EXHIBIT 99.1
AVANEX CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION OF
AVANEX CORPORATION,
THE OPTRONICS DIVISION OF ALCATEL
AND THE OPTICAL COMPONENTS BUSINESS OF CORNING
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND FOR THE YEAR ENDED
JUNE 30, 2003
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined statements of
operations for the year ended June 30, 2003 and the three months ended September
30, 2003 are based on the historical financial statements of Avanex, Alcatel's
Optronics division and the optical components business of Corning, after giving
effect to the transactions as purchases of Alcatel's Optronics division and the
optical components business of Corning by Avanex using the purchase method of
accounting, as required under the rules of the Securities and Exchange
Commission, and the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma condensed combined financial information. The
unaudited pro forma condensed combined statements of operations are presented as
if the transactions had occurred on July 1, 2002.
The unaudited pro forma condensed combined statement of operations for
the three months ended September 30, 2003 combines the historical three months
ended September 30, 2003 for Avanex, which includes two months of operations of
Alcatel's Optronics division and two months of operations of the optical
components business of Corning, and the historical one-month ended July 31, 2003
for each of Alcatel's Optronics division and the optical components business of
Corning. Since the acquisitions of Alcatel's Optronics division and the optical
components business of Corning occurred prior to September 30, 2003, no
unaudited pro forma condensed balance sheet is presented because the balance
sheet of Avanex as of September 30, 2003 includes the purchase of Alcatel's
Optronics division and the optical components business of Corning.
Under the purchase method of accounting, the total purchase price,
calculated as described in Notes 2 and 3 to this unaudited pro forma condensed
combined financial information, is allocated to the net tangible and intangible
assets of Alcatel's Optronics division and the optical components business of
Corning acquired in connection with the transactions, based on their fair values
as of the completion of the transactions.
These unaudited pro forma condensed combined financial statements have
been prepared based on an allocation of the purchase price of the acquired
companies to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. Avanex engaged an independent
third-party appraisal firm to assist it in determining the fair values of the
assets acquired and the liabilities assumed. Such valuations require management
to make significant estimations and assumptions, especially with respect to
intangible assets. Critical estimates in valuing certain intangible assets
include, but are not limited to: future expected cash flows from customer
contracts, customer lists, supply agreements, and acquired developed
technologies and patents. Management's estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable. The preliminary purchase price allocation may change due to the
receipt of final valuations and completion of an assessment and formulation of
additional restructuring plans. Management continues to assess and formulate
restructuring plans to exit certain additional activities and to terminate or
relocate certain employees. These assessments are still in process and
management expects to adopt further formal restructuring plans in fiscal 2004.
Any further restructuring costs related to former Alcatel and Corning activities
will be accrued by the Company as a liability in conjunction with recording the
purchase of Alcatel and Corning, with no impact on results of operations.
Restructuring costs related to former Avanex activities will be charged to
operations.
This unaudited pro forma condensed combined financial information
should be read in conjunction with the separate historical financial statements
and accompanying notes of Alcatel's Optronics division and the optical
components business of Corning included in a Form 8-K filed with the SEC on
September 26, 2003 and the separate historical consolidated financial statements
and accompanying notes of Avanex included in its annual report on Form 10-K for
the year ended June 30, 2003 and the Form 10-Q for the quarter ended September
30, 2003 filed with the SEC. The unaudited pro forma condensed combined
financial information is not intended to represent or be indicative of the
consolidated results of operations or financial condition of Avanex that would
have been reported had the transactions been completed as of the dates
presented, and should not be taken as representative of the future consolidated
results of operations or financial condition of Avanex.
2
AVANEX CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003
OPTICAL COMPONENTS BUSINESS OF
ALCATEL'S OPTRONICS DIVISION CORNING
-------------------------------- ---------------------------------
AVANEX HISTORICAL ADJUSTMENTS (1) HISTORICAL ADJUSTMENTS (1) PRO FORMA
-------------- ------------- --------------- ------------- --------------- -----------
3 MONTHS ENDED
SEPTEMBER 30, 1 MONTH ENDED 1 MONTH ENDED
2003 JULY 31, 2003 JULY 31, 2003
-------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue $ 18,112 $ 2,292 $ - $ 3,353 $ - $ 23,757
Cost of revenue 27,195 5,303 (497)(a) 5,606 408 (a) 38,015
Stock compensation 16 - - - - 16
-------------- ------------ ---------- ------------- ---------- -----------
Gross profit (loss) (9,099) (3,011) 497 (2,253) (408) (14,274)
-------------- ------------ ---------- ------------- ---------- -----------
Operating expenses:
Research and development 8,520 1,013 - 1,522 - 11,055
Sales and marketing 5,033 157 - 629 - 5,819
General and administrative 5,297 206 - 1,255 - 6,758
Stock compensation (2) 327 - - - - 327
Amortization of intangibles 726 - 212 (c) - 125 (c) 1,063
Restructuring charges (155) 3,540 - - - 3,385
-------------- ------------ ---------- ------------- ---------- -----------
Total operating expenses 19,748 4,916 212 3,406 125 28,407
-------------- ------------ ---------- ------------- ---------- -----------
Loss from operations (28,847) (7,927) 285 (5,659) (533) (42,681)
Interest and other income 1,245 2,055 - - - 3,300
Interest and other expense (310) - - (51) - (361)
-------------- ------------ ---------- ------------- ---------- -----------
Net loss before tax (27,912) (5,872) 285 (5,710) (533) (39,742)
Income tax - - - - - -
-------------- ------------ ---------- ------------- ---------- -----------
Net loss $ (27,912) $ (5,872) $ 285 $ (5,710) $ (533) $ (39,742)
============== ============ ========== ============= ========== ===========
Basic and diluted net loss per
common share $ (0.26) (3) (3) $ (0.31)(3)
============== ===========
Weighted average number of
shares used in computing basic
and diluted net loss per common
share 107,716 (3) (3) 127,749 (3)
============== ===========
- --------------------------
(1) The letters refer to a description of the adjustment in Note 4
(2) Below is the allocation of stock compensation expense:
Research and development $ 119 $ 119
Sales and marketing 134 134
General and administrative 74 74
-------------- -----------
$ 327 $ 327
============== ===========
(3) Refer to Note 5
See accompanying notes to unaudited pro forma condensed combined financial
information.
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AVANEX CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2003
OPTICAL COMPONENTS
ALCATEL'S OPTRONICS DIVISION BUSINESS OF CORNING
---------------------------- ----------------------------
AVANEX HISTORICAL ADJUSTMENTS(1) HISTORICAL ADJUSTMENTS(1) PRO FORMA
------ ---------- -------------- ---------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue $ 21,416 $ 40,310 $ -- $ 35,087 $ -- $ 96,813
Cost of revenue 30,035 109,965 (6,920)(a) 36,453 214 (a) 169,747
Stock compensation (202) -- -- -- -- (202)
--------- --------- --------- --------- --------- ---------
Gross profit (loss) (8,417) (69,655) 6,920 (1,366) (214) (72,732)
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development 16,170 33,626 -- 22,650 -- 72,446
Sales and marketing 6,120 7,415 -- 4,362 -- 17,897
General and administrative 9,033 33,418 -- 15,202 -- 57,653
Stock compensation (2) (107) -- -- -- -- (107)
Amortization of
intangibles 200 104 (104)(c) 1,739 (1,739)(c) 4,265
2,530 (b) 1,535 (b)
Reduction in long-lived
assets 1,548 149,753 -- 147,186 -- 298,487
Restructuring charges 22,438 57,123 -- 7,022 -- 86,583
Merger costs 4,126 8,041 -- -- -- 12,167
--------- --------- --------- --------- --------- ---------
Total operating expenses 59,528 289,480 2,426 198,161 (204) 549,391
--------- --------- --------- --------- --------- ---------
Loss from operations (67,945) (359,135) 4,494 (199,527) (10) (622,123)
Interest and other income 4,167 835 -- -- -- 5,002
Interest and other expense (1,634) (10,652) -- (86) -- (12,372)
--------- --------- --------- --------- --------- ---------
Net loss before tax (65,412) (368,952) 4,494 (199,613) (10) (629,493)
Income tax -- (17,858) (1,974) -- -- (19,832)
--------- --------- --------- --------- --------- ---------
Net loss before cumulative
effect of an accounting
change $ (65,412) $(386,810) $ 2,520 $(199,613) $ (10) $(649,325)
========= ========= ========= ========= ========= =========
Basic and diluted net loss
per common share $ (0.96) (3) (3) $ (5.19)(3)
========= =========
Weighted average number of
shares used in computing
basic and diluted net loss
per common share 68,371 (3) (3) 125,216 (3)
========= =========
- ---------
(1)The letters refer to a description of the adjustment in Note 4.
(2)Below is the allocation of stock compensation expense:
Research and development $ (107) $ (107)
Sales and marketing (199) (199)
General and administrative 199 199
--------- ---------
$ (107) $ (107)
========= =========
(3) Refer to Note 5.
See accompanying notes to unaudited pro forma condensed combined financial
information.
4
AVANEX
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
1. BASIS OF PRO FORMA PRESENTATION
On May 12, 2002, Avanex Alcatel and Corning entered into a Share
Acquisition and Asset Purchase Agreement (the "Agreement") pursuant to which
Avanex acquired:
- - From Alcatel, all of the outstanding capital stock of Alcatel Optronics
France SA ("Alcatel's Optronics division") by exchanging shares of Avanex
common stock equal to the product of (i) 0.28, multiplied by (ii) the
quotient obtained by dividing (a) that number of shares of Avanex common
stock outstanding immediately prior to closing by (b) 0.55 (number of
shares to be issued = 28% x the number of shares of Avanex common stock
outstanding immediately before closing / 55%). Based upon 69,476,460 shares
of Avanex common stock outstanding at July 31, 2003, approximately 35
million shares of Avanex common stock were issued to Alcatel with a value
of approximately $63 million. The average market price of Avanex's common
stock of $1.79 was determined based on the closing price from May 8, 2003
to May 14, 2003, which includes two trading days prior and two trading days
subsequent to the public announcement of the transaction; and,
- - From Corning, certain U.S. and Italian assets including specified
inventory, long-lived assets and intellectual property (collectively "the
optical components business of Corning"). Corning sublet its Erwin Park,
New York facility to Avanex and transferred Corning's Milan, Italy lease
agreement to Avanex. Avanex also assumed certain repair and warranty
obligations. In addition, Avanex employs approximately 400 employees of the
optical components business of Corning previously employed in the U.S. and
Italy. The purchase price was consummated by exchanging shares of Avanex
common stock equal to the product of (i) 0.17, multiplied by (ii) the
quotient obtained by dividing (a) that number of shares of Avanex common
stock outstanding immediately prior to closing by (b) 0.55 (number of
shares to be issued = 17% x the number of shares of Avanex common stock
outstanding immediately before closing / 55%). Based upon 69,476,460 shares
of Avanex common stock outstanding at July 31, 2003, approximately 21
million shares of Avanex common stock were issued to Corning with a value
of approximately $38 million. The average market price of Avanex's common
stock of $1.79 was determined based on the closing price from May 8, 2003
to May 14, 2003, which includes two trading days prior and two trading days
subsequent to the public announcement of the transaction.
The transactions closed on July 31, 2003 and were accounted for under the
purchase method of accounting.
2. ACQUISITION OF ALCATEL'S OPTRONICS DIVISION
The total purchase price is as follows (in thousands):
Value of securities issued $ 63,064
Transaction costs and expenses 6,533
----------
Total purchase price $ 69,597
==========
Under the purchase method of accounting, the total purchase price as shown
in the table above is allocated to Alcatel's Optronics division net tangible and
intangible assets based on their estimated fair values as of the date of the
completion of the transaction. Based on a draft independent third-party
appraisal, the preliminary purchase price allocation, which may change upon
receipt of final valuations and completion of assessment and formulation of
additional restructuring plans, is as follows (in thousands):
ESTIMATED USEFUL
AMOUNT LIFE IN YEARS
------ -------------
Cash, cash equivalents and short term investments $ 108,613
Accounts receivable 8,050
Inventories 14,169
Other current assets 10,320
Due from related party 12,578
Long-term investments 2,085
Property and equipment 13,044
Accounts payable (15,564)
Restructuring (67,220)
5
ESTIMATED USEFUL
AMOUNT LIFE IN YEARS
------ -------------
Other accrued expenses (21,520)
Warranty (1,406)
Other long-term obligations (3,185)
---------
Tangible net assets 59,964
Intangible assets acquired - Core and developed technology 9,633 3-4 years
---------
Total estimated purchase price $ 69,597
=========
The acquired developed technology, which is comprised of products that are
technologically feasible, primarily includes DWDM lasers, photodetectors,
optical amplifiers, high-speed interface modules and passive optical devices.
Core technology and patents represent a combination of Alcatel's Optronics
division processes, patents and trade secrets. Avanex amortizes the developed
technology on a straight-line basis over an estimated life of 3-4 years.
3. ACQUISITION OF THE OPTICAL COMPONENTS BUSINESS OF CORNING
The total purchase price is as follows (in thousands):
Value of securities issued $ 38,289
Transaction costs and expenses 3,967
----------
Total purchase price $ 42,256
==========
Under the purchase method of accounting, the total purchase price as shown
in the table above is allocated to the optical components business of Corning
net tangible and intangible assets based on their estimated fair values as of
the date of the completion of the transaction. Based on a draft independent
third-party appraisal the preliminary purchase price allocation, which may
change upon receipt of final valuations and completion of assessment and
formulation of additional restructuring plans, is as follows (in thousands):
ESTIMATED USEFUL
AMOUNT LIFE IN YEARS
------ -------------
Cash, cash equivalents and short term investments $ 20,023
Due from related party 3,533
Inventories 11,646
Property and equipment 11,696
Restructuring accrual (4,983)
Accrued expenses (2,252)
Warranty (4,533)
Supply agreement (5,457)
-----------
Tangible net assets 29,673
Intangible assets acquired - Core and developed technology 5,990 3-4 years
Goodwill 6,593
-----------
Total estimated purchase price $ 42,256
===========
The acquired developed technology, which is comprised of products that are
technologically feasible, primarily includes amplifiers, dispersion compensation
modules and modulators. Core technology and patents represent a combination of
the optical components business of Corning processes, patents and trade secrets.
Avanex amortizes the developed technology on a straight-line basis over an
estimated life of 3-4 years.
4. PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma condensed combined financial
information reflects the following pro forma adjustments:
(a) To record the difference between the depreciation on the estimate of
fair value of property and equipment and the historical amounts;
(b) To eliminate pre-acquisition amortization of intangible assets; and
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(c) To reflect amortization of the estimate of fair value of the core and
developed technology assets.
5. PRO FORMA SHARES FOR EARNINGS PER SHARE
The following table shows the calculation of shares used in computing the
pro forma earnings per share in the unaudited pro forma condensed combined
statements of operations for the year ended June 30, 2003 (in thousands):
YEAR ENDED
JUNE 30, 2003
-------------
Avanex historical weighted average shares used in computing basic net income (loss) per share 68,371
Shares of Avanex common stock issued to Alcatel in exchange for shares of Alcatel's Optronics division 35,370
Shares of Avanex common stock issued to Corning in exchange for acquisition of the optical components
business of Corning 21,475
-------
Pro forma weighted average shares used in computing basic net income (loss) per share 125,216
=======
The pro forma weighted average shares used in computing basic net income (loss)
per share for the three months ended September 30, 2003 are based on the actual
weighted average number of shares of Avanex common stock outstanding for the
quarter ended September 30, 2003 plus 12,420 shares (representing the difference
between the shares issued by Avanex in the transaction to acquire Alcatel's
Optronics division and the amount already included in the actual weighted
average number of shares of Avanex common stock outstanding for the quarter
ended September 30, 2003) and the 7,613 shares (representing the difference
between the shares issued by Avanex in the transaction to acquire the optical
components business of Corning and the amount already included in the actual
weighted average number of shares of Avanex common stock outstanding for the
quarter ended September 30, 2003).
No weighted average diluted shares were used in the calculation of pro
forma earnings per share as the impact would have been antidilutive.
There is no outstanding share capital in the financial statements of
Alcatel's Optronics division and the optical components business of Corning.
Therefore, basic and diluted net income (loss) per share for these entities is
not separately presented.
6. INCOME TAXES
The pro forma combined provision for income taxes does not represent the
amounts that would have resulted had Avanex, Alcatel's Optronics division and
the optical components business of Corning filed consolidated income tax returns
during the periods presented.
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