##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 2, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-31581
 OPLINK COMMUNICATIONS, INC.
  Delaware(State or other jurisdiction of
incorporation or organization)
    
    No. 77-0411346(I.R.S. Employer
Identification No.)
 (Address of principal executive offices) (Zip Code)
  þ o
 þ o
 o þ




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##### Table of Contents



OPLINK COMMUNICATIONS, INC.
   PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed
Consolidated Balance Sheets  September 30, 2005 and June 30, 2005
    
    
    3Condensed
Consolidated Statements of Operations  Three months ended September 30, 2005 and 2004
    
    
    4Condensed
Consolidated Statements of Cash Flows  Three months ended September 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 4.
    
    Controls and Procedures
    
    
    50PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    50Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    52Item 3.
    
    Defaults Upon Senior Securities
    
    
    52Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    52Item 5.
    
    Other Information
    
    
    52Item 6.
    
    Exhibits
    
    
    52SIGNATURES
    
    
    53EXHIBIT 3.4EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1- FINANCIAL STATEMENTS
 OPLINK COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 (Unaudited)
 September 30,
    
    
    June 30,2005
    
    
    2005(1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    32,897
    
    
    $
    29,710Short-term investments
    
    
    101,020
    
    
    
    95,696Accounts receivable, net
    
    
    7,475
    
    
    
    7,127Inventories, net
    
    
    7,644
    
    
    
    6,999Prepaid expenses and other current assets
    
    
    2,422
    
    
    
    2,430Total current assets
    
    
    151,458
    
    
    
    141,962Long-term investments
    
    
    53,685
    
    
    
    60,727Property, plant and equipment, net
    
    
    24,420
    
    
    
    25,297Other assets
    
    
    255
    
    
    
    260Total assets
    
    $
    229,818
    
    
    $
    228,246LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,495
    
    
    $
    3,658Accrued liabilities
    
    
    5,614
    
    
    
    6,044Total current liabilities
    
    
    10,109
    
    
    
    9,702Contingencies (Note 14)Stockholders equity:Common stock, $0.001 par value, 400,000,000 shares authorized;
21,286,032 and 21,251,873 shares issued and outstanding as of
September 30, 2005 and June 30, 2005, respectively
    
    
    21
    
    
    
    21Additional paid-in capital
    
    
    446,385
    
    
    
    445,612Notes receivable from stockholders
    
    
    (28
    )
    
    
    (27
    )Deferred stock compensation
    
    
    
    
    
    
    (37
    )Accumulated other comprehensive income
    
    
    858
    
    
    
    62Accumulated deficit
    
    
    (227,527
    )
    
    
    (227,087
    )Total stockholders equity
    
    
    219,709
    
    
    
    218,544Total liabilities and stockholders equity
    
    $
    229,818
    
    
    $
    228,246
 
 (1)
    
    The condensed consolidated balance sheet at June 30, 2005 has been derived from the audited
financial statements at that date. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months EndedSeptember 30,2005
    
    
    2004Revenues
    
    $
    10,683
    
    
    $
    8,908Cost of revenues:Cost of revenues
    
    
    8,058
    
    
    
    5,953Stock compensation expense
    
    
    55
    
    
    
    27Total cost of revenues
    
    
    8,113
    
    
    
    5,980Gross profit
    
    
    2,570
    
    
    
    2,928Operating expenses:Research and development:Research and development
    
    
    1,488
    
    
    
    1,905Stock compensation expense
    
    
    153
    
    
    
    2Total research and development
    
    
    1,641
    
    
    
    1,907Sales and marketing:Sales and marketing
    
    
    885
    
    
    
    833Stock compensation expense
    
    
    142
    
    
    
    5Total sales and marketing
    
    
    1,027
    
    
    
    838General and administrative:General and administrative
    
    
    1,636
    
    
    
    1,751Stock compensation expense
    
    
    247
    
    
    
    45Total general and administrative
    
    
    1,883
    
    
    
    1,796Amortization of intangible and other assets
    
    
    
    
    
    
    46Total operating expenses
    
    
    4,551
    
    
    
    4,587Loss from operations
    
    
    (1,981
    )
    
    
    (1,659
    )Interest and other income, net
    
    
    1,560
    
    
    
    801Loss on sale of assets
    
    
    (19
    )
    
    
    (16
    )Net loss
    
    $
    (440
    )
    
    $
    (874
    )Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.04
    )Basic and diluted weighted average shares outstanding
    
    
    21,274
    
    
    
    21,073
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK
COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Three Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (440
    )
    
    $
    (874
    )Adjustments to reconcile net loss to
net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    1,937
    
    
    
    1,934Amortization of intangible and other assets
    
    
    
    
    
    
    46Stock compensation expense
    
    
    597
    
    
    
    79Amortization of premium on investments
    
    
    56
    
    
    
    326Loss on sale or disposal of assets
    
    
    19
    
    
    
    16Other
    
    
    (1
    )
    
    
    (27
    )Change in assets and liabilities:Accounts receivable
    
    
    (293
    )
    
    
    (608
    )Inventories
    
    
    (455
    )
    
    
    (614
    )Prepaid expenses and other current assets
    
    
    18
    
    
    
    254Other assets
    
    
    5
    
    
    
    123Accounts payable
    
    
    795
    
    
    
    (244
    )Accrued liabilities
    
    
    (453
    )
    
    
    (120
    )Net cash provided by operating activities
    
    
    1,785
    
    
    
    291Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (9,966
    )
    
    
    (36,288
    )Sales and maturities of available-for-sale investments
    
    
    6,600
    
    
    
    7,500Purchases of held-to-maturity investments
    
    
    (15,000
    )
    
    
    (10,000
    )Maturities of held-to-maturity investments
    
    
    20,000
    
    
    
    5,000Proceeds from sales of property and equipment
    
    
    5
    
    
    
    116Purchases of property and equipment
    
    
    (472
    )
    
    
    (4,966
    )Net cash provided by (used in) investing activities
    
    
    1,167
    
    
    
    (38,638
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    199
    
    
    
    84Repayment of notes receivable from stockholders
    
    
    
    
    
    
    12Repayment of capital lease obligations
    
    
    
    
    
    
    (81
    )Net cash provided by financing activities
    
    
    199
    
    
    
    15Effect of exchange rate changes on cash
    
    
    36
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    3,187
    
    
    
    (38,332
    )Cash and cash equivalents, beginning of period
    
    
    29,710
    
    
    
    56,690Cash and cash equivalents, end of period
    
    $
    32,897
    
    
    $
    18,358
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK COMMUNICATIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Description of Business.
  Basis of Presentation
 Fiscal Year
  6




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Reverse Stock Split
   Net Loss Per Share
 Three Months EndedSeptember 30,2005
    
    
    2004Numerator:Net loss
    
    $
    (440
    )
    
    $
    (874
    )Denominator:Weighted average shares outstanding
    
    
    21,274
    
    
    
    21,073Net loss per share  basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.04
    )Antidilutive stock options not included in net
loss per share calculation
    
    
    3,014
    
    
    
    2,682
 Comprehensive Income (Loss).
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Three Months EndedSeptember 30,2005
    
    
    2004Net loss
    
    $
    (440
    )
    
    $
    (874
    )Unrealized loss on investments
    
    
    (28
    )
    
    
    (43
    )Change in cumulative translation adjustments
    
    
    824
    
    
    
    (27
    )Total comprehensive income (loss)
    
    $
    356
    
    
    $
    (944
    )
 Short-Term and Long-Term Investments.
   September 30, 2005Gross
    
    
    GrossCarrying
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Commercial paper
    
    $
    3,995
    
    
    $
    3,997
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    3,995Obligations of states and political subdivisions
    
    
    47,400
    
    
    
    47,400
    
    
    
    
    
    
    
    
    
    
    
    47,400U.S. corporate securities
    
    
    15,619
    
    
    
    15,652
    
    
    
    
    
    
    
    (33
    )
    
    
    15,619United States government agencies
    
    
    34,006
    
    
    
    34,006
    
    
    
    
    
    
    
    (841
    )
    
    
    33,165Total short-term investments
    
    
    101,020
    
    
    
    101,055
    
    
    
    
    
    
    
    (876
    )
    
    
    100,179Long-term investments:U.S. corporate securities
    
    
    5,685
    
    
    
    5,685
    
    
    
    
    
    
    
    (141
    )
    
    
    5,544United States government agencies
    
    
    48,000
    
    
    
    48,000
    
    
    
    
    
    
    
    (384
    )
    
    
    47,616Total long-term investments
    
    
    53,685
    
    
    
    53,685
    
    
    
    
    
    
    
    (525
    )
    
    
    53,160Total investments
    
    $
    154,705
    
    
    $
    154,740
    
    
    $
    
    
    
    $
    (1,401
    )
    
    $
    153,339
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June 30, 2005Gross
    
    
    GrossCarrying
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Obligations of states and political subdivisions
    
    $
    46,400
    
    
    $
    46,400
    
    
    $
    
    
    
    $
    
    
    
    $
    46,400U.S. corporate securities
    
    
    27,296
    
    
    
    27,317
    
    
    
    
    
    
    
    (29
    )
    
    
    27,288United States government agencies
    
    
    22,000
    
    
    
    22,000
    
    
    
    
    
    
    
    (192
    )
    
    
    21,808Total short-term investments
    
    
    95,696
    
    
    
    95,717
    
    
    
    
    
    
    
    (221
    )
    
    
    95,496Long-term investments:U.S. corporate securities
    
    
    5,719
    
    
    
    5,719
    
    
    
    
    
    
    
    (126
    )
    
    
    5,593United States government agencies
    
    
    55,008
    
    
    
    55,008
    
    
    
    2
    
    
    
    (339
    )
    
    
    54,671Total long-term investments
    
    
    60,727
    
    
    
    60,727
    
    
    
    2
    
    
    
    (465
    )
    
    
    60,264Total investments
    
    $
    156,423
    
    
    $
    156,444
    
    
    $
    2
    
    
    $
    (686
    )
    
    $
    155,760
  September 30, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale investments:Commercial paper
    
    $
    3,997
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    3,995Obligations of states and political subdivisions
    
    
    47,400
    
    
    
    
    
    
    
    
    
    
    
    47,400U.S. corporate securities
    
    
    15,652
    
    
    
    
    
    
    
    (33
    )
    
    
    15,619Total available-for-sale investments
    
    
    67,049
    
    
    
    
    
    
    
    (35
    )
    
    
    67,014Held-to-maturity investments:U.S. corporate securities
    
    
    5,685
    
    
    
    
    
    
    
    (141
    )
    
    
    5,544United States government agencies
    
    
    82,006
    
    
    
    
    
    
    
    (1,225
    )
    
    
    80,781Total held-to-maturity investments
    
    
    87,691
    
    
    
    
    
    
    
    (1,366
    )
    
    
    86,325Total investments
    
    $
    154,740
    
    
    $
    
    
    
    $
    (1,401
    )
    
    $
    153,339
 June 30, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale investments:Obligations of states and political subdivisions
    
    $
    46,400
    
    
    $
    
    
    
    $
    
    
    
    $
    46,400U.S. corporate securities
    
    
    17,296
    
    
    
    
    
    
    
    (21
    )
    
    
    17,275Total available-for-sale investments
    
    
    63,696
    
    
    
    
    
    
    
    (21
    )
    
    
    63,675Held-to-maturity investments:U.S. corporate securities
    
    
    15,740
    
    
    
    
    
    
    
    (134
    )
    
    
    15,606United States government agencies
    
    
    77,008
    
    
    
    2
    
    
    
    (531
    )
    
    
    76,479Total held-to-maturity investments
    
    
    92,748
    
    
    
    2
    
    
    
    (665
    )
    
    
    92,085Total investments
    
    $
    156,444
    
    
    $
    2
    
    
    $
    (686
    )
    
    $
    155,760
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September 30, 2005In Loss Position
    
    
    In Loss Position< 12 months
    
    
    12 months and longer
    
    
    Total In Loss PositionGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesAvailable-for-sale investments:Commercial paper
    
    $
    3,995
    
    
    $
    (2
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,995
    
    
    $
    (2
    )U.S. corporate securities
    
    
    7,769
    
    
    
    (33
    )
    
    
    
    
    
    
    
    
    
    
    7,769
    
    
    
    (33
    )Total
available-for-sale investments
    
    
    11,764
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    11,764
    
    
    
    (35
    )Held-to-maturity investments:U.S. corporate securities
    
    
    
    
    
    
    
    
    
    
    5,544
    
    
    
    (141
    )
    
    
    5,544
    
    
    
    (141
    )United States government agencies
    
    
    57,053
    
    
    
    (947
    )
    
    
    23,729
    
    
    
    (278
    )
    
    
    80,782
    
    
    
    (1,225
    )Total held-to-maturity investments
    
    
    57,053
    
    
    
    (947
    )
    
    
    29,273
    
    
    
    (419
    )
    
    
    86,326
    
    
    
    (1,366
    )Total investments in loss position
    
    $
    68,817
    
    
    $
    (982
    )
    
    $
    29,273
    
    
    $
    (419
    )
    
    $
    98,090
    
    
    $
    (1,401
    )
  September 30, 2005
    
    
    June 30, 2005Amortized
    
    
    Estimated
    
    
    Amortized
    
    
    EstimatedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueAvailable-for-sale investments:Due in one year or less
    
    $
    16,549
    
    
    $
    16,514
    
    
    $
    12,596
    
    
    $
    12,575Due in one year to five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Due in five years to ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Due after ten years
    
    
    50,500
    
    
    
    50,500
    
    
    
    51,100
    
    
    
    51,100Total available-for-sale investments
    
    
    67,049
    
    
    
    67,014
    
    
    
    63,696
    
    
    
    63,675Held-to-maturity investments:Due in one year or less
    
    
    34,006
    
    
    
    33,165
    
    
    
    32,021
    
    
    
    31,821Due in one year to five years
    
    
    53,685
    
    
    
    53,160
    
    
    
    60,727
    
    
    
    60,264Total held-to-maturity investments
    
    
    87,691
    
    
    
    86,325
    
    
    
    92,748
    
    
    
    92,085Total investments
    
    $
    154,740
    
    
    $
    153,339
    
    
    $
    156,444
    
    
    $
    155,760
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Inventories
 September 30,
    
    
    June 30,2005
    
    
    2005Inventories, net:Raw materials
    
    $
    11,697
    
    
    $
    11,895Work-in-process
    
    
    4,862
    
    
    
    4,389Finished goods
    
    
    1,496
    
    
    
    1,156Sub-total
    
    
    18,055
    
    
    
    17,440Less: Reserves for excess and obsolete inventory
    
    
    (10,411
    )
    
    
    (10,441
    )Total
    
    $
    7,644
    
    
    $
    6,999
 Property, Plant and Equipment.
 September 30,
    
    
    June 30,2005
    
    
    2005Property, plant and equipment:Production and engineering equipment
    
    $
    32,220
    
    
    $
    31,153Computer equipment and software
    
    
    6,309
    
    
    
    6,207Building and building improvements
    
    
    14,977
    
    
    
    14,708Land
    
    
    1,949
    
    
    
    1,949Sub-total
    
    
    55,455
    
    
    
    54,017Less: Accumulated depreciation and
amortization
    
    
    (31,035
    )
    
    
    (28,720
    )Total
    
    $
    24,420
    
    
    $
    25,297
 Accrued Liabilities.
 September 30,
    
    
    June 30,2005
    
    
    2005Accrued liabilities:Payroll and related expenses
    
    $
    1,166
    
    
    $
    1,175Accrued sales commission
    
    
    357
    
    
    
    325Accrued warranty
    
    
    607
    
    
    
    560Accrued professional fees
    
    
    845
    
    
    
    1,062Other
    
    
    2,639
    
    
    
    2,922Total
    
    $
    5,614
    
    
    $
    6,044
 Product Warranties.
 11




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Three Months EndedSeptember 30,2005
    
    
    2004Balance at the beginning of the period
    
    $
    560
    
    
    $
    700Accruals for warranties issued during the period
    
    
    100
    
    
    
    173Accruals related to pre-existing warranties
including expirations and changes in estimates
    
    
    
    
    
    
    (80
    )Cost of warranty repair
    
    
    (53
    )
    
    
    (93
    )Balance at the end of the period
    
    $
    607
    
    
    $
    700
 Restructuring Costs and Other Charges
 Consolidation ofWorkforce
    
    
    
    Excess FacilitiesReduction
    
    
    
    and Other Charges
    
    
    
    TotalBalance at June 30, 2003
    
    $
    176
    
    
    
    $
    4,314
    
    
    
    $
    4,490Less: accrued restructuring costs, current
    
    
    
    
    
    
    
    
    
    
    
    
    3,018Accrued restructuring costs, non current
    
    
    
    
    
    
    
    
    
    
    
    $
    1,472Additional restructuring charge in
the fourth quarter of fiscal 2004
    
    
    
    
    
    
    
    452
    
    
    
    
    452Adjustment
    
    
    99
    
    
    
    
    (99
    )
    
    
    
    Cash payments
    
    
    (275
    )
    
    
    
    (2,768
    )
    
    
    
    (3,043
    )Balance at June 30, 2004
    
    
    
    
    
    
    
    1,899
    
    
    
    $
    1,899Less: accrued restructuring costs, current
    
    
    
    
    
    
    
    
    
    
    
    
    1,795Accrued restructuring costs, non current
    
    
    
    
    
    
    
    
    
    
    
    $
    104Cash payments
    
    
    
    
    
    
    
    (1,836
    )
    
    
    
    (1,836
    )Balance at June 30, 2005
    
    
    
    
    
    
    
    63
    
    
    
    
    63Cash payments
    
    
    
    
    
    
    
    (63
    )
    
    
    
    (63
    )Balance at September 30, 2005
    
    $
    
    
    
    
    $
    
    
    
    
    $
    
 Stock Compensation.
 12




---



##### Table of Contents



Prior to the Adoption of SFAS No. 123 (R)
   Three Months EndedSeptember 30,2004Net loss as reported
    
    $
    (874
    )Stock-based employee compensation expense
included in reported net loss
    
    
    79Pro forma stock compensation expense computed
under the fair value method for all awards
    
    
    (1,003
    )Pro forma net loss
    
    $
    (1,798
    )Basic and diluted net loss per share, as reported
    
    $
    (0.04
    )Pro forma basic and diluted net loss per share
    
    $
    (0.09
    )
 Impact of the Adoption of SFAS No. 123 (R)
  Three Months EndedSeptember 30,2005Stock-based compensation expense by type of award:Employee stock options
    
    $
    481Employee stock purchase plan
    
    
    130Amounts capitalized as inventory
    
    
    (14
    )Total stock-based compensation
    
    
    597Tax effect on stock-based compensation
    
    
    Net effect on net loss
    
    $
    597Effect on basic and diluted net loss per share
    
    $
    (0.03
    )
  13




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##### Table of Contents



Valuation Assumptions
  Three Months EndedSeptember 30,2005
    
    2004Risk-free interest rate
    
    
    4.07
    %
    
    
    3.47
    %Expected life of option
    
    4.5 years
    
    4 yearsExpected dividends
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    48
    %
    
    
    63
    %
   14




---



##### Table of Contents



Equity Incentive Program
   WeightedNumber of
    
    
    AverageShares Available
    
    
    Options
    
    
    Exercisefor Grant
    
    
    Outstanding
    
    
    PriceBalance, June 30, 2003
    
    
    5,509,959
    
    
    
    2,922,945
    
    
    $
    15.1193Options granted
    
    
    (678,100
    )
    
    
    678,100
    
    
    
    14.7826Options exercised
    
    
    
    
    
    
    (539,871
    )
    
    
    5.9745Options canceled
    
    
    233,413
    
    
    
    (233,413
    )
    
    
    24.1297Balance, June 30, 2004
    
    
    5,065,272
    
    
    
    2,827,761
    
    
    
    15.8655Options granted
    
    
    (674,929
    )
    
    
    674,929
    
    
    
    11.1804Options exercised
    
    
    
    
    
    
    (39,267
    )
    
    
    6.6619Options canceled
    
    
    399,934
    
    
    
    (399,934
    )
    
    
    18.7215Balance, June 30, 2005
    
    
    4,790,277
    
    
    
    3,063,489
    
    
    
    14.5481Options granted
    
    
    (99,429
    )
    
    
    99,429
    
    
    
    10.9193Options exercised
    
    
    
    
    
    
    (34,159
    )
    
    
    5.8044Options canceled
    
    
    114,287
    
    
    
    (114,287
    )
    
    
    16.1273Balance, September 30, 2005
    
    
    4,805,135
    
    
    
    3,014,472
    
    
    $
    14.4690
 15




---



##### Table of Contents



Options Outstanding
    
    Options Vested and Exercisableat September 30, 2005
    
    at September 30, 2005WeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of Exercise
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExercisePrice
    
    Outstanding
    
    Life (in Years)
    
    Price
    
    Outstanding
    
    Price$0.0875 - $7.0000
    
    
    1,029,866
    
    
    
    6.5
    
    
    $
    4.3092
    
    
    
    832,845
    
    
    $
    4.2224$7.0001 - $14.0000
    
    
    1,015,109
    
    
    
    8.5
    
    
    
    11.3036
    
    
    
    417,501
    
    
    
    11.5668$14.0001 - $21.0000
    
    
    516,197
    
    
    
    6.4
    
    
    
    17.2340
    
    
    
    300,375
    
    
    
    17.3131$21.0001 - $28.0000
    
    
    31,429
    
    
    
    4.7
    
    
    
    28.0000
    
    
    
    31,429
    
    
    
    28.0000$28.0001 - $35.0000
    
    
    76,514
    
    
    
    4.8
    
    
    
    34.6626
    
    
    
    76,514
    
    
    
    34.6626$35.0001 - $42.0000
    
    
    304,857
    
    
    
    4.9
    
    
    
    38.0639
    
    
    
    304,857
    
    
    
    38.0639$42.0001 - $49.0000
    
    
    4,571
    
    
    
    4.9
    
    
    
    45.5000
    
    
    
    4,571
    
    
    
    45.5000$49.0001 - $56.0000
    
    
    286
    
    
    
    5.2
    
    
    
    55.1250
    
    
    
    286
    
    
    
    55.1250$56.0001 - $63.0000
    
    
    11,714
    
    
    
    5.0
    
    
    
    63.0000
    
    
    
    11,714
    
    
    
    63.0000$63.0001 - $139.5625
    
    
    23,929
    
    
    
    5.1
    
    
    
    113.2201
    
    
    
    23,929
    
    
    
    113.22013,014,472
    
    
    
    6.9
    
    
    $
    14.4690
    
    
    
    2,004,021
    
    
    $
    16.4801
 Employee Stock Purchase Plan
   Repurchase of Common Stock
 16




---



##### Table of Contents



Recent Accounting Pronouncements
  17




---



##### Table of Contents



Contingencies In re Oplink
Communications, Inc. Initial Public Offering Securities Litigation
   18




---



##### Table of Contents



Subsequent Events.
 Acquisition of F3 Inc.
  Reverse Stock Split
  19




---



##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-looking statements
   Overview
  20




---



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Use of Estimates and Critical Accounting Policies
  21




---



##### Table of Contents



Stock Compensation
  Results of Operations
 Revenues
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004Revenues
    
    $
    10,683
    
    
    $
    8,908
    
    
    $
    1,775
    
    
    
    19.9
    %
 22




---



##### Table of Contents



Gross Profit
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004Gross profit
    
    $
    2,570
    
    
    $
    2,928
    
    
    $
    (358
    )
    
    
    (12.2
    )%Gross profit margin
    
    
    24.1
    %
    
    
    32.9
    %
    Research and Development
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004Research and development
    
    $
    1,641
    
    
    $
    1,907
    
    
    $
    (266
    )
    
    
    (13.9
    )%
 23




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##### Table of Contents



Sales and Marketing
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004Sales and marketing
    
    $
    1,027
    
    
    $
    838
    
    
    $
    189
    
    
    
    22.6
    %
  General and Administrative
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004General and administrative
    
    $
    1,883
    
    
    $
    1,796
    
    
    $
    87
    
    
    
    4.8
    %
  24




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##### Table of Contents



Stock Compensation Expense
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004Stock compensation
expense
    
    $
    597
    
    
    $
    79
    
    
    $
    518
    
    
    
    655.7
    %
    Interest and Other Income, Net
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    PercentageSeptember 30,
    
    Change
    
    Change2005
    
    2004Interest and other
income, net
    
    $
    1,560
    
    
    $
    801
    
    
    $
    759
    
    
    
    94.8
    %
 25




---



##### Table of Contents



Loss on Sale of Assets
 Provision for Income Taxes
 26




---



##### Table of Contents



Liquidity and Capital Resources
  Three Months Ended September 30, 2005
       27




---



##### Table of Contents



Three Months Ended September 30, 2004
       28




---



##### Table of Contents



Contractual Obligations
  Contractual Obligations Due by PeriodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsContractual ObligationsOperating leases
    
    $
    709
    
    
    $
    235
    
    
    $
    474
    
    
    $
    
    
    
    $
    Purchase obligations
    
    
    3,426
    
    
    
    3,426
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,135
    
    
    $
    3,661
    
    
    $
    474
    
    
    $
    
    
    
    $
    
 Recent Accounting Pronouncements
    29




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##### Table of Contents



RISK FACTORS
  RISKS RELATED TO OUR BUSINESS
 We have incurred significant losses, and our failure to increase our revenues while controlling
costs and operating expenses could prevent us from achieving profitability.
  We depend upon a small number of customers for a substantial portion of our revenues, and any
decrease in revenues from, or loss of, these customers without a corresponding increase in revenues
from other customers would harm our operating results.
  30




---



##### Table of Contents



Because none of our customers are obligated to purchase our products, they may cancel or defer
their purchases at any time and on short notice, which could harm our operating results.
  
    
    may stop purchasing our products or defer their purchases at any time without penalty;
    
    are free to purchase products from our competitors;
    
    are not required to make minimum purchases; and
    
    may cancel orders that they place with us.
  Our quarterly revenues and operating results are difficult to predict and may continue to fluctuate
significantly from quarter to quarter and, therefore, may vary from public market analysts or
investors expectations, which could cause our stock price to drop.
  
    
    economic downturn and uncertainty of the fiber optic industry;
 31




---



##### Table of Contents






    
    fluctuations in demand for, and sales of, our products;
    
    changes in customer, geographic or product mix and the average selling prices of our products;
    
    impact on our sales as a result of our customers continued migration to contract manufacturers;
    
    economic conditions specific to the communications and related industries and the
development and size of the markets for our products;
    
    our inability to cut costs quickly in the event of market or demand downturns, due to the fact
that a high percentage of our expenses, including those related to manufacturing, engineering,
research and development, sales and marketing and general and administrative functions, is fixed in
the short term; 
    
    cancellations or delays of orders or shipment rescheduling by our customers;
    
    the ability of our manufacturing operations in China to timely produce and deliver
products in the quantity and of the quality our customers require;
    
    the availability of raw materials used in our products or increases in the price of
these raw materials;
    
    our ability to successfully improve our manufacturing capabilities and achieve
acceptable production yields in our facilities in China;
    
    the tendency of communications equipment suppliers to sporadically place large orders
with short lead times;
    
    competitive factors, including introductions of new products, new technologies and
product enhancements by competitors, consolidation of competitors in the fiber optic
components and subsystems market and pricing pressures;
    
    our ability to develop, introduce, manufacture and ship new and enhanced optical
networking products in a timely manner and in production quantities without defects or
other quality issues;
    
    with respect to new products, a mismatching of research and development expenses and
sales and marketing expenses that are incurred in one quarter with revenues that are not
recognized, if at all, until a subsequent quarter when the new products are introduced and
commercially accepted; and
    
    costs associated with, and the outcomes of, any intellectual property or other
litigation to which we are, or may become, a party.
  32




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If we fail to effectively manage our manufacturing capability, produce products that meet our
customers quality requirements and achieve acceptable production yields in China, we may not be
able to deliver sufficient quantities of products that meet all of our customers order
requirements in a timely manner, which would harm our operating results.
      
    
    a potential lack of availability of qualified management and manufacturing personnel;
    
    our ability to maintain quality;
    
    our ability to effectively manage headcount, particularly if we undertake to expand our
manufacturing operations;
    
    our ability to procure the necessary raw materials and equipment on a timely basis; and
    
    our ability to quickly and efficiently implement an adequate set of financial controls
to effectively track and control inventory levels and inventory mix and to accurately
predict inventory requirements.
 33




---



##### Table of Contents



Our products may have defects that are not detected until full deployment of a customers
equipment, which could result in a loss of customers, damage to our reputation and substantial
costs.
  
    
    loss of customers;
    
    loss of or delay in revenues;
    
    loss of market share;
    
    damage to our brand and reputation;
    
    inability to attract new customers or achieve market acceptance;
    
    diversion of development resources;
    
    increased service and warranty costs;
    
    legal actions by our customers; and
    
    increased insurance costs.
  34




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##### Table of Contents



We depend on the growth and success of the communications industry, which has experienced a
significant economic downturn as well as rapid consolidation and realignment, including outsourced
manufacturing, and may not continue to demand fiber optic products at historical rates.
      Because we depend on third parties to supply some of our raw materials and equipment, we may not be
able to obtain sufficient quantities of these materials and equipment, or these materials may
become unavailable due to technological changes, which could limit our ability to fill customer
orders and harm our operating results.
 35




---



##### Table of Contents



Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could impair the reliability of our financial statements, cause us to
delay filing our periodic reports with the SEC, harm our reputation and adversely affect our stock
price.
  Changes in existing financial accounting standards or practices may adversely affect our results of
operations.
  36




---



##### Table of Contents



We compete in a highly competitive industry, and if we are unable to compete successfully or
develop new products and product enhancements that achieve market acceptance, our revenues could
decline, which would harm our operating results.
     37




---



##### Table of Contents



Disruption to commercial activities in the United States or in other countries, particularly in
China, may adversely impact our results of operations, our ability to raise capital or our future
growth.
  
    
    disruptions to commercial activities or damage to our facilities as a result of natural
disasters, political unrest, war, terrorism, labor strikes, and work stoppages;
    
    difficulties and costs of staffing and managing foreign operations with personnel who
have expertise in optical network technology;
    
    unexpected changes in regulatory or certification requirements for optical systems or
networks;
    
    disruptions in the transportation of our products and other risks related to the
infrastructure of foreign countries;
    
    economic instability.
    
    any future outbreak of severe acute respiratory syndrome, avian influenza and other
epidemics or illnesses; and
    
    power shortages at our manufacturing facilities in China, which may lead to production
delays.
   38




---



##### Table of Contents



We are exposed to currency rate fluctuations and exchange controls that could adversely impact our
operating results.
    39




---



##### Table of Contents



If tax benefits available to our subsidiaries located in China are reduced or repealed or our China
subsidiaries fail to meet the requirements for utilizing such tax benefits, our financial condition
and operating results could suffer.
  40




---



##### Table of Contents



Our wavelength expansion products have accounted for a majority of our revenues, and our revenues
could be harmed if the price of, or demand for, these products further declines or if these
products fail to achieve broader market acceptance.
  The optical networking component industry is experiencing declining average selling prices, which
could cause our gross margins to decline and harm our operating results.
  If we are unable to protect our proprietary technology, our ability to succeed will be harmed.
  We may be involved in intellectual property disputes in the future, which will divert managements
attention and could cause us to incur significant costs and prevent us from selling or using the
challenged technology.
  41




---



##### Table of Contents




    
    obtain from the owner of the infringed intellectual property right a license to sell
or use the relevant technology, which license may not be available on reasonable terms, or
at all;
    
    stop selling, incorporating or using our products that use the challenged intellectual property;
    
    pay substantial money damages; or
    
    redesign the products that use the technology.
  If we are unable to successfully integrate acquired businesses or technologies, our operating
results may be harmed.
  
    
    additional operating expenses without additional revenues;
    
    potential dilutive issuances of equity securities;
    
    the incurrence of debt and contingent liabilities;
    
    amortization of other intangibles;
    
    research and development write-offs; and
    
    other acquisition-related expenses.
 42




---



##### Table of Contents



We are the target of a securities class action complaint and are at risk of securities class action
litigation, which will likely result in substantial costs and divert management attention and
resources.
  Our lengthy and variable qualification and sales cycle requires us to incur substantial costs to
make a sale, and if the sale does not occur then we will have incurred these expenses without
obtaining increased sales.
  43




---



##### Table of Contents



We depend on key personnel to manage our business effectively in a rapidly changing market, and if
we are unable to retain our key employees and hire additional personnel, our ability to sell our
products could be harmed.
   Because some of our third-party sales representatives and distributors carry products of one or
more of our competitors, they may not recommend our products over competitors products.
  Our failure to comply with governmental regulations could subject us to liability.
  44




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45




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##### Table of Contents



Recently enacted and proposed changes in securities laws and regulations have increased and are
likely to continue to increase our costs.
  RISKS RELATED TO OUR COMMON STOCK
 Insiders continue to have substantial control over us, which may negatively affect your investment.
  Because of the rapid changes taking place in the fiber optics industry, we expect to experience
significant volatility in our stock price, which could cause you to lose all or part of your
investment.
  
    
    economic downturn in the fiber optics industry;
    
    preannouncement of financial results;
    
    quarterly variations in our operating results;
 46




---



##### Table of Contents




    
    changes in financial estimates by securities analysts and our failure to meet estimates;
    
    changes in market values of comparable companies;
    
    announcements by us or our competitors of new products or of significant acquisitions,
strategic partnerships or joint ventures;
    
    any loss by us of a major customer;
    
    the outcome of, and costs associated with, any litigation to which we are or may become a party;
    
    additions or departures of key management or engineering personnel; and
    
    future sales of our common stock.
  Provisions of our charter documents and Delaware law and other arrangements may have anti-takeover
effects that could prevent any change in control, which could negatively affect your investment.
  
    
    issue preferred stock with rights senior to those of the common stock without any
further vote or action by the stockholders;
    
    provide for a classified board of directors;
    
    eliminate the right of the stockholders to call a special meeting of stockholders;
    
    eliminate the right of stockholders to act by written consent; and
    
    impose various procedural and other requirements, which could make it difficult for
stockholders to effect certain corporate actions.
  47




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We have recently effected a 1-for-7 reverse split of our common stock, the short- or long-term
effects of which on our stock price or market capitalization cannot be predicted.
   
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Interest Rate Exposure
   48




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##### Table of Contents



Carrying
    
    
    Average Rate
    
    
    Carrying
    
    
    Average RateValue at
    
    
    of Return at
    
    
    Value at
    
    
    of Return atSeptember 30,
    
    
    September 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2005
    
    
    2005
    
    
    2005(Annualized)
    
    
    
    
    
    
    (Annualized)Investment Securities:Cash equivalents  variable rate
    
    $
    26,832
    
    
    
    3.6
    %
    
    $
    26,464
    
    
    
    3.1
    %Short-term investments  variable rate
    
    
    67,014
    
    
    
    3.7
    %
    
    
    68,676
    
    
    
    3.3
    %Short-term investments  fixed rate
    
    
    34,006
    
    
    
    2.6
    %
    
    
    27,020
    
    
    
    2.1
    %Long-term investments  fixed rate
    
    
    53,685
    
    
    
    3.7
    %
    
    
    60,727
    
    
    
    3.4
    %Total
    
    $
    181,537
    
    
    
    
    
    
    $
    182,887
 Expected Fiscal Year Maturity Date2006
    
    2007
    
    2008
    
    Total
    
    Fair ValueLong-term investments  fixed rate
    
    $
    
    
    
    $
    38,685
    
    
    $
    15,000
    
    
    $
    53,685
    
    
    $
    53,160Average interest rate
    
    
    
    
    
    
    3.5
    %
    
    
    4.3
    %
    
    
    3.7
    %
 Foreign Currency Exchange Rate Exposure
   49




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ITEM 4  CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1- LEGAL PROCEEDINGS
 In re Oplink Communications, Inc. Initial Public Offering
Securities Litigation
  50




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51




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##### Table of Contents



ITEM 2  CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
  
 ITEM 3  DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5  OTHER INFORMATION
  
 ITEM 6   EXHIBITS
 Exhibit No.
    
    
    Description3.1
    (1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2
    (1)
    
    Bylaws of the Registrant.3.3
    (2)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.3.4
    
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.31.1
    
    
    Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    *
    
    Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).32.2
    *
    
    Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement
on Form S-1/A, No. 333-41506, as filed on October 3, 2000.(2)
    
    Previously filed as an Exhibit to the Registrants Report on Form 8-K
filed on March 22, 2002 and incorporated herein by reference.  52




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##### Table of Contents



SIGNATURES
  OPLINK COMMUNICATIONS, INC.(Registrant)DATE: November 14, 2005
    
    By:
    
    /s/ Bruce D. HornBruce D. HornChief Financial Officer(Principal Financial and Accounting Officer)
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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(1)
    
    Bylaws of the Registrant.3.3(2)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.3.4
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.31.1
    
    Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).32.2*
    
    Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement
on Form S-1/A, No. 333-41506, as filed on October 3, 2000.(2)
    
    Previously filed as an Exhibit to the Registrants Report on Form 8-K
filed on March 22, 2002 and incorporated herein by reference.