Add
OPLK to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| OPLK > SEC Filings for OPLK > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
Use of Estimates and Critical Accounting Policies
The preparation of our condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure. On
an ongoing basis, we evaluate our estimates, including those related to product
returns, accounts receivable, inventories, intangible assets, warranty
obligations, restructuring accruals, contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates due to actual outcomes being different from those on which we
based our assumptions. These estimates and judgments are reviewed by management
on an ongoing basis, and by the audit committee of our board of directors at the
end of each quarter prior to the public release of our financial results. We
believe the following critical accounting policies, and our procedures relating
to these policies, affect our more significant judgments and estimates used in
the preparation of our condensed consolidated financial statements.
We have identified the policies below as critical to our business operations
and understanding of our financial condition and results of operations. A
critical accounting policy is one that is both material to the presentation of
our financial statements and requires us to make difficult, subjective or
complex judgments that could have a material effect on our financial condition
and results of operations. These policies may require us to make assumptions
about matters that are highly uncertain at the time of the estimate, and
different estimates that we could have used, or changes in the estimate that are
reasonably likely to occur, may have a material impact on our financial
condition or results of operations. Our critical accounting policies cover the
following areas:
• revenue recognition and product returns;
• depreciation and amortization;
• warranty obligations;
• allowance for doubtful accounts;
• excess and obsolete inventory;
• impairment of investments;
• long-lived asset valuation;
• business combination;
• income taxes;
• stock compensation; and
• loss contingencies.
This is not a comprehensive list of all of our accounting policies.
As of the date of the filing of this quarterly report, we believe there have
been no material changes to our critical accounting policies and estimates
during these three months ended September 30, 2008 compared to those disclosed
in our Annual Report on Form 10K for the fiscal year ended June 30, 2008 as
filed with the SEC on September 12, 2008. Additional information about these
critical accounting policies may be found in the "Management's Discussion &
Analysis of Financial Condition and Results of Operations" section included in
our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.
Results of Operations
Revenues
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2008 2007 Change Change
Revenue $ 42,952 $ 49,151 $ (6,199 ) -12.6 %
|
The decrease in revenue for the three months ended September 30, 2008
compared to the three months ended September 30, 2007 was mainly due to
decreased unit shipments in multiplexer, switch and routing products, and line
transmission applications, and declining average selling prices, being partially
offset by increased unit shipments in optical amplification, monitoring and
conditioning. The decreases in the average selling prices were primarily due to
increasing competition.
Our ROADM optical switching and routing product, of which the primary and
majority of the components are obtained from third party vendors accounted for
approximately $6.9 million or 16% of revenues for the three months ended
September 30, 2008 and $10.6 million or 22% of revenues for the three months
ended September 30, 2007.
For the second quarter of fiscal 2009, we expect our revenues to be in the
range of $34 million and $38 million due to anticipated declines in both unit
shipments and average selling prices due to a potential slowdown in spending
activity in the telecommunications industry and increasing competition.
Looking beyond the second quarter, we expect to continue to encounter a
number of risks and uncertainties that may put further downward pressure on our
revenue and profitability, or at least limit our ability to predict revenue and
profitability with any confidence. These risks and uncertainties include strong
pricing pressures, due to competition and potential decreases in demand, and
weakness in the worldwide telecommunications industry and economic environment
in general. A prolonged worldwide economic downturn may lead to lower sales
volume or reduced sales growth, lower sales prices or lower gross margins, which
would negatively impact our business and financial statements.
Gross Profit
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2008 2007 Change Change
Gross profit $ 6,189 $ 11,828 $ (5,639 ) -47.7 %
Gross profit margin 14.4 % 24.1 %
|
The decrease in gross profit for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 was primarily due to lower revenue and higher provision for excess and obsolete inventory of $4.1 million which was primarily related to line transmission applications, being partially offset by decreased labor expenses and manufacturing overhead costs driven by the cost reductions resulted from the integration of OCP into Oplink. Our gross profit for the three months ended September 30, 2008 was positively impacted by the sale of inventory that had been previously fully reserved of $497,000, compared to the sale of inventory that had been previously fully reserved of $247,000 in the three months ended September 30, 2007.
Our gross profit margin decreased for the three months ended September 30,
2008 compared to the three months ended September 30, 2007 due primarily to
higher provision for excess and obsolete inventory of $4.1 million which was
primarily related to line transmission application, being partially offset by
lower labor expenses and manufacturing overhead costs as a percentage of
revenues.
We expect our gross profit margin to decrease in the second quarter of fiscal
2009 compared to the first quarter of fiscal 2009 due to lower utilization of
manufacturing overhead costs resulting from expected lower revenue.
Research and Development
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2008 2007 Change Change
Research and development $ 3,505 $ 4,698 $ (1,193 ) -25.4 %
|
Research and development expenses for the three months ended September 30,
2008 compared to the three months ended September 30, 2007 decreased by
$1.2 million, mainly driven by cost reductions as a result of research and
development programs being transitioned from higher cost facilities in the
United States to lower cost facilities in China.
We believe that developing customer solutions at the prototype stage is
critical to our strategic product development objectives. In order to meet the
changing requirements of our customers, we will need to fund investments in
several concurrent product development projects. We expect our research and
development expense, excluding stock compensation expense, to remain largely
unchanged in the second quarter of fiscal 2009 compared to the first quarter of
fiscal 2009.
Sales and Marketing
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2008 2007 Change Change
Sales and marketing $ 2,572 $ 3,129 $ (557 ) -17.8 %
|
The decrease in sales and marketing expense for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 was primarily driven by the cost reductions resulted from the integration of OCP into Oplink. We expect our sales and marketing expense, excluding stock compensation expense, to remain at the similar level in the second quarter of fiscal 2009.
General and Administrative
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2008 2007 Change Change
General and administrative $ 3,577 $ 5,506 $ (1,929 ) -35.0 %
|
General and administrative expenses decreased $1.9 million for the three
months ended September 30, 2008 compared to the three months ended September 30,
2007. The decrease was mainly due to costs reductions resulted from further
integration of OCP into Oplink and lower stock compensation expense.
We expect our general and administrative expense, excluding stock
compensation expense, to remain largely unchanged in the second quarter of
fiscal 2009 compared to the first quarter of fiscal 2009.
Stock Compensation Expense
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2008 2007 Change Change
Stock compensation expense $ 1,567 $ 1,746 $ (179 ) -10.3 %
|
Stock compensation expense recorded in cost of revenues, research and
development, sales and marketing and general and administrative is the
amortization of the fair value of share-based payments made to employees and
members of our board of directors, primarily in the form of stock options,
restricted stock and purchases under the employee stock purchase plan in
accordance with SFAS No. 123 (R) (see Note 14 - Stock Compensation). The fair
value of stock options and restricted stock granted and rights granted to
purchase our common stock under the employee stock purchase plan is recognized
as expense over the employee requisite service period.
Stock compensation expenses decreased by $179,000 for the three months ended
September 30, 2008 compared to the three months ended September 30, 2007. The
acquisition of 58% of OCP outstanding shares of common stock contributed
$458,000 in stock compensation expense for the three months ended September 30,
2007. Excluding the impact of OCP acquisition, stock compensation expense
increased by $279,000 for the three months ended September 30, 2008 compared to
the three months ended September 30, 2007 as a result of additional grants to
new and existing employees. Stock compensation expense in fiscal 2009 includes
the continued amortization of previously-granted stock options. We expect our
stock compensation expense in the second quarter of fiscal 2009 to decrease
slightly from the first quarter of fiscal 2009.
Transitional Costs for Contract Manufacturing A summary of accrued transitional costs for contract manufacturing in fiscal 2009 and 2008 is as follows (in thousands):
Consolidation of
Workforce Excess Facilities
Reduction and Other Charges Total
Balance at June 30, 2007 $ 1,234 $ - $ 1,234
Additional charge 248 507 755
Payments (304 ) (507 ) (811 )
Balance at September 30, 2007 1,178 - 1,178
Additional charge 305 227 532
Payments (841 ) (227 ) (1,068 )
Balance at December 31, 2007 642 - 642
Additional charge - 547 547
Payments (139 ) (547 ) (686 )
Balance at March 31, 2008 503 - 503
Additional charge - 451 451
Other adjustment (100 ) (100 )
Payments (62 ) (451 ) (513 )
Balance at June 30, 2008 341 - 341
Payments (59 ) - (59 )
Balance at September 30, 2008 $ 282 $ - $ 282
|
On November 1, 2006, OCP reached an agreement with SAE Magnetics (H.K.)
Limited ("SAE"), a wholly-owned subsidiary of TDK Corporation, which enabled OCP
to begin manufacture of certain of its product lines in China in July 2007. As a
result of the decision to transfer the manufacturing of certain of our product
lines from our Woodland Hills, California and OCPA facilities to SAE, we
recorded an expense of $755,000 for the three months ended September 30, 2007.
These transitional charges, which are primarily related to estimated severance
and retention payments, along with expenses incurred to relocate certain fixed
assets and product qualification associated with the manufacturing of certain of
its product lines in China are recorded in accordance with SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," and SFAS
No. 112, "Employers' Accounting for Post Employment Benefits - an amendment of
No. 5 and No. 43". The transition was substantially completed by June 30, 2008.
We anticipate that the remaining balance will be paid in fiscal 2009.
Merger Fees
Merger fees for the three months ended September 30, 2007 was $1.4 million
and primarily reflected the costs incurred in connection with the acquisition of
OCP, specifically, the cost of entering into employee retention programs, legal
expenses, and investment banking fee.
Amortization of Intangible and Other Assets
Amortization of intangible and other assets was approximately $954,000 and
$540,000 for the three months ended September 30, 2008 and 2007, respectively.
The increase in amortization expense was primarily attributable to the
acquisition of the remaining 42% of outstanding shares of common stocks of OCP
that Oplink did not already own on October 31, 2007 which increased the
portfolio of intangible assets.
Interest and Other Income, Net
(In thousands, except percentages)
Three Months Ended
September 30, Percentage
2007 2007 Change Change
Interest and other income, net $ 927 $ 3,059 $ (2,132 ) -69.7 %
|
The decrease in interest and other income for the three months ended
September 30, 2008 compared to the three months ended September 30, 2007 was
primarily due to the decreased balances of cash and cash equivalents, short-term
and long-term investments as a result of stock repurchases of $40 million in the
second and the third quarter of fiscal 2008 and cash consideration of
approximately $81 million used by Oplink to acquire the remaining 42% of OCP's
outstanding shares of common stock in October 2007, being partially offset by
cash contributed by OCP. The declining average rate of return further
contributed to the decrease in interest and other income for the three months
ended September 30, 2008 compared to the three months ended September 30. 2007.
The average rate of return for the three months ended September 30, 2008 was
2.5% compared to the average rate of return of 5.3% for the three months ended
September 30, 2007.
Minority Interest
On June 5, 2007, Oplink consummated its acquisition from The Furukawa
Electric Co., Ltd. ("Furukawa") of Furukawa's 58% interest in OCP. On
October 31, 2007, Oplink completed the acquisition of the remaining 42% of
outstanding shares of common stock of OCP that it did not already own, by means
of a merger between OCP and a wholly-owned subsidiary of Oplink. Minority
interest in loss of consolidated subsidiaries for the three months ended
September 30, 2007 was $2.5 million and primarily represented the 42% minority
ownership interest in OCP between July 1, 2007 and September 30, 2007.
Provision for Income Taxes
Under Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting," we are required to make our best estimate of the annual effective
tax rate for the full fiscal year and use that rate to provide for income taxes
on a current year-to-date basis. We have recorded a tax provision of $456,000
and $234,000 for the three months ended September 30, 2008 and 2007,
respectively. The increase in provision for income taxes was mainly due to a
higher effective tax rate in China resulting from the expiration of certain tax
holidays and increased taxable income in China.
The effective tax rate for the first quarter of fiscal 2009 differs from the
statutory rate. This is primarily due to taxable income being reduced as a
result of carrying forward net operating losses from previous years and tax
holidays in certain jurisdictions. The effective tax rate could increase in the
future due to changes in the taxable income mix between various jurisdictions
and the expiration of certain tax holidays. In addition, California has enacted
legislation suspending the net operation loss ("NOL") deduction and limiting the
use of business credits to 50% of a taxpayer's tax liability for tax years 2008
and 2009, except for taxpayers with net business incomes of less than $500,000
in either year. The new legislation may increase our tax liability for tax years
2008 and 2009.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through
issuances of equity, which totaled approximately $319.4 million in aggregate net
proceeds, partially offset by $49.4 million in common stock repurchases, net of
proceeds from exercise of stock options, employee stock purchase plan and
warrants through September 30, 2008. As of September 30, 2008, we had cash, cash
equivalents, short-term and long-term investments of $146.7 million and working
capital of $166.1 million.
Three Months Ended September 30, 2008
Our operating activities provided cash of $4.3 million in the first quarter
of fiscal 2009 as a result of a net loss of $3.4 million for the period adjusted
by $2.8 million in non-cash charges of depreciation and amortization charges,
$1.6 million in non-cash stock-based compensation expenses and $4.1 million in
provision for excess and obsolete inventory, being partially offset by other
non-cash items of $481,000 and a decrease in cash of $200,000 as a result of a
net change in assets and liabilities.
For the three months ended September 30, 2008, cash used as a result of the
net change in assets and liabilities was primarily the result of changes in
accounts receivable, inventories, prepaid expenses, accrued liabilities and
accounts payable.
Accounts receivable provided $1.5 million of cash primarily driven by
improvement in collection. Days sales outstanding ("DSO") was 70 days for the
first quarter of fiscal 2009 compare to 84 days for the fourth quarter of fiscal
2008. We typically bill customers on an open account basis with net thirty to
ninety day payment terms. We would generally expect the level of accounts
receivable at the end of any quarter to reflect the level of sales in that
quarter and to change from one period to another in a direct relationship to the
change in the level of sales. Our level of accounts receivable would also
increase if shipments are made closer to the end of the quarter and if customers
delayed their payments or if we offered extended payment terms to our customers.
Inventories provided $401,000 of cash during the first quarter of fiscal 2009
primarily due to the increased volume of sales in the first quarter of fiscal
2009 and change of level of inventory purchases as a result of lower anticipated
sales in the second quarter of fiscal 2009. In order to maintain an adequate
supply of product for our customers, we must carry a certain level of inventory.
Our inventory level may vary based primarily upon orders received from our
customers, our forecast of demand for these products and lead-time for
materials. These considerations are balanced against risk of obsolescence or
potentially excess inventory levels. We generally expect the level of inventory
to vary from one period to another as a result of changes in the level of sales.
Accounts payable used cash of $1.6 million in the first quarter of fiscal
2009 primarily as a result of the timing of payments to our vendors and lower
levels of inventory purchases driven by lower anticipated sales in the second
quarter of fiscal 2009.
Our investing activities provided cash of $23.0 million in the first quarter
of fiscal 2009. The net cash provided by investing activities in the first
quarter of fiscal 2009 was primarily due to sales or maturities of investments
of $28.0 million, being partially offset by purchases of investments of
$5.0 million. We anticipate that cash outlays in capital expenditures will be
approximately $5.0 million for the remainder of the fiscal year ending June 30,
2009.
Our financing activities provided cash of $353,000 in the first quarter of
fiscal 2009 due to proceeds from issuance of common stock in connection with the
exercise of stock options.
We believe that our current cash, cash equivalent and short-term and
long-term investment balances will be sufficient to meet our operating and
capital requirements for at least the next 12 months. We may use cash and cash
equivalents from time to time to fund our acquisition of businesses and
technologies. We may be required to raise funds through public or private
. . .
|
|