding
stock option pricing and related financial reporting, the result
of which is discussed in Note 2 of the notes to our
consolidated financial statements and in Item 7.,
Managements Discussion and Analysis of Financial Condition
and Results of Operations. Specifically, in the case of
grants which were approved pursuant to the authority delegated
to the CEO as the Stock Plan Committee, the Audit Committee
found process-related deficiencies. These deficiencies resulted
in the Company erroneously treating the stated grant date as the
measurement date for financial accounting purposes. The grants
in this category included performance grants, grants to
newly-hired employees and grants to employees hired in
connection with acquisitions of other companies by us. The Audit
Committee concluded that twelve performance grants either lacked
contemporaneous evidence to verify the date selected or, in the
case of two grants, were selected retrospectively to capture a
more favorable price. The Audit Committee found that 86 grants
to newly-hired employees lacked contemporaneous evidence of
grant date selection. Additionally, the Audit Committee found
that four grants to employees of acquired companies were
measured on a date other than that specified in the acquisition
agreements. In eight instances, a grant was properly approved on
a grant date that was prior to the date the exercise price was
set (at a price lower than the grant date) resulting in variable
accounting. Finally, a grant to three of our officers, including
a grant to our CFO, was erroneously included in a large,
broad-based performance grant Granting Action by the Stock Plan
Committee rather than by action of our Board or Directors or
Compensation Committee. The Audit Committee found no evidence of
intentional misconduct or malfeasance on the part of Company
personnel involved in selecting and approving the grant dates.
Additionally, the CEO did not benefit from any of these grants.
Second, the Audit Committee determined that all individuals
involved in the process for granting these options lacked a
thorough understanding of relevant accounting rules.
In fiscal 2007, prior to the commencement of and not in response
to the internal review that led to the investigation by the
Audit Committee, the Audit Committee recommended, and the Board
adopted, new policies
144
and procedures with regard to grants of equity compensation
awards to Board members, officers, and non-officer employees
alike. Under these policies and procedures:
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All stock option grants and other equity awards to executive
officers are to be granted by the Compensation Committee .
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All other awards are generally to be granted by the Compensation
Committee, although awards to non-executive officers may be
granted by the Board.
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Except in special circumstances, all awards are to be granted at
regular quarterly meetings of the Compensation Committee.
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Awards are to be approved at meetings of the Compensation
Committee or the Board, and not by unanimous written consent.
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The effective date of each award approved at a regular quarterly
meeting will be the later of the third trading day following the
public announcement of our financial results for the preceding
quarter or the date of the meeting.
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The key terms of each award are to be communicated to the
recipient promptly following the award.
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The revised measures described above provide for training and
education in those rules.
Management determined that the revised option granting
procedures and controls that were implemented in August 2006
were effective in enabling the Company to appropriately
determine measurement dates and properly account for stock
option grants made subsequent to August 2006.
In connection with the completion of its investigation, and in
light of the findings from the investigation, the Audit
Committee recommended that the Board consider, and the Board of
Directors unanimously adopted, certain remedial measures,
including the following:
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The implementation of a cross-functional training program for
certain key employees concerning (i) our equity
compensation programs and related improvements in equity
compensation controls, processes and procedures, (ii) the
accounting implications of the Companys equity
compensation programs and (iii) the legal implications of
the equity compensation programs.
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The appointment of a designated finance department employee to
be responsible for the accounting for stock options and other
forms of equity compensation.
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The adoption of additional policies to assure that grants will
be recorded promptly in our option accounting database, and that
grantees will receive prompt written notification of their
grants.
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The adoption of policies to assure that there will be a specific
date to complete the generation of a list of recommended equity
grant recipients and number of option shares prior to the
submission of the recommendations to the Compensation Committee
for approval.
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Implementation of a requirement that our Internal Audit
Department review our compliance with the controls and
procedures regarding equity compensation at least annually and
report the results of its review to the Audit Committee.
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We believe that these changes, together with the new policies
and procedures adopted before the commencement of the
investigation, remediated the past material weaknesses in our
internal control over financial reporting related to our stock
option granting practices and the related accounting and reduced
to remote the likelihood that any incorrect measurement dates or
any material error in accounting for stock option grants could
have occurred during the fiscal year ended April 30, 2007
and not have been detected as part of our financial reporting
close process or our stock option granting process. As a result,
we concluded that we maintained effective internal control over
financial reporting as of April 30, 2007.
Changes
in Internal Controls
There was no change in our internal control over financial
reporting that occurred during the fourth quarter of fiscal 2007
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
145
Report of
Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
The Board of Directors and Shareholders of Finisar Corporation:
We have audited Finisar Corporations internal control over
financial reporting as of April 30, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Finisar
Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Finisar Corporation maintained, in all material
respects, effective internal control over financial reporting as
of April 30, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Finisar Corporation as of
April 30, 2007 and 2006 (restated), and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended April 30, 2007 (2006 and 2005, restated) and our
report dated December 3, 2007 expressed an unqualified
opinion thereon.
Ernst & Young LLP
San Jose, CA
December 3, 2007
146
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ITEM 9B.
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Other
Information
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None
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Item 10.
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Directors
and Executive Officers of the Registrant
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Executive
Officers of the Registrant
Information concerning Finisars current executive officers
is as follows:
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Name
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Position(s) with Finisar
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Age
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Jerry S. Rawls
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Chairman of the Board, President and Chief Executive Officer
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63
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David Buse
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Senior Vice President and General Manager, Network Tools Division
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57
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Anders Olsson
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Senior Vice President, Engineering
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55
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Stephen K. Workman
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Senior Vice President, Finance, Chief Financial Officer and
Secretary
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57
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Joseph A. Young
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Senior Vice President and General Manager, Optics Division
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50
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Jerry S. Rawls has served as a member of our board of
directors since March 1989, as our Chief Executive Officer since
August 1999 and as our Chairman of the Board since January 2006.
Mr. Rawls has also served as our President since April 2003
and previously held that title from April 1989 to September
2002. From September 1968 to February 1989, Mr. Rawls was
employed by Raychem Corporation, a materials science and
engineering company, where he held various management positions
including Division General Manager of the Aerospace
Products Division and Interconnection Systems Division.
Mr. Rawls holds a B.S. in Mechanical Engineering from Texas
Tech University and an M.S. in Industrial Administration from
Purdue University.
David Buse has served as our Senior Vice President and
General Manager, Network Tools Division, since June 2005.
Mr. Buse joined Finisar in December 2003 as our Senior Vice
President, Sales and Marketing. From May 2002 to September 2003,
Mr. Buse was employed as Vice President of Worldwide Sales
and Marketing of Silicon Bandwidth, an interconnect technology
company. Prior thereto, he spent over 20 years at Raychem/
Tyco in various positions, most recently serving as Americas
National Sales Manager. Mr. Buse holds a B.S. in
Engineering Management from the United States Air Force Academy
and an M.B.A. from UCLA.
Anders Olsson has served as our Senior Vice President,
Engineering since January 2004. From April 2003 to December
2003, Dr. Olsson was President and Chief Executive Officer
of Photon-X Inc., an optical sensing company. From April 2000 to
April 2003, Dr. Olsson was the Chief Operating Officer and
Chief Technical Officer of CENiX Inc, a high-speed integrated
subsystems company for data-com and telecom markets. Before
co-founding CENiX, Dr. Olsson held a number of positions at
Bell Laboratories, Lucent Network Systems, and Lucent
Microelectronics; the first in basic research and the last as
Optoelectronics General Manager and Vice President.
Dr. Olsson holds an M.S. in Engineering from Chalmers
University of Technology of Gothenburg, Sweden, and a Ph.D. in
Electrical Engineering from Cornell University.
Stephen K. Workman has served as our Senior Vice
President, Finance and Chief Financial Officer since September
2002 and as our Vice President, Finance and Chief Financial
Officer from March 1999 to September 2002. Mr. Workman has
also served as our Secretary since August 1999. From November
1989 to March 1999, Mr. Workman served as Chief Financial
Officer at Ortel Corporation. Mr. Workman holds a B.S. in
Engineering Science and an M.S. in Industrial Administration
from Purdue University.
Joseph A. Young has served as our Senior Vice President
and General Manager, Optics Division, since June 2005.
Mr. Young joined Finisar in October 2004 as our Senior Vice
President, Operations. Prior to joining the Company,
Mr. Young served as Director of Enterprise Products,
Optical Platform Division of Intel Corporation from May 2001 to
October 2004. Mr. Young served as Vice President of
Operations of LightLogic, Inc. from
147
September 2000 to May 2001, when it was acquired by Intel, and
as Vice President of Operations of Lexar Media, Inc. from
December 1999 to September 2000. Mr. Young was employed
from March 1983 to December 1999 by Tyco/ Raychem, where he
served in various positions, including his last position as
Director of Worldwide Operations for the OEM Electronics
Division of Raychem Corporation. Mr. Young holds a B.S. in
Industrial Engineering from Rensselaer Polytechnic Institute, an
M.S. in Operations Research from the University of New Haven and
an M.B.A. from the Wharton School at the University of
Pennsylvania.
Directors
Information concerning Finisars current directors is as
follows:
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Director
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Name
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Position with Finisar
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Age
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Since
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Class I directors whose terms expire at the 2009 Annual
Meeting of Stockholders:
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Roger C. Ferguson
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Director
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64
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1999
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Larry D. Mitchell
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Director
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65
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1999
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Class II directors whose terms expire at the 2007 Annual
Meeting of Stockholders:
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David C. Fries
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Director
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62
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2005
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Frank H. Levinson
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Director
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54
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1988
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Robert N. Stephens
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Director
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62
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2005
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Class III directors whose terms expire at the 2008
Annual Meeting of Stockholders:
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Jerry S. Rawls
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Chairman of the Board, President and Chief Executive Officer
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63
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1989
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Dominique Trempont
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Director
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53
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2005
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Roger C. Ferguson has served as a member of our board of
directors since August 1999. From June 1999 to December 2001,
Mr. Ferguson served as Chief Executive Officer of Semio
Corp., an early stage software company. Mr. Ferguson has
served as a principal in VenCraft, LLC, a venture capital
partnership, since July 1997. From August 1993 to July 1997,
Mr. Ferguson was Chief Executive Officer of DataTools,
Inc., a database software company. From 1987 to 1993,
Mr. Ferguson served as Chief Operating Officer for Network
General Inc., a network analysis company. Mr. Ferguson
holds a B.A. in Psychology from Dartmouth College and an M.B.A.
from the Amos Tuck School at Dartmouth.
Larry D. Mitchell has served as a member of our board of
directors since October 1999. Mr. Mitchell was employed by
the Hewlett-Packard Company for 29 years, retiring in
October 1997 as a site General Manager in Roseville, California,
a position he held for three years. During the 26 years
prior to October 1994, Mr. Mitchell served in a variety of
management positions with Hewlett-Packard. Currently,
Mr. Mitchell is Director of Operations for SP
Communications, a startup electronics company. Mr. Mitchell
also served on the Board of Directors of Placer Sierra
Bancshares, until its acquisition by Wells Fargo Bank in June
2007 and served as Chairman from August 2006 until June 2007.
Mr. Mitchell holds a B.A. in Engineering Science from
Dartmouth College and an M.B.A. from the Stanford Graduate
School of Business.
David C. Fries has served as a member of our board of
directors since June 2005. Dr. Fries has been employed by
VantagePoint Venture Partners, a venture capital investment
firm, since August 2001 where he currently serves as a Managing
Director and Co-Head of the Semiconductor and Components
Practice. Prior to joining VantagePoint, he was the Chief
Executive Officer of Productivity Solutions, Inc., a
Florida-based developer of automated checkout technologies for
food and discount retailers, from 1995 to 1999. For seven years
prior to that, he was a general partner of Canaan Partners, a
venture capital firm. Dr. Fries served 17 years in
numerous executive roles in engineering, manufacturing, senior
management and finance at General Electric Company, including
directing GE Venture Capitals California operation, which
later became Canaan Partners. Dr. Fries also serves as a
director of Aviza
148
Technology, Inc., a semiconductor equipment company.
Dr. Fries holds a B.S. in Chemistry from Florida Atlantic
University and a Ph.D. in Physical Chemistry from Case Western
Reserve University.
Frank H. Levinson founded Finisar in April 1987 and has
served as a member of our board of directors since February
1988. Dr. Levinson served as our Chairman of the Board and
Chief Technical Officer from August 1999 to January 2006 and
also served as our Chief Executive Officer from February 1988 to
August 1999. From September 1980 to December 1983,
Dr. Levinson was a member of Technical Staff at AT&T
Bell Laboratories. From January 1984 to July 1984, he was a
Member of Technical Staff at Bellcore, a provider of services
and products to the communications industry. From April 1985 to
December 1985, Dr. Levinson was the principal optical
scientist at Raychem Corporation, and from January 1986 to
February 1988, he was Optical Department Manager at Raynet,
Inc., a fiber optic systems company. Dr. Levinson serves as
a director of Fabrinet, Inc., a privately held contract
manufacturing company. Dr. Levinson holds a B.S. in
Mathematics/Physics from Butler University and an M.S. and Ph.D.
in Astronomy from the University of Virginia.
Robert N. Stephens has served as a member of our board of
directors since August 2005. Mr. Stephens served as the
Chief Executive Officer since April 1999 and President since
October 1998 of Adaptec, Inc., a storage solutions provider,
until his retirement in May 2005. Mr. Stephens joined
Adaptec in November 1995 as Chief Operating Officer. Before
joining Adaptec, Mr. Stephens was the founder and chief
executive officer of Power I/O, a company that developed serial
interface solutions and silicon expertise for high-speed data
networking, that was acquired by Adaptec in 1995. Prior to
founding Power I/O, Mr. Stephens was President and CEO of
Emulex Corporation, which designs, develops and supplies Fibre
Channel host bus adapters. Before joining Emulex,
Mr. Stephens was senior vice president, general manger, and
founder of the Microcomputer Products Group at Western Digital
Corporation. He began his career at IBM, where he served over
15 years in a variety of management positions.
Mr. Stephens holds bachelors and masters
degrees from San Jose State University.
Jerry S. Rawls has served as a member of our board of
directors since March 1989 and as our Chairman of the Board
since January 2006. Mr. Rawls has served as our Chief
Executive Officer since August 1999. Mr. Rawls has also
served as our President since April 2003 and previously held
that title from April 1989 to September 2002. From September
1968 to February 1989, Mr. Rawls was employed by Raychem
Corporation, a materials science and engineering company, where
he held various management positions including
Division General Manager of the Aerospace Products Division
and Interconnection Systems Division. Mr. Rawls holds a
B.S. in Mechanical Engineering from Texas Tech University and an
M.S. in Industrial Administration from Purdue University.
Dominique Trempont has served as a member of our board of
directors since August 2005. Mr. Trempont is also a member
of the board of directors of 3Com Corporation, a networking
company, and chairs its Finance and Audit Committee. Prior to
joining the boards of Finisar and 3Com, Mr Trempont was CEO in
residence at Battery Ventures from August 2003 till June 2004.
Prior to joining Battery Ventures, Mr. Trempont was
Chairman, President and Chief Executive Officer of Kanisa, Inc.,
a software company focused on enterprise self-service
applications, from November 1999 to November 2002.
Mr. Trempont was President and Chief Executive Officer of
Gemplus Corporation, a smart card company, from May 1997 to June
1999. Prior to Gemplus, Mr. Trempont served as Chief
Financial Officer and headed Operations at NeXT Software.
Mr. Trempont began his career at Raychem Corporation, a
high-tech material science company focused on
telecommunications, electronics, automotive and other
industries. Mr. Trempont received an undergraduate degree
in Economics from College Saint Louis (Belgium), a B.A. in
Business Administration and Computer Sciences from the
University of Louvain (Belgium) and a masters in Business
Administration from INSEAD (France).
Audit
Committee and Financial Expert
The members of the Audit Committee during fiscal 2007 were
Messrs. Ferguson, Mitchell and Trempont. Each of the
members of the Audit Committee is independent for purposes of
the Nasdaq listing standards as they apply to audit committee
members. Messrs. Ferguson and Trempont are audit committee
financial experts, as defined in the rules of the Securities and
Exchange Commission. The functions of the Audit Committee
include overseeing the quality of our financial reports and
other financial information and our compliance with legal and
regulatory requirements; appointing and evaluating our
independent auditors, including reviewing their independence,
qualifications and performance and reviewing and approving the
terms of their engagement for audit services
149
and non-audit services; and establishing and observing complaint
procedures regarding accounting, internal auditing controls and
auditing matters.
Code of
Ethics
Our board of directors has adopted a Code of Ethics (the
Code) that outlines the principles of legal and
ethical business conduct under which we do business. The Code,
which is applicable to all directors, employees and officers of
Finisar, is available at
http://investor.finisar.com/corpgov.cfm. Any substantive
amendment or waiver of the Code may be made only by the board of
directors upon a recommendation of the Audit Committee, and will
be disclosed on our website. In addition, disclosure of any
waiver of the Code for directors and executive officers will
also be made by the filing of a
Form 8-K
with the SEC.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our executive officers, directors and persons
who beneficially own more than 10% of our common stock to file
initial reports of ownership and reports of changes in ownership
with the SEC. Such persons are required by SEC regulations to
furnish us copies of all Section 16(a) forms filed by such
person.
Based solely on our review of such forms furnished to us, and
written representations from executive officers and directors,
we believe that all filing requirements applicable to our
executive officers, directors and more than 10% stockholders
during the fiscal year ended April 30, 2007 were satisfied.
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Item 11.
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Executive
Compensation
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Compensation
Discussion and Analysis
Overview
The following discussion explains our compensation philosophy,
objectives and procedures and describes the forms of
compensation awarded to our Chief Executive Officer, our Chief
Financial Officer and each of our other three most
highly-compensated executives (determined as of April 30,
2007). We refer to these individuals as our named
executive officers. This discussion focuses on the
information contained in the tables and related footnotes and
narrative included in this Item 11, primarily for our 2007
fiscal year, but we also describe compensation actions taken
before and after fiscal 2007 to the extent that information
enhances the understanding of our executive compensation
disclosure.
Philosophy,
Objectives and Procedures
Our fundamental compensation philosophy is to align the
compensation of our senior management with our annual and
long-term business objectives and performance and to offer
compensation that will enable us to attract, retain, and
appropriately reward executive officers whose contributions are
necessary for our long-term success. We seek to reward our
executive officers contributions to achieving revenue
growth, increasing operating profits, and controlling overhead
costs. We operate in a very competitive environment for
executive talent, and it is our belief that our compensation
packages should be competitive when compared to our peers but
also perceived as fair, when considered both externally and
internally.
The Compensation Committee of our Board of Directors oversees
the design and administration of our executive compensation
program. The principal elements of the program are base salary,
annual cash bonuses and equity awards which, to date, have been
in the form of stock options. We also provide our executive
officers with other benefits and perquisites generally available
to our other employees.
Generally, the Compensation Committee reviews the compensation
of our executive officers in the early part of each fiscal year
and takes action at that time to award bonuses for the preceding
fiscal year and set base salaries and target bonuses for the
current year. In setting our executive officers total
compensation, the Compensation Committee considers individual
and company performance, as well as market information regarding
compensation
150
paid by comparable companies. The Compensation Committee takes
into consideration recommendations of our Chief Executive
Officer, although he does not participate in discussions
regarding his own compensation.
Periodically, the Compensation Committee retains compensation
consultants to assist it in its review of executive officer
compensation. In connection with its annual review early in
fiscal 2007, the Compensation Committee engaged Assets
Unlimited, Inc., a compensation consulting firm, for this
purpose. The Compensation Committee reviewed cash and equity
compensation analyses prepared by Assets Unlimited, Inc. based
on data for comparable companies and met with a representative
of that firm. The Compensation Committee did not engage
compensation consultants in connection with its fiscal 2008
review of executive officer compensation.
Forms
of Compensation
Base
Salaries
Base salaries for our executive officers are initially set based
on negotiation with the individual executive officer at the time
of recruitment and with reference to salaries for comparable
positions in the networking industry for individuals of similar
education and background to the executive officer being
recruited. We also give consideration to the individuals
experience, reputation in his or her industry and expected
contributions to Finisar. Salaries are reviewed annually by the
Compensation Committee and adjustments are made based on
(i) salary recommendations of our Chief Executive Officer,
(ii) the Compensation Committees assessment of the
individual performance of the executive officers during the
previous fiscal year, (iii) Finisars financial
results for the previous fiscal year, and (iv) changes in
competitive pay levels.
During fiscal 2007, base salaries accounted for approximately
36% of the total compensation of our Chief Executive Officer and
an average of approximately 45% of the total compensation of our
other named executive officers.
Annual
Cash Bonuses
It is our policy that a substantial component of each executive
officers potential annual compensation take the form of a
performance-based bonus. Bonus awards to executive officers
other than the Chief Executive Officer are determined by the
Compensation Committee, in consultation with the Chief Executive
Officer, based on our financial performance and the achievement
of the officers individual performance objectives. The
Chief Executive Officers bonus is determined by the
Compensation Committee, without participation by the Chief
Executive Officer, based on the same factors.
At the beginning of each fiscal year, the Compensation Committee
awards cash bonuses to our executive officers in recognition of
their contributions during the previous fiscal year. In July
2006, the Compensation Committee established target bonuses for
our executive officers for fiscal 2007 and a methodology for the
calculation of individual bonuses, based on the target bonuses.
Under this methodology, each executive officers bonus was
to be based: 35% on our achievement of targeted operating
income; 35% on our achievement of targeted revenue growth; and
30% on the achievement of individual goals. In its annual review
of executive compensation in August 2007, the Compensation
Committee determined that the formula approved at the beginning
of the fiscal year did not produce bonuses that were fully
reflective of the officers contributions. Accordingly, the
Compensation Committee awarded the following bonuses which, in
each case, were less than the officers fiscal 2007 target
bonus but more than would have been payable under the original
formula:
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Fiscal 2007
|
|
|
|
Annual Cash Bonuses
|
|
Name
|
|
Target
|
|
|
Amount Awarded
|
|
|
Jerry S. Rawls
|
|
$
|
250,000
|
|
|
$
|
125,000
|
|
Stephen K. Workman
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
David Buse
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
Anders Olsson
|
|
$
|
90,000
|
|
|
$
|
60,000
|
|
Joseph A. Young
|
|
$
|
120,000
|
|
|
$
|
100,000
|
|
151
During fiscal 2007, annual cash bonuses accounted for
approximately 11% of the total compensation of our Chief
Executive Officer and an average of approximately 10% of the
total compensation of our other named executive officers.
In August 2007, the Compensation Committee established target
bonuses for fiscal 2008 and the methodology for the calculation
of individual bonuses. Under this methodology, each executive
officers bonus was to be based: 80% on our achievement of
targeted earnings per share; and 20% on the achievement of
individual goals. The fiscal 2008 target bonuses for the named
executive officers are as follows:
|
|
|
|
|
|
|
Fiscal 2008
|
|
Name
|
|
Target Bonus
|
|
|
Jerry S. Rawls
|
|
$
|
425,000
|
|
Stephen K. Workman
|
|
$
|
260,000
|
|
David Buse
|
|
$
|
290,000
|
|
Anders Olsson
|
|
$
|
288,000
|
|
Joseph A. Young
|
|
$
|
340,000
|
|
Long-Term
Incentives.
Longer term incentives are provided through stock options, which
reward executives and other employees through the growth in
value of our stock. The Compensation Committee believes that
employee equity ownership is highly motivating, provides a major
incentive for employees to build stockholder value and serves to
align the interests of our employees with those of our
stockholders. Grants of stock options to executive officers are
based upon each officers relative position,
responsibilities, historical and expected contributions to
Finisar, and the officers existing stock ownership and
previous option grants, with primary weight given to the
executive officers relative rank and responsibilities.
Initial stock option grants designed to recruit an executive
officer to join Finisar may be based on negotiations with the
officer and with reference to historical option grants to
existing officers. Stock options are granted at an exercise
price equal to the market price of our common stock on the date
of grant and will provide value to the executive officers only
when the price of our common stock increases over the exercise
price.
The vesting of stock options held by our named executive
officers is subject to acceleration pursuant to the terms of the
Finisar Executive Retention and Severance Plan described below.
Long-term equity incentives accounted for approximately 52% of
total compensation of our Chief Executive Officer and an average
of approximately 44% of our total compensation of our other
named executive officers.
Other
Benefits and Perquisites
We generally provide for our named executive officers and other
executives to receive the same general health and welfare
benefits offered to all employees. We also offer participation
in our defined contribution 401(k) plan. We currently provide no
other perquisites to our named executive officers and other
executives.
During fiscal 2007, personal benefits and perquisites accounted
for less than 1% of total compensation of our Chief Executive
Officer and our other named executives officers.
Executive
Retention and Severance Plan
We have no long-term employment agreements with any of our key
personnel. However, our executive officers and certain other key
executives designated by the Compensation Committee are eligible
to participate in the Finisar Executive Retention and Severance
Plan adopted by the Compensation Committee in February 2003.
Participants in this plan who are executive officers are
entitled to receive cash severance payments equal to two years
base salary and health and medical benefits for two years in the
event their employment is terminated in connection with a change
in control of Finisar. In addition, in the event of a change in
control, vesting of stock options held by participants in the
plan will be accelerated by one year, if the options are assumed
by the acquiring company. If the options are not assumed by the
acquiror, or if the participants employment is terminated
in connection with the change in control, vesting of the options
will be accelerated in full. Upon any other termination
152
of employment, participants are entitled only to accrued salary
and any other vested benefits through the date of termination.
We believe that the severance and change in control provisions
of our Executive Retention and Severance Plan are comparable to
the provisions and benefit levels of other companies disclosing
similar plans as reported in public filings.
Accounting
for Executive Compensation
We account for equity compensation paid to our employees under
the rules of Statement of Financial Accounting Standards
No. 123R, which requires us to measure and record an
expense over the service period of the award. Accounting rules
also require us to record cash compensation as an expense at the
time the obligation is incurred.
Tax
Considerations
We intend to consider the impact of Section 162(m) of the
Internal Revenue Code in determining the mix of elements of
future executive compensation. This section limits the
deductibility of non-performance based compensation paid to each
of our named executive officers to $1 million annually. The
stock options granted to our executive officers are intended to
be treated under current federal tax law as performance-based
compensation exempt from the limitation on deductibility.
153
REPORT OF
THE COMPENSATION COMMITTEE
We have reviewed and discussed with management the Compensation
Discussion and Analysis provisions included this proxy
statement. Based on the reviews and discussions referred to
above, we recommended to the Board of Directors that the
Compensation Discussion and Analysis referred to above be
included in this annual report on
Form 10-K.
COMPENSATION COMMITTEE
David C. Fries (Chair)
Roger C. Ferguson
Larry D. Mitchell
Robert N. Stephens
Compensation
Committee Interlocks and Insider Participation
The Compensation Committee during fiscal 2007 was composed of
Roger C. Ferguson, David C. Fries, Larry D. Mitchell and Robert
N. Stephens. No member of our Compensation Committee serves as a
member of the board of directors or compensation committee of
any entity that has one or more executive officers serving as a
member of our board of directors or Compensation Committee.
Summary
Compensation Information
The following table presents certain summary information
concerning compensation paid or accrued by the Company for
services rendered in all capacities during the fiscal year ended
April 30, 2007 for (i) the Chief Executive Officer and
the Chief Financial Officer of the Company, and (ii) each
of the three other most highly compensated executives of the
Company (determined as of April 30, 2007) (collectively,
the Named Executive Officers).
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards(2)
|
|
|
Compensation(1)
|
|
|
Total
|
|
|
Jerry S. Rawls
|
|
|
2007
|
|
|
$
|
400,000
|
|
|
$
|
125,000
|
|
|
$
|
584,737
|
|
|
$
|
6,534
|
|
|
$
|
1,116,271
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen K. Workman
|
|
|
2007
|
|
|
|
250,000
|
|
|
|
50,000
|
|
|
|
168,428
|
|
|
|
6,531
|
|
|
|
474,779
|
|
Senior Vice President,
Finance, Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Buse
|
|
|
2007
|
|
|
|
280,000
|
|
|
|
50,000
|
|
|
|
274,955
|
|
|
|
6,912
|
|
|
|
611,867
|
|
Senior Vice President and
General Manager, Network Tools Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anders Olsson
|
|
|
2007
|
|
|
|
275,000
|
|
|
|
60,000
|
|
|
|
387,880
|
|
|
|
6,833
|
|
|
|
729,713
|
|
Senior Vice President, Engineering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph A. Young
|
|
|
2007
|
|
|
|
325,000
|
|
|
|
100,000
|
|
|
|
274,249
|
|
|
|
7,379
|
|
|
|
706,628
|
|
Senior Vice President and General Manager, Optics Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the matching contribution that Finisar made to
Finisars 401(k) plan. |
|
(2) |
|
Valuation based on the dollar amount of cumulative option grants
recognized for financial statement reporting purposes pursuant
to FAS 123R with respect to the fiscal year ended
April 30, 2007. The assumptions used by us |
154
|
|
|
|
|
with respect to the valuation of option grants are set forth in
Finisar Corporation Consolidated Financial
Statements Notes to Financial Statements
Note 16 Stockholders Equity. |
Grant of
Plan-Based Awards
The following table sets forth certain information with respect
to the options granted during or for the year ended
April 30, 2007 to each of our named executive officers.
Grant of
Plan-Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Exercise or
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Base
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number of
|
|
|
Price
|
|
|
of Stock
|
|
|
|
|
|
|
Estimated Future Payments
|
|
|
Estimated Future Payments
|
|
|
of Shares
|
|
|
Securities
|
|
|
of Option
|
|
|
and
|
|
|
|
|
|
|
Under Non-Equity Incentive Plan Awards(1)
|
|
|
Under Equity Incentive Plan Awards
|
|
|
of Stock or
|
|
|
Underlying
|
|
|
Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
($/shr)
|
|
|
Awards
|
|
|
Jerry S. Rawls
|
|
|
6/6/2006
|
|
|
|
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
$
|
4.63
|
|
|
$
|
1,465,880
|
|
Stephen K. Workman
|
|
|
6/6/2006
|
|
|
|
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
$
|
4.63
|
|
|
$
|
274,853
|
|
David Buse
|
|
|
6/6/2006
|
|
|
|
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
$
|
4.63
|
|
|
$
|
366,470
|
|
Anders Olsson
|
|
|
6/6/2006
|
|
|
|
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
$
|
4.63
|
|
|
$
|
366,470
|
|
|
|
|
3/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,332
|
|
|
$
|
3.21
|
|
|
$
|
7,868
|
|
Joseph A. Young
|
|
|
6/6/2006
|
|
|
|
|
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
$
|
4.63
|
|
|
$
|
732,940
|
|
|
|
|
3/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,435
|
|
|
$
|
3.21
|
|
|
$
|
12,384
|
|
|
|
|
(1) |
|
Amounts reflect potential cash bonuses payable as determined by
the Compensation Committee. Actual payments approved by the
Compensation Committtee for Messrs. Rawls, Workman, Buse,
Olsson, and Young were $125,000, $50,000, $50,000, $60,000, and
$100,000, respectively. |
155
Outstanding
Equity Awards at Fiscal Year-End
The following table summarizes the number of securities
underlying outstanding option plan awards for each of the named
executive officers as of the end of its fiscal year-end on
April 30, 2007.
Outstanding
Equity Awards at Fiscal Year-End Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Exercise
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
per Share
|
|
|
Date
|
|
|
Jerry S. Rawls
|
|
|
800,000
|
|
|
|
200,000
|
(1)
|
|
$
|
1.73
|
|
|
|
6/7/2012
|
|
|
|
|
120,000
|
|
|
|
80,000
|
(2)
|
|
$
|
1.95
|
|
|
|
8/27/2013
|
|
|
|
|
160,000
|
|
|
|
240,000
|
(3)
|
|
$
|
1.92
|
|
|
|
6/2/2014
|
|
|
|
|
100,000
|
|
|
|
400,000
|
(4)
|
|
$
|
1.22
|
|
|
|
6/8/2015
|
|
|
|
|
0
|
|
|
|
400,000
|
(5)
|
|
$
|
4.63
|
|
|
|
6/6/2016
|
|
Stephen K. Workman
|
|
|
100,000
|
|
|
|
|
|
|
$
|
1.80
|
|
|
|
6/19/2013
|
|
|
|
|
65,000
|
|
|
|
|
|
|
$
|
1.80
|
|
|
|
6/19/2013
|
|
|
|
|
160,000
|
|
|
|
40,000
|
(6)
|
|
$
|
1.80
|
|
|
|
6/19/2013
|
|
|
|
|
45,000
|
|
|
|
30,000
|
(2)
|
|
$
|
1.95
|
|
|
|
8/27/2013
|
|
|
|
|
80,000
|
|
|
|
120,000
|
(3)
|
|
$
|
1.92
|
|
|
|
6/2/2014
|
|
|
|
|
0
|
|
|
|
75,000
|
(5)
|
|
$
|
4.63
|
|
|
|
6/6/2016
|
|
David Buse
|
|
|
240,000
|
|
|
|
160,000
|
(7)
|
|
$
|
2.80
|
|
|
|
12/18/2013
|
|
|
|
|
80,000
|
|
|
|
120,000
|
(3)
|
|
$
|
1.92
|
|
|
|
6/2/2014
|
|
|
|
|
40,000
|
|
|
|
160,000
|
(4)
|
|
$
|
1.22
|
|
|
|
6/8/2015
|
|
|
|
|
0
|
|
|
|
100,000
|
(5)
|
|
$
|
4.63
|
|
|
|
6/6/2016
|
|
Anders Olsson
|
|
|
300,000
|
|
|
|
200,000
|
(8)
|
|
$
|
3.26
|
|
|
|
2/2/2014
|
|
|
|
|
80,000
|
|
|
|
120,000
|
(3)
|
|
$
|
1.92
|
|
|
|
6/2/2014
|
|
|
|
|
40,000
|
|
|
|
160,000
|
(4)
|
|
$
|
1.22
|
|
|
|
6/8/2015
|
|
|
|
|
0
|
|
|
|
100,000
|
(5)
|
|
$
|
4.63
|
|
|
|
6/6/2016
|
|
|
|
|
0
|
|
|
|
3,332
|
(9)
|
|
$
|
3.21
|
|
|
|
3/8/2017
|
|
Joseph A. Young
|
|
|
160,000
|
|
|
|
240,000
|
(10)
|
|
$
|
1.47
|
|
|
|
10/29/2014
|
|
|
|
|
40,000
|
|
|
|
160,000
|
(4)
|
|
$
|
1.22
|
|
|
|
6/8/2015
|
|
|
|
|
0
|
|
|
|
200,000
|
(5)
|
|
$
|
4.63
|
|
|
|
6/6/2016
|
|
|
|
|
0
|
|
|
|
5,435
|
(9)
|
|
$
|
3.21
|
|
|
|
3/8/2017
|
|
|
|
|
(1) |
|
The option was granted on 6/7/2002. The shares became
exercisable as to 20% of the shares on 6/7/2003 and vest
annually thereafter to be fully vested on 6/7/2007 assuming
continued employment with Finisar Corporation. |
|
(2) |
|
The option was granted on 8/27/2003. The shares became
exercisable as to 20% of the shares on 8/27/2004 and vest
annually thereafter to be fully vested on 8/27/2008 assuming
continued employment with Finisar Corporation. |
|
(3) |
|
The option was granted on 6/2/2004. The shares became
exercisable as to 20% of the shares on 6/2/2005 and vest
annually thereafter to be fully vested on 6/2/2009 assuming
continued employment with Finisar Corporation. |
|
(4) |
|
The option was granted on 6/8/2005. The shares became
exercisable as to 20% of the shares on 6/8/2006 and vest
annually thereafter to be fully vested on 6/8/2010 assuming
continued employment with Finisar Corporation. |
|
(5) |
|
The option was granted on 6/6/2006. The shares become
exercisable as to 20% of the shares on 6/6/2007 and vest
annually thereafter to be fully vested on 6/6/2011 assuming
continued employment with Finisar Corporation. |
156
|
|
|
(6) |
|
The option was granted on 6/19/2003. The shares became
exercisable as to 20% of the shares on 6/7/2003 and vest
annually thereafter to be fully vested on 6/7/2007 assuming
continued employment with Finisar Corporation. |
|
(7) |
|
The option was granted on 12/18/2003. The shares became
exercisable as to 20% of the shares on 12/15/2004 and vest
annually thereafter to be fully vested on 12/15/2008 assuming
continued employment with Finisar Corporation. |
|
(8) |
|
The option was granted on 2/2/2004. The shares became
exercisable as to 20% of the shares on 2/2/2005 and vest
annually thereafter to be fully vested on 2/2/09 assuming
continued employment with Finisar Corporation. |
|
(9) |
|
The option was granted on 3/8/2007. The shares become
exercisable as to 20% of the shares on 3/8/2008 and vest
annually thereafter to be fully vested on 3/8/2012 assuming
continued employment with Finisar Corporation. |
|
(10) |
|
The option was granted on 10/29/2004. The shares became
exercisable as to 20% of the shares on 10/29/2005 and vest
annually thereafter to be fully vested on 10/29/2009 assuming
continued employment with Finisar Corporation. |
Option
Exercises
There were no exercises of options to purchase our Common Stock
in the fiscal year ended April 30, 2007, by the persons
named in the Summary Compensation Table above.
Potential
Payments Upon Termination or Change in Control
Jerry S. Rawls, David Buse, Anders Olsson, Stephen K. Workman
and Joseph A. Young are eligible to participate in the Finisar
Executive Retention and Severance Plan. This plan provides that
in the event of a qualifying termination each of the
participating executives will be entitled to receive (i) a
lump sum payment equal to two years base salary (excluding
bonus) and (ii) medical, dental and insurance coverage for
two years, or reimbursement of premiums for COBRA continuation
coverage during such period. A qualifying termination is defined
as an involuntary termination other than for cause or a
voluntary termination for good reason upon or within
18 months following a change in control, as such terms are
defined in the executive severance plan. In addition, the plan
provides that the vesting of stock options held by eligible
officers will be accelerated as follows: (i) one year of
accelerated vesting upon a change of control, if the options are
assumed by a successor corporation, (ii) 100% accelerated
vesting if the options are not assumed by a successor
corporation, and (iii) 100% accelerated vesting upon a
qualifying termination. In the event the employment of any of
our named executive officers were to be terminated without cause
or for good reason, within 18 months following a change in
control of Finisar, each as of April 30, 2007, the
following individuals would be entitled to payments in the
amounts set forth opposite to their name in the below table:
|
|
|
Name
|
|
Cash Severance
|
|
Jerry S. Rawls
|
|
$33,333 per month for 24 months
|
Stephen K. Workman
|
|
$20,833 per month for 24 months
|
David Buse
|
|
$23,333 per month for 24 months
|
Anders Olsson
|
|
$22,917 per month for 24 months
|
Joseph A. Young
|
|
$27,083 per month for 24 months
|
We are not obligated to make any cash payments to these
executives if their employment is terminated by us for cause or
by the executive not for good reason. No severance or benefits
are provided for any of the executive officers in the event of
death or disability. A change in control does not affect the
amount or timing of these cash severance payments.
157
In the event the employment of any of our named executive
officers were to be terminated without cause or for good reason
within 18 months following a change in control of Finisar,
each as of April 30, 2007, the following individuals would
be entitled to accelerated vesting of their outstanding stock
options described in the table below:
|
|
|
Name
|
|
Value of Equity Awards:(1)
|
|
Jerry S. Rawls
|
|
Fully vested, 2,500,000 options with a value of $4.1 million.
|
Stephen K. Workman
|
|
Fully vested; 715,000 options with a value of $1.1 million.
|
David Buse
|
|
Fully vested; 900,000 options with a value of $1.1 million.
|
Anders Olsson
|
|
Fully vested; 1,003,332 options with a value of $1.0 million.
|
Joseph A. Young
|
|
Fully vested; 805,435 options with a value of $1.3 million.
|
|
|
|
(1) |
|
Potential gains are net values based on the aggregate difference
between the respective exercise prices and the closing sale
price of our common stock on April 30, 2007, which was
$3.62 per share. |
Director
Compensation
Non-employee directors receive an annual retainer of $30,000,
$2,000 for attendance in person at each meeting of the board of
directors or committee meeting (with meetings of the board of
directors and all committees held within any 24 hour period
considered to be a single meeting) and $500 for attendance at
such meetings via telephone. In addition, members of the Audit
Committee receive an annual retainer of $5,000, and the Chairman
of the Audit Committee receives $10,000 for annual service in
such capacity, members of the Compensation Committee and the
Nominating and Corporate Governance Committee receive an annual
retainer of $2,500, and the Chairman of the Compensation
Committee and the Nominating and Corporate Governance Committee
each receive $5,000 for annual service in such capacity. We
reimburse directors for their reasonable expenses incurred in
attending meetings of the board of directors.
In addition, all non-employee directors are granted an option to
purchase 50,000 shares of common stock upon their initial
election to the board and an option to purchase
20,000 shares of common stock on an annual basis. The date
of grant of the annual options is generally made at the first
meeting of the Board of Directors in each fiscal year. The
initial options vest over a period of three years from the date
of grant and the annual options vest on the first anniversary of
the date of grant. As with all options, the per-share exercise
price of each such option will equal the fair market value of a
share of Common Stock on the date of grant.
The following table presents the compensation paid to our
non-employee directors in the fiscal year ended April 30,
2007:
Director
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
All other
|
|
|
Total
|
|
Name
|
|
Paid in Cash
|
|
|
Option Awards (1)(2)
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Roger C. Ferguson
|
|
$
|
51,500
|
|
|
$
|
67,932
|
|
|
$
|
0
|
|
|
$
|
119,432
|
|
David C. Fries
|
|
$
|
43,500
|
|
|
$
|
73,435
|
|
|
$
|
0
|
|
|
$
|
116,935
|
|
Larry D. Mitchell
|
|
$
|
49,000
|
|
|
$
|
67,932
|
|
|
$
|
0
|
|
|
$
|
116,932
|
|
Robert N. Stephens
|
|
$
|
42,125
|
|
|
$
|
72,197
|
|
|
$
|
0
|
|
|
$
|
114,322
|
|
Dominique Trempont
|
|
$
|
42,875
|
|
|
$
|
72,197
|
|
|
$
|
0
|
|
|
$
|
115,072
|
|
Frank H. Levinson
|
|
$
|
32,000
|
|
|
$
|
65,864
|
|
|
$
|
86,115
|
(3)
|
|
$
|
183,979
|
|
|
|
|
(1) |
|
Valuation based on the dollar amount of option grants recognized
for financial statement reporting purposes pursuant to
FAS 123R with respect to the fiscal year ended
April 30, 2007. The assumptions used by us with |
158
|
|
|
|
|
respect to the valuation of option grants are set forth in
Finisar Corporation Consolidated Financial
Statements Notes to Financial Statements
Note 16 Stockholders Equity. |
|
(2) |
|
The following table sets forth certain information with respect
to the options granted during or for the fiscal year ended
April 30, 2007 to each non-employee member of our Board of
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Shares of
|
|
|
Exercise Price of
|
|
|
Fair Value
|
|
|
|
|
|
Common Stock
|
|
|
Option Awards
|
|
|
of Option
|
|
Name
|
|
Grant Date
|
|
Underlying Options
|
|
|
($/Share)
|
|
|
Awards
|
|
|
Roger C. Ferguson
|
|
06/06/2006
|
|
|
20,000
|
|
|
$
|
4.63
|
|
|
$
|
73,294
|
|
David C. Fries
|
|
06/06/2006
|
|
|
20,000
|
|
|
$
|
4.63
|
|
|
$
|
73,294
|
|
Larry D. Mitchell
|
|
06/06/2006
|
|
|
20,000
|
|
|
$
|
4.63
|
|
|
$
|
73,294
|
|
Robert N. Stephens
|
|
06/06/2006
|
|
|
20,000
|
|
|
$
|
4.63
|
|
|
$
|
73,294
|
|
Dominique Trempont
|
|
06/06/2006
|
|
|
20,000
|
|
|
$
|
4.63
|
|
|
$
|
73,294
|
|
Frank Levinson
|
|
06/06/2006
|
|
|
20,000
|
|
|
$
|
4.63
|
|
|
$
|
73,294
|
|
|
|
|
(3) |
|
This amount represents payments made under a consulting
agreement with Dr. Levinson. |
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
The following table sets forth, as of October 31, 2007,
certain information with respect to the beneficial ownership of
Finisars Common Stock by (i) each stockholder known
by Finisar to be the beneficial owner of more than 5% of
Finisars Common Stock, (ii) each director of Finisar,
(iii) the executive officers of Finisar, and (iv) all
current directors and executive officers of Finisar as a group.
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
|
Beneficially Owned(1)
|
|
Name of Beneficial Owner(1)
|
|
Number
|
|
|
Percentage
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
FMR Corp.(2)
|
|
|
40,805,702
|
|
|
|
13.2
|
%
|
82 Devonshire Street
Boston, MA 02109
|
|
|
|
|
|
|
|
|
Oppenheimer Funds, Inc.(3)
|
|
|
20,176,164
|
|
|
|
6.5
|
%
|
Two World Financial Center
225 Liberty Street
New York, NY 10281
|
|
|
|
|
|
|
|
|
T. Rowe Price Associates, Inc.(4)
|
|
|
18,548,480
|
|
|
|
6.0
|
%
|
100 E. Pratt Street
Baltimore, MD 21202
|
|
|
|
|
|
|
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Frank H. Levinson(5)
|
|
|
17,973,432
|
|
|
|
5.8
|
%
|
Jerry S. Rawls(6)
|
|
|
7,229,392
|
|
|
|
2.3
|
%
|
Stephen K. Workman(7)
|
|
|
1,062,082
|
|
|
|
*
|
|
Anders Olsson(8)
|
|
|
523,228
|
|
|
|
*
|
|
Larry D. Mitchell(9)
|
|
|
182,500
|
|
|
|
*
|
|
Roger C. Ferguson(10)
|
|
|
130,000
|
|
|
|
*
|
|
David Buse(11)
|
|
|
460,000
|
|
|
|
*
|
|
Joseph A. Young(12)
|
|
|
387,453
|
|
|
|
*
|
|
David C. Fries(13)
|
|
|
40,000
|
|
|
|
*
|
|
Robert N. Stephens(14)
|
|
|
40,000
|
|
|
|
*
|
|
Dominique Trempont(15)
|
|
|
40,000
|
|
|
|
*
|
|
All executive officers and directors as a group
(11 persons)(16)
|
|
|
28,068,087
|
|
|
|
9.1
|
%
|
159
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
Unless otherwise indicated, the address of each of the named
individuals is:
c/o Finisar
Corporation, 1389 Moffett Park Drive, Sunnyvale, CA 94089.
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. All shares of common stock subject
to options exercisable within 60 days following
October 31, 2007 are deemed to be outstanding and
beneficially owned by the person holding those options for the
purpose of computing the number of shares beneficially owned and
the percentage of ownership of that person. They are not,
however, deemed to be outstanding and beneficially owned for the
purpose of computing the percentage ownership of any other
person. |
|
|
|
Accordingly, percent ownership is based on
308,634,829 shares of common stock outstanding as of
October 31, 2007 plus any shares issuable pursuant to
options held by the person or group in question which may be
exercised within 60 days following October 31, 2007.
Except as indicated in the other footnotes to the table and
subject to applicable community property laws, based on
information provided by the persons named in the table, these
persons have sole voting and investment power with respect to
all shares of the common stock shown as beneficially owned by
them. |
|
(2) |
|
Based on information contained in a Schedule 13G/A dated
June 11, 2007, filed with the Securities and Exchange
Commission. Includes 40,776,116 shares beneficially owned
by Fidelity Management & Research Company
(Fidelity), an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, as a
result of acting as investment adviser to various investment
companies registered under Section 8 of the Investment
Company Act of 1940. The number of shares of Finisar common
stock owned by the investment companies at May 31, 2007
included 6,121,457 shares of common stock resulting from
the assumed conversion of $22,680,000 principal amount of
Finisars 2.5% convertible subordinated notes due 2010. The
ownership of one investment company, Fidelity Mid Cap Stock
Fund, amounted to 20,000,000 shares of common stock.
Fidelity is a wholly-owned subsidiary of FMR Corp. Edward C.
Johnson 3rd, Chairman of FMR Corp., FMR Corp., through its
control of Fidelity, and the funds each has sole power to
dispose of the 40,766,166 shares owned by the funds.
Members of the Edward C. Johnson 3rd family are the predominant
owners, directly or through trusts, of Series B shares of
common stock of FMR Corp., representing 49% of the voting power
of FMR Corp. The Johnson family group and all other
Series B shareholders have entered into a
shareholders voting agreement under which all
Series B shares will be voted in accordance with the
majority vote of Series B shares. Accordingly, through
their ownership of voting common stock and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR Corp. Neither
FMR Corp. nor Mr. Johnson 3rd has the sole power to vote or
direct the voting of the shares owned directly by the Fidelity
funds, which power resides with the funds boards of
trustees. Fidelity carries out the voting of the shares under
written guidelines established by the funds boards of
trustees. The address of FMR Corp., Fidelity, Fidelity Mid Cap
Stock Fund and Edward C. Johnson 3rd is 82 Devonshire Street,
Boston, Massachusetts 02109. |
|
|
|
Fidelity Management Trust Company, 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR
Corp. and a bank as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934, is the beneficial owner of
3,786 shares of the outstanding common stock of the Company
as a result of its serving as investment manager of the
institutional account(s). The number of shares of common stock
of the Company owned by the institutional account(s) at
May 31, 2007 included 1,867,746 shares of common stock
resulting from the assumed conversion of $6,920,000 principal
amount of Finisars 2.5% convertible subordinated notes due
2010. Edward C. Johnson 3d and FMR Corp., through its control of
Fidelity Management Trust Company, each has sole
dispositive power over 3,786 shares and sole power to vote
or to direct the voting of 3,786 shares of common stock
owned by the institutional account(s) described above. |
|
|
|
Pyramis Global Advisors Trust Company (PGATC),
53 State Street, Boston, Massachusetts 02109, an indirect
wholly-owned subsidiary of FMR Corp. and a bank as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934, is
the beneficial owner of 35,800 shares of the outstanding
common stock of the Company as a result of its serving as
investment manager of institutional accounts owning such shares.
Edward C. Johnson 3d and FMR Corp., through its control of
PGATC, each has sole dispositive power over |
160
|
|
|
|
|
35,800 shares and sole power to vote or to direct the
voting of 35,800 shares of common stock owned by the
institutional accounts managed by PGATC described above. |
|
|
|
Fidelity Ventures III FVIII, 82 Devonshire
Street, Boston, Massachusetts 02109, is the beneficial owner of
3,680 shares of the outstanding common stock of the
Company. FVIII is a Delaware limited partnership. The general
partner of FVIII is Fidelity Ventures Advisors III limited
partnership, a Delaware limited partnership. The general partner
of Fidelity Ventures Advisors III is Fidelity Investors
Management Corp., a Delaware corporation. The limited partners
of FVIII are Fidelity Investors III limited partnership and
Fidelity International Limited. |
|
|
|
Fidelity Ventures Partners III FVPIII, 82
Devonshire Street, Boston, Massachusetts 02109, is the
beneficial owner of 106 shares of the outstanding common
stock of the Company. FVPIII is a Delaware limited partnership.
The general partner of FVPIII is Fidelity Investors Management
Corp., a Delaware corporation. The limited partners of FVPIII
are members of the investment management team of Fidelity
Ventures III. |
|
(3) |
|
Based on a Schedule 13G dated February 5, 2007, filed
with the Securities and Exchange Commission. Oppenheimer Funds,
Inc. is an investment advisor in accordance with
Rule 13d-1(b)(1)(ii)(E)
under the Securities Exchange Act of 1934, as amended, and
disclaims beneficial ownership of the shares pursuant to
Rule 13d-4
of the Securities Exchange Act of 1934, as amended. |
|
(4) |
|
Based on information contained in a Schedule 13G dated
February 13, 2007, filed with the Securities and Exchange
Commission. |
|
(5) |
|
Based on information contained in a Schedule 13G/A dated
February 12, 2007, and Form 4 Reports filed with the
Securities and Exchange Commission. Includes
14,762,614 shares held by the Frank H. Levinson Revocable
Living Trust and 3,210,818 shares held by Seti Trading Co.,
Inc., (Seti), a company owned 50% by the Frank H.
Levinson Revocable Living Trust and one other shareholder.
Includes 780,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007.
Dr. Levinson is the sole trustee of the Frank H. Levinson
Revocable Living Trust and exercises sole voting and dispositive
power over the shares held by the trust. Dr. Levinson and
another director affiliated with the other shareholder are the
sole directors of Seti and, consequently, the affirmative vote
or consent of each of Dr. Levinson and the other director
is required for any sale or other disposition of the shares held
by Seti. However, pursuant to a shareholders agreement,
each of Dr. Levinson and the other director maintain the
right to direct Seti to vote 50% of the shares held by Seti in
accordance with written instructions from Dr. Levinson or
the other director, respectively. Accordingly, Dr. Levinson
has shared dispositive power with respect to all
3,210,818 shares held by Seti and sole voting power with
respect to 1,605,409 shares held by Seti. Dr. Levinson
disclaims the existence of a group under
Rule 13d-5(b)(1)
of the Securities Exchange Act of 1934, as amended, with respect
to the shares held by Seti. |
|
(6) |
|
Includes 5,549,392 shares held by The Rawls Family, L.P.
Mr. Rawls is the president of the Rawls Management
Corporation, the general partner of The Rawls Family, L.P.
Includes 1,680,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(7) |
|
Includes 560,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(8) |
|
Includes 520,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(9) |
|
Includes 150,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(10) |
|
Includes 60,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(11) |
|
Includes 460,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(12) |
|
Includes 360,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(13) |
|
Includes 40,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
161
|
|
|
(14) |
|
Includes 40,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(15) |
|
Includes 40,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
|
(16) |
|
Includes 4,690,000 shares issuable upon exercise of options
exercisable within 60 days following October 31, 2007. |
Equity
Compensation Plan Information
We currently maintain five compensation plans that provide for
the issuance of our common stock to officers, directors, other
employees or consultants. These consist of the 1989 Stock Option
Plan, the 2005 Stock Incentive Plan, the Employee Stock Purchase
Plan and the International Employee Stock Purchase Plan, which
have been approved by our stockholders, and the 2001
Nonstatutory Stock Option Plan (the 2001 Plan),
which has not been approved by our stockholders. The following
table sets forth information regarding outstanding options and
shares reserved for future issuance under the foregoing plans as
of April 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Number of Shares
|
|
|
|
|
|
Available for
|
|
|
|
to be Issued
|
|
|
|
|
|
Future Issuance
|
|
|
|
Upon Exercise of
|
|
|
|
|
|
Under Equity
|
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
Compensation
|
|
|
|
Options,
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Warrants
|
|
|
Outstanding Options,
|
|
|
Shares Reflected
|
|
|
|
and Rights
|
|
|
Warrants and Rights
|
|
|
in Column (a))
|
|
Plan Category(1)
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by stockholders
|
|
|
44,234,843
|
|
|
$
|
2.53
|
|
|
|
36,330,909(1
|
)
|
Equity compensation plan not approved by stockholders(2)(3)
|
|
|
1,884,272
|
|
|
$
|
3.69
|
|
|
|
2,544,350
|
|
|
|
|
(1) |
|
Consists of shares available for future issuance under the
plans. In accordance with the terms of the Employee Stock
Purchase Plan, the number of shares available for issuance under
the Employee Stock Purchase Plan and the International Employee
Stock Purchase Plan will increase by 1,000,000 shares on
May 1 of each calendar year until and including May 1,
2010. In accordance with the terms of the 2005 Stock Incentive
Plan, the number of shares of our common stock available for
issuance under the 2005 Stock Incentive Plan will increase on
May 1 of each calendar year until and including May 1, 2015
by an amount equal to five percent (5%) of the number of shares
of our common stock outstanding as of the preceding
April 30. |
|
(2) |
|
Excludes options assumed by Finisar in connection with
acquisitions of other companies. As of April 30, 2007,
26,882 shares of our common stock were issuable upon
exercise of these assumed options, at a weighted average
exercise price of $2.20 per share. No additional options may be
granted under these assumed equity rights. |
|
(3) |
|
A total of 5,850,000 shares of our common stock have been
reserved for issuance under the 2001 Plan. As of April 30,
2007, a total of 1,448,260 shares of common stock had been
issued upon the exercise of options granted under the 2001 Plan. |
Material
Features of the 2001 Nonstatutory Stock Option Plan
As of April 30, 2007, 4,401,740 shares of our common
stock were reserved for issuance under the 2001 Plan. The 2001
Plan was adopted by our board on February 16, 2001 and
provides for the granting of nonstatutory stock options to
employees and consultants with an exercise price per share not
less than 85% of the fair market value of our common stock on
the date of grant. However, no person is eligible to be granted
an option under the 2001 Plan whose eligibility would require
approval of the 2001 Plan by our stockholders. Options granted
under the 2001 Plan generally have a ten-year term and vest at
the rate of 20% of the shares on the first anniversary of the
date of grant and 20% of the shares each additional year
thereafter until fully vested. Some of the options that have
been granted under the 2001 Plan are subject to full
acceleration of vesting in the event of a change in control of
Finisar.
162
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Frank H. Levinson, our former Chairman of the Board and Chief
Technical Officer and a current director, is a member of the
board of directors of Fabrinet, Inc., a privately held contract
manufacturer. In June 2000, we entered into a volume supply
agreement with Fabrinet, at rates which we believe to be market,
under which Fabrinet serves as a contract manufacturer for us.
In addition, Fabrinet purchases certain products from us. During
the fiscal years ended April 30, 2007 and 2006, we made
payments of approximately $76.6 million and
$66.5 million to Fabrinet and Fabrinet made payments of
approximately $44.7 million and $38.7 million to us.
In connection with the acquisition by VantagePoint Venture
Partners in April 2005 of the 34 million shares of our
common stock held by Infineon Technologies AG that we had
previously issued to Infineon in connection with our acquisition
of Infineons optical transceiver product lines, we entered
into an agreement with VantagePoint under which we agreed to use
our reasonable best efforts to elect a nominee of VantagePoint
to our board of directors, provided that the nominee was
reasonably acceptable to the boards Nominating and
Corporate Governance Committee as well as our full board of
directors. In June 2005, David C. Fries, a Managing Director of
VantagePoint, was elected to our board of directors pursuant to
that agreement. We also agreed to file a registration statement
to provide for the resale of the shares held by VantagePoint and
certain distributees of VantagePoint. As a result of the
reduction in VantagePoints holdings of our common stock
following distributions by VantagePoint to its partners, our
obligations regarding the election of a nominee of VantagePoint
to our board of directors have terminated and we are no longer
obligated to maintain a registration statement for the resale of
shares held by VantagePoint and certain distributees of
VantagePoint.
The Audit Committee is responsible for reviewing and approving
any transaction between the Company and any related parties.
Our Board of Directors currently consists of Roger C.
Ferguson, David C. Fries, Frank Levinson, Larry D.
Mitchell, Jerry S. Rawls, Robert N. Stephens and
Dominique Trempont, all of which except for Messrs. Levinson and
Rawls, are independent as defined under the rules of the Nasdaq
Global Select Market.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Fees for professional services provided by Ernst &
Young LLP, the Companys principal accounting firm, in each
of the last two years are:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
April 30, 2007
|
|
|
April 30, 2006
|
|
|
Audit Fees(1)
|
|
|
|
|
|
|
|
|
Core audit fees
|
|
$
|
2,192,000
|
|
|
$
|
2,131,000
|
|
Audit fees related to stock option restatement
|
|
|
3,000,000
|
|
|
|
|
|
Audit-Related Fees(2)
|
|
|
56,000
|
|
|
|
88,000
|
|
Tax Fees(3)
|
|
|
34,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,282,000
|
|
|
$
|
2,249,000
|
|
|
|
|
(1) |
|
Audit fees consist of fees billed for professional services
rendered for the audit of Finisars consolidated annual
financial statements, internal control over financial reporting
and the review of the interim consolidated financial statements
included in quarterly reports and services that are normally
provided by Ernst & Young LLP in connection with
statutory and regulatory filings or engagements, and attest
services. We have incurred total audit fees for fiscal 2007 of
$5.2 million, of which approximately $2.2 million was
for our core audit fees and approximately $3.0 million was
related to the audit of our restated financial statements and
the review of the independent investigation into our historical
stock option practices. |
|
(2) |
|
Audit-related fees consist of fees billed for assurance and
related services that are reasonably related to the performance
of the audit or review of Finisars consolidated financial
statements and are not reported under Audit Fees.
This category includes fees related to employee benefit plan
audits and consultations in connection with acquisitions, and
consultations concerning financial reporting. |
163
|
|
|
(3) |
|
Tax fees consist of fees billed for professional services
rendered for tax compliance, tax advice and tax planning
(domestic and international). These services include assistance
regarding federal, state and international tax compliance,
acquisitions and international tax planning. |
Pre-Approval
Policies and Procedures
The Audit Committee has adopted a policy that requires advance
approval of all audit, audit-related, tax services, and other
services performed by the independent registered public
accounting firm. The policy provides for pre-approval by the
Audit Committee of specifically defined audit and non-audit
services. Unless the specific service has been pre-approved with
respect to that year, the Audit Committee must approve the
permitted service before the independent registered public
accounting firm is engaged to perform it. The Audit Committee
has delegated to the chair of the Audit Committee the authority
to approve permitted services, provided that the chair reports
any decisions to the Audit Committee at its next scheduled
meeting.
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as a part of this
Annual Report:
(1) Financial Statements
Consolidated Financial Statements: The following consolidated
financial statements are included in Part II, Item 8
of this report.
Consolidated Balance Sheets as of April 30, 2007 and 2006
Consolidated Statements of Operations for the years ended
April 30, 2007, 2006 and 2005
Consolidated Statements of Stockholders Equity for the
years ended April 30, 2007, 2006 and 2005
Consolidated Statements of Cash Flows for the years ended
April 30, 2007, 2006 and 2005
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Consolidated Valuation and Qualifying Accounts for the years
ended April 30, 2007, 2006 and 2005 (see page 142)
(3) Exhibits
The exhibits listed in the Exhibit Index are filed as part
of this report (see page 166)
164
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, in the City of Sunnyvale, State of
California, on this 4th day of December, 2007.
FINISAR CORPORATION
Jerry S. Rawls
President, Chief Executive Officer and
Chairman of the Board of Directors
Know all persons by these presents, that each person whose
signature appears below constitutes and appoints Jerry S. Rawls
and Stephen K. Workman, and each of them, as such persons
true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for such person and in such
persons name, place and stead, in any and all capacities,
to sign any and all amendments to this report on
Form 10-K,
and to file same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Jerry
S. Rawls
Jerry
S. Rawls
|
|
President and Chief Executive Officer (Principal Executive
Officer) and Chairman of the Board of Directors
|
|
December 4, 2007
|
|
|
|
|
|
/s/
Stephen K. Workman
Stephen
K. Workman
|
|
Senior Vice President, Finance,
Chief Financial Officer and Secretary (Principal Financial and
Accounting Officer)
|
|
December 4, 2007
|
|
|
|
|
|
/s/ Roger
C. Ferguson
Roger
C. Ferguson
|
|
Director
|
|
December 4, 2007
|
|
|
|
|
|
/s/ David
C. Fries
David
C. Fries
|
|
Director
|
|
December 4, 2007
|
|
|
|
|
|
/s/ Frank
H. Levinson
Frank
H. Levinson
|
|
Director
|
|
December 4, 2007
|
|
|
|
|
|
/s/ Larry
D. Mitchell
Larry
D. Mitchell
|
|
Director
|
|
December 4, 2007
|
|
|
|
|
|
/s/ Robert
N. Stephens
Robert
N. Stephens
|
|
Director
|
|
December 4, 2007
|
|
|
|
|
|
/s/ Dominique
Trempont
Dominique
Trempont
|
|
Director
|
|
December 4, 2007
|
165
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
2
|
.1
|
|
Master Sale and Purchase Agreement by and between Infineon
Technologies AG and Finisar Corporation, dated January 25,
2005(1)
|
|
3
|
.1
|
|
Amended and Restated Bylaws of Registrant
|
|
3
|
.2
|
|
Restated Certificate of Incorporation of Registrant(3)
|
|
3
|
.3
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of Registrant, filed with the Delaware Secretary
of State on June 19, 2001(4)
|
|
3
|
.4
|
|
Certificate of Elimination regarding the Registrants
Series A Preferred Stock(5)
|
|
3
|
.5
|
|
Certificate of Designation(6)
|
|
3
|
.6
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of Registrant, filed with the Delaware Secretary
of State on May 11, 2005(7)
|
|
3
|
.7
|
|
Amended and Restated Certificate of Incorporation of
Registrant(8)
|
|
4
|
.1
|
|
Specimen certificate representing the common stock(9)
|
|
4
|
.2
|
|
Form of Rights Agreement between the Company and American Stock
Transfer and Trust Company, as Rights Agent (including as
Exhibit A the form of Certificate of Designation,
Preferences and Rights of the Terms of the Series RP
Preferred Stock, as Exhibit B the form of Right
Certificate, and as Exhibit C the Summary of Terms of
Rights Agreement)(10)
|
|
4
|
.3
|
|
Indenture between the Company and U.S. Bank Trust National
Association, a national banking association, dated
October 15, 2001(11)
|
|
4
|
.4
|
|
Indenture between the Company and U.S. Bank Trust National
Association, a national banking association, dated
October 15, 2003(12)
|
|
4
|
.5
|
|
Indenture between the Company and U.S. Bank Trust National
Association, a national banking association, dated
October 12, 2006(13)
|
|
10
|
.1
|
|
Form of Indemnity Agreement between Registrant and
Registrants directors and officers(3)
|
|
10
|
.2*
|
|
1989 Stock Option Plan(9)
|
|
10
|
.3*
|
|
1999 Stock Option Plan(14)
|
|
10
|
.4*
|
|
1999 Employee Stock Purchase Plan, as amended and restated
effective March 2, 2005(15)
|
|
10
|
.5*
|
|
Executive Retention and Severance Plan(16)
|
|
10
|
.6
|
|
Purchase Agreement by and between FSI International, Inc. and
Finisar Corporation, dated February 4, 2005(17)
|
|
10
|
.7
|
|
Assignment and Assumption of Purchase and Sale Agreement between
Finisar Corporation and Finistar (CA-TX) Limited Partnership,
dated February 4, 2005(18)
|
|
10
|
.8
|
|
Lease Agreement by and between Finistar (CA-TX) Limited
Partnership and Finisar Corporation, dated February 4,
2005(19)
|
|
10
|
.9*
|
|
Form of Stock Option Agreement for options granted under the
2005 Stock Incentive Plan(20)
|
|
10
|
.10*
|
|
International Employee Stock Purchase Plan(21)
|
|
10
|
.11*
|
|
Finisar Corporation 2005 Stock Incentive Plan(22)
|
|
10
|
.12
|
|
Letter Agreement dated December 28, 2005 between Finisar
Corporation and Dr. Frank H. Levinson(23)
|
|
10
|
.13
|
|
Form of Exchange Agreement by and between Finisar Corporation
and certain holders of
21/2% Convertible
Subordinated Notes due 2010, dated October 6, 2006(24)
|
|
10
|
.14
|
|
Registration Rights Agreement among Finisar Corporation and the
initial purchasers of
21/2% Convertible
Senior Subordinated Notes due 2010, dated October 12,
2006(25)
|
|
10
|
.15
|
|
Purchase Agreement among Finisar Corporation, AZNA LLC, Parviz
Tayebati, the common unitholders and optionholders set forth
therein, and Parviz Tayebati, as the Sellers
Representative, dated March 23, 2007(26)
|
|
10
|
.16
|
|
Convertible Promissory Note issued by Finisar Corporation to
Parviz Tayebati with a principal amount of $15,592,926, dated
March 26, 2007(27)
|
166
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.17
|
|
Convertible Promissory Note issued by Finisar Corporation to
Parviz Tayebati with a principal amount of $1,357,000, dated
March 26, 2007(28)
|
|
21
|
|
|
List of Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of Chief 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 Chief 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 2.8 to
Registrants Current Report on
Form 8-K
filed January 28, 2005. |
|
(3) |
|
Incorporated by reference to Exhibit 3.3 to
Registrants Registration Statement on
Form S-1/A
filed October 19, 1999 (File
No. 333-87017). |
|
(4) |
|
Incorporated by reference to Exhibit 3.6 to
Registrants Annual Report on
Form 10-K
filed July 18, 2001. |
|
(5) |
|
Incorporated by reference to Exhibit 3.8 to
Registrants Registration Statement on
Form S-3
filed December 18, 2001 (File
No. 333-75380). |
|
(6) |
|
Incorporated by reference to Exhibit 99.2 to
Registrants Registration Statement on
Form 8-A12G
filed on September 27, 2002. |
|
(7) |
|
Incorporated by reference to Exhibit 3.3 to
Registrants Registration Statement on
Form S-3
filed May 18, 2005 (File
No. 333-125034). |
|
(8) |
|
Incorporated by reference to Exhibit 3.11 to
Registrants Annual Report on
Form 10-K
filed July 29, 2005. |
|
(9) |
|
Incorporated by reference to the same numbered exhibit to
Registrants Registration Statement on
Form S-1/A
filed October 19, 1999 (File
No. 333-87017). |
|
(10) |
|
Incorporated by reference to Exhibit 4.2 to
Registrants Current Report on
Form 8-K
filed September 27, 2002. |
|
(11) |
|
Incorporated by reference to Exhibit 4.3 to
Registrants Quarterly Report on
Form 10-Q
for the period ended October 31, 2001 filed
December 12, 2001. |
|
(12) |
|
Incorporated by reference to the same numbered exhibit to
Registrants Quarterly Report on
Form 10-Q
for the period ended October 31, 2003 filed
December 10, 2003. |
|
(13) |
|
Incorporated by reference to Exhibit 4.8 to
Registrants Current Report on
Form 8-K
filed October 17, 2006. |
|
(14) |
|
Incorporated by reference to Exhibit 10.3 to
Registrants Registration Statement on
Form S-1
filed September 13, 1999 (File
No. 333-87017). |
|
(15) |
|
Incorporated by reference to Exhibit 99.1 to
Registrants Registration Statement on
Form S-8
filed May 23, 2005 (File
No. 333-125147). |
167