Optical Communication Products Announces Second Quarter Fiscal 2007 Results

  
    
  
  
    
      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