Unaudited Pro Forma Condensed Consolidated Financial Information

EX-99.1 2 dex991.htm UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION Unaudited Pro Forma Condensed Consolidated Financial Information

Exhibit 99.1

AVANEX CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED DECEMBER 31, 2006, AND FOR THE YEAR ENDED JUNE 30, 2006

Introduction

The following unaudited pro forma condensed consolidated financial statements present financial information for Avanex Corporation (“Avanex”) after giving effect to the sale of ninety percent (90%) of the share capital and voting rights of its wholly owned subsidiary, Avanex France (“Avanex France”) to Global Research Company, a société à responsibilité limitée incorporated under the laws of France (“GRC”), and Mr. Didier Sauvage, an individual (together with GRC, the “Purchasers”), as described in “Basis of Presentation” below. The Purchasers have indicated that they intend to change the name of Avanex France to “3S Photonics” following the Closing. The unaudited pro forma condensed balance sheet as of December 31, 2006 is presented as if the transaction had closed on that date. The unaudited pro forma condensed statements of operations for the six months ended December 31, 2006 and for the year ended June 30, 2006 is presented as if the transaction had closed on July 1, 2005, and excludes the anticipated gain to be realized because the liabilities being disposed of in the transaction are anticipated to exceed the assets being disposed of in the transaction.

The unaudited pro forma condensed consolidated financial information represents, in the opinion of management, all adjustments necessary to present Avanex’s pro forma results of operations and financial position in accordance with Article 11 of Regulation S-X and is based upon available information and certain assumptions considered reasonable under the circumstances. The unaudited pro forma condensed consolidated financial information reflects the disposition of 90% of Avanex France, including semiconductor fabs and associated product lines. Activities and assets in France which are related to the transmission business are not part of the disposition. In addition, the anticipated working capital cash contribution to 3S Photonics is reflected in the pro forma information. The pro forma financial information does not include the effects of the sale of common stock of Avanex for an aggregate purchase price of $20 million, and the issuance of a warrant to purchase additional common stock of Avanex, each on March 1, 2007 (the “Financing”). The pro forma financial information also does not include any revenues and expenses that may arise after the closing of the transaction from certain agreements that will be entered into at the closing of the transaction, including a global distribution agreement and a global purchase agreement, whereby Avanex will purchase products from 3S Photonics and distribute products on behalf of 3S Photonics to third party customers, and two transition service agreements, whereby each party will provide to the other certain administrative and support services.

The pro forma condensed consolidated financial statements should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in our Quarterly Report on Form 10-Q for the period ended December 31, 2006 filed on February 7, 2007 and audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2006, filed on September 28, 2006 and amended on Form 10-K/A on March 30, 2007. The unaudited pro forma condensed consolidated information may not be indicative of what our financial position or results of operations would have been had the disposition occurred as of and for the periods presented, nor is such information indicative of our results of operations or financial position for any future period or date.

Avanex Corporation

Pro Forma Condensed Consolidated Balance Sheet

(In thousands)

(Unaudited)

The following table shows the unaudited pro forma condensed consolidated balance sheets at December 31, 2006 as if the transaction had closed on December 31, 2006:


	Historical (1)			Business to be Disposed (2)			Pro Forma Adjustments (3)					Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	37,360		$	(8,459	)	$	(9,242	)	(a	)		19,659
Restricted cash and investments		5,891			—			—					5,891
Short-term investments		14,638			—			—					14,638
Accounts receivable, net		34,587			—			—					34,587
Inventories, net		21,893			—			—					21,893
Due from related party		17,972			—			—					17,972
Other current assets		13,477			(4,979	)		—					8,498

Total current assets		145,818			(13,438	)		(9,242	)				123,138
Property and equipment, net		6,064			—			—					6,064
Intangibles, net		1,749			—			—					1,749
Goodwill		9,408			—			—					9,408
Other assets		2,228			(309	)		1,000		(b	)		2,919

Total assets	$	165,267		$	(13,747	)	$	(8,242	)			$	143,278

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	47,998		$	(2,603	)	$	—				$	45,395
Accrued compensation		7,581			(3,028	)		—					4,553
Accrued warranty		1,742			—			—					1,742
Due to related party		4,750			—			—					4,750
Other accrued expenses and deferred revenue		9,472			(5,562	)		1,500		(c	)		5,410
Current portion of long-term obligations		976			—			(976	)	(d	)		—
Current portion of accrued restructuring		6,359			(3,196	)		—					3,163

Total current liabilities		78,878			(14,389	)		524					65,013
Long-term liabilities:
Accrued restructuring		11,122			(2,842	)		—					8,280
Convertible notes		4,438			—			—					4,438
Other long-term obligations		11,446			(2,438	)		(7,443	)	(d	)		1,565

Total liabilities		105,884			(19,669	)		(6,919	)				79,296

Stockholders’ equity:
Common stock		208			—			—					208
Additional paid-in capital		747,955			—			—					747,955
Accumulated other comprehensive income		3,991			—			—					3,991
Accumulated deficit		(692,771	)		5,922			(1,323	)				(688,172	)

Total stockholders’ equity		59,383			5,922			(1,323	)				63,982

Total liabilities and stockholders’ equity	$	165,267		$	(13,747	)	$	(8,242	)			$	143,278

See accompanying notes.

Avanex Corporation

Pro Forma Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

The following table shows the unaudited pro forma condensed consolidated results of operations for the six months ended December 31, 2006 as if the transaction had closed on July 1, 2005:


	Historical (1)			Business to be Disposed (2)					Pro forma adjustments (3)		Pro Forma
Net revenue:
Third parties	$	77,679		$	(5,146	)			$	—	$	72,533
Related parties		28,835			—				$	—		28,835

Total net revenue		106,514			(5,146	)				—		101,368

Cost of revenue:
Cost of revenue except for purchases from related parties		90,542			(5,123	)				—		85,419
Purchases from related parties		164			—					—		164

Total cost of revenue		90,706			(5,123	)				—		85,583

Gross profit		15,808			(23	)				—		15,785

Operating expenses:
Research and development		11,457			(2,453	)				—		9,004
Sales and marketing		7,439			(746	)				—		6,693
General and administrative
Third parties		14,810			(932	)	(d	)		—		13,878
Related parties		(84	)		—					—		(84	)
Amortization of intangibles		1,508			—					—		1,508
Restructuring		373			(262	)				—		111
Gain on disposal of property and equipment		(48	)		—					—		(48	)

Total operating expenses		35,455			(4,393	)				—		31,062

Loss from operations		(19,647	)		4,370					—		(15,277	)
Interest and other income		1,960			(1,274	)				—		686
Interest and other expense		(580	)		462					—		(118	)

Net loss	$	(18,267	)	$	3,558				$	—	$	(14,709	)

Basic and diluted net loss per common share (e)	$	(0.09	)								$	(0.07	)

Weighted average number of shares used in computing basic and diluted net loss per common share (e)		206,131										206,131

See accompanying notes.

Avanex Corporation

Pro Forma Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

The following table shows the unaudited pro forma condensed consolidated results of operations for the year ended June 30, 2006 as if the transaction had closed on July 1, 2005:


	Historical (1)			Business to be Disposed (2)					Pro forma adjustments (3)		Pro Forma
Net revenue:
Third parties	$	119,054		$	(33,543	)			$	—	$	85,511
Related parties		43,890			—				$	—		43,890

Total net revenue		162,944			(33,543	)				—		129,401

Cost of revenue:
Cost of revenue except for purchases from related parties		151,758			(39,156	)				—		112,602
Purchases from related parties		2,726			—					—		2,726

Total cost of revenue		154,484			(39,156	)				—		115,328

Gross profit		8,460			5,613					—		14,073

Operating expenses:
Research and development		23,471			(4,472	)				—		18,999
Sales and marketing		13,236			(1,533	)				—		11,703
General and administrative
Third parties		15,701			(744	)	(d	)		—		14,957
Related parties		951			—					—		951
Amortization of intangibles		5,448			—					—		5,448
Restructuring		1,912			(426	)				—		1,486
Gain on disposal of property and equipment		(5,064	)		2,685					—		(2,379	)

Total operating expenses		55,655			(4,490	)				—		51,165

Loss from operations		(47,195	)		10,103					—		(37,092	)
Interest and other income		2,787			(1,147	)				—		1,640
Interest and other expense		(10,284	)		1,283					—		(9,001	)

Net loss	$	(54,692	)	$	10,239				$	—	$	(44,453	)

Basic and diluted net loss per common share (e)	$	(0.34	)								$	(0.27	)

Weighted average number of shares used in computing basic and diluted net loss per common share (e)		163,242										163,242

See accompanying notes.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(Unaudited)

Basis of Presentation

The above unaudited pro forma condensed consolidated financial statements present financial information for Avanex entering into a Share Purchase Agreement (the “Share Purchase Agreement”) with the Purchasers, pursuant to which Avanex will transfer ninety percent (90%) of the share capital and voting rights of its wholly owned subsidiary, Avanex France, a société anonyme incorporated under the laws of France, which owns Avanex’s semiconductor fabs and associated product lines located in Nozay, France, to the Purchasers for the nominal amount of €1.00 (the “Transaction”), which is expected to close in the second calendar quarter (Avanex’s fourth fiscal quarter) of 2007 (the “Closing”). The Purchasers have indicated that they intend to change the name of Avanex France to “3S Photonics” following the Closing. The unaudited pro forma condensed balance sheet as of December 31, 2006 is presented as if the Transaction had closed on that date. The unaudited pro forma condensed statements of operations for the six months ended December 31, 2006 and for the year ended June 30, 2006 is presented as if the Transaction had closed on July 1, 2005, and excludes the anticipated gain to be realized because the liabilities being disposed of in the Transaction are anticipated to exceed the assets being disposed of in the Transaction.

Unaudited Pro Forma Financial Information

(1) The historical amounts were derived from audited consolidated financial statements included in Avanex’s Annual Report on Form 10-K for the year ended June 30, 2006, filed on September 28, 2006, as amended on Form 10-K/A filed on March 30, 2007, and unaudited consolidated financial statements included in Avanex’s Quarterly Report on Form 10-Q for the period ended December 31, 2006, filed on February 7, 2007.

(2) Reflects estimated historical amounts related to the portions of Avanex France to be disposed, including semiconductor fabs and associated products lines and excluding the transmission operations in France, derived from internal financial statements.

(3) Reflects the Transaction expected to close in the second calendar quarter (Avanex’s fourth fiscal quarter) of 2007. The pro forma adjustments reflect the costs and expenses incurred in connection with the Transaction, as if the Transaction had closed as of December 31, 2006. The pro forma adjustments reflect the following items:

(a)

The unaudited pro forma balance sheet reflects an adjustment to cash of $9.2 million as an anticipated cash contribution to 3S Photonics for liabilities associated with restructuring and pension obligations assumed by 3S Photonics in the Transaction. In addition, depending on the cash balance of Avanex France at the Closing of the Transaction, we may be obligated to pay up to an additional $8.2 million in cash upon the Closing to fund the operations of 3S Photonics.

(b)

The unaudited pro forma balance sheet reflects an adjustment to other assets of $1.0 million for the preliminary estimate of the fair value, based on estimated discounted future cash flows of 3S Photonics, for Avanex’s remaining 10% ownership interest in 3S Photonics following the Closing of the Transaction.

(c)

The adjustment to other accrued expenses of $1.5 million reflects the estimated expenses for legal, accounting and other fees associated with the Transaction. These non-recurring expenses will be charged to operations upon the Closing. The unaudited pro forma balance sheet gives effect to such expenses as if they had been incurred as of December 31, 2006, but the effects have not been reflected in the unaudited pro forma combined statements of operations as they are nonrecurring in nature.

(d)

The unaudited pro forma balance sheet reflects the write-off of deferred rent credits associated with exiting certain real estate facilities located in France upon the Closing of the Transaction as adjustments to the current portion of long-term obligations and other long-term obligations of $1.0 million and $7.4 million, respectively. The amortization of the rent credits is reflected as an adjustment to rent expense in the unaudited pro forma statements of operations for the year ended June 30, 2006 and the six-months ended December 31, 2006.

(e)

The basic and diluted net loss per share and weighted average number of shares used in the computation of the net loss per share included in the unaudited pro forma condensed consolidated results of operations for the six months ended December 31, 2006 and the year ended June 30, 2006, respectively, does not reflect the impact of 10,795,056 shares of common stock issued for an aggregate purchase price of $20 million in the Financing.