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 January 2, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-30684
 (OCLARO LOGO)
 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




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##### 



OCLARO, INC.
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of January 2, 2010 and June 27, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended
January 2, 2010 and December 27, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended January 2,
2010 and December 27, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4.Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    35Item 1A.Risk Factors
    
    
    36Item 4.Submission of Matters to a Vote of Security Holders
    
    
    53Item 6.Exhibits
    
    
    53Signature
    
    
    54




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements (Unaudited)
 OCLARO, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 January 2, 2010
    
    
    June 27, 2009(Thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    51,731
    
    
    $
    44,561Short-term investments
    
    
    
    
    
    
    9,259Restricted cash
    
    
    4,309
    
    
    
    4,208Accounts receivable, net
    
    
    70,613
    
    
    
    58,483Inventories
    
    
    61,147
    
    
    
    59,527Prepaid expenses and other current assets
    
    
    14,168
    
    
    
    11,834Assets held for sale
    
    
    
    
    
    
    10,442Total current assets
    
    
    201,968
    
    
    
    198,314Property and equipment, net
    
    
    34,045
    
    
    
    29,875Goodwill
    
    
    25,219
    
    
    
    Other intangible assets, net
    
    
    8,746
    
    
    
    1,951Other non-current assets
    
    
    2,129
    
    
    
    3,248Total assets
    
    $
    272,107
    
    
    $
    233,388LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    41,624
    
    
    $
    31,943Accrued expenses and other liabilities
    
    
    36,608
    
    
    
    39,016Liabilities held for sale
    
    
    
    
    
    
    2,028Total current liabilities
    
    
    78,232
    
    
    
    72,987Deferred gain on sale-leaseback
    
    
    14,213
    
    
    
    15,088Other long-term liabilities
    
    
    10,437
    
    
    
    4,923Total liabilities
    
    
    102,882
    
    
    
    92,998Commitments and contingencies (Note 9)Stockholders equity:Preferred stock: 5,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock:$0.01 par value per share; 450,000 shares authorized; 212,263 and
186,164 shares issued and outstanding at January 2, 2010 and
June 27, 2009, respectively
    
    
    2,123
    
    
    
    1,862Additional paid-in capital
    
    
    1,225,888
    
    
    
    1,199,358Accumulated other comprehensive income
    
    
    31,675
    
    
    
    30,905Accumulated deficit
    
    
    (1,090,461
    )
    
    
    (1,091,735
    )Total stockholders equity
    
    
    169,225
    
    
    
    140,390Total liabilities and stockholders equity
    
    $
    272,107
    
    
    $
    233,388
  3




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##### 



OCLARO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJanuary 2, 2010
    
    
    December 27, 2008
    
    
    January 2, 2010
    
    
    December 27, 2008(Thousands, except per share amounts)Revenues
    
    $
    93,574
    
    
    $
    43,375
    
    
    $
    178,684
    
    
    $
    102,805Cost of revenues
    
    
    68,715
    
    
    
    36,971
    
    
    
    131,834
    
    
    
    81,748Gross profit
    
    
    24,859
    
    
    
    6,404
    
    
    
    46,850
    
    
    
    21,057Operating expenses:Research and development
    
    
    9,675
    
    
    
    5,786
    
    
    
    18,689
    
    
    
    12,615Selling, general and administrative
    
    
    14,835
    
    
    
    7,574
    
    
    
    27,798
    
    
    
    16,639Amortization of intangible assets
    
    
    125
    
    
    
    178
    
    
    
    250
    
    
    
    375Restructuring, merger and related costs
    
    
    3,040
    
    
    
    129
    
    
    
    4,539
    
    
    
    1,615Legal settlements
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    124Impairment of goodwill and other intangible
assets
    
    
    
    
    
    
    7,881
    
    
    
    
    
    
    
    7,881(Gain) loss on sale of property and equipment
    
    
    (71
    )
    
    
    (8
    )
    
    
    (603
    )
    
    
    8Total operating expenses
    
    
    27,604
    
    
    
    21,848
    
    
    
    50,673
    
    
    
    39,257Operating loss
    
    
    (2,745
    )
    
    
    (15,444
    )
    
    
    (3,823
    )
    
    
    (18,200
    )Other income (expense):Interest income
    
    
    2
    
    
    
    201
    
    
    
    25
    
    
    
    444Interest expense
    
    
    (33
    )
    
    
    (196
    )
    
    
    (121
    )
    
    
    (324
    )Gain (loss) on foreign currency translation
    
    
    793
    
    
    
    9,866
    
    
    
    (483
    )
    
    
    16,362Other income (expense)
    
    
    28
    
    
    
    (95
    )
    
    
    5,295
    
    
    
    (695
    )Total other income (expense)
    
    
    790
    
    
    
    9,776
    
    
    
    4,716
    
    
    
    15,787Income (loss) from continuing operations before
income taxes
    
    
    (1,955
    )
    
    
    (5,668
    )
    
    
    893
    
    
    
    (2,413
    )Income tax provision (benefit)
    
    
    524
    
    
    
    36
    
    
    
    747
    
    
    
    (26
    )Income (loss) from continuing operations
    
    
    (2,479
    )
    
    
    (5,704
    )
    
    
    146
    
    
    
    (2,387
    )Income (loss) from discontinued operations, net of
tax
    
    
    
    
    
    
    (757
    )
    
    
    1,420
    
    
    
    (1,881
    )Net income (loss)
    
    $
    (2,479
    )
    
    $
    (6,461
    )
    
    $
    1,566
    
    
    $
    (4,268
    )Basic net income (loss) per share:Income (loss) per share from continuing operations
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    
    
    
    $
    (0.02
    )Income (loss) per share from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.02
    )Net income (loss) per share
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.04
    )Diluted net income (loss) per share:Income (loss) per share from continuing operations
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    
    
    
    $
    (0.02
    )Income (loss) per share from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.02
    )Net income (loss) per share
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.04
    )Shares used in computing net loss per share:Basic
    
    
    189,901
    
    
    
    100,339
    
    
    
    188,119
    
    
    
    100,209Diluted
    
    
    189,901
    
    
    
    100,339
    
    
    
    194,151
    
    
    
    100,209
  4




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##### 



OCLARO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
 Six Months EndedJanuary 2, 2010
    
    
    December 27, 2008(Thousands)Cash flows from operating activities:Net income (loss)
    
    $
    1,566
    
    
    $
    (4,268
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Accretion on short-term investments
    
    
    22
    
    
    
    (102
    )Amortization of deferred gain on sale-leaseback
    
    
    (466
    )
    
    
    (486
    )Depreciation and amortization
    
    
    5,736
    
    
    
    6,720(Gain) loss on sale of property and equipment
    
    
    (603
    )
    
    
    8Gain on bargain purchase
    
    
    (5,267
    )
    
    
    Gain on sale of New Focus business
    
    
    (1,420
    )
    
    
    Impairment of goodwill and other intangible assets
    
    
    
    
    
    
    7,881Impairment (recovery) of short-term investments
    
    
    (28
    )
    
    
    706Stock-based compensation expense
    
    
    1,951
    
    
    
    2,241Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (10,238
    )
    
    
    1,721Inventories
    
    
    5,462
    
    
    
    (825
    )Prepaid expenses and other current assets
    
    
    (1,201
    )
    
    
    684Other non-current assets
    
    
    1,590
    
    
    
    (88
    )Accounts payable
    
    
    6,634
    
    
    
    (5,264
    )Accrued expenses and other liabilities
    
    
    (7,295
    )
    
    
    762Net cash provided by (used in) operating activities
    
    
    (3,557
    )
    
    
    9,690Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,368
    )
    
    
    (6,934
    )Proceeds from sales of property and equipment
    
    
    691
    
    
    
    14Purchases of available-for-sale investments
    
    
    
    
    
    
    (6,945
    )Sales and maturities of available-for-sale
investments
    
    
    9,258
    
    
    
    15,350Transfer (to) from restricted cash
    
    
    (95
    )
    
    
    575Cash acquired from business combinations
    
    
    3,277
    
    
    
    Net cash provided by investing activities
    
    
    10,763
    
    
    
    2,060Cash flows from financing activities:Repayment of other liabilities
    
    
    (52
    )
    
    
    (31
    )Net cash used in financing activities
    
    
    (52
    )
    
    
    (31
    )Effect of exchange rate on cash and cash equivalents
    
    
    16
    
    
    
    (9,286
    )Net increase in cash and cash equivalents
    
    
    7,170
    
    
    
    2,433Cash and cash equivalents at beginning of period
    
    
    44,561
    
    
    
    32,863Cash and cash equivalents at end of period
    
    $
    51,731
    
    
    $
    35,296Supplemental disclosures of non-cash transactions:Issuance of common stock, escrow liability and
value protection liability for acquisition of
Xtellus
    
    $
    32,690
    
    
    $
    
  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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##### 



Level 1 
 Level 2 
 Level 3 
    Assets and Liabilities Measured at Fair Value
  Fair Value Measurement at January 2, 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
    
    $
    
    
    
    $
    214
    
    
    $
    
    
    
    $
    214Other long-term liabilities:Value protection liability
    
    
    
    
    
    
    
    
    
    
    946
    
    
    
    946Total liabilities measured at fair value
    
    $
    
    
    
    $
    214
    
    
    $
    946
    
    
    $
    1,160
 
 (1)
    
    Excludes $27.8 million in cash held in Company bank accounts at January 2, 2010. 8




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##### 



Derivative Financial Instruments
    Note 4. Business Combinations
    Business Combinations
 9




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##### 



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
  Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)
    
    
    (Thousands)Revenues
    
    $
    
    
    
    $
    6,829
    
    
    $
    
    
    
    $
    13,930Cost of revenues
    
    
    
    
    
    
    4,528
    
    
    
    
    
    
    
    9,653Gross profit
    
    
    
    
    
    
    2,301
    
    
    
    
    
    
    
    4,277Operating expenses
    
    
    
    
    
    
    3,130
    
    
    
    
    
    
    
    6,121Other income (expense), net
    
    
    
    
    
    
    72
    
    
    
    1,420
    
    
    
    13Income (loss) from
discontinued operations
before income taxes
    
    
    
    
    
    
    (757
    )
    
    
    1,420
    
    
    
    (1,831
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Income (loss) from
discontinued operations
    
    $
    
    
    
    $
    (757
    )
    
    $
    1,420
    
    
    $
    (1,881
    )
 Acquisition of the Newport high power laser diodes business
 Business Combinations
 10




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##### 



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
  Distinguishing Liabilities from Equity
   11




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##### 



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
   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
  Six Months EndedJanuary 2, 2010
    
    
    December 27, 2008(Thousands)Revenues
    
    $
    181,662
    
    
    $
    120,983Income (loss) from continuing operations
    
    $
    (5,204
    )
    
    $
    (9,986
    )Net income (loss)
    
    $
    (3,784
    )
    
    $
    (11,867
    )Net income (loss) per share  basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.10
    )Shares used in computing net income (loss) per share  diluted
    
    
    211,347
    
    
    
    123,437
 12




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##### 



Note 5. Balance Sheet Details
  January 2, 2010
    
    
    June 27, 2009(Thousands)Cash and cash equivalents:Cash-in-bank
    
    $
    27,765
    
    
    $
    24,162Money market funds
    
    
    23,966
    
    
    
    20,399$
    51,731
    
    
    $
    44,561Short-term investments:United States agency securities
    
    $
    
    
    
    $
    6,669United States corporate bonds
    
    
    
    
    
    
    2,590$
    
    
    
    $
    9,259
    January 2, 2010
    
    
    June 27, 2009(Thousands)Inventories:Raw materials
    
    $
    13,593
    
    
    $
    16,560Work-in-process
    
    
    31,609
    
    
    
    29,825Finished goods
    
    
    15,945
    
    
    
    13,142$
    61,147
    
    
    $
    59,527
  January 2, 2010
    
    
    June 27, 2009(Thousands)Property and equipment, net:Buildings
    
    $
    16,493
    
    
    $
    16,696Plant and machinery
    
    
    90,378
    
    
    
    80,881Fixtures, fittings and equipment
    
    
    1,110
    
    
    
    1,085Computer equipment
    
    
    12,118
    
    
    
    12,936120,099
    
    
    
    111,598Less: accumulated depreciation
    
    
    (86,054
    )
    
    
    (81,723
    )$
    34,045
    
    
    $
    29,875
 13




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##### 



January 2, 2010
    
    
    June 27, 2009(Thousands)Accrued expenses and other liabilities:Trade payables
    
    $
    6,485
    
    
    $
    3,826Compensation and benefits related accruals
    
    
    7,947
    
    
    
    8,024Warranty accrual
    
    
    2,486
    
    
    
    2,228Current portion of restructuring accrual
    
    
    7,124
    
    
    
    9,485Unrealized loss on currency instruments designated as hedges
    
    
    214
    
    
    
    545Other accruals
    
    
    12,352
    
    
    
    14,908$
    36,608
    
    
    $
    39,016
  January 2, 2010
    
    
    June 27, 2009(Thousands)Other long-term liabilities:Escrow liability for Xtellus acquisition
    
    $
    7,000
    
    
    $
    Value protection liability for Xtellus acquisition
    
    
    946
    
    
    
    Other long-term liabilities
    
    
    2,491
    
    
    
    4,923$
    10,437
    
    
    $
    4,923
 Note 6. Goodwill and Other Intangible Assets
     Other Intangible AssetsAccumulated
    
    
    Net BookGoodwill
    
    
    Cost
    
    
    Amortization
    
    
    Value(Thousands)June 27, 2009
    
    $
    
    
    
    $
    12,142
    
    
    $
    10,191
    
    
    $
    1,951Acquired
    
    
    25,219
    
    
    
    7,095
    
    
    
    
    
    
    
    7,095Amortization
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    (250
    )Exchange rate adjustment
    
    
    
    
    
    
    (93
    )
    
    
    (43
    )
    
    
    (50
    )January 2, 2010
    
    $
    25,219
    
    
    $
    19,144
    
    
    $
    10,398
    
    
    $
    8,746
 14




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##### 



January 2,
    
    
    June 27,2010
    
    
    2009(Thousands)Supply agreements
    
    $
    3,228
    
    
    $
    3,253Customer relationships
    
    
    1,704
    
    
    
    719Customer databases
    
    
    134
    
    
    
    135Core and current technology
    
    
    12,594
    
    
    
    6,650Contract backlog
    
    
    110
    
    
    
    Patent portfolio
    
    
    1,374
    
    
    
    1,38519,144
    
    
    
    12,142Less accumulated amortization
    
    
    (10,398
    )
    
    
    (10,191
    )Other intangible assets, net
    
    $
    8,746
    
    
    $
    1,951
  Note 7. Restructuring Liabilities
  AccruedAccrued
    
    
    Amounts
    
    
    
    
    
    
    
    
    
    
    RestructuringRestructuring
    
    
    Charged to
    
    
    Amounts
    
    
    Adjustments
    
    
    Costs atCosts at June
    
    
    Restructuring
    
    
    Paid or
    
    
    and
    
    
    January 2,27, 2009
    
    
    Costs
    
    
    Written-off
    
    
    Reversals
    
    
    2010(Thousands)Lease cancellations and commitments
    
    $
    8,320
    
    
    $
    783
    
    
    $
    (2,663
    )
    
    $
    
    
    
    $
    6,440Termination payments to employees
and related costs
    
    
    4,719
    
    
    
    2,204
    
    
    
    (5,831
    )
    
    
    92
    
    
    
    1,184Total accrued restructuring charges
    
    
    13,039
    
    
    $
    2,987
    
    
    $
    (8,494
    )
    
    $
    92
    
    
    
    7,624Less non-current accrued
restructuring charges
    
    
    (3,554
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500
    )Accrued restructuring charges
included within accrued
expenses and other liabilities
    
    $
    9,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,124
   15




---



##### 



Note 8. Credit Facility
    Note 9. Commitments and Contingencies
 Guarantees
   Warranty accrual
  16




---



##### 



Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)Warranty provision  beginning of period
    
    $
    2,317
    
    
    $
    2,594
    
    
    $
    2,228
    
    
    $
    2,598Warranties assumed in acquisitions
    
    
    93
    
    
    
    
    
    
    
    248
    
    
    
    Warranties issued
    
    
    928
    
    
    
    694
    
    
    
    1,700
    
    
    
    1,622Warranties utilized or expired
    
    
    (821
    )
    
    
    (727
    )
    
    
    (1,664
    )
    
    
    (1,488
    )Currency translation adjustment
    
    
    (31
    )
    
    
    (387
    )
    
    
    (26
    )
    
    
    (558
    )Warranty provision  end of period
    
    $
    2,486
    
    
    $
    2,174
    
    
    $
    2,486
    
    
    $
    2,174
 Litigation
 In re New Focus, Inc. Initial Public Offering Securities Litigation
 In re Initial Public
Offering Securities Litigation
    17




---



##### 



QinetiQ Limited v. Oclaro, Inc
 Note 10. Stockholders Equity
 Accumulated Other Comprehensive Income
  January 2, 2010
    
    
    June 27, 2009(Thousands)Accumulated other comprehensive income:Unrealized loss on currency instruments designated as hedges
    
    $
    (214
    )
    
    $
    (545
    )Currency translation adjustments
    
    
    31,889
    
    
    
    31,443Unrealized gain on short-term investments
    
    
    
    
    
    
    7$
    31,675
    
    
    $
    30,905
 Note 11. Employee Stock Plans
   18




---



##### 



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
    
    
    12,803
    
    
    
    16,176
    
    
    $
    4.20
    
    
    
    2,154
    
    
    $
    0.83Granted
    
    
    (7,682
    )
    
    
    4,831
    
    
    $
    0.85
    
    
    
    2,851
    
    
    $
    1.36Granted in connection with tender offer
    
    
    (1,771
    )
    
    
    1,771
    
    
    $
    1.36
    
    
    
    
    
    
    
    Exercised or released
    
    
    
    
    
    
    (87
    )
    
    $
    0.68
    
    
    
    (1,007
    )
    
    $
    0.74Cancelled or forfeited
    
    
    2,243
    
    
    
    (2,136
    )
    
    $
    5.14
    
    
    
    (149
    )
    
    $
    0.84Cancelled in connection with tender
offer
    
    
    3,521
    
    
    
    (3,883
    )
    
    $
    7.51
    
    
    
    
    
    
    
    Reduction in available for grant
    
    
    (3,718
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balances at January 2, 2010
    
    
    5,396
    
    
    
    16,672
    
    
    $
    2.07
    
    
    
    3,849
    
    
    $
    1.25
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Value(Thousands)
    
    
    
    
    
    
    (Years)
    
    
    (Thousands)Options exercisable at January 2, 2010
    
    
    4,230
    
    
    $
    5.27
    
    
    
    5.9
    
    
    $
    1,057Options outstanding at January 2, 2010
    
    
    16,672
    
    
    $
    2.07
    
    
    
    8.2
    
    
    $
    8,144
  Note 12. Stock-based Compensation
 Compensation  Stock Compensation
 19




---



##### 



Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008Expected life
    
    4.5 years
    
    
    4.5 years
    
    
    4.5 years
    
    
    4.5 yearsRisk-free interest rate
    
    
    2.1
    %
    
    
    2.3
    %
    
    
    2.2
    %
    
    
    3.1
    %Volatility
    
    
    95.6
    %
    
    
    82.9
    %
    
    
    99.9
    %
    
    
    70.4
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)Stock-based compensation by category of expense:Cost of revenues
    
    $
    219
    
    
    $
    261
    
    
    $
    414
    
    
    $
    624Research and development
    
    
    290
    
    
    
    204
    
    
    
    499
    
    
    
    434Selling, general and administrative
    
    
    522
    
    
    
    476
    
    
    
    1,038
    
    
    
    1,001Income from discontinued operations
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    182$
    1,031
    
    
    $
    1,024
    
    
    $
    1,951
    
    
    $
    2,241Stock-based compensation by type of award:Stock options
    
    $
    838
    
    
    $
    842
    
    
    $
    1,628
    
    
    $
    1,669Restricted stock awards
    
    
    258
    
    
    
    150
    
    
    
    437
    
    
    
    430Inventory adjustment to cost of revenues
    
    
    (65
    )
    
    
    32
    
    
    
    (114
    )
    
    
    142$
    1,031
    
    
    $
    1,024
    
    
    $
    1,951
    
    
    $
    2,241
  Note 13. Income Taxes
    20




---



##### 



Note 14. Net Income (Loss) Per Share
  Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands,except per share amounts)Net income (loss)
    
    $
    (2,479
    )
    
    $
    (6,461
    )
    
    $
    1,566
    
    
    $
    (4,268
    )Weighted-average shares  basic
    
    
    189,901
    
    
    
    100,339
    
    
    
    188,119
    
    
    
    100,209Effect of dilutive potential common shares from:Stock options
    
    
    
    
    
    
    
    
    
    
    3,955
    
    
    
    Restricted stock awards
    
    
    
    
    
    
    
    
    
    
    1,674
    
    
    
    Obligations under escrow agreement
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    Weighted-average shares  diluted
    
    
    189,901
    
    
    
    100,339
    
    
    
    194,151
    
    
    
    100,209Basic net income (loss) per share
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.04
    )Diluted net income (loss) per share
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.04
    )Anti-dilutive potential common shares excluded
    
    
    32,240
    
    
    
    18,952
    
    
    
    22,729
    
    
    
    18,481
   Note 15. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)Net income (loss)
    
    $
    (2,479
    )
    
    $
    (6,461
    )
    
    $
    1,566
    
    
    $
    (4,268
    )Other comprehensive income (loss):Unrealized gain (loss) on
currency instruments designated
as hedges
    
    
    354
    
    
    
    (2,982
    )
    
    
    331
    
    
    
    (4,023
    )Currency translation adjustments
    
    
    (1,101
    )
    
    
    (8,903
    )
    
    
    446
    
    
    
    (15,315
    )Unrealized gain (loss) on
short-term investments
    
    
    
    
    
    
    61
    
    
    
    (7
    )
    
    
    44Comprehensive income (loss)
    
    $
    (3,226
    )
    
    $
    (18,285
    )
    
    $
    2,336
    
    
    $
    (23,562
    )
 21




---



##### 



Note 16. Operating Segments and Related Information
    Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)Net revenues:Telecom
    
    $
    82,178
    
    
    $
    37,966
    
    
    $
    156,444
    
    
    $
    90,875Advanced photonics solutions
    
    
    11,396
    
    
    
    5,409
    
    
    
    22,240
    
    
    
    11,930Consolidated net revenues
    
    $
    93,574
    
    
    $
    43,375
    
    
    $
    178,684
    
    
    $
    102,805
 Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)Operating lossTelecom
    
    $
    (1,189
    )
    
    $
    (6,240
    )
    
    $
    (1,541
    )
    
    $
    (7,173
    )Advanced photonics solutions
    
    
    (596
    )
    
    
    (82
    )
    
    
    (934
    )
    
    
    (955
    )Total segment operating loss
    
    
    (1,785
    )
    
    
    (6,322
    )
    
    
    (2,475
    )
    
    
    (8,128
    )Stock-based compensation
    
    
    1,031
    
    
    
    941
    
    
    
    1,951
    
    
    
    2,059Legal settlements
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    124(Gain) loss on sale of property and equipment
    
    
    (71
    )
    
    
    (8
    )
    
    
    (603
    )
    
    
    8Impairment of goodwill and other intangible
assets
    
    
    
    
    
    
    7,881
    
    
    
    
    
    
    
    7,881Consolidated operating loss
    
    $
    (2,745
    )
    
    $
    (15,444
    )
    
    $
    (3,823
    )
    
    $
    (18,200
    )
  Three Months Ended
    
    
    Six Months EndedJanuary 2,
    
    
    December 27,
    
    
    January 2,
    
    
    December 27,2010
    
    
    2008
    
    
    2010
    
    
    2008(Thousands)United States
    
    $
    17,462
    
    
    $
    7,792
    
    
    $
    34,987
    
    
    $
    21,950Canada
    
    
    3,748
    
    
    
    3,151
    
    
    
    8,739
    
    
    
    7,806Europe
    
    
    22,840
    
    
    
    11,342
    
    
    
    42,993
    
    
    
    24,760Asia
    
    
    42,998
    
    
    
    18,004
    
    
    
    78,558
    
    
    
    38,183Rest of world
    
    
    6,526
    
    
    
    3,086
    
    
    
    13,407
    
    
    
    10,106$
    93,574
    
    
    $
    43,375
    
    
    $
    178,684
    
    
    $
    102,805
 22




---



##### 



January 2,
    
    
    June 27,2010
    
    
    2009(Thousands)United States
    
    $
    9,047
    
    
    $
    2,252Canada
    
    
    167
    
    
    
    185Europe
    
    
    7,403
    
    
    
    7,390Asia
    
    
    17,428
    
    
    
    20,048$
    34,045
    
    
    $
    29,875
 Significant Customers and Concentration of Credit Risk
     Note 17. Subsequent Events
  23




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
    24




---



##### 



Recent Accounting Pronouncements
 Software (Topic 985),
Certain Revenue Arrangements that Include Software Elements
 Revenue Recognition (Topic 605), Multiple-Deliverable
Revenue Arrangements
 Application of Critical Accounting Policies
   25




---



##### 



Results of Operations
  Three Months Ended
    
    
    
    
    
    
    IncreaseJanuary 2, 2010
    
    
    December 27, 2008
    
    
    Change
    
    
    (Decrease)(Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %Revenues
    
    $
    93,574
    
    
    
    100.0
    
    
    $
    43,375
    
    
    
    100.0
    
    
    $
    50,199
    
    
    
    115.7Cost of revenues
    
    
    68,715
    
    
    
    73.4
    
    
    
    36,971
    
    
    
    85.2
    
    
    
    31,744
    
    
    
    85.9Gross profit
    
    
    24,859
    
    
    
    26.6
    
    
    
    6,404
    
    
    
    14.8
    
    
    
    18,455
    
    
    
    288.2Operating expenses:Research and development
    
    
    9,675
    
    
    
    10.3
    
    
    
    5,786
    
    
    
    13.3
    
    
    
    3,889
    
    
    
    67.2Selling, general and administrative
    
    
    14,835
    
    
    
    15.9
    
    
    
    7,574
    
    
    
    17.5
    
    
    
    7,261
    
    
    
    95.9Amortization of intangible assets
    
    
    125
    
    
    
    0.1
    
    
    
    178
    
    
    
    0.4
    
    
    
    (53
    )
    
    
    (29.8
    )Restructuring, merger and related costs
    
    
    3,040
    
    
    
    3.3
    
    
    
    129
    
    
    
    0.3
    
    
    
    2,911
    
    
    
    2,256.6Legal settlements
    
    
    
    
    
    
    
    
    
    
    308
    
    
    
    0.7
    
    
    
    (308
    )
    
    
    n/m
    (1)Impairment of goodwill and other
intangible assets
    
    
    
    
    
    
    
    
    
    
    7,881
    
    
    
    18.2
    
    
    
    (7,881
    )
    
    
    n/m
    (1)Gain on sale of property
and equipment
    
    
    (71
    )
    
    
    (0.1
    )
    
    
    (8
    )
    
    
    
    
    
    
    (63
    )
    
    
    787.5Total operating expenses
    
    
    27,604
    
    
    
    29.5
    
    
    
    21,848
    
    
    
    50.4
    
    
    
    5,756
    
    
    
    26.3Operating loss
    
    
    (2,745
    )
    
    
    (2.9
    )
    
    
    (15,444
    )
    
    
    (35.6
    )
    
    
    12,699
    
    
    
    (82.2
    )Other income (expense):Interest income
    
    
    2
    
    
    
    
    
    
    
    201
    
    
    
    0.5
    
    
    
    (199
    )
    
    
    (99.0
    )Interest expense
    
    
    (33
    )
    
    
    
    
    
    
    (196
    )
    
    
    (0.5
    )
    
    
    163
    
    
    
    (83.2
    )Gain on foreign currency translation
    
    
    793
    
    
    
    0.8
    
    
    
    9,866
    
    
    
    22.7
    
    
    
    (9,073
    )
    
    
    (92.0
    )Other income (expense)
    
    
    28
    
    
    
    
    
    
    
    (95
    )
    
    
    (0.2
    )
    
    
    123
    
    
    
    n/m
    (1)Total other income (expense)
    
    
    790
    
    
    
    0.8
    
    
    
    9,776
    
    
    
    22.5
    
    
    
    (8,986
    )
    
    
    (91.9
    )Loss from continuing operations
before income taxes
    
    
    (1,955
    )
    
    
    (2.1
    )
    
    
    (5,668
    )
    
    
    (13.1
    )
    
    
    3,713
    
    
    
    (65.5
    )Income tax provision
    
    
    524
    
    
    
    0.5
    
    
    
    36
    
    
    
    0.1
    
    
    
    488
    
    
    
    1,355.6Loss from continuing operations
    
    
    (2,479
    )
    
    
    (2.6
    )
    
    
    (5,704
    )
    
    
    (13.2
    )
    
    
    3,225
    
    
    
    (56.5
    )Loss from discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (757
    )
    
    
    (1.7
    )
    
    
    757
    
    
    
    n/m
    (1)Net loss
    
    $
    (2,479
    )
    
    
    (2.6
    )
    
    $
    (6,461
    )
    
    
    (14.9
    )
    
    $
    3,982
    
    
    
    (61.6
    )
 
 (1)
    
    Not meaningful. 26




---



##### 



Six months Ended
    
    
    
    
    
    
    IncreaseJanuary 2, 2010
    
    
    December 27, 2008
    
    
    Change
    
    
    (Decrease)(Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %
    
    
    (Thousands)
    
    
    %Revenues
    
    $
    178,684
    
    
    
    100.0
    
    
    $
    102,805
    
    
    
    100.0
    
    
    $
    75,879
    
    
    
    73.8Cost of revenues
    
    
    131,834
    
    
    
    73.8
    
    
    
    81,748
    
    
    
    79.5
    
    
    
    50,086
    
    
    
    61.3Gross profit
    
    
    46,850
    
    
    
    26.2
    
    
    
    21,057
    
    
    
    20.5
    
    
    
    25,793
    
    
    
    122.5Operating expenses:Research and development
    
    
    18,689
    
    
    
    10.4
    
    
    
    12,615
    
    
    
    12.3
    
    
    
    6,074
    
    
    
    48.1Selling, general and administrative
    
    
    27,798
    
    
    
    15.6
    
    
    
    16,639
    
    
    
    16.2
    
    
    
    11,159
    
    
    
    67.1Amortization of intangible assets
    
    
    250
    
    
    
    0.1
    
    
    
    375
    
    
    
    0.3
    
    
    
    (125
    )
    
    
    (33.3
    )Restructuring, merger and related costs
    
    
    4,539
    
    
    
    2.5
    
    
    
    1,615
    
    
    
    1.6
    
    
    
    2,924
    
    
    
    181.1Legal settlements
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    0.1
    
    
    
    (124
    )
    
    
    n/m
    (1)Impairment of goodwill and other
intangible assets
    
    
    
    
    
    
    
    
    
    
    7,881
    
    
    
    7.7
    
    
    
    (7,881
    )
    
    
    n/m
    (1)(Gain) loss on sale of property
and equipment
    
    
    (603
    )
    
    
    (0.3
    )
    
    
    8
    
    
    
    
    
    
    
    (611
    )
    
    
    n/m
    (1)Total operating expenses
    
    
    50,673
    
    
    
    28.3
    
    
    
    39,257
    
    
    
    38.2
    
    
    
    11,416
    
    
    
    29.1Operating loss
    
    
    (3,823
    )
    
    
    (2.1
    )
    
    
    (18,200
    )
    
    
    (17.7
    )
    
    
    14,377
    
    
    
    (79.0
    )Other income (expense):Interest income
    
    
    25
    
    
    
    
    
    
    
    444
    
    
    
    0.5
    
    
    
    (419
    )
    
    
    (94.4
    )Interest expense
    
    
    (121
    )
    
    
    (0.1
    )
    
    
    (324
    )
    
    
    (0.3
    )
    
    
    203
    
    
    
    (62.7
    )Gain (loss) on foreign exchange
    
    
    (483
    )
    
    
    (0.3
    )
    
    
    16,362
    
    
    
    15.9
    
    
    
    (16,845
    )
    
    
    n/m
    (1)Other income (expense)
    
    
    5,295
    
    
    
    3.0
    
    
    
    (695
    )
    
    
    (0.7
    )
    
    
    5,990
    
    
    
    n/m
    (1)Total other income (expense)
    
    
    4,716
    
    
    
    2.6
    
    
    
    15,787
    
    
    
    15.4
    
    
    
    (11,071
    )
    
    
    (70.1
    )Income (loss) from continuing operations
before income taxes
    
    
    893
    
    
    
    0.5
    
    
    
    (2,413
    )
    
    
    (2.3
    )
    
    
    3,306
    
    
    
    n/m
    (1)Income tax provision (benefit)
    
    
    747
    
    
    
    0.4
    
    
    
    (26
    )
    
    
    
    
    
    
    773
    
    
    
    n/m
    (1)Income (loss) from continuing operations
    
    
    146
    
    
    
    0.1
    
    
    
    (2,387
    )
    
    
    (2.3
    )
    
    
    2,533
    
    
    
    n/m
    (1)Gain (loss) from discontinued operations,
net of tax
    
    
    1,420
    
    
    
    0.8
    
    
    
    (1,881
    )
    
    
    (1.9
    )
    
    
    3,301
    
    
    
    n/m
    (1)Net income (loss)
    
    $
    1,566
    
    
    
    0.9
    
    
    $
    (4,268
    )
    
    
    (4.2
    )
    
    $
    5,834
    
    
    
    n/m
    (1)
 
 (1)
    
    Not meaningful. Revenues
    27




---



##### 



Cost of Revenues
     Gross Profit
    28




---



##### 



Research and Development Expenses
     Selling, General and Administrative Expenses
    29




---



##### 



Restructuring, Merger and Related Costs
    Legal Settlement
   Impairment of Goodwill and Other Intangible Assets
  (Gain)Loss on Sale of Property and Equipment
  Other Income (Expense)
   30




---



##### 



Income Tax Provision (Benefit)
  Income (Loss) From Discontinued Operations
  Liquidity and Capital Resources
 Cash Flows from Operating Activities
 Six Months EndedJanuary 2,
    
    
    December 27,2010
    
    
    2008(Thousands)Net income (loss)
    
    $
    1,566
    
    
    $
    (4,268
    )Non-cash adjustments:Accretion on short-term investments
    
    
    22
    
    
    
    (102
    )Amortization of deferred gain on sale-leaseback
    
    
    (466
    )
    
    
    (486
    )Depreciation and amortization
    
    
    5,736
    
    
    
    6,720(Gain) loss on sale of property and equipment
    
    
    (603
    )
    
    
    8Gain from bargain purchase
    
    
    (5,267
    )
    
    
    Gain on sale of New Focus business
    
    
    (1,420
    )
    
    
    Impairment of goodwill and other intangible assets
    
    
    
    
    
    
    7,881Impairment (recovery) of short-term investments
    
    
    (28
    )
    
    
    706Stock-based compensation expense
    
    
    1,951
    
    
    
    2,241Total non-cash adjustments
    
    
    (75
    )
    
    
    16,968Change in operating assets and liabilities
    
    
    (5,048
    )
    
    
    (3,010
    )Net cash provided by (used in) operating activities
    
    $
    (3,557
    )
    
    $
    9,690
   Cash Flows from Investing Activities
  31




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##### 



Cash Flows from Financing Activities
  Effect of Exchange Rates on Cash and Cash Equivalents for the Six Months Ended January 2, 2010
and December 27, 2008
   Credit Facility
    Future Cash Requirements
   32




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##### 



Risk Management  Foreign Currency Risk
  Off-Balance Sheet Arrangements
    Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Interest Rates
   33




---



##### 



Foreign currency
   Hedging Program
  Item 4 . Controls and Procedures
   34




---



##### 



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
 35




---



##### 



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, the acquisition of the high power laser
diodes business of Newport or the 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:
 
    
    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;
    
    demonstrating to our customers that the transactions will not result in
adverse changes in client service standards or business focus and helping customers
conduct business easily with the combined company;
    
    consolidating and rationalizing corporate information technology,
engineering and administrative infrastructures;
    
    integrating product offerings;
 36




---



##### 




    
    coordinating sales and marketing efforts to effectively communicate the
capabilities of the combined company;
    
    coordinating and integrating the manufacturing activities of the 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;
    
    coordinating and integrating the supply chains;
    
    coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;
    
    preserving important relationships of the businesses and resolving
potential conflicts between business cultures;
    
    coordinating the international activities of the acquired businesses;
 
    
    unexpected liabilities associated with the acquired businesses or unanticipated costs related to the integrations;
    
    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.
  37




---



##### 



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.
  38




---



##### 



We typically do not enter into long-term contracts with our customers and our customers may
decrease, cancel or delay their buying levels at any time with little or no advance notice to us.
  As a result of our global operations, our business is subject to currency fluctuations that have
adversely affected our results of operations in recent quarters and may continue to do so in the
future.
   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.
    39




---



##### 



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.
    We may make acquisitions that do not prove successful.
  40




---



##### 




    
    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.
   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.
  41




---



##### 



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.
   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.
  42




---



##### 



Our products are complex and may take longer to develop than anticipated and we may not recognize
revenues from new products until after long field testing and customer acceptance periods.
  If our customers do not qualify our manufacturing lines or the manufacturing lines of our
subcontractors for volume shipments, our operating results could suffer.
  Delays, disruptions or quality control problems in manufacturing could result in delays in product
shipments to customers and could adversely affect our business.
  We may experience low manufacturing yields.
  43




---



##### 



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
 44




---



##### 



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.
  45




---



##### 



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.
   46




---



##### 



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 mergers with
Avanex and Xtellus or the acquisition of the high power laser diodes business of Newport.
  47




---



##### 



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.
  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.
   48




---



##### 



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
   49




---



##### 



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;
 50




---



##### 




    
    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;
    
    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.
    51




---



##### 



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.
  52




---



##### 



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
  53




---



##### 



SIGNATURE
  OCLARO, INC.Date: February 16, 2010
    By:
    /s/ Jerry TurinJerry TurinChief Financial Officer
(Principal Financial and Accounting Officer) 54




---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit10.1
    
    
    Offer to Exchange Certain Stock Options for Replacement Stock Options (previously filed as Exhibit
99. (A)(1)(A) to Registrants Tender Offer Statement on Schedule TO filed on November 2, 2009 and
incorporated herein by reference).10.2
    
    
    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.