Finisar Corporation Files Form 10-K Report With Final Fiscal 2012 Financial Statements

SUNNYVALE, CA--(Marketwire - Jun 29, 2012) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced it has filed its annual report on Form 10-K for its fiscal year ended April 30, 2012 with the Securities and Exchange Commission. The Form 10-K includes the Company's final audited financial statements for the fiscal year ended April 30, 2012.

The final audited financial statements include a gain of $4.9 million related to the remeasurement of the carrying value of a cash liability under a contingent consideration arrangement associated with the Company's acquisition of Ignis ASA in May 2011. This gain was not included in the Company's preliminary unaudited financial results for the fourth quarter and fiscal year ended April 30, 2012, which the Company announced in a press release dated June 11, 2012.

The contingent consideration arrangement requires the release of up to approximately $14.3 million from a previously established escrow account to the former shareholders of one of Ignis' subsidiaries if during calendar years 2011 and 2012 the subsidiary achieves specified levels of revenues, revenue growth, EBITDA and cash flow and successfully launches a new product. The acquisition-date fair value of the contingent consideration arrangement was $13.6 million. The Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model, based on an assumption of 100% probability of achieving these milestones. In the fourth quarter of fiscal 2012, $9.0 million was released from the escrow to such former shareholders based upon achievement of the calendar year 2011 milestones. The Company now believes that the probability of achieving the calendar year 2012 milestones is zero. Accordingly, the Company has remeasured the fair value of the remaining contingent consideration liability as of April 30, 2012 and recorded a gain of $4.9 million as other income in the consolidated statement of operations for the year ended April 30, 2012. The net after tax effect of this gain was to increase the Company's net income from $13.2 million, or $.14 per share, as previously reported, to $18.0 million, or $.20 per share, for the fourth quarter ended April 30, 2012, and from $38.1 million, or $.42 per share, as previously reported, to $43.0 million, or $.47 per share, for the fiscal year ended April 30, 2012. There still remains $5.0 million of cash in the escrow account, which is classified as prepaid expenses in the consolidated balance sheet as of April 30, 2012.

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, the June 11, 2012 press release reported supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside the Company's core operating results. The Company considers the $4.9 million gain on reversal of contingent consideration liability described above to be an infrequent item outside the Company's core operating results. Accordingly, the Company's non-GAAP measures for the fourth quarter and fiscal year were unaffected by this gain. A revised reconciliation of these non-GAAP measures to the comparable GAAP results contained in the Form 10-K is provided under the heading "Finisar Non-GAAP Financial Measures" below.

ABOUT FINISAR
Finisar Corporation (NASDAQ: FNSR) is a global technology leader for fiber optic subsystems and components that enable high-speed voice, video and data communications for telecommunications, networking, storage, wireless, and cable TV applications. For more than 20 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.

FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside our core operating results. Some of these non-GAAP measures also exclude the ongoing impact of historical business decisions made in different business and economic environments. Management believes that tracking non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our current operations, our ability to generate cash and the underlying business trends which are affecting our performance. These non-GAAP measures are used by both management and our Board of Directors, along with the comparable GAAP information, in evaluating our current performance and planning our future business activities. In particular, management finds it useful to exclude non-cash charges in order to better correlate our operating activities with our ability to generate cash from operations and to exclude certain cash charges as a means of more accurately predicting our liquidity requirements. We believe that these non-GAAP measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry.

In calculating non-GAAP gross profit in this release, we have excluded the following items from cost of revenues in applicable periods:

• Changes in excess and obsolete inventory reserve (predominantly non-cash charges or non-cash benefits);
• Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
• Stock-based compensation expense (non-cash charges);
• The cost of covering employee and employer tax liabilities arising from the special investigation into our historical stock option granting practices (non-recurring cash charges);
• Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges);
• Expense related to recent flooding in Thailand (non-recurring charges); and
• Reduction in force costs (non-recurring cash charges).

In calculating non-GAAP operating income in this release, we have excluded the same items to the extent they are classified as operating expenses, and have also excluded the following items in applicable periods:

• Gain or loss on litigation settlements and resolutions and related costs (non-recurring cash charges or benefits);
• Shareholder class action and derivative litigation costs (non-recurring cash expenses associated with the derivative litigation related to our historical stock option granting practices and related to the class action and derivative litigation related to our March 8, 2011 earnings announcement);
• Acquisition related costs (non-recurring cash charges);
• Amortization of purchased intangibles (non-cash charges); and
• Restructuring costs and recoveries (non-recurring cash charges).

In calculating non-GAAP income from continuing operations and non-GAAP income from continuing operations per share in this release, we have also excluded the following items in applicable periods:

• Interest income on legal settlements and resolutions (non-recurring benefits);
• Amortization of discount on convertible debt and imputed interest expense (non-cash charges);
• Imputed interest expense related to restructuring (amortization of imputed interest expense associated with previously incurred restructuring costs);
• Gains and losses on sales of assets (non-recurring or non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
• Dollar denominated foreign exchange transaction losses (gains) (non-cash charges);
• Gain on fair value remeasurement of contingent consideration liability (non-recurring benefits);
• Other miscellaneous expenses (income) (non-recurring charges or benefits);
• Loss related to minority and equity method investments (non-cash charges);
• Debt extinguishment loss (non-recurring charges);
• Fair value re-measurement of equity investment (non-cash gain from re-measurement of value of prior investment in an investee); and
• Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

In calculating non-GAAP income (loss) per share in this release, we have included the shares issuable upon conversion of our outstanding convertible notes and excluded the interest expenses associated with such notes in such periods where such treatment is dilutive to non-GAAP income (loss) per share.

A reconciliation of this non-GAAP financial information to the corresponding GAAP information is set forth below:

Finisar Corporation
Reconciliation of Results of Operations under GAAP and non-GAAP
(in thousands, except per share data)
				Three Months Ended								Twelve Months Ended								Three Months Ended
				April 30, 2012				April 30, 2011				April 30, 2012				April 30, 2011				January 29, 2012
				(Unaudited)
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	65,480			$	74,909			$	273,344			$	312,272			$	71,102
Gross margin - GAAP					27.3	%			31.6	%			28.7	%			32.9	%			29.3	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory reserve				5,027				3,737				10,370				9,306				1,732
	Amortization of acquired technology				1,515				1,071				6,311				4,685				1,637
	Stock compensation				1,139				1,388				6,281				4,797				1,596
	Payroll taxes related to options investigation				-				-				-				(83	)			-
	Acquisition method accounting adjustment for sale of acquired inventory				963				-				4,998				11				952
	Flood-related expense				1,222				-				1,222				-				-
	Reduction in force costs				62				7				906				50				243
		Total cost of revenue adjustments			9,928				6,203				30,088				18,766				6,160
Gross profit - non-GAAP					75,408				81,112				303,432				331,038				77,262
Gross margin - non-GAAP					31.4	%			34.2	%			31.9	%			34.9	%			31.8	%
GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP					12,111				21,265				39,326				111,716				11,308
Operating margin - GAAP					5.0	%			9.0	%			4.1	%			11.8	%			4.7	%
Adjustments:
Total cost of revenue adjustments					9,928				6,203				30,088				18,766				6,160
Research and development
	Reduction in force costs				35				21				801				51				693
	Stock compensation				2,288				2,162				9,123				6,509				2,200
	Payroll taxes related to options investigation				-				-				-				(118	)			-
Sales and marketing
	Reduction in force costs				36				46				36				270				-
	Stock compensation				727				653				3,105				2,168				747
	Payroll taxes related to options investigation				-				-				-				(42	)			-
General and administrative
	Reduction in force costs				41				15				1,055				136				51
	Stock compensation				1,768				1,421				7,467				5,057				1,746
	Payroll taxes related to options investigation				-				-				-				(73	)			-
	Acquisition related costs				-				995				1,602				995				304
	Litigation settlements and resolutions and related costs				(7,422	)			(94	)			(7,515	)			778				(185	)
	Shareholder class action and derivative litigation costs				447				-				1,072				-				(10	)
Amortization of purchased intangibles					897				382				3,494				1,531				959
Restructuring recoveries					-				-				(322	)			-				-
		Total cost of revenue and operating expense adjustments			8,745				11,804				50,006				36,028				12,665
Operating income - non-GAAP					20,856				33,069				89,332				147,744				23,973
Operating margin - non-GAAP					8.7	%			14.0	%			9.4	%			15.6	%			9.9	%
GAAP to non-GAAP reconciliation of income from continuing operations:
Income from continuing operations - GAAP					18,015				16,352				42,993				88,379				8,909
Total cost of revenue and operating expense adjustments					8,745				11,804				50,006				36,028				12,665
Interest income from legal settlement					(434	)			-				(434	)			-				-
Non-cash imputed interest expenses on convertible debt					-				-				-				742				-
Imputed interest related to restructuring					133				73				805				147				206
Other income (expense), net
	Loss (gain) on sale of assets				3				(144	)			(4	)			17				(229	)
	Loss related to minority and equity method investments				-				413				619				413				-
	Gain on fair value remeasurement of contingent consideration liability				(4,853	)			-				(4,853	)			-				-
	Other miscellaneous expenses (income)				(424	)			-				177				(61	)			351
	Foreign exchange transaction loss (gain)				506				574				226				2,393				362
	Debt extinguishment loss				-				2,652				419				9,218				-
	Gain of fair value measurement of minority equity-method investment				(3	)			-				(5,432	)			-				-
Provision for income taxes
	Income tax provision adjustments				(1,454	)			389				(1,345	)			1,472				(386	)
Total adjustments					2,219				15,761				40,184				50,369				12,969
Income from continuing operations - non-GAAP					20,234				32,113				83,177				138,748				21,878
GAAP to non-GAAP reconciliation of loss from discontinued operations:
Loss from discontinued operations - GAAP					-				-				-				(284	)			-
Loss from discontinued operations - non-GAAP					-				-				-				(284	)			-
GAAP to non-GAAP reconciliation of net income:
Net income - GAAP					18,015				16,352				42,993				88,095				8,909
	Total adjustments from continuing operations				2,219				15,761				40,184				50,369				12,969
	Total adjustments from discontinued operations				-				-				-				-				-
Total adjustments					2,219				15,761				40,184				50,369				12,969
Net income, non-GAAP				$	20,234			$	32,113			$	83,177			$	138,464			$	21,878
Non-GAAP income from continuing operations				$	20,234			$	32,113			$	83,177			$	138,748			$	21,878
Add: interest expense for dilutive convertible notes					539				560				2,156				4,595				539
Non-GAAP adjusted income from continuing operations				$	20,773			$	32,673			$	85,333			$	143,343			$	22,417
Non-GAAP income per share from continuing operations - basic				$	0.22			$	0.36			$	0.92			$	1.72			$	0.24
Non-GAAP income per share from continuing operations - diluted				$	0.21			$	0.33			$	0.87			$	1.55			$	0.23
Shares used in computing non-GAAP net income per share from continuing operations - basic					91,349				89,584				90,823				80,582				91,001
Shares used in computing non-GAAP net income per share from continuing operations - diluted					98,528				97,837				97,935				92,715				97,781
Non-GAAP EBITDA - Continuing operations
Non-GAAP income from continuing operations				$	20,234			$	32,113			$	83,177			$	138,748			$	21,878
Depreciation expense					12,583				9,922				45,561				35,694				11,388
Amortization					227				208				851				1,050				208
Interest expense					444				504				2,272				4,946				505
Income tax expense					667				242				3,350				2,976				1,261
Non-GAAP EBITDA - continuing operations				$	34,155			$	42,989			$	135,211			$	183,414			$	35,240
Non-GAAP EBITDA - Discontinued operations
Non-GAAP income from discontinuing operations					-				-				-				(284	)			-
Depreciation expense					-				-				-				-				-
Non-GAAP EBITDA - Discontinued operations				$	-			$	-			$	-			$	(284	)		$	-
Total Non-GAAP EBITDA				$	34,155			$	42,989			$	135,211			$	183,130			$	35,240