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TMCNet:  FINISAR CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

[December 06, 2012]

FINISAR CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We use words like "anticipates," "believes," "plans," "expects," "future," "intends" and similar expressions to identify these forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events; however, our business and operations are subject to a variety of risks and uncertainties, and, consequently, actual results may materially differ from those projected by any forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements since they may not occur.


Certain factors that could cause actual results to differ from those projected are discussed in "Part II. Other Information, Item 1A. Risk Factors." We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.

The following discussion should be read together with our condensed consolidated financial statements and related notes thereto included elsewhere in this report.

Business Overview We are a leading provider of optical subsystems and components that are used in data communication and telecommunication applications. Our optical subsystems consist primarily of transmitters, receivers, transceivers, transponders and active optical cables, which provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in building these networks, including the switches, routers and servers used in wireline networks as well as antennas and base stations for wireless networks.

These products rely on the use of semiconductor lasers and photodetectors in conjunction with integrated circuits and novel optoelectronic packaging to provide a cost-effective means for transmitting and receiving digital signals over fiber optic cable at speeds ranging from less than 1 gigabit per second, or Gbps, to more than 100 Gbps, over distances of less than 10 meters to more than 2,000 kilometers using a wide range of network protocols and physical configurations. We supply optical transceivers and transponders that allow point-to-point communications on a fiber using a single specified wavelength or, bundled with multiplexing technologies, can be used to supply multi-Gbps bandwidth over several wavelengths on the same fiber.

We also provide products known as wavelength selective switches, or WSS. In long-haul and metro networks, each fiber may carry 50 to 100 different high-speed optical wavelengths. WSS are switches that are used to dynamically switch network traffic from one optical fiber to multiple other fibers without first converting to an electronic signal. The wavelength selective feature means that WSS enable any wavelength or combination of wavelengths to be switched from the input fiber to the output fibers. WSS products are sometimes combined with other components and sold as linecards that plug into a system chassis referred to as reconfigurable optical add/drop multiplexers, or ROADMs.

Our line of optical components consists primarily of packaged lasers and photodetectors for data communication and telecommunication applications.

Demand for our products is largely driven by the continually growing need for additional bandwidth created by the ongoing proliferation of data and video traffic driven by video downloads, Internet protocol TV, social networking, on-line gaming, file sharing, enterprise IP/Internet traffic, cloud computing, and data center virtualization that must be handled by both wire line and wireless networks. Mobile traffic is increasing as the result of proliferation of smart phones, tablet computers, and other mobile devices.

Our manufacturing operations are vertically integrated and we produce many of the key components used in making our products including lasers, photo-detectors and integrated circuits, or ICs, designed by our internal IC engineering teams.

We also have internal assembly and test capabilities that make use of internally designed equipment for the automated testing of our optical subsystems and components.

We sell our optical products to manufacturers of storage systems, networking equipment and telecommunication equipment such as Alcatel-Lucent, Brocade, Ciena, Cisco Systems, EMC, Emulex, Ericsson, Fujitsu, Hewlett-Packard Company, Huawei, IBM, Juniper, Nokia-Siemens, Qlogic and Tellabs, and to their contract manufacturers. These customers, in turn, sell their systems to businesses and to wireline and wireless telecommunications service providers and CATV operators, collectively referred to as carriers.

23-------------------------------------------------------------------------------- Table of Contents Recent Developments Acquisition of Red-C On July 16, 2012, we acquired all outstanding equity interests in Red-C Optical Networks, Inc., ("Red-C"), a Delaware Corporation, with subsidiary operations in Tel Aviv, Israel, engaged in research, development and marketing of optical amplifiers and sub-systems for the wavelength division multiplexing, or WDM, optical communication sector. The acquisition will enable the Company to broaden its product lines primarily for telecom applications by adding key amplification technologies, including erbium doped fiber amplification, or EDFA, Raman amplification and dynamic hybrid amplification. These technologies are considered critical for reconfigurable optical add-drop multiplexer, or ROADM, line cards and are increasingly important in cost-effectively extending the reach of transceivers and transponders especially for 100 Gbps and 40 Gbps coherent transmission, ultra-long repeaterless links, and low latency networks.

For additional information regarding this acquisition, see "Part I, Item 1, Financial Statements - Note 3. Acquisitions." Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We believe there have been no significant changes in our critical accounting policies from those described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2012.

Results of Operations The following table sets forth certain statement of operations data as a percentage of revenues for the periods indicated: Three Months Ended Six Months Ended October 28, October 30, October 28, October 30, 2012 2011 2012 2011 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 71.6 70.2 72.4 70.2 Amortization of acquired developed technology 0.9 0.7 0.7 0.7 Gross profit 27.5 29.1 26.9 29.1 Operating expenses: Research and development 17.1 15.2 17.2 15.4 Sales and marketing 4.4 4.2 4.6 4.2 General and administrative 5.6 5.7 5.8 5.9 Restructuring recoveries - - - (0.1 ) Amortization of purchased intangibles 0.5 0.4 0.4 0.3 Total operating expenses 27.6 25.5 28.0 25.7 Income (loss) from operations (0.1 ) 3.7 (1.1 ) 3.4 Interest income 0.1 - 0.1 0.1 Interest expense (0.3 ) (0.5 ) (0.3 ) (0.4 ) Loss on debt extinguishment - - - (0.1 ) Other income, net - (0.1 ) - 1.0 Income (loss) before income taxes and non-controlling interest (0.3 ) 3.2 (1.3 ) 3.9 Provision for (benefit from) income taxes (0.5 ) 0.6 (0.1 ) 0.4 Consolidated net income (loss) 0.2 2.6 (1.2 ) 3.5 Adjust for net income attributable to non-controlling interest (0.1 ) (0.1 ) - (0.1 ) Net income (loss) attributable to Finisar Corporation 0.1 % 2.5 % (1.2 )% 3.4 % 24-------------------------------------------------------------------------------- Table of Contents Revenues. Revenues decreased $9.4 million, or 3.9%, to $232.0 million in the quarter ended October 28, 2012 compared to $241.5 million in the quarter ended October 30, 2011. Revenues decreased $17.1 million, or 3.7%, to $452.6 million in the six months ended October 28, 2012 compared to $469.7 million in the six months ended October 30, 2011.

The following table sets forth the changes in revenues by market application (in thousands): Three Months Ended October 28, October 30, 2012 2011 Change % Change Datacom revenue $ 139,842 $ 128,521 $ 11,321 8.8 % Telecom revenue 92,199 112,968 (20,769 ) (18.4 )% Total revenues $ 232,041 $ 241,489 $ (9,448 ) (3.9 )% Six Months Ended October 28, October 30, 2012 2011 Change % Change Datacom revenue $ 279,306 $ 257,593 $ 21,713 8.4 % Telecom revenue 173,261 212,122 (38,861 ) (18.3 )% Total revenues $ 452,567 $ 469,715 $ (17,148 ) (3.7 )% Datacom revenue for the three and six months ended October 28, 2012 increased compared to the three and six months ended October 30, 2011 primarily due to an increase in market demand as enterprises upgraded their technology infrastructure driving demand for the products of our OEM system customers and thus higher demand for our datacom module products. Telecom revenue decreased for the three and six months ended October 28, 2012, primarily due to a decline in market demand for our telecom products due to sluggish spending by telecom service providers worldwide.

Amortization of Acquired Developed Technology. Amortization of acquired developed technology, a component of cost of revenues, increased $363,000, or 22.2%, to $2.0 million in the quarter ended October 28, 2012 compared to $1.6 million in the quarter ended October 30, 2011. The increase was due to the amortization of the acquired developed technology related to the Red-C acquisition. Amortization of acquired developed technology increased $113,000, or 3.6%, to $3.3 million in the six months ended October 28, 2012 compared to $3.2 million for the six months ended October 30, 2011. The increase was due to the amortization of the acquired developed technology related to the Red-C acquisition partially offset by the roll-off of amortization of certain intangible assets related to one of our prior acquisitions.

Gross Profit. Gross profit decreased $6.4 million, or 9.1%, to $63.9 million in the quarter ended October 28, 2012 compared to $70.3 million in the quarter ended October 30, 2011. Gross profit as a percentage of revenues decreased by 1.6%, from 29.1% in the quarter ended October 30, 2011 to 27.4% in the quarter ended October 28, 2012. We recorded charges of $7.8 million for obsolete and excess inventory in the quarter ended October 28, 2012 compared to $5.7 million in the quarter ended October 30, 2011. We sold inventory that was written-off in previous periods resulting in a benefit of $5.5 million in the quarter ended October 28, 2012 and $3.0 million in the quarter ended October 30, 2011. As a result, we recognized a net charge of $2.3 million in the quarter ended October 28, 2012 compared to a net charge of $2.7 million in the quarter ended October 30, 2011. Cost of revenues included stock-based compensation charges of $1.7 million in the quarter ended October 28, 2012 and $1.6 million in the quarter ended October 30, 2011. The decrease in gross margin primarily reflects a decline in average selling prices, partially offset by reduced material costs.

Gross profit decreased $15.1 million, or 11.0%, to $121.7 million in the six months ended October 28, 2012 compared to $136.8 million in the six months ended October 30, 2011. Gross profit as a percentage of revenues decreased by 2.2%, from 29.1% in the six months ended October 30, 2011 to 26.9% in the six months ended October 28, 2012. We recorded charges of $17.3 million for obsolete and excess inventory in the six months ended October 28, 2012 compared to $11.4 million in the six months ended October 30, 2011. We sold inventory that was written-off in previous periods resulting in a benefit of $10.1 million in the six months ended October 28, 2012 and $7.0 million in the six months ended October 30, 2011. As a result, we recognized a net charge of $7.2 million in the six months ended October 28, 2012 compared to a net charge of $4.4 million in the six months ended October 30, 2011. Cost of revenues included stock-based compensation charges of $3.1 million in the six months ended October 28, 2012 and $3.3 million in the six months ended October 30, 2011. The decrease in gross margin primarily reflects a decline in average selling prices, partially offset by reduced material costs, and higher net charges for excess and obsolete inventory.

25-------------------------------------------------------------------------------- Table of Contents Research and Development Expenses. Research and development expenses increased $2.9 million, or 7.9%, to $39.6 million in the quarter ended October 28, 2012 compared to $36.7 million in the quarter ended October 30, 2011. The increase was due primarily to increases in employee related expenses. Included in research and development expenses were stock-based compensation charges of $3.2 million in the quarter ended October 28, 2012 and $2.1 million in the quarter ended October 30, 2011. Research and development expenses as a percent of revenues increased to 17.1% in the quarter ended October 28, 2012 compared to 15.2% in the quarter ended October 30, 2011.

Research and development expenses increased $5.7 million, or 7.9%, to $77.8 million in the six months ended October 28, 2012 compared to $72.1 million in the six months ended October 30, 2011. The increase was due primarily to increases in employee related expenses. Included in research and development expenses were stock-based compensation charges of $5.9 million in the six months ended October 28, 2012 and $4.2 million in the six months ended October 30, 2011. Research and development expenses as a percent of revenues increased to 17.2% in the six months ended October 28, 2012 compared to 15.4% in the six months ended October 30, 2011.

Sales and Marketing Expenses. Sales and marketing expenses increased $94,000, or 0.9%, to $10.2 million in the quarter ended October 28, 2012 compared to $10.1 million in the quarter ended October 30, 2011. The increase was primarily due to increases in stock-based compensation expense. Included in sales and marketing expenses were stock-based compensation charges of $948,000 in the quarter ended October 28, 2012 and $729,000 in the quarter ended October 30, 2011. Sales and marketing expenses as a percent of revenues increased to 4.4% in the quarter ended October 28, 2012 compared to 4.2% in the quarter ended October 30, 2011.

Sales and marketing expenses increased $1.2 million, or 6.0%, to $20.9 million in the six months ended October 28, 2012 compared to $19.7 million in the six months ended October 30, 2011. The increase was primarily due to increases in employee related expenses. Included in sales and marketing expenses were stock-based compensation charges of $2.0 million in the six months ended October 28, 2012 and $1.5 million in the six months ended October 30, 2011.

Sales and marketing expenses as a percent of revenues increased to 4.6% in the six months ended October 28, 2012 compared to 4.2% in the six months ended October 30, 2011.

General and Administrative Expenses. General and administrative expenses decreased $854,000, or 6.2%, to $12.9 million in the quarter ended October 28, 2012 compared to $13.8 million in the quarter ended October 30, 2011. The decrease was due to a $680,000 reduction in transaction-related expenses, as we incurred $420,000 in transaction costs in connection with the acquisition of Red-C in the quarter ended October 28, 2012 compared to $1.1 million incurred in connection with the acquisition of Ignis in the quarter ended October 30, 2011.

This reduction, as well as a reduction in legal costs, was partially offset by higher stock-based compensation expense. Included in general and administrative expenses were stock-based compensation charges of $2.9 million in the quarter ended October 28, 2012 and $1.9 million in the quarter ended October 30, 2011.

General and administrative expenses as a percent of revenues decreased to 5.6% in the quarter ended October 28, 2012 compared to 5.7% in the quarter ended October 30, 2011.

General and administrative expenses decreased $1.5 million, or 5.3%, to $26.3 million in the six months ended October 28, 2012 compared to $27.7 million in the six months ended October 30, 2011. The decrease was due to a $680,000 reduction in transaction-related expenses, as we incurred $420,000 in transaction costs in connection with the acquisition of Red-C in the six months ended October 28, 2012 compared to $1.1 million incurred in connection with the acquisition of Ignis in the six months ended October 30, 2011. This reduction, as well as a reduction in legal costs was partially offset by higher stock-based compensation expense. Included in general and administrative expenses were stock-based compensation charges of $5.6 million in the six months ended October 28, 2012 and $3.8 million in the six months ended October 30, 2011.

General and administrative expenses as a percent of revenues decreased to 5.8% in the six months ended October 28, 2012 compared to 5.9% in the six months ended October 30, 2011.

Restructuring Recoveries. During the first quarter of fiscal 2012, we entered into a sublease agreement with a third party for a portion of our abandoned and unused facility in Allen, Texas. As a result of this sublease agreement, we recorded a recovery of $322,000 to reflect an adjustment to our future net liability related to the abandoned and subleased portion of this facility.

Amortization of Purchased Intangibles. Amortization of purchased intangibles increased $203,000, or 23.6%, to $1.1 million in the quarter ended October 28, 2012 compared to $859,000 in the quarter ended October 30, 2011. The increase was due to the amortization of intangibles related to the acquisition of Red-C.

26-------------------------------------------------------------------------------- Table of Contents Amortization of purchased intangibles increased $233,000, or 14.2%, to $1.9 million in the six months ended October 28, 2012 compared to $1.6 million in the six months ended October 30, 2011. The increase was due to the amortization of intangibles related to the acquisition of Red-C.

Interest Income. Interest income increased $62,000 to $162,000 in the quarter ended October 28, 2012 compared to $100,000 in the quarter ended October 30, 2011. Interest income increased due to higher cash balances in the quarter ended October 28, 2012 compared to the quarter ended October 30, 2011.

Interest income increased $98,000 to $358,000 in the six months ended October 28, 2012 compared to $260,000 in the six months ended October 30, 2011.

Interest income increased due to higher cash balances in the six months ended October 28, 2012 compared to the six months ended October 30, 2011.

Interest Expense. Interest expense decreased $388,000, or 34.1%, to $750,000 in the quarter ended October 28, 2012 compared to $1.1 million in the quarter ended October 30, 2011. The decrease was primarily due to repayments of Ignis loans during fiscal 2012 and the first quarter of fiscal 2013.

Interest expense decreased $652,000, or 31.8%, to $1.4 million in the six months ended October 28, 2012 compared to $2.0 million in the six months ended October 30, 2011. The decrease was primarily due to repayments of Ignis loans during fiscal 2012 and the first quarter of fiscal 2013.

Loss on Debt Extinguishment. During the first quarter of fiscal 2012, we repaid certain bank loans that we assumed as part of the Ignis acquisition. The repayment of these loans resulted in a loss of $419,000 which we recognized in our condensed consolidated statement of operations for the six months ended October 30, 2011.

Other Income (Expense), Net. Other expense, net was $101,000 in the quarter ended October 28, 2012 compared to $140,000 in the quarter ended October 30, 2011. Other expense, net in the quarter ended October 28, 2012 primarily consisted of foreign exchange gains offset by the acceleration of amortization of debt issuance costs related to the revolving credit facility which we terminated. Other expense, net in the quarter ended October 30, 2011 primarily consisted of amortization of debt issuance costs.

Other expense, net was $20,000 in the six months ended October 28, 2012 compared to other income, net of $4.5 million in the six months ended October 30, 2011.

Other expense, net in the six months ended October 28, 2012 primarily consisted of foreign exchange gains partially offset by the acceleration of debt issuance costs related to the revolving credit facility which we terminated. Other income, net in the six months ended October 30, 2011 primarily consisted of a gain of $5.4 million related to the fair-value measurement of our equity interest in Ignis upon obtaining a controlling interest in May 2011, partially offset by $619,000 representing our portion of the net losses of Ignis during the period prior to our acquisition of a controlling interest, during which period we accounted for our investment in Ignis using the equity method of accounting.

Non-controlling Interest. Non-controlling interest for the three and six months ended October 28, 2012 and October 30, 2011 represents minority shareholders' proportionate share of the net income of Fi-ra (Korean subsidiary of Ignis).

Provision (benefit) for Income Taxes. We recorded an income tax benefit of $1.1 million and an income tax provision of $1.4 million, respectively, for the quarters ended October 28, 2012 and October 30, 2011 and an income tax benefit of $420,000 and an income tax provision of $1.9 million, respectively, for the six months ended October 28, 2012 and October 30, 2011. The income tax benefits recognized in the three and six months ended October 28, 2012 were primarily a result of the valuation allowance release in one of the foreign jurisdictions in which we conduct business. The income tax provisions for the three and six months ended October 30, 2011 primarily represent current state and foreign income taxes arising in certain jurisdictions in which we conduct business. Due to the uncertainty regarding the timing and extent of our future profitability, we have recorded a valuation allowance to offset our U.S. deferred tax assets which represent future income tax benefits associated with our operating losses because we do not currently believe it is more likely than not these assets will be realized.

Liquidity and Capital Resources Cash Flows from Operating Activities Net cash provided by operating activities was $71.0 million in the six months ended October 28, 2012, compared to $26.8 million in the six months ended October 30, 2011. Cash provided by operating activities in the six months ended October 28, 2012 consisted of our net loss, as adjusted to exclude depreciation, amortization and other non-cash items totaling $49.6 million, less cash used for working capital requirements primarily related to decrease in accounts payable and deferred revenue 27-------------------------------------------------------------------------------- Table of Contents offset by decreases in accounts receivable and inventory. Accounts receivable decreased by $15.1 million primarily due to strong collections near the end of the second quarter. Inventory decreased by $17.1 million due to usage in the manufacturing process. Cash used in operating activities in the six months ended October 30, 2011 consisted of our net income, as adjusted to exclude depreciation, amortization and other non-cash items totaling to $36.4 million and cash used for working capital, primarily related to increases in accounts receivable, inventory and accounts payable. Accounts receivable decreased by $3.2 million primarily due to strong collections near the end of the second quarter. Inventory increased by $16.6 million and accounts payable increased $6.7 million due to increased purchases to support projected levels of sales.

Cash Flows from Investing Activities Net cash used in investing activities totaled $43.2 million in the six months ended October 28, 2012 compared to $104.6 million in the six months ended October 30, 2011. Net cash used in investing activities in the six months ended October 28, 2012 primarily consisted of $20.6 million related to the acquisition of Red-C and $33.3 million of expenditures for capital equipment. Net cash used in investing activities in the six months ended October 30, 2011 consisted of $71.1 million related to the acquisition of Ignis and $33.5 million of expenditures for capital equipment.

Cash Flows from Financing Activities Net cash provided by financing activities totaled $112,000 in the six months ended October 28, 2012 compared to net cash used in financing activities of $8.9 million in the six months ended October 30, 2011. Cash provided by financing activities for the six months ended October 28, 2012 primarily reflected proceeds from the issuance of shares under employee stock option and stock purchase plans totaling $3.3 million offset by repayments of borrowings related to the Ignis acquisition totaling $3.2 million. Net cash used in financing activities for the six months ended October 30, 2011 reflected repayments of borrowings related to the Ignis acquisition totaling $14.4 million, partially offset by proceeds from the exercise of stock options and purchases under our stock purchase plan totaling $3.7 million and the additional borrowings of $1.8 million by Fi-ra.

Contractual Obligations and Commercial Commitments At October 28, 2012, we had contractual obligations of $194.7 million as shown in the following table (in thousands): Payments Due by Period Less than After Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years Convertible debt $ 40,015 $ - $ 40,015 $ - $ - Interest on debt (a) 4,002 2,001 2,001 - - Operating leases (b) 57,186 14,075 15,984 12,647 14,480 Facility construction 9,116 9,116 - - - Purchase obligations (c) 84,410 84,410 - - -Total contractual obligations $ 194,729 $ 109,602 $ 58,000 $ 12,647 $ 14,480 _________________ (a) Includes interest to October 2014 on our 5% Convertible Senior Notes due October 2029 as we have the right to redeem the notes in whole or in part at any time on or after October 22, 2014.

(b) Includes operating lease obligations that have been accrued as restructuring charges.

(c) Includes open purchase orders with terms that generally allow us the option to cancel or reschedule the order.

Convertible debt consists of a series of convertible senior notes in the aggregate principal amount of $40.0 million due October 15, 2029. The notes are convertible by the holders at any time prior to maturity into shares of our common stock at specified conversion prices. The notes are redeemable by us, in whole or in part at any time on or after October 22, 2014 if the last reported sale price per share of our common stock exceeds 130% of the conversion price for at least 20 trading days within a period of 30 consecutive trading days ending within five trading days of the date on which we provide the notice of redemption. These notes are also subject to redemption by the holders in October 2014, 2016, 2019 and 2024.

Interest on debt consists of the scheduled interest payments on our convertible debt.

Operating lease obligations consist primarily of base rents for facilities we occupy at various locations.

28-------------------------------------------------------------------------------- Table of Contents Facility construction obligations consist primarily of our ongoing commitments to build a manufacturing operations facility in Wuxi, China.

Purchase obligations represent all open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services. Although open purchase orders are considered enforceable and legally binding, their terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services. Our policy with respect to all non-cancelable purchase obligations is to record losses, if any, when they are probable and reasonably estimable.

Our subcontractors purchase materials based on forecasts provided by us. We record a liability for firm, non-cancelable and unconditional purchase commitments for quantities held by subcontractors on our behalf to fulfill the subcontractors' purchase order obligations at their facilities which are in excess of our future demand forecasts. As of October 28, 2012, the liability for these purchase commitments of $1.5 million has been expensed and recorded on the condensed consolidated balance sheet as other accrued liabilities and is not included in the preceding table.

We believe we have made adequate provisions for potential exposure related to inventory purchases for orders that may not be utilized.

Sources of Liquidity and Capital Resource Requirements At October 28, 2012, our principal sources of liquidity consisted of $262.4 million of cash and cash equivalents and an aggregate of $66.6 million available for borrowing under our credit facility with Wells Fargo Foothill, LLC, subject to certain restrictions and limitations. On October 17, 2012, we gave notice for voluntary early termination of the facility with Wells Fargo Foothill, LLC which became effective October 31, 2012. Cash and cash equivalents totaling $33.0 million was held by our foreign subsidiaries as of October 28, 2012.

We believe that our existing balances of cash and cash equivalents, together with the cash expected to be generated from future operations, will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months. We may, however, require additional financing to fund our operations in the future, to finance future acquisitions that we may propose to undertake or to repay or otherwise retire our outstanding 5% Convertible Senior Notes due 2029, in the aggregate principal amount of $40.0 million, which are subject to redemption by the holders at their option in October 2014, 2016, 2019 and 2024. A significant contraction in the capital markets, particularly in the technology sector, may make it difficult for us to raise additional capital if and when it is required, especially if we experience disappointing operating results. If adequate capital is not available to us as required, or is not available on favorable terms, our business, financial condition and results of operations will be adversely affected.

Off-Balance-Sheet Arrangements At October 28, 2012 and April 30, 2012, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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