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

For the quarterly period ended January 1, 2011

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

For the transition period from ________________ to ________________

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)

2584 Junction Avenue, San Jose, California 95134
(Former address of principal executive offices, zip 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 (Do not check if a smaller reporting company)		Smaller reporting company o

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 February 4, 2011: 49,941,880

 

 

OCLARO, INC.
TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of January 1, 2011 and July 3, 2010			3
Condensed Consolidated Statements of Operations for the three and six months ended January 1, 2011 and January 2, 2010			4
Condensed Consolidated Statements of Cash Flows for the six months ended January 1, 2011 and January 2, 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			29
Item 4. Controls and Procedures			30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			31
Item 6. Exhibits			47
Signature			48
EX-10.4
EX-10.5
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

OCLARO, INC.

		January 1, 2011				July 3, 2010
		(Thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents		$	77,279			$	107,176
Restricted cash			845				4,458
Accounts receivable, net			105,715				93,412
Inventories			82,840				62,570
Prepaid expenses and other current assets			15,858				14,905
Total current assets			282,537				282,521
Property and equipment, net			54,086				37,516
Other intangible assets, net			21,060				10,610
Goodwill			30,904				20,000
Other non-current assets			10,094				10,148
Total assets		$	398,681			$	360,795
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	61,763			$	50,103
Accrued expenses and other liabilities			45,520				35,404
Total current liabilities			107,283				85,507
Deferred gain on sale-leaseback			12,899				12,969
Other non-current liabilities			14,631				9,785
Total liabilities			134,813				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; 49,931 and 49,396 shares issued and outstanding at January 1, 2011 and July 3, 2010, respectively			499				494
Additional paid-in capital			1,308,538				1,304,779
Accumulated other comprehensive income			34,334				26,907
Accumulated deficit			(1,079,503	)			(1,079,646	)
Total stockholders’ equity			263,868				252,534
Total liabilities and stockholders’ equity		$	398,681			$	360,795

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

OCLARO, INC.

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands, except per share amounts)
Revenues		$	120,299			$	93,574			$	241,646			$	178,684
Cost of revenues			84,556				68,715				171,077				131,834
Gross profit			35,743				24,859				70,569				46,850
Operating expenses:
Research and development			15,696				9,675				29,407				18,689
Selling, general and administrative			15,149				14,835				29,962				27,798
Amortization of intangible assets			739				125				1,358				250
Restructuring, acquisition and related costs			903				3,040				1,573				4,539
Legal settlements			1,678				—				1,678				—
Gain on sale of property and equipment			(48	)			(71	)			(69	)			(603	)
Total operating expenses			34,117				27,604				63,909				50,673
Operating income (loss)			1,626				(2,745	)			6,660				(3,823	)
Other income (expense):
Interest income			9				2				16				25
Interest expense			(479	)			(33	)			(1,052	)			(121	)
Gain (loss) on foreign currency translation			(1,119	)			793				(4,706	)			(483	)
Other income			—				28				—				5,295
Total other income (expense)			(1,589	)			790				(5,742	)			4,716
Income (loss) from continuing operations before income taxes			37				(1,955	)			918				893
Income tax provision			250				524				775				747
Income (loss) from continuing operations			(213	)			(2,479	)			143				146
Income from discontinued operations, net of tax			—				—				—				1,420
Net income (loss)		$	(213	)		$	(2,479	)		$	143			$	1,566
Basic net income (loss) per share:
Income (loss) per share from continuing operations		$	—			$	(0.07	)		$	—			$	—
Income per share from discontinued operations			—				—				—			$	0.04
Basic net income (loss) per share		$	—			$	(0.07	)		$	—			$	0.04
Diluted net income (loss) per share:
Income (loss) per share from continuing operations		$	—			$	(0.07	)		$	—			$	—
Income per share from discontinued operations			—				—				—			$	0.04
Diluted net income (loss) per share		$	—			$	(0.07	)		$	—			$	0.04
Shares used in computing net income (loss) per share:
Basic			48,262				37,980				48,189				37,624
Diluted			48,262				37,980				51,109				38,830

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

OCLARO, INC.

(Unaudited)

		Six Months Ended
		January 1, 2011				January 2, 2010
		(Thousands)
Cash flows from operating activities:
Net income		$	143			$	1,566
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred gain on sale-leaseback			(458	)			(466	)
Depreciation and amortization			8,053				5,736
Gain on bargain purchase			—				(5,267	)
Gain on sale of discontinued operations			—				(1,420	)
Stock-based compensation expense			3,032				1,951
Other non-cash adjustments			(70	)			(609	)
Changes in operating assets and liabilities:
Accounts receivable, net			(6,135	)			(10,238	)
Inventories			(14,450	)			5,462
Prepaid expenses and other current assets			(238	)			(1,201	)
Other non-current assets			105				1,590
Accounts payable			8,033				6,634
Accrued expenses and other liabilities			(5,348	)			(7,295	)
Net cash used in operating activities			(7,333	)			(3,557	)
Cash flows from investing activities:
Purchases of property and equipment			(18,681	)			(2,368	)
Proceeds from sales of property and equipment			69				691
Sales and maturities of available-for-sale investments			—				9,258
Transfer (to) from restricted cash			3,693				(95	)
Cash (paid for) received from business combinations			(10,482	)			3,277
Net cash provided by (used in) investing activities			(25,401	)			10,763
Cash flows from financing activities:
Proceeds from issuance of common stock, net			625				—
Repayment of loans			—				(52	)
Net cash provided by (used in) financing activities			625				(52	)
Effect of exchange rate on cash and cash equivalents			2,212				16
Net increase (decrease) in cash and cash equivalents			(29,897	)			7,170
Cash and cash equivalents at beginning of period			107,176				44,561
Cash and cash equivalents at end of period		$	77,279			$	51,731

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 January 1, 2011 and for the three and six months ended January 1, 2011 and January 2, 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 consolidated financial position and results of operations have been included. The condensed consolidated results of operations for the three and six months ended January 1, 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 ended July 2, 2011 will be a 52 week year, with the quarter ended January 1, 2011 being a 13 week quarterly period.

Reclassifications

For presentation purposes, we have reclassified certain prior period amounts to conform to the current period financial statement presentation. With the exception of those discussed below, these reclassifications did not affect our consolidated net income, cash flows, cash and cash equivalents or stockholders’ equity, as previously reported.

During the second quarter of fiscal year 2010, we finalized the purchase accounting with respect to our acquisition of Newport Corporation’s (“Newport”) high power laser diodes business and the disposition of our New Focus business. Our final assessment resulted in the gain on bargain purchase increasing from $0.7 million as originally reported to $5.3 million and the income from discontinued operations increasing from $1.3 million as originally reported to $1.4 million during the second quarter of fiscal year 2010.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three or six months ended January 1, 2011 that are of significance, or potential significance, to us.

Comprehensive Income (Loss)

For the three and six months ended January 1, 2011 and January 2, 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 short-term investments and currency translation adjustments.

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

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands)
Net income (loss)		$	(213	)		$	(2,479	)		$	143			$	1,566
Other comprehensive income (loss):
Unrealized gain (loss) on currency instruments designated as cash flow hedges			(288	)			354				35				331
Currency translation adjustments			1,779				(1,101	)			7,392				446
Unrealized loss on short-term investments			—				—				—				(7	)
Comprehensive income (loss)		$	1,278			$	(3,226	)		$	7,570			$	2,336

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 short-term investment instruments 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 most U.S. government and agency securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs include investment-grade corporate bonds, mortgage-backed and asset-backed securities and 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 $15.3 million in 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 January 1, 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		$	48,196			$	—			$	—			$	48,196
Prepaid expenses and other current assets:
Unrealized gain on currency instruments designated as cash flow hedges			—				84				—				84
Total assets measured at fair value		$	48,196			$	84			$	—			$	48,280
Liabilities:
Accrued expenses and other liabilities:
Escrow liability for Xtellus acquisition (2)		$	—			$	6,767			$	—			$	6,767
Earnout liability for Mintera acquisition (2)			—				—				4,465				4,465
Other non-current liabilities:
Earnout liability for Mintera acquisition (2)			—				—				11,134				11,134
Total liabilities measured at fair value		$	—			$	6,767			$	15,599			$	22,366

The following table provides details regarding the changes in assets and liabilities classified within Level 3 from July 3, 2010 to January 1, 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			127				324
Balance at January 1, 2011		$	4,465			$	11,134

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 January 1, 2011, we held sixteen 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 $17.5 million of put and call options which expire, or expired, at various dates ranging from January 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 January 1, 2011 will generally be reclassified into other income (expense) within the next 12 months. As of January 1, 2011, each of the sixteen designated cash flow hedges was determined to be fully effective; therefore, we recorded an unrealized gain of $0.1 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 six months ended January 1, 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 six months ended January 2, 2010, we recorded $1.2 million and $1.6 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 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.

During the three and six months ended January 1, 2011, we recorded $0.1 million and $0.4 million in interest expense related to the Xtellus escrow liability. During the first quarter of fiscal year 2011, we reclassified this escrow liability from other non-current liabilities to accrued expenses and other liabilities.

We also reassessed the fair value of the Xtellus valuation protection guarantee during the current quarter. Based on the criteria established in the merger agreement for the guarantee with Xtellus, no liability is due. The 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. 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 this obligation was determined using management estimates of the total amounts expected to be paid based on estimated future operating results, discounted to its present value using our incremental borrowing cost. The estimated fair value of this obligation was $15.1 million at the acquisition date, and has been recorded in accrued expenses and other liabilities and other non-current liabilities in our condensed consolidated balance sheet at January 1, 2011. We reassessed the fair value of this obligation during the current quarter determining that its value should remain at $15.1 million (plus accrued interest from the acquisition date) as of January 1, 2011. During the three and six months ended January 1, 2011, we recorded $0.3 million and $0.5 million in interest expense related to this liability.

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 earnouts			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 current quarter, 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								Six Months Ended
		January 1, 2011				January 2, 2010				January 1, 2011				January 2, 2010
		(Thousands)								(Thousands)
Revenues		$	120,299			$	100,436			$	242,114			$	192,408
Loss from continuing operations		$	(213	)		$	(3,926	)		$	(2,215	)		$	(2,748	)
Net loss		$	(213	)		$	(3,926	)		$	(2,215	)		$	(1,328	)
Net loss per share — basic		$	—			$	(0.10	)		$	(0.05	)		$	(0.04	)
Net loss per share — diluted		$	—			$	(0.10	)		$	(0.05	)		$	(0.04	)
Shares used in computing net loss per share — basic			48,262				37,980				48,189				37,624
Shares used in computing net loss per share — diluted			48,262				37,980				48,189				37,624

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:

		January 1, 2011				July 3, 2010
		(Thousands)
Cash and cash equivalents:
Cash-in-bank		$	29,083			$	23,962
Money market funds			48,196				83,214
		$	77,279			$	107,176

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

		January 1, 2011				July 3, 2010
		(Thousands)
Inventories:
Raw materials		$	33,530			$	17,732
Work-in-process			32,503				32,491
Finished goods			16,807				12,347
		$	82,840			$	62,570

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

		January 1, 2011				July 3, 2010
		(Thousands)
Property and equipment, net:
Buildings		$	16,547			$	16,104
Plant and machinery			118,903				97,186
Fixtures, fittings and equipment			1,368				1,142
Computer equipment			13,063				12,232
			149,881				126,664
Less: Accumulated depreciation			(95,795	)			(89,148	)
		$	54,086			$	37,516

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

		January 1, 2011				July 3, 2010
		(Thousands)
Accrued expenses and other liabilities:
Trade payables		$	5,975			$	4,464
Compensation and benefits related accruals			7,806				8,688
Warranty accrual			2,241				2,437
Restructuring accrual			1,379				4,338
Escrow liability for Xtellus acquisition (1)			6,767				—
Earnout liability for Mintera acquisition (2)			4,465				—
Other accruals			16,887				15,477
		$	45,520			$	35,404

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

		January 1, 2011				July 3, 2010
		(Thousands)
Other non-current liabilities
Escrow liability for Xtellus acquisition (1)		$	—			$	6,324
Earnout liability for Mintera acquisition (2)			11,134				—
Other non-current liabilities			3,497				3,461
		$	14,631			$	9,785

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

		January 1, 2011				July 3, 2010
		(Thousands)
Accumulated other comprehensive income:
Unrealized gain on currency instruments designated as cash flow hedges		$	84			$	49
Currency translation adjustments			35,403				28,011
Swiss defined benefit plan			(1,153	)			(1,153	)
		$	34,334			$	26,907

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, 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 January 1, 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			—				—				(1,358	)			(1,358	)
Exchange rate adjustment			—				68				—				68
Balance at January 1, 2011		$	30,904			$	24,623			$	(3,563	)		$	21,060

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

		January 1,				July 3,
		2011				2010
		(Thousands)
Other intangible assets, net
Supply agreements		$	3,124			$	3,056
Customer relationships			3,200				1,760
Core and current technology			10,939				4,909
Patent portfolio			2,910				2,780
Development agreement			3,350				—
Manufacturing software			680				—
Backlog			140				110
Tradename			280				200
			24,623				12,815
Less: Accumulated amortization			(3,563	)			(2,205	)
		$	21,060			$	10,610

Amortization of other intangible assets for the three and six months ended January 1, 2011 was $0.7 million and $1.4 million, respectively. Amortization of other intangible assets for the three and six months ended January 2, 2010 was $0.1 million and $0.3 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 $1.4 million for the remaining six 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 six months ended January 1, 2011:

																		Accrued
		Accrued				Amounts												Restructuring
		Restructuring				Charged to												Costs at
		Costs at July				Restructuring				Amounts								January 1,
		3, 2010				Costs				Paid				Adjustments				2011
		(Thousands)
Lease cancellations and commitments and other charges		$	4,107			$	—			$	(2,951	)		$	(257	)		$	899
Termination payments to employees and related costs			231				1,103				(865	)			11				480
Total accrued restructuring charges		$	4,338			$	1,103			$	(3,816	)		$	(246	)		$	1,379

We accrued $0.2 million and $0.5 million in additional employee separation costs during the three and six months ended January 1, 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 new restructuring plan in connection with our acquisition of Mintera. We incurred $0.2 million and $0.6 million in employee separation charges under the Mintera plan during the three and six months ended January 1, 2011 and do not expect to incur significant additional restructuring costs under this plan. During the three and six months ended January 1, 2011, we also recorded reductions to our restructuring reserve of $0.1 million and $0.2 million resulting from revised estimates for lease cancelation and commitment and other charges.

Note 7. Credit Facility

As of January 1, 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 January 1, 2011 and July 3, 2010, there were no amounts outstanding under the credit facility. At January 1, 2011, we had a standby letter of credit in the amount of $1.5 million with a vendor secured under the credit facility. This standby letter of credit expires in March 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 six months ended January 1, 2011 included the following components:

		Three Months				Six Months
		Ended				Ended
		January 1,				January 1,
		2011				2011
		(Thousands)
Service cost		$	436			$	855
Interest cost			183				359
Expected return on plan assets			(241	)			(473	)
Net periodic pension costs		$	378			$	741

During the three and six months ended January 1, 2011, we contributed $0.5 million and $1.0 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								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands)
Warranty provision — beginning of period		$	2,736			$	2,317			$	2,437			$	2,228
Warranties assumed in acquisitions			—				93				357				248
Warranties issued			444				928				876				1,700
Warranties utilized or expired			(916	)			(821	)			(1,480	)			(1,664	)
Currency translation adjustment			(23	)			(31	)			51				(26	)
Warranty provision — end of period		$	2,241			$	2,486			$	2,241			$	2,486

     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. QinetiQ’s original complaint alleged infringement of United States Patent Nos. 5,410,625 and 5,428,698, and sought a permanent injunction, money damages, costs, and attorneys’ fees. Oclaro filed an answer to the complaint and stated counterclaims against QinetiQ for judgments that the patents-in-suit are invalid and unenforceable. 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 June 21, 2010, QinetiQ amended its complaint to allege infringement of a third patent, U.S. Patent No. 5,379,354. We answered QinetiQ’s amended complaint and asserted fraud counterclaims against QinetiQ. In December 2010, we entered into a binding memorandum of understanding with QinetiQ.

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. 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 share 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 January 1, 2011, there were approximately 4.0 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 six months ended January 1, 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			(1,095	)			718				11.13				354				11.28
Exercised or released			—				(84	)			3.64				(254	)			5.61
Cancelled or forfeited			41				(84	)			6.84				(90	)			6.91
Increase in available for grant			4,000				—				—				—				—
Balances at January 1, 2011			4,035				3,736			$	8.84				713			$	9.06

Supplemental disclosure information about our stock options outstanding as of January 1, 2011 is as follows:

Weighted-

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Shares

Exercise Price

Contractual Life

Value

(Thousands)

(Years)

(Thousands)

Options exercisable at January 1, 2011

1,546

$

11.14

6.6

$

9,632

Options outstanding at January 1, 2011

3,736

8.84

7.7

22,829

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 $13.15 on December 31, 2010, which would have been received by the option holders had all option holders exercised their options as of that date. There were approximately 1.2 million shares of common stock subject to in-the-money options which were exercisable as of January 1, 2011. We settle employee stock option exercises with newly issued shares of common stock.

Note 11. 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 six months ended January 1, 2011 and January 2, 2010 were as follows:

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
Expected life		4.5 years				4.5 years				4.5 years				4.5 years
Risk-free interest rate			1.0	%			2.1	%			1.2	%			2.2	%
Volatility			97.2	%			95.6	%			96.7	%			99.9	%
Dividend yield			—				—				—				—

The amounts included in cost of revenues and operating expenses for stock-based compensation for the three and six months ended January 1, 2011 and January 2, 2010 were as follows:

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands)
Stock-based compensation by category of expense:
Cost of revenues		$	350			$	219			$	660			$	414
Research and development			391				290				709				499
Selling, general and administrative			933				522				1,663				1,038
		$	1,674			$	1,031			$	3,032			$	1,951
Stock-based compensation by type of award:
Stock options		$	907			$	838			$	1,670			$	1,628
Restricted stock awards			828				258				1,470				437
Inventory adjustment to cost of revenues			(61	)			(65	)			(108	)			(114	)
		$	1,674			$	1,031			$	3,032			$	1,951

As of January 1, 2011 and July 3, 2010, we had capitalized approximately $0.3 million and $0.2 million, respectively, of stock-based compensation as inventory.

Note 12. Income Taxes

The total amount of our unrecognized tax benefits as of January 1, 2011 and July 3, 2010 was approximately $8.4 million. For the three and six months ended January 1, 2011, we had $0.5 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 and Canada. We do not anticipate any significant adjustment to our financial position or results of operations as a result of these examinations.

Note 13. Net Income (Loss) Per Share

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

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands,except per share amounts)
Net income (loss)		$	(213	)		$	(2,479	)		$	143			$	1,566
Weighted-average shares — basic			48,262				37,980				48,189				37,624
Effect of dilutive potential common shares from:
Stock options			—				—				1,615				791
Restricted stock awards			—				—				773				335
Obligations under escrow agreement			—				—				532				80
Weighted-average shares — diluted			48,262				37,980				51,109				38,830
Basic net income (loss) per share		$	—			$	(0.07	)		$	—			$	0.04
Diluted net income (loss) per share		$	—			$	(0.07	)		$	—			$	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 January 1, 2011, we excluded 5.1 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 January 2, 2010, we excluded 5.4 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 six months ended January 1, 2011, we excluded 1.9 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 six months ended January 2, 2010, we excluded 4.5 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 14. Operating Segments and Related Information

We are organized and operate as two operating segments: (i) telecom and (ii) advanced photonics solutions. Our telecom segment is 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 is responsible for the design, manufacture, marketing and selling of optics and photonics solutions for markets including material processing, printing, medical and consumer applications.

Our Chief Executive Officer is our chief operating decision maker, and as such, evaluates the performance of these segments and makes resource allocation decisions based on segment revenues. We previously reported segment operating income (loss) for each of our segments. Beginning in fiscal year 2011, we are no longer presenting this information. Due to our integration of the activities of recent acquisitions into our existing operations and our recent efforts to streamline certain existing operations along geographic lines, the discrete financial information necessary to present segment operating income (loss) is no longer available.

Segment revenues for the three and six months ended January 1, 2011 and January 2, 2010 were as follows:

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands)
Revenues:
Telecom		$	108,274			$	82,178			$	216,096			$	156,444
Advanced photonics solutions			12,025				11,396				25,550				22,240
Consolidated revenues		$	120,299			$	93,574			$	241,646			$	178,684

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

		Three Months Ended								Six Months Ended
		January 1,				January 2,				January 1,				January 2,
		2011				2010				2011				2010
		(Thousands)
United States		$	17,892			$	17,462			$	37,556			$	34,987
Canada			2,783				3,748				6,184				8,739
Europe			34,859				22,840				70,283				42,993
Asia			56,333				42,998				110,662				78,558
Rest of world			8,432				6,526				16,961				13,407
		$	120,299			$	93,574			$	241,646			$	178,684

     Significant Customers and Concentration of Credit Risk

For the three months ended January 1, 2011, Huawei Technologies Co., Ltd. (“Huawei”) accounted for 17 percent, Ciena Corporation (“Ciena”) accounted for 12 percent and Alcatel-Lucent accounted for 11 percent of our revenues. For the six months ended January 1, 2011, Huawei accounted for 16 percent, Alcatel-Lucent accounted for 12 percent and Ciena accounted for 10 percent of our revenues. For the three months ended January 2, 2010, Huawei accounted for 15 percent of our revenues. For the six months ended January 2, 2010, Huawei accounted for 14 percent of our revenues.

As of January 1, 2011, Huawei accounted for 18 percent and Alcatel-Lucent accounted for 14 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 mergers or 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 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 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, and 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, which we refer to as our telecom segment. 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, which we refer to as our advanced photonics solutions (“APS”) segment. 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 APS portfolio to more completely 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 we will be operating the business accordingly, under the same management. As a result, in future periods we will not be reporting APS as a separate segment. In January 2011, we also announced the further realignment of our four telecom business units into two business units, one of which will contain our former APS product lines. The intent is to simplify our organizational structure to focus on ramping new products, simplifying our customer interface, strengthening our execution of product development and

other key initiatives. Our new photonics components business unit will be focused on delivering component level solutions to our customers, and it will include our former APS products. Our new optical networks solutions business unit will be focused on delivering module and subsystem level solutions to substantially the same telecom customers. A single sales and a single operations function will 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 six 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
		January 1, 2011								January 2, 2010								Change				(Decrease)
		(Thousands)				%				(Thousands)				%				(Thousands)				%
Revenues		$	120,299				100.0			$	93,574				100.0			$	26,725				28.6
Cost of revenues			84,556				70.3				68,715				73.4				15,841				23.1
Gross profit			35,743				29.7				24,859				26.6				10,884				43.8
Operating expenses:
Research and development			15,696				13.0				9,675				10.3				6,021				62.2
Selling, general and administrative			15,149				12.6				14,835				15.9				314				2.1
Amortization of intangible assets			739				0.6				125				0.1				614				491.2
Restructuring, acquisition and related costs			903				0.8				3,040				3.3				(2,137	)			(70.3	)
Legal settlements			1,678				1.4				—				—				1,678				n/m	(1)
Gain on sale of property and equipment			(48	)			—				(71	)			(0.1	)			23				(32.4	)
Total operating expenses			34,117				28.4				27,604				29.5				6,513				23.6
Operating income (loss)			1,626				1.4				(2,745	)			(2.9	)			4,371				n/m	(1)
Other income (expense):
Interest income			9				—				2				—				7				350.0
Interest expense			(479	)			(0.4	)			(33	)			—				(446	)			1,351.5
Gain (loss) on foreign currency translation			(1,119	)			(0.9	)			793				0.8				(1,912	)			n/m	(1)
Other income			—				—				28				—				(28	)			(100.0	)
Total other income (expense)			(1,589	)			(1.3	)			790				0.8				(2,379	)			n/m	(1)
Income (loss) from continuing operations before income taxes			37				—				(1,955	)			(2.1	)			1,992				n/m	(1)
Income tax provision			250				0.2				524				0.5				(274	)			(52.3	)
Loss from continuing operations			(213	)			(0.2	)			(2,479	)			(2.6	)			2,266				(91.4	)
Income from discontinued operations, net of tax			—				—				—				—				—				—
Net loss		$	(213	)			(0.2	)		$	(2,479	)			(2.6	)		$	2,266				(91.4	)