Optical Communication Products Announces Third Quarter Fiscal 2007 Results

Business Wire, August 20, 2007

WOODLAND HILLS, Calif. -- Optical Communication Products, Inc. (NASDAQ:OCPI), a leading manufacturer of fiber optic components, today announced its financial results for the third quarter of fiscal 2007 ended June 30, 2007.

Third Quarter Financial Results

Revenue for the third quarter ended June 30, 2007 was $17.2 million, an increase of 15.0% compared with revenue of $14.9 million for the third quarter of fiscal 2006, and an increase of 4.6% compared with revenue of $16.4 million for the second quarter of fiscal 2007. Backlog at June 30, 2007 was $11.0 million as compared to $7.7 million at March 31, 2007.

Gross margin for the third quarter of fiscal 2007 was 6.6% compared with 22.5% for the third quarter of fiscal 2006 and negative 3.5% for the second quarter of fiscal 2007.

Operating expenses for the third quarter of fiscal 2007 totaled $10.9 million and included $1.1 million in transitional costs associated with the planned move of the Company's manufacturing to China. Third quarter fiscal 2007 total operating expenses of $10.9 million compares to total operating expenses of $5.3 million for the third quarter of fiscal 2006 and total operating expenses of $18.0 million for the second quarter of fiscal 2007 which included (i) $851,000 in transitional 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. The increased transitional charges quarter-over-quarter were due primarily to the accrual of severance benefits and costs associated with the initial production of inventory 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. 123R, "Share-Based Payment," the Company recorded stock-based compensation expense of $570,000, $162,000 and $460,000, for the third quarter of fiscal 2007, the third quarter of fiscal 2006 and the second quarter of fiscal 2007, respectively.

Net loss for the third quarter of fiscal 2007 was $8.6 million or $0.08 per diluted share, compared with a net loss of $437,000 or $0.00 per diluted share for the third quarter of fiscal 2006 and a net loss of $17.1 million or $0.15 per diluted share for the second quarter of fiscal 2007.

For the nine months ended June 30, 2007, OCP reported total revenue of $50.6 million, gross margin of 7.4% and a net loss of $29.9 million or $0.26 per diluted share.

As of June 30, 2007, OCP had cash, cash equivalents and marketable securities totaling $103.6 million, working capital of $134.1 million, a current ratio of 10.2, no long-term debt, and stockholders' equity of $163.5 million.

During the quarter ended June 30, 2007, OCP's board of directors approved a resolution to market and sell the Company's land and building located in Woodland Hills, California, and the Company entered into an exclusive sales listing agreement with a real estate advisory firm to market and sell its corporate property. The Company expects to sell the property for cash within the next twelve months and has classified the assets held for sale as a current asset with a carrying value of $19.7 million at June 30, 2007.

Recent and Upcoming Events

On June 5, 2007, Oplink Communications, Inc. ("Oplink") completed its purchase of a 57.9% interest in OCP from The Furukawa Electric Co., Ltd. ("Furukawa"), and on June 19, 2007, Oplink and OCP signed a definitive merger agreement by which Oplink will acquire OCP's remaining shares, at $1.65 per share in cash, subject to approval of two-thirds of the outstanding OCP shares not currently held by Oplink. The purchase price of $1.65 per share represents a 20% premium over the closing price on the last day of trading prior to the announcement of Oplink's agreement with Furukuawa and a 10% premium over the price Oplink paid for Furukawa's shares on June 5, 2007.

As part of the merger agreement, OCP's board was expanded to nine members, with the appointments of Joseph Y. Liu, Leonard J. LeBlanc, Chieh Chang and Jesse W. Jack, current Oplink board members, and Dr. Robert Shih, an Oplink officer. The other members of the Board are Philip F. Otto, OCP's president and CEO, and OCP's independent directors, Hobart Birmingham, Dr. Stewart D. Personick and David Warnes.

This transaction is expected to close by October 2007. Upon completion of the acquisition, OCP will become a wholly owned subsidiary of Oplink, a leading photonic components, intelligent modules, and subsystems solution provider.

Joseph Y. Liu was elected non-executive chairman of the board effective August 1, 2007. Mr. Liu is currently president and chief executive officer of Oplink and has been an OCP board member since his appointment on June 19, 2007. Mr. Liu succeeded Dr. Muoi V. Tran, who resigned in June.

OCP has commenced its planned move of manufacturing of certain product lines to China, and the manufacturing of certain of those products began in July 2007. Additional product manufacturing will be transferred to China in September 2007, with initial customer shipments of those products beginning in the October timeframe.