UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended April 2, 2005

OR

For the transition period from           to

Commission file number 0-30684

BOOKHAM, INC.

408-919-1500
(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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 4, 2005, there were 33,805,437 shares of common stock outstanding.

BOOKHAM, INC.
TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BOOKHAM, INC.

The accompanying notes are an integral component of these condensed consolidated financial statements.

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BOOKHAM, INC.

The accompanying notes are an integral component of these condensed consolidated financial statements.

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BOOKHAM, INC.

The accompanying notes are an integral component of these condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business

References to “the Company” or “Bookham” mean Bookham, Inc. and its subsidiaries and refers to Bookham’s consolidated business activities since September 10, 2004 and Bookham Technology plc’s consolidated business activities prior to September 10, 2004.

Bookham is a Delaware corporation and was incorporated on June 29, 2004. On September 10, 2004, pursuant to a scheme of arrangement under U.K. law, Bookham became the publicly traded parent company of the Bookham Technology plc group of companies, including Bookham Technology plc, a public limited company incorporated under the laws of England and Wales whose stock was previously traded on the London Stock Exchange and the NASDAQ National Market. The Company’s common stock is traded on the NASDAQ National Market under the symbol “BKHM.” This Form 10-Q includes financial information for the three and nine month periods ended April 2, 2005 and compares these results with the three and nine month periods ended April 4, 2004 for the statement of operations, compares the nine months ended April 2, 2005 to the nine months ended April 4, 2004 for the statement of cash flows and compares the balance sheet at April 2, 2005 to the balance sheet at July 3, 2004.

Note 2. Basis of Preparation

The accompanying unaudited condensed consolidated financial statements as of April 2, 2005, and for the three and nine months ended April 2, 2005 and April 4, 2004, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and include the accounts of Bookham, Inc. and all of its subsidiaries. Information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position at April 2, 2005, and the consolidated operating results for the three and nine months ended April 2, 2005 and April 4, 2004, and cash flows for the nine months ended April 2, 2005 and April 4, 2004. The consolidated results of operations for the three and nine months ended April 2, 2005 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending July 2, 2005.

Management makes estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and footnotes. Actual results could differ materially from those estimates. Management believes that some of the more critical accounting estimates and related assumptions that affect the Company’s financial condition and results of operations are in the areas of revenue recognition, legal contingencies, receivables, inventories, business restructuring and goodwill and other intangible assets. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the period that they are determined to be necessary.

The condensed consolidated balance sheet at July 3, 2004 has been derived from the audited condensed consolidated financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain comparative amounts have been reclassified to conform to current period presentations.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes included in the Company’s Transition Report on Form 10-K/A for the transition period from January 1, 2004 to July 3, 2004.

The financial statements have been prepared on a going concern basis. The Company has incurred losses and negative cash flows from operations since its inception. As of April 2, 2005 the Company had working capital of $82.8 million, and an accumulated deficit of $828.0 million. For the nine months ended April 2, 2005, the Company used $92.7 million of cash in operating activities and had a net loss of $129.6 million. The Company’s ability to meet obligations in the ordinary course of business is dependent on its ability to establish profitable operations and raise additional financing. Management believes it will be able to secure additional sources of financing in the next twelve months through the sale of assets, issuance of additional equity securities and through borrowings secured by certain properties which the Company owns. Management also intends to delay or reduce expenditures in the event additional financial resources are not available on terms acceptable to the Company. The Company’s inability to secure the necessary financing would have a material adverse affect on the Company’s financial condition and results of operations. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of assets and liabilities that may result from the outcome of this uncertainty.

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The condensed consolidated balance sheet of the Company as of July 3, 2004 and the related consolidated statements of operations for the three and nine months ended April 2, 2004 and cash flows for the nine months ended April 4, 2004 contained in this Quarterly Report on Form 10-Q have been prepared in conformity with US GAAP, or derived from audited consolidated financial statements that had been prepared in conformity with US GAAP and have been translated from pounds sterling into US Dollars using the exchange rates set forth below. Translation differences are recorded in other comprehensive income.

Note 3. Stock-based Compensation

The Company accounts for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Under the intrinsic value method, the Company has only recorded stock-based employee compensation resulting from stock options granted at below fair market value. Stock-based compensation expense reflected in the as reported net loss includes expenses for restricted stock awards and option modifications and the amortization of certain acquisition related deferred compensation expense. No tax benefits were attributed to the stock-based employee compensation expense during the periods presented because valuation allowances were maintained on substantially all of the Company’s net deferred tax assets.

The following table illustrates the pro forma effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based employee compensation data:

On February 9, 2005, the Company awarded restricted stock grants totaling 249,859 common shares to the Chief Executive Officer and the Chief Financial Officer (“the Participants”) under the Company’s 2004 Stock Incentive Plan in exchange for a significant portion of their outstanding stock options as of that date. Pursuant to the terms of the award, the shares shall vest in their entirety and become free from transfer restrictions on the one year anniversary of the grant date provided that (A) the Participant has been continuously employed by the Company during the period, (B) on or before the anniversary, the Company has filed on a timely basis any report required pursuant to Item 308 of Regulation S-K and (C) on the anniversary date the Company does not have any material weakness that has not been remedied to the satisfaction of the Audit Committee of the Company’s board of directors. In the event the

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Participant’s employment with the Company is terminated for any reason other than his death, his disability or a change of control of Bookham, all of the shares will be forfeited and the Participant shall have no further rights with respect to the shares. The Company recorded deferred compensation of approximately $750,000 representing the fair market value of the restricted shares on the date of the grant. The deferred compensation will be amortized over the term of the agreement as a charge to compensation expense, however, because there are performance metrics which prevent the shares from being vested over the term of the agreement, the grants will be fair valued at each reporting period and deferred compensation will be adjusted accordingly. The Company recorded an expense of $98,000 in the third quarter of fiscal 2005.

On September 22, 2004, options to purchase 1,730,950 shares of common stock of the Company were granted to employees under the Company’s 2004 Stock Incentive Plan at an exercise price of $6.73 per share. 50% of the options vest in accordance with the following performance based schedule: (i) as to 50% of these shares upon the Company achieving cash flow break-even (as defined as the point at which the Company generates earnings before interest, taxes, depreciation and amortization (excluding one-time items) that are greater than zero in any fiscal quarter prior to the termination of the option) and (ii) as to 50% of these shares upon the Company achieving profitability (as defined as the point at which the Company generates a profit before interest and taxes (excluding one-time items) that is greater than zero in any fiscal quarter prior to the termination of the option). In the event that either or both of the above-listed portions do not vest in full on or prior to September 22, 2009, such portion of the option shall become immediately vested. 50% of the options have a time based vesting schedule as follows: the options will vest (i) as to 25% of these shares on the first anniversary of the grant date and (ii) as to an additional 2.083% of these shares at the end of each successive month period following the first anniversary of the grant date until the fourth anniversary of the grant date.

In December 2004, the FASB issued SFAS No. 123R which requires companies to recognize in their statement of operations all share-based payments to employees, including grants of employee stock options, based on their fair values. Accounting for share-based compensation transactions using the intrinsic method supplemented by pro forma disclosures will no longer be permissible. The new pronouncement will be effective for public entities no later than the beginning of the first fiscal year beginning after June 15, 2005. The Company will adopt the new pronouncement on July 3, 2005. The Company has not yet completed its analysis of the impact of adopting SFAS No. 123R and is therefore currently unable to quantify the effect it will have on its financial statements. However, the adoption of this new pronouncement will have a significant impact on the results of operations and net loss per share of the Company.

Note 4. Restructuring

In recent years, the Company has implemented a number of major restructuring plans as a result of the ongoing downturn in the optical components industry and to realize cost reduction benefits arising from the integration of acquired companies.

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The Company has two restructuring plans in place. The first restructuring plan was comprised of several activities prior to and following the Company’s acquisition of New Focus on March 8, 2004 (“the Acquisition Restructuring Plan”). This plan chiefly comprised closing the Company’s Ottawa facility and the transferring of its fabrication production into the Company’s Caswell facility, adding certain restructuring liabilities arising from the acquisition of New Focus in March 2004, and implementing other general cost reductions across the Company. This program is substantially complete except for the payment of certain severance and retention obligations and the continuing payments associated with the ongoing leases of non-occupied facilities.

The second plan (“the 2004 Restructuring Plan”), which was announced in May 2004, sought to reduce overhead by $10 million to $12 million per quarter on a cumulative value basis. In December 2004, the Company announced additional general overhead reduction measures designed to increase the quarterly overhead reduction to $16 million to $20 million per quarter. The Company anticipates the total cost of implementing these reductions to be in the range of $24 million to $30 million all of which the Company expects will require the expenditure of cash. The key component of the 2004 Restructuring Plan is the transfer of the majority of the assembly and test operations from the Company’s facility in Paignton, UK to the Company’s facility in Shenzhen, China to take advantage of the substantially reduced cost base in China. The Shenzhen facility was acquired as part of the Company’s acquisition of New Focus and the Company is actively staffing the facility and transferring production of the first product lines into the new facility. In addition, the 2004 Restructuring Plan calls for the discontinuation of the Company’s GaAs fabrication product line as well as other general cost reductions throughout the Company. As a result of the Company changing its domicile from the United Kingdom to the United States, during the second quarter of fiscal 2005, the Company closed its headquarters office in Abingdon, UK and transferred its headquarters to San Jose, California and relocated its UK Corporate staff to its facility in Caswell, UK. The Company expects these programs to reduce its overhead expenses in the coming quarters but, due to the complexity and time involved to transfer some product lines to China and the need to keep UK operations open to meet current product demand, a portion of the anticipated savings is expected to take 12 to 15 months to achieve.

Included in each restructuring plan were costs related to severance pay, the write-down of the carrying value of equipment used by terminated product lines, office closures and the termination of certain office leases. Facility closing charges are recognized under the restructuring programs for the expected remaining future cash outlays associated with remaining lease liabilities, lease termination payments and expected restoration costs in connection with plans to reduce the number of leased facilities. The remaining liability is expected to be paid over the remaining lease terms and is reflected net of expected sublease income. Additional charges may be required in the future if the expected sublease income is not realized. In the three months ended April 2, 2005, $3.7 million of restructuring charges were in the Company’s Optics segment and $0.1 million were in the Company’s Research and Defense segment (see Note 12 for additional segment information). All restructuring charges were incurred within the Company’s Optics segment in the previous quarters.

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The following tables summarize the activity on the restructuring plans for the three and nine months ended April 2, 2005 (in thousands):