##### 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 December 27, 2008
 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
 Bookham, Inc.
  Delaware
    
    20-1303994(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)
 2584 Junction Avenue, San Jose, California 95134
 (408) 383-1400
  þ o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



BOOKHAM, INC.
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of December 27, 2008 and June 28, 2008
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended
December 27, 2008 and December 29, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended December
27, 2008 and December 29, 2007
    
    
    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
    
    
    30Item 4.Controls and Procedures
    
    
    31PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    31Item 1A.Risk Factors
    
    
    33Item 6.Exhibits
    
    
    47Signatures
    
    
    48EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 BOOKHAM, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  December 27, 2008
    
    
    June 28, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,296
    
    
    $
    32,863Short-term investments
    
    
    8,894
    
    
    
    17,845Restricted cash
    
    
    513
    
    
    
    1,154Accounts receivable, net
    
    
    33,119
    
    
    
    45,665Inventories
    
    
    58,448
    
    
    
    59,612Prepaid expenses and other current assets
    
    
    4,842
    
    
    
    6,007Total current assets
    
    
    141,112
    
    
    
    163,146Goodwill
    
    
    
    
    
    
    7,881Other intangible assets, net
    
    
    6,191
    
    
    
    7,829Property and equipment, net
    
    
    32,509
    
    
    
    32,962Other non-current assets
    
    
    274
    
    
    
    272Total assets
    
    $
    180,086
    
    
    $
    212,090LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,402
    
    
    $
    21,501Accrued expenses and other liabilities
    
    
    21,245
    
    
    
    20,789Total current liabilities
    
    
    36,647
    
    
    
    42,290Other long-term liabilities
    
    
    1,821
    
    
    
    1,336Deferred gain on sale-leaseback
    
    
    14,019
    
    
    
    19,402Total liabilities
    
    
    52,487
    
    
    
    63,028Commitments and contingencies (Note 9)Stockholders equity:Preferred stock: 5,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock:$0.01 par value per share; 175,000 shares authorized;
100,868 shares issued and outstanding at December 27, 2008
100,740 shares issued and outstanding at June 28, 2008
    
    
    1,009
    
    
    
    1,007Additional paid-in capital
    
    
    1,165,695
    
    
    
    1,163,598Accumulated other comprehensive income
    
    
    24,742
    
    
    
    44,036Accumulated deficit
    
    
    (1,063,847
    )
    
    
    (1,059,579
    )Total stockholders equity
    
    
    127,599
    
    
    
    149,062Total liabilities and stockholders equity
    
    $
    180,086
    
    
    $
    212,090
  3




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##### Table of Contents



BOOKHAM, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    50,204
    
    
    $
    58,956
    
    
    $
    116,735
    
    
    $
    113,238Cost of revenues
    
    
    41,499
    
    
    
    45,522
    
    
    
    91,401
    
    
    
    87,467Gross margin
    
    
    8,705
    
    
    
    13,434
    
    
    
    25,334
    
    
    
    25,771Operating expenses:Research and development
    
    
    6,897
    
    
    
    8,168
    
    
    
    14,832
    
    
    
    16,860Selling, general and administrative
    
    
    9,282
    
    
    
    12,162
    
    
    
    19,966
    
    
    
    23,488Amortization of intangible assets
    
    
    444
    
    
    
    1,353
    
    
    
    907
    
    
    
    3,350Restructuring and severance charges
    
    
    482
    
    
    
    562
    
    
    
    1,968
    
    
    
    1,779Legal settlement
    
    
    
    
    
    
    877
    
    
    
    (184
    )
    
    
    877Impairment of goodwill
    
    
    7,881
    
    
    
    
    
    
    
    7,881
    
    
    
    (Gain) loss on sale of property
and equipment
    
    
    (8
    )
    
    
    (1,481
    )
    
    
    8
    
    
    
    (1,716
    )Total operating expenses
    
    
    24,978
    
    
    
    21,641
    
    
    
    45,378
    
    
    
    44,638Operating loss
    
    
    (16,273
    )
    
    
    (8,207
    )
    
    
    (20,044
    )
    
    
    (18,867
    )Other income (expense):Other expense
    
    
    (95
    )
    
    
    
    
    
    
    (695
    )
    
    
    Interest income
    
    
    209
    
    
    
    494
    
    
    
    457
    
    
    
    746Interest expense
    
    
    (132
    )
    
    
    (253
    )
    
    
    (324
    )
    
    
    (387
    )Gain on foreign exchange
    
    
    9,866
    
    
    
    2,732
    
    
    
    16,362
    
    
    
    2,320Total other income (expense)
    
    
    9,848
    
    
    
    2,973
    
    
    
    15,800
    
    
    
    2,679Loss before income taxes
    
    
    (6,425
    )
    
    
    (5,234
    )
    
    
    (4,244
    )
    
    
    (16,188
    )Income tax provision (benefit)
    
    
    36
    
    
    
    (47
    )
    
    
    24
    
    
    
    (47
    )Net loss
    
    $
    (6,461
    )
    
    $
    (5,187
    )
    
    $
    (4,268
    )
    
    $
    (16,141
    )Net loss per share:Basic
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.19
    )Shares used in computing net loss per share:Basic
    
    
    100,339
    
    
    
    90,963
    
    
    
    100,209
    
    
    
    86,775Diluted
    
    
    100,339
    
    
    
    90,963
    
    
    
    100,209
    
    
    
    86,775
  4




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BOOKHAM, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months EndedDecember 27, 2008
    
    
    December 29, 2007Cash flows from operating activities:Net loss
    
    $
    (4,268
    )
    
    $
    (16,141
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    6,720
    
    
    
    9,604Stock-based compensation
    
    
    2,241
    
    
    
    4,409Amortization of deferred gain on sale-leaseback
    
    
    (486
    )
    
    
    (714
    )Impairment of short-term investments
    
    
    706
    
    
    
    Impairment of goodwill
    
    
    7,881
    
    
    
    Accretion on short-term investments
    
    
    (102
    )
    
    
    (Gain) loss on sale of property and equipment
    
    
    8
    
    
    
    (1,716
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    1,721
    
    
    
    (6,614
    )Inventories
    
    
    (825
    )
    
    
    (4,524
    )Prepaid expenses and other current assets
    
    
    684
    
    
    
    4,925Other assets
    
    
    (88
    )
    
    
    Accounts payable
    
    
    (5,264
    )
    
    
    3,714Accrued expenses and other liabilities
    
    
    762
    
    
    
    (1,884
    )Net cash provided by (used in) operating activities
    
    
    9,690
    
    
    
    (8,941
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (6,934
    )
    
    
    (5,688
    )Proceeds from sale of property and equipment
    
    
    14
    
    
    
    1,775Purchases of available-for-sale investments
    
    
    (6,945
    )
    
    
    Sales and maturities of available-for-sale investments
    
    
    15,350
    
    
    
    Transfer from restricted cash
    
    
    575
    
    
    
    4,480Net cash provided by investing activities
    
    
    2,060
    
    
    
    567Cash flows from financing activities:Proceeds from issuance of common stock, net
    
    
    
    
    
    
    40,902Proceeds from bank loan payable
    
    
    
    
    
    
    501Repayment of bank loan payable
    
    
    
    
    
    
    (4,313
    )Repayment of other loans
    
    
    (31
    )
    
    
    (12
    )Amount paid to repurchase shares from former officer
    
    
    
    
    
    
    (2
    )Net cash provided by (used in) financing activities
    
    
    (31
    )
    
    
    37,076Effect of exchange rate on cash and cash equivalents
    
    
    (9,286
    )
    
    
    (2,331
    )Net increase in cash and cash equivalents
    
    
    2,433
    
    
    
    26,371Cash and cash equivalents at beginning of period
    
    
    32,863
    
    
    
    36,631Cash and cash equivalents at end of period
    
    $
    35,296
    
    
    $
    63,002
  5




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##### Table of Contents



BOOKHAM, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Note 1. Nature of Business
  Note 2. Basis of Preparation
    Revenue Recognition for Financially Distressed Customers
 Revenue Recognition in Financial Statements
  6




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Note 3. Fair Value
 Fair Value
Measurements,
   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
    
    $
    14,092
    
    
    $
    
    
    
    $
    
    
    
    $
    14,092Short-term investments:United States agency securities
    
    
    6,177
    
    
    
    
    
    
    
    
    
    
    
    6,177United States corporate bonds
    
    
    
    
    
    
    2,637
    
    
    
    80
    
    
    
    2,717Total assets measured at fair value
    
    $
    20,269
    
    
    $
    2,637
    
    
    $
    80
    
    
    $
    22,986Liabilities:Accrued expenses and other liabilitiesUnrealized loss on hedges
    
    $
    
    
    
    $
    3,332
    
    
    $
    
    
    
    $
    3,332Total liabilities measured at fair value
    
    $
    
    
    
    $
    3,332
    
    
    $
    
    
    
    $
    3,332
 
 (1)
    
    Excludes $21.2 million in cash held in Company bank accounts. 7




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##### Table of Contents



Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities
  Note 4. Balance Sheet Details
  December 27, 2008
    
    
    June 28, 2008(thousands)Cash and cash equivalents:Cash-in-bank
    
    $
    21,204
    
    
    $
    16,361Money market funds
    
    
    14,092
    
    
    
    10,022Commercial paper
    
    
    
    
    
    
    6,480$
    35,296
    
    
    $
    32,863Short-term investments:United States agency securities
    
    $
    6,177
    
    
    $
    2,977United States corporate bonds
    
    
    2,717
    
    
    
    14,868$
    8,894
    
    
    $
    17,845
   December 27, 2008
    
    
    June 28, 2008(thousands)Inventories:Raw materials
    
    $
    19,558
    
    
    $
    21,140Work-in-process
    
    
    28,806
    
    
    
    24,786Finished goods
    
    
    10,084
    
    
    
    13,686$
    58,448
    
    
    $
    59,612
 8




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##### Table of Contents



December 27, 2008
    
    
    June 28, 2008(thousands)Property and equipment, net:Buildings
    
    $
    15,842
    
    
    $
    18,411Plant and machinery
    
    
    78,388
    
    
    
    78,652Fixtures, fittings and equipment
    
    
    956
    
    
    
    1,098Computer equipment
    
    
    11,475
    
    
    
    13,846106,661
    
    
    
    112,007Less: accumulated depreciation
    
    
    (74,152
    )
    
    
    (79,045
    )$
    32,509
    
    
    $
    32,962
  December 27, 2008
    
    
    June 28, 2008(thousands)Accrued expenses and other liabilities:Trade creditor accruals
    
    $
    2,599
    
    
    $
    4,090Compensation and benefits related accruals
    
    
    7,090
    
    
    
    6,724Warranty accrual
    
    
    2,174
    
    
    
    2,598Unrealized loss on hedges
    
    
    3,332
    
    
    
    Other accruals
    
    
    4,464
    
    
    
    5,657Current portion of restructuring accrual
    
    
    1,586
    
    
    
    1,720$
    21,245
    
    
    $
    20,789
 Note 5. Goodwill and Other Intangible Assets
 Goodwill and Other Intangibles
    9




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Accounting for the Impairment or Disposal of Long-Lived
Assets
 Note 6. Restructuring Liabilities
  AccruedAccrued
    
    
    Amounts
    
    
    
    
    
    
    
    
    
    
    RestructuringRestructuring
    
    
    Charged to
    
    
    
    
    
    
    
    
    
    
    Costs atCosts at June
    
    
    Restructuring
    
    
    Amounts Paid
    
    
    Adjustments
    
    
    December 27,28, 2008
    
    
    Costs
    
    
    or Written-off
    
    
    and Reversals
    
    
    2008(thousands)Lease cancellations and commitments
    
    $
    2,074
    
    
    $
    1,638
    
    
    $
    (686
    )
    
    $
    
    
    
    $
    3,026Termination payments to employees and
related costs
    
    
    754
    
    
    
    378
    
    
    
    (887
    )
    
    
    (53
    )
    
    
    192Total accrued restructuring
    
    
    2,828
    
    
    $
    2,016
    
    
    $
    (1,573
    )
    
    $
    (53
    )
    
    
    3,218Less non-current accrued restructuring charges
    
    
    (1,108
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,632
    )Accrued restructuring charges included within
accrued expenses and other liabilities
    
    $
    1,720
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,586
   Note 7. Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes  an interpretation
of FASB Statement No. 109, Accounting for Income Taxes
  10




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Note 8. Credit Agreement
     Note 9. Commitments and Contingencies
 Guarantees
 Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34
 11




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
    
    In connection with the sale by New Focus of its passive component line to Finisar, Inc.,
New Focus agreed to indemnify Finisar for claims related to the intellectual property sold
to Finisar. This obligation expires in May 2009 and has no limitation on maximum liability.
The Company has not historically paid out any amounts related to this indemnification
obligation and does not expect to in the future, therefore no accrual has been made for
this indemnification obligation.
    
    The Company indemnifies its directors and certain employees as permitted by law, and has
entered into indemnification agreements with its directors and senior officers. The Company
has not recorded a liability associated with these indemnification arrangements as the
Company historically has not incurred any costs associated with such indemnification
arrangements and does not expect to in the future. Costs associated with such
indemnification arrangements may be mitigated by insurance coverage that the Company
maintains.
    
    The Company also has indemnification clauses in various contracts that it enters into in
the normal course of business, such as those issued by its banks in favor of several of its
suppliers or indemnification in favor of customers in respect of liabilities they may incur
as a result of purchasing the Companys products should such products infringe the
intellectual property rights of a third party. The Company has not historically paid out
any amounts related to these indemnification obligations and does not expect to in the
future, therefore no accrual has been made for these indemnification obligations.
 Provision for warranties
  Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(thousands)Warranty provision  beginning of period
    
    $
    2,594
    
    
    $
    2,370
    
    
    $
    2,598
    
    
    $
    2,569Warranties issued
    
    
    694
    
    
    
    681
    
    
    
    1,622
    
    
    
    1,303Warranties utilized or expired
    
    
    (727
    )
    
    
    (693
    )
    
    
    (1,488
    )
    
    
    (1,550
    )Currency translation adjustment
    
    
    (387
    )
    
    
    (27
    )
    
    
    (558
    )
    
    
    9Warranty provision  end of period
    
    $
    2,174
    
    
    $
    2,331
    
    
    $
    2,174
    
    
    $
    2,331
 Litigation
    12




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Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc.
  13




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TM
   Note 10. Stock-based Compensation Expense
 Share-Based Payment
   Three Months Ended
    
    Six Months EndedDecember 27,
    
    December 29,
    
    December 27,
    
    December 29,2008
    
    2007
    
    2008
    
    2007Expected life
    
    4.5 years
    
    4.5 years
    
    4.5 years
    
    4.5 yearsRisk-free interest rate
    
    
    2.3
    %
    
    
    4.1
    %
    
    
    3.1
    %
    
    
    4.6
    %Volatility
    
    
    82.9
    %
    
    
    77.0
    %
    
    
    70.4
    %
    
    
    81.7
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 14




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(thousands)Stock-based compensation by category of expense:Costs of revenues
    
    $
    284
    
    
    $
    708
    
    
    $
    679
    
    
    $
    1,323Research and development
    
    
    222
    
    
    
    643
    
    
    
    472
    
    
    
    1,094Selling, general and administrative
    
    
    518
    
    
    
    1,332
    
    
    
    1,090
    
    
    
    1,992$
    1,024
    
    
    $
    2,683
    
    
    $
    2,241
    
    
    $
    4,409Stock-based compensation by type of awardStock options
    
    $
    842
    
    
    $
    1,061
    
    
    $
    1,669
    
    
    $
    2,177Restricted stock awards
    
    
    150
    
    
    
    1,835
    
    
    
    430
    
    
    
    2,179Inventory adjustment to cost of revenues
    
    
    32
    
    
    
    (213
    )
    
    
    142
    
    
    
    53$
    1,024
    
    
    $
    2,683
    
    
    $
    2,241
    
    
    $
    4,409
   Awards
    
    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 June 28, 2008
    
    
    9,603
    
    
    
    6,822
    
    
    $
    5.87
    
    
    
    1,503
    
    
    $
    2.91Granted
    
    
    (2,707
    )
    
    
    2,707
    
    
    $
    1.74
    
    
    
    
    
    
    $
    Exercised or released
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    (741
    )
    
    $
    3.06Cancelled or forfeited
    
    
    1,029
    
    
    
    (870
    )
    
    $
    5.20
    
    
    
    (211
    )
    
    $
    4.38Balances at December 27, 2008
    
    
    7,925
    
    
    
    8,659
    
    
    $
    4.36
    
    
    
    551
    
    
    $
    2.39
   Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    Value(thousands)
    
    
    
    
    
    (years)
    
    (thousands)Options exercisable at December 27, 2008
    
    
    3,515
    
    
    $
    7.36
    
    
    
    6.6
    
    
    $
    Options expected to vest at December 27, 2008
    
    
    8,298
    
    
    $
    4.47
    
    
    
    6.7
    
    
    $
    Options outstanding at December 27, 2008
    
    
    8,659
    
    
    $
    4.36
    
    
    
    8.0
    
    
    $
    
  15




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##### Table of Contents



Note 11. Earnings (Loss) Per Share
 Earnings Per Share
   Note 12. Comprehensive Loss
   Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(thousands)Net loss
    
    $
    (6,461
    )
    
    $
    (5,187
    )
    
    $
    (4,268
    )
    
    $
    (16,141
    )Other comprehensive loss:Unrealized loss on currency instruments
designated as hedges
    
    
    (2,982
    )
    
    
    (384
    )
    
    
    (4,023
    )
    
    
    (222
    )Unrealized gain on short-term investments
    
    
    61
    
    
    
    
    
    
    
    44
    
    
    
    Currency translation adjustments
    
    
    (8,903
    )
    
    
    (1,175
    )
    
    
    (15,315
    )
    
    
    562Comprehensive loss
    
    $
    (18,285
    )
    
    $
    (6,746
    )
    
    $
    (23,562
    )
    
    $
    (15,801
    )
 Note 13. Segments of an Enterprise and Related Information
 Disclosures about Segments of an Enterprise and Related Information
 16




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(thousands)RevenuesTelecom
    
    $
    37,418
    
    
    $
    44,799
    
    
    $
    89,673
    
    
    $
    85,532Non-telecom
    
    
    12,786
    
    
    
    14,157
    
    
    
    27,062
    
    
    
    27,706Consolidated revenues
    
    $
    50,204
    
    
    $
    58,956
    
    
    $
    116,735
    
    
    $
    113,238
 Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(thousands)Operating lossTelecom
    
    $
    (6,922
    )
    
    $
    (6,916
    )
    
    $
    (8,262
    )
    
    $
    (15,802
    )Non-telecom
    
    
    (454
    )
    
    
    788
    
    
    
    (1,836
    )
    
    
    505Total segment operating loss
    
    
    (7,376
    )
    
    
    (6,128
    )
    
    
    (10,098
    )
    
    
    (15,297
    )Stock compensation
    
    
    1,024
    
    
    
    2,683
    
    
    
    2,241
    
    
    
    4,409Legal settlement
    
    
    
    
    
    
    877
    
    
    
    (184
    )
    
    
    877(Gain) loss on sale of
property and equipment
    
    
    (8
    )
    
    
    (1,481
    )
    
    
    8
    
    
    
    (1,716
    )Impairment of goodwill
    
    
    7,881
    
    
    
    
    
    
    
    7,881
    
    
    
    Consolidated operating loss
    
    $
    (16,273
    )
    
    $
    (8,207
    )
    
    $
    (20,044
    )
    
    $
    (18,867
    )
  Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(thousands)United States
    
    $
    11,780
    
    
    $
    13,604
    
    
    $
    30,981
    
    
    $
    28,357Canada
    
    
    3,243
    
    
    
    10,832
    
    
    
    7,898
    
    
    
    21,456Europe:United Kingdom
    
    
    2,324
    
    
    
    2,581
    
    
    
    5,860
    
    
    
    4,264Other
    
    
    10,313
    
    
    
    9,656
    
    
    
    21,091
    
    
    
    18,350Asia:China
    
    
    12,567
    
    
    
    14,659
    
    
    
    27,432
    
    
    
    25,263Other
    
    
    6,851
    
    
    
    5,702
    
    
    
    13,263
    
    
    
    11,483Rest of world
    
    
    3,126
    
    
    
    1,922
    
    
    
    10,210
    
    
    
    4,065$
    50,204
    
    
    $
    58,956
    
    
    $
    116,735
    
    
    $
    113,238
  December 27, 2008
    
    
    June 28, 2008(thousands)United States
    
    $
    1,842
    
    
    $
    1,824China
    
    
    22,802
    
    
    
    20,443United Kingdom
    
    
    3,312
    
    
    
    6,296Other
    
    
    4,553
    
    
    
    4,399$
    32,509
    
    
    $
    32,962
 17




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##### Table of Contents



Significant Customers and Concentration of Credit Risk
    Note 14. Recent Accounting Pronouncements
  Business Combinations
 Effective Date of FASB
Statement No. 157
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 18




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##### Table of Contents



The Hierarchy of Generally Accepted Accounting
Principles
 Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
 Note 15. Subsequent Events
 Merger of Bookham Inc. and Avanex Corporation
   19




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##### Table of Contents



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




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##### Table of Contents



Critical Accounting Policies
   Revenue Recognition for Financially Distressed Customers
 Revenue Recognition
in Financial Statements
  Impairment of Goodwill
 Goodwill and Other Intangibles
  21




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##### Table of Contents



Accounting for the Impairment or Disposal of Long-Lived Assets
 Recent Accounting Pronouncements
  Business Combinations
 Effective Date of FASB
Statement No. 157 Fair Value Measurements
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 22




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##### Table of Contents



The Hierarchy of Generally Accepted Accounting
Principles
 Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
 Results of Operations
  Three Months Ended
    
    
    
    
    
    
    IncreaseDecember 27, 2008
    
    
    December 29, 2007
    
    
    Change
    
    
    (Decrease)(thousands)
    
    
    %
    
    
    (thousands)
    
    
    %
    
    
    (thousands)
    
    
    %Revenues
    
    $
    50,204
    
    
    
    100.0
    
    
    $
    58,956
    
    
    
    100.0
    
    
    $
    (8,752
    )
    
    
    (14.8
    )Cost of revenues
    
    
    41,499
    
    
    
    82.7
    
    
    
    45,522
    
    
    
    77.2
    
    
    
    (4,023
    )
    
    
    (8.8
    )Gross margin
    
    
    8,705
    
    
    
    17.3
    
    
    
    13,434
    
    
    
    22.8
    
    
    
    (4,729
    )
    
    
    (35.2
    )Operating expenses:Research and development
    
    
    6,897
    
    
    
    13.7
    
    
    
    8,168
    
    
    
    13.9
    
    
    
    (1,271
    )
    
    
    (15.6
    )Selling, general and administrative
    
    
    9,282
    
    
    
    18.5
    
    
    
    12,162
    
    
    
    20.6
    
    
    
    (2,880
    )
    
    
    (23.7
    )Amortization of intangible assets
    
    
    444
    
    
    
    0.9
    
    
    
    1,353
    
    
    
    2.3
    
    
    
    (909
    )
    
    
    (67.2
    )Restructuring and severance charges
    
    
    482
    
    
    
    0.9
    
    
    
    562
    
    
    
    0.9
    
    
    
    (80
    )
    
    
    (14.2
    )Legal settlement
    
    
    
    
    
    
    
    
    
    
    877
    
    
    
    1.5
    
    
    
    (877
    )
    
    
    (100.0
    )Impairment of goodwill
    
    
    7,881
    
    
    
    15.7
    
    
    
    
    
    
    
    
    
    
    
    7,881
    
    
    
    n/m
    (1)(Gain) loss on sale of property
and equipment
    
    
    (8
    )
    
    
    
    
    
    
    (1,481
    )
    
    
    (2.5
    )
    
    
    1,473
    
    
    
    (99.5
    )Total operating expenses
    
    
    24,978
    
    
    
    49.7
    
    
    
    21,641
    
    
    
    36.7
    
    
    
    3,337
    
    
    
    15.4Operating loss
    
    
    (16,273
    )
    
    
    (32.4
    )
    
    
    (8,207
    )
    
    
    (13.9
    )
    
    
    (8,066
    )
    
    
    98.3Other income (expense):Other expense
    
    
    (95
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    n/m
    (1)Interest income
    
    
    209
    
    
    
    0.4
    
    
    
    494
    
    
    
    0.8
    
    
    
    (285
    )
    
    
    (57.7
    )Interest expense
    
    
    (132
    )
    
    
    (0.3
    )
    
    
    (253
    )
    
    
    (0.4
    )
    
    
    121
    
    
    
    (47.8
    )Gain on foreign exchange
    
    
    9,866
    
    
    
    19.7
    
    
    
    2,732
    
    
    
    4.6
    
    
    
    7,134
    
    
    
    261.1Total other income (expense)
    
    
    9,848
    
    
    
    19.6
    
    
    
    2,973
    
    
    
    5.0
    
    
    
    6,875
    
    
    
    231.2Loss before income taxes
    
    
    (6,425
    )
    
    
    (12.8
    )
    
    
    (5,234
    )
    
    
    (8.9
    )
    
    
    (1,191
    )
    
    
    22.8Income tax provision (benefit)
    
    
    36
    
    
    
    0.1
    
    
    
    (47
    )
    
    
    (0.1
    )
    
    
    83
    
    
    
    n/m
    (1)Net loss
    
    $
    (6,461
    )
    
    
    (12.9
    )
    
    $
    (5,187
    )
    
    
    (8.8
    )
    
    $
    (1,274
    )
    
    
    24.6
 
 (1)
    
    Not meaningful. 23




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##### Table of Contents



Six Months Ended
    
    
    
    
    
    
    IncreaseDecember 27, 2008
    
    
    December 29, 2007
    
    
    Change
    
    
    (Decrease)(thousands)
    
    
    %
    
    
    (thousands)
    
    
    %
    
    
    (thousands)
    
    
    %Revenues
    
    $
    116,735
    
    
    
    100.0
    
    
    $
    113,238
    
    
    
    100.0
    
    
    $
    3,497
    
    
    
    3.1Cost of revenues
    
    
    91,401
    
    
    
    78.3
    
    
    
    87,467
    
    
    
    77.2
    
    
    
    3,934
    
    
    
    4.5Gross margin
    
    
    25,334
    
    
    
    21.7
    
    
    
    25,771
    
    
    
    22.8
    
    
    
    (437
    )
    
    
    (1.7
    )Operating expenses:Research and development
    
    
    14,832
    
    
    
    12.7
    
    
    
    16,860
    
    
    
    14.9
    
    
    
    (2,028
    )
    
    
    (12.0
    )Selling, general and administrative
    
    
    19,966
    
    
    
    17.1
    
    
    
    23,488
    
    
    
    20.7
    
    
    
    (3,522
    )
    
    
    (15.0
    )Amortization of intangible assets
    
    
    907
    
    
    
    0.8
    
    
    
    3,350
    
    
    
    3.0
    
    
    
    (2,443
    )
    
    
    (72.9
    )Restructuring and severance charges
    
    
    1,968
    
    
    
    1.7
    
    
    
    1,779
    
    
    
    1.6
    
    
    
    189
    
    
    
    10.6Legal settlement
    
    
    (184
    )
    
    
    (0.2
    )
    
    
    877
    
    
    
    0.8
    
    
    
    (1,061
    )
    
    
    n/m
    (1)Impairment of goodwill
    
    
    7,881
    
    
    
    6.8
    
    
    
    
    
    
    
    
    
    
    
    7,881
    
    
    
    n/m
    (1)(Gain) loss on sale of property
and equipment
    
    
    8
    
    
    
    
    
    
    
    (1,716
    )
    
    
    (1.5
    )
    
    
    1,724
    
    
    
    n/m
    (1)Total operating expenses
    
    
    45,378
    
    
    
    38.9
    
    
    
    44,638
    
    
    
    39.5
    
    
    
    740
    
    
    
    1.7Operating loss
    
    
    (20,044
    )
    
    
    (17.2
    )
    
    
    (18,867
    )
    
    
    (16.7
    )
    
    
    (1,177
    )
    
    
    6.2Other income (expense):Other expense
    
    
    (695
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (695
    )
    
    
    n/m
    (1)Interest income
    
    
    457
    
    
    
    0.4
    
    
    
    746
    
    
    
    0.7
    
    
    
    (289
    )
    
    
    (38.7
    )Interest expense
    
    
    (324
    )
    
    
    (0.3
    )
    
    
    (387
    )
    
    
    (0.3
    )
    
    
    63
    
    
    
    (16.3
    )Gain on foreign exchange
    
    
    16,362
    
    
    
    14.0
    
    
    
    2,320
    
    
    
    2.0
    
    
    
    14,042
    
    
    
    605.3Total other income (expense)
    
    
    15,800
    
    
    
    13.5
    
    
    
    2,679
    
    
    
    2.4
    
    
    
    13,121
    
    
    
    489.8Loss before income taxes
    
    
    (4,244
    )
    
    
    (3.7
    )
    
    
    (16,188
    )
    
    
    (14.3
    )
    
    
    11,944
    
    
    
    (73.8
    )Income tax provision (benefit)
    
    
    24
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    71
    
    
    
    n/m
    (1)Net loss
    
    $
    (4,268
    )
    
    
    (3.7
    )
    
    $
    (16,141
    )
    
    
    (14.3
    )
    
    $
    11,873
    
    
    
    (73.6
    )
 
 (1)
    
    Not meaningful. Revenues
    24




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##### Table of Contents



Cost of Revenues
     Gross Margin
    25




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##### Table of Contents



Research and Development Expenses
    Selling, General and Administrative Expenses
    Amortization of Intangible Assets
  26




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##### Table of Contents



Restructuring and Severance Charges
  Impairment of Goodwill
  Other Income (Expense)
  Income Tax Benefit
  27




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Liquidity and Capital Resources
 Cash Flows from Operating Activities
 Six Months EndedDecember 27,
    
    
    December 29,2008
    
    
    2007(thousands)Net loss
    
    $
    (4,268
    )
    
    $
    (16,141
    )Non-cash adjustments:Depreciation and amortization
    
    
    6,720
    
    
    
    9,604Stock-based compensation
    
    
    2,241
    
    
    
    4,409Amortization of deferred gain on
sale-leaseback
    
    
    (486
    )
    
    
    (714
    )Impairment of short-term investments
    
    
    706
    
    
    
    Impairment of goodwill
    
    
    7,881
    
    
    
    Accretion on short-term investments
    
    
    (102
    )
    
    
    (Gain) loss on sale of property and
equipment
    
    
    8
    
    
    
    (1,716
    )Total non-cash adjustments
    
    
    16,968
    
    
    
    11,583Increase in working capital
    
    
    (3,010
    )
    
    
    (4,383
    )Net cash provided by (used in) operating activities
    
    $
    9,690
    
    
    $
    (8,941
    )
   Cash Flows from Investing Activities
   Cash Flows from Financing Activities
   28




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Credit Facility
      Future Cash Requirements
   29




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##### Table of Contents



Contractual Obligations
  Off-Balance Sheet Arrangements
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign currency
  30




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##### Table of Contents



Item 4 . Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
     31




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##### Table of Contents



Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc.
 TM
 32




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##### Table of Contents



Item 1A. Risk Factors
 Investing in our securities 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.
 Risks Related to Our Business
 We have a history of large operating losses and we may not be able to achieve profitability in the
future.
   We may not consummate our proposed merger with Avanex Corporation or realize any benefits if we do
complete the transaction.
 ()
 33




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We may not be able to maintain current levels of gross margins.
  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.
  34




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##### Table of Contents



The market for optical components continues to be characterized by excess capacity and intense
price competition which has had, and will continue to have, a material adverse effect on our
results of operations.
  We depend on a limited number of customers for a significant percentage of our revenues.
  We and our telecom customers depend upon a limited number of major telecommunications carriers.
  We typically do not enter into long-term contracts with our customers and our customers may
decrease, cancel or delay their buying levels at any time with little or no advance notice to us.
  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.
  35




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##### Table of Contents



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 qualified personnel to operate our Shenzhen facility; and
    
    retain employees at our Shenzhen facility.
      Fluctuations in operating results could adversely affect the market price of our common stock.
  36




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##### Table of Contents



The investment of our cash balance and our investments in marketable debt securities are subject to
risks which may cause losses and affect the liquidity of these investments.
    We may record impairment charges which would adversely impact our results of operations.
    We may incur additional significant restructuring charges that will adversely affect our results of
operations.
  37




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##### Table of Contents



Our results of operations may suffer if we do not effectively manage our inventory, and we may
incur inventory-related charges.
  Bookham Technology plc may not be able to utilize tax losses and other tax attributes against the
receivables that arise as a result of its transaction with Deutsche Bank.
  38




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##### Table of Contents



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.
  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.
  We may experience low manufacturing yields.
  We depend on a limited number of suppliers who could disrupt our business if they stopped,
decreased or delayed shipments.
  39




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##### Table of Contents



Our intellectual property rights may not be adequately protected.
   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.
  Bookham, Inc. v.
JDS Uniphase Corp. and Agility Communications, Inc.
 TM
 40




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##### Table of Contents



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.
  The markets in which we operate are highly competitive, which could result in lost sales and lower
revenues.
  
    
    respond to new technologies or technical standards;
    
    react to changing customer requirements and expectations;
 41




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##### Table of Contents




    
    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;
    
    foreign taxes;
    
    political, legal and economic instability in foreign markets; and
    
    foreign regulations.
  We may be faced with product liability claims.
  If we fail to attract and retain key personnel, our business could suffer.
  42




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We may not be able to raise capital when desired on favorable terms, or at all, or without dilution
to our stockholders.
    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.
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Litigation regarding Bookham Technology plcs and New Focus initial public offering and follow-on
offering and any other litigation in which we become involved, including as a result of
acquisitions or the arrangements we have with suppliers and customers, may substantially increase
our costs and harm our business.
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Some anti-takeover provisions contained in our charter, by-laws and under Delaware law could hinder
business combinations with third parties.
   Risks Related to Our Common Stock
 A variety of factors could cause the trading price of our common stock to be volatile or decline.
  
    
    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 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;
    
    acts of war, terrorism, or natural disasters;
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
    
    industry, domestic and international market and economic conditions, including the global
macroeconomic downturn we are currently experiencing;
    
    low trading volume in our stock;
    
    developments relating to patents or property rights; and
    
    government regulatory changes.
  If we do not meet the NASDAQ Global Market continued listing requirements, our common stock may be
delisted.
    We may incur significant costs from class action litigation due to our expected stock volatility.
  Because we do not intend to pay dividends, stockholders will benefit from an investment in our
common stock only if it appreciates in value.
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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.
  
 Item 6. Exhibits
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SIGNATURE
  BOOKHAM, INC.Date: February 5, 2009
    By:
    /s/ Jerry TurinJerry TurinChief Financial Officer
(Principal Financial and Accounting Officer) 48




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EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit2.1(1)
    
    Agreement and Plan of Merger and Reorganization dated January 27, 2009 by and among Bookham Inc.,
Ultraviolet Acquisition Sub, Inc., and Avanex Corporation3.1(2)
    
    Amended and Restated By-laws of Bookham, Inc., as amended3.2(3)
    
    Restated Certificate of Incorporation of Bookham, Inc.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.
 
 (1)
    
    Previously filed as Exhibit 2.1 to the Registrants Current Report on Form 8-K (File No.
000-30684) on January 29, 2009, and incorporated herein by reference.(2)
    
    Previously filed as Exhibit 3.1 to the Registrants 2007 Annual Report on Form 10-K (File No.
000-30684) for the year ended June 30, 2007, and incorporated herein by reference.(3)
    
    Previously filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K (File No.
000-30684) on September 10, 2004, and incorporated herein by reference. 49