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EXCEL - IDEA: XBRL DOCUMENT - OPLINK COMMUNICATIONS INCFinancial_Report.xls
EX-31.1 - CERTIFICATION OF CEO AS REQUIRED BY RULE 13A-14(A) - OPLINK COMMUNICATIONS INCex31-1.htm
EX-31.2 - CERTIFICATION OF CFO AS REQUIRED BY RULE 13A-14(A) - OPLINK COMMUNICATIONS INCex31-2.htm
EX-32.1 - CERTIFICATION OF CEO AS REQUIRED BY RULE 13A-14(B) - OPLINK COMMUNICATIONS INCex32-1.htm
EX-32.2 - CERTIFICATION OF CFO AS REQUIRED BY RULE 13A-14(B) - OPLINK COMMUNICATIONS INCex32-2.htm



UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended October 2, 2011
   
 
or
   
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from __________ to __________


Commission file number 000-31581
 
 
OPLINK COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
No. 77-0411346
(I.R.S. Employer
Identification No.)

46335 Landing Parkway, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (510) 933-7200

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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 R  No £

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  £
 
Accelerated filer R
 
Non-accelerated filer £
 
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 £ No R

The number of outstanding shares of the Registrant’s common stock, $0.001 par value, as of October 28, 2011, was 19,146,265.

 

OPLINK COMMUNICATIONS, INC.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.
     
      3  
      4  
      5  
      6  
Item 2.
    20  
Item 3.
    26  
Item 4.
    27  
           
PART II—OTHER INFORMATION
 
           
Item 1.
    27  
Item 1A.
    27  
Item 2.
    29  
Item 3.
    29  
Item 4.
    29  
Item 5.
    29  
Item 6.
    30  
    31  
       

NOTE:  The registrant’s fiscal year ends on the Sunday closest to June 30 and each of its fiscal quarters ends on the Sunday closest to the calendar quarter end. For ease of presentation, throughout this report the registrant refers to its fiscal years as ending on June 30 and to its fiscal quarters as ending on the calendar quarter end. For example, the registrant’s most recently completed fiscal year ended on Sunday, July 3, 2011 and its most recently completed fiscal quarter ended on Sunday, October 2, 2011, but throughout this report those periods will be referred to as having ended on June 30, 2011 and September 30, 2011, respectively.


PART I.  FINANCIAL INFORMATION

ITEM 1- FINANCIAL STATEMENTS

OPLINK COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
(In thousands, except share and per share data)
 
September 30,
   
June 30,
 
   
2011
   
2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 69,747     $ 52,644  
Short-term investments
    103,524       134,089  
Accounts receivable, net
    35,958       34,880  
Inventories
    24,910       24,719  
Deferred tax assets
    14,245       15,171  
Prepaid expenses and other current assets
    9,476       10,706  
   Total current assets
    257,860       272,209  
                 
Property, plant and equipment, net
    40,063       36,863  
Goodwill and intangible assets, net
    2,221       2,948  
Deferred tax assets, non-current
    8,290       8,291  
Other assets
    492       493  
      Total assets
  $ 308,926     $ 320,804  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Accounts payable
  $ 13,535     $ 11,549  
Accrued liabilities
    13,402       11,655  
Income tax payable
    40       305  
Other current liabilities
    44       81  
   Total current liabilities
    27,021       23,590  
                 
Income tax payable
    5,032       4,804  
Deferred tax liabilities
    678       678  
Other non-current liabilities
    1,382       1,370  
      Total liabilities
    34,113       30,442  
                 
Commitments and contingencies (Note 16)
               
Stockholders' equity:
               
Common stock, $0.001 par value, 34,000,000 shares authorized; 19,145,288 and 20,118,319 shares issued and outstanding as of September 30, 2011 and June 30, 2011, respectively
    19       20  
Additional paid-in capital
    438,292       451,767  
Treasury stock, at cost: 312,587 and 30,936 shares as of September 30, 2011 and June 30, 2011, respectively
    (4,945 )     (556 )
Accumulated other comprehensive income
    13,951       12,858  
Accumulated deficit
    (172,504 )     (173,727 )
   Total stockholders’ equity
    274,813       290,362  
      Total liabilities and stockholders' equity
  $ 308,926     $ 320,804  
 
(1)  
The condensed consolidated balance sheet at June 30, 2011 has been derived from the audited consolidated financial statements at that date.

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


OPLINK COMMUNICATIONS, INC.
(Unaudited)


(In thousands, except per share data)  
Three Months Ended
September 30,
 
 
 
2011
   
2010
 
Revenues
  $ 43,377     $ 49,640  
Cost of revenues
    29,257       33,519  
Gross profit
    14,120       16,121  
                 
Operating expenses:
               
Research and development
    5,344       3,733  
Sales and marketing
    3,148       2,887  
General and administrative
    3,432       2,646  
Amortization of intangible assets
    316       451  
Net gain on sale and disposal of fixed assets
    (377 )     --  
Total operating expenses
    11,863       9,717  
                 
Income from operations
    2,257       6,404  
Interest and other income, net
    113       57  
Income before provision for income taxes
    2,370       6,461  
Provision for income taxes
    1,147       881  
Net income
  $ 1,223     $ 5,580  
                 
Net income per share:
               
   Basic
  $ 0.06     $ 0.29  
   Diluted
  $ 0.06     $ 0.28  
                 
Shares used in per share calculation:
               
   Basic
    19,707       19,335  
   Diluted
    20,349       20,252  

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


OPLINK COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 (In thousands)  
Three Months Ended
September 30,
 
   
2011
   
2010
 
Cash flows provided by operating activities:
           
Net income
  $ 1,223     $ 5,580  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    1,463       1,352  
Amortization of intangible assets
    727       1,026  
Amortization of premium on investments
    176       129  
Net gain on sale and disposal of fixed assets
    (377 )     --  
Stock-based compensation expense
    1,861       1,658  
Deferred income taxes
    922       --  
Changes in assets and liabilities:
               
Accounts receivable
    (936 )     (4,409 )
Inventories
    253       (3,225 )
Prepayments and other assets
    (393 )     (299 )
Accounts payable
    1,441       1,014  
Accrued liabilities and other liabilities
    1,665       2,714  
                 
Net cash provided by operating activities
    8,025       5,540  
                 
Cash flows used for investing activities
               
Purchases of available-for-sale investments
    (38,999 )     (48,841 )
Sales and maturities of available-for-sale investments
    69,525       53,865  
Maturities of held-to-maturity investments
    --       10,000  
Proceeds from sales of property, plant and equipment
    389       33  
Purchases of property, plant and equipment
    (2,105 )     (2,504 )
                 
Net cash provided by investing activities
    28,810       12,553  
                 
Cash flows used for financing activities
               
Proceeds from issuance of common stock
    72       2,788  
Repurchases of common stock
    (18,489 )     (6,534 )
Tax withholdings related to net share settlements of restricted stock units
    (1,310 )     --  
                 
Net cash used for financing activities
    (19,727 )     (3,746 )
                 
Effect of exchange rates on cash and cash equivalents 
    (5 )     32  
Net increase in cash and cash equivalents
    17,103       14,379  
Cash and cash equivalents at beginning of period
    52,644       40,711  
Cash and cash equivalents at end of period
  $ 69,747     $ 55,090  
                 

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


OPLINK COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Description of Business

Oplink Communications, Inc. (“Oplink” or the “Company”) was incorporated in California in September 1995 and was later reincorporated in Delaware in September 2000. The Company is headquartered in Fremont, California and has manufacturing, design and research and development facilities in Zhuhai, Shanghai and Wuhan, China, in Taiwan and in Woodland Hills, California.
 
Oplink designs, manufactures and sells optical networking components and subsystems. Its products expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance, redirect light signals, ensure signal connectivity and provide signal transmission and reception within an optical network. Its products enable greater and higher quality bandwidth over longer distances, which reduces network congestion and transmission cost per bit. Its products also enable optical system manufacturers to provide flexible and scalable bandwidth to support the increase of data traffic on the Internet and other public and private networks.

Oplink offers its customers design, integration and optical manufacturing solutions (“OMS”) for the production and packaging of highly-integrated optical subsystems and turnkey solutions, based upon a customer’s specific product design and specifications. Oplink also offers solutions with lower levels of component integration for customers that place more value on flexibility than would be provided with turnkey solutions.

Oplink’s product portfolio also includes optical transmission products that broaden the addressable markets as well as the range of solutions that Oplink can now offer its customers. Oplink’s transmission products consist of a comprehensive line of high-performance fiber optic modules, including fiber optic transmitters, receivers, transceivers, and transponders, primarily for use in metropolitan area network (“MAN”), local area network (“LAN”), and fiber-to-the-home (“FTTH”) applications. Fiber optic modules are pre-assembled components that are used to build network equipment. Oplink’s transmission products convert electronic signals into optical signals and back into electronic signals, thereby facilitating the transmission of information over fiber optic communication networks.

Oplink also offers communications system equipment makers a broadened suite of precision-made, cost-effective, and reliable optical connectivity products to establish multiple-use, quick pluggable fiber links among network devices for bandwidth deployment, as well as in a test and measurement environment for a wide range of system design and service applications.

Note 2 - Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S.”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S., have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2011, the results of its operations for the three-month periods ended September 30, 2011 and 2010 and its cash flows for the three-month periods ended September 30, 2011 and 2010. The results of operations for the periods presented are not necessarily indicative of those that may be expected for the full year. The condensed consolidated financial statements presented herein have been prepared by management, without audit by independent auditors who do not express an opinion thereon, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011. The June 30, 2011 condensed consolidated balance sheet data was derived from audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 but does not include all disclosures required for annual periods. Certain reclassifications have been made to conform to the current period’s presentation.

The Company operates and reports using a fiscal year, which ends on the Sunday closest to June 30. Interim fiscal quarters end on the Sundays closest to each calendar quarter end. For presentation purposes, the Company presents each fiscal year as if


it ended on June 30. The Company presents each of the fiscal quarters as if it ended on the last day of each calendar quarter. October 2, 2011 represents the Sunday closest to the period ended September 30, 2011. The quarters ended September 30, 2011 and 2010 consist of 13 weeks and 14 weeks, respectively. Fiscal 2012 will consist of 52 weeks, while fiscal 2011 was a 53 week period.
 
The consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. With the exception of the Company’s Optical Communication Products, Inc. (“OCP”) subsidiaries, the Company presents the financial information of its consolidated foreign operating subsidiaries in its consolidated financial statements utilizing accounts as of a date one month earlier than the accounts of its parent company, U.S. subsidiary and its non-operating non-U.S. subsidiaries to ensure timely reporting of consolidated results.

The Company conducts its business within one business segment and has no organizational structure dictated by product, service lines, geography or customer type.

There have been no significant changes in the Company’s significant accounting policies that were disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

Note 3 - Risks and Uncertainties

There are a number of risks and uncertainties facing the Company that could have a material adverse effect on the Company’s financial condition, operating results or cash flows. These risks and uncertainties include, but are not limited to, a further and sustained downturn in the telecommunications industry or the overall economy in the United States and other parts of the world, possible further reductions in customer orders, intense competition in the Company’s target markets and potential pricing pressure that may arise from changing supply or demand conditions in the industry. In addition, the Company obtains most of its critical materials from a single or limited number of suppliers and generally does not have long-term supply contracts with them. The Company could experience discontinuation of key components, price increases and late deliveries from its suppliers. Also, substantially all of the Company’s manufacturing operations are located in China and are subject to laws and regulations of China. These and other risks and uncertainties facing the Company are described from time to time in the Company’s periodic reports filed with the SEC.

Note 4 - Recent Accounting Pronouncement

In September 2011, the Financial Accounting Standards Board (“FASB”) issued and amended Accounting Standards Update (“ASU”) No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment under the two-step process. The amendments are affective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial positions, results of operations or cash flow.

Note 5 - Net Income Per Share

Basic net income per share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and dilutive potential common shares outstanding during the period. Potentially dilutive common equivalent shares are composed of the incremental common shares issuable upon the exercise of stock options, the vesting of awards and purchases under the employee stock purchase plan. The following is a reconciliation of the numerators and denominators of the basic, diluted net income per share computations and anti-dilutive common stock equivalents excluded from the computations for the periods presented (in thousands, except per share data):



   
Three Months Ended
September 30,
 
   
2011
   
2010
 
Numerator:
           
Net income
  $ 1,223     $ 5,580  
Denominator:
               
Weighted average shares outstanding – basic
    19,707       19,335  
Effect of dilutive potential shares
    642       917  
Weighted average shares outstanding – diluted
    20,349       20,252  
Net income per share – basic
  $ 0.06     $ 0.29  
Net income per share – diluted
  $ 0.06     $ 0.28  
                 
Anti-dilutive stock options and awards not included in net income per share calculation
    1,086       1,496  

Note 6 - Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The components of comprehensive income consist of foreign currency translation adjustments, foreign currency transaction gains and losses from intercompany transactions and balances for which settlement is not planned or anticipated in the foreseeable future, and changes in unrealized gains and losses on investments. For presentation purposes, cumulative translation adjustment includes foreign currency transaction gains and losses from intercompany transactions and balances for which settlement is not planned or anticipated in the foreseeable future.

The reconciliation of net income to comprehensive income for the three months ended September 30, 2011 and 2010 is as follows (in thousands):

   
Three Months Ended
September 30,
 
   
2011
   
2010
 
Net income
  $ 1,223     $ 5,580  
Change in cumulative translation adjustment
    1,103       496  
Change in unrealized gain on investments, net
    (10 )     22  
Total comprehensive income
  $ 2,316     $ 6,098  

The balance of accumulated other comprehensive income is as follows (in thousands):

   
September 30,
2011
   
June 30,
2011
 
Cumulative translation adjustment
  $ 13,937     $ 12,834  
Unrealized gain on investments, net
    14       24  
 Total accumulated other comprehensive income
  $ 13,951     $ 12,858  

Note 7 - Cash and Cash Equivalents

 The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash equivalents consist primarily of money market funds, unrestricted deposits, debt instruments of the U.S. Treasury and commercial paper. Cash includes amounts restricted for letters of credit for purchases and deposits for equipment maintenance of $0.2 million as of September 30, 2011 and June 30, 2011.

Note 8 - Short-Term Investments

The Company generally invests its excess cash in certificates of deposit, debt instruments of the U.S. Treasury, government agencies and corporations with strong credit ratings. Such investments are made in accordance with the Company’s investment policy, which establishes guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Company’s investments in marketable debt securities are classified as available-for-sale investments and reported at their fair value. Unrealized gains and losses on these securities are reported as a separate component of accumulated other comprehensive income until realized.
 
 
8

 
 
Available-for-sale investments at September 30, 2011 and June 30, 2011 were as follows (in thousands):
 
    September 30, 2011  
 
 
 
Amortized
Cost
   
Gross
Unrealized
 Gains
   
Gross
Unrealized
 Losses
   
Estimated Fair
 Value
 
Corporate debt securities
  $ 45,061     $ 1     $ (16 )   $ 45,046  
United States treasury
    42,959       30       --       42,989  
Certificates of deposit
    10,491       --       --       10,491  
United States government agencies
    4,999       --       (1     4,998  
Total short-term investments
  $ 103,510     $ 31     $ (17 )   $ 103,524  
 
 
    June 30, 2011  
 
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated Fair
Value
 
Corporate debt securities
  $ 57,125     $ 2     $ (11 )   $ 57,116  
United States treasury
    52,936       34       --       52,970  
Certificates of deposit
    10,002       --       --       10,002  
United States government agencies
    14,002       --       (1 )     14,001  
Total short-term investments
  $ 134,065     $ 36     $ (12 )   $ 134,089  
 
The unrealized losses on available-for-sale securities are primarily due to decreases in the fair value of debt securities as a result of changes in market interest rates. The Company has the intent and the ability to hold these securities for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the initial cost of the investment. The Company expects to realize the full value of all of these investments upon maturity. In addition, the Company does not believe that it will be required to sell these securities to meet its cash or working capital requirements or contractual or regulatory obligations. Therefore, the Company has determined that the gross unrealized losses on its available-for-sale investments at September 30, 2011 and June 30, 2011 were temporary in nature.

The following table provides a breakdown of the Company’s available-for-sale investments with unrealized losses as of September 30, 2011 and June 30, 2011 (in thousands):
 
   
September 30, 2011
In Loss Position <12 months
 
Available-for-sale investments:
 
Fair Value
   
Gross Unrealized Losses
 
Corporate debt securities   $ 16,669     $ (16
United States government agencies
    4,998       (1 )
Total available-for-sale investments
  $ 21,667     $ (17 )
 
 
 
9

 
 
   
June 30, 2011
In Loss Position <12 months
 
Available-for-sale investments:
 
Fair Value
   
Gross Unrealized Losses
 
Corporate debt securities   $ 13,582     $ (11
United States government agencies
    4,996       (1 )
Total available-for-sale investments
  $ 18,578     $ (12 )
   
  The amortized cost and estimated fair value of debt securities at September 30, 2011 and June 30, 2011 by contractual maturities are shown below (in thousands):

   
September 30, 2011
   
June 30, 2011
 
   
Amortized
   
Estimated
   
Amortized
   
Estimated
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Available-for-sale investments:
                       
Due in one year or less
  $ 103,510     $ 103,524     $ 134,065     $ 134,089  
   Total available-for-sale investments
  $ 103,510     $ 103,524     $ 134,065     $ 134,089  

Note 9 - Fair Value Measurements

Fair value is defined 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 the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company 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. The Company applies the fair value hierarchy which has the following three levels of inputs to measure fair value:

·  
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

·  
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

·  
Level 3 inputs are unobservable inputs for the asset or liability.

The Company’s Level 1 financial assets generally include money market funds. The Company’s Level 2 financial assets generally include United States treasury securities, United States government agency debt securities, certificates of deposit, commercial paper, and corporate bonds.

The Company bases the fair value of its financial assets on pricing from third party sources of market information obtained through the Company’s investment brokers. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from brokers. The Company’s investment brokers obtain pricing data from a variety of industry standard data providers (e.g., Bloomberg), and rely on comparable pricing of other securities because the Level 2 securities that the Company holds are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities. There were no changes in valuation techniques or related inputs during the three months ended September 30, 2011.

Items Measured at Fair Value on a Recurring Basis

The Company did not have any financial liabilities that are measured at fair value at September 30, 2011. The following table presents the Company’s financial assets, excluding accrued interest components, which are measured at fair value on a recurring basis at September 30, 2011 and June 30, 2011, consistent with the fair value hierarchy (in thousands):



 
   
September 30, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial assets
                       
Cash equivalents:
                       
Money market funds
  $ 34,960     $ -     $ -     $ 34,960  
Corporate debt securities
    -       18,501       -       18,501  
Short-term investments:
                               
Corporate debt securities
    -       45,046       -       45,046  
United States treasury
    -       42,989       -       42,989  
Certificates of deposit
    -       10,491       -       10,491  
United States government agencies
    -       4,998       -       4,998  
Total financial assets
  $ 34,960     $ 122,025     $ -     $ 156,985  
Financial liabilities
  $ -     $ -     $ -     $ -  

   
June 30, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial assets
                       
Cash equivalents:
                       
Money market funds
  $ 12,462     $ -     $ -     $ 12,462  
Corporate debt securities
    -       19,997       -       19,997  
Short-term investments:
                               
Corporate debt securities
    -       57,116       -       57,116  
United States treasury
    -       52,970       -       52,970  
Certificates of deposit
    -       10,002       -       10,002  
United States government agencies
    -       14,001       -       14,001  
Total financial assets
  $ 12,462     $ 154,086     $ -     $ 166,548  
Financial liabilities
  $ -     $ -     $ -     $ -  

As of September 30, 2011, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). There were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three months ended September 30, 2011.

Items Measured at Fair Value on a Nonrecurring Basis

 Certain assets that are subject to nonrecurring fair value measurement are not included in the table above. These assets include cost method investments in private companies. The Company did not record any other-than-temporary impairment charges for these investments during the three months ended September 30, 2011 or 2010.

Note 10 - Inventories

Inventories are stated at the lower of cost or market. Inventory cost is determined using standard costs, which approximates actual cost on a first-in, first-out basis. Inventories consist of (in thousands):

   
September 30,
2011
   
June 30,
2011
 
Inventories:
           
Raw materials
  $ 14,994     $ 12,927  
Work-in-process
    6,113       6,166  
Finished goods
    3,803       5,626  
    $ 24,910     $ 24,719  



Note 11 - Goodwill and Intangible Assets, Net
 
The following table presents details of the intangible assets acquired as a result of acquisitions as of September 30, 2011 and June 30, 2011 (in thousands):
 
September 30, 2011
 
Estimated Useful Life
(in Years)
   
Gross
Amount
   
Accumulated
Amortization
   
Net
Amount
 
Technology
    4-6     $ 9,592     $ 8,773     $ 819  
Customer relationships
    3-7       5,671       5,449       222  
Trade name
    3-6       1,775       1,167       608  
Total
          $ 17,038     $ 15,389     $ 1,649  

June 30, 2011
 
Estimated Useful Life
(in Years)
   
Gross
Amount
   
Accumulated
Amortization
   
Net
Amount
 
Technology
    4-6     $ 9,592     $ 8,357     $ 1,235  
Customer relationships
    3-7       5,671       5,219       452  
Trade name
    3-6       1,775       1,086       689  
Total
          $ 17,038     $ 14,662     $ 2,376  
 
The following table presents details of the amortization expense of intangible assets as reported in the condensed consolidated statements of operations (in thousands):
 


   
Three Months Ended
September 30,
 
Reported as:
 
2011
   
2010
 
Cost of revenues
  $ 411     $ 575  
Operating expenses     316       451  
Total
  $ 727     $ 1,026  

    The future amortization of intangible assets is as follows (in thousands):

Fiscal years ending June 30,
 
Amount
 
2012
  $ 582  
2013
    484  
2014
    247  
2015
    177  
2016
    87  
After 2016
    72  
    $ 1,649  
 
 
The Company had goodwill of $0.6 million on its condensed consolidated balance sheet at September 30, 2011 and June 30, 2011 as a result of the acquisitions of Emit Technology Co., Ltd and Oridus, Inc. in fiscal 2010. During the three months ended September 30, 2011, there were no indicators of impairment for the goodwill.


Note 12 - Accrued Liabilities
 
Accrued liabilities consist of (in thousands):
 
   
September 30,
2011
   
June 30,
2011
 
Payroll and related expenses
  $ 5,917     $ 5,128  
Accrued professional fees
    2,269       1,649  
Employee withholdings and related expenses
    972       429  
Accrued sales commission
    590       519  
Accrued warranty
    360       360  
Accrued sales return
    332       438  
Advance deposits from customers
    265       234  
Other
    2,697       2,898  
Total accrued liabilities
  $ 13,402     $ 11,655  

Note 13 - Product Warranties

        The Company provides reserves for the estimated cost of product warranties at the time revenue is recognized based on its historical experience of known product failure rates and expected material and labor costs to provide warranty services. The Company generally provides a one-year warranty on its products. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Alternatively, if estimates are determined to be greater than the actual amounts necessary, the Company may reverse a portion of such provisions in future periods.

Changes in the warranty liability, which is included as a component of “Accrued liabilities” on the condensed consolidated balance sheets as disclosed in Note 12, is as follows (in thousands):

   
Three Months Ended
September 30,
 
   
2011
   
2010
 
Balance at the beginning of the period
  $ 360     $ 421  
Accruals for warranties issued during the period
    47       133  
Accruals related to pre-existing warranties including expirations and changes in estimates
    1       59  
Cost of warranty repair
    (48 )     (113 )
Balance at the end of the period
  $ 360     $ 500  

Note 14 - Stock-Based Compensation

 Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the employee requisite service period. The Company’s stock-based compensation is generally accounted for as an equity instrument.

The following table represents details of stock-based compensation expense by function line item for the three months ended September 30, 2011 and 2010 (in thousands):

   
Three Months Ended
September 30,
 
   
2011
   
2010
 
Cost of revenues
  $ 109     $ 117  
Research and development
    369       334  
Sales and marketing
    560       429  
General and administrative
    823       778  
      Total stock-based compensation expense
  $ 1,861     $ 1,658  

Stock-based compensation of $8,000 was capitalized as inventory as of September 30, 2011 and 2010.
 


    Forfeitures are estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

Valuation Assumptions

The Company estimates the fair value of stock options and purchase rights under the Company’s employee stock purchase plan using a Black-Scholes valuation model. The fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model and the straight-line attribution approach with the following weighted-average assumptions:

   
Three Months Ended
September 30,
 
   
2011
   
2010
 
Risk-free interest rate
    0.85 %     1.38 %
Expected term
   
4.6 years
     
4.6 years
 
Expected dividends
    0 %     0 %
Volatility
    60 %     49 %

No purchase rights were granted under the Company’s employee stock purchase plan during the three months ended September 30, 2011 or 2010.

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options or purchase rights. The expected term calculation for stock options is based on the observed historical option exercise behavior and post-vesting forfeitures of options by the Company’s employees. The expected term assumption for purchase rights is based on the average exercise date for four purchase periods in each 24-month offering period.
 
The weighted-average grant date fair value for options to purchase Oplink common stock granted under the Company’s stock option plans was $8.19 and $7.88 for the three months ended September 30, 2011 and 2010, respectively.

Equity Incentive Program

Oplink adopted the 2000 Equity Incentive Plan (the “2000 Plan”) in July 2000. The 2000 Plan was terminated in November 2009 immediately upon the effectiveness of the Company’s new 2009 Equity Incentive Plan (the “2009 Plan”). No further awards will be granted under the 2000 Plan. However, the 2000 Plan will continue to govern awards previously granted under that plan.

The 2009 Plan was adopted by the Company in September 2009 and became effective upon approval by the Company’s stockholders at the annual meeting held in November 2009. The 2009 Plan provides for the grant of equity awards to employees, directors and consultants. These equity awards include stock options, RSAs, RSUs, stock appreciation rights, performance units, and performance shares. The maximum aggregate number of shares of common stock that may be issued under the 2009 Plan is 2,500,000 shares, plus any shares subject to equity awards granted under 2000 Plan that expire or otherwise terminate without having been exercised in full, or that are forfeited to or repurchased by the Company. Shares subject to “full value” awards (RSUs, RSAs, performance shares and performance units) will count against the 2009 Plan’s share reserve as 1.3 shares for every one share subject to such awards. Accordingly, if such awards are forfeited or repurchased by the Company, 1.3 times the number of shares forfeited or repurchased will return to the 2009 Plan. The maximum term of stock options and stock appreciation rights under the 2009 Plan is 7 years.


The following table summarizes activity under the equity incentive plans for the indicated periods:
 
         
Options
   
Awards
 
             
Weighted
   
Restricted
 
Weighted
 
   
Shares
   
Number of
 
Average
   
Stock
 
Average
 
   
Available
   
Options
 
Exercise
   
Awards/Units
 
Grant Date
 
   
for Grant
   
Outstanding
 
Price
   
Outstanding
 
Fair Value
 
Balance, June 30, 2011
    2,063,721       2,087,696   $ 13.55       692,533   $ 15.52  
Granted
    (139,350 )     10,000     16.78       99,500     16.78  
Exercised or vested
    -       (6,331 )   11.47       (253,872 )   14.24  
Canceled
    4,253       (4,253 )   23.83       -     -  
Expired
    (611 )     -     -       -     -  
Balance, September 30, 2011
    1,928,013       2,087,112   $ 13.55       538,161   $ 16.36  

The Company settles employee stock option exercises and RSUs with newly issued common shares.
 
As of September 30, 2011, the unrecognized stock-based compensation expense related to stock options to purchase the Company’s common stock was $1.8 million, which is expected to be recognized over a weighted average period of 1.6 years. The unrecognized stock-based compensation expense related to unvested RSUs was $6.3 million, which is expected to be recognized over a weighted average period of 2.6 years.

During the three months ended September 30, 2011, 0.2 million restricted stock units vested. A majority of these vested restricted stock units were net share settled. During the three months ended September 30, 2011, the Company withheld 0.1 million shares, based upon the Company’s closing stock price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes. The Company then remitted cash to the appropriate taxing authorities. Total payments for the employees’ tax obligations to the relevant taxing authorities were $1.3 million for the three months ended September 30, 2011, and are reflected as a financing activity within the condensed consolidated statements of cash flows. The payments had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued on the vesting date and were recorded as a reduction of additional paid-in capital.

Employee Stock Purchase Plan
 
   The Company’s employee stock purchase plan authorizes the granting of stock purchase rights to eligible employees during an offering period not more than 27 months with exercise dates approximately every six months. Shares are purchased through employee payroll deductions at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the first day of each offering period or the date of purchase. No shares were purchased under the employee stock purchase plan during the three months ended September 30, 2011 and 2010. As of September 30, 2011, 1.6 million shares were available for issuance under the Company’s employee stock purchase plan.

Note 15 - Repurchase of Common Stock

 On May 25, 2010, the Company announced that its Board of Directors authorized a program to repurchase up to $40 million of its common stock. $16.1 million and $5.5 million of its common stock were repurchased under this repurchase program during the fiscal year ended June 30, 2011 and 2010, respectively. During the three months ended September 30, 2011, the Company repurchased 1.2 million shares at an average price of $15.98 per share for a total purchase price of $18.5 million.  This program was completed as of September 30, 2011. On October 27, 2011, the Company announced that its Board of Directors approved a new program to repurchase up to $40 million of its outstanding common shares. Repurchases under the program will be made in open market or privately negotiated transactions in compliance with the Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.


Note 16 - Commitments and Contingencies

Contractual Obligations
 
Contractual obligations as of September 30, 2011 have been summarized below (in thousands):
 
         
Contractual Obligations Due by Period
 
(in thousands)
 
Total
   
Less than
1 year
   
1-3
years
   
4-5
years
   
After 5
years
 
Purchase obligations
  $ 27,693     $ 25,513     $ 2,180     $ -     $ -  
Operating leases
    193       167       26       -       -  
Capital expenditure
    1,196       1,173       23       -       -  
   Total
  $ 29,082     $ 26,853     $ 2,229     $ -     $ -  

Litigation
 
Patent Litigation with Finisar Corporation

On January 5, 2010, Finisar Corporation, or Finisar, filed a complaint in the United States District Court for the Northern District of California against Source Photonics, Inc., MRV Communications, Inc., NeoPhotonics Corporation and the Company, or collectively, the co-defendants. In the complaint, Finisar alleged infringement of certain of its U.S. patents arising from the co-defendants' respective manufacture, importation, use, sale of or offer to sell certain optical transceiver products in the United States. Finisar sought to recover unspecified damages, up to treble the amount of actual damages, together with attorneys' fees, interest and costs. Finisar alleged that at least some of the patents asserted are a part of certain digital diagnostic standards for optoelectronics transceivers and, therefore, are being utilized in such digital diagnostic standards. On May 5, 2010, the court dismissed without prejudice all co-defendants (including the Company) except Source Photonics, Inc., on grounds that such claims should have been asserted in four separate lawsuits, one against each co-defendant. On May 20, 2010, the Company and Finisar entered into a standstill agreement, agreeing not to refile any claims against each other until at least 90 days after a resolution of the litigation between Source Photonics and Finisar.  On September 10, 2010, Source Photonics, Inc., and its parent company MRV Communications, Inc., entered into a Settlement and Cross License Agreement with Finisar. MRV Communications filed a Form 8-K with the SEC on September 13, 2010 disclosing the settlement terms and furnishing a copy of the settlement agreement.

On December 20, 2010, Finisar filed a new complaint against the Company and its subsidiary, Optical Communication Products, Inc. ("OCP") in the United States District Court for the Northern District of California. The new complaint is substantially similar to the complaint filed by Finisar in January 2010. On January 24, 2011 the Company filed an answer to the complaint, denying all material allegations and asserting numerous affirmative defenses.  A mediation conference with respect to the lawsuit has been scheduled for November 30, 2011.

On March 7, 2011, the Company's subsidiary OCP filed a complaint against Finisar in the United States District Court for the Eastern District of Texas, alleging infringement by Finisar of certain U.S. patents owned by OCP primarily relating to vertical-cavity surface-emitting laser ("VCSEL") technology. On April 29, 2011, Finisar filed an answer to the complaint, denying all material allegations, asserting numerous affirmative defenses and asserting counterclaims against OCP alleging infringement by OCP of certain U.S. patents owned by Finisar primarily relating to pluggable transceiver latch mechanisms.
 
Although the Company believes that it has meritorious defenses to all of the infringement allegations asserted by Finisar in both lawsuits, as well strong arguments that Finisar infringes OCP's patents, there can be no assurance that it will be successful in these lawsuits. Even if the Company is successful, it may incur substantial legal fees and other costs as a result of the lawsuits, and the efforts and attention of the Company's management and technical personnel may be diverted, which could harm its business.
 
IPO Securities Litigation

In November 2001, Oplink and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York. In the amended complaint, the plaintiffs alleged that Oplink, certain of Oplink's officers and directors and the underwriters of Oplink's initial public offering ("IPO") violated Section 11 of the Securities Act of 1933 based on allegations that Oplink's registration statement and


prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. Similar complaints were filed by plaintiffs against hundreds of other public companies that went public in the late 1990s and early 2000s and their IPO underwriters (collectively, the "IPO Lawsuits"). During the summer of 2008, the parties engaged in a formal mediation process to discuss a global resolution of the IPO Lawsuits. Ultimately, the parties reached an agreement to settle all 309 cases against all defendants, and entered into a settlement agreement in April 2009. The settlement provides for a $586 million recovery in total, divided among the 309 cases. Oplink's share of the settlement is roughly $327,458, which is the amount Oplink will be required to pay if the settlement is finally approved. In October 2009, the Court certified the settlement class in each case and granted final approval to the settlement. A number of appeals have been filed with the Second Circuit Court of Appeals, challenging the fairness of the settlement. A number of shareholder plaintiffs have also filed petitions for leave to appeal the class certification portion of Judge Scheindlin's ruling. These appeals and petitions are pending.
 
IPO 16(b) Claim

In October 2007, Vanessa Simmonds filed in the United States District Court for the Western District of Washington a Complaint for Recovery of Short Swing Profits Under Section 16(b) of the Securities Exchange Act of 1934 against Bank of America and JP Morgan Chase & Company as defendants, and against Oplink as a nominal defendant. The complaint did not seek recovery of damages or other relief against Oplink. The Complaint alleged that in the years 2000 and 2001 the underwriters and unnamed officers, directors and principal shareholders of Oplink acted as a "group" by coordinating their efforts to undervalue the IPO price of Oplink and to thereafter inflate the aftermarket price throughout the six month lock-up period. The Complaint further alleges that the underwriters profited by (a) sharing in profits of customers to whom they had made IPO allocations, (b) allocating shares of Oplink to insiders at other companies from whom the underwriters expected to receive additional work in return; and (c) by creating the opportunity (through the alleged laddering practices) for Oplink'sdirectors, officers and other insiders to profit through their sale of stock after the lock-up period in return for future business for the underwriter.

The complaint against Oplink and its underwriters was one of a total of 54 nearly identical lawsuits filed by Ms. Simmonds in October 2007 against companies and underwriters that had completed IPOs in the early 2000s. All of these cases were transferred to one judge at the U.S. District Court. In March 2009, the judge dismissed the complaints, ruling that the plaintiff made an insufficient demand on the issuers and that the cases did not merit tolling the statute of limitations. The plaintiff filed notices of appeal in each of the 54 cases in April 2009, and the appeals were consolidated in June 2009 in the Ninth Circuit Court of Appeals. Each of Ms. Simmonds and the issuer and underwriter defendants has submitted their appeal briefs to the court. Oral arguments on the appeals were held on October 5, 2010.

On December 2, 2010, the Ninth Circuit Court of Appeals affirmed the District Court's decision to dismiss the moving issuers' cases (including the Company's) on the grounds that plaintiff's demand letters were insufficient to put the issuers on notice of the claims asserted against them and further ordered that the dismissals be made with prejudice.  The Ninth Circuit, however, reversed and remanded the District Court's decision on the underwriters' motion to dismiss as to the claims arising from the non-moving issuers' IPOs, finding plaintiff's claims were not time-barred under the applicable statute of limitations.  In remanding, the Ninth Circuit advised the non-moving issuers and underwriters to file in the District Court the same challenges to plaintiff's demand letters that moving issuers had filed.

On December 16, 2010, underwriters filed a petition for panel rehearing and a petition for rehearing en banc.  Appellant Vanessa Simmonds also filed a petition for rehearing en banc.  On January 18, 2011, the Ninth Circuit denied the petition for rehearing and petitions for rehearing en banc.  It further ordered that no further petitions for rehearing may be filed.

On January 24, 2011, the underwriters filed a motion to stay the issuance of the Ninth Circuit's mandate in the cases involving the non-moving issuers.  On January 25, 2011, the Ninth Circuit granted the underwriters' motion and ordered that the mandate in the cases involving the non-moving issuers is stayed for ninety days pending the filing of a petition for writ of certiorari in the United States Supreme Court.  On January 26, 2011, Appellant Vanessa Simmonds moved to join the underwriters' motion and requested the Ninth Circuit stay the mandate in all cases. On January 26, 2011, the Ninth Circuit granted Appellant's motion and ruled that the mandate in all cases (including the Company's and other moving issuers) is stayed for ninety days pending Appellant's filing of a petition for writ of certiorari in the United States Supreme Court. On April 5, 2011, Appellant Vanessa Simmonds filed a petition for writ of certiorari with the U.S. Supreme Court seeking reversal of the Ninth Circuit's December 2, 2010 decision.


Other Matters
 
The Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Note 17 - Segment Reporting
 
The Company has determined that it has one reportable segment: fiber optic component and subsystem product sales. This segment consists of organizations located in the United States and China, which develop, manufacture, and/or market fiber optic networking components.

The geographic breakdown of revenues by customers’ bill-to location is as follows (in thousands):
 
   
Three Months Ended
September 30,
 
   
2011
   
2010
 
Revenues:
           
United States
  $ 14,215     $ 17,966  
China
    12,097       11,058  
Europe
    7,040       10,014  
Japan
    4,031       4,550  
Other
    5,994       6,052  
   Total
  $ 43,377     $ 49,640  

Top five customers, although not the same five customers for each period, together accounted for 46% and 55% of revenues for the three months ended September 30, 2011 and 2010, respectively.
 
The breakdown of property, plant and equipment, net by geographical location is as follows (in thousands):
 
   
September 30,
2011
   
June 30,
2011
 
China
  $ 29,959     $ 26,273  
United States
    5,598       5,974  
Taiwan
    4,506       4,616  
   Total
  $ 40,063     $ 36,863  

Note 18 - Income Taxes

The Company accounts for income taxes under the liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such assets will not be realized.
 
The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.


As of June 30, 2011, the Company’s total unrecognized tax benefits were $11.1 million, of which $8.9 million, if recognized, would affect the Company’s effective tax rate. There is no significant change for the three months ended September 30, 2011. The Company had accrued interest and penalties related to unrecognized tax benefits of approximately $1.1 million as of September 30, 2011.
 
The Company is required to make our best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The Company recorded a tax provision of $1.1 million and $0.9 million for the three months ended September 30, 2011 and 2010, respectively. The increase in provision for income taxes was primarily due to the fact that the Company had a valuation allowance on its U.S. and state deferred tax assets at September 30, 2010, but subsequently it released a valuation allowance against its U.S. and a portion of state deferred tax assets at the end of fiscal 2011. The effective tax rate for the first quarter of fiscal 2012 differs from the statutory rate primarily due to the mix of foreign earnings and non-deductible stock-based compensation. The effective tax rate could increase in the future due to changes in the taxable income mix between various jurisdictions.

Although the Company files U.S. federal, various state, and foreign tax returns, the Company’s only major tax jurisdictions are the United States, California, and China. The tax years 2004 to 2010 remain open in several jurisdictions.

Note 19 - Subsequent Event

On October 27, 2011, the Company announced that its Board of Directors approved a new program to repurchase up to $40 million of its outstanding common shares. Repurchases under the program will be made in open market or privately negotiated transactions in compliance with the Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-looking statements

This report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” ”estimate” or “assume” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth below and under the captions “Risk Factors” in addition to the other information set forth herein. We caution you that our business and financial performance are subject to substantial risks and uncertainties. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Report on Form10-Q.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes in this report, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, related financial information and Audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 filed with the Securities and Exchange Commission (“SEC”).

Overview

We design, manufacture and sell optical networking components and subsystems. Our products expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance, redirect light signals, ensure bandwidth distribution connectivity and provide signal transmission and reception within an optical network. Our products enable greater and higher quality bandwidth over longer distances, which reduces network congestion and transmission cost per bit. Our products also enable optical system manufacturers to provide flexible and scalable bandwidth to support the increase of data traffic on the Internet and other public and private networks.

We offer our customers design, integration and optical manufacturing solutions (“OMS”) for the production and packaging of highly-integrated optical subsystems and turnkey solutions, based upon a customer’s specific product design and specifications. We also offer solutions with lower levels of component integration for customers that place more value on flexibility than would be provided with turnkey solutions.

Use of Estimates and Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure. On an ongoing basis, we evaluate our estimates, including those related to product returns, accounts receivable, inventories, intangible assets, warranty obligations, restructuring accruals, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis and by the audit committee of our board of directors at the end of each quarter prior to the public release of our financial results. We believe the following critical accounting policies and our procedures relating to these policies, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

We have identified the policies below as critical to our business operations and understanding of our financial condition and results of operations. A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. These policies may require us to make assumptions about matters that are highly uncertain at the time


of the estimate, and different estimates that we could have used, or changes in the estimate that are reasonably likely to occur, may have a material impact on our financial condition or results of operations. Our critical accounting policies cover the following areas:
 
·  
revenue recognition and product returns;
·  
depreciation and amortization;
·  
warranty obligations;
·  
allowance for doubtful accounts;
·  
excess and obsolete inventory;
·  
impairment of investments;
·  
impairment of long-lived asset;
·  
impairment of goodwill and other intangible assets;
·  
fair value accounting;
·  
business combination;
·  
income taxes;
·  
stock based compensation; and
·  
loss contingencies.

This is not a comprehensive list of all of our accounting policies.

As of the date of the filing of this quarterly report, we believe there have been no material changes to our critical accounting policies and estimates during the three months ended September 30, 2011 compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 as filed with the SEC. Additional information about these critical accounting policies may be found in the “Management’s Discussion & Analysis of Financial Condition and Results of Operations” section included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

Results of Operations

Revenues

(In thousands, except percentage)
 
Three Months Ended
       
Percentage
 
   
September 30,
   
Change
 
Change
 
   
2011
    2010            
Revenues
  $ 43,377     $ 49,640     $ (6,263 )     (12.6 )%

The decrease in revenues for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 was primarily due to a decrease in revenues in our wavelength expansion products, ROADM optical switching and routing products and optical amplification products, as a result of decreased unit shipments and average selling price erosion. The decreases in unit shipments and average selling price were driven by the softness in the telecommunications market. Partially offsetting these decreases was an increase in revenues in our transmission products and condition and monitoring products.

Historically, a relatively small number of customers have accounted for a significant portion of our revenues. Our top five customers, although not necessarily the same five customers for each period together accounted for 46% and 55% of revenues for the three months ended September 30, 2011 and 2010, respectively.

For the three months ending December 31, 2011, we expect our revenues to be in the range of $40 million to $43 million.


Gross Profit
 
(In thousands, except percentage)
 
Three Months Ended
       
Percentage
 
   
September 30,
   
Change
 
Change
 
   
2011
    2010            
Gross profit
  $ 14,120     $ 16,121     $ (2,001 )     (12.4 )%
Gross profit margin     32.6     32.5 %                
 
Gross profit decreased for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 primarily driven by lower revenues and lower utilization of previously reserved inventory, partially offset by lower material costs attributable to lower revenues, lower labor costs and manufacturing overhead expenses as a result of a decrease in employee headcount. The gross profit for the three months ended September 30, 2011 and 2010 were positively impacted by the sales of previously reserved inventory of $0.8 million and $1.9 million, respectively.

Our gross profit margin increased slightly for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 mainly due to lower material costs as a percentage of revenues partially offset by higher manufacturing overhead expenses as a percentage of revenues, higher direct labor costs as a percentage of revenues and lower utilization of previously reserved inventory.

We expect our gross profit margin for the three months ending December 31, 2011 to be lower compared to the three months ended September 30, 2011, as result of lower revenues, lower utilization of manufacturing overhead and higher material and labor costs.
 
Research and Development
 
(In thousands, except percentage)
 
Three Months Ended
       
Percentage
 
   
September 30,
   
Change
 
Change
 
   
2011
    2010            
Research and development
  $ 4,975     $ 3,999     $ 1,576       46.4 %
Stock-based compensation     369       334       35       10.5 %
     Total expenses   $ 5,344      $ 3,733     $ 1,611       43.2 %
 
Research and development expenses increased $1.6 million for the three months ended September 30, 2011 compared to the three months ended September 30, 2010. The increase was primarily due to higher salary expenses and other employee related compensation expenses associated with an increase in headcount and higher R&D material expense primarily attributable to the increased new product development activities.

We expect our research and development expenses, excluding stock compensation expense, to remain at same level for the three months ending December 31, 2011 compared to the three months ended September 30, 2011.

Sales and Marketing
 
(In thousands, except percentage)
 
Three Months Ended
       
Percentage
 
   
September 30,
   
Change
 
Change
 
   
2011
    2010            
Sales and marketing
  $ 2,588     $ 2,458     $ 130       5.3 %
Stock-based compensation     560       429      
131
      30.5 %
    Total expenses   $ 3,148     $ 2,887     $ 261       9.0 %
 
Sales and marketing expenses for the three months ended September 30, 2011 increased $0.3 million compared to the three months ended September 30, 2010. The increase was primarily due to increases in salary and other employee related


compensation expenses, travel and entertainment expenses. The increase in stock based compensation expense was primarily due to additional grants to new and existing employees.
 
We expect our sales and marketing expenses, excluding stock compensation expense, to decrease slightly for the three months ending December 31, 2011 compared to the three months ended September 30, 2011.

General and Administrative
 
(In thousands, except percentage)
 
Three Months Ended
       
Percentage
 
   
September 30,
   
Change
 
Change
 
   
2011
    2010            
General and administrative
  $ 2,609     $ 1,868     $ 741       39.7 %
Stock-based compensation     823       778      
45
      5.8 %
    Total expenses   $ 3,432     $ 2,646     $ 786       29.7 %
 
    General and administrative expenses increased $0.8 million for the three months ended September 30, 2011 compared to the three months ended September 30, 2010. The increase was primarily due to higher legal expense as a result of our on-going litigation activities, increased professional fees and higher salary and other employee related compensation expenses.

We expect our general and administrative expenses, excluding stock compensation expense, to remain at same level for the three months ending December 31, 2011 compared to the three months ended September 30, 2011.

Amortization of Intangible Assets

   
Three Months Ended
         
Percentage
 
(in thousands, except percentages)
 
September 30,
   
Change
   
Change
 
   
2011
   
2010
             
Amortization of intangible assets
  $ 316     $ 451     $ (135 )     (29.9 )%

Amortization of intangible assets decreased $0.1 million for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, primarily due to intangible assets from certain acquisitions becoming fully amortized.
 
Net gain on sale and disposal of fixed assets. The net gain on sale and disposal of fixed assets was $0.4 million for the three months ended September 30, 2011. We did not sell or dispose any fixed assets during the three months ended September 30, 2010. Therefore, no gain on sale and disposal of fixed assets was recorded for the three months ended September 30, 2010.
 
Interest and Other Income, Net

   
Three Months Ended
         
Percentage
 
(in thousands, except percentage)
 
September 30,
   
Change
   
Change
 
   
2011
   
2010
             
Interest and other income, net
  $ 113     $ 57     $ 56       98.2 %

Interest and other income, net increased $0.1 million for the three months ended September 30, 2011 compared to the three months ended September 30, 2010.   The increase was primarily attributable to a decrease in foreign currency losses during the three months ended September 30, 2011 compared to the three months ended September 30, 2010.

Provision for Income Taxes

As a multinational corporation, we are subject to taxation in the United States and in foreign jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses, the tax regulations and tax holidays in each geographic region, and the availability of tax credits and carryforwards. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.


We are required to make our best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. We recorded a tax provision of $1.1 million and $0.9 million for the three months ended September 30, 2011 and 2010, respectively. The increase in provision for income taxes for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 was mainly due to the fact that we had a valuation allowance on our U.S. federal and state deferred tax assets at September 30, 2010 and subsequently we released the valuation allowance against the U.S. federal and a portion of state deferred tax assets at the end of the fiscal 2011.
 
The effective tax rate for the first quarter of fiscal 2012 differs from the statutory rate primarily due to the mix of foreign earnings and non-deductible stock-based compensation. The effective tax rate could increase in the future due to changes in the taxable income mix between various jurisdictions.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through issuances of equity, which totaled approximately $319.5 million in aggregate net proceeds, partially offset by $84.1 million in common stock repurchases, net of proceeds from exercise of stock options, employee stock purchase plan and warrants through September 30, 2011. As of September 30, 2011, we had cash, cash equivalents and short-term investments of $173.3 million and working capital of $230.8 million.

We believe that our current cash, cash equivalent and short-term investment balances will be sufficient to meet our operating and capital requirements for at least the next 12 months. We may use cash and cash equivalents from time to time to fund our acquisition of businesses and technologies. We may be required to raise funds through public or private financings, strategic relationships or other arrangements. We cannot assure you that such funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed could harm our ability to pursue our business strategy and achieve and maintain profitability.

Three Months Ended September 30, 2011

Our operating activities provided cash of $8.0 million for the three months ended September 30, 2011 primarily as a result of a net income of $1.2 million, non-cash charges of $2.2 million in depreciation and amortization charges, $1.9 million in stock-based compensation expenses, a net change in deferred income tax of $0.9 million and an increase in cash of $2.0 million as a result of a net change in assets and liabilities.

For the three months ended September 30, 2011, the change in net assets and liabilities was primarily the result of an increase in accounts payable of $1.4 million, an increase in accrued and other liabilities of $1.7 million and a decrease of $0.3 million in inventory, partially offset by an increase in accounts receivable of $0.9 million and an increase in prepaid and other assets of $0.4 million.

An increase in accounts payable in the first quarter of fiscal 2012 was primarily as a result of the timing of payments to our vendors.

An increase in accrued and other liabilities in the first quarter of fiscal 2012 was primarily due to increased legal expense accruals as a result of on-going litigation activities and increased accrued bonus related to R&D projects.

An increase in accounts receivable in the first quarter of fiscal 2012 was primarily due to timing of the shipments. Days sales outstanding (“DSO”) was 76 days for the first quarter of fiscal 2012 compared to 73 days for the fourth quarter of fiscal 2011. We typically bill customers on an open account basis with net thirty to ninety day payment terms. We would generally expect the level of accounts receivable at the end of any quarter to reflect the level of sales in that quarter and to change from one period to another in a direct relationship to the change in the level of sales. Our level of accounts receivable would increase if shipments are made closer to the end of the quarter, if customers delayed their payments, or if we offered extended payment terms to our customers, both of which are more likely to occur during challenging economic times when our customers may have difficulty gaining access to sufficient credit on a timely basis.
 
   For the three months ended September 30, 2011, our investing activities provided cash of $28.8 million due to sales and maturities of short-term investments of $69.5 million and proceeds from sales of equipment of $0.4 million, partially offset by purchase of short-term investment and property and equipment of $39.0 million and $2.1 million, respectively. We expect the capital expenditure in the range of $10 million to $12 million for the fiscal 2012.  This estimate includes $2.1 million in capital expenditure in the first quarter of fiscal 2012.
 


For the three months ended September 30, 2011, our financing activities used cash of $19.7 million due to $18.5 million cash used to repurchase our common stock and $1.3 million in tax withholding payments related to net share settlements of restricted stock units partially offset by $0.1 million cash proceeds from issuance of common stock in connection with the exercise of employee stock options.
 
Three Months Ended September 30, 2010

Our operating activities provided cash of $5.5 million in the first quarter of fiscal 2011 primarily as a result of a net income of $5.6 million for the period adjusted by $2.4 million in non-cash depreciation and amortization charges, $1.7 million in non-cash stock-based compensation expense, partially offset by a decrease of cash of $4.2 million as a result of a net change in assets and liabilities.

For the three months ended September 30, 2010, the change in net assets and liabilities was primarily the result of an increase in accounts receivables, inventory, and prepaid expenses and other current assets of $4.4 million, $3.2 million and $0.3 million, respectively, partially offset by an increase in accrued liabilities and other liabilities of $2.7 million and an increase in accounts payable of $1.0 million.

Accounts receivable used $4.4 million of cash primarily due to higher shipments in the first quarter of fiscal 2011 compared to the fourth quarter of fiscal 2010, partially offset by improved collections of receivables. Days sales outstanding (“DSO”) was 67 days for the first quarter of fiscal 2011 compared to 70 days for the fourth quarter of fiscal 2010.

Inventories used $3.2 million of cash in the first quarter of fiscal 2011 primarily due to increased volumes of unit sales and associated purchases of inventory required to meet customer demand. In order to maintain an adequate supply of product for our customers, we must carry a certain level of inventory. Our inventory level may vary based primarily upon orders received from our customers, our forecast of demand for these products and lead-time for materials. These considerations are balanced against risk of obsolescence or potentially excess inventory levels. We generally expect the level of inventory to vary from one period to another as a result of changes in the level of sales.

Accrued liabilities and other liabilities generated $2.7 million of cash in the first quarter of fiscal 2011 primarily due to increases in deferred revenues and income taxes payable.

Accounts payable increased and therefore provided cash of $1.0 million in the first quarter of fiscal 2011 due to a higher level of inventory purchases.

Our investing activities provided cash of $12.6 million in the first quarter of fiscal 2011 primarily due to sales and maturities of investments of $63.9 million, partially offset by purchases of investments of $48.8 million and equipment purchases of $2.5 million.

Our financing activities used cash of $3.7 million in the first quarter of fiscal 2011 due to $6.5 million of cash spent on the repurchase of our common stock, partially offset by $2.8 million in proceeds from issuance of common stock in connection with the exercise of stock options.

Off-Balance Sheet Arrangements

As of September 30, 2011, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).


Recent Accounting Pronouncement
 
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated condensed financial statements, please see “Note 4 Recent Accounting Pronouncement” in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

Contractual Obligations

Our contractual obligations as of September 30, 2011 have been summarized below:
 
         
Contractual Obligations Due by Period
 
(in thousands)
 
Total
   
Less than
1 year
   
1-3
years
   
4-5
years
   
After 5
years
 
Purchase obligations
  $ 27,693     $ 25,513     $ 2,180     $ -     $ -  
Operating leases
    193       167       26       -       -  
Capital expenditure
    1,196       1,173       23       -       -  
   Total
  $ 29,082     $ 26,853     $ 2,229     $ -     $ -  

 
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
We are exposed to market risk related to fluctuations in interest rates and in foreign currency exchange rates as follows:
 
Interest Rate Exposure
 
The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in are subject to market risk. To minimize this risk, we maintain our portfolio of cash equivalents and investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and corporate bonds.

As of September 30, 2011, all of our short-term investments were in certificates of deposit, high quality corporate bonds and government and government agency debt securities. We invest our excess cash in short-term and long-term investments to take advantage of higher yields generated by these investments. We do not hold any instruments for trading purposes. As of September 30, 2011 and 2010, the gross unrealized losses on our investments classified as available-for-sale was immaterial. We have the intent and the ability to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the initial cost of the investments. We expect to realize the full value of all of these investments upon maturity. In addition, we do not believe that we will be required to sell these securities to meet our cash or working capital requirements or contractual or regulatory obligations. Therefore, we have determined that the gross unrealized losses on our debt securities as of September 30, 2011 and 2010 were temporary in nature. However, liquidating investments before maturity could have a material impact on our interest earnings. Declines in interest rates could have a material impact on interest earnings for our investment portfolio.

The following table summarizes our investment securities:
 
 
(in thousands, except percentages)
 
Carrying Value at
September 30, 2011
   
Average Rate of Return at
September 30, 2011
   
Carrying Value at
June 30, 2011
   
Average Rate of Return at
June 30, 2011
 
Investment Securities:
                       
Cash equivalents - variable rate
  $ 34,016       0.01 %   $ 11,514       0.02 %
Cash equivalents - fixed rate
    19,445       0.10 %     20,945       0.07 %
Short-term investments - fixed rate
    103,524       0.24 %     134,089       0.31 %
    Total
  $ 156,985             $ 166,548          


Foreign Currency Exchange Rate Exposure
 
We operate in the United States, primarily manufacture in China, and the majority of our sales to date have been made in U.S. dollars. The majority of expenses from our China operations are incurred in the Chinese Renminbi (“RMB”). As a result, currency fluctuations between the U.S. dollar and the RMB could cause foreign currency transaction gains or losses that we would recognize in the period incurred. A 10% fluctuation in the dollar at September 30, 2011 would have an immaterial impact on our net dollar position in outstanding trade receivables and payables.

We use the U.S. dollar as the reporting currency for our consolidated financial statements. Any significant revaluation of the RMB may materially and adversely affect our results of operations upon translation of our Chinese subsidiaries’ financial statements into U.S. dollars. We generate a significant amount of our revenue in RMB and the majority of our labor and manufacturing overhead expenses are in RMB. Additionally, a significant portion of our operating expenses are in RMB. Therefore, a fluctuation in RMB against the U.S. dollar could impact our gross profit, gross profit margin and operating expenses upon translation to U.S. dollars. A 10% appreciation or depreciation in RMB against the U.S. dollar would have an immaterial impact on our results of operations for the three months ended September 30, 2011.

We expect our international revenues to continue to be denominated largely in U.S. dollars. We also believe that our China operations will likely expand in the future if our business continues to grow. As a result, we anticipate that we may experience increased exposure to the risks of fluctuating currencies and may choose to engage in currency hedging activities to reduce these risks. However, we cannot be certain that any such hedging activities will be effective, or available to us at commercially reasonable rates.

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the quarterly period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1- LEGAL PROCEEDINGS

The material set forth under the caption “Litigation” in Note 16 of the Notes to Condensed Consolidated Financial Statements appearing in Part I, Item I of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A—RISK FACTORS

Other than with respect to the risk factors set forth below, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

Our quarterly revenues and operating results may fluctuate significantly from quarter to quarter, which may cause our stock price to drop.

It is difficult to forecast our revenues accurately. Our revenues and operating results have varied significantly from quarter to quarter in the past and may continue to fluctuate significantly in the future. Within the last two years, our revenue has fluctuated from a high of $53.5 million for the quarter ended March 31, 2011 to low of $32.7 million for the quarter ended December 31, 2009, and our income from operations has fluctuated from a high of $9.2 million for the quarter ended December 31, 2010 to a low of $2.3 million for the quarter ended September 30, 2011, our most recently completed quarter.


    The factors that are likely to cause these variations to continue include, among others:

 
current uncertain macro-economic climate could lead to reduced demand from our customers, increased price competition for our products, and increased risk of excess and obsolete inventories;

 
fluctuations in demand for, and sales of, our products;

 
declines in the average selling prices of our products;

 
fluctuations in the mix of products sold during a quarter (for example, the percentage of total sales represented by lower margin products such as our ROADM products and line transmission applications products);

 
potential impacts from the recent flooding in Thailand, which is disrupting the supply chains of our customers and may result in delayed or reduced purchase orders from such customers;

 
competitive factors in the fiber optic components and subsystems market, including introductions of new products, new technologies and product enhancements by competitors, consolidation of competitors, customers and service provider end users and pricing pressures;

 
the ability of our manufacturing operations in China to timely produce and deliver products in the quantity and of the quality our customers require;

 
our inability to cut costs quickly in the event of market or demand downturns, due to the fact that a high percentage of our expenses, including those related to manufacturing, engineering, research and development, sales and marketing and general and administrative functions, are fixed in the short term;

 
the availability of materials and components used in our products or increases in the prices of these materials;

 
our ability to develop, introduce, manufacture and ship new and enhanced optical networking products in a timely manner and in production quantities without defects or other quality issues; and

 
costs associated with, and the outcomes of, any intellectual property or other litigation to which we may be a party.

We expect volatility in our stock price, which could cause you to lose all or part of your investment.

We expect the market price of our common stock to fluctuate significantly. Within the past few years, the market price of our common stock has fluctuated from an intra-day low of $5.05 in November 2008 to a recent intra-day high of $29.48 on February 18, 2011. The closing sale price of our common stock on November 10, 2011 was $16.75.  These fluctuations may occur in response to a number of factors, some of which are beyond our control, including:

 
quarterly variations in our operating results;

 
changes in financial estimates by securities analysts and/or our failure to meet estimates;

 
changes in market values of comparable companies;

 
announcements by our competitors or us of new products or of significant acquisitions, strategic partnerships or joint ventures;

 
any loss by us of a major customer;

 
economic fluctuations in the market for optical communications products, or in the telecommunications industry generally;

 
the outcome of, and costs associated with, any litigation to which we are or may become a party;

 
 
       departures of key management or engineering personnel; and
 
       future sales of our common stock.

Shifts in our product mix and continuous pricing pressure may result in declines in our gross margins.

Our gross profit margins vary among our product families, and our overall gross margins have fluctuated from period to period as a result of shifts in product mix, the introduction of new products, decreases in average selling prices for certain products and our ability to reduce product costs, and these fluctuations are expected to continue in the future.  We must purchase the primary components going into certain of our product families, including our ROADM products, from third party suppliers, which can limit our ability to improve gross margin on sales of such products.  In addition, our industry has been characterized by declining product prices over time, and we are under continuous pressure to reduce our prices to increase or even maintain our market share.  Recently, our gross profit margin has declined from 36.7% in the quarter ended December 31, 2010 to 32.6% for the quarter ended September 30, 2011, our most recently completed quarter, and may decline further in the future due to the factors described above.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchase of Common Stock

The following table sets forth information with respect to repurchases of our common stock during the three months ended September 30, 2011 (in thousands, except per share data):

 
Period
 
Total Number of Shares Purchased
   
Average Price Paid Per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
   
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 
July 4, 2011 – July 31, 2011
    199     $ 17.85       199     $ 14,938  
August 1, 2011 – August 28, 2011
    568     $ 15.44       568     $ 6,168  
August 29, 2011 – October 2, 2011
    390     $ 15.82       390     $ --  
Total
    1,157     $ 15.98       1,157          

On October 27, 2011, we announced that our Board of Directors approved a new program to repurchase up to $40 million of our outstanding common shares. Repurchases under the program will be made in open market or privately negotiated transactions in compliance with the Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – (Removed and Reserved)

ITEM 5 - OTHER INFORMATION

None.


ITEM 6 - EXHIBITS
 
Exhibit Index

Exhibit No.
 
Description
31.1
 
Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2
 
Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1
*
Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).
32.2
*
Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
101.INS
**
XBRL Instance Document.
101.SCH
**
XBRL Taxonomy Extension Schema Document.
101.CAL
**
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
**
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
*
The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
OPLINK COMMUNICATIONS, INC.
Date: November 11, 2011
/S/ Shirley Yin
Shirley Yin
Chief Financial Officer
(Principal Financial and Accounting Officer)



Exhibit Index
 
Exhibit No.
 
Description
31.1
 
Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2
 
Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1
*
Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).
32.2
*
Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
101.INS
**
XBRL Instance Document.
101.SCH
**
XBRL Taxonomy Extension Schema Document.
101.CAL
**
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
**
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
*
The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.