Attached files
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EX-99.2 - EX-99.2 - OCLARO, INC. | f55665exv99w2.htm |
8-K/A - 8-K/A - OCLARO, INC. | f55665e8vkza.htm |
EXHIBIT 99.1
Unaudited Condensed Consolidated Financial Statements of Avanex Corporation
AVANEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Nine Months Ended | ||||||||
March 31,2009 | March 31,2008 | |||||||
Net Revenue |
$ | 111,884 | $ | 156,272 | ||||
Cost of revenue |
98,033 | 108,866 | ||||||
Gross Profit |
13,851 | 47,406 | ||||||
Operating expenses: |
||||||||
Research and development |
17,966 | 21,390 | ||||||
Sales and marketing |
9,590 | 12,524 | ||||||
General and administrative |
11,818 | 14,076 | ||||||
Amortization of intangibles |
107 | 715 | ||||||
Restructuring |
3,009 | (301 | ) | |||||
Loss on disposal of property and
equipment |
| 1 | ||||||
Gain on sale of subsidiary |
| (1,996 | ) | |||||
Impairment of goodwill and intangibles |
9,615 | | ||||||
Total operating expenses |
52,105 | 46,409 | ||||||
Loss from operations |
(38,254 | ) | 997 | |||||
Interest and other income (expense), net |
395 | 2,969 | ||||||
Loss before income taxes |
(37,859 | ) | 3,966 | |||||
Income tax provision (benefit) |
(619 | ) | 499 | |||||
Net income (loss) |
$ | (37,240 | ) | $ | 3,467 | |||
Net income (loss) per share: |
||||||||
Basic |
$ | (2.40 | ) | $ | 0.23 | |||
Diluted |
$ | (2.40 | ) | $ | 0.23 | |||
Shares used in computing net income (loss) per share: |
||||||||
Basic |
15,516 | 15,216 | ||||||
Diluted |
15,516 | 15,383 |
See accompanying notes.
AVANEX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended | ||||||||
March 31, 2009 | March 31, 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (37,238 | ) | $ | 3,467 | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
Loss on disposal of property and equipment |
35 | 1 | ||||||
Depreciation and amortization |
3,102 | 2,311 | ||||||
Amortization of intangibles |
107 | 715 | ||||||
Stock-based compensation |
4,259 | 4,920 | ||||||
Provision (recovery) of doubtful accounts and sales returns |
377 | (295 | ) | |||||
Non-cash pension expense |
76 | | ||||||
Write-off of excess and obsolete inventory |
4,712 | 3,863 | ||||||
Impairment of goodwill and intangibles |
9,615 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
14,099 | 6,067 | ||||||
Inventories |
(4,969 | ) | (3,584 | ) | ||||
Other current assets |
(4,255 | ) | (522 | ) | ||||
Other assets |
(327 | ) | (60 | ) | ||||
Due to/from related party |
172 | (2,778 | ) | |||||
Accounts payable |
(12,794 | ) | 518 | |||||
Accrued compensation |
(2,640 | ) | 125 | |||||
Accrued restructuring |
(2,013 | ) | (2,444 | ) | ||||
Accrued warranty |
(387 | ) | (173 | ) | ||||
Other accrued expenses and deferred revenue |
4,342 | (2,042 | ) | |||||
Net cash provided by (used in) operating activities |
(23,727 | ) | 10,089 | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(3,994 | ) | (2,681 | ) | ||||
Net cash used in asset purchase |
| (2,139 | ) | |||||
Purchases of investments |
(23,252 | ) | (43,905 | ) | ||||
Maturities of investments |
43,985 | 34,121 | ||||||
Increase in restricted cash |
102 | (137 | ) | |||||
Net cash provided by (used in) investing activities |
16,841 | (14,741 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
154 | 754 | ||||||
Payments on capital lease obligations |
(9 | ) | (6 | ) | ||||
Net cash provided by (used in) financing activities |
145 | 748 | ||||||
Effect of exchange rate on cash and cash equivalents |
537 | 251 | ||||||
Net increase (decrease) in cash and cash equivalents |
(6,204 | ) | (3,653 | ) | ||||
Cash and cash equivalents at beginning of period |
14,839 | 14,837 | ||||||
Cash and cash equivalents at end of period |
$ | 8,635 | $ | 11,184 | ||||
Supplemental disclosures of non-cash transactions: |
||||||||
Fixed asset purchases included in accounts payable |
$ | 151 | $ | |
See accompanying notes.
AVANEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Avanex Corporation and its wholly owned subsidiaries (the Company) design, manufacture and
market fiber optic-based products which increase the performance of optical networks. The Company
sells products to telecommunications system integrators and their network carrier customers. The
Company was incorporated in October 1997 in California and reincorporated in Delaware in January
2000.
The accompanying unaudited condensed consolidated financial statements for the nine months
ended March 31, 2009 and March 31, 2008 have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial statements and
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and
include the accounts of Avanex and its subsidiaries. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with GAAP have been
condensed or omitted pursuant to such rules and regulations. In the opinion of management, the
unaudited condensed consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the consolidated operating
results for the nine months ended March 31, 2009 and March 31, 2008, and the consolidated cash
flows for the nine months ended March 31, 2009 and March 31, 2008. The consolidated results of
operations for the nine months ended March 31, 2009 are not necessarily indicative of results that
may be expected for any other interim period or for the full fiscal year ending June 30, 2009.
The accompanying unaudited condensed consolidated financial statements should be read in
conjunction with the Companys audited consolidated financial statements and notes for the year
ended June 30, 2008, contained in its Annual Report on Form 10-K filed with the SEC on September 5,
2008.
2. Impairment of Goodwill
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets (SFAS 142) prescribes a two-step process for impairment testing of goodwill and indefinite
life of intangible assets. The first step screens for impairment, while the second step, measures
the impairment, if any. SFAS 142 requires impairment testing based on reporting units.
The first step is a comparison of each reporting units fair value to its carrying value. The
Company estimates fair value using the best information available, including market information and
discounted cash flow projections also referred to as the income approach. If the carrying value of
the reporting unit is higher than its fair value, there is an indication that impairment may exist
and the second step must be performed to measure the amount of impairment loss. The amount of
impairment is determined by comparing the implied fair value of reporting unit goodwill to the
carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a
business combination. If the implied fair value of goodwill is less than the recorded goodwill, the
Company would record an impairment charge for the difference.
In the three months ended December 31, 2008, the Company evaluated goodwill due to indications
of impairment including the current economic environment, its operating results, a sustained
decline in its market capitalization, changes in management, and a decline in its forecasted
revenue for the remainder of fiscal 2009. The Step 2 analysis concluded that there had been an
impairment of the recorded goodwill in the Companys one reporting unit. This conclusion is
supported by the fair value implied by the proposed merger with Bookham, Inc. announced on January
27, 2009. As such, the Company has written off the book value of $9.4 million of goodwill in the
three months ended December 31, 2008.
3. Reverse Stock Split
Following the close of market on August 12, 2008, the Company effected a one-for-fifteen
reverse stock split of its common stock. Accordingly, each fifteen shares of issued and outstanding
Avanex common stock and equivalents as of the close of market on August 12, 2008 were converted
into one share of common stock, and the reverse stock split was reflected in the trading price of
Avanexs common stock at the opening of market on August 13, 2008. Unless indicated otherwise, all
share amounts and per share prices appearing herein reflect the reverse stock split for all periods
presented.
4. Restructuring
In the second quarter of fiscal 2009, the Company closed its Melbourne, Florida facility and
transferred the respective product lines, inventory, and fixed assets to either its France, China,
or Thailand offices. The costs associated with this restructuring consisted of one-time termination
benefits of approximately $2.1 million and facilities-related costs of approximately $0.3 million.
The $2.1 million of one-time termination benefits includes $0.7 million of stock compensation
charges due to accelerated vesting of restricted stock units.
5. Disclosures about Segments of an Enterprise
FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information,
establishes standards for the way 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. FASB Statement No. 131 also
establishes standards for related disclosures about products and services, geographic areas and
major customers.
The Companys chief operating decision maker is considered to be the Companys Chief Executive
Officer (CEO). The CEO reviews the Companys financial information presented on a consolidated
basis substantially similar to the accompanying consolidated financial statements. Therefore, the
Company has concluded that it operates in one segment and accordingly has provided enterprise-wide
disclosures.
Revenues by geographical area were as follows (in thousands):
Nine Months Ended | ||||||||
March 31,2009 | March 31,2008 | |||||||
North America |
$ | 34,877 | $ | 71,062 | ||||
Europe |
45,000 | 52,216 | ||||||
Asia |
27,898 | 32,994 | ||||||
Rest of world |
4,109 | | ||||||
$ | 111,884 | $ | 156,272 | |||||
6. Contingencies
From time to time, the Company is subject to various legal proceedings that arise from the
normal course of business activities. In addition, from time to time, third parties assert patent
or trademark infringement claims against the Company in the form of letters and other forms of
communication. The Company does not believe that any of these legal proceedings or claims is likely
to have a material adverse effect on its consolidated results of operations, financial condition,
or cash flows. However, it is possible that an unfavorable resolution of one or more such
proceedings could in the future materially affect the Companys future results of operations, cash
flows, or financial position in a particular period.
IPO Class Action Lawsuit
On August 6, 2001, Avanex, certain of its officers and directors, and various underwriters in
its initial public offering (IPO) were named as defendants in a class action filed in the United
States District Court for the Southern District of New York, captioned Beveridge v. Avanex
Corporation et al., Civil Action No. 01-CV-7256. This action
and other subsequently filed substantially similar class actions have been consolidated into
In re Avanex Corp. Initial Public Offering Securities Litigation, Civil Action No. 01 Civ. 6890.
The consolidated amended complaint in the action generally alleges that various investment bank
underwriters engaged in improper and undisclosed activities related to the allocation of shares in
Avanexs IPO. Plaintiffs have brought claims for violation of several provisions of the federal
securities laws against those underwriters, and also against Avanex and certain of its directors
and officers, seeking unspecified damages on behalf of a purported class of purchasers of Avanexs
common stock between February 3, 2000 and December 6, 2000. Various plaintiffs have filed similar
actions asserting virtually identical allegations against more than 40 investment banks and 250
other companies. All of these IPO allocation securities class actions currently pending in the
Southern District of New York have been coordinated for pretrial proceedings as In re Initial
Public Offering Securities Litigation, 21 MC 92. On October 9, 2002, the claims against Avanexs
directors and officers were dismissed without prejudice pursuant to a tolling agreement. The issuer
defendants filed a coordinated motion to dismiss all common pleading issues, which the Court
granted in part and denied in part in an order dated February 19, 2003. The Courts order did not
dismiss the Section 10(b) or Section 11 claims against Avanex.
In 2007, a settlement between certain parties in the litigation that had been pending with the
Court since 2004 was terminated by stipulation of the parties to the settlement, after a ruling by
the Second Circuit Court of Appeals in six focus cases in the coordinated proceeding (the actions
involving Avanex are not a focus case) made it unlikely that the settlement would receive final
court approval. Plaintiffs filed amended master allegations and amended complaints in the six focus
cases. In 2008, the Court largely denied the focus case defendants motion to dismiss the amended
complaints.
The parties have reached a global settlement of the litigation. On October 5, 2009, the Court
entered an order certifying a settlement class and granting final approval of the settlement. Under
the settlement, the insurers will pay the full amount of the settlement share allocated to Avanex
and Avanex will bear no financial liability. Avanex, as well as the officer and director defendants
who were previously dismissed from the action pursuant to tolling agreements, will receive complete
dismissals from the case. Certain objectors have appealed the Courts October 5, 2009 order to the
Second Circuit Court of Appeals. If for any reason the settlement does not become effective, the
Company believes that it has meritorious defenses to the claims and therefore believes that such
claims will not have a material effect on its financial position, results of operations or cash
flows.
Merger Purported Class Action Lawsuit
On February 3, 2009, a purported class action complaint was filed against the Company and its
directors, Oclaro, Inc. (or Oclaro, then known as Bookham), and Ultraviolet Acquisition Sub, Inc.
in the Superior Court of California, Alameda County by two individuals who purported to be
shareholders of Avanex. Plaintiffs purport to bring the action on behalf of all former shareholders
of Avanex. On March 3, 2009, these individuals filed an amended complaint. The amended complaint
alleged that the Avanex directors breached their fiduciary duties by failing to maximize
shareholder value in connection with the contemplated merger of Avanex and Bookham, and that the
joint proxy statement/prospectus failed to provide stockholders with material information or
contained materially misleading information thereby rendering the stockholders unable to cast an
informed vote on the proposed merger. The complaint also alleged that Avanex, Oclaro, and
Ultraviolet Acquisition Sub aided and abetted the Avanex directors alleged breach of fiduciary
duties. The complaint sought to permanently enjoin the merger with Oclaro, and sought monetary
damages in an unspecified amount attributable to the alleged breach of duties, and legal fees and
expenses. On April 8, 2009, the parties signed a memorandum of understanding pursuant to which they
entered into a stipulation of settlement that provisionally certified the action as a class action.
The stipulation provided that members of the class would furnish the defendants with a release,
and the plaintiffs counsel would seek an award of attorneys fees and expenses in the amount of up
to $230,000 as part of the settlement, which would be paid by Avanex (or its
successor(s)-in-interest). In addition, in connection with the proposed settlement, Avanex made
certain additional disclosures to its stockholders on its Current Report on Form 8-K filed April 9,
2009. The Superior Court denied the motion to preliminarily approve the proposed stipulated
settlement. The individual plaintiffs thereafter stipulated to dismiss their individual claims
with prejudice, and the parties agreed that the Court could award the plaintiffs counsel up to
$20,000 in fees and costs. The stipulation further provided that the other purported class members
would receive notice of such settlement pursuant to a Current Report on Form 8-K filed by Oclaro,
and that they would reserve their rights with regard to the defendants.
On August 17, 2009, the Superior Court entered the stipulation as an Order of the Court, dismissing
the plaintiffs individual claims with prejudice, and ordered Oclaro to pay the plaintiffs
attorneys fees in the amount of $20,000. Notice of such Order was provided in Oclaro, Inc.s
Current Report on Form 8-K filed August 24, 2009.
Bijan Badihian
On February 13, 2009, Bijan Badihian filed a complaint against Avanex Corporation, its then-CEO Giovanni Barbarossa,
then interim CFO Mark Weinswig and an administrative assistant (who has since been dismissed from the action), in the
Superior Court for the State of California, Los Angeles County. On June 8, 2009, after defendants filed a demurrer,
plaintiff filed a First Amended Complaint adding as defendants Oclaro, Inc. as successor to Avanex, and Paul Smith,
who was Chairman of the Avanex Board of Directors. On April 28, 2010 Badihian filed a Second Amended Complaint, which
names Avanex, Oclaro (as successor in interest), Greg Dougherty, Joel Smith III, Paul Smith, Barbarossa, and Weinswig.
Messrs. Barbarossa, Dougherty and Smith III are current members of Oclaro's Board of Directors. The Second Amended
Complaint alleges that defendants failed to disclose material facts regarding Avanex's operational performance and
future prospects, or engaged in conduct which negatively impacted those future prospects. The Second Amended
Complaint alleges causes of action for (1) breach of fiduciary duty; (2) intentional misrepresentation; (3) negligent
misrepresentation; (4) concealment; (5) constructive fraud; (6) intentional infliction of emotional distress; and (7)
negligent infliction of emotional distress. The Second Amended Complaint seeks at least $5 million in compensatory
damages plus prejudgment interest, unspecified damages for emotional distress, punitive damages, and costs.
The parties are currently engaged in discovery. The Superior Court has set a trial date of January 18, 2011.
7. Subsequent Events
On April 27, 2009, the Company was acquired by Oclaro, Inc. in an all-stock transaction, in which
Avanex stockholders received 5.426 shares of Bookham common stock for every share of Avanex common
stock. At the closing, each outstanding option to purchase Avanex common stock was converted into
an option to purchase 5.426 shares of Oclaro common stock, each outstanding Restricted Stock Unit
(RSU) payable for Avanex common stock was converted into an RSU payable for 5.426 shares of Oclaro
common stock, and certain outstanding warrants to purchase Avanex common stock were converted into
warrants to purchase 5.426 shares of Oclaro common stock per Avanex share of common stock.