Optical Communication Products, Inc. (NASDAQ GMS: OCPI), a leading
manufacturer of fiber optic components, today announced its
financial results for the second quarter of fiscal 2007 ended March
31, 2007. Second Quarter Financial Results Revenue for the second
quarter ended March 31, 2007 was $16.4 million, a decrease of 10.6%
compared with revenue of $18.3 million for the second quarter of
fiscal 2006, and a decrease of 3.7% compared with revenue of $17.0
million for the first quarter of fiscal 2007. Backlog at March 31,
2007 was $7.7 million as compared to $7.0 million at December 31,
2006. Gross margin for the second quarter of fiscal 2007 was
negative 3.5% compared with 34.7% for the second quarter of fiscal
2006 and 18.8% for the first quarter of fiscal 2007. The negative
gross margin for the second quarter of fiscal 2007 reflects a lower
average selling price (ASP), lower margin products, and a non-cash
inventory reserve charge of $3.2 million to adjust current
inventories on hand to market value. Operating expenses for the
second quarter of fiscal 2007 totaled $18.0 million and included
(i) $851,000 in transition costs associated with the planned move
of the Company�s manufacturing to China, and (ii) a non-cash
goodwill impairment charge of $8.5 million or $0.07 per share on a
fully diluted basis. Second quarter fiscal 2007 total operating
expenses of $18.0 million compares to total operating expenses of
$5.6 million for the second quarter of fiscal 2006 and total
operating expenses of $9.0 million (including transition charges of
$460,000) for the first quarter of fiscal 2007. The increased
transition charges quarter-over-quarter were due primarily to the
accrual of severance benefits as the Company approaches its planned
workforce reduction during the fourth quarter of fiscal 2007. In
accordance with Statement of Financial Accounting Standards (SFAS)
No. 123(R), �Share-Based Payment,� the Company recorded stock-based
compensation expense of $460,000, $248,000 and $282,000, for the
second quarter of fiscal 2007, the second quarter of fiscal 2006
and the first quarter of fiscal 2007, respectively. As required by
SFAS No. 144, �Accounting for the Impairment or Disposal of
Long-Lived Assets,� the Company evaluates its long-lived assets,
such as property and equipment and intangible assets with definite
lives, for impairment whenever events or changes in circumstances
indicate that the carrying value of the asset might be impaired. In
addition, SFAS No. 142, �Goodwill and Other Intangible Assets,�
requires that the Company review and test goodwill for impairment
if events or changes in circumstances indicate the goodwill may be
impaired. During the three months ended March, 31 2007, due to a
decline in the projected gross profit margins associated with a
decline in sales volume and a reduction in sale prices due to
market conditions and a legacy product line, the Company performed
an impairment analysis, pursuant to SFAS No. 144 and SFAS No. 142.
Based on the analysis, the Company concluded that the entire $8.5
million of recorded goodwill was impaired and that there was no
impairment of property and equipment and intangible assets. The
goodwill impairment charge was expensed as a non-cash charge to
continuing operations during the three months ended March 31, 2007.
Net loss for the second quarter of fiscal 2007 was $17.1 million or
$0.15 per diluted share, compared with net income of $2.1 million
or $0.02 per diluted share for the second quarter of fiscal 2006
and a net loss of $4.2 million or $0.04 per diluted share for the
first quarter of fiscal 2007. For the six months ended March 31,
2007, OCP reported total revenue of $33.4 million, gross margin of
7.9%, and a net loss of $21.3 million or $0.19 per diluted share.
As of March 31, 2007, OCP had cash, cash equivalents and marketable
securities totaling $116.9 million, working capital of $137.7
million, no long-term debt, and stockholders� equity of $171.3
million. �OCP is in the midst of a turnaround that began last year
and will continue into fiscal 2008,� said Chief Executive Officer
Philip F. Otto. �Transitions of this magnitude take time, and we
are confident that the decisions we have made are the right ones to
position OCP for a return to growth. �When we launched our
turnaround plan, we said we expected margin volatility and
significant transition-related charges throughout fiscal 2007,�
Otto continued. �Our second quarter results, however, also
reflected industry-wide price erosion and softening of the
fiber-to-the-home (FTTH) market in Japan. �We also took a number of
actions in the second quarter that resulted in additional charges
and write downs that management deemed necessary to reflect our
current business operations and asset valuation. These actions
further support the fundamental changes that we have been making in
the way OCP operates its business.� Outlook OCP has reduced its
original revenue target range of $80.0 million to $90.0 million for
fiscal 2007 to $65 to $70 million and has reduced its fiscal 2007
gross margin target range to 10% to 12%. OCP�s long-term goal is to
restore sustainable gross margins to levels greater than 30%
through strategic initiatives including internally-sourced laser
integration, the planned reduction in workforce in conjunction with
the move of the Company�s manufacturing to China, and the
transition to a higher margin product mix over time. Total annual
operating expenses for fiscal 2007 are expected to be in the range
of $45 to $47 million, including total estimated transition charges
of $3.2 to $3.5 million and the second quarter goodwill impairment
charge of $8.5 million. Additional cash reserves are expected to be
used during the second half of fiscal 2007 to support working
capital and to invest in gross margin improvement initiatives.
OCP�s outlook for cash, cash equivalents and marketable securities
balance is expected to total $95 million to $100 million at
September 30, 2007, compared with $126.9 million at September 30,
2006. Recent Events On April 23, 2007, OCP�s Board of Directors
received a letter from Oplink Communications, Inc. (�Oplink�)
indicating that it had entered into a stock purchase agreement with
The Furukawa Electric Co., Ltd. ("Furukawa") to purchase Furukawa's
interest in OCP's outstanding capital stock for $1.50 per share,
payable in cash and stock of Oplink. Furukawa beneficially owns
58.1% of OCP's outstanding capital stock as of March 31, 2007.
Oplink's letter also proposed to purchase OCP's remaining
outstanding capital stock not owned by Furukawa by means of a
merger of OCP with a subsidiary of Oplink at a cash purchase price
of $1.50 per share of OCP Class A common stock. Oplink�s
unsolicited offer is under evaluation by the Special Committee of
OCP�s Board of Directors, with assistance by independent financial
and legal advisors, including Bear, Stearns & Co. Inc., Munger,
Tolles & Olson LLP, Kirkland & Ellis LLP and Morris,
Nichols, Arsht & Tunnell LLP. The Special Committee has adopted
a 30-day shareholder rights plan to protect the interests of OCP's
minority shareholders, and Oplink has since filed suit to challenge
the adoption of OCP�s shareholder rights plan. OCP�s total annual
operating expense range and projected cash balance for fiscal 2007
does not include any expenses associated with Oplink�s litigation,
or the evaluation by the Special Committee of Oplink�s proposal to
purchase OCP�s remaining capital stock not owned by Furukawa.
Conference Call and Webcast Chief Financial Officer Frederic T.
Boyer will hold a conference call with the financial community
today at 5:00 pm EST/2:00 pm PST to review the Company�s financial
results and provide an update on business developments. Interested
parties may participate in the conference call by dialing
800-257-7087. International callers may dial 303-205-0066. When
prompted, ask for the "Optical Communication Products Investor
Conference Call." A telephonic replay of the conference call may be
accessed approximately two hours after the call through May 29,
2007, by dialing 800-405-2236. International callers may dial
303-590-3000. The replay access code is 11088940#. The conference
call will be webcast simultaneously. The webcast may be accessed on
OCP's website at www.ocp-inc.com under Investors: Event Calendar
and will be archived for 12 months. About Optical Communication
Products, Inc. (OCP) Founded in 1991, OCP designs, manufactures and
sells a comprehensive line of fiber optic components for
metropolitan, local area and fiber-to-the-home networks. Its global
speed-to-market strategy calls for increased international market
penetration, fast-paced product development and flexible, turnkey
manufacturing capacity. The Company�s product lines include optical
transceivers, transmitters and receivers. For more information,
visit OCP�s web site at www.OCP-inc.com or Investor Digest at
www.globalprovince.com/ocpiindex.htm. Safe Harbor Statement under
the Private Securities Litigation Reform Act of 1995 This release
contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from the
results predicted. Important factors which could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements include those detailed under "Risk
Factors" and elsewhere in filings with the Securities and Exchange
Commission made from time to time by OCP, including its periodic
filings on Forms 10-K, 10-Q and 8-K. Other factors that could cause
our actual results to differ materially from those expressed or
implied in the forward-looking statements include (A) factors
relating to the Company and the fiber optic communications
industry, such as (i) the risk that our customers are unable to
reduce their inventory levels in the near-term and (ii) the risk
that we are unable to diversify and increase our customer base; (B)
factors relating to the acquisition of GigaComm, such as (i) the
possibility that the anticipated benefits from the acquisition
cannot be fully realized, (ii) our ability to successfully
integrate the operations of GigaComm with those of OCP, and the
possibility that costs or difficulties related to the integration
will be greater than expected, (iii) our ability to implement
future business and acquisition strategies, and (iv) our ability to
retain personnel of GigaComm; (C)�factors relating to our
manufacturing contract with SAE Magnetics, such as the possibility
that the expected benefits from that contract will not be fully
realized or will be delayed; (D) factors relating to doing business
in Taiwan and The People's Republic of China, such as, but not
limited to (i) risks relating to political and diplomatic issues
between Taiwan and The People's Republic of China, (ii) difficulty
of managing global operations, including staffing and managing
foreign operations, (iii) differing labor regulations, and (iv)
foreign currency risk; and (E) factors relating to Oplink�s
proposed acquisition of Furukawa�s majority interest in OCP, such
as, but not limited to, the impact of Furukawa�s sale of its
interest in on our supply agreement with Furukawa, (ii) the impact
of Oplink�s acquisition on our ability to retain key personnel, and
(iii) Oplink�s plans for OCP, and how such plans might affect our
business and financial results. OCP undertakes no obligation to
release publicly any revisions to any forward-looking statements to
reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events. Optical Communication
Products, Inc. Statements Of Operations (Unaudited) (In thousands,
except per share data) � Three Months Ended March 31, Six Months
Ended March 31, 2007� 2006� 2007� 2006� � � Revenue $ 16,391� $
18,342� $ 33,415� $ 36,090� � Cost of revenue 16,966� 11,969�
30,790� 23,408� � Gross profit (loss) (575) 6,373� 2,625� 12,682� �
Operating expenses: � Research and development 3,047� 2,497� 5,889�
5,759� Sales and marketing 1,474� 1,313� 2,756� 2,502� General and
administrative 4,107� 1,826� 8,511� 3,939� Transitional cost for
contract manufacturing 851� -� 1,311� -� Impairment of goodwill
8,486� -� 8,486� -� � Total operating expenses 17,965� 5,636�
26,953� 12,200� � Income (loss) from operations (18,540) 737�
(24,328) 482� � Investment income 1,411� 1,451� 2,984� 2,748� Other
income, net 25� 53� 96� 139� � Income (loss) before income taxes
(17,104) 2,241� (21,248) 3,369� Provision for income taxes -� 105�
43� 140� � Net income (loss) $ (17,104) $ 2,136� $ (21,291) $
3,229� � Earnings (loss) per share: Basic $ (0.15) $ 0.02� $ (0.19)
$ 0.03� Diluted $ (0.15) $ 0.02� $ (0.19) $ 0.03� � Shares
outstanding: Basic 113,540� 113,193� 113,490� 113,107� Diluted
113,540� 114,144� 113,490� 113,995� Optical Communication Products,
Inc. Balance Sheets (Unaudited) (In thousands, except share and per
share data) � March 31, September 30, ASSETS 2007� 2006� � CURRENT
ASSETS: Cash and cash equivalents $ 82,017� $ 57,413� Marketable
securities 34,891� 69,523� Accounts receivable less allowance for
doubtful accounts and sales returns of $456 and $550 at March 31,
2007 and September 30, 2006, respectively 9,474� 11,185�
Inventories 24,857� 25,715� Income tax receivable 466� 1,284�
Deferred income taxes 330� 330� Prepaid expenses and other current
assets 1,146� 1,333� � � Total current assets 153,181� 166,783� �
Property, plant and equipment, net 30,413� 29,313� Goodwill -�
8,330� Intangible assets, net 2,980� 2,656� Deferred income taxes
207� 207� Other assets 145� 29� � TOTAL ASSETS $ 186,926� $
207,318� � LIABILITIES AND STOCKHOLDERS� EQUITY � CURRENT
LIABILITIES: Accounts payable $ 4,035� $ 7,239� Accounts payable to
related party 2,767� 2,142� Accrued payroll related expenses 2,197�
1,599� Accrued bonus 1,570� 1,688� Accrued transitional costs for
contract manufacturing 951� -� Other accrued expenses 3,761� 2,595�
Income taxes payable 223� 180� Total current liabilities 15,504�
15,443� � OTHER LONG-TERM LIABILITIES 158� 159� � STOCKHOLDERS'
EQUITY: Class A common stock, $0.001 par value; 200,000,000 shares
authorized, 47,680,587 and 47,424,178 shares outstanding at March
31, 2007 and September 30, 2006, respectively. 48� 47� Class B
common stock $0.001 par value; 66,000,000 shares authorized,
66,000,000 shares issued and outstanding at March 31, 2007 and
September 30, 2006, respectively. 66� 66� Additional paid-in
capital 136,023� 135,123� Accumulated other comprehensive income
(loss) (148) (86) Retained earnings 35,275� 56,566� Total
stockholders� equity 171,264� 191,716� � TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 186,926� $ 207,318�
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