UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-30684

OCLARO, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-1303994 (I.R.S. Employer Identification Number)

2560 Junction Avenue, San Jose, California 95134
(Address of principal executive offices, zip code)

(408) 383-1400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No þ

Number of shares of common stock outstanding as of May 4, 2011: 50,463,086

 

 

OCLARO, INC.
TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of April 2, 2011 and July 3, 2010			3
Condensed Consolidated Statements of Operations for the three and nine months ended April 2, 2011 and April 3, 2010			4
Condensed Consolidated Statements of Cash Flows for the nine months ended April 2, 2011 and April 3, 2010			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			32
Item 6. Exhibits			48
Signature			49
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

OCLARO, INC.

		April 2, 2011				July 3, 2010
		(Thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents		$	74,851			$	107,176
Restricted cash			854				4,458
Accounts receivable, net			96,447				93,412
Inventories			87,519				62,570
Prepaid expenses and other current assets			17,141				14,905
Total current assets			276,812				282,521
Property and equipment, net			64,786				37,516
Other intangible assets, net			20,423				10,610
Goodwill			30,904				20,000
Other non-current assets			10,041				10,148
Total assets		$	402,966			$	360,795
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	64,993			$	50,103
Accrued expenses and other liabilities			47,042				35,404
Total current liabilities			112,035				85,507
Deferred gain on sale-leaseback			13,176				12,969
Other non-current liabilities			15,894				9,785
Total liabilities			141,105				108,261
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: 1,000 shares authorized; none issued and outstanding			—				—
Common stock: $0.01 par value per share; 90,000 shares authorized; 50,460 and 49,396 shares issued and outstanding at April 2, 2011 and July 3, 2010, respectively			505				494
Additional paid-in capital			1,312,179				1,304,779
Accumulated other comprehensive income			38,507				26,907
Accumulated deficit			(1,089,330	)			(1,079,646	)
Total stockholders’ equity			261,861				252,534
Total liabilities and stockholders’ equity		$	402,966			$	360,795

The accompanying notes form an integral part of these condensed consolidated financial statements.

OCLARO, INC.

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
		(Thousands, except per share amounts)
Revenues		$	115,681			$	101,152			$	357,327			$	279,836
Cost of revenues			87,269				73,322				258,346				205,156
Gross profit			28,412				27,830				98,981				74,680
Operating expenses:
Research and development			17,220				11,288				46,627				29,977
Selling, general and administrative			16,087				14,451				46,049				42,249
Amortization of intangible assets			722				347				2,080				597
Restructuring, acquisition and related costs			1,019				1,610				2,592				6,149
Legal settlements			—				—				1,678				—
(Gain) loss on sale of property and equipment			4				101				(65	)			(502	)
Total operating expenses			35,052				27,797				98,961				78,470
Operating income (loss)			(6,640	)			33				20				(3,790	)
Other income (expense):
Interest income			—				11				16				36
Interest expense			(487	)			(134	)			(1,539	)			(255	)
Gain (loss) on foreign exchange			(2,032	)			794				(6,738	)			311
Other income			—				—				—				5,295
Total other income (expense)			(2,519	)			671				(8,261	)			5,387
Income (loss) from continuing operations before income taxes			(9,159	)			704				(8,241	)			1,597
Income tax provision			668				499				1,443				1,246
Income (loss) from continuing operations			(9,827	)			205				(9,684	)			351
Income from discontinued operations, net of tax			—				—				—				1,420
Net income (loss)		$	(9,827	)		$	205			$	(9,684	)		$	1,771
Basic net income (loss) per share:
Income (loss) per share from continuing operations		$	(0.20	)		$	—			$	(0.20	)		$	0.01
Income per share from discontinued operations			—				—				—				0.04
Basic net income (loss) per share		$	(0.20	)		$	—			$	(0.20	)		$	0.05
Diluted net income (loss) per share:
Income (loss) per share from continuing operations		$	(0.20	)		$	—			$	(0.20	)		$	0.01
Income per share from discontinued operations			—				—				—				0.03
Diluted net income (loss) per share		$	(0.20	)		$	—			$	(0.20	)		$	0.04
Shares used in computing net income (loss) per share:
Basic			48,587				41,095				48,321				38,752
Diluted			48,587				43,829				48,321				40,331

The accompanying notes form an integral part of these condensed consolidated financial statements.

OCLARO, INC.

		Nine Months Ended
		April 2, 2011				April 3, 2010
		(Thousands)
Cash flows from operating activities:
Net income (loss)		$	(9,684	)		$	1,771
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred gain on sale-leaseback			(693	)			(643	)
Depreciation and amortization			12,788				8,667
Gain on bargain purchase			—				(5,267	)
Gain on sale of discontinued operations			—				(1,420	)
Stock-based compensation expense			4,629				3,175
Other non-cash adjustments			(65	)			(851	)
Changes in operating assets and liabilities:
Accounts receivable, net			6,817				(18,677	)
Inventories			(17,908	)			6,481
Prepaid expenses and other current assets			(1,018	)			(16	)
Other non-current assets			141				1,559
Accounts payable			10,204				10,788
Accrued expenses and other liabilities			(3,792	)			(7,213	)
Net cash provided by (used in) operating activities			1,419				(1,646	)
Cash flows from investing activities:
Purchases of property and equipment			(32,881	)			(5,945	)
Proceeds from sales of property and equipment			75				691
Sales and maturities of available-for-sale investments			—				9,258
Transfer (to) from restricted cash			3,703				(103	)
Purchase of intangibles and equipment from an asset purchase			—				(250	)
Cash (paid for) received from business combinations			(10,482	)			3,277
Net cash provided by (used in) investing activities			(39,585	)			6,928
Cash flows from financing activities:
Proceeds from issuance of common stock, net			2,645				137
Proceeds from borrowings under line of credit			—				2,500
Repayment of loans			—				(52	)
Net cash provided by financing activities			2,645				2,585
Effect of exchange rate on cash and cash equivalents			3,196				(952	)
Net increase (decrease) in cash and cash equivalents			(32,325	)			6,915
Cash and cash equivalents at beginning of period			107,176				44,561
Cash and cash equivalents at end of period		$	74,851			$	51,476

The accompanying notes form an integral part of these condensed consolidated financial statements.

OCLARO, INC.

Note 1. Basis of Preparation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Oclaro, Inc., a Delaware corporation, (“Oclaro,” “we,” “us” or “our”) as of April 2, 2011 and for the three and nine months ended April 2, 2011 and April 3, 2010 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X, and include the accounts of Oclaro and all of its subsidiaries. Accordingly, they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our condensed consolidated financial position and results of operations have been included. The condensed consolidated results of operations for the three and nine months ended April 2, 2011 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending July 2, 2011.

The condensed consolidated balance sheet as of July 3, 2010 has been derived from our audited financial statements as of such date, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended July 3, 2010 (“2010 Form 10-K”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of some of the key estimates and assumptions are included in our 2010 Form 10-K.

Fiscal Years

We operate on a 52/53 week year ending on the Saturday closest to June 30. Our fiscal year ended July 3, 2010 was a 53 week year, with the quarter ended January 2, 2010 being a 14 week quarterly period. Our fiscal year ending July 2, 2011 will be a 52 week year.

Reclassifications

For presentation purposes, we have reclassified certain prior period amounts to conform to the current period financial statement presentation. These reclassifications did not affect our consolidated net income (loss), cash flows, cash and cash equivalents or stockholders’ equity, as previously reported.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three or nine months ended April 2, 2011 that are of significance, or potential significance, to us.

Comprehensive Income (Loss)

For the three and nine months ended April 2, 2011 and April 3, 2010, comprehensive income (loss) is primarily comprised of our net income (loss), changes in the unrealized gain (loss) on currency instruments designated as cash flow hedges, unrealized loss on marketable securities and short-term investments and currency translation adjustments.

The components of comprehensive income (loss) were as follows for the periods indicated:

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
		(Thousands)
Net income (loss)		$	(9,827	)		$	205			$	(9,684	)		$	1,771
Other comprehensive income (loss):
Unrealized gain (loss) on currency instruments designated as cash flow hedges			149				(210	)			184				121
Currency translation adjustments			4,062				(1,766	)			11,454				(1,320	)
Unrealized loss on marketable securities			(38	)			—				(38	)			—
Unrealized loss on short-term investments			—				—				—				(7	)
Comprehensive income (loss)		$	(5,654	)		$	(1,771	)		$	1,916			$	565

Note 2. Fair Value

We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. We apply the following fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices of identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 – unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Our cash equivalents and non-current marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include marketable securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The type of instrument valued based on other observable inputs are foreign currency forward exchange contracts. Such instruments are generally classified within Level 2 of the fair value hierarchy.

We have classified an escrow liability issued in connection with our acquisition of Xtellus Inc. (“Xtellus”) within Level 2 of the fair value hierarchy, as its value was derived by discounting the total liability of $7.0 million due 18 months after the acquisition to its present value using our incremental borrowing cost.

During the first quarter of fiscal year 2011, we classified earnout liabilities arising from our acquisition of Mintera Corporation (“Mintera”) within Level 3 of the fair value hierarchy because their values were primarily derived from management estimates of future operating results. See Note 3, Business Combinations, for additional details regarding these liabilities.

We have a defined benefit pension plan in Switzerland whose assets are classified within Level 1 of the fair value hierarchy for plan assets of cash, equity investments and fixed income investments, and Level 3 of the fair value hierarchy for plan assets of real estate and alternative investments. These pension plan assets are not reflected in the accompanying condensed consolidated balance sheets, and are thus not included in the tables below.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value are shown in the table below by their corresponding balance sheet caption and consisted of the following types of instruments at April 2, 2011:

		Fair Value Measurement at Reporting Date Using
		Quoted Prices				Significant
		in Active				Other				Significant
		Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
		(Thousands)
Assets:
Cash and cash equivalents (1):
Money market funds		$	40,197			$	—			$	—			$	40,197
Prepaid expenses and other current assets:
Unrealized gain on currency instruments designated as cash flow hedges			—				233				—				233
Other non-current assets:
Marketable securities			267				—				—				267
Total assets measured at fair value		$	40,464			$	233			$	—			$	40,697
Liabilities:
Accrued expenses and other liabilities:
Escrow liability for Xtellus acquisition (2)		$	—			$	6,883			$	—			$	6,883
Earnout liability for Mintera acquisition (2)			—				—				4,541				4,541
Other non-current liabilities:
Earnout liability for Mintera acquisition (2)			—				—				11,328				11,328
Total liabilities measured at fair value		$	—			$	6,883			$	15,869			$	22,752

The following table provides details regarding the changes in assets and liabilities classified within Level 3 from July 3, 2010 to April 2, 2011:

		Fair Value Measured and
		Recorded Using
		Significant Unobservable
		Inputs (Level 3)
		Accrued Expenses				Other
		and Other				Non-Current
		Liabilities				Liabilities
		(Thousands)
Balance at July 3, 2010		$	—			$	—
Earnout liabilities from Mintera acquisition			4,338				10,810
Interest expense on Mintera earnout liabilities			203				518
Balance at April 2, 2011		$	4,541			$	11,328

Derivative Financial Instruments

At the end of each accounting period, we mark-to-market all foreign currency forward exchange contracts that have been designated as cash flow hedges and changes in fair value are recorded in accumulated other comprehensive income until the underlying cash flow is settled and the contract is recognized in other income (expense) in our condensed consolidated statements of operations. As of April 2, 2011, we held ten outstanding foreign currency forward exchange contracts to sell U.S. dollars and buy U.K. pounds sterling. All of these contracts have been designated as cash flow hedges. These contracts had an aggregate notional value of approximately $10.5 million of put and call options which expire, or expired, at various dates ranging from April 2011 through November 2011. To date, we have not entered into any such contracts for longer than 12 months and, accordingly, all amounts included in accumulated other comprehensive income as of April 2, 2011 will generally be reclassified into other income (expense) within the next 12 months. As of April 2, 2011, each of the ten designated cash flow hedges was determined to be fully effective; therefore, we recorded an unrealized gain of $0.2 million to accumulated other comprehensive income related to recording the fair value of these foreign currency forward exchange contracts.

Note 3. Business Combinations

During the three and nine months ended April 2, 2011, we recorded nil and $0.1 million, respectively, in legal and other direct acquisition-related costs in connection with business combinations. During the three and nine months ended April 3, 2010, we recorded $0.9 million and $2.5 million, respectively, in legal and other direct acquisition-related costs in connection with business combinations. These costs are recorded within restructuring, acquisition and related costs in our condensed consolidated statement of operations.

Sale of the New Focus Business and Acquisition of Newport’s High Power Laser Diodes Business

On July 4, 2009, we sold the net assets of our New Focus business to Newport Corporation (“Newport”) in exchange for the net assets of Newport’s high power laser diodes business and $3.0 million in cash proceeds. This transaction resulted in the recording of $1.4 million in income from discontinued operations from the sale of the New Focus business and a $5.3 million gain on bargain purchase of Newport’s high power laser diodes business during the quarter ended September 26, 2009.

Acquisition of Xtellus

On December 17, 2009, we acquired Xtellus and accounted for the assets acquired and liabilities assumed from this acquisition using the purchase method of accounting. During the first quarter of fiscal year 2011, we completed our fair value assessment of the Xtellus acquisition, which resulted in no change to the estimated fair values of the assets acquired and liabilities assumed from the amounts we previously reported in our 2010 Form 10-K.

We are obligated to pay an additional $7.0 million in consideration to the former Xtellus stockholders after an 18 month escrow period established to secure the indemnification obligations of the Xtellus stockholders under the acquisition agreement. The $7.0 million, less any indemnified obligations which may be assumed by us, will become payable in cash, or, at our option, in newly issued shares of our common stock, or a combination of cash and stock, in June 2011. The estimated fair value of this obligation was $6.3 million at the acquisition date, and was recorded in other non-current liabilities in our condensed consolidated balance sheet at July 3, 2010. During the first quarter of fiscal year 2011, we reclassified this escrow liability from other non-current liabilities to accrued expenses and other liabilities. During the three and nine months ended April 2, 2011, we recorded $0.1 million and $0.6 million in interest expense related to the Xtellus escrow liability.

We also reassessed the fair value of the Xtellus valuation protection guarantee during the second quarter of fiscal year 2011. Based on the criteria established in the merger agreement for the guarantee with Xtellus, no liability was due. This guarantee expired in December 2010.

Further description of the Xtellus acquisition is included in Note 3, Business Combinations, of our 2010 Form 10-K.

Acquisition of Mintera

On July 21, 2010, we acquired Mintera, a privately-held company providing high-performance optical transport sub-systems solutions. We accounted for the assets acquired and liabilities assumed from this acquisition using the purchase method of accounting. Under the terms of this agreement, we paid $10.5 million in cash to the former security holders and creditors of Mintera at the time of close and assumed $1.5 million in liabilities due by the security holders of Mintera, which we paid during the three months ended October 2, 2010. We also agreed to pay additional revenue-based consideration whereby former security holders of Mintera are entitled to receive up to $20.0 million, determined based on a set of sliding scale formulas, to the extent revenue from Mintera products is more than $29.0 million in the 12 months following the acquisition and/or more than $40.0 million in the 18 months following the acquisition. The earnout consideration, if any, will be payable in cash or, at our option, newly issued shares of our common stock, or a combination of cash and stock, in October 2011 for the 12 month earnout liability and April 2012 for the 18 month earnout liability. Achieving cumulative revenues of $40.0 million over the next 12 month period and $70.0 million over the next 18 month period would lead to the maximum $20.0 million in additional consideration. The estimated fair value of these obligations were determined using management estimates of the total amounts expected to be paid based on estimated future operating results, discounted to their present value using our incremental borrowing cost. The estimated fair value of these obligations were $15.1 million at the acquisition date, and have been recorded in accrued expenses and other liabilities and other non-current liabilities in our condensed consolidated balance sheet at April 2, 2011. We reassessed the fair value of these obligations during the current quarter, determining that their values as of April 2, 2011 should remain at $15.1 million (plus accrued interest from the acquisition date). During the three and nine months ended April 2, 2011, we recorded $0.3 million and $0.7 million in interest expense related to these liabilities.

For accounting purposes, the total fair value of consideration given in connection with the acquisition of Mintera was $25.6 million, consisting of the following:

		Total Consideration
		(Thousands)
Consideration to security holders and creditors of Mintera		$	12,000
Less: Unpaid liabilities of Mintera security holders assumed by Oclaro			(1,518	)
Net cash paid to security holders and creditors of Mintera			10,482
Estimated fair value for the 12-month earnout liability			4,338
Estimated fair value for the 18-month earnout liability			10,810
Total estimated fair value for the earnout liabilities			15,148
Total consideration		$	25,630

Our allocation of the purchase price of Mintera, based on the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date, is as follows:

		Purchase Price
		(Thousands)
Restricted cash		$	41
Accounts receivable, net			3,053
Inventories			2,592
Prepaid expenses and other current assets			130
Property and equipment, net			3,202
Other intangible assets			11,740
Accounts payable			(1,947	)
Accrued expenses and other current liabilities			(4,085	)
Fair value of assets acquired and liabilities assumed			14,726
Goodwill			10,904
Total purchase price		$	25,630

During the second quarter of fiscal year 2011, we completed our fair value assessment of the Mintera acquisition, which resulted in no change to the estimated fair values of the assets acquired and liabilities assumed from the amounts we previously reported in our Form 10-Q for the period ended October 2, 2010.

Unaudited Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Mintera had occurred as of June 28, 2009, the first day of our fiscal year 2010:

		Three Months Ended								Nine Months Ended
		April 2, 2011				April 3, 2010				April 2, 2011				April 3, 2010
		(Thousands)								(Thousands)
Revenues		$	115,681			$	104,037			$	357,795			$	296,445
Loss from continuing operations		$	(9,827	)		$	(4,438	)		$	(12,042	)		$	(7,186	)
Net loss		$	(9,827	)		$	(4,438	)		$	(12,042	)		$	(5,766	)
Net loss per share — basic		$	(0.20	)		$	(0.11	)		$	(0.25	)		$	(0.15	)
Net loss per share — diluted		$	(0.20	)		$	(0.11	)		$	(0.25	)		$	(0.15	)
Shares used in computing net loss per share — basic			48,587				41,095				48,321				38,752
Shares used in computing net loss per share — diluted			48,587				41,095				48,321				38,752

This unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the Mintera acquisition been consummated as of that time, nor is it intended to be a projection of future results. In addition, this unaudited pro forma financial information does not include the impact of additional acquisitions completed in fiscal year 2010.

Note 4. Balance Sheet Details

The following table provides details regarding our cash and cash equivalents at the dates indicated:

		April 2, 2011				July 3, 2010
		(Thousands)
Cash and cash equivalents:
Cash-in-bank		$	34,654			$	23,962
Money market funds			40,197				83,214
		$	74,851			$	107,176

The following table provides details regarding our inventories at the dates indicated:

		April 2, 2011				July 3, 2010
		(Thousands)
Inventories:
Raw materials		$	32,905			$	17,732
Work-in-process			35,035				32,491
Finished goods			19,579				12,347
		$	87,519			$	62,570

The following table provides details regarding our property and equipment, net at the dates indicated:

		April 2, 2011				July 3, 2010
		(Thousands)
Property and equipment, net:
Buildings		$	16,660			$	16,104
Plant and machinery			134,756				97,186
Fixtures, fittings and equipment			1,627				1,142
Computer equipment			13,729				12,232
			166,772				126,664
Less: Accumulated depreciation			(101,986	)			(89,148	)
		$	64,786			$	37,516

The following table presents details regarding our accrued expenses and other liabilities at the dates indicated:

		April 2, 2011				July 3, 2010
		(Thousands)
Accrued expenses and other liabilities:
Trade payables		$	7,379			$	4,464
Compensation and benefits related accruals			9,899				8,688
Warranty accrual			2,010				2,437
Restructuring accrual			366				4,338
Escrow liability for Xtellus acquisition (1)			6,883				—
Earnout liability for Mintera acquisition (2)			4,541				—
Other accruals			15,964				15,477
		$	47,042			$	35,404

The following table presents details regarding our other non-current liabilities at the dates indicated:

		April 2, 2011				July 3, 2010
		(Thousands)
Other non-current liabilities
Escrow liability for Xtellus acquisition (1)		$	—			$	6,324
Earnout liability for Mintera acquisition (2)			11,328				—
Other non-current liabilities			4,566				3,461
		$	15,894			$	9,785

Note 5. Goodwill and Other Intangible Assets

In connection with our acquisition of Mintera on July 21, 2010, we recorded $10.9 million in goodwill and $11.7 million in other intangible assets. The other intangible assets acquired from Mintera consist of core and current technology assets of $6.0 million with a weighted-average life of 6 years, a development agreement of $3.4 million with a weighted-average life of 7 years, customer relationships of $1.4 million with a weighted-average life of 8.5 years, manufacturing software of $0.7 million with a weighted-average life of 6 years, patents of $0.1 million with a weighted-average life of 5.5 years, trade names of $80,000 with a weighted-average life of 1.5 years and backlog of $30,000 with a weighted-average life of 1.5 years.

The following table provides details regarding the changes in our goodwill and other intangible assets from July 3, 2010 to April 2, 2011:

						Other Intangible Assets
										Accumulated				Net Book
		Goodwill				Cost				Amortization				Value
		(Thousands)
Balance at July 3, 2010		$	20,000			$	12,815			$	(2,205	)		$	10,610
Acquired			10,904				11,740				—				11,740
Amortization			—				—				(2,080	)			(2,080	)
Exchange rate adjustment			—				153				—				153
Balance at April 2, 2011		$	30,904			$	24,708			$	(4,285	)		$	20,423

The following table reflects the components of other intangible assets, net at the dates indicated:

		April 2,				July 3,
		2011				2010
		(Thousands)
Other intangible assets, net
Core and current technology		$	10,939			$	4,909
Development agreement			3,350				—
Supply agreements			3,209				3,056
Customer relationships			3,200				1,760
Patent portfolio			2,910				2,780
Manufacturing software			680				—
Tradename			280				200
Backlog			140				110
			24,708				12,815
Less: Accumulated amortization			(4,285	)			(2,205	)
		$	20,423			$	10,610

Amortization of other intangible assets for the three and nine months ended April 2, 2011 was $0.7 million and $2.1 million, respectively. Amortization of other intangible assets for the three and nine months ended April 3, 2010 was $0.3 million and $0.6 million, respectively. Amortization is recorded as an operating expense within our condensed consolidated statements of operations. Estimated future amortization expense of other intangible assets is $0.7 million for the remaining three months of fiscal year 2011, $3.3 million for each of the fiscal years 2012 to 2015 and $3.0 million for fiscal year 2016.

Note 6. Restructuring Liabilities

The following table summarizes activities related to our restructuring liabilities for the nine months ended April 2, 2011:

		Accrued				Amounts												Accrued
		Restructuring				Charged to												Restructuring
		Costs at July				Restructuring				Amounts								Costs at April
		3, 2010				Costs				Paid				Adjustments				2, 2011
		(Thousands)
Lease cancellations and commitments and other charges		$	4,107			$	—			$	(3,200	)		$	(541	)		$	366
Employee separation costs			231				1,103				(1,091	)			(243	)			—
Total accrued restructuring charges		$	4,338			$	1,103			$	(4,291	)		$	(784	)		$	366

We accrued nil and $0.5 million in additional employee separation costs during the three and nine months ended April 2, 2011 in connection with cost reduction and restructuring plans initiated prior to fiscal year 2011. During the first quarter of fiscal year 2011, we initiated a restructuring plan specific to our acquisition of Mintera. We incurred nil and $0.6 million in employee separation costs under the Mintera plan during the three and nine months ended April 2, 2011 and do not expect to incur significant additional restructuring costs under this plan. During the three and nine months ended April 2, 2011, we recorded reductions to our restructuring reserve of $0.3 million and $0.5 million, respectively, resulting from revised estimates for lease cancellations and commitments and other charges. We also recorded a reduction to our restructuring reserve of $0.2 million related to employee separation costs during the three and nine months ended April 2, 2011.

Note 7. Credit Facility

As of April 2, 2011, we had a $25.0 million senior secured revolving credit facility with Wells Fargo Capital Finance, Inc. and other lenders with an expiration date of August 1, 2012. As of April 2, 2011 and July 3, 2010, there were no amounts outstanding under the credit facility. At April 2, 2011, we had a standby letter of credit in the amount of $1.0 million with a vendor secured under the credit facility. This standby letter of credit expires in June 2011.

Note 8. Post-Retirement Benefits

Switzerland Defined Benefit Plan (“Swiss Plan”)

Net periodic pension costs associated with our Swiss Plan for the three and nine months ended April 2, 2011 included the following components:

		Three Months				Nine Months
		Ended				Ended
		April 2,				April 2,
		2011				2011
		(Thousands)
Service cost		$	447			$	1,302
Interest cost			188				547
Expected return on plan assets			(248	)			(721	)
Net periodic pension costs		$	387			$	1,128

During the three and nine months ended April 2, 2011, we contributed $0.6 million and $1.5 million, respectively, to our Swiss Plan. We currently anticipate contributing an additional $0.5 million to this pension plan in the remainder of fiscal year 2011.

Note 9. Commitments and Contingencies

     Guarantees

We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and executive officers. We have not recorded a liability associated with these indemnification arrangements, as we historically have not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that we maintain, however, such insurance may not cover any, or may cover only a portion of, the amounts we may be required to pay. In addition, we may not be able to maintain such insurance coverage in the future.

We also have indemnification clauses in various contracts that we enter into in the normal course of business, such as those issued by our bankers in favor of certain suppliers or indemnification in favor of customers in respect of liabilities they may incur as a result of purchasing our products should such products infringe the intellectual property rights of a third party. We have not historically paid out any material amounts related to these indemnifications, therefore, no accrual has been made for these indemnifications.

     Warranty accrual

We accrue for the estimated costs to provide warranty services at the time revenue is recognized. Our estimate of costs to service our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty costs would increase, resulting in a decrease in gross profit.

The following table summarizes movements in the warranty accrual for the periods indicated:

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
		(Thousands)
Warranty provision — beginning of period		$	2,241			$	2,486			$	2,437			$	2,228
Warranties assumed in acquisitions			—				—				357				248
Warranties issued			450				1,162				1,326				2,862
Warranties utilized or expired			(741	)			(687	)			(2,221	)			(2,351	)
Currency translation adjustment			60				(82	)			111				(108	)
Warranty provision — end of period		$	2,010			$	2,879			$	2,010			$	2,879

     Litigation

On June 26, 2001, the first of a number of securities class actions was filed in the United States District Court for the Southern District of New York against New Focus, Inc., now known as Oclaro Photonics, Inc. (“New Focus”), certain of its officers and directors, and certain underwriters for New Focus’ initial and secondary public offerings. A consolidated amended class action complaint, captioned In re New Focus, Inc. Initial Public Offering Securities Litigation, No. 01 Civ. 5822, was filed on April 20, 2002. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in New Focus’ initial public offering and seeks unspecified damages for claims under the Exchange Act on behalf of a purported class of purchasers of common stock from May 17, 2000 to December 6, 2000.

The lawsuit against New Focus is coordinated for pretrial proceedings with a number of other pending litigations challenging underwriter practices in over 300 cases, as In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS), including actions against Bookham Technology plc, now known as Oclaro Technology Ltd (“Bookham Technology”) and Avanex Corporation, now known as Oclaro (North America), Inc. (“Avanex”), and certain of each entity’s respective officers and directors, and certain of the underwriters of their public offerings. In October 2002, the claims against the directors and officers of New Focus, Bookham Technology and Avanex were

dismissed, without prejudice, subject to the directors’ and officers’ execution of tolling agreements.

The parties have reached a global settlement of the litigation. On October 5, 2009, the Court entered an order certifying a settlement class and granting final approval of the settlement. Under the settlement, the insurers will pay the full amount of the settlement share allocated to New Focus, Bookham Technology and Avanex, and New Focus, Bookham Technology and Avanex will bear no financial liability. New Focus, Bookham Technology and Avanex, as well as the officer and director defendants who were previously dismissed from the action pursuant to tolling agreements, will receive complete dismissals from the case. Certain objectors have appealed the Court’s October 5, 2009 order to the Second Circuit Court of Appeals. If for any reason the settlement does not become effective, we believe that Bookham Technology, New Focus and Avanex have meritorious defenses to the claims and therefore believe that such claims will not have a material effect on our financial position, results of operations or cash flows.

On May 27, 2009, a patent infringement action captioned QinetiQ Limited v. Oclaro, Inc., Civil Action No. 1:09-cv-00372 was filed in the United States District Court for the District of Delaware. Additionally, we filed a motion to transfer venue to the Northern District of California, which was granted on December 18, 2009. After transfer, the litigation was assigned Civil Action No. 4:10-cv-00080-SBA by the Northern District Court. On March 17, 2011, the parties entered into a confidential settlement agreement. The litigation has been dismissed with prejudice.

On December 6, 2010, a bankruptcy preferential transfer avoidance action was filed by Nortel Networks Inc. et al. against Oclaro Technology Ltd. (formerly Bookham Technology, Plc.) and Oclaro (North America), Inc. (formerly Avanex Corporation) in the United States Bankruptcy Court for the District of Delaware, Adversary Proceeding No. 10-55919-KG. The complaint alleges, among other things, that Nortel Networks Inc., and/or its affiliated debtors in the Chapter 11 bankruptcy cases also pending before the Delaware Bankruptcy Court (Jointly Administered Case No. 09-10138-KG), made at least $4,593,152 in preferential transfers to the defendants’ predecessors, Bookham Technology Plc. and Avanex Corporation, in the 90 days prior to the commencement of the Nortel Chapter 11 bankruptcy cases on January 14, 2009. We intend to vigorously contest the claims set forth in the complaint.

Note 10. Stockholders’ Equity

     Warrants

The following table summarizes activity relating to warrants to purchase our common stock for the nine months ended April 2, 2011:

						Weighted-
		Warrants				Average
		Outstanding				Exercise Price
		(Thousands)
Balance at July 3, 2010			1,616			$	18.78
Expired on January 13, 2011			(217	)			35.00
Balance at April 2, 2011			1,399			$	16.27

In fiscal year 2006, we issued warrants to investors to purchase 217,206 shares of our common stock. These warrants were exercisable from July 13, 2006 to January 13, 2011 at an exercise price per share of $35.00. All of these warrants expired on January 13, 2011.

     Accumulated Other Comprehensive Income

The following table presents the components of accumulated other comprehensive income at the dates indicated:

		April 2, 2011				July 3, 2010
		(Thousands)
Accumulated other comprehensive income:
Currency translation adjustments		$	39,465			$	28,011
Unrealized gain on currency instruments designated as cash flow hedges			233				49
Unrealized loss on marketable securities			(38	)			—
Swiss defined benefit plan			(1,153	)			(1,153	)
		$	38,507			$	26,907

Note 11. Employee Stock Plans

Our Amended and Restated 2004 Stock Incentive Plan (“Plan”) was amended by stockholder approval on October 27, 2010. The primary changes to the Plan resulting from this amendment include: (1) an increase in the number of shares available under the Plan from 3,800,000 shares to 7,800,000 shares, (2) issuance of full value awards being counted as 1.25 shares of common stock for purposes of the share limit, and (3) a prohibition on recycling of repurchased shares in cases where shares are used to exercise an award or shares are withheld for taxes. As amended, the Plan now expires on October 26, 2020.

As of April 2, 2011, there were approximately 3.8 million shares of our common stock available for grant under the Plan. We generally grant stock options that vest over a four year service period, and restricted stock awards and units that vest over a one to four year service period, and in certain cases each may vest earlier based upon the achievement of specific performance-based objectives as set by our board of directors.

The following table summarizes the combined activity under all of our equity incentive plans for the nine months ended April 2, 2011:

		Shares				Stock				Weighted-				Restricted Stock				Weighted-
		Available				Options				Average				Awards / Units				Average Grant
		For Grant				Outstanding				Exercise Price				Outstanding				Date Fair Value
		(Thousands)				(Thousands)								(Thousands)
Balances at July 3, 2010			1,089				3,186			$	8.78				703			$	6.42
Granted			(1,376	)			837				11.58				484				8.25
Exercised or released			—				(502	)			4.68				(250	)			5.37
Cancelled or forfeited			58				(109	)			9.34				(112	)			6.25
Increase in available for grant			4,000				—				—				—				—
Balances at April 2, 2011			3,771				3,412			$	9.46				825			$	9.69

Supplemental disclosure information about our stock options outstanding as of April 2, 2011 is as follows:

Weighted-

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Shares

Exercise Price

Contractual Life

Value

(Thousands)

(Years)

(Thousands)

Options exercisable at April 2, 2011

1,337

$

12.24

6.5

$

5,431

Options outstanding at April 2, 2011

3,412

9.46

7.7

13,064

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the closing price of our common stock of $10.90 on April 1, 2011, which would have been received by the option holders had all option holders exercised their options as of that date. There were approximately 1.0 million shares of common stock subject to in-the-money options which were exercisable as of April 2, 2011. We settle employee stock option exercises with newly issued shares of common stock.

Note 12. Stock-based Compensation

We recognize compensation expense in our statement of operations related to all share-based awards, including grants of stock options, based on the grant date fair value of such share-based awards. Estimating the grant date fair value of such share-based awards requires us to make judgments in the determination of inputs into the Black-Scholes stock option pricing model which we use to arrive at an estimate of the grant date fair value for such awards. The assumptions used in this model to value stock option grants for the three and nine months ended April 2, 2011 and April 3, 2010 were as follows:

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Expected life		4.5 years				4.5 years				4.5 years				4.5 years
Risk-free interest rate			1.9	%			2.2	%			1.3	%			2.3	%
Volatility			97.8	%			95.9	%			96.8	%			99.8	%
Dividend yield			—				—				—				—

The amounts included in cost of revenues and operating expenses for stock-based compensation for the three and nine months ended April 2, 2011 and April 3, 2010 were as follows:

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
		(Thousands)
Stock-based compensation by category of expense:
Cost of revenues		$	352			$	226			$	1,012			$	640
Research and development			344				332				1,053				831
Selling, general and administrative			901				666				2,564				1,704
		$	1,597			$	1,224			$	4,629			$	3,175
Stock-based compensation by type of award:
Stock options		$	988			$	629			$	2,658			$	2,257
Restricted stock awards			639				741				2,109				1,178
Inventory adjustment to cost of revenues			(30	)			(146	)			(138	)			(260	)
		$	1,597			$	1,224			$	4,629			$	3,175

As of April 2, 2011 and July 3, 2010, we had capitalized approximately $0.4 million and $0.2 million, respectively, of stock-based compensation as inventory.

Note 13. Income Taxes

The total amount of our unrecognized tax benefits as of April 2, 2011 and July 3, 2010 was approximately $9.4 million and $8.4 million, respectively. For the three and nine months ended April 2, 2011, we had $1.8 million in unrecognized tax benefits that, if recognized, would affect our effective tax rate. While it is often difficult to predict the final outcome of any particular uncertain tax position, management does not expect that changes to our unrecognized tax benefits will be significant in the next twelve months. We are currently under audit in France. We do not anticipate any significant adjustment to our financial position or results of operations as a result of this examination.

Note 14. Net Income (Loss) Per Share

The following table presents the calculation of basic and diluted net income (loss) per share:

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
		(Thousands,except per share amounts)
Net income (loss)		$	(9,827	)		$	205			$	(9,684	)		$	1,771
Weighted-average shares — basic			48,587				41,095				48,321				38,752
Effect of dilutive potential common shares from:
Stock options			—				1,472				—				914
Restricted stock awards			—				760				—				473
Obligations under escrow agreement			—				502				—				192
Weighted-average shares — diluted			48,587				43,829				48,321				40,331
Basic net income (loss) per share		$	(0.20	)		$	—			$	(0.20	)		$	0.05
Diluted net income (loss) per share		$	(0.20	)		$	—			$	(0.20	)		$	0.04

Basic net income (loss) per share is computed using only the weighted-average number of shares of common stock outstanding for the applicable period, while diluted net income (loss) per share is computed assuming conversion of all potentially dilutive securities, such as stock options, unvested restricted stock awards, warrants and obligations under escrow agreements during such period.

For the three months ended April 2, 2011, we excluded 5.0 million of outstanding stock options, warrants and restricted stock units from the calculation of diluted net income per share because their effect would have been anti-dilutive. For the three months ended April 3, 2010, we excluded 2.4 million of outstanding stock options and warrants from the calculation of diluted net income per share because their effect would have been anti-dilutive. For the nine months ended April 2, 2011, we excluded 4.7 million of outstanding stock options and warrants from the calculation of diluted net income per share because their effect would have been anti-dilutive. For the nine months ended April 3, 2010, we excluded 3.5 million of outstanding stock options and warrants from the calculation of diluted net income per share because their effect would have been anti-dilutive.

Note 15. Operating Segments and Related Information

Up to and through the second quarter of fiscal year 2011, we were organized and operated as two operating segments: (i) telecom and (ii) advanced photonics solutions (“APS”). Our telecom segment was responsible for the design, development, chip and filter level manufacturing, marketing and selling of high performance core optical network components, module and subsystem products to telecommunications systems vendors. Our advanced photonics solutions segment was responsible for the design, manufacture, marketing and selling of optics and photonics solutions for markets including material processing, printing, medical and consumer applications.

In late 2010, we aligned our APS portfolio to more fully leverage the assets of our telecom business. This was the culmination of our 2009 transaction to acquire the laser diodes assets of Newport in exchange for our New Focus photonics tools business. Our APS products, strategies and infrastructure support are now more closely aligned with the rest of our telecom business, and beginning in the third quarter of fiscal year 2011 we operate our business accordingly, under the same management. As a result, beginning in the third quarter of fiscal year 2011 we are no longer reporting APS as a separate operating segment. In January 2011, we also announced the further realignment of our four telecom business units into two business units, one of which contains our former APS product lines. The intent is to simplify our organizational structure to focus on ramping new products, simplifying our customer interface, and strengthening our execution of product development and other key initiatives. Our new photonics components business unit is focused on delivering component level solutions to our customers, and it includes our former APS products. Our new optical networks solutions business unit is focused on delivering module and

subsystem level solutions to substantially the same telecom customers. Single sales and operation functions support all of the products in each business unit.

The following table shows revenues by geographic area based on the delivery locations of our products:

		Three Months Ended								Nine Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
		(Thousands)
United States		$	18,222			$	19,542			$	55,778			$	54,529
Canada			3,838				3,563				10,022				12,302
Europe			30,744				23,424				101,027				66,417
Asia			58,558				47,234				169,220				125,792
Rest of world			4,319				7,389				21,280				20,796
		$	115,681			$	101,152			$	357,327			$	279,836

     Significant Customers and Concentration of Credit Risk

For the three months ended April 2, 2011, Huawei Technologies Co., Ltd. (“Huawei”) accounted for 19 percent and Alcatel-Lucent accounted for 10 percent of our revenues. For the nine months ended April 2, 2011, Huawei accounted for 17 percent, Alcatel-Lucent accounted for 12 percent and Ciena Corporation accounted for 10 percent of our revenues. For the three months ended April 3, 2010, Huawei accounted for 13 percent and Alcatel-Lucent accounted for 10 percent of our revenues. For the nine months ended April 3, 2010, Huawei accounted for 13 percent of our revenues.

As of April 2, 2011, Huawei accounted for 22 percent and Alcatel-Lucent accounted for 11 percent of our accounts receivable. As of July 3, 2010, Alcatel-Lucent accounted for 15 percent and Huawei accounted for 14 percent of our accounts receivable.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, about our future expectations, plans or prospects and our business. You can identify these statements by the fact that they do not relate strictly to historical or current events, and contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “will,” “plan,” “believe,” “should,” “outlook,” “could,” “target” and other words of similar meaning in connection with discussion of future operating or financial performance. These forward-looking statements include statements concerning (i) potential future financial results, (ii) the impact of acquisitions on our financial performance, including without limitation, accretion or dilution, gross margin, operating income and cash usage, (iii) future expense levels and sources for improvement of gross margin and operating expenses, including supply chain synergies, optimizing mix of product offerings, transition to higher margin product offerings, benefits of combined research and development and sales organizations, (iv) the expected financial opportunities after mergers or acquisitions and the expected synergies related thereto, (v) opportunities to grow in adjacent markets, (vi) our organizational restructuring with the formation of two new business units focused on photonic components and optical networks solutions and (vii) the assumptions underlying such statements. We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. There are a number of important factors that could cause our actual results or events to differ materially from those indicated by such forward-looking statements, including the impact of continued uncertainty in world financial markets and any resulting or other reduction in demand for our products, our ability to maintain our gross margin, our ability to respond to evolving technologies and customer requirements, our ability to protect our intellectual property rights and the resolution of allegations that we infringe the intellectual property rights of others, our dependence on a limited number of customers for a significant percentage of our revenues, our ability to effectively compete with companies that have greater name recognition, broader customer relationships and substantially greater financial, technical and marketing resources than we do, the effect of fluctuating product mix, currency prices and consumer demand on our financial results, our performance following the closing of acquisitions, our potential inability to realize the expected benefits and synergies from our acquisitions, increased costs related to downsizing and compliance with regulatory requirements in connection with such downsizing, the impact of events beyond our control such as natural disasters and political unrest, the outcome of our currently pending litigation and future litigation that may be brought by or against us, the potential lack of availability of credit or opportunity for equity-based financing and the risks associated with our international operations. You should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements. The factors discussed in the sections captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Quarterly Report on Form 10-Q also identify important factors that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Overview

We are a leading provider of high-performance core optical network components, modules and subsystems to global telecom equipment manufacturers. We leverage our proprietary core technologies and vertically integrated product development to provide our customers with cost-effective and innovative optical solutions in metro and long-haul network applications. In addition, we utilize our optical expertise to address new and emerging optical product opportunities in selective non-telecom markets, such as materials processing, consumer, medical, industrial, printing and biotechnology. We offer our customers a differentiated solution that is designed to make it easier for our customers to do business by combining optical technology innovation, photonic integration, and a vertical approach to manufacturing and product development.

In late 2010, we aligned our advanced photonics solutions (“APS”) portfolio to more fully leverage the assets of our telecom business. This was the culmination of our 2009 transaction to acquire the laser diodes assets of Newport Corporation in exchange for our New Focus photonics tools business. Our APS products, strategies and infrastructure support are now more closely aligned with the rest of our telecom business, and beginning in the third quarter of fiscal year 2011 we operate our business accordingly, under the same management. As a result, beginning in the third quarter of fiscal year 2011 we are no longer reporting APS as a separate operating segment. In January

2011, we also announced the further realignment of our four telecom business units into two business units, one of which contains our former APS product lines. The intent is to simplify our organizational structure to focus on ramping new products, simplifying our customer interface, and strengthening our execution of product development and other key initiatives. Our new photonics components business unit is focused on delivering component level solutions to our customers, and it includes our former APS products. Our new optical networks solutions business unit is focused on delivering module and subsystem level solutions to substantially the same telecom customers. Single sales and single operation functions support all of the products in each business unit.

Effective January 3, 2011, our common stock is now traded on the NASDAQ Global Select Market under the symbol “OCLR.” We previously traded on the NASDAQ Global Market under the same symbol.

Results of Operations

The following tables set forth our condensed consolidated results of operations for the three and nine month periods indicated, along with amounts expressed as a percentage of revenues, and comparative information regarding the absolute and percentage changes in these amounts:

		Three Months Ended																				Increase
		April 2, 2011								April 3, 2010								Change				(Decrease)
		(Thousands)				%				(Thousands)				%				(Thousands)				%
Revenues		$	115,681				100.0			$	101,152				100.0			$	14,529				14.4
Cost of revenues			87,269				75.4				73,322				72.5				13,947				19.0
Gross profit			28,412				24.6				27,830				27.5				582				2.1
Operating expenses:
Research and development			17,220				14.9				11,288				11.2				5,932				52.6
Selling, general and administrative			16,087				13.9				14,451				14.3				1,636				11.3
Amortization of intangible assets			722				0.6				347				0.3				375				108.1
Restructuring, acquisition and related costs			1,019				0.9				1,610				1.6				(591	)			(36.7	)
Legal settlements			—				—				—				—				—				—
Loss on sale of property and equipment			4				—				101				0.1				(97	)			(96.0	)
Total operating expenses			35,052				30.3				27,797				27.5				7,255				26.1
Operating income (loss)			(6,640	)			(5.7	)			33				—				(6,673	)			n/m	(1)
Other income (expense):
Interest income			—				—				11				—				(11	)			(100.0	)
Interest expense			(487	)			(0.4	)			(134	)			(0.1	)			(353	)			263.4
Gain (loss) on foreign exchange			(2,032	)			(1.8	)			794				0.8				(2,826	)			n/m	(1)
Other income			—				—				—				—				—				—
Total other income (expense)			(2,519	)			(2.2	)			671				0.7				(3,190	)			n/m	(1)
Income (loss) from continuing operations before income taxes			(9,159	)			(7.9	)			704				0.7				(9,863	)			n/m	(1)
Income tax provision			668				0.6				499				0.5				169				33.9
Income (loss) from continuing operations			(9,827	)			(8.5	)			205				0.2				(10,032	)			n/m	(1)
Income from discontinued operations, net of tax			—				—				—				—				—				—
Net income (loss)		$	(9,827	)			(8.5	)		$	205				0.2			$	(10,032	)			n/m	(1)