##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 2, 2010
 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 000-30684
 
 OCLARO, INC.
  Delaware
    
    20-1303994(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 2584 Junction Avenue, San Jose, California 95134
 (408) 383-1400
 
  þ o
  o o
  Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o(Do not check if a smaller reporting company)

Smaller reporting company o
  o þ




---



##### 



OCLARO, INC.
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of October 2, 2010 and July 3, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three months ended October 2, 2010 and September 26, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended October 2, 2010 and September 26, 2009
    
    
    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
    
    
    26Item 4.Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    27Item 1A.Risk Factors
    
    
    28Item 6.Exhibits
    
    
    44Signature
    
    
    44EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 OCLARO, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 October 2, 2010
    
    
    July 3, 2010(Thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    91,117
    
    
    $
    107,176Restricted cash
    
    
    2,835
    
    
    
    4,458Accounts receivable, net
    
    
    101,909
    
    
    
    93,412Inventories
    
    
    72,557
    
    
    
    62,570Prepaid expenses and other current assets
    
    
    16,251
    
    
    
    14,905Total current assets
    
    
    284,669
    
    
    
    282,521Property and equipment, net
    
    
    45,453
    
    
    
    37,516Other intangible assets, net
    
    
    21,873
    
    
    
    10,610Goodwill
    
    
    30,904
    
    
    
    20,000Other non-current assets
    
    
    10,107
    
    
    
    10,148Total assets
    
    $
    393,006
    
    
    $
    360,795LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    60,007
    
    
    $
    50,103Accrued expenses and other liabilities
    
    
    39,855
    
    
    
    35,404Total current liabilities
    
    
    99,862
    
    
    
    85,507Deferred gain on sale-leaseback
    
    
    13,406
    
    
    
    12,969Other non-current liabilities
    
    
    18,992
    
    
    
    9,785Total liabilities
    
    
    132,260
    
    
    
    108,261Commitments and contingencies (Note 9)Stockholders equity:Preferred stock: 1,000 shares authorized; none issued
and outstanding
    
    
    
    
    
    
    Common stock: $0.01 par value per share; 90,000 shares authorized;
49,812 and 49,396 shares issued and outstanding at October 2,
2010 and July 3, 2010, respectively
    
    
    498
    
    
    
    494Additional paid-in capital
    
    
    1,306,695
    
    
    
    1,304,779Accumulated other comprehensive income
    
    
    32,843
    
    
    
    26,907Accumulated deficit
    
    
    (1,079,290
    )
    
    
    (1,079,646
    )Total stockholders equity
    
    
    260,746
    
    
    
    252,534Total liabilities and stockholders equity
    
    $
    393,006
    
    
    $
    360,795
 The
accompanying notes form an integral part of these condensed consolidated financial statements.
 3




---



##### Table of Contents



OCLARO, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands, except per share amounts)Revenues
    
    $
    121,347
    
    
    $
    85,110Cost of revenues
    
    
    86,521
    
    
    
    63,119Gross profit
    
    
    34,826
    
    
    
    21,991Operating expenses:Research and development
    
    
    13,711
    
    
    
    9,014Selling, general and administrative
    
    
    14,813
    
    
    
    12,963Amortization of intangible assets
    
    
    619
    
    
    
    125Restructuring, merger and related costs
    
    
    670
    
    
    
    1,499Gain on sale of property and equipment
    
    
    (21
    )
    
    
    (532
    )Total operating expenses
    
    
    29,792
    
    
    
    23,069Operating income (loss)
    
    
    5,034
    
    
    
    (1,078
    )Other income (expense):Interest income
    
    
    7
    
    
    
    23Interest expense
    
    
    (573
    )
    
    
    (88
    )Loss on foreign currency translation
    
    
    (3,587
    )
    
    
    (1,276
    )Other income
    
    
    
    
    
    
    5,267Total other income (expense)
    
    
    (4,153
    )
    
    
    3,926Income from continuing operations before income taxes
    
    
    881
    
    
    
    2,848Income tax provision
    
    
    525
    
    
    
    223Income from continuing operations
    
    
    356
    
    
    
    2,625Income from discontinued operations, net of tax
    
    
    
    
    
    
    1,420Net income
    
    $
    356
    
    
    $
    4,045Basic net income per share:Income per share from continuing operations
    
    $
    0.01
    
    
    $
    0.07Income per share from discontinued operations
    
    
    
    
    
    
    0.04Basic net income per share
    
    $
    0.01
    
    
    $
    0.11Diluted net income per share:Income per share from continuing operations
    
    $
    0.01
    
    
    $
    0.07Income per share from discontinued operations
    
    
    
    
    
    
    0.04Diluted net income per share
    
    $
    0.01
    
    
    $
    0.11Shares used in computing net income per share:Basic
    
    
    48,115
    
    
    
    37,240Diluted
    
    
    50,984
    
    
    
    38,100
 The accompanying notes form an integral part of these condensed consolidated financial statements.
 4




---



##### Table of Contents



OCLARO, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedOctober 2, 2010
    
    
    September 26, 2009(Thousands)Cash flows from operating activities:Net income
    
    $
    356
    
    
    $
    4,045Adjustments to reconcile net income to net cash used in operating activities:Amortization of deferred gain on sale-leaseback
    
    
    (231
    )
    
    
    (238
    )Depreciation and amortization
    
    
    3,833
    
    
    
    2,789Gain on bargain purchase
    
    
    
    
    
    
    (5,267
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    (1,420
    )Stock-based compensation expense
    
    
    1,358
    
    
    
    920Other non-cash adjustments
    
    
    (21
    )
    
    
    (513
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (583
    )
    
    
    (9,550
    )Inventories
    
    
    (4,902
    )
    
    
    2,587Prepaid expenses and other current assets
    
    
    (258
    )
    
    
    (553
    )Other non-current assets
    
    
    86
    
    
    
    809Accounts payable
    
    
    6,252
    
    
    
    1,372Accrued expenses and other liabilities
    
    
    (6,896
    )
    
    
    (4,122
    )Net cash used in operating activities
    
    
    (1,006
    )
    
    
    (9,141
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (6,882
    )
    
    
    (744
    )Proceeds from sales of property and equipment
    
    
    21
    
    
    
    620Sales and maturities of available-for-sale investments
    
    
    
    
    
    
    8,150Transfer (to) from restricted cash
    
    
    1,696
    
    
    
    (30
    )Cash (paid for) received from business combinations
    
    
    (10,482
    )
    
    
    3,000Net cash provided by (used in) investing activities
    
    
    (15,647
    )
    
    
    10,996Cash flows from financing activities:Proceeds from issuance of common stock, net
    
    
    516
    
    
    
    Repayment of other loans
    
    
    
    
    
    
    (16
    )Net cash provided by (used in) financing activities
    
    
    516
    
    
    
    (16
    )Effect of exchange rate on cash and cash equivalents
    
    
    78
    
    
    
    784Net increase (decrease) in cash and cash equivalents
    
    
    (16,059
    )
    
    
    2,623Cash and cash equivalents at beginning of period
    
    
    107,176
    
    
    
    44,561Cash and cash equivalents at end of period
    
    $
    91,117
    
    
    $
    47,184
 The accompanying notes form an integral part of these condensed consolidated financial statements.
 5




---



##### Table of Contents



OCLARO, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1. Basis of Preparation
 Basis of Presentation
    Reclassifications
   Recent Accounting Pronouncements
  Comprehensive Income
  6




---



##### Table of Contents



Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands)Net income
    
    $
    356
    
    
    $
    4,045Other comprehensive income (loss):Unrealized gain (loss) on currency instruments
designated as cash flow hedges
    
    
    323
    
    
    
    (23
    )Currency translation adjustments
    
    
    5,613
    
    
    
    1,547Unrealized loss on short-term investments
    
    
    
    
    
    
    (7
    )Comprehensive income
    
    $
    6,292
    
    
    $
    5,562
 Note 2. Fair Value
  Level 1 
 Level 2 
 Level 3 
  e Business Combinations
  7




---



##### Table of Contents



Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Fair Value Measurement at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(Thousands)Assets:Cash and cash equivalents (1):Money market funds
    
    $
    58,194
    
    
    $
    
    
    
    $
    
    
    
    $
    58,194Prepaid expenses and other current assets:Unrealized gain on currency instruments
designated as cash flow hedges
    
    
    
    
    
    
    372
    
    
    
    
    
    
    
    372Total assets measured at fair value
    
    $
    58,194
    
    
    $
    372
    
    
    $
    
    
    
    $
    58,566Liabilities:Accrued expenses and other liabilities:Escrow liability for Xtellus acquisition (2)
    
    $
    
    
    
    $
    6,662
    
    
    $
    
    
    
    $
    6,662Other non-current liabilities:Earnout liabilities for Mintera acquisition (2)
    
    
    
    
    
    
    
    
    
    
    15,328
    
    
    
    15,328Total liabilities measured at fair value
    
    $
    
    
    
    $
    6,662
    
    
    $
    15,328
    
    
    $
    21,990
 
 (1)
    
    Excludes $32.9 million in cash held in our bank accounts at October 2, 2010.(2)
    
    Includes interest expense accrued during the three months ended October 2, 2010.  Fair Value Measured andRecorded UsingSignificant UnobservableInputs (Level 3)OtherNon-CurrentLiabilities(Thousands)Balance at July 3, 2010
    
    $
    Earnout liabilities from Mintera acquisition
    
    
    15,148Interest expense on Mintera earnout liabilities
    
    
    180Balance at October 2, 2010
    
    $
    15,328
 Derivative Financial Instruments
  8




---



##### Table of Contents



Note 3. Business Combinations
   Sale of the New Focus Business and Acquisition of Newports High Power Laser Diodes Business
  Acquisition of Xtellus
   Business Combinations
 Acquisition of Mintera
  9




---



##### Table of Contents



Total Consideration(Thousands)Consideration to security holders and creditors of Mintera
    
    $
    12,000Less: Unpaid liabilities of Mintera security holders assumed by Oclaro
    
    
    (1,518
    )Net cash paid to security holders and creditors of Mintera
    
    
    10,482Estimated fair value for the 12-month earnout liability
    
    
    4,338Estimated fair value for the 18-month earnout liability
    
    
    10,810Total estimated fair value for the earnouts
    
    
    15,148Total consideration
    
    $
    25,630
  PreliminaryPurchase Price(Thousands)Restricted cash
    
    $
    41Accounts receivable, net
    
    
    3,053Inventories
    
    
    2,592Prepaid expenses and other current assets
    
    
    130Property and equipment, net
    
    
    3,202Other intangible assets
    
    
    11,740Accounts payable
    
    
    (1,947
    )Accrued expenses and other current liabilities
    
    
    (4,085
    )Fair value of assets acquired and liabilities assumed
    
    
    14,726Goodwill
    
    
    10,904Total purchase price
    
    $
    25,630
  Unaudited Pro Forma Financial Information
  10




---



##### Table of Contents



Three Months EndedOctober 2, 2010
    
    
    September 26, 2009(Thousands)Revenues
    
    $
    121,815
    
    
    $
    91,972Income (loss) from continuing operations
    
    $
    (2,002
    )
    
    $
    1,178Net income (loss)
    
    $
    (2,002
    )
    
    $
    2,598Net income (loss) per share  basic
    
    $
    (0.04
    )
    
    $
    0.07Net income (loss) per share  diluted
    
    $
    (0.04
    )
    
    $
    0.07Shares used in computing net income (loss) per share  basic
    
    
    48,115
    
    
    
    37,240Shares used in computing net income (loss) per share  diluted
    
    
    48,115
    
    
    
    38,100
  Note 4. Balance Sheet Details
  October 2, 2010
    
    
    July 3, 2010(Thousands)Cash and cash equivalents:Cash-in-bank
    
    $
    32,923
    
    
    $
    23,962Money market funds
    
    
    58,194
    
    
    
    83,214$
    91,117
    
    
    $
    107,176
  October 2, 2010
    
    
    July 3, 2010(Thousands)Inventories:Raw materials
    
    $
    29,138
    
    
    $
    17,732Work-in-process
    
    
    28,784
    
    
    
    32,491Finished goods
    
    
    14,635
    
    
    
    12,347$
    72,557
    
    
    $
    62,570
  October 2, 2010
    
    
    July 3, 2010(Thousands)Property and equipment, net:Buildings
    
    $
    16,615
    
    
    $
    16,104Plant and machinery
    
    
    106,991
    
    
    
    97,186Fixtures, fittings and equipment
    
    
    1,334
    
    
    
    1,142Computer equipment
    
    
    12,889
    
    
    
    12,232137,829
    
    
    
    126,664Less: Accumulated depreciation
    
    
    (92,376
    )
    
    
    (89,148
    )$
    45,453
    
    
    $
    37,516
 11




---



##### Table of Contents



October 2, 2010
    
    
    July 3, 2010(Thousands)Accrued expenses and other liabilities:Trade payables
    
    $
    5,482
    
    
    $
    4,464Compensation and benefits related accruals
    
    
    7,442
    
    
    
    8,688Warranty accrual
    
    
    2,736
    
    
    
    2,437Restructuring accrual
    
    
    2,187
    
    
    
    4,338Escrow liability for Xtellus acquisition (1)
    
    
    6,662
    
    
    
    Other accruals
    
    
    15,346
    
    
    
    15,477$
    39,855
    
    
    $
    35,404
 
 (1)
    
    Includes interest expense accrued during the three months ended October 2, 2010. During the
first quarter of fiscal year 2011, we reclassified this escrow liability from non-current
liabilities to current liabilities.  October 2, 2010
    
    
    July 3, 2010(Thousands)Other non-current liabilitiesEscrow liability for Xtellus acquisition (1)
    
    $
    
    
    
    $
    6,324Earnout liabilities for Mintera acquisition (2)
    
    
    15,328
    
    
    
    Other non-current liabilities
    
    
    3,664
    
    
    
    3,461$
    18,992
    
    
    $
    9,785
 
 (1)
    
    During the first quarter of fiscal year 2011, we reclassified this escrow liability from
non-current liabilities to current liabilities.(2)
    
    Includes interest expense accrued during the three months ended October 2, 2010.  October 2, 2010
    
    
    July 3, 2010(Thousands)Accumulated other comprehensive income:Unrealized gain on currency instruments designated as
cash flow hedges
    
    $
    372
    
    
    $
    49Currency translation adjustments
    
    
    33,624
    
    
    
    28,011Swiss defined benefit plan
    
    
    (1,153
    )
    
    
    (1,153
    )$
    32,843
    
    
    $
    26,907
 Note 5. Goodwill and Other Intangible Assets
   12




---



##### Table of Contents



Other Intangible AssetsAccumulated
    
    
    Net BookGoodwill
    
    
    Cost
    
    
    Amortization
    
    
    Value(Thousands)Balance at July 3, 2010
    
    $
    20,000
    
    
    $
    12,815
    
    
    $
    (2,205
    )
    
    $
    10,610Acquired
    
    
    10,904
    
    
    
    11,740
    
    
    
    
    
    
    
    11,740Amortization
    
    
    
    
    
    
    
    
    
    
    (619
    )
    
    
    (619
    )Exchange rate adjustment
    
    
    
    
    
    
    142
    
    
    
    
    
    
    
    142Balance at October 2, 2010
    
    $
    30,904
    
    
    $
    24,697
    
    
    $
    (2,824
    )
    
    $
    21,873The following table reflects the components of other intangible assets, net at the dates indicated:October 2,
    
    
    July 3,2010
    
    
    2010(Thousands)Other intangible assets, netSupply agreements
    








    $
    3,198
    
    
    $
    3,056Customer relationships
    








    
    3,200
    
    
    
    1,760Core and current technology
    








    
    10,939
    
    
    
    4,909Patent portfolio
    








    
    2,910
    
    
    
    2,780Development agreement
    








    
    3,350
    
    
    
    Manufacturing software
    








    
    680
    
    
    
    Backlog
    








    
    140
    
    
    
    110Tradename
    








    
    280
    
    
    
    20024,697
    
    
    
    12,815Less: Accumulated amortization
    








    
    (2,824
    )
    
    
    (2,205
    )$
    21,873
    
    
    $
    10,610
  Note 6. Restructuring Liabilities
  Accrued
    
    
    Amounts

    
    
    
    
    
    
    
    
    
    AccruedRestructuring
    
    
    Charged to
    
    
    Amounts
    
    
    
    
    
    
    RestructuringCosts at
    
    
    Restructuring
    
    
    Paid or
    
    
    
    
    
    
    Costs atJuly 3, 2010
    
    
    Costs
    
    

Written-off
    
    
    Adjustments
    
    

October 2, 2010(Thousands)Lease cancellations and commitments
and other charges
    
    $
    4,107
    
    
    $
    
    
    
    $
    (2,279
    )
    
    $
    (100
    )
    
    $
    1,728Termination payments to employees
and related costs
    
    
    231
    
    
    
    646
    
    
    
    (446
    )
    
    
    28
    
    
    
    459Total accrued restructuring charges
    
    $
    4,338
    
    
    $
    646
    
    
    $
    (2,725
    )
    
    $
    (72
    )
    
    $
    2,187
 13




---



##### Table of Contents



Note 7. Credit Facility
  Note 8. Post-Retirement Benefits
 Switzerland Defined Benefit Plan (Swiss Plan)
  Three MonthsEndedOctober 2,2010(Thousands)Service cost
    
    $
    419Interest cost
    
    
    176Expected return on plan assets
    
    
    (232
    )Net periodic pension costs
    
    $
    363
  Note 9. Commitments and Contingencies
 Guarantees
   Warranty accrual
  14




---



##### Table of Contents



Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands)Warranty provision  beginning of period
    
    $
    2,437
    
    
    $
    2,228Warranties assumed in acquisitions
    
    
    357
    
    
    
    155Warranties issued
    
    
    432
    
    
    
    772Warranties utilized or expired
    
    
    (564
    )
    
    
    (843
    )Currency translation adjustment
    
    
    74
    
    
    
    5Warranty provision  end of period
    
    $
    2,736
    
    
    $
    2,317
 Litigation
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
   QinetiQ Limited v. Oclaro, Inc
 15




---



##### Table of Contents



Note 10. Employee Stock Plans
    Shares
    
    
    Stock
    
    
    Weighted-
    
    
    Restricted Stock
    
    
    Weighted-Available
    
    
    Options
    
    
    Average
    
    
    Awards / Units
    
    
    Average GrantFor Grant
    
    
    Outstanding
    
    
    Exercise Price
    
    
    Outstanding
    
    
    Date Fair Value(Thousands)
    
    
    (Thousands)
    
    
    
    
    
    
    (Thousands)Balances at July 3, 2010
    
    
    1,089
    
    
    
    3,186
    
    
    $
    8.78
    
    
    
    703
    
    
    $
    6.42Granted
    
    
    (867
    )
    
    
    606
    
    
    
    10.93
    
    
    
    261
    
    
    
    10.43Exercised or released
    
    
    
    
    
    
    (49
    )
    
    
    4.10
    
    
    
    (114
    )
    
    
    3.18Cancelled or forfeited
    
    
    18
    
    
    
    (55
    )
    
    
    6.56
    
    
    
    (30
    )
    
    
    6.60Balances at October 2, 2010
    
    
    240
    
    
    
    3,688
    
    
    
    9.23
    
    
    
    820
    
    
    
    8.14
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Value(Thousands)
    
    
    
    
    
    
    (Years)
    
    
    (Thousands)Options exercisable at October 2, 2010
    
    1,266
    
    
    $
    13.93
    
    
    6.7
    
    
    $
    10,300Options outstanding at October 2, 2010
    
    3,688
    
    
    
    9.23
    
    
    7.9
    
    
    
    32,194
  16




---



##### Table of Contents



Note 11. Stock-based Compensation
  Three Months EndedOctober 2,
    
    September 26,2010
    
    2009Expected life
    
    4.5 years
    
    4.5 yearsRisk-free interest rate
    
    
    1.3
    %
    
    
    2.3
    %Volatility
    
    
    96.6
    %
    
    
    101.3
    %Dividend yield
    
    
    
    
    
    
    
  Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands)Stock-based compensation by category of expense:Cost of revenues
    
    $
    310
    
    
    $
    195Research and development
    
    
    318
    
    
    
    209Selling, general and administrative
    
    
    730
    
    
    
    516$
    1,358
    
    
    $
    920Stock-based compensation by type of award:Stock options
    
    $
    763
    
    
    $
    790Restricted stock awards
    
    
    642
    
    
    
    179Inventory adjustment to cost of revenues
    
    
    (47
    )
    
    
    (49
    )$
    1,358
    
    
    $
    920
  Note 12. Income Taxes
  17




---



##### Table of Contents



Note 13. Net Income Per Share
  Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands,except per share amounts)Net income
    
    $
    356
    
    
    $
    4,045Weighted-average shares  basic
    
    
    48,115
    
    
    
    37,240Effect of dilutive potential common shares from:Stock options
    
    
    1,657
    
    
    
    512Restricted stock awards
    
    
    770
    
    
    
    348Obligations under escrow agreement
    
    
    442
    
    
    
    Weighted-average shares  diluted
    
    
    50,984
    
    
    
    38,100Basic net income per share
    
    $
    0.01
    
    
    $
    0.11Diluted net income per share
    
    $
    0.01
    
    
    $
    0.11
   Note 14. Operating Segments and Related Information
    Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands)Revenues:Telecom
    
    $
    107,822
    
    
    $
    74,266Advanced photonics solutions
    
    
    13,525
    
    
    
    10,844Consolidated revenues
    
    $
    121,347
    
    
    $
    85,110
 18




---



##### Table of Contents



Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009(Thousands)United States
    
    $
    19,664
    
    
    $
    17,525Canada
    
    
    3,401
    
    
    
    4,991Europe
    
    
    35,424
    
    
    
    20,153Asia
    
    
    54,329
    
    
    
    35,560Rest of world
    
    
    8,529
    
    
    
    6,881$
    121,347
    
    
    $
    85,110
 Significant Customers and Concentration of Credit Risk
   Note 15. Subsequent Events
  19




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  Results of Operations
  20




---



##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    IncreaseOctober 2, 2010
    
    
    September 26, 2009
    
    
    Change
    
    
    (Decrease)(Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %Revenues
    
    $
    121,347
    
    
    
    100.0
    
    
    $
    85,110
    
    
    
    100.0
    
    
    $
    36,237
    
    
    
    42.6Cost of revenues
    
    
    86,521
    
    
    
    71.3
    
    
    
    63,119
    
    
    
    74.2
    
    
    
    23,402
    
    
    
    37.1Gross profit
    
    
    34,826
    
    
    
    28.7
    
    
    
    21,991
    
    
    
    25.8
    
    
    
    12,835
    
    
    
    58.4Operating expenses:Research and development
    
    
    13,711
    
    
    
    11.3
    
    
    
    9,014
    
    
    
    10.6
    
    
    
    4,697
    
    
    
    52.1Selling, general and administrative
    
    
    14,813
    
    
    
    12.2
    
    
    
    12,963
    
    
    
    15.2
    
    
    
    1,850
    
    
    
    14.3Amortization of intangible assets
    
    
    619
    
    
    
    0.5
    
    
    
    125
    
    
    
    0.1
    
    
    
    494
    
    
    
    395.2Restructuring, merger and
related costs
    
    
    670
    
    
    
    0.6
    
    
    
    1,499
    
    
    
    1.8
    
    
    
    (829
    )
    
    
    (55.3
    )Gain on sale of property
and equipment
    
    
    (21
    )
    
    
    
    
    
    
    (532
    )
    
    
    (0.6
    )
    
    
    511
    
    
    
    (96.1
    )Total operating expenses
    
    
    29,792
    
    
    
    24.6
    
    
    
    23,069
    
    
    
    27.1
    
    
    
    6,723
    
    
    
    29.1Operating income (loss)
    
    
    5,034
    
    
    
    4.1
    
    
    
    (1,078
    )
    
    
    (1.3
    )
    
    
    6,112
    
    
    
    n/m
    (1)Other income (expense):Interest income
    
    
    7
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    (16
    )
    
    
    (69.6
    )Interest expense
    
    
    (573
    )
    
    
    (0.5
    )
    
    
    (88
    )
    
    
    (0.1
    )
    
    
    (485
    )
    
    
    551.1Loss on foreign currency
translation
    
    
    (3,587
    )
    
    
    (2.9
    )
    
    
    (1,276
    )
    
    
    (1.5
    )
    
    
    (2,311
    )
    
    
    181.1Other income
    
    
    
    
    
    
    
    
    
    
    5,267
    
    
    
    6.2
    
    
    
    (5,267
    )
    
    
    n/m
    (1)Total other income (expense)
    
    
    (4,153
    )
    
    
    (3.4
    )
    
    
    3,926
    
    
    
    4.6
    
    
    
    (8,079
    )
    
    
    n/m
    (1)Income from continuing operations
before income taxes
    
    
    881
    
    
    
    0.7
    
    
    
    2,848
    
    
    
    3.3
    
    
    
    (1,967
    )
    
    
    (69.1
    )Income tax provision
    
    
    525
    
    
    
    0.4
    
    
    
    223
    
    
    
    0.2
    
    
    
    302
    
    
    
    135.4Income from continuing operations
    
    
    356
    
    
    
    0.3
    
    
    
    2,625
    
    
    
    3.1
    
    
    
    (2,269
    )
    
    
    (86.4
    )Income from discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    1,420
    
    
    
    1.7
    
    
    
    (1,420
    )
    
    
    n/m
    (1)Net income
    
    $
    356
    
    
    
    0.3
    
    
    $
    4,045
    
    
    
    4.8
    
    
    $
    (3,689
    )
    
    
    (91.2
    )
 
 (1)
    
    Not meaningful. Revenues
   21




---



##### Table of Contents



Cost of Revenues
  Restructuring Liabilities
 Gross Profit
   Research and Development Expenses
    Selling, General and Administrative Expenses
   22




---



##### Table of Contents



Restructuring, Merger and Related Costs
   Gain on Sale of Property and Equipment
  Other Income (Expense)
  Income Tax Provision (Benefit)
   Income from Discontinued Operations
 Business Combinations
 23




---



##### Table of Contents



Recent Accounting Pronouncements
 Basis of Preparation
 Application of Critical Accounting Policies
   Liquidity and Capital Resources
 Cash Flows from Operating Activities
   Cash Flows from Investing Activities
  24




---



##### Table of Contents



Cash Flows from Financing Activities
  Effect of Exchange Rates on Cash and Cash Equivalents for the Three Months Ended October 2, 2010
and September 26, 2009
   Credit Facility
  Future Cash Requirements
   25




---



##### Table of Contents



Off-Balance Sheet Arrangements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rates
  Foreign currency
   Hedging Program
  26




---



##### Table of Contents



Item 4 . Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
  27




---



##### Table of Contents



QinetiQ Limited v. Oclaro, Inc
 
 Item 1A. Risk Factors
 Investing in our common stock involves a high degree of risk. You should carefully consider the
risks and uncertainties described below in addition to the other information included or
incorporated by reference in this Quarterly Report on Form 10-Q. If any of the following risks
actually occur, our business, financial condition or results of operations would likely suffer. In
that case, the trading price of our common stock could fall and you could lose all or part of your
investment.
 Risks Related to Our Business
 Prior to the year ended July 3, 2010, we had a history of large operating losses and we may not be
able to sustain profitability in the future.
  We may not be able to maintain gross margin levels.
  28




---



##### Table of Contents



Our business and results of operations may be negatively impacted by general economic and
financial market conditions and such conditions may increase the other risks that affect our
business.
   Our success will depend on our ability to anticipate and respond to evolving technologies and
customer requirements.
  We depend on a limited number of customers for a significant percentage of our revenues.
  29




---



##### Table of Contents



The majority of our long-term customer contracts do not commit customers to specified buying
levels, and our customers may decrease, cancel or delay their buying levels at any time with
little or no advance notice to us.
  We may undertake mergers or acquisitions that do not prove successful.
    
    
    failure to realize the potential financial or strategic benefits of the acquisition;
    
    declines in the revenue of the combined company;
    
    economic dilution to gross and operating profit and earnings (loss) per share;
    
    failure to successfully further develop the combined, acquired or remaining technology,
resulting in the impairment of amounts recorded as goodwill or other intangible assets;
    
    unanticipated costs and liabilities and unforeseen accounting charges;
    
    difficulty in integrating product offerings;
 30




---



##### Table of Contents




    
    difficulty in coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;
    
    difficulty in coordinating and integrating the manufacturing activities of our acquired
businesses, including with respect to third-party manufacturers, including executing a
production capacity ramp up of our South Korea facility and our contract manufacturers to
support the potential revenue demand for the WSS-related products of Xtellus, including
managing the manufacturing activities of the laser diode business acquired from Newport
while these activities are being transferred from Tucson, Arizona to Europe and Asia, and
including transferring certain production of Mintera products to our internal facilities;
    
    delays and difficulties in delivery of products and services;
    
    failure to effectively integrate or separate management information systems, personnel,
research and development, marketing, sales and support operations;
    
    difficulty in maintaining controls and procedures;
    
    difficulty in preserving important relationships of our acquired businesses and
resolving potential conflicts between business cultures;
    
    uncertainty on the part of our existing customers, or the customers of an acquired
company, about our ability to operate effectively after a transaction, and the potential
loss of such customers;
    
    loss of key employees;
    
    difficulty in coordinating the international activities of our acquired businesses;
    
    the effect of tax laws due to increasing complexities of our global operating structure;
    
    the effect of employment law or regulations or other limitations in foreign
jurisdictions that could have an impact on timing, amounts or costs of achieving expected
synergies; and
    
    substantial demands on our management as a result of these transactions that may limit
their time to attend to other operational, financial, business and strategic issues.
  Sales of our products could decline if customer and/or supplier relationships are disrupted by our
recent merger and acquisition activities.
   31




---



##### Table of Contents



As a result of our recent business combinations, we have become a larger and more geographically
diverse organization, and if our management is unable to manage the combined organization
efficiently, our operating results will suffer.
  We may not successfully transfer the wafer production from the Tucson, Arizona manufacturing
operations we acquired from Newport to our European fabrication facilities and realize the
anticipated benefits of the acquisition.
  
 
 
 
 
 Our products are complex and may take longer to develop than anticipated and we may not recognize
revenues from new products until after long field testing and customer acceptance periods.
  32




---



##### Table of Contents



As a result of our global operations, our business is subject to currency fluctuations that have
adversely affected our results of operations in recent quarters and may continue to do so in the
future.
    We have significant manufacturing operations in China, which exposes us to risks inherent in doing
business in China.
  
    
    qualify our manufacturing lines and the products we produce in Shenzhen, as required by
our customers;
    
    attract and retain qualified personnel to operate our Shenzhen facility; and
    
    attract and retain research and development employees at our Shenzhen and Shanghai
facilities.
    33




---



##### Table of Contents



Our results of operations may suffer if we do not effectively manage our inventory, and we may
incur inventory-related charges.
  We depend on a limited number of suppliers who could disrupt our business if they stopped,
decreased, delayed or were unable to meet our demand for shipments of their products.
    34




---



##### Table of Contents



We may record additional impairment charges that will adversely impact our results of operations.
   We may incur additional significant restructuring charges that will adversely affect our results
of operations.
   If our customers do not qualify our manufacturing lines or the manufacturing lines of our
subcontractors for volume shipments, our operating results could suffer.
  Delays, disruptions or quality control problems in manufacturing could result in delays in product
shipments to customers and could adversely affect our business.
  35




---



##### Table of Contents



We may experience low manufacturing yields.
  Our intellectual property rights may not be adequately protected.
   36




---



##### Table of Contents



Our products may infringe the intellectual property rights of others which could result in
expensive litigation or require us to obtain a license to use the technology from third parties,
or we may be prohibited from selling certain products in the future.
  QinetiQ Limited v.
Oclaro, Inc
  If we fail to obtain the right to use the intellectual property rights of others necessary to
operate our business, our ability to succeed will be adversely affected.
  37




---



##### Table of Contents



The inability to obtain government licenses and approvals for desired international trading
activities or technology transfers may prevent the profitable operation of our business.
  The markets in which we operate are highly competitive, which could result in lost sales and lower
revenues.
   
    
    develop or respond to new technologies or technical standards;
    
    react to changing customer requirements and expectations;
    
    devote needed resources to the development, production, promotion and sale of products;
and
    
    deliver competitive products at lower prices.
   We generate a significant portion of our revenues internationally and therefore are subject to
additional risks associated with the extent of our international operations.
  
    
    currency fluctuations, which could result in increased operating expenses and reduced
revenues;
    
    greater difficulty in accounts receivable collection and longer collection periods;
    
    difficulty in enforcing or adequately protecting our intellectual property;
 38




---



##### Table of Contents




    
    ability to hire qualified candidates;
    
    foreign taxes;
    
    political, legal and economic instability in foreign markets; and
    
    foreign regulations.
  We may face product liability claims.
  If we fail to attract and retain key personnel, our business could suffer.
   Risks Related to Regulatory Compliance and Litigation
 Our business involves the use of hazardous materials, and we are subject to environmental and
import/export laws and regulations that may expose us to liability and increase our costs.
   39




---



##### Table of Contents



We have in the past, and may in the future, merge with or acquire companies that have either
experienced material weaknesses in their internal controls over financial reporting or have had no
previous reporting obligations under Sarbanes-Oxley. A lack of effective internal control over our
financial reporting could result in an inability to report our financial results accurately, which
could lead to a loss of investor confidence in our financial reports and have an adverse effect on
our stock price.
  Litigation may substantially increase our costs and harm our business.
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
  Our products may infringe the
intellectual property rights of others which could result in expensive litigation or require us to
obtain a license to use the technology from third parties, or we may be prohibited from selling
certain products in the future
  40




---



##### Table of Contents



Risks Related to Our Common Stock
 A variety of factors could cause the trading price of our common stock to be volatile or to
decline and we may incur significant costs from class action litigation due to our expected stock
volatility.
  
    
    fluctuations in our results of operations;
    
    changes in our business, operations or prospects;
    
    hiring or departure of key personnel;
    
    new contractual relationships with key suppliers or customers by us or our competitors;
    
    proposed acquisitions by us or our competitors;
    
    financial results or projections that fail to meet public market analysts expectations
and changes in stock market analysts recommendations regarding us, other optical
technology companies or the telecommunication industry in general;
    
    future sales of common stock, or securities convertible into or exercisable for common
stock;
    
    adverse judgments or settlements obligating us to pay damages;
    
    future issuances of common stock in connection with acquisitions or other transactions;
    
    acts of war, terrorism, or natural disasters;
    
    industry, domestic and international market and economic conditions, including the
global macroeconomic downturn over the last two years;
    
    low trading volume in our stock;
    
    developments relating to patents or property rights; and
    
    government regulatory changes.
  41




---



##### Table of Contents



Fluctuations in our operating results could adversely affect the market price of our common stock.
   We may not be able to raise capital when desired on favorable terms without dilution to our
stockholders, or at all.
   42




---



##### Table of Contents



Because we do not intend to pay dividends, stockholders will benefit from an investment in our
common stock only if it appreciates in value.
  We can issue shares of preferred stock that may adversely affect your rights as a stockholder
of our common stock.
  
    
    adversely affect the voting power of the holders of our common stock;
    
    make it more difficult for a third-party to gain control of us;
    
    discourage bids for our common stock at a premium;
    
    limit or eliminate any payments that the holders of our common stock could expect to
receive upon our liquidation; or
    
    otherwise adversely affect the market price of our common stock.
  Delaware law and our charter documents contain provisions that could discourage or prevent a
potential takeover, even if such a transaction would be beneficial to our stockholders.
  
    
    authorizing the board of directors to issue preferred stock;
    
    prohibiting cumulative voting in the election of directors;
    
    limiting the persons who may call special meetings of stockholders;
    
    prohibiting stockholder actions by written consent;
    
    creating a classified board of directors pursuant to which our directors are elected
for staggered three-year terms;
    
    permitting the board of directors to increase the size of the board and to fill
vacancies;
    
    requiring a super-majority vote of our stockholders to amend our bylaws and certain
provisions of our certificate of incorporation; and
    
    establishing advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted on by stockholders at stockholder
meetings.
 43




---



##### Table of Contents



Item 6. Exhibits
  
 SIGNATURE
  OCLARO, INC.Date: November 10, 2010
    By:
    /s/ Jerry TurinJerry TurinChief Financial Officer
(Principal Financial and Accounting Officer) 44




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit2.1
    
    
    Agreement of Merger, dated as of July 20, 2010, by and among Oclaro, Inc., Nikko Acquisition Corp.,
Mintera Corporation and Shareholder Representative Services LLC (previously filed as Exhibit 2.1 to
our current report on Form 8-K, filed with the SEC on July 26, 2010, and incorporated herein by
reference).10.1
    
    
    Variable Pay Program (previously filed as Exhibit 5.02 to our current report on Form 8-K, filed with
the SEC on August 2, 2010, and incorporated herein by reference)10.2
    
    
    Amended and Restated Employment Agreement, dated August 4, 2010, by and between Oclaro, Inc. and
Alain Couder (previously filed as Exhibit 10.1 to our current report on Form 8-K, filed with the SEC
on August 10, 2010, and incorporated herein by reference).10.3
    
    
    Oclaro, Inc. Amended and Restated 2004 Stock Incentive Plan (previously filed as Exhibit 10.1 to our
current report on Form 8-K, filed with the SEC on October 28, 2010, and incorporated herein by
reference).31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.32.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
 45