##### 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 April 3, 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 o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
  o þ
 Subsequent Events




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##### 



OCLARO, INC.
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of April 3, 2010 and June 27, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three and nine
months ended April 3, 2010 and March 28, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended
April 3, 2010 and March 28, 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    39Item 6. Exhibits
    
    
    55Signature
    
    
    56EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 OCLARO, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
 April 3, 2010
    
    
    June 27, 2009(Thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    51,476
    
    
    $
    44,561Short-term investments
    
    
    
    
    
    
    9,259Restricted cash
    
    
    4,310
    
    
    
    4,208Accounts receivable, net
    
    
    77,685
    
    
    
    58,483Inventories
    
    
    59,979
    
    
    
    59,527Prepaid expenses and other current assets
    
    
    12,739
    
    
    
    11,834Assets held for sale
    
    
    
    
    
    
    10,442Total current assets
    
    
    206,189
    
    
    
    198,314Property and equipment, net
    
    
    34,741
    
    
    
    29,875Goodwill
    
    
    25,219
    
    
    
    Other intangible assets, net
    
    
    9,025
    
    
    
    1,951Other non-current assets
    
    
    2,155
    
    
    
    3,248Total assets
    
    $
    277,329
    
    
    $
    233,388LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    45,617
    
    
    $
    31,943Accrued expenses and other liabilities
    
    
    37,548
    
    
    
    39,016Borrowings under line of credit
    
    
    2,500
    
    
    
    Liabilities held for sale
    
    
    
    
    
    
    2,028Total current liabilities
    
    
    85,665
    
    
    
    72,987Deferred gain on sale-leaseback
    
    
    13,386
    
    
    
    15,088Other long-term liabilities
    
    
    9,315
    
    
    
    4,923Total liabilities
    
    
    108,366
    
    
    
    92,998Commitments and contingencies (Note 9)Stockholders equity:Preferred stock (1): 1,000 shares authorized; none issued and
outstanding
    
    
    
    
    
    
    Common stock (1):$0.01 par value per share; 90,000 shares authorized; 42,488 and
37,233 shares issued and outstanding at April 3, 2010 and
June 27, 2009, respectively
    
    
    425
    
    
    
    372Additional paid-in capital (1)
    
    
    1,229,094
    
    
    
    1,200,848Accumulated other comprehensive income
    
    
    29,700
    
    
    
    30,905Accumulated deficit
    
    
    (1,090,256
    )
    
    
    (1,091,735
    )Total stockholders equity
    
    
    168,963
    
    
    
    140,390Total liabilities and stockholders equity
    
    $
    277,329
    
    
    $
    233,388
 
 (1)
    
    On April 14, 2010, the Company announced that its Board of Directors had approved a
1-for-5 reverse split of its common stock, pursuant to previously obtained stockholder
authorization. This reverse stock split became effective at 6:00 p.m., Eastern Time, on
April 29, 2010. All share and per share amounts presented herein are reflected on a
post-split basis. The par value per share amount remains unchanged at $0.01 per share
after the reverse stock split. As a result, the common stock amount was reduced due to the
decreased number of shares issued and outstanding and the additional paid-in capital amount
was increased by this same amount. The accompanying notes form an integral part of these condensed consolidated financial
statements.
 3




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##### Table of Contents



OCLARO, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands, except per share amounts)Revenues
    
    $
    101,152
    
    
    $
    41,241
    
    
    $
    279,836
    
    
    $
    144,046Cost of revenues
    
    
    73,322
    
    
    
    32,381
    
    
    
    205,156
    
    
    
    114,129Gross profit
    
    
    27,830
    
    
    
    8,860
    
    
    
    74,680
    
    
    
    29,917Operating expenses:Research and development
    
    
    11,288
    
    
    
    5,260
    
    
    
    29,977
    
    
    
    17,875Selling, general and administrative
    
    
    14,451
    
    
    
    7,601
    
    
    
    42,249
    
    
    
    24,240Amortization of intangible assets
    
    
    347
    
    
    
    54
    
    
    
    597
    
    
    
    429Restructuring, merger and related costs
    
    
    1,610
    
    
    
    54
    
    
    
    6,149
    
    
    
    1,669Legal settlements
    
    
    
    
    
    
    3,705
    
    
    
    
    
    
    
    3,829Impairment of goodwill and other
intangible assets
    
    
    
    
    
    
    1,252
    
    
    
    
    
    
    
    9,133(Gain) loss on sale of property and
equipment
    
    
    101
    
    
    
    (16
    )
    
    
    (502
    )
    
    
    (8
    )Total operating expenses
    
    
    27,797
    
    
    
    17,910
    
    
    
    78,470
    
    
    
    57,167Operating income (loss)
    
    
    33
    
    
    
    (9,050
    )
    
    
    (3,790
    )
    
    
    (27,250
    )Other income (expense):Interest income
    
    
    11
    
    
    
    78
    
    
    
    36
    
    
    
    522Interest expense
    
    
    (134
    )
    
    
    (109
    )
    
    
    (255
    )
    
    
    (433
    )Gain (loss) on foreign currency translation
    
    
    794
    
    
    
    (598
    )
    
    
    311
    
    
    
    15,764Other income (expense)
    
    
    
    
    
    
    (5
    )
    
    
    5,295
    
    
    
    (700
    )Total other income (expense)
    
    
    671
    
    
    
    (634
    )
    
    
    5,387
    
    
    
    15,153Income (loss) from continuing operations before
income taxes
    
    
    704
    
    
    
    (9,684
    )
    
    
    1,597
    
    
    
    (12,097
    )Income tax provision (benefit)
    
    
    499
    
    
    
    19
    
    
    
    1,246
    
    
    
    (7
    )Income (loss) from continuing operations
    
    
    205
    
    
    
    (9,703
    )
    
    
    351
    
    
    
    (12,090
    )Income (loss) from discontinued operations, net of
tax
    
    
    
    
    
    
    (3,578
    )
    
    
    1,420
    
    
    
    (5,459
    )Net income (loss)
    
    $
    205
    
    
    $
    (13,281
    )
    
    $
    1,771
    
    
    $
    (17,549
    )Basic net income (loss) per share: (1)Income (loss) per share from continuing operations
    
    $
    
    
    
    $
    (0.48
    )
    
    $
    0.01
    
    
    $
    (0.61
    )Income (loss) per share from discontinued operations
    
    $
    
    
    
    $
    (0.18
    )
    
    $
    0.04
    
    
    $
    (0.27
    )Net income (loss) per share
    
    $
    
    
    
    $
    (0.66
    )
    
    $
    0.05
    
    
    $
    (0.88
    )Diluted net income (loss) per share: (1)Income (loss) per share from continuing operations
    
    $
    
    
    
    $
    (0.48
    )
    
    $
    0.01
    
    
    $
    (0.61
    )Income (loss) per share from discontinued operations
    
    $
    
    
    
    $
    (0.18
    )
    
    $
    0.03
    
    
    $
    (0.27
    )Net income (loss) per share
    
    $
    
    
    
    $
    (0.66
    )
    
    $
    0.04
    
    
    $
    (0.88
    )Shares used in computing net income (loss) per share: (1)Basic
    
    
    41,095
    
    
    
    20,084
    
    
    
    38,752
    
    
    
    20,056Diluted
    
    
    43,829
    
    
    
    20,084
    
    
    
    40,331
    
    
    
    20,056
 
 (1)
    
    On April 14, 2010, the Company announced that its Board of Directors had approved a
1-for-5 reverse split of its common stock, pursuant to previously obtained stockholder
authorization. This reverse stock split became effective at 6:00 p.m., Eastern Time, on
April 29, 2010. All share and per share amounts presented herein are reflected on a
post-split basis. The accompanying notes form an integral part of these condensed consolidated financial statements.
 4




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OCLARO, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
 Nine Months EndedApril 3, 2010
    
    
    March 28, 2009(Thousands)Cash flows from operating activities:Net income (loss)
    
    $
    1,771
    
    
    $
    (17,549
    )Adjustments to reconcile net income (loss) to net
cash
provided by (used in) operating activities:Accretion on short-term investments
    
    
    22
    
    
    
    (127
    )Amortization of deferred gain on sale-leaseback
    
    
    (643
    )
    
    
    (698
    )Depreciation and amortization
    
    
    8,667
    
    
    
    9,833Change in fair value of a  value protection
liability
    
    
    (343
    )
    
    
    Gain on sale of property and equipment
    
    
    (502
    )
    
    
    (8
    )Gain on bargain purchase
    
    
    (5,267
    )
    
    
    Gain on sale of New Focus business
    
    
    (1,420
    )
    
    
    Impairment of goodwill and other intangible assets
    
    
    
    
    
    
    11,915Impairment (recovery) of short-term investments
    
    
    (28
    )
    
    
    706Stock-based compensation expense
    
    
    3,175
    
    
    
    3,303Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (18,677
    )
    
    
    (1,181
    )Inventories
    
    
    6,481
    
    
    
    1,103Prepaid expenses and other current assets
    
    
    (16
    )
    
    
    2,010Other non-current assets
    
    
    1,559
    
    
    
    (1,036
    )Accounts payable
    
    
    10,788
    
    
    
    (5,977
    )Accrued expenses and other liabilities
    
    
    (7,213
    )
    
    
    1,849Net cash provided by (used in) operating activities
    
    
    (1,646
    )
    
    
    4,143Cash flows from investing activities:Purchases of property and equipment
    
    
    (5,945
    )
    
    
    (8,475
    )Proceeds from sales of property and equipment
    
    
    691
    
    
    
    32Purchases of available-for-sale investments
    
    
    
    
    
    
    (6,945
    )Sales and maturities of available-for-sale
investments
    
    
    9,258
    
    
    
    18,300Transfer (to) from restricted cash
    
    
    (103
    )
    
    
    566Purchase of intangibles and equipment from an
asset purchase
    
    
    (250
    )
    
    
    Cash acquired from business combinations
    
    
    3,277
    
    
    
    Net cash provided by investing activities
    
    
    6,928
    
    
    
    3,478Cash flows from financing activities:Proceeds from issuance of common stock, net
    
    
    137
    
    
    
    Proceeds from borrowings under line of credit
    
    
    2,500
    
    
    
    Repayment of other liabilities
    
    
    (52
    )
    
    
    (46
    )Net cash provided by (used in) financing activities
    
    
    2,585
    
    
    
    (46
    )Effect of exchange rate on cash and cash equivalents
    
    
    (952
    )
    
    
    (8,607
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,915
    
    
    
    (1,032
    )Cash and cash equivalents at beginning of period
    
    
    44,561
    
    
    
    32,863Cash and cash equivalents at end of period
    
    $
    51,476
    
    
    $
    31,831Supplemental disclosures of non-cash transactions:Issuance of common stock, and incurrence of escrow
liability and
value protection liability for acquisition of
Xtellus
    
    $
    32,690
    
    
    $
    
 The accompanying notes form an integral part of these condensed consolidated financial statements.
 5




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OCLARO, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1. Organization
     Note 2. Basis of Preparation
 Basis of Presentation
    6




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Generally Accepted Accounting Principles FASB Accounting Standards Codification
 Reclassifications
  Business Combinations
 Recent Accounting Pronouncements
  Fair Value
Measurements and Disclosures (Topic 820)  Improving Disclosures about Fair Value Measurements
 Software (Topic 985), Certain Revenue Arrangements
that Include Software Elements
 7




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##### Table of Contents



Revenue Recognition (Topic 605), Multiple-Deliverable
Revenue Arrangements
 Note 3. Fair Value
 Fair Value Measurements and
Disclosures,
 Level 1 
 Level 2 
 Level 3 
  Business Combinations
  8




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##### Table of Contents



Assets and Liabilities Measured at Fair Value
  Fair Value Measurement at April 3, 2010 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
    
    $
    23,966
    
    
    $
    
    
    
    $
    
    
    
    $
    23,966Total assets measured at fair value
    
    $
    23,966
    
    
    $
    
    
    
    $
    
    
    
    $
    23,966Liabilities:Accrued expenses and other liabilities:Unrealized loss on currency instruments
designated as hedges
    
    $
    
    
    
    $
    423
    
    
    $
    
    
    
    $
    423Other long-term liabilities:Value protection liability
    
    
    
    
    
    
    
    
    
    
    603
    
    
    
    603Total liabilities measured at fair value
    
    $
    
    
    
    $
    423
    
    
    $
    603
    
    
    $
    1,026
 
 (1)
    
    Excludes $27.5 million in cash held in Company bank accounts at April 3, 2010. Derivative Financial Instruments
    9




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Note 4. Business Combinations
    Business Combinations,
 Sale of the New Focus business
 .
  June 27, 2009(Thousands)Assets held for sale:Accounts receivable, net
    
    $
    3,556Inventories
    
    
    5,566Prepaid expenses and other current assets
    
    
    46Property and equipment, net
    
    
    1,274$
    10,442
 June 27, 2009(Thousands)Liabilities held for sale:Accounts payable
    
    $
    1,197Accrued expenses and other liabilities
    
    
    831$
    2,028
 10




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Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    

    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)Revenues
    
    $
    
    
    
    $
    5,751
    
    
    $
    
    
    
    $
    19,681Cost of revenues
    
    
    
    
    
    
    3,722
    
    
    
    
    
    
    
    13,375Gross profit
    
    
    
    
    
    
    2,029
    
    
    
    
    
    
    
    6,306Operating expenses
    
    
    
    
    
    
    5,598
    
    
    
    
    
    
    
    11,719Other income (expense), net
    
    
    
    
    
    
    (9
    )
    
    
    1,420
    
    
    
    4Income (loss) from discontinued operations
before income taxes
    
    
    
    
    
    
    (3,578
    )
    
    
    1,420
    
    
    
    (5,409
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Income (loss) from discontinued operations
    
    $
    
    
    
    $
    (3,578
    )
    
    $
    1,420
    
    
    $
    (5,459
    )
 Acquisition of the Newport high-power laser diodes business
 Business Combinations
  Purchase Price(Thousands)Cash
    
    $
    3,000Accounts receivable
    
    
    2,240Inventories
    
    
    4,863Property and equipment
    
    
    4,800Other intangible assets
    
    
    1,755Accounts payable
    
    
    (923
    )Accrued expenses and other current liabilities
    
    
    (568
    )Fair value of net assets acquired
    
    
    15,167Gain on bargain purchase
    
    
    (5,267
    )Total purchase price
    
    $
    9,900
  Acquisition of Xtellus
  11




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Distinguishing Liabilities from Equity
    Total Consideration(Thousands)Common shares issued to Xtellus stockholders and debtholders
    
    $
    24,744Estimated fair value of escrow liability
    
    
    7,000Estimated fair value of value protection liability
    
    
    946$
    32,690
   12




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PreliminaryPurchase Price(Thousands)Cash
    
    $
    277Accounts receivable
    
    
    75Inventories
    
    
    1,560Property and equipment
    
    
    2,297Prepaid expenses and other current assets
    
    
    1,339Other non-current assets
    
    
    477Other intangible assets
    
    
    5,340Accounts payable
    
    
    (1,683
    )Accrued expenses and other current liabilities
    
    
    (1,730
    )Other long-term liabilities
    
    
    (481
    )Fair value of net assets acquired
    
    
    7,471Goodwill
    
    
    25,219Total purchase price
    
    $
    32,690
  Unaudited Pro Forma Financial Information
  Nine Months EndedApril 3, 2010
    
    
    March 28, 2009(Thousands)Revenues
    
    $
    282,814
    
    
    $
    169,962Loss from continuing operations
    
    $
    (6,409
    )
    
    $
    (21,918
    )Net loss
    
    $
    (4,989
    )
    
    $
    (27,377
    )Net loss per share  basic and diluted
    
    $
    (0.12
    )
    
    $
    (1.13
    )Shares used in computing net loss per share  basic and diluted
    
    
    41,344
    
    
    
    24,251
  Note 5. Balance Sheet Details
  April 3, 2010
    
    
    June 27, 2009(Thousands)Cash and cash equivalents:Cash-in-bank
    
    $
    27,510
    
    
    $
    24,162Money market funds
    
    
    23,966
    
    
    
    20,399$
    51,476
    
    
    $
    44,561Short-term investments:United States agency securities
    
    $
    
    
    
    $
    6,669United States corporate bonds
    
    
    
    
    
    
    2,590$
    
    
    
    $
    9,259
  13




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##### Table of Contents



April 3, 2010
    
    
    June 27, 2009(Thousands)Inventories:Raw materials
    
    $
    17,614
    
    
    $
    16,560Work-in-process
    
    
    29,830
    
    
    
    29,825Finished goods
    
    
    12,535
    
    
    
    13,142$
    59,979
    
    
    $
    59,527
  April 3, 2010
    
    
    June 27, 2009(Thousands)Property and equipment, net:Buildings
    
    $
    16,157
    
    
    $
    16,696Plant and machinery
    
    
    92,549
    
    
    
    80,881Fixtures, fittings and equipment
    
    
    1,149
    
    
    
    1,085Computer equipment
    
    
    11,849
    
    
    
    12,936121,704
    
    
    
    111,598Less: Accumulated depreciation
    
    
    (86,963
    )
    
    
    (81,723
    )$
    34,741
    
    
    $
    29,875
  April 3, 2010
    
    
    June 27, 2009(Thousands)Accrued expenses and other liabilities:Trade payables
    
    $
    7,099
    
    
    $
    3,826Compensation and benefits related accruals
    
    
    6,956
    
    
    
    8,024Warranty accrual
    
    
    2,879
    
    
    
    2,228Current portion of restructuring accrual
    
    
    5,899
    
    
    
    9,485Unrealized loss on currency instruments designated as hedges
    
    
    423
    
    
    
    545Value protection liability for Xtellus acquisition
    
    
    603
    
    
    
    Other accruals
    
    
    13,689
    
    
    
    14,908$
    37,548
    
    
    $
    39,016
  April 3, 2010
    
    
    June 27, 2009(Thousands)Other long-term liabilities:Escrow liability for Xtellus acquisition
    
    $
    7,000
    
    
    $
    Other long-term liabilities
    
    
    2,315
    
    
    
    4,923$
    9,315
    
    
    $
    4,923
 Note 6. Goodwill and Other Intangible Assets
  14




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Property, Plant and Equipment
  Other Intangible AssetsAccumulatedGoodwill
    
    
    Cost
    
    
    Amortization
    
    
    Net Book Value(Thousands)June 27, 2009
    
    $
    
    
    
    $
    12,142
    
    
    $
    10,191
    
    
    $
    1,951Acquired (1)
    
    
    25,219
    
    
    
    7,802
    
    
    
    
    
    
    
    7,802Amortization
    
    
    
    
    
    
    
    
    
    
    597
    
    
    
    (597
    )Exchange rate adjustment
    
    
    
    
    
    
    (224
    )
    
    
    (93
    )
    
    
    (131
    )April 3, 2010
    
    $
    25,219
    
    
    $
    19,720
    
    
    $
    10,695
    
    
    $
    9,025
 
 (1)
    
    During the third quarter of fiscal year 2010, the Company entered into an agreement to
acquire assets associated with certain VOA products for $1.0 million. This transaction was
accounted for as an asset purchase and included approximately $0.7 million in core and
current technology with a weighted average life of 6 years. The remaining $0.3 million
consisted of inventory and equipment.  April 3,
    
    
    June 27,2010
    
    
    2009(Thousands)Supply agreements
    
    $
    3,102
    
    
    $
    3,253Customer relationships
    
    
    1,704
    
    
    
    719Customer databases
    
    
    134
    
    
    
    135Core and current technology
    
    
    13,296
    
    
    
    6,650Contract backlog
    
    
    110
    
    
    
    Patent portfolio
    
    
    1,374
    
    
    
    1,38519,720
    
    
    
    12,142Less accumulated amortization
    
    
    (10,695
    )
    
    
    (10,191
    )Other intangible assets, net
    
    $
    9,025
    
    
    $
    1,951
  15




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##### Table of Contents



Note 7. Restructuring Liabilities
  Accrued
    
    
    
    
    
    
    
    
    
    
    Adjustments
    
    
    AccruedRestructuring Costs
    
    
    Amounts Charged to
    
    
    Amounts Paid or
    
    
    and
    
    
    Restructuring Costsat June 27, 2009
    
    
    Restructuring Costs
    
    
    Written-off
    
    
    Reversals
    
    
    at April 3, 2010(Thousands)Lease cancellations and
commitments and other charges
    
    $
    8,320
    
    
    $
    1,443
    
    
    $
    (4,165
    )
    
    $
    (3
    )
    
    $
    5,595Termination payments to employees
and related costs
    
    
    4,719
    
    
    
    2,555
    
    
    
    (6,902
    )
    
    
    75
    
    
    
    447Total accrued restructuring charges
    
    
    13,039
    
    
    $
    3,998
    
    
    $
    (11,067
    )
    
    $
    72
    
    
    
    6,042Less non-current accrued
restructuring
charges
    
    
    (3,554
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143
    )Accrued restructuring charges
included
within accrued expenses and other
liabilities
    
    $
    9,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,899
      Note 8. Credit Facility
   16




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##### Table of Contents



Note 9. Commitments and Contingencies
 Guarantees
   Warranty accrual
   Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)Warranty provision  beginning of period
    
    $
    2,486
    
    
    $
    2,174
    
    
    $
    2,228
    
    
    $
    2,598Warranties assumed in acquisitions
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    Warranties issued
    
    
    1,162
    
    
    
    558
    
    
    
    2,862
    
    
    
    2,180Warranties utilized or expired
    
    
    (687
    )
    
    
    (664
    )
    
    
    (2,351
    )
    
    
    (2,152
    )Currency translation adjustment
    
    
    (82
    )
    
    
    (48
    )
    
    
    (108
    )
    
    
    (606
    )Warranty provision  end of period
    
    $
    2,879
    
    
    $
    2,020
    
    
    $
    2,879
    
    
    $
    2,020
 Litigation
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
 17




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##### Table of Contents



QinetiQ Limited v. Oclaro, Inc
 18




---



##### Table of Contents



Note 10. Stockholders Equity
 Warrants
  Weighted-Warrants
    
    
    AverageOutstanding
    
    
    Exercise Price(Thousands)Balance at June 27, 2009
    
    
    2,547
    
    
    $
    24.55Expired on December 20, 2009
    
    
    (400
    )
    
    
    30.00Expired on March 8, 2010
    
    
    (531
    )
    
    
    37.15Balance at April 3, 2010
    
    
    1,616
    
    
    $
    19.05
        19




---



##### Table of Contents



Accumulated Other Comprehensive Income
  April 3, 2010
    
    
    June 27, 2009(Thousands)Accumulated other comprehensive income:Unrealized loss on currency instruments designated as hedges
    
    $
    (423
    )
    
    $
    (545
    )Currency translation adjustments
    
    
    30,123
    
    
    
    31,443Unrealized gain on short-term investments
    
    
    
    
    
    
    7$
    29,700
    
    
    $
    30,905
 Note 11. Employee Stock Plans
     20




---



##### Table of Contents



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 June 27, 2009
    
    
    2,561
    
    
    
    3,235
    
    
    $
    21.00
    
    
    
    431
    
    
    $
    4.15Granted
    
    
    (1,561
    )
    
    
    990
    
    
    
    4.40
    
    
    
    570
    
    
    
    6.80Granted in connection with
tender offer
    
    
    (354
    )
    
    
    354
    
    
    
    6.80
    
    
    
    
    
    
    
    Exercised or released
    
    
    
    
    
    
    (45
    )
    
    
    3.70
    
    
    
    (216
    )
    
    
    3.90Cancelled or forfeited
    
    
    463
    
    
    
    (487
    )
    
    
    31.15
    
    
    
    (32
    )
    
    
    4.15Cancelled in connection with
tender offer
    
    
    704
    
    
    
    (777
    )
    
    
    37.55
    
    
    
    
    
    
    
    Reduction in available for grant
    
    
    (744
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balances at April 3, 2010
    
    
    1,069
    
    
    
    3,270
    
    
    $
    9.15
    
    
    
    753
    
    
    $
    6.25
  Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    Value(Thousands)
    
    
    
    
    
    (Years)
    
    (Thousands)Options exercisable at April 3, 2010
    
    
    906
    
    
    $
    20.05
    
    
    
    6.0
    
    
    $
    4,357Options outstanding at April 3, 2010
    
    
    3,270
    
    
    $
    9.15
    
    
    
    8.0
    
    
    $
    25,667
  Note 12. Stock-based Compensation
 Compensation  Stock Compensation
  21




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedApril 3,
    
    March 28,


    
    April 3,
    
    March 28,2010
    
    2009
    
    2010
    
    2009Expected life
    
    4.5 years
    
    4.5 years
    
    4.5 years
    
    4.5 yearsRisk-free interest rate
    
    
    2.2
    %
    
    
    1.9
    %
    
    
    2.3
    %
    
    
    2.8
    %Volatility
    
    
    95.9
    %
    
    
    84.6
    %
    
    
    99.8
    %
    
    
    74.0
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)Stock-based compensation by category of expense:Cost of revenues
    
    $
    226
    
    
    $
    265
    
    
    $
    640
    
    
    $
    889Research and development
    
    
    332
    
    
    
    216
    
    
    
    831
    
    
    
    650Selling, general and administrative
    
    
    666
    
    
    
    490
    
    
    
    1,704
    
    
    
    1,491Income (loss) from discontinued operations
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    273$
    1,224
    
    
    $
    1,062
    
    
    $
    3,175
    
    
    $
    3,303Stock-based compensation by type of award:Stock options
    
    $
    629
    
    
    $
    904
    
    
    $
    2,257
    
    
    $
    2,573Restricted stock awards
    
    
    741
    
    
    
    136
    
    
    
    1,178
    
    
    
    566Inventory adjustment to cost of revenues
    
    
    (146
    )
    
    
    22
    
    
    
    (260
    )
    
    
    164$
    1,224
    
    
    $
    1,062
    
    
    $
    3,175
    
    
    $
    3,303
  Note 13. Income Taxes
    22




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##### Table of Contents



Note 14. Net Income (Loss) Per Share
  Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands,except per share amounts)Net income (loss)
    
    $
    205
    
    
    $
    (13,281
    )
    
    $
    1,771
    
    
    $
    (17,549
    )Weighted average shares  basic
    
    
    41,095
    
    
    
    20,084
    
    
    
    38,752
    
    
    
    20,056Effect of dilutive potential common shares from:Stock options
    
    
    1,472
    
    
    
    
    
    
    
    914
    
    
    
    Restricted stock awards
    
    
    760
    
    
    
    
    
    
    
    473
    
    
    
    Obligations under escrow agreement
    
    
    502
    
    
    
    
    
    
    
    192
    
    
    
    Weighted average shares  diluted
    
    
    43,829
    
    
    
    20,084
    
    
    
    40,331
    
    
    
    20,056Basic net income (loss) per share
    
    $
    
    
    
    $
    (0.66
    )
    
    $
    0.05
    
    
    $
    (0.88
    )Diluted net income (loss) per share
    
    $
    
    
    
    $
    (0.66
    )
    
    $
    0.04
    
    
    $
    (0.88
    )
   Note 15. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)Net income (loss)
    
    $
    205
    
    
    $
    (13,281
    )
    
    $
    1,771
    
    
    $
    (17,549
    )Other comprehensive income (loss):Unrealized gain (loss) on
currency instruments
designated as hedges
    
    
    (210
    )
    
    
    1,635
    
    
    
    121
    
    
    
    (2,388
    )Currency translation adjustments
    
    
    (1,766
    )
    
    
    (1,649
    )
    
    
    (1,320
    )
    
    
    (16,964
    )Unrealized gain (loss) on
short-term investments
    
    
    
    
    
    
    (33
    )
    
    
    (7
    )
    
    
    11Comprehensive income (loss)
    
    $
    (1,771
    )
    
    $
    (13,328
    )
    
    $
    565
    
    
    $
    (36,890
    )
 Note 16. Operating Segments and Related Information
  23




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,


    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)Net revenues:Telecom
    
    $
    87,013
    
    
    $
    37,174
    
    
    $
    243,457
    
    
    $
    128,049Advanced photonics solutions
    
    
    14,139
    
    
    
    4,067
    
    
    
    36,379
    
    
    
    15,997Consolidated net revenues
    
    $
    101,152
    
    
    $
    41,241
    
    
    $
    279,836
    
    
    $
    144,046
 Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28 ,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)Operating income (loss)Telecom
    
    $
    1,957
    
    
    $
    482
    
    
    $
    (372
    )
    
    $
    (6,691
    )Advanced photonics solutions
    
    
    (599
    )
    
    
    (3,620
    )
    
    
    (745
    )
    
    
    (4,575
    )Total segment operating income (loss)
    
    
    1,358
    
    
    
    (3,138
    )
    
    
    (1,117
    )
    
    
    (11,266
    )Stock-based compensation
    
    
    1,224
    
    
    
    971
    
    
    
    3,175
    
    
    
    3,030Legal settlements
    
    
    
    
    
    
    3,705
    
    
    
    
    
    
    
    3,829(Gain) loss on sale of property and
equipment
    
    
    101
    
    
    
    (16
    )
    
    
    (502
    )
    
    
    (8
    )Impairment of goodwill and other intangible
assets
    
    
    
    
    
    
    1,252
    
    
    
    
    
    
    
    9,133Consolidated operating income (loss)
    
    $
    33
    
    
    $
    (9,050
    )
    
    $
    (3,790
    )
    
    $
    (27,250
    )
  Three Months Ended
    
    
    Nine Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands)United States
    
    $
    19,542
    
    
    $
    8,064
    
    
    $
    54,529
    
    
    $
    30,014Canada
    
    
    3,563
    
    
    
    3,804
    
    
    
    12,302
    
    
    
    11,610Europe
    
    
    23,424
    
    
    
    12,083
    
    
    
    66,417
    
    
    
    36,843Asia
    
    
    47,234
    
    
    
    17,290
    
    
    
    125,792
    
    
    
    55,473Rest of world
    
    
    7,389
    
    
    
    
    
    
    
    20,796
    
    
    
    10,106$
    101,152
    
    
    $
    41,241
    
    
    $
    279,836
    
    
    $
    144,046
 24




---



##### Table of Contents



April 3,    2010
    
    
    June 27,   2009(Thousands)United States
    
    $
    9,445
    
    
    $
    2,252Canada
    
    
    152
    
    
    
    185Europe
    
    
    7,707
    
    
    
    7,390Asia
    
    
    17,437
    
    
    
    20,048$
    34,741
    
    
    $
    29,875
 Significant Customers and Concentration of Credit Risk
     Note 17. Subsequent Events
   25




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
    26




---



##### Table of Contents



Recent Significant Events
   Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures (Topic 820)  Improving
Disclosures about Fair Value Measurements
 Software (Topic 985), Certain Revenue Arrangements
that Include Software Elements
 Revenue Recognition (Topic 605), Multiple-Deliverable
Revenue Arrangements
 27




---



##### Table of Contents



Application of Critical Accounting Policies
   28




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    
    
    
    
    IncreaseApril 3, 2010
    
    
    March 28, 2009
    
    
    Change
    
    
    (Decrease)(Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %Revenues
    
    $
    101,152
    
    
    
    100.0
    
    
    $
    41,241
    
    
    
    100.0
    
    
    $
    59,911
    
    
    
    145.3Cost of revenues
    
    
    73,322
    
    
    
    72.5
    
    
    
    32,381
    
    
    
    78.5
    
    
    
    40,941
    
    
    
    126.4Gross profit
    
    
    27,830
    
    
    
    27.5
    
    
    
    8,860
    
    
    
    21.5
    
    
    
    18,970
    
    
    
    214.1Operating expenses:Research and development
    
    
    11,288
    
    
    
    11.2
    
    
    
    5,260
    
    
    
    12.8
    
    
    
    6,028
    
    
    
    114.6Selling, general and administrative
    
    
    14,451
    
    
    
    14.3
    
    
    
    7,601
    
    
    
    18.4
    
    
    
    6,850
    
    
    
    90.1Amortization of intangible assets
    
    
    347
    
    
    
    0.3
    
    
    
    54
    
    
    
    0.1
    
    
    
    293
    
    
    
    542.6Restructuring, merger and related
costs
    
    
    1,610
    
    
    
    1.6
    
    
    
    54
    
    
    
    0.1
    
    
    
    1,556
    
    
    
    2,881.5Legal settlements
    
    
    
    
    
    
    
    
    
    
    3,705
    
    
    
    9.0
    
    
    
    (3,705
    )
    
    
    n/m
    (1)Impairment of goodwill and other
intangible assets
    
    
    
    
    
    
    
    
    
    
    1,252
    
    
    
    3.0
    
    
    
    (1,252
    )
    
    
    n/m
    (1)(Gain) loss on sale of property
and equipment
    
    
    101
    
    
    
    0.1
    
    
    
    (16
    )
    
    
    
    
    
    
    117
    
    
    
    n/m
    (1)Total operating expenses
    
    
    27,797
    
    
    
    27.5
    
    
    
    17,910
    
    
    
    43.4
    
    
    
    9,887
    
    
    
    55.2Operating income (loss)
    
    
    33
    
    
    
    
    
    
    
    (9,050
    )
    
    
    (21.9
    )
    
    
    9,083
    
    
    
    n/m
    (1)Other income (expense):Interest income
    
    
    11
    
    
    
    
    
    
    
    78
    
    
    
    0.2
    
    
    
    (67
    )
    
    
    (85.9
    )Interest expense
    
    
    (134
    )
    
    
    (0.1
    )
    
    
    (109
    )
    
    
    (0.3
    )
    
    
    (25
    )
    
    
    22.9Gain (loss) on foreign currency
translation
    
    
    794
    
    
    
    0.8
    
    
    
    (598
    )
    
    
    (1.5
    )
    
    
    1,392
    
    
    
    n/m
    (1)Other income (expense)
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    5
    
    
    
    n/m
    (1)Total other income (expense)
    
    
    671
    
    
    
    0.7
    
    
    
    (634
    )
    
    
    (1.6
    )
    
    
    1,305
    
    
    
    n/m
    (1)Income (loss) from continuing operations
before income taxes
    
    
    704
    
    
    
    0.7
    
    
    
    (9,684
    )
    
    
    (23.5
    )
    
    
    10,388
    
    
    
    n/m
    (1)Income tax provision
    
    
    499
    
    
    
    0.5
    
    
    
    19
    
    
    
    
    
    
    
    480
    
    
    
    2,526.3Income (loss) from continuing operations
    
    
    205
    
    
    
    0.2
    
    
    
    (9,703
    )
    
    
    (23.5
    )
    
    
    9,908
    
    
    
    n/m
    (1)Loss from discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (3,578
    )
    
    
    (8.7
    )
    
    
    3,578
    
    
    
    n/m
    (1)Net income (loss)
    
    $
    205
    
    
    
    0.2
    
    
    $
    (13,281
    )
    
    
    (32.2
    )
    
    $
    13,486
    
    
    
    n/m
    (1)
 
 (1)
    
    Not meaningful. 29




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##### Table of Contents



Nine Months Ended
    
    
    
    
    
    
    IncreaseApril 3, 2010
    
    
    March 28, 2009
    
    
    Change
    
    
    (Decrease)(Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %Revenues
    
    $
    279,836
    
    
    
    100.0
    
    
    $
    144,046
    
    
    
    100.0
    
    
    $
    135,790
    
    
    
    94.3Cost of revenues
    
    
    205,156
    
    
    
    73.3
    
    
    
    114,129
    
    
    
    79.2
    
    
    
    91,027
    
    
    
    79.8Gross profit
    
    
    74,680
    
    
    
    26.7
    
    
    
    29,917
    
    
    
    20.8
    
    
    
    44,763
    
    
    
    149.6Operating expenses:Research and development
    
    
    29,977
    
    
    
    10.7
    
    
    
    17,875
    
    
    
    12.4
    
    
    
    12,102
    
    
    
    67.7Selling, general and administrative
    
    
    42,249
    
    
    
    15.1
    
    
    
    24,240
    
    
    
    16.8
    
    
    
    18,009
    
    
    
    74.3Amortization of intangible assets
    
    
    597
    
    
    
    0.2
    
    
    
    429
    
    
    
    0.3
    
    
    
    168
    
    
    
    39.2Restructuring, merger and related
costs
    
    
    6,149
    
    
    
    2.2
    
    
    
    1,669
    
    
    
    1.2
    
    
    
    4,480
    
    
    
    268.4Legal settlements
    
    
    
    
    
    
    
    
    
    
    3,829
    
    
    
    2.7
    
    
    
    (3,829
    )
    
    
    n/m
    (1)Impairment of goodwill and other
intangible assets
    
    
    
    
    
    
    
    
    
    
    9,133
    
    
    
    6.3
    
    
    
    (9,133
    )
    
    
    n/m
    (1)Gain on sale of property
and equipment
    
    
    (502
    )
    
    
    (0.1
    )
    
    
    (8
    )
    
    
    
    
    
    
    (494
    )
    
    
    6,175.0Total operating expenses
    
    
    78,470
    
    
    
    28.1
    
    
    
    57,167
    
    
    
    39.7
    
    
    
    21,303
    
    
    
    37.3Operating loss
    
    
    (3,790
    )
    
    
    (1.4
    )
    
    
    (27,250
    )
    
    
    (18.9
    )
    
    
    23,460
    
    
    
    (86.1
    )Other income (expense):Interest income
    
    
    36
    
    
    
    
    
    
    
    522
    
    
    
    0.4
    
    
    
    (486
    )
    
    
    (93.1
    )Interest expense
    
    
    (255
    )
    
    
    (0.1
    )
    
    
    (433
    )
    
    
    (0.3
    )
    
    
    178
    
    
    
    (41.1
    )Gain on foreign exchange
    
    
    311
    
    
    
    0.1
    
    
    
    15,764
    
    
    
    10.9
    
    
    
    (15,453
    )
    
    
    (98.0
    )Other income (expense)
    
    
    5,295
    
    
    
    1.9
    
    
    
    (700
    )
    
    
    (0.5
    )
    
    
    5,995
    
    
    
    n/m
    (1)Total other income
    
    
    5,387
    
    
    
    1.9
    
    
    
    15,153
    
    
    
    10.5
    
    
    
    (9,766
    )
    
    
    (64.4
    )Income (loss) from continuing operations
before income taxes
    
    
    1,597
    
    
    
    0.5
    
    
    
    (12,097
    )
    
    
    (8.4
    )
    
    
    13,694
    
    
    
    n/m
    (1)Income tax provision (benefit)
    
    
    1,246
    
    
    
    0.4
    
    
    
    (7
    )
    
    
    
    
    
    
    1,253
    
    
    
    n/m
    (1)Income (loss) from continuing operations
    
    
    351
    
    
    
    0.1
    
    
    
    (12,090
    )
    
    
    (8.4
    )
    
    
    12,441
    
    
    
    n/m
    (1)Income (loss) from discontinued operations,
net of tax
    
    
    1,420
    
    
    
    0.5
    
    
    
    (5,459
    )
    
    
    (3.8
    )
    
    
    6,879
    
    
    
    n/m
    (1)Net income (loss)
    
    $
    1,771
    
    
    
    0.6
    
    
    $
    (17,549
    )
    
    
    (12.2
    )
    
    $
    19,320
    
    
    
    n/m
    (1)
 
 (1)
    
    Not meaningful. Revenues
    30




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Cost of Revenues
  Restructuring Liabilities
   Gross Profit
    31




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Research and Development Expenses
     Selling, General and Administrative Expenses
    Restructuring, Merger and Related Costs
  32




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Business Combinations
  Legal Settlement
  Impairment of Goodwill and Other Intangible Assets
  Property, Plant and Equipment
 (Gain)Loss on Sale of Property and Equipment
  Other Income (Expense)
   33




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Income Tax Provision (Benefit)
  Income (Loss) From Discontinued Operations
  Liquidity and Capital Resources
 Cash Flows from Operating Activities
   Cash Flows from Investing Activities
   Cash Flows from Financing Activities
  34




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Effect of Exchange Rates on Cash and Cash Equivalents for the Nine Months Ended April 3, 2010
  Credit Facility
   Future Cash Requirements
   35




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Risk Management  Foreign Currency Risk
  Off-Balance Sheet Arrangements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rates
   36




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Foreign currency
   Hedging Program
  
 Item 4 . Controls and Procedures
   37




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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
    QinetiQ Limited v. Oclaro, Inc
 38




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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
 We have a history of large operating losses and we may not be able to achieve profitability in the
future.
  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.
  39




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Our success will depend on our ability to anticipate and respond to evolving technologies and
customer requirements.
  The market for optical components continues to be characterized by excess capacity and intense
price competition which has had, and may 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.
   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 make acquisitions that do not prove successful.
  40




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
    
    Unanticipated costs and liabilities and unforeseen accounting charges;
    
    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;
    
    Loss of key employees;
    
    Economic dilution to gross and operating profit and earnings(loss) per share;
    
    Diversion of managements attention from other business concerns and disruption of our
ongoing business;
    
    Difficulty in maintaining controls and procedures;
    
    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;
    
    Damage to or loss of supply or partnership relationships;
    
    Declines in the revenue of the combined company;
    
    Failure to realize the potential financial or strategic benefits of the acquisition or
divestiture; and
    
    Failure to successfully further develop the combined, acquired or remaining technology,
resulting in the impairment of amounts recorded as goodwill or other intangible assets.
 We may not achieve our strategic objectives, anticipated synergies and cost savings and other
expected benefits of our merger with Avanex, our acquisition of the high-power laser diodes
business of Newport or our acquisition of Xtellus.
   
    
    the inability to increase product sales;
    
    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;
    
    difficulty in:
 41




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o
    
    the integration of operational, financial and administrative functions
and systems to permit effective management, and the lack of control if such
integration is not implemented or delayed;o
    
    demonstrating to our customers that the transactions will not result in
adverse changes in client service standards or business focus and helping our
customers conduct business easily with us;o
    
    consolidating and rationalizing corporate information technology,
engineering and administrative infrastructures;o
    
    integrating product offerings;o
    
    coordinating sales and marketing efforts to effectively communicate our capabilities;o
    
    coordinating and integrating the manufacturing activities of our acquired
businesses, including with respect to third-party manufacturers, and including the
establishment of Tucson laser diode related manufacturing processes in our European
facilities on a timely basis, or at all, and including executing a ramp of
production capacity in South Korea to support the potential revenue demand for the
WSS related products of Xtellus;o
    
    coordinating and integrating supply chains;o
    
    coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;o
    
    preserving important relationships of our acquired businesses and
resolving potential conflicts between business cultures;o
    
    coordinating the international activities of our acquired businesses;o
    
    unexpected liabilities associated with our acquired businesses or
unanticipated costs related to the integrations;o
    
    the effect of tax laws due to increasing complexities of our global
operating structure; ando
    
    employment law or regulations or other limitations in foreign
jurisdictions that could have an impact on timing, amounts or costs of achieving
expected synergies.
  Sales of our products could decline if customer relationships are disrupted by our recent merger
and acquisition activities.
   42




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As a result of the 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.
  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.
  43




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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.
      44




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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.
    Fluctuations in our operating results could adversely affect the market price of our common
stock.
   The investment of our cash balances and our investments in marketable debt securities are subject
to risks which may cause losses and affect the liquidity of these investments.
  45




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We may record additional impairment charges that will adversely impact our results of operations.
 Intangibles  Goodwill and Other
  We may incur additional significant restructuring charges that will adversely affect our results of
operations.
   Our results of operations may suffer if we do not effectively manage our inventory, and we may
incur inventory-related charges.
  Oclaro 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.
  46




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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.
  Our intellectual property rights may not be adequately protected.
  47




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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.
 QinetiQ Limited v. Oclaro,
Inc
  48




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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.
   
    
    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.
  49




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
    
    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;
    
    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.
    We may not be able to raise capital when desired on favorable terms, or at all, or without dilution
to our stockholders.
  50




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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.
   Avanex previously experienced material weaknesses in its internal controls over financial
reporting. 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.
  51




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Litigation regarding, among other things, Bookham Technology plcs and New Focus initial public
offering and follow-on offerings 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.
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
    52




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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
  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 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 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;
 53




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
    
    industry, domestic and international market and economic conditions, including the global
macroeconomic downturn over the last 18 to 24 months;
    
    low trading volume in our stock;
    
    developments relating to patents or property rights; and
    
    government regulatory changes.
    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.
 54




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Delaware law, our charter documents and our stockholder rights plan 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 additional 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.
   
 Item 6. Exhibits
  55




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SIGNATURE
  OCLARO, INC.Date: May 4, 2010
    By:
    /s/ Jerry TurinJerry TurinChief Financial Officer
(Principal Financial and Accounting Officer) 56




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EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit10.1
    
    Agreement of Merger dated December 16, 2009 by and among Oclaro, Inc., Rio Acquisition Corp., Xtellus
Inc. and Alta Berkeley LLP (previously filed as Exhibit 2.1 to Registrants Current Report on Form
8-K dated December 22, 2009 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.
 57