##### 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 September 26, 2009
 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
(State or other jurisdiction of incorporation or organization)
    
    20-1303994
(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




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##### 



OCLARO, INC.
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of September 26, 2009 and June 27, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three months ended September
26, 2009 and September 27, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended September
26, 2009 and September 27, 2008
    
    
    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
    
    
    27Item 4.Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    28Item 1A.Risk Factors
    
    
    30Item 4.Submission of Matters to a Vote of Security Holders
    
    
    47Item 6.Exhibits
    
    
    47Signature
    
    
    48EX-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)
 September 26, 2009
    
    
    June 27, 2009(Thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,184
    
    
    $
    44,561Short-term investments
    
    
    1,084
    
    
    
    9,259Restricted cash
    
    
    4,238
    
    
    
    4,208Accounts receivable, net
    
    
    70,472
    
    
    
    58,483Inventories
    
    
    62,667
    
    
    
    59,527Prepaid expenses and other current assets
    
    
    12,301
    
    
    
    11,834Assets held for sale
    
    
    
    
    
    
    10,442Total current assets
    
    
    197,946
    
    
    
    198,314Property and equipment, net
    
    
    30,327
    
    
    
    29,875Other intangible assets, net
    
    
    1,883
    
    
    
    1,951Other non-current assets
    
    
    2,438
    
    
    
    3,248Total assets
    
    $
    232,594
    
    
    $
    233,388LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    34,763
    
    
    $
    31,943Accrued expenses and other liabilities
    
    
    36,713
    
    
    
    39,016Liabilities held for sale
    
    
    
    
    
    
    2,028Total current liabilities
    
    
    71,476
    
    
    
    72,987Deferred gain on sale-leaseback
    
    
    14,719
    
    
    
    15,088Other long-term liabilities
    
    
    4,312
    
    
    
    4,923Total liabilities
    
    
    90,507
    
    
    
    92,998Commitments and contingencies (Note 8)Stockholders equity:Preferred stock: 5,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock:$0.01 par value per share; 450,000 shares authorized; 186,875 and
186,164 shares issued and outstanding at September 26, 2009 and
June 27, 2009, respectively
    
    
    1,869
    
    
    
    1,862Additional paid-in capital
    
    
    1,200,320
    
    
    
    1,199,358Accumulated other comprehensive income
    
    
    32,422
    
    
    
    30,905Accumulated deficit
    
    
    (1,092,524
    )
    
    
    (1,091,735
    )Total stockholders equity
    
    
    142,087
    
    
    
    140,390Total liabilities and stockholders equity
    
    $
    232,594
    
    
    $
    233,388
  3




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OCLARO, INC.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands, except per share amounts)Revenues
    
    $
    85,110
    
    
    $
    59,430Cost of revenues
    
    
    63,029
    
    
    
    44,777Gross profit
    
    
    22,081
    
    
    
    14,653Operating expenses:Research and development
    
    
    9,014
    
    
    
    6,829Selling, general and administrative
    
    
    13,254
    
    
    
    9,065Amortization of intangible assets
    
    
    52
    
    
    
    197Restructuring and severance charges
    
    
    1,183
    
    
    
    1,486Legal settlements
    
    
    
    
    
    
    (184
    )(Gain) loss on sale of property and equipment
    
    
    (532
    )
    
    
    16Total operating expenses
    
    
    22,971
    
    
    
    17,409Operating loss
    
    
    (890
    )
    
    
    (2,756
    )Other income (expense):Interest income
    
    
    23
    
    
    
    243Interest expense
    
    
    (113
    )
    
    
    (128
    )Gain (loss) on foreign currency translation
    
    
    (1,276
    )
    
    
    6,496Other income (expense)
    
    
    712
    
    
    
    (600
    )Total other income (expense)
    
    
    (654
    )
    
    
    6,011Income (loss) from continuing operations before income taxes
    
    
    (1,544
    )
    
    
    3,255Income tax provision (benefit)
    
    
    223
    
    
    
    (62
    )Income (loss) from continuing operations
    
    
    (1,767
    )
    
    
    3,317Income (loss) from discontinued operations, net of tax
    
    
    1,270
    
    
    
    (1,124
    )Net income (loss)
    
    $
    (497
    )
    
    $
    2,193Basic net income (loss) per share:Net income (loss) per share from continuing operations
    
    $
    (0.01
    )
    
    $
    0.03Net income (loss) per share from discontinued operations
    
    
    0.01
    
    
    
    (0.01
    )Net income (loss) per share
    
    $
    
    
    
    $
    0.02Diluted net income (loss) per share:Net income (loss) per share from continuing operations
    
    $
    (0.01
    )
    
    $
    0.03Net income (loss) per share from discontinued operations
    
    
    0.01
    
    
    
    (0.01
    )Net income (loss) per share
    
    $
    
    
    
    $
    0.02Shares used in computing net income (loss) per share:Basic
    
    
    186,199
    
    
    
    100,080Diluted
    
    
    186,199
    
    
    
    100,728
  4




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OCLARO, INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (497
    )
    
    $
    2,193Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Accretion on short-term investments
    
    
    19
    
    
    
    (70
    )Amortization of deferred gain on sale-leaseback
    
    
    (238
    )
    
    
    (271
    )Depreciation and amortization
    
    
    2,626
    
    
    
    3,445(Gain) loss on sale of property and equipment
    
    
    (532
    )
    
    
    16Gain from bargain purchase
    
    
    (712
    )
    
    
    Gain on sale of New Focus business
    
    
    (1,270
    )
    
    
    Impairment of short-term investments
    
    
    
    
    
    
    600Stock-based compensation
    
    
    920
    
    
    
    1,217Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (9,550
    )
    
    
    (7,960
    )Inventories
    
    
    2,587
    
    
    
    159Prepaid expenses and other current assets
    
    
    (553
    )
    
    
    580Other non-current assets
    
    
    809
    
    
    
    39Accounts payable
    
    
    1,372
    
    
    
    (192
    )Accrued expenses and other liabilities
    
    
    (4,122
    )
    
    
    2,143Net cash provided by (used in) operating activities
    
    
    (9,141
    )
    
    
    1,899Cash flows from investing activities:Purchases of property and equipment
    
    
    (744
    )
    
    
    (3,206
    )Proceeds from sales of property and equipment
    
    
    620
    
    
    
    9Purchases of available-for-sale investments
    
    
    
    
    
    
    (6,945
    )Sales and maturities of available-for-sale investments
    
    
    8,150
    
    
    
    11,350Transfer (to) from restricted cash
    
    
    (30
    )
    
    
    502Cash acquired from Newport in exchange of assets
    
    
    3,000
    
    
    
    Net cash provided by investing activities
    
    
    10,996
    
    
    
    1,710Cash flows from financing activities:Repayment of other liabilities
    
    
    (16
    )
    
    
    (16
    )Net cash used in financing activities
    
    
    (16
    )
    
    
    (16
    )Effect of exchange rate on cash and cash equivalents
    
    
    784
    
    
    
    (6,778
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,623
    
    
    
    (3,185
    )Cash and cash equivalents at beginning of period
    
    
    44,561
    
    
    
    32,863Cash and cash equivalents at end of period
    
    $
    47,184
    
    
    $
    29,678
  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
   Recent Accounting Pronouncements
  Software (Topic 985),
Certain Revenue Arrangements that Include Software Elements
 Revenue Recognition (Topic 605), Multiple-Deliverable
Revenue Arrangements
 Note 3. Fair Value
 Fair Value Measurements and
Disclosures
 7




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Assets and Liabilities Measured at Fair Value
  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
    
    $
    23,622
    
    
    $
    
    
    
    $
    
    
    
    $
    23,622Short-term investments:United States agency securities
    
    
    1,004
    
    
    
    
    
    
    
    
    
    
    
    1,004United States corporate bonds
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    80Other intangible assets
    
    
    
    
    
    
    
    
    
    
    1,883
    
    
    
    1,883Total assets measured at fair value
    
    $
    24,626
    
    
    $
    
    
    
    $
    1,963
    
    
    $
    26,589Liabilities:Accrued expenses and other liabilities:Unrealized loss on currency instruments
designated as hedges
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    568Total liabilities measured at fair value
    
    $
    
    
    
    $
    568
    
    
    $
    
    
    
    $
    568
 
 (1)
    
    Excludes $23.6 million in cash held in Company bank accounts. Derivative Financial Instruments
  8




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Derivatives and Hedging
  Note 4. Exchange of Assets
  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
 9




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Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Revenues
    
    $
    
    
    
    $
    7,101Cost of revenues
    
    
    
    
    
    
    5,125Gross profit
    
    
    
    
    
    
    1,976Operating expenses
    
    
    
    
    
    
    2,991Other income (expense), net
    
    
    1,270
    
    
    
    (59
    )Income (loss) from discontinued operations
before income taxes
    
    
    1,270
    
    
    
    (1,074
    )Income tax provision
    
    
    
    
    
    
    50Income (loss) from discontinued operations
    
    $
    1,270
    
    
    $
    (1,124
    )
 Acquisition of the Newport high power laser diodes business
 Business Combinations
 PreliminaryPurchase Price(Thousands)Cash
    
    $
    3,000Accounts receivable
    
    
    2,240Inventories
    
    
    4,863Property and equipment
    
    
    2,000Accounts payable
    
    
    (923
    )Accrued expenses and other current liabilities
    
    
    (568
    )Fair value of net assets acquired
    
    
    10,612Gain on bargain purchase
    
    
    (712
    )Total purchase price
    
    $
    9,900
 Business Combinations,
  10




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Note 5. Balance Sheet Details
  September 26, 2009
    
    
    June 27, 2009(Thousands)Cash and cash equivalents:Cash-in-bank
    
    $
    23,562
    
    
    $
    24,162Money market funds
    
    
    23,622
    
    
    
    20,399$
    47,184
    
    
    $
    44,561Short-term investments:United States agency securities
    
    $
    1,004
    
    
    $
    6,669United States corporate bonds
    
    
    80
    
    
    
    2,590$
    1,084
    
    
    $
    9,259
   September 26, 2009
    
    
    June 27, 2009(Thousands)Inventories:Raw materials
    
    $
    12,993
    
    
    $
    16,560Work-in-process
    
    
    37,538
    
    
    
    29,825Finished goods
    
    
    12,136
    
    
    
    13,142$
    62,667
    
    
    $
    59,527
  September 26, 2009
    
    
    June 27, 2009(Thousands)Property and equipment, net:Buildings
    
    $
    16,642
    
    
    $
    16,696Plant and machinery
    
    
    84,366
    
    
    
    80,881Fixtures, fittings and equipment
    
    
    1,129
    
    
    
    1,085Computer equipment
    
    
    13,295
    
    
    
    12,936115,432
    
    
    
    111,598Less: accumulated depreciation
    
    
    (85,105
    )
    
    
    (81,723
    )$
    30,327
    
    
    $
    29,875
  September 26, 2009
    
    
    June 27, 2009(Thousands)Accrued expenses and other liabilities:Trade payables
    
    $
    4,345
    
    
    $
    3,826Compensation and benefits related accruals
    
    
    8,940
    
    
    
    8,024Warranty accrual
    
    
    2,467
    
    
    
    2,228Current portion of restructuring accrual
    
    
    5,968
    
    
    
    9,485Unrealized loss on currency instruments designated as hedges
    
    
    568
    
    
    
    545Other accruals
    
    
    14,425
    
    
    
    14,908$
    36,713
    
    
    $
    39,016
 11




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Note 6. Restructuring Liabilities
  AccruedAccrued
    
    
    Amounts
    
    
    
    
    
    
    
    
    
    
    RestructuringRestructuring
    
    
    Charged to
    
    
    Amounts
    
    
    Adjustments
    
    
    Costs atCosts at June
    
    
    Restructuring
    
    
    Paid or
    
    
    and
    
    
    September27, 2009
    
    
    Costs
    
    
    Written-off
    
    
    Reversals
    
    
    26, 2009(Thousands)Lease cancellations and commitments
    
    $
    8,320
    
    
    $
    181
    
    
    $
    (1,214
    )
    
    $
    
    
    
    $
    7,287Termination payments to employees
and related costs
    
    
    4,719
    
    
    
    1,002
    
    
    
    (4,400
    )
    
    
    94
    
    
    
    1,415Total accrued restructuring charges
    
    
    13,039
    
    
    $
    1,183
    
    
    $
    (5,614
    )
    
    $
    94
    
    
    
    8,702Less non-current accrued
restructuring
charges
    
    
    (3,554
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,734
    )Accrued restructuring charges
included
within accrued expenses and other
liabilities
    
    $
    9,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,968
    Note 7. Credit Facility
    12




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Note 8. Commitments and Contingencies
 Guarantees
   Warranty accrual
   Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Warranty provision  beginning of period
    
    $
    2,228
    
    
    $
    2,598Warranties assumed in exchange of assets
    
    
    305
    
    
    
    Warranties issued
    
    
    772
    
    
    
    928Warranties utilized or expired
    
    
    (843
    )
    
    
    (761
    )Currency translation adjustment
    
    
    5
    
    
    
    (171
    )Warranty provision  end of period
    
    $
    2,467
    
    
    $
    2,594
 Litigation
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
  13




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QinetiQ Limited v. Oclaro, Inc
 9. Stockholders Equity
 Accumulated Other Comprehensive Income
  September 26, 2009
    
    
    June 27, 2009(Thousands)Accumulated other comprehensive income:Unrealized loss on currency instruments designated as hedges
    
    $
    (568
    )
    
    $
    (545
    )Currency translation adjustments
    
    
    32,990
    
    
    
    31,443Unrealized gain on short-term investments
    
    
    
    
    
    
    7$
    32,422
    
    
    $
    30,905
 14




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##### Table of Contents



10. Employee Stock Plans
   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 27, 2009
    
    
    12,803
    
    
    
    16,176
    
    
    $
    4.20
    
    
    
    2,154
    
    
    $
    0.83Granted
    
    
    (3,564
    )
    
    
    3,564
    
    
    $
    0.69
    
    
    
    
    
    
    
    Exercised or released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (764
    )
    
    $
    0.69Cancelled or forfeited
    
    
    (591
    )
    
    
    (550
    )
    
    $
    1.51
    
    
    
    (41
    )
    
    $
    0.78Balances at September 26, 2009
    
    
    8,648
    
    
    
    19,190
    
    
    $
    3.63
    
    
    
    1,349
    
    
    $
    0.91
  Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    Value(Thousands)
    
    
    
    
    
    (Years)
    
    (Thousands)Options exercisable at September 26, 2009
    
    
    7,651
    
    
    $
    7.68
    
    
    
    5.1
    
    
    $
    137Options outstanding at September 26, 2009
    
    
    19,190
    
    
    $
    3.63
    
    
    
    7.6
    
    
    $
    4,645
  Note 11. Stock-based Compensation
 Compensation  Stock Compensation
  15




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Three Months EndedSeptember 26, 2009
    
    September 27, 2008Expected life
    
    4.5 years
    
    4.5 yearsRisk-free interest rate
    
    
    2.3
    %
    
    
    2.9
    %Volatility
    
    
    101.3
    %
    
    
    70.0
    %Dividend yield
    
    
    
    
    
    
    
  Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Stock-based compensation by category of expense:Cost of revenues
    
    $
    195
    
    
    $
    363Research and development
    
    
    209
    
    
    
    230Selling, general and administrative
    
    
    516
    
    
    
    525Income (loss) from discontinued operations
    
    
    
    
    
    
    99$
    920
    
    
    $
    1,217Stock-based compensation by type of award:Stock options
    
    $
    790
    
    
    $
    827Restricted stock awards
    
    
    179
    
    
    
    280Inventory adjustment to cost of revenues
    
    
    (49
    )
    
    
    110$
    920
    
    
    $
    1,217
  Note 12. Income Taxes
    Note 13. Net Loss Per Share
  16




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Note 14. Operating Segments and Related Information
    Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Net revenues:Telecom
    
    $
    73,461
    
    
    $
    52,255Advanced photonics solutions
    
    
    11,649
    
    
    
    7,175Consolidated net revenues
    
    $
    85,110
    
    
    $
    59,430
 Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Operating lossTelecom
    
    $
    (1,567
    )
    
    $
    (933
    )Advanced photonics solutions
    
    
    1,065
    
    
    
    (873
    )Total segment operating loss
    
    
    (502
    )
    
    
    (1,806
    )Stock-based compensation
    
    
    920
    
    
    
    1,118Legal settlements
    
    
    
    
    
    
    (184
    )(Gain) loss on sale of property and equipment
    
    
    (532
    )
    
    
    16Consolidated operating loss
    
    $
    (890
    )
    
    $
    (2,756
    )
 17




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##### Table of Contents



Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)United States
    
    $
    17,525
    
    
    $
    14,158Canada
    
    
    4,991
    
    
    
    4,655Europe:United Kingdom
    
    
    2,179
    
    
    
    3,409Other
    
    
    17,974
    
    
    
    10,009Asia:China
    
    
    22,826
    
    
    
    14,673Other
    
    
    12,734
    
    
    
    5,506Rest of world
    
    
    6,881
    
    
    
    7,020$
    85,110
    
    
    $
    59,430
  September 26, 2009
    
    
    June 27, 2009(Thousands)United States
    
    $
    4,192
    
    
    $
    2,252Canada
    
    
    182
    
    
    
    185Europe:United Kingdom
    
    
    2,875
    
    
    
    3,104Other
    
    
    4,480
    
    
    
    4,286Asia:China
    
    
    18,545
    
    
    
    19,996Other
    
    
    53
    
    
    
    52$
    30,327
    
    
    $
    29,875
 Significant Customers and Concentration of Credit Risk
    18




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Note 15. Subsequent Events
  Tender Offer
    19




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##### Table of Contents



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




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Recent Accounting Pronouncements
 Generally Accepted Accounting Principles FASB Accounting Standards Codification
 Software (Topic 985),
Certain Revenue Arrangements that Include Software Elements
 Revenue Recognition (Topic 605), Multiple-Deliverable
Revenue Arrangements
 Application of Critical Accounting Policies
   21




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Results of Operations
  Three Months Ended
    
    
    
    
    
    
    IncreaseSeptember 26, 2009
    
    
    September 27, 2008
    
    
    Change
    
    
    (Decrease)(Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %Net revenues
    
    $
    85,110
    
    
    
    100.0
    
    
    $
    59,430
    
    
    
    100.0
    
    
    $
    25,680
    
    
    
    43.2Cost of revenues
    
    
    63,029
    
    
    
    74.1
    
    
    
    44,777
    
    
    
    75.3
    
    
    
    18,252
    
    
    
    40.8Gross profit
    
    
    22,081
    
    
    
    25.9
    
    
    
    14,653
    
    
    
    24.7
    
    
    
    7,428
    
    
    
    50.7Operating expenses:Research and development
    
    
    9,014
    
    
    
    10.6
    
    
    
    6,829
    
    
    
    11.5
    
    
    
    2,185
    
    
    
    32.0Selling, general and administrative
    
    
    13,254
    
    
    
    15.5
    
    
    
    9,065
    
    
    
    15.3
    
    
    
    4,189
    
    
    
    46.2Amortization of intangible assets
    
    
    52
    
    
    
    
    
    
    
    197
    
    
    
    0.3
    
    
    
    (145
    )
    
    
    (73.6
    )Restructuring and severance charges
    
    
    1,183
    
    
    
    1.4
    
    
    
    1,486
    
    
    
    2.5
    
    
    
    (303
    )
    
    
    (20.4
    )Legal settlements
    
    
    
    
    
    
    
    
    
    
    (184
    )
    
    
    (0.3
    )
    
    
    184
    
    
    
    (100.0
    )(Gain) loss on sale of property
and equipment
    
    
    (532
    )
    
    
    (0.6
    )
    
    
    16
    
    
    
    
    
    
    
    (548
    )
    
    
    n/m
    (1)Total operating expenses
    
    
    22,971
    
    
    
    26.9
    
    
    
    17,409
    
    
    
    29.3
    
    
    
    5,562
    
    
    
    31.9Operating loss
    
    
    (890
    )
    
    
    (1.0
    )
    
    
    (2,756
    )
    
    
    (4.6
    )
    
    
    1,866
    
    
    
    (67.7
    )Other income (expense):Interest income
    
    
    23
    
    
    
    
    
    
    
    243
    
    
    
    0.4
    
    
    
    (220
    )
    
    
    (90.5
    )Interest expense
    
    
    (113
    )
    
    
    (0.1
    )
    
    
    (128
    )
    
    
    (0.2
    )
    
    
    15
    
    
    
    (11.7
    )Gain (loss) on foreign currency
translation
    
    
    (1,276
    )
    
    
    (1.5
    )
    
    
    6,496
    
    
    
    10.9
    
    
    
    (7,772
    )
    
    
    n/m
    (1)Other income (expense)
    
    
    712
    
    
    
    0.8
    
    
    
    (600
    )
    
    
    (1.0
    )
    
    
    1,312
    
    
    
    n/m
    (1)Total other income (expense)
    
    
    (654
    )
    
    
    (0.8
    )
    
    
    6,011
    
    
    
    10.1
    
    
    
    (6,665
    )
    
    
    n/m
    (1)Income (loss) from continuing operations
before income taxes
    
    
    (1,544
    )
    
    
    (1.8
    )
    
    
    3,255
    
    
    
    5.5
    
    
    
    (4,799
    )
    
    
    n/m
    (1)Income tax provision (benefit)
    
    
    223
    
    
    
    0.3
    
    
    
    (62
    )
    
    
    (0.1
    )
    
    
    285
    
    
    
    n/m
    (1)Income (loss) from continuing operations
    
    
    (1,767
    )
    
    
    (2.1
    )
    
    
    3,317
    
    
    
    5.6
    
    
    
    (5,084
    )
    
    
    n/m
    (1)Income (loss) from discontinued
operations, net of tax
    
    
    1,270
    
    
    
    1.5
    
    
    
    (1,124
    )
    
    
    (1.9
    )
    
    
    2,394
    
    
    
    n/m
    (1)Net income (loss)
    
    $
    (497
    )
    
    
    (0.6
    )
    
    $
    2,193
    
    
    
    3.7
    
    
    $
    (2,690
    )
    
    
    n/m
    (1)
 
 (1)
    
    Not meaningful. Net Revenues
   22




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Cost of Revenues
   Gross Profit
   Research and Development Expenses
    Selling, General and Administrative Expenses
  23




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Restructuring and Severance Charges
   Legal Settlement
  (Gain)Loss on Sale of Property and Equipment
  Other Income (Expense)
  Income Tax Provision (Benefit)
  Income (Loss) From Discontinued Operations
  24




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Liquidity and Capital Resources
 Cash Flows from Operating Activities
 Three Months EndedSeptember 26, 2009
    
    
    September 27, 2008(Thousands)Net income (loss)
    
    $
    (497
    )
    
    $
    2,193Non-cash adjustments:Accretion on short-term investments
    
    
    19
    
    
    
    (70
    )Amortization of deferred gain on sale-leaseback
    
    
    (238
    )
    
    
    (271
    )Depreciation and amortization
    
    
    2,626
    
    
    
    3,445(Gain) loss on sale of property and equipment
    
    
    (532
    )
    
    
    16Gain from bargain purchase
    
    
    (712
    )
    
    
    Gain on sale of New Focus business
    
    
    (1,270
    )
    
    
    Impairment of short-term investments
    
    
    
    
    
    
    600Stock-based compensation
    
    
    920
    
    
    
    1,217Total non-cash adjustments
    
    
    813
    
    
    
    4,937Change in operating assets and liabilities
    
    
    (9,457
    )
    
    
    (5,231
    )Net cash provided by (used in) operating activities
    
    $
    (9,141
    )
    
    $
    1,899
   Cash Flows from Investing Activities
   Cash Flows from Financing Activities
  Effect of Exchange Rates on Cash and Cash Equivalents for the Three Months Ended September 26,
2009 and September 27, 2008
  25




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Credit Facility
    Future Cash Requirements
   Risk Management  Foreign Currency Risk
  26




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Off-Balance Sheet Arrangements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rates
   Foreign currency
   27




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Hedging Program
  
 Item 4 . Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
 28




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QinetiQ Limited v. Oclaro, Inc
 29




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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.
  The combined company may not achieve strategic objectives, anticipated synergies and cost savings
and other expected benefits of the merger with Avanex or the acquisition of the high power laser
diodes business of Newport.
   
    
    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:
 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 merger and acquisition will not
result in adverse changes in client service standards or business focus and helping
customers conduct business easily with the combined company;o
    
    consolidating and rationalizing corporate information technology,
engineering and administrative infrastructures;o
    
    integrating product offerings;o
    
    coordinating sales and marketing efforts to effectively communicate the
capabilities of the combined company;o
    
    coordinating and integrating the manufacturing activities of the three
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;o
    
    coordinating and integrating the 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 the businesses and resolving potential conflicts between business
 30




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cultures;
 o
    
    coordinating the international activities of the three businesses;
 
    
    unexpected liabilities associated with the acquired businesses or unanticipated costs related to the integration;
    
    tax laws due to increasing complexities of our global operating structure; and
    
    employment law or regulations or other limitations in foreign jurisdictions that could
have an impact on timing, amounts or costs of achieving expected synergies.
  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.
    31




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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 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.
  32




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




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We may make acquisitions that do not prove successful.
  
    
    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.
 Fluctuations in operating results could adversely affect the market price of our common stock.
  34




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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.
    We may record impairment charges which would 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.
  35




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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.
  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.
  36




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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.
  We depend on a limited number of suppliers who could disrupt our business if they stopped,
decreased or delayed shipments.
   37




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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.
 QinetiQ Limited v. Oclaro,
Inc
 38




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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.
  39




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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;
    
    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.
   40




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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.
    Sales of our products could decline if customer relationships are disrupted by the merger with
Avanex or acquisition of the high power laser diodes business of Newport.
  As a result of the merger, we will be a larger and more geographically diverse organization, and if
our management is unable to manage the combined organization efficiently, our operating results
will suffer.
  41




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Oclaro may not successfully transfer the Tucson, Arizona manufacturing operations acquired from
Newport to its European fabrication facilities and realize the anticipated benefits of the
acquisition.
  
    
    transferring operations will place substantial demands on our management that may limit
their time to attend to other operational, financial and strategic issues;
    
    it may take longer than anticipated to transfer manufacturing operations from Tucson,
Arizona to our European fabs, the results may not deliver desired yields and costs savings
and any delay may cause us not to achieve expected synergies from leveraging our existing
global manufacturing infrastructure;
    
    the costs of transferring manufacturing operations from Tucson, Arizona to our European
fabs may exceed our current estimates;
    
    delays in qualifying production of the laser diodes in our European fabs could cause
disruption to our customers and have an adverse impact on our operating results;
    
    we may experience difficulty in the integration of operational, financial and
administrative functions and systems to permit effective management, and may experience a
lack of control if such integration is not implemented or delayed; and
    
    employment law or regulations or other limitations in foreign jurisdictions could have
an impact on timing, amounts or costs of achieving expected synergies.
 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.
   42




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Avanex previously experienced material weaknesses in its internal controls over financial
reporting. A lack of effective internal control over financial reporting by the combined company
could result in an inability to report our financial results accurately, which could lead to a loss
of investor confidence in our financial reports and have an adverse effect on our stock price.
   Litigation 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
    43




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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;
 44




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
    
    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;
    
    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 (NASDAQ) continued listing requirements, our common
stock may be delisted.
    45




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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.
  46




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Item 4. Submission of Matters to a Vote of Security Holders
   Bernard Couillaud
 For
    
    Withheld136,734,356
    
    4,515,316
 Greg Dougherty
 For
    
    Withheld138,329,869
    
    2,919,803
  For
    
    Against
    
    Abstain
    
    Broker Non-Vote79,831,863
    
    3,653,248
    
    516,669
    
    57,247,892
  For
    
    Against
    
    Abstain
    
    Broker Non-Vote123,451,688
    
    16,614,238
    
    1,183,745
    
    
  For
    
    Against
    
    Abstain
    
    Broker Non-Vote139,795,869
    
    780,206
    
    673,597
    
    
 
 Item 6. Exhibits
  47




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SIGNATURE
  OCLARO, INC.Date: November 9, 2009
    
    By:
    
    /s/ Jerry Turin

Jerry TurinChief Financial Officer(Principal Financial and Accounting Officer)
 48




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EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit31.1
    
    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.
 49