e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED JULY
3, 2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-30684
OCLARO, INC.
(Exact Name of
Registrant as Specified in Its Charter)
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Delaware
(State or other jurisdiction
of incorporation or organization)
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20-1303994
(I.R.S. Employer
Identification No.)
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2584 Junction Avenue, San Jose, California, 95134
(Address of principal
executive offices, zip code)
(408) 383-1400
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, Par Value $0.01 Per Share
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NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant was $310,806,000 based on the
last reported sale price of the registrants common stock
on December 31, 2009 as reported by the NASDAQ Global
Market ($7.35 per share). As of August 24, 2010, there were
49,497,577 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from
the registrants Proxy Statement for its 2010 Annual
Meeting of Stockholders, which will be filed on or before
November 1, 2010. With the exception of the sections of the
registrants Proxy Statement for its 2010 Annual Meeting of
Stockholders specifically incorporated herein by reference, the
registrants Proxy Statement for its 2010 Annual Meeting of
Stockholders is not deemed to be filed as part of this
Form 10-K.
OCLARO,
INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 3, 2010
TABLE OF CONTENTS
2
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
and the documents incorporated herein by reference contain
forward-looking statements, within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as
amended, about our future expectations, plans or prospects and
our business. These forward-looking statements include
statements concerning (i) potential future financial
results, (ii) the impact of the acquisition of Avanex
Corporation (Avanex), the exchange of assets with
Newport Corporation (Newport), the acquisition of
Xtellus Inc. (Xtellus) and the acquisition of
Mintera Corporation (Mintera) on the combined
entitys financial results, including without limitation,
accretion, gross margin, operating income and cash usage,
(iii) future expense levels and sources for improvement of
gross margin and operating expenses, including supply chain
synergies, optimizing mix of product offerings, transition to
higher margin product offerings, benefits of combined research
and development and sales organizations and single public
company costs, (iv) the expected financial opportunities
after the Avanex merger, the exchange of assets with Newport,
the Xtellus acquisition and the Mintera acquisition and the
expected synergies related thereto, (v) opportunities to
grow in adjacent markets, (vi) statements containing the
words target, believe, plan,
anticipate, expect,
estimate, will, should,
ongoing, and similar expressions and (vii) the
assumptions underlying such statements. There are a number of
important factors that could cause our actual results or events
to differ materially from those indicated by such
forward-looking statements, including the impact of continued
uncertainty in world financial markets and any resulting
reduction in demand for our products, the future performance of
Oclaro, Inc. following the closing of the merger with Avanex,
the exchange of assets with Newport, the acquisition of Xtellus
and the acquisition of Mintera, the potential inability to
realize the expected benefits and synergies as a result of the
of the merger with Avanex, the exchange of assets with Newport,
the acquisition of Xtellus and the acquisition of Mintera,
increased costs related to downsizing and compliance with
regulatory requirements in connection with such downsizing, and
the potential lack of availability of credit or opportunity for
equity-based financing. You should not place undue reliance on
forward-looking statements. We cannot guarantee any future
results, levels of activity, performance or achievements.
Moreover, we assume no obligation to update forward-looking
statements or update the reasons actual results could differ
materially from those anticipated in forward-looking statements.
Several of the important factors that may cause our actual
results to differ materially from the expectations we describe
in forward-looking statements are identified in the sections
captioned Business, Risk Factors, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report
on
Form 10-K
and the documents incorporated herein by reference.
PART I
Overview
of Oclaro
We are a leading provider of high-performance core optical
network components, modules and subsystems to global
telecommunications (telecom) equipment
manufacturers. We leverage our proprietary core technologies and
vertically integrated product development to provide our
customers with cost-effective and innovative optical solutions
in metro and long-haul network applications. In addition, we
utilize our optical expertise to address new and emerging
optical product opportunities in selective non-telecom markets,
such as materials processing, consumer, medical, industrial,
printing and biotechnology, which we refer to as our Advanced
Photonics Solutions business. We offer our customers a
differentiated solution that is designed to make it easier for
our customers to do business by combining optical technology
innovation, photonic integration, and a vertical approach to
manufacturing and product development. Our customers include
Huawei Technologies Co. Ltd (Huawei);
Alcatel-Lucent; Ciena Corporation, including certain assets of
the former Metro Ethernet Network (MEN) division of
Nortel Networks Corporation; Tellabs, Inc.; Infinera
Corporation; Cisco Systems, Inc.; ADVA Optical Networking;
Fujitsu Limited; NEC Corporation; Nokia-Siemens Networks and
Ericsson.
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Corporate
Information
We were incorporated in Delaware in June 2004. Our common stock
is currently traded on the NASDAQ Global Market under the symbol
OCLR. On September 10, 2004, pursuant to a
scheme of arrangement under the laws of the United Kingdom
(U.K.), we became the publicly traded parent company
of the Oclaro Technology Ltd (formerly Bookham Technology plc)
group of companies, including Oclaro Technology Ltd, a limited
company incorporated under the laws of England and Wales whose
stock was previously traded on the London Stock Exchange and the
NASDAQ National Market under the Bookham name. We are the result
of the April 27, 2009 merger of Bookham, Inc.
(Bookham) and Avanex Corporation
(Avanex), with Bookham becoming the parent company
and changing its name to Oclaro, Inc. upon the close of the
merger. Subsequent to the merger, Avanex Corporation changed its
name to Oclaro (North America), Inc. and Oclaro changed its
NASDAQ Global Market symbol to OCLR.
Our principal executive offices are located at 2584 Junction
Avenue, San Jose, California 95134, and our telephone
number at that location is
(408) 383-1400.
We maintain a web site with the address www.oclaro.com.
Our web site includes links to our Code of Business Conduct and
Ethics and our Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee charters. We did
not waive any provisions of our Code of Business Conduct and
Ethics during the year ended July 3, 2010. We are not
including the information contained in our web site or any
information that may be accessed through our web site as part
of, or incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge, through our web site, our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
and current reports on
Form 8-K,
and amendments to these reports, as soon as reasonably practical
after such material is electronically filed with, or furnished
to, the Securities and Exchange Commission (SEC).
Our
Business Segments
Telecom. Our telecom segment targets telecom
equipment manufacturers that integrate our optical technology
into the systems they offer to the telecommunications carriers
that are building, upgrading and operating high-performance
optical networks. Telecom carriers are increasingly demanding
greater levels of network capacity from their telecom equipment
suppliers, our customers, in order to meet their rapidly growing
network bandwidth requirements. We believe that the trend toward
an increase in demand for optical solutions, which increase
network capacity, is in response to growing bandwidth demand
driven by increased transmission of video, voice and data over
optical communication networks, and by a need among network
carriers to decrease the total cost of ownership of their
networks. The rapid development of network infrastructure
underway in developing countries is also driving growth in
demand for optical solutions. We are a leading supplier of core
optical network technology to leading telecom equipment
companies worldwide.
We design, manufacture and market optical components, modules
and subsystems that generate, detect, amplify, combine and
separate light signals in telecommunications networks. These
products include tunable lasers, pump lasers, modulators and
receivers, transceivers, transponders, optical amplifiers,
reconfigurable optical add drop multiplexers
(ROADMs) and other value-added subsystems. Many of
our products enable increased flexibility in optical telecom
networks, making the networks more dynamic in nature. These
products include tunable lasers and corresponding module level
products, wavelength selective switching products and tunable
dispersion compensation products.
Our telecom revenues for the fiscal year ended July 3, 2010
were $341.9 million, representing 87 percent of our
total revenues.
Advanced Photonic Solutions. Our advanced
photonic solutions (APS) segment, is focused on the
design, manufacture, marketing and sale of optics and photonics
solutions for non-telecom markets including material processing,
consumer, medical, industrial, printing and biotechnology.
Increasingly, customers outside of the telecom market are
recognizing the value of optical technology to their products
and end markets. We believe that the proliferation of optical
technology into new and emerging markets and our ability to be a
viable supplier of differentiated technologies to larger
vertically integrated laser systems companies serving these
markets helps drive the growth of our APS segment. One such
example is our selection by Intel Corporation as a strategic
supplier of
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vertical cavity surface emitting lasers (VCSELs),
into their Light Peak Optical Interconnectivity for
Computers Initiative, a new high-speed optical cable
technology designed to connect electronic devices to each other.
Our APS revenues for the fiscal year ended July 3, 2010
were $50.6 million, representing 13 percent of our
total revenues.
Competitive
Differentiation
We believe that the following competitive strengths have enabled
us to establish our position as a leading provider of core
optical network components, modules and subsystems:
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Customer Ease of Use. We believe that
providing innovative solutions to enhance our customers
ease of doing business is critical to success, and this is at
the core of our strategy. This includes exhibiting high
standards of flexibility and quality and the ability to provide
products ranging from standard components to advanced subsystems
designed in partnership with our customers. We are a leading
supplier of optical products at the component level, including
tunable lasers, pump lasers, modulators and receivers, and we
are also a leading supplier of products at the module and
subsystem levels, including transceivers, transponders,
amplifiers and controlled subsystems. Our intellectual property
(IP) leadership and vertically integrated
manufacturing strategy enable us to deliver high performance,
competitive solutions.
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Optical Technology Leadership. We have
extensive expertise in optical technologies including
optoelectronic semiconductors, electronics design, firmware and
software capabilities. Our expertise includes III-V
optoelectronic semiconductors utilizing indium phosphide
(InP), gallium arsenide and lithium niobate
(LiNbO3) substrates. We have over 1,000 patents
issued and our IP base represents significant investment in the
optical industry over the past 20 years. We believe our
commitment to the optical industry and our IP and know-how
represents a differentiated value proposition for our customers.
We believe that we are positioned as the number one or number
two supplier in the metro and long-haul telecom markets.
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Leading Photonic Integration
Capabilities. Photonic integration, which is the
combination of multiple functions or devices in one package or
on one chip, is an important source of differentiation. Our
wafer fabrication facilities and process technologies position
us to be a leader in delivering photonic integration. We believe
that photonic integration will enable us to capture additional
value in the optical network supply chain as customers demand
increasing product integration and complexity to build the next
generation network.
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Vertically Integrated Manufacturing
Approach. We operate three optical wafer
fabrication facilities as well as a low-cost back end assembly
and test facility in China. Our vertical integration enables us
to support and control all phases of the development and
manufacturing process from chip creation, to component design,
to module and subsystem production. We believe that our wafer
fabrication facilities position us to introduce product
innovations delivering optical network cost and performance
advantages to our customers. We believe that our in-house
control of this complete product lifecycle process enables us to
respond more quickly to changing customer requirements, allowing
our customers to reduce the time it takes them to deliver
products to market. Furthermore, our ability to deliver
innovative technologies in a variety of form factors, ranging
from chip level to module level to subsystem level, allows us to
address the needs of a broad base of potential customers
regardless of their desired level of product integration or
complexity.
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Proven Ability to Expand into Other Optical
Markets. We leverage our core optical expertise
to enter attractive optical markets outside of telecom. We have
become a leading merchant supplier of laser diodes, serving
markets such as manufacturing, printing, medical and consumer
and we have become a viable supplier of differentiated
technologies to larger vertically integrated laser systems
companies serving these markets. This business leverages our
telecom optical expertise, allows us to increase fab utilization
and provides revenue diversification.
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Business
Strategy
In order to maintain our position as a leading provider of core
optical network components, modules and subsystems, we are
continuing to pursue the following business strategies:
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Maintain Focus on Core Optical Network. We are
positioned as a key strategic supplier to the major
telecommunications equipment companies and intend to continue to
focus on enabling our customers to build equipment for the
implementation of next generation core optical networks. Our
optical IP and development expertise provides us with optical
network insights that enable us to partner with our customers to
continue to innovate optical solutions. We plan to continue to
work with our customers to develop key technologies and expand
our product offerings across the optical network.
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Expand Position with Tier One Customers Through
Technology Innovation and Manufacturing
Flexibility. We believe we are a market leader in
many of the market segments we address. Our combination of
technology innovation and manufacturing flexibility enable us to
deliver low-latency, high-performance products to our customers.
We believe our customer-centric strategy will enable us to
continue to gain share in our markets by innovating in
partnership with our customers and delivering cost-effective
solutions to them.
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Extend Core Optical Product
Differentiation. We plan to continue to invest in
optical innovation in order to power the infrastructure required
to serve the rapidly growing demand for bandwidth. Our photonic
integration capability enables additional functionality of our
products and we plan to continue to leverage this advantage to
advance optical technology in the network. We also plan to
evaluate acquisitions of and investments in complementary
businesses, products or technologies in order to continuously
improve our solutions for customers.
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Match Global Engineering and Manufacturing Resources with
Customer Demands. We believe our global
engineering and manufacturing infrastructure enables us to
deliver cost-effective solutions for our customers. We plan to
continue to manage our manufacturing infrastructure in order to
effectively meet customer demand for high-performance products
and rapid time to market. We believe the scale of our
manufacturing infrastructure can enable our margins to increase
as our revenue grows due to limited incremental cost required to
meet increasing demand. We also supplement our facilities with
the use of contract manufacturers on a selective basis, enabling
us to dynamically manage our production in the face of varying
customer demand.
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Leverage Optical Expertise to Address Other Optical Market
Opportunities. We plan to continue to enter
and/or build
in adjacent markets with our APS segment in order to leverage
our optical expertise and our manufacturing infrastructure.
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Consider the Use of Strategic Investment and Acquisitions to
Maintain Optical Leadership Position. Our
industry has historically been fragmented and characterized by
large numbers of competitors. In addition to our internal
development capabilities, we intend to continue to consider the
use of acquisitions as a means to enhance our scale, obtain
critical technologies, and enter new markets. We have
historically expanded our business through acquisitions where we
have seen an opportunity to enhance scale, broaden our product
offerings, or integrate new technology. For instance, in
addition to Oclaros formation from the April 27, 2009
merger of Bookham and Avanex, both of these predecessors have
also participated in significant past merger and acquisition
activities. Bookhams acquisitions included, in particular,
the Nortel Networks Optical Components business in 2002, the
Marconi Optical Components business in 2002, and seven other
acquisitions between 2003 and 2009. Our most recent acquisitions
were the purchase of Xtellus, in December 2009, which
complemented and expanded our wavelength selective switch
(WSS) product portfolio, and the purchase of Mintera
Corporation (Mintera) in July 2010, which we believe
will broaden our product portfolio for high-speed transmission
solutions and will reinforce our position as one of the leading
optical communications providers. In June 2010, we also made a
minority investment in, and entered into a strategic marketing
arrangement with, ClariPhy Communications, Inc.
(ClariPhy), a designer of high-speed digital signal
processors complementary to our optical components in 40
gigabits per second (Gb/s) and, in the future, 100
Gb/s applications.
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Our
Product Offerings
Telecom
Products
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Tunable laser transmitters. Our tunable laser
products include discrete lasers and co-packaged laser
modulators to optimize performance and reduce the size of the
product. Our tunable products at the component level include an
InP tunable laser chip, a 10 Gb/s integrated tunable laser
assembly (iTLA) and a 10 Gb/s co-packaged laser
modulator tunable compact mach-zender. We also supply our
tunable components into our customers 40 Gb/s products,
and believe we are the primary supplier of these and related
components into the 40 Gb/s solutions commercially available
today.
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Fixed wavelength laser transmitters. Our fixed
laser products include discrete lasers and co-packaged laser
modulators to optimize performance and reduce the size of the
product. Our fixed wavelength products at the component level
are designed for both long-haul and metro applications at 2.5
Gb/s and 10 Gb/s and include InP laser chips, a 10 Gb/s laser
and a 10 Gb/s co-packaged laser and compact mach-zender
modulator.
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We believe that our ability to produce co-packaged, integrated
transmitters, both tunable and fixed wavelength, many of which
are sole-sourced to customers, demonstrates the advantages of
InP photonic integration provided by our wafer fabrication
facility in Caswell, U.K.
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Lithium niobate modulators. Our lithium
niobate modulators are optical devices that manipulate the phase
or the amplitude of an optical signal. Their primary function is
to transfer information on an optical carrier by modulating the
light. These devices externally modulate the lasers of discrete
transmitter products including, but not limited to, our own
standalone laser products.
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Receivers. Our portfolio of discrete receivers
for metro and long-haul applications at 2.5 Gb/s and 10 Gb/s
includes avalanche photodiode (APD) preamp
receivers, as well as PIN photodiode preamp receivers, and PIN
and APD modules and products that feature integrated attenuators.
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Transceivers. Our small form factor pluggable
transceiver portfolio includes SFP products operating at 2.5
Gb/s and XFP products operating at 10 Gb/s, including a tunable
X2 extended product operating at 10 Gb/s. We are currently
sampling tunable XFP products which we believe will be cost
effective solutions and industry leading in terms of
performance. We believe the photonic integration of our internal
componentry represents a differentiator and a competitive
advantage in our tunable XFP products.
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Transponder modules. Our transponder modules
provide both transmitter and receiver functions. A transponder
includes electrical circuitry to control the laser diode and
modulation function of the transmitter as well as the receiver
electronics. We supply a small form factor tunable transponder
at 10 Gb/s and a 40 Gb/s transponder based on a DQPSK modulation
scheme. With our recent acquisition of Mintera, we now also
offer a DPSK-based 40 Gb/s transponder and expect to introduce a
40 Gb/s PM-QPSK, also known as a coherent-based transponder, in
calendar year 2011. We believe the photonic integration of our
internal componentry represents a differentiator and a
competitive advantage in certain of these products.
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Pump laser chips. Our 980 nanometer
(nm) pump laser diodes are designed for use as
high-power, reliable pump sources for erbium doped fiber
amplifiers (EDFAs) in terrestrial and undersea, or
submarine, applications. Uncooled modules are designed for
low-cost, reliable amplification for metro, cross-connect or
other single/multi-channel amplification applications, and
submarine applications.
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Amplifiers. EDFAs are used to boost the
brightness of optical signals and offer compact amplification
for ultra long-haul, long-haul and metro networks. We offer a
semi-custom product portfolio of multi-wavelength amplifiers
from gain blocks to full card level or subsystem solutions
designed for use in wide bandwidth wave division multiplexing
(WDM) optical transmission systems. We also offer
lower cost narrow band
mini-amplifiers.
980 nm pump laser diodes are a key component of these products
and they are mostly sourced internally from our own wafer
fabrication facilities.
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Wavelength Management. Our wavelength
management products include switching and routing solutions,
multiplexing and signal processing solutions and micro-optics
and integrated modules. These include products that optically
add and drop transmission signals in both fixed and
reconfigurable versions,
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including ROADMs, products that optically multiplex or
demultiplex signals based on thin film filters, planar and
interleaver technologies, and products that optically attenuate
signal power across a single or multiple wavelength bands.
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Dispersion Compensation Management. Our
dispersion compensation product family consists of products that
optically compensate for chromatic dispersion and dispersion
degradation of transmission signals, including fixed and tunable
products based on dispersion compensating fiber and cascaded
etalons.
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Thin Film Filters. Our thin film filter
(TFF) products are used for multiplexing and
demultiplexing optical signals within dense WDM transmission
systems. In addition to this, TFF products are used to attenuate
and control light within our amplifier product range.
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Advanced
Photonic Solutions Products
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High Powered Laser Diode Products. We market
advanced pump laser technology diodes for material processing,
medical and printing applications. Our market opportunities for
our high power laser diodes are expanding to include consumer
applications, including cosmetic and
3-D imaging
applications.
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VCSEL Products. We sell low-power polarized
products for optical mouse and finger navigation applications.
Our market opportunities for VCSEL products are expanding to
include optical data interconnectivity applications.
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Thin Film Filter Products. We deploy our
optical TFF technology to markets outside of telecommunications,
with applications available in the life sciences, biotechnology
and consumer display industries.
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Customers,
Sales and Marketing
We believe it is essential to maintain a comprehensive and
capable direct sales and marketing organization. As of
July 3, 2010, we had an established direct sales and
marketing force of 98 people for all of our products sold
in Canada, China, France, Germany, Italy, Switzerland, the U.K.
and the United States. This sales and marketing organization
supports both of our business segments. In addition to our
direct sales and marketing organization, we also sell and market
our products through international sales representatives and
resellers that extend our commercial reach to smaller geographic
locations and customers that are not currently covered by our
direct sales and marketing efforts.
Our telecom products and many of our advanced photonics
solutions products typically have a long sales cycle. The period
of time from our initial contact with a customer to the receipt
of an actual purchase order is frequently a year or more. In
addition, many customers perform, and require us to perform,
extensive process and product evaluation and testing of
components before entering into purchase arrangements.
We offer support services in connection with the sale and
purchase of certain products, primarily consisting of customer
service and technical support. Customer service representatives
assist customers with orders, warranty returns and other
administrative functions. Technical support engineers provide
customers with answers to technical and product-related
questions. Technical support engineers also provide application
support to customers who have incorporated our products into
custom applications.
For the fiscal year ended July 3, 2010, Huawei accounted
for 13 percent and Alcatel-Lucent accounted for
10 percent of our revenues. For the fiscal year ended
June 27, 2009, Huawei accounted for 17 percent and
Nortel Networks Corporation (Nortel) accounted for
14 percent of our revenues. For the fiscal year ended
June 28, 2008, Nortel accounted for 17 percent and
Huawei accounted for 12 percent of our revenues.
Customers for our telecom products are primarily
telecommunications systems and components vendors, and also
include customers in data communications, military and
aerospace. Customers for our advanced photonics solutions
products include life-sciences companies, industrial printing
companies, and consumer electronics components companies.
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The following table sets forth our revenues by segment for the
periods indicated:
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Year Ended
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July 3, 2010
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June 27, 2009
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June 28, 2008
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(Thousands)
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Revenues:
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Telecom
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$
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341,908
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$
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190,748
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$
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178,374
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Advanced photonics solutions
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50,637
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20,175
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24,289
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Consolidated revenues
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$
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392,545
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$
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210,923
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$
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202,663
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|
|
|
|
|
|
|
|
|
|
|
|
For additional information on these business segments, see
Note 14, Operating Segments and Related Information,
to our consolidated financial statements included elsewhere in
this Annual Report on
Form 10-K.
The following table sets forth our revenues by geographic region
for the periods indicated, determined based on the country to
which the products were shipped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
|
(Thousands)
|
|
|
United States
|
|
$
|
75,907
|
|
|
$
|
42,776
|
|
|
$
|
36,209
|
|
Canada
|
|
|
14,845
|
|
|
|
14,596
|
|
|
|
39,050
|
|
Europe
|
|
|
96,387
|
|
|
|
53,236
|
|
|
|
43,730
|
|
Asia
|
|
|
176,534
|
|
|
|
86,951
|
|
|
|
76,096
|
|
Rest of world
|
|
|
28,872
|
|
|
|
13,364
|
|
|
|
7,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
$
|
202,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
We leverage our own in-house manufacturing capabilities, which
include our own wafer fabrication facilities in Europe and our
facility in Shenzhen, China where we perform assembly and test
operations. We are able to support and control all phases of the
development and manufacturing process from chip creation to
component design and all the way through module and subsystem
production. We also utilize contract manufacturers on a
selective basis to provide further flexibility and to complement
our internal capabilities. Our wafer fabrication facilities in
particular, we believe, position us to introduce product
innovations delivering optical network cost and performance
advantages to our customers. We believe that our in-house
control of this complete process provides us with the
opportunity to respond more quickly to changing customer
requirements, allowing our customers to reduce the time it takes
them to deliver products to market. We also believe that our
ability to deliver innovative technologies in a variety of form
factors, ranging from chip level to module level to subsystem
level, allows us to address the needs of a broad base of
potential customers regardless of their desired level of product
integration or complexity.
We believe our advanced chip and component design and
manufacturing facilities would be very expensive to replicate.
On-chip, or monolithic, integration of functionality is more
difficult to achieve without control over the production
process, and requires advanced process know-how and equipment.
Although the market for optical integrated circuits is still in
its early stages, it shares many characteristics with the
semiconductor market, including the positive relationship
between the number of features integrated on a chip, the wafer
size and the cost and sophistication of the fabrication
equipment. For example, we believe our
3-inch wafer
InP semiconductor fabrication facility in Caswell, U.K. provides
us a competitive advantage by allowing us to increase the
complexity of the optical circuits that we design and
manufacture, and the integration of photonics components within
smaller packages, without the relatively high cost, power and
size issues associated with less integrated solutions. We also
believe that our pump laser gallium arsenide semiconductor
fabrication facility in Zurich, Switzerland is one of the few
facilities in the world offering the 980 nm pump laser diode
capability required for most metro and long haul optical
amplification solutions.
9
Our manufacturing capabilities include fabrication processing
operations for indium phosphide substrates, gallium arsenide
substrates, lithium niobate substrates and thin film filters,
including clean room facilities for each of these fabrication
processes, along with assembly and test capability and
reliability/quality testing. We utilize sophisticated
semiconductor processing equipment in these operations, such as
epitaxy reactors, metal deposition systems, and
photolithography, etching, analytical measurement and control
equipment. Our assembly and test facilities include specialized
automated assembly equipment, temperature and humidity control
and reliability and testing facilities.
We have wafer fabrication facilities in Caswell, U.K.; Zurich,
Switzerland; and San Donato, Italy. We also have facilities
in Shenzhen, China where we perform assembly and test
operations, a thin film filter manufacturing facility in Santa
Rosa, California, and a liquid crystal optical processor
fabrication facility with associated assembly and test
activities in Daejon, Korea. We also use third party contract
manufacturers in Thailand and China, principally Fabrinet in
Thailand, and these activities are coordinated by our operations
support team in Shenzhen, China. We also use a United
States-based contract manufacturer to a lesser degree, on a
specific product basis. For assembly and test, we believe that
maintaining a strategy of utilizing both internal manufacturing
and third party subcontractors maximizes the flexibility and
leverage of our back-end processes. As of July 3, 2010, our
manufacturing organization comprised 2,297 people.
Research
and Development
We intend to draw upon our internal development and
manufacturing capability to continue to create innovative
solutions for our customers. We believe that continued focus on
the development of our technology, and cost reduction of
existing products through design enhancements, are critical to
our future competitive success. We seek to expand and develop
our products to reduce cost, improve performance and address new
market opportunities, and to enhance our manufacturing processes
to reduce production costs, provide increased device performance
and reduce product time to market.
We have significant expertise in optical technologies such as
optoelectronic semiconductors utilizing indium phosphide,
gallium arsenide and lithium niobate substrates, thin film
filters and micro-optic assembly and packaging technology. In
addition to these technologies, we also have electronics design,
firmware and software capabilities to produce transceivers,
transponders, optical amplifiers, ROADMs and other value-added
subsystems. We will also consider supplementing our in-house
technical capabilities with strategic alliances or technology
development arrangements with third parties when we deem
appropriate. An example of this is our minority investment in,
and strategic marketing arrangement with, ClariPhy, a developer
of high-speed digital signal processors complementary to our
optical components in 40 Gb/s and, in the future, 100 Gb/s
telecom solutions. We spent $41.5 million,
$26.1 million and $28.6 million on research and
development during the years ended July 3, 2010,
June 27, 2009 and June 28, 2008, respectively. As of
July 3, 2010, our research and development organization
comprised 331 people.
Our research and development facilities are in Paignton and
Caswell, U.K.; San Jose and Santa Rosa, California;
San Donato, Italy; Zurich, Switzerland; Shenzhen and
Shanghai, China; Horseheads, New York; Acton, Massachusetts;
Tucson, Arizona; Denville, New Jersey; and Jerusalem, Israel.
These facilities include computer-aided design stations, modern
laboratories and automated test equipment. Our research and
development organization has optical and electronic integration
expertise that facilitates meeting customer-specific
requirements as they arise.
Intellectual
Property
Our competitive position significantly depends upon our
research, development, engineering, manufacturing and marketing
capabilities, and not just on our patent position. However,
obtaining and enforcing intellectual property rights, including
patents, provides us with a further competitive advantage. In
the appropriate circumstances, these rights can help us to
obtain entry into new markets by providing consideration for
cross licenses. In other circumstances they can be used to
prevent competitors from copying our products or from using our
inventions. Accordingly, our practice is to file patent
applications in the United States and other countries for
inventions that we consider significant. In addition to patents,
we also possess other intellectual property, including
trademarks, know-how, trade secrets and copyrights.
10
Oclaro has a substantial number of patents in the United States
and other countries, and additional applications are pending.
These relate to technology that we have obtained from our
acquisitions of businesses and companies in addition to our own
internally developed technology. As of July 3, 2010, we
held 750 U.S. patents and 293
non-U.S. patents,
and we had approximately 200 patent applications pending in
various jurisdictions. Although our business is not materially
dependent upon any one patent, our rights and the products made
and sold under our patents, taken as a whole, are a significant
element of our business. We maintain an active program designed
to identify technology appropriate for patent protection.
We require employees and consultants to execute the appropriate
non-disclosure and proprietary rights agreements. These
agreements acknowledge our exclusive ownership of intellectual
property developed for us and require that all proprietary
information disclosed remain confidential. While such agreements
are intended to be binding, we may not be able to enforce these
agreements in all jurisdictions.
Although we continue to take steps to identify and protect our
patentable technology and to obtain and protect proprietary
rights to our technology, we cannot be certain the steps we have
taken will prevent misappropriation of our technology,
especially in certain countries where the legal protections of
intellectual property are still developing. We may take legal
action to enforce our patents and trademarks and other
intellectual property rights. However, legal action may not
always be successful or appropriate. Further, situations may
arise in which we may decide to grant intellectual property
licenses to third parties in which case other parties will be
able to exploit our technology in the marketplace.
Oclaro enters into patent and technology licensing agreements
with other companies when management determines that it is in
its best interest to do so, for example, see our risk factor
Our products may infringe the intellectual property
rights of others which could result in expensive litigation or
require us to obtain a license to use the technology from third
parties, or we may be prohibited from selling certain products
in the future appearing in Item 1A of this Annual
Report on
Form 10-K.
These may result in net royalties payable to Oclaro or by Oclaro
to third parties. However, royalties received from or paid to
third parties have not been material to our consolidated results
of operations.
In the normal course of business, we periodically receive and
make inquiries regarding possible patent infringement. In
dealing with such inquiries, it may become necessary or useful
for Oclaro to obtain or grant licenses or other rights. However,
there can be no assurance that such licenses or rights will be
available to us on commercially reasonable terms, or at all. If
we are not able to resolve or settle claims, obtain necessary
licenses on commercially reasonable terms,
and/or
successfully prosecute or defend our position, our business,
financial condition and results of operations could be
materially and adversely affected.
Competition
The optical communications markets are rapidly evolving. We
expect these markets to continue to be highly competitive
because of the available capacity and number of competitors. We
believe that our principal competitors in the optical
subsystems, modules and components industry include Finisar
Corporation (Finisar), JDS Uniphase Corporation
(JDSU), Oplink Communications, Inc.
(Oplink) and Opnext, Inc. (Opnext), and
vertically-integrated equipment manufacturers such as Fujitsu
Limited and Sumitomo Electric Industries, Ltd. The principal
competitive factors upon which we compete include breadth of
product line, availability, performance, product reliability,
innovation and selling price. We seek to differentiate ourselves
from our competitors by offering high levels of customer value
through collaborative product design, technology innovation,
manufacturing capabilities, optical/mechanical performance,
intelligent features for configuration, control and monitoring,
multi-function integration and overall customization. There can
be no assurance that we will continue to compete favorably with
respect to these factors. We encounter substantial competition
in most of our markets, although no one competitor competes with
us across all product lines or markets.
Consolidation in the optical systems and components industry in
the past has intensified, and future consolidation could further
intensify, the competitive pressures that we face. For example,
in addition to our recent merger with Avanex, and our fiscal
year 2010 acquisitions of Xtellus and Mintera, Finisar and
Optium Corporation merged in 2008, and Opnext acquired
StrataLight Communications, Inc. in 2009. In the past, JDSU and
Oplink have also expanded their businesses through acquisitions.
11
We also face competition from companies that may expand into our
industry and introduce additional competitive products. Existing
and potential customers are also our potential competitors.
These customers may internally develop or acquire additional
competitive products or technologies, which may cause them to
reduce or cease their purchases from us.
Competitors of our advanced photonics solutions segment include
laser diode suppliers such as DILAS Diode Lasers, Inc., Jenoptik
AG, Coherent, Inc. and JDSU, some of which are captive suppliers
to their own vertically integrated laser systems operations as
well as suppliers to external customers, and some of which are
merchant suppliers of laser diodes, like ourselves. Our
competitors in VCSEL products include Avago Technologies.
Recent
Significant Events
On April 14, 2010, we announced that our board of directors
had approved a
1-for-5
reverse split of our common stock, pursuant to previously
obtained stockholder authorization. This reverse stock split,
which became effective at 6:00 p.m., Eastern Time, on
April 29, 2010, reduced the number of shares of our common
stock issued and outstanding from approximately 212 million
to approximately 42 million and reduced the number of
authorized shares of our common stock from 450 million to
90 million. All share and per share amounts herein and in
the documents incorporated by reference are presented on a
post-reverse-split basis.
On May 12, 2010, we completed a public offering of
6,900,000 shares of our common stock pursuant to a shelf
registration statement. We received net proceeds of
approximately $77.1 million from the offering after
deducting underwriting discounts and commissions and estimated
offering expenses. We intend to use the net proceeds from this
offering for general corporate purposes, including working
capital. To date, we have used $7.5 million of the net
proceeds for an investment in ClariPhy and $12.0 million
for our acquisition of Mintera. We may use a portion of the
remaining net proceeds to acquire or invest in complementary
businesses, products or technologies.
On July 21, 2010, we announced the acquisition of Mintera
Corporation, a privately-held provider of high-performance
optical transport sub-systems solutions. We paid
$12.0 million in cash to the former security holders and
creditors of Mintera. We also agreed to pay additional
revenue-based consideration whereby former security holders of
Mintera are entitled to receive up to $20.0 million,
determined based on a set of sliding scale formulas, to the
extent revenue from Mintera products is more than
$29.0 million in the twelve months following the
acquisition
and/or more
than $40.0 million in the 18 months following the
acquisition. The post-closing consideration, if any, will be
payable in cash or, at our option, newly issued shares of our
common stock, or a combination of cash and stock. Achieving
cumulative revenues of $40.0 million over the next
12 month period and $70.0 million over the next
18 month period would lead to the maximum
$20.0 million in additional consideration. We believe this
acquisition will broaden our product portfolio for high-speed
transmission solutions and will reinforce our position as one of
the leading optical communications providers. As a result of the
acquisition, Oclaro expects to offer components, modules and
sub-systems covering all of the major modulation technologies
necessary for high-performance 40 Gb/s data transmission in
regional, metro, long-haul and ultra long-haul networks.
Long-Lived
Tangible Assets and Total Assets
The following table sets forth our long-lived tangible assets
and total assets by geographic region as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Tangible Assets
|
|
|
Total Assets
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
|
United States
|
|
$
|
8,213
|
|
|
$
|
2,252
|
|
|
$
|
151,821
|
|
|
$
|
94,539
|
|
Canada
|
|
|
275
|
|
|
|
185
|
|
|
|
886
|
|
|
|
363
|
|
Europe
|
|
|
8,824
|
|
|
|
7,390
|
|
|
|
139,383
|
|
|
|
81,065
|
|
Asia
|
|
|
20,204
|
|
|
|
20,048
|
|
|
|
68,705
|
|
|
|
57,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,516
|
|
|
$
|
29,875
|
|
|
$
|
360,795
|
|
|
$
|
233,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Employees
As of July 3, 2010, we employed 2,865 persons,
including 331 in research and development, 2,297 in
manufacturing, 98 in sales and marketing, and 139 in finance and
administration. In Italy, 109 employees belong to local
collective bargaining/professional guilds. None of our other
employees are subject to collective bargaining agreements. We
believe that our relations with our employees are good.
Investing in our securities involves a high degree of risk.
You should carefully consider the risks and uncertainties
described below in addition to the other information included or
incorporated by reference in this Annual Report on
Form 10-K.
If any of the following risks actually occur, our business,
financial condition or results of operations would likely
suffer. In that case, the trading price of our common stock
could fall.
Risks
Related to Our Business
Prior
to the fiscal year ended July 3, 2010, we had a history of
large operating losses and we may not be able to achieve
profitability in the future.
We have historically incurred losses and negative cash flows
from operations since our inception. As of July 3, 2010, we
had an accumulated deficit of $1,079.6 million. Although we
generated income of $11.0 million from continuing
operations for the fiscal year ended July 3, 2010, we
incurred losses from continuing operations for the fiscal years
ended June 27, 2009 and June 28, 2008 of
$25.8 million and $23.3 million, respectively. We may
not be able to achieve profitability in any future periods. If
we are unable to do so, we may need additional financing, which
may not be available to us on commercially acceptable terms or
at all, to execute on our current or future business strategies.
We may
not be able to maintain current levels of gross
margins.
We may not be able to maintain or improve our gross margins, to
the extent that current economic uncertainty, changes in
customer demand, or other factors, affects our overall revenue,
and we are unable to adjust our expenses as necessary. We
attempt to reduce our product costs and improve our product mix
to offset price erosion expected in most product categories, but
there is no assurance that we will be successful. Our gross
margins can also be adversely impacted for reasons including,
but not limited to, unfavorable production variances, increases
in costs of input parts and materials, the timing of movements
in our inventory balances, warranty costs and related returns,
and possible exposure to inventory valuation reserves. Any
failure to maintain, or improve, our gross margins will
adversely affect our financial results, including our goal to
achieve sustainable cash flow positive operations.
Our
business and results of operations may be negatively impacted by
general economic and financial market conditions and such
conditions may increase the other risks that affect our
business.
Over the past two years, the worlds financial markets have
experienced significant turmoil, resulting in reductions in
available credit, increased costs of credit, extreme volatility
in security prices, potential changes to existing credit terms,
rating downgrades of investments and reduced valuations of
securities generally. In light of these economic conditions,
many of our customers reduced their spending plans, leading them
to draw down their existing inventory and reduce orders for
optical components. While we have seen a short-term improvement
in customer demand, and improvements in the economic conditions
contributing to that improved customer demand, it is possible
that economic conditions could experience further setbacks, and
that these customers, or others, could as a result significantly
reduce their capital expenditures, draw down their inventories,
reduce production levels of existing products, defer
introduction of new products or place orders and accept delivery
for products for which they do not pay us due to their economic
difficulties or other reasons. Prior to the recent improvement
in customer demand, these actions had, and in future quarters
could have, an adverse impact on our own revenues. In addition,
the financial downturn affected the financial strength of
certain of our customers, and could adversely affect others. In
particular, in fiscal year 2009, we issued billings of
$4.1 million for products that were shipped to Nortel
Networks Corporation (Nortel) for which payment was
not received prior to Nortels bankruptcy filing on
January 14, 2009. As a result, the corresponding revenue
was deferred, and therefore was not recognized as revenues
13
or accounts receivable in our consolidated financial statements
at the time of such billings, as we determined that such amounts
were not reasonably assured of collectability in accordance with
our revenue recognition policy. As of July 3, 2010, the
remaining uncollected contractual receivables from Nortel, from
prior to its bankruptcy filing, totaled $2.7 million, which
are not reflected in our accompanying consolidated balance
sheets. In addition, our suppliers may also be adversely
affected by economic conditions that may impact their ability to
provide important components used in our manufacturing processes
on a timely basis, or at all.
These conditions could also result in reduced capital resources
because of the potential lack of credit availability, higher
costs of credit and the stretching of payables by creditors
seeking to preserve their own cash resources. We are unable to
predict the likely duration, severity and potential continuation
of the recent disruption in financial markets and adverse
economic conditions in the U.S. and other countries, but
the longer the duration the greater the risks we face in
operating our business.
Our
success will depend on our ability to anticipate and respond to
evolving technologies and customer requirements.
The market for telecommunications equipment is characterized by
substantial capital investment and diverse and evolving
technologies. For example, the market for optical components is
currently characterized by a trend toward the adoption of
pluggable components and tunable transmitters that do not
require the customized interconnections of traditional fixed
wavelength gold box devices and the increased
integration of components on subsystems. Our ability to
anticipate and respond to these and other changes in technology,
industry standards, customer requirements and product offerings
and to develop and introduce new and enhanced products will be
significant factors in our ability to succeed. We expect that
new technologies will continue to emerge as competition in the
telecommunications industry increases and the need for higher
and more cost efficient bandwidth expands. The introduction of
new products embodying new technologies or the emergence of new
industry standards could render our existing products or
products in development uncompetitive from a pricing standpoint,
obsolete or unmarketable.
The
market for optical components continues to be characterized by
excess capacity and intense price competition which has had, and
may have, a material adverse effect on our results of
operations.
There continues to be excess capacity for many optical
components companies, intense price competition among optical
component manufacturers and continued consolidation in the
industry. As a result of this excess capacity and other industry
factors, pricing pressure remains intense. The continued
uncertainties in the optical telecommunications systems industry
and the global economy make it difficult for us to anticipate
revenue levels and therefore to make appropriate estimates and
plans relating to cost management. Continued uncertain demand
for optical components has had in the past, and may again have
in the future, a material adverse effect on our results of
operations.
We
depend on a limited number of customers for a significant
percentage of our revenues.
Historically, we have generated most of our revenues from a
limited number of customers. Our dependence on a limited number
of customers is due to the fact that the optical
telecommunications systems industry is dominated by a small
number of large companies. These companies in turn depend
primarily on a limited number of major telecommunications
carrier customers to purchase their products that incorporate
our optical components.
For example, in the fiscal years ended July 3, 2010,
June 27, 2009 and June 28, 2008, our three largest
customers accounted for 29 percent, 38 percent and
38 percent of our revenues, respectively. Revenues from any
of our major customers may fluctuate significantly in the
future, which could have an adverse impact on our business and
results of operations.
14
The
majority of our long-term customer contracts do not commit
customers to specified buying levels, and our customers may
decrease, cancel or delay their buying levels at any time with
little or no advance notice to us.
The majority of our customers typically purchase our products
pursuant to individual purchase orders or contracts that do not
contain purchase commitments. Some customers provide us with
their expected forecasts for our products several months in
advance, but many of these customers may decrease, cancel or
delay purchase orders already in place, and the impact of any
such actions may be intensified given our dependence on a small
number of large customers. If any of our major customers
decrease, stop or delay purchasing our products for any reason,
our business and results of operations would be harmed.
Cancellation or delays of such orders may cause us to fail to
achieve our short-term and long-term financial and operating
goals and result in excess and obsolete inventory.
We may
make acquisitions that do not prove successful.
From time to time we consider acquisitions of other businesses,
assets or companies. We may not be able to identify suitable
acquisition candidates at prices we consider appropriate. If we
do identify an appropriate acquisition candidate, we may not be
able to successfully and satisfactorily negotiate the terms of
the acquisition. Our management may not be able to effectively
implement our acquisition plans and internal growth strategy
simultaneously. We are also in an industry that is actively
consolidating and there is no guarantee that we will
successfully bid against third parties, including competitors,
when we identify a critical target we want to acquire.
The integration of acquisitions involves a number of risks and
presents financial, managerial and operational challenges. We
may have difficulty, and may incur unanticipated expenses
related to, integrating management and personnel from these
acquired entities with our management and personnel. Our failure
to identify, consummate or integrate suitable acquisitions could
adversely affect our business and results of operations. We
cannot readily predict the timing, size or success of our future
acquisitions. Failure to successfully implement our acquisition
plans could have a material adverse effect on our business,
prospects, financial condition and results of operations. Even
successful acquisitions could have the effect of reducing our
cash balances, diluting the ownership interests of existing
stockholders or increasing our indebtedness. For example, our
recent acquisition of Xtellus required an immediate issuance of
a significant number of newly issued shares of our common stock
and we may be required to issue a significant additional number
of newly issued shares of our common stock in connection with
the value protection guarantee provided to Xtellus
shareholders in the acquisition. Acquisitions and divestitures
could involve a number of other potential risks to our business,
including the following, any of which could harm our business:
|
|
|
|
|
unanticipated costs and liabilities and unforeseen accounting
charges;
|
|
|
|
delays and difficulties in delivery of products and services;
|
|
|
|
failure to effectively integrate or separate management
information systems, personnel, research and development,
marketing, sales and support operations;
|
|
|
|
loss of key employees;
|
|
|
|
economic dilution to gross and operating profit and earnings
(loss) per share;
|
|
|
|
diversion of managements attention from other business
concerns and disruption of our ongoing business;
|
|
|
|
difficulty in maintaining controls and procedures;
|
|
|
|
uncertainty on the part of our existing customers, or the
customers of an acquired company, about our ability to operate
effectively after a transaction, and the potential loss of such
customers;
|
|
|
|
damage to or loss of supply or partnership relationships;
|
|
|
|
declines in the revenue of the combined company;
|
|
|
|
failure to realize the potential financial or strategic benefits
of the acquisition or divestiture; and
|
|
|
|
failure to successfully further develop the combined, acquired
or remaining technology, resulting in the impairment of amounts
recorded as goodwill or other intangible assets.
|
15
We may
not achieve, and/or sustain, our strategic objectives,
anticipated synergies and cost savings and other expected
benefits of our merger with Avanex, our acquisition of the
high-power laser diodes business of Newport or our acquisitions
of Xtellus or Mintera.
We completed our merger with Avanex on April 27, 2009, our
acquisition of the high-power laser diodes business of Newport
on July 4, 2009, our acquisition of Xtellus on
December 17, 2009, and our acquisition of Mintera on
July 21, 2010. We believe we have achieved certain
strategic and other financial and operating benefits as a result
of some of these transactions, including, certain cost and
performance synergies, and we expect additional strategic and
other financial and operating benefits to accrue from certain of
these transactions. However, we cannot predict with certainty
which of these benefits, if any, will actually be achieved or
the timing of any such benefits, or whether those benefits which
have been achieved will be sustainable on a long-term basis.
The following factors, among others, may prevent us from
realizing these benefits:
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the inability to increase product sales;
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substantial demands on our management as a result of these
transactions that may limit their time to attend to other
operational, financial, business and strategic issues;
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difficulty in:
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the integration of operational, financial and administrative
functions and systems to permit effective management, and the
lack of control if such integration is not implemented or
delayed;
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demonstrating to our customers that the transactions will not
result in adverse changes in client service standards or
business focus and helping our customers conduct business easily
with us;
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consolidating and rationalizing corporate information
technology, engineering and administrative infrastructures;
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integrating product offerings;
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coordinating sales and marketing efforts to effectively
communicate our capabilities;
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coordinating and integrating the manufacturing activities of our
acquired businesses, including with respect to third-party
manufacturers, and including executing a ramp of production
capacity in South Korea and with our contract manufacturers to
support the potential revenue demand for the WSS related
products of Xtellus; and including managing the manufacturing
activities of the laser diode business acquired from Newport
while these activities are being transferred from Tucson,
Arizona to Europe and Asia;
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coordinating and integrating supply chains;
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coordinating and rationalizing research and development
activities to enhance introduction of new products and
technologies with reduced cost;
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preserving important relationships of our acquired businesses
and resolving potential conflicts between business cultures;
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coordinating the international activities of our acquired
businesses;
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unexpected liabilities associated with our acquired businesses
or unanticipated costs related to the integrations;
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the effect of tax laws due to increasing complexities of our
global operating structure; and
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employment law or regulations or other limitations in foreign
jurisdictions that could have an impact on timing, amounts or
costs of achieving expected synergies.
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Our integration with merged and acquired businesses has been and
will continue to be a complex, time-consuming and expensive
process. We cannot assure you that we will be able to
successfully integrate these businesses in a timely manner, or
at all, or that any of the anticipated benefits or our
acquisition of these businesses
16
will be realized. Our failure to achieve the strategic
objectives of our mergers and acquisitions could have a material
adverse effect on our revenues, expenses and our other operating
results and cash resources and could result in us not achieving
the anticipated potential benefits of these transactions. In
addition, we cannot assure you that the growth rate of the
combined company will equal the historical growth rate
experienced by any of the predecessors, including Bookham,
Avanex, the high-power laser diodes business of Newport, Xtellus
or Mintera.
Sales
of our products could decline if customer and/or supplier
relationships are disrupted by our recent merger and acquisition
activities.
The customers of acquired or merged businesses,
and/or of
predecessor companies, may not continue their historical buying
patterns. Any loss of design wins or significant delay or
reduction in orders for the telecom, the high-power laser
diodes, or the optical modules and components business
products could harm our business, financial condition and
results of operations. Customers may defer purchasing decisions
as they evaluate the likelihood of successful integration of our
products and our future product strategy, or consider purchasing
products of our competitors.
Customers may also seek to modify or terminate existing
agreements, or prospective customers may delay entering into new
agreements or purchasing our products or may decide not to
purchase any products from us. In addition, by increasing the
breadth of our business, the transactions may make it more
difficult for us to enter into relationships, including customer
relationships, with strategic partners, some of whom may view us
as a more direct competitor than any of the predecessor
and/or
acquired and merged businesses as independent companies.
Competitive positions in the market, including relative to
suppliers who are also competitors, could change as a result of
an acquisition or merger of a new business into Oclaro, and this
could impact supplier relationships, including the terms under
which we do business with such suppliers.
As a
result of the recent business combinations, we have become a
larger and more geographically diverse organization, and if our
management is unable to manage the combined organization
efficiently, our operating results will suffer.
As of July 3, 2010, we had approximately
2,865 employees in a total of 14 facilities around the
world. As a result, we face challenges inherent in efficiently
managing an increased number of employees over large geographic
distances, including the need to implement appropriate systems,
policies, benefits and compliance programs. Our inability to
manage successfully the geographically more diverse (including
from a cultural perspective) and substantially larger combined
organization could have a material adverse effect on our
operating results and, as a result, on the market price of our
common stock.
We may
not successfully transfer the wafer production from the Tucson,
Arizona manufacturing operations we acquired from Newport to our
European fabrication facilities and realize the anticipated
benefits of the acquisition.
Achieving the potential benefits of our July 4, 2009
acquisition from Newport of the laser diodes manufacturing
operations in Tucson, Arizona will depend in substantial part on
the successful transfer of those manufacturing operations to our
European fabrication facilities. We face significant challenges
in transferring these operations in a timely and efficient
manner. As a result of certain of these challenges, our
opportunities to increase revenues in the corresponding business
were limited in the fiscal quarter ended July 3, 2010, and
we expect these limitations to continue through the first
quarter of fiscal year 2011. Some of the challenges involved in
this transfer include:
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transferring operations is placing substantial demands on our
management that may limit their time to attend to other
operational, financial and strategic issues;
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it may take longer than anticipated to complete the transfer of
wafer manufacturing operations from Tucson, Arizona to our
European fabs, the results may not deliver desired yields and
costs savings, any delay may cause us not to achieve expected
synergies from leveraging our existing global manufacturing
infrastructure,
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and our ability to grow related revenues could be limited by the
levels of inventory built to sustain customer demand during the
period of transfer;
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the costs of transferring manufacturing operations from Tucson,
Arizona to our European fabs may exceed our current estimates;
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delays in qualifying production of the laser diodes in our
European fabs could cause disruption to our customers and have
an adverse impact on our operating results;
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we may experience difficulty in the integration of operational,
financial and administrative functions and systems to permit
effective management, and may experience a lack of control if
such integration is not implemented or delayed; and
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employment law or regulations or other limitations in foreign
jurisdictions could have an impact on timing, amounts or costs
of achieving expected synergies.
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Our
products are complex and may take longer to develop than
anticipated and we may not recognize revenues from new products
until after long field testing and customer acceptance
periods.
Many of our new products must be tailored to customer
specifications. As a result, we are developing new products and
using new technologies in those products. For example, while we
currently manufacture and sell discrete gold box
technology, we expect that many of our sales of gold
box technology will soon be replaced by pluggable modules.
New products or modifications to existing products often take
many quarters or even years to develop because of their
complexity and because customer specifications sometimes change
during the development cycle. We often incur substantial costs
associated with the research and development and sales and
marketing activities in connection with products that may be
purchased long after we have incurred the costs associated with
designing, creating and selling such products. In addition, due
to the rapid technological changes in our market, a customer may
cancel or modify a design project before we begin large-scale
manufacture of the product and receive revenues from the
customer. It is unlikely that we would be able to recover the
expenses for cancelled or unutilized design projects. It is
difficult to predict with any certainty, particularly in the
present economic climate, the frequency with which customers
will cancel or modify their projects, or the effect that any
cancellation or modification would have on our results of
operations.
As a
result of our global operations, our business is subject to
currency fluctuations that have adversely affected our results
of operations in recent quarters and may continue to do so in
the future.
Our financial results have been and will continue to be
materially impacted by foreign currency fluctuations. At certain
times in our history, declines in the value of the
U.S. dollar versus the U.K. pound sterling have had a major
negative effect on our margins and our cash flow. Despite our
change in domicile from the United Kingdom to the United States
in 2004 and the transfer of our assembly and test operations
from Paignton, U.K. to Shenzhen, China, a significant portion of
our expenses are still denominated in U.K. pounds sterling and
substantially all of our revenues are denominated in
U.S. dollars.
Fluctuations in the exchange rate between these two currencies
and, to a lesser extent, other currencies in which we collect
revenues
and/or pay
expenses will continue to have a material effect on our
operating results. From the end of our fiscal year ended
June 27, 2009 to the end of our fiscal year ended
July 3, 2010, the U.S. dollar appreciated
8 percent relative to the U.K. pound sterling, which
favorably impacted our operating results for fiscal year 2010.
If the U.S. dollar stays the same or depreciates relative
to the U.K. pound sterling in the future, our future operating
results may also be materially impacted. Additional exposure
could also result should the exchange rate between the
U.S. dollar and the Chinese yuan, the South Korean won, the
Israeli shekel, the Swiss franc or the Euro vary more
significantly than they have to date.
We engage in currency hedging transactions in an effort to cover
some of our exposure to U.S. dollar to U.K. pound sterling
currency fluctuations, and we may be required to convert
currencies to meet our obligations. Under certain circumstances,
these transactions could have an adverse effect on our financial
condition.
18
We
have significant manufacturing operations in China, which
exposes us to risks inherent in doing business in
China.
The majority of our assembly and test operations,
chip-on-carrier
operations and manufacturing and supply chain management
operations are concentrated in our facility in Shenzhen, China.
We have substantial research and development related activities
in Shenzhen and Shanghai, China. To be successful in China we
will need to:
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qualify our manufacturing lines and the products we produce in
Shenzhen, as required by our customers;
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attract and retain qualified personnel to operate our Shenzhen
facility; and
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attract and retain research and development employees at our
Shenzhen and Shanghai facilities.
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We cannot assure you that we will be able to do any of these.
Employee turnover in China is high due to the intensely
competitive and fluid market for skilled labor. To operate our
Shenzhen facility under these conditions, we will need to
continue to hire direct manufacturing personnel, administrative
personnel and technical personnel; obtain and retain required
legal authorization to hire such personnel and incur the time
and expense to hire and train such personnel. We are currently
seeing a return of customer demand which had decreased as a
result of adverse economic conditions in the preceding two
years. Our ability to respond to this demand will, among other
things, be a function of our ability to attract, train and
retain skilled labor in China.
Operations in China are subject to greater political, legal and
economic risks than our operations in other countries. In
particular, the political, legal and economic climate in China,
both nationally and regionally, is fluid and unpredictable. Our
ability to operate in China may be adversely affected by changes
in Chinese laws and regulations such as those related to, among
other things, taxation, import and export tariffs, environmental
regulations, land use rights, intellectual property, employee
benefits and other matters. In addition, we may not obtain or
retain the requisite legal permits to continue to operate in
China, and costs or operational limitations may be imposed in
connection with obtaining and complying with such permits.
We have, in the past, been advised that power may be rationed in
the location of our Shenzhen facility, and were power rationing
to be implemented, it could have an adverse impact on our
ability to complete manufacturing commitments on a timely basis
or, alternatively, could require significant investment in
generating capacity to sustain uninterrupted operations at the
facility, which we may not be able to do successfully.
We intend to continue to export the majority of the products
manufactured at our Shenzhen facility. Under current
regulations, upon application and approval by the relevant
governmental authorities, we will not be subject to certain
Chinese taxes and will be exempt from certain duties on imported
materials that are used in the manufacturing process and
subsequently exported from China as finished products. However,
Chinese trade regulations are in a state of flux, and we may
become subject to other forms of taxation and duties in China or
may be required to pay export fees in the future. In the event
that we become subject to new forms of taxation or export fees
in China, our business and results of operations could be
materially adversely affected. We may also be required to expend
greater amounts than we currently anticipate in connection with
increasing production at our Shenzhen facility. Any one of the
factors cited above, or a combination of them, could result in
unanticipated costs or interruptions in production, which could
materially and adversely affect our business.
We
depend on a limited number of suppliers who could disrupt our
business if they stopped, decreased, delayed or were unable to
meet our demand for shipments of their products.
We depend on a limited number of suppliers of raw materials and
equipment used to manufacture our products. We also depend on a
limited number of contract manufacturers to manufacture certain
of our products, principally Fabrinet in Thailand. Some of these
suppliers are sole sources. We typically have not entered into
long-term agreements with our suppliers other than Fabrinet and,
therefore, these suppliers generally may stop supplying us
materials and equipment at any time. Our reliance on a sole
supplier or limited number of suppliers could result in delivery
problems, reduced control over product pricing and quality, and
an inability to identify and qualify another supplier in a
timely manner. Given the recent macroeconomic downturn, some of
our suppliers that may be small or
19
undercapitalized may experience financial difficulties that
could prevent them from supplying us materials and equipment.
Any supply deficiencies relating to the quality or quantities of
materials or equipment we use to manufacture our products could
materially adversely affect our ability to fulfill customer
orders and our results of operations. As customer demand has
recently increased in our markets, and in adjacent markets, lead
times for the purchase of certain materials and equipment from
suppliers required to meet this demand have increased and in
some cases have limited our ability to rapidly respond to
increased demand, and may continue to do so in the future. These
conditions have been exacerbated by suppliers, customers and
companies reducing their inventory levels in response to the
economic conditions described above.
In addition, Fabrinets manufacturing operations are
located in Thailand. Thailand has been subject to political
unrest in the recent past, including the temporary interruption
of service at one of its international airports, and may again
experience such political unrest in the future. If Fabrinet is
unable to supply us with materials or equipment, or if they are
unable to ship our materials or equipment out of Thailand due to
political unrest, this could materially adversely affect our
ability to fulfill customer orders and our results of operations.
Fluctuations
in our operating results could adversely affect the market price
of our common stock.
Our revenues and other operating results are likely to fluctuate
significantly in the future. The timing of order placement, size
of orders and satisfaction of contractual customer acceptance
criteria, as well as order or shipment delays or deferrals, with
respect to our products, may cause material fluctuations in
revenues. Our lengthy sales cycle in both of our segments, which
may extend to more than one year, may cause our revenues and
operating results to vary from period to period and it may be
difficult to predict the timing and amount of any variation.
Delays or deferrals in purchasing decisions by our customers may
increase as we develop new or enhanced products for new markets,
including data communications, industrial, research, military,
consumer and biotechnology markets. Our current and anticipated
future dependence on a small number of customers increases the
revenue impact of each such customers decision to delay or
defer purchases from us, or decision not to purchase products
from us. Our expense levels in the future will be based, in
large part, on our expectations regarding future revenue sources
and, as a result, operating results for any quarterly period in
which material orders fail to occur, or are delayed or deferred
could vary significantly.
Because of these and other factors, quarter-to-quarter
comparisons of our results of operations may not be indicative
of our future performance. In future periods, our results of
operations may differ, in some cases materially, from the
estimates of public market analysts and investors. Such a
discrepancy, or our failure to meet published financial
projections, could cause the market price of our common stock to
decline.
The
investment of our cash balances and our investments in
marketable debt securities are subject to risks which may cause
losses and affect the liquidity of these
investments.
At July 3, 2010, we had $111.6 million in cash, cash
equivalents and restricted cash, including $4.5 million in
restricted cash. We have historically invested these amounts in
U.S. Treasury securities and U.S. government agency
securities, corporate debt, money market funds, commercial paper
and municipal bonds. Certain of these investments are subject to
general credit, liquidity, market and interest rate risks. In
September 2008, Lehman Brothers Holdings Inc., or Lehman, filed
a petition under Chapter 11 of the U.S. Bankruptcy
Code. In the quarter ended January 2, 2010, we sold a
Lehman security with a par value of $0.8 million for
$0.1 million. We recorded the impairment charges for the
Lehman security of $0.7 million in fiscal year 2009 in
Other income (expense) in our consolidated statement
of operations.
We may in the future experience declines in the value of our
short-term investments, which we may determine to be
other-than-temporary. These market risks associated with our
investment portfolio may have a negative adverse effect on our
results of operations, liquidity and financial condition.
20
We may
record additional impairment charges that will adversely impact
our results of operations.
We review our goodwill, intangible assets and long-lived assets
for impairment whenever events or changes in circumstances
indicate that the carrying amounts of these assets may not be
recoverable, and also review goodwill annually. During the
fiscal year ended June 27, 2009, we determined that the
goodwill related to our New Focus and Avalon reporting units was
fully impaired. Impairment of goodwill and other intangible
assets for fiscal year 2009, net of $2.8 million associated
with the discontinued operations of the New Focus business,
amounted to $9.1 million.
During fiscal year ended July 3, 2010, we recorded goodwill
of $20.0 million and other intangible assets of
$9.8 million primarily in connection with our acquisitions
of the Newport high-power laser diodes business and Xtellus. We
anticipate recording additional goodwill and intangible assets
when the purchase accounting for our acquisition of Mintera is
complete. In the event that we determine in a future period that
impairment of our goodwill, intangible assets or long-lived
assets exists for any reason, we would record additional
impairment charges in the period such determination is made,
which would adversely impact our financial position and results
of operations.
We may
incur additional significant restructuring charges that will
adversely affect our results of operations.
Over the past nine years, we have enacted a series of
restructuring plans and cost reduction plans designed to reduce
our manufacturing overhead and our operating expenses. Such
charges have adversely affected, and will continue to adversely
affect, our results of operations for the periods in which such
charges have been, or will be, incurred. Additionally, actual
costs have in the past, and may in the future, exceed the
amounts estimated and provided for in our financial statements.
Significant additional charges could materially and adversely
affect our results of operations in the periods that they are
incurred and recognized.
For instance, we accrued $5.4 million and $2.2 million
in restructuring charges during fiscal year 2009 and 2010,
respectively, in connection with our merger with Avanex. On
July 4, 2009, we completed the exchange of our New Focus
business to Newport for Newports Tucson wafer fabrication
facility which resulted in us incurring $0.5 million in
restructuring charges in fiscal year 2010 in connection with the
transfer of the Tucson manufacturing operations to our European
facilities, an activity which has inherent risk as to ability to
execute and timing to completion. While restructuring activities
associated with our acquisitions of Xtellus and Mintera are
expected to be more limited, the costs and execution risk of the
corresponding actions could be significant.
Our
results of operations may suffer if we do not effectively manage
our inventory, and we may incur inventory-related
charges.
We need to manage our inventory of component parts and finished
goods effectively to meet changing customer requirements.
Accurately forecasting customers product needs is
difficult. Some of our products and supplies have in the past,
and may in the future, become obsolete while in inventory due to
rapidly changing customer specifications or a decrease in
customer demand. We also have exposure to contractual
liabilities to our contract manufacturers for inventories
purchased by them on our behalf, based on our forecasted
requirements, which may become excess or obsolete. If we are not
able to manage our inventory effectively, we may need to write
down the value of some of our existing inventory or write off
non-saleable or obsolete inventory, which would adversely affect
our results of operations. We have from time to time incurred
significant inventory-related charges. Any such charges we incur
in future periods could materially and adversely affect our
results of operations.
Oclaro
Technology Ltd. may not be able to utilize tax losses and other
tax attributes against the receivables that arise as a result of
its transaction with Deutsche Bank, or in the event there are
any restrictions on its ability to utilize tax losses against
future income from operations.
On August 10, 2005, Oclaro Technology Ltd purchased all of
the issued share capital of City Leasing (Creekside) Limited
(Creekside), a subsidiary of Deutsche Bank. We entered into this
transaction primarily for the business purpose of raising money
to fund our operations by realizing the economic value of
certain of the deferred tax assets of Oclaro Technology Ltd from
the third-party described more fully below. In compliance with
U.K. tax
21
law, the transaction was structured to enable certain U.K. tax
losses in Oclaro Technology Ltd to be surrendered in order to
reduce U.K. taxes otherwise due on sub-lease revenue payable to
Creekside. Creekside was entitled to receivables of
£73.8 million (approximately $135.8 million,
based on an exchange rate of $1.84 to £1.00 on
September 2, 2005) from Deutsche Bank in connection
with certain aircraft subleases and these payments have been
applied over a two-year term to obligations of
£73.1 million (approximately $134.5 million,
based on an exchange rate of $1.84 to £1.00 on
September 2, 2005) owed to Deutsche Bank. As a result
of the completion of these transactions, Oclaro Technology Ltd
has had available through Creekside cash of approximately
£6.63 million (approximately $12.2 million, based
on an exchange rate of $1.84 to £1.00 on September 2,
2005). We expect Oclaro Technology Ltd to utilize certain
expected tax losses and other tax attributes to reduce the taxes
that might otherwise be due by Creekside as the receivables are
paid. In the event that Oclaro Technology Ltd is not able to
utilize these tax losses and other tax attributes when U.K. tax
returns are filed for the relevant periods (or these tax losses
and other tax attributes do not arise or are successfully
challenged by U.K. tax regulators), Creekside may have to pay
taxes, reducing the cash available from Creekside. In the event
there is a future change in applicable U.K. tax law, Creekside
and in turn Oclaro Technology Ltd, would be responsible for any
resulting tax liabilities, which amounts could be material to
our financial condition or operating results. In addition,
should there be any future changes in U.K. tax law, or
unexpected interpretations of U.K. tax law by authorities, that
otherwise limit our ability to utilize tax losses and other tax
attributes of Oclaro Technology Ltd., we may experience more
income tax expense in future years than would be otherwise
expected.
If our
customers do not qualify our manufacturing lines or the
manufacturing lines of our subcontractors for volume shipments,
our operating results could suffer.
Most of our customers do not purchase products, other than
limited numbers of evaluation units, prior to qualification of
the manufacturing line for volume production. Our existing
manufacturing lines, as well as each new manufacturing line,
must pass through varying levels of qualification with our
customers. Our manufacturing lines have passed our qualification
standards, as well as our technical standards. However, our
customers also require that our manufacturing lines pass their
specific qualification standards and that we, and any
subcontractors that we may use, be registered under
international quality standards. In addition, we have in the
past, and may in the future, encounter quality control issues as
a result of relocating our manufacturing lines or introducing
new products to fill production. We may be unable to obtain
customer qualification of our manufacturing lines or we may
experience delays in obtaining customer qualification of our
manufacturing lines. Such delays or failure to obtain
qualifications would harm our operating results and customer
relationships.
Delays,
disruptions or quality control problems in manufacturing could
result in delays in product shipments to customers and could
adversely affect our business.
We may experience delays, disruptions or quality control
problems in our manufacturing operations or the manufacturing
operations of our subcontractors. As a result, we could incur
additional costs that would adversely affect our gross margins,
and our product shipments to our customers could be delayed
beyond the shipment schedules requested by our customers, which
would negatively affect our revenues, competitive position and
reputation. Furthermore, even if we are able to deliver products
to our customers on a timely basis, we may be unable to
recognize revenues at the time of delivery based on our revenue
recognition policies.
We may
experience low manufacturing yields.
Manufacturing yields depend on a number of factors, including
the volume of production due to customer demand and the nature
and extent of changes in specifications required by customers
for which we perform design-in work. Higher volumes due to
demand for a fixed, rather than continually changing, design
generally results in higher manufacturing yields, whereas lower
volume production generally results in lower yields. In
addition, lower yields may result, and have in the past
resulted, from commercial shipments of products prior to full
manufacturing qualification to the applicable specifications.
Changes in manufacturing processes required as a result of
changes in product specifications, changing customer needs and
the introduction of new product lines have historically caused,
and may in the future cause, significantly reduced manufacturing
yields, resulting in low or negative margins on those products.
Moreover, an increase in the rejection rate of products during
the quality control process, before,
22
during or after manufacture, results in lower yields and
margins. Finally, manufacturing yields and margins can also be
lower if we receive or inadvertently use defective or
contaminated materials from our suppliers. Any reduction in our
manufacturing yields will adversely affect our gross margins and
could have a material impact on our operating results.
Our
intellectual property rights may not be adequately
protected.
Our future success will depend, in large part, upon our
intellectual property rights, including patents, copyrights,
design rights, trade secrets, trademarks, know-how and
continuing technological innovation. We maintain an active
program of identifying technology appropriate for patent
protection. Our practice is to require employees and consultants
to execute non-disclosure and proprietary rights agreements upon
commencement of employment or consulting arrangements. These
agreements acknowledge our exclusive ownership of all
intellectual property developed by the individuals during their
work for us and require that all proprietary information
disclosed will remain confidential. Although such agreements may
be binding, they may not be enforceable in full or in part in
all jurisdictions and any breach of a confidentiality obligation
could have a very serious effect on our business and our remedy
for such breach may be limited.
Our intellectual property portfolio is an important corporate
asset. The steps we have taken and may take in the future to
protect our intellectual property may not adequately prevent
misappropriation or ensure that others will not develop
competitive technologies or products. We cannot assure you that
our competitors will not successfully challenge the validity of
our patents or design products that avoid infringement of our
proprietary rights with respect to our technology. There can be
no assurance that other companies are not investigating or
developing other similar technologies, that any patents will be
issued from any application pending or filed by us or that, if
patents are issued, that the claims allowed will be sufficiently
broad to deter or prohibit others from marketing similar
products. In addition, we cannot assure you that any patents
issued to us will not be challenged, invalidated or
circumvented, or that the rights under those patents will
provide a competitive advantage to us or that our products and
technology will be adequately covered by our patents and other
intellectual property. Further, the laws of certain regions in
which our products are or may be developed, manufactured or
sold, including Asia-Pacific, Southeast Asia and Latin America,
may not be enforced to protect our products and intellectual
property rights to the same extent as the laws of the United
States, the U.K. and continental European countries. This is
especially relevant now that we have transferred certain
advanced photonics solution manufacturing activities from our
San Jose, California facility to Shenzhen, China and
transferred all of our assembly and test operations and
chip-on-carrier
operations, including certain engineering-related functions,
from our facilities in the U.K. to Shenzhen, China. Also
relevant is that our competitors and new Chinese companies are
establishing manufacturing operations in China to take advantage
of comparatively low manufacturing costs.
Our
products may infringe the intellectual property rights of others
which could result in expensive litigation or require us to
obtain a license to use the technology from third parties, or we
may be prohibited from selling certain products in the
future.
Companies in the industry in which we operate frequently are
sued or receive informal claims of patent infringement or
infringement of other intellectual property rights. We have,
from time to time, received such claims, including from
competitors and from companies that have substantially more
resources than us.
For example, on March 4, 2008, we filed a declaratory
judgment complaint captioned Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc., Civil
Action
No. 5:08-CV-01275-RMW,
in the United States District Court for the Northern District of
California, San Jose Division. Our complaint sought
declaratory judgments that our tunable laser products do not
infringe any valid, enforceable claim of U.S. Patent Nos.
6,658,035, 6,654,400 and 6,687,278, and that all claims of the
aforementioned patents are invalid and unenforceable. On
April 10, 2009, we entered into a license and settlement
agreement with JDSU pursuant to which we and JDSU have settled
all claims between us.
In addition, on May 27, 2009, a patent infringement action
captioned QinetiQ Limited v. Oclaro, Inc., Civil
Action
No. 1:09-cv-00372,
was filed in the United States District Court for the District
of Delaware. QinetiQs original complaint alleged
infringement of United States Patent Nos. 5,410,625 and
5,428,698, and sought a
23
permanent injunction, money damages, costs, and attorneys
fees. We filed an answer to the complaint and stated
counterclaims against QinetiQ for judgments that the
patents-in-suit
are invalid and unenforceable. Additionally, we filed a motion
to transfer venue to the Northern District of California, which
was granted on December 18, 2009. After transfer, the
litigation was assigned Civil Action
No. 4:10-cv-00080-SBA
by the Northern District Court. On June 21, 2010, QinetiQ
amended its complaint to allege infringement of a third patent,
U.S. Patent No. 5,379,354. We answered QinetiQs
amended complaint and asserted fraud counterclaims against
QinetiQ. A trial in this matter has not yet been set. We believe
the claims asserted against us by QinetiQ are without merit and
will continue to defend ourselves vigorously.
Third parties may in the future assert claims against us
concerning our existing products or with respect to future
products under development, or with respect to products that we
may acquire through a merger, acquisition or asset purchase. We
have entered into and may in the future enter into
indemnification obligations in favor of some customers that
could be triggered upon an allegation or finding that we are
infringing other parties proprietary rights. If we do
infringe a third-partys rights, we may need to negotiate
with holders of those rights relevant to our business. We have
from time to time received notices from third parties alleging
infringement of their intellectual property and where
appropriate have entered into license agreements with those
third parties with respect to that intellectual property. We may
not in all cases be able to resolve allegations of infringement
through licensing arrangements, settlement, alternative designs
or otherwise. We may take legal action to determine the validity
and scope of the third-party rights or to defend against any
allegations of infringement. The recent economic downturn could
result in holders of intellectual property rights becoming more
aggressive in alleging infringement of their intellectual
property rights and we may be the subject of such claims
asserted by a third-party. In the course of pursuing any of
these means or defending against any lawsuits filed against us,
we could incur significant costs and diversion of our resources
and our managements attention. Due to the competitive
nature of our industry, it is unlikely that we could increase
our prices to cover such costs. In addition, such claims could
result in significant penalties or injunctions that could
prevent us from selling some of our products in certain markets
or result in settlements or judgments that require payment of
significant royalties or damages.
If we
fail to obtain the right to use the intellectual property rights
of others necessary to operate our business, our ability to
succeed will be adversely affected.
Certain companies in the telecommunications and optical
components markets in which we sell our products have
experienced frequent litigation regarding patent and other
intellectual property rights. Numerous patents in these
industries are held by others, including academic institutions
and our competitors. Optical component suppliers may seek to
gain a competitive advantage or other third parties, inside or
outside our market, may seek an economic return on their
intellectual property portfolios by making infringement claims
against us. We currently in-license certain intellectual
property of third-parties, and in the future, we may need to
obtain license rights to patents or other intellectual property
held by others to the extent necessary for our business. Unless
we are able to obtain such licenses on commercially reasonable
terms, patents or other intellectual property held by others
could be used to inhibit or prohibit our production and sale of
existing products and our development of new products for our
markets. Licenses granting us the right to use third-party
technology may not be available on commercially reasonable
terms, if at all. Generally, a license, if granted, would
include payments of up-front fees, ongoing royalties or both.
These payments or other terms could have a significant adverse
impact on our operating results. In addition, in the event we
are granted such a license, it is likely such license would be
non-exclusive and other parties, including competitors, may be
able to utilize such technology. Our larger competitors may be
able to obtain licenses or cross-license their technology on
better terms than we can, which could put us at a competitive
disadvantage. In addition, our larger competitors may be able to
buy such technology and preclude us from licensing or using such
technology.
The
inability to obtain government licenses and approvals for
desired international trading activities or technology transfers
may prevent the profitable operation of our
business.
Many of our present and future business activities are subject
to licensing by the United States government under the Export
Administration Act, the Export Administration Regulations and
other laws, regulations and requirements governing international
trade and technology transfer. We presently manufacture products
in China
24
and Thailand that require such licenses. The profitable
operations of our business may require the continuity of these
licenses and may require further licenses and approvals for
future products in these and other countries. However, there is
no certainty to the continuity of these licenses, nor that
further desired licenses and approvals may be obtained.
The
markets in which we operate are highly competitive, which could
result in lost sales and lower revenues.
The market for optical components and modules is highly
competitive and such competition could result in our existing
customers moving their orders to competitors. We are aware of a
number of companies that have developed or are developing
optical component products, including tunable lasers,
pluggables, wavelength selective switches and thin film filter
products, among others, that compete directly with our current
and proposed product offerings.
Certain of our competitors may be able to more quickly and
effectively:
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develop or respond to new technologies or technical standards;
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react to changing customer requirements and expectations;
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devote needed resources to the development, production,
promotion and sale of products; and
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deliver competitive products at lower prices.
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Some of our current competitors, as well as some of our
potential competitors, have longer operating histories, greater
name recognition, broader customer relationships and industry
alliances and substantially greater financial, technical and
marketing resources than we do. In addition, market leaders in
industries such as semiconductor and data communications, who
may also have significantly more resources than we do, may in
the future enter our market with competing products. All of
these risks may be increased if the market were to further
consolidate through mergers or other business combinations
between competitors.
We may not be able to compete successfully with our competitors
and aggressive competition in the market may result in lower
prices for our products
and/or
decreased gross margins. Any such development could have a
material adverse effect on our business, financial condition and
results of operations.
We
generate a significant portion of our revenues internationally
and therefore are subject to additional risks associated with
the extent of our international operations.
For fiscal years ended July 3, 2010, June 27, 2009 and
June 28, 2008, 19 percent, 20 percent and
18 percent of our revenues, respectively, were derived from
sales to customers located in the United States and
81 percent, 80 percent and 82 percent of our
revenues, respectively, were derived from sales to customers
located outside the United States. We are subject to additional
risks related to operating in foreign countries, including:
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currency fluctuations, which could result in increased operating
expenses and reduced revenues;
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greater difficulty in accounts receivable collection and longer
collection periods;
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difficulty in enforcing or adequately protecting our
intellectual property;
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ability to hire qualified candidates;
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foreign taxes;
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political, legal and economic instability in foreign
markets; and
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foreign regulations.
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Any of these risks, or any other risks related to our foreign
operations, could materially adversely affect our business,
financial condition and results of operations.
25
We may
face product liability claims.
Despite quality assurance measures, defects may occur in our
products. The occurrence of any defects in our products could
give rise to liability for damages caused by such defects,
including consequential damages. Such defects could, moreover,
impair market acceptance of our products. Both could have a
material adverse effect on our business and financial condition.
In addition, we may assume product warranty liabilities related
to companies we acquire, which could have a material adverse
effect on our business and financial condition. In order to
mitigate the risk of liability for damages, we carry product
liability insurance with a $25.0 million aggregate annual
limit and errors and omissions insurance with a
$5.0 million annual limit. We cannot assure you that this
insurance would adequately cover any or a portion of our costs
arising from any defects in our products or otherwise.
If we
fail to attract and retain key personnel, our business could
suffer.
Our future success depends, in part, on our ability to attract
and retain key personnel. Competition for highly skilled
technical people is extremely intense and we continue to face
difficulty identifying and hiring qualified engineers in many
areas of our business. We may not be able to hire and retain
such personnel at compensation levels consistent with our
existing compensation and salary structure. Our future success
also depends on the continued contributions of our executive
management team and other key management and technical
personnel, each of whom would be difficult to replace. The loss
of services of these or other executive officers or key
personnel or the inability to continue to attract qualified
personnel could have a material adverse effect on our business.
Similar to other technology companies, we rely upon stock
options and other forms of equity-based compensation as key
components of our executive and employee compensation structure.
Historically, these components have been critical to our ability
to retain important personnel and offer competitive compensation
packages. In the past, the retention value of our equity
incentives has declined significantly as our stock price has
declined, causing many of our options to be under
water. On December 2, 2009, we completed an option
exchange program, under which certain of our key employees
exchanged significantly under water options for a lesser number
of options that were priced with an exercise price of $6.80 per
share, which was the closing price of our common stock on
December 2, 2009, the last day of the offer period. Without
these components, we would be required to significantly increase
cash compensation levels (or develop alternative compensation
structures) in order to retain our key employees. Accounting
rules relating to the expensing of equity compensation may cause
us to substantially reduce, modify, or even eliminate, all or
portions of our equity compensation programs which may, in turn,
prevent us from retaining or hiring qualified employees and
declines in our stock price could reduce or eliminate the
retentive effects of our equity compensation programs.
In addition, certain former Avanex, Newport, Xtellus and Mintera
employees now employed by us may decide to no longer work for us
with little or no notice for a number of reasons, including
dissatisfaction with our corporate culture, compensation, and
new roles or responsibilities, among others.
We may
not be able to raise capital when desired on favorable terms, or
at all, or without dilution to our stockholders.
The rapidly changing industry in which we operate, the length of
time between developing and introducing a product to market and
frequent changing customer specifications for products, among
other things, makes our prospects difficult to evaluate. It is
possible that we may not generate sufficient cash flow from
operations, or be able to draw down on the $25.0 million
senior secured revolving credit facility with Wells Fargo
Capital Finance, Inc. and other lenders, or otherwise have
sufficient capital resources to meet our future capital needs.
If this occurs, we may need additional financing to execute on
our current or future business strategies.
If we raise funds through the issuance of equity, equity-linked
or convertible debt securities, our stockholders may be
significantly diluted, and these newly-issued securities may
have rights, preferences or privileges senior to those of
securities held by existing stockholders. If we raise funds
through the issuance of debt instruments, the agreements
governing such debt instruments may contain covenant
restrictions that limit our ability to, among other things:
(i) incur additional debt, assume obligations in connection
with letters of credit, or issue guarantees; (ii) create
liens; (iii) make certain investments or acquisitions;
(iv) enter into transactions with our affiliates;
(v) sell certain assets; (vi) redeem capital stock or
make other restricted payments; (vii) declare or pay
dividends or make
26
other distributions to stockholders; and (viii) merge or
consolidate with any entity. We cannot assure you that
additional financing will be available on terms favorable to us,
or at all. If adequate funds are not available or are not
available on acceptable terms, if and when needed, our ability
to fund our operations, develop or enhance our products, or
otherwise respond to competitive pressures and operate
effectively could be significantly limited.
Risks
Related to Regulatory Compliance and Litigation
Our
business involves the use of hazardous materials, and we are
subject to environmental and import/export laws and regulations
that may expose us to liability and increase our
costs.
We historically handled hazardous materials as part of our
manufacturing activities. Consequently, our operations are
subject to environmental laws and regulations governing, among
other things, the use and handling of hazardous substances and
waste disposal. This also includes the operations in our Tucson
fab, which we acquired from Newport in July 2009. We may incur
costs to comply with current or future environmental laws. As
with other companies engaged in manufacturing activities that
involve hazardous materials, a risk of environmental liability
is inherent in our manufacturing activities, as is the risk that
our facilities will be shut down in the event of a release of
hazardous waste, or that we would be subject to extensive
monetary liability. The costs associated with environmental
compliance or remediation efforts or other environmental
liabilities could adversely affect our business. Under
applicable EU regulations, we, along with other electronics
component manufacturers, are prohibited from using lead and
certain other hazardous materials in our products. We could lose
business or face product returns if we fail to maintain these
requirements properly.
In addition, the sale and manufacture of certain of our products
require on-going compliance with governmental security and
import/export regulations. We may, in the future, be subject to
investigation which may result in fines for violations of
security and import/export regulations. Furthermore, any
disruptions of our product shipments in the future, including
disruptions as a result of efforts to comply with governmental
regulations, could adversely affect our revenues, gross margins
and results of operations.
Avanex
previously experienced material weaknesses in its internal
controls over financial reporting. We have also acquired private
companies which had no previous reporting obligations under
Sarbanes-Oxley. A lack of effective internal control over our
financial reporting could result in an inability to report our
financial results accurately, which could lead to a loss of
investor confidence in our financial reports and have an adverse
effect on our stock price.
Effective internal controls over financial reporting are
necessary for us to provide reliable financial reports. If we
cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed. Avanex has in
the past discovered, and we may in the future discover,
deficiencies, including those considered to be indicative of
material weaknesses, in our internal control over financial
reporting.
Our failure to implement and maintain effective internal control
over financial reporting could result in a material misstatement
of our financial statements or otherwise cause us to fail to
meet our financial reporting obligations. This, in turn, could
result in a loss of investor confidence in the accuracy and
completeness of our financial reports, which could have an
adverse effect on our business, financial condition, operating
results and our stock price, and we could be subject to
stockholder litigation. Even if we are able to implement and
maintain effective internal control over financial reporting,
the costs of doing business may increase and our management may
be required to dedicate greater time and resources to that
effort.
Litigation
may substantially increase our costs and harm our
business.
On June 26, 2001, the first of a number of securities class
actions was filed in the United States District Court for the
Southern District of New York against New Focus, Inc., now known
as Oclaro Photonics, Inc. (New Focus), certain of its officers
and directors, and certain underwriters for New Focus
initial and secondary public offerings. A consolidated amended
class action complaint, captioned In re New Focus, Inc.
Initial Public Offering Securities Litigation, No. 01
Civ. 5822, was filed on April 20, 2002. The complaint
generally alleges that various underwriters engaged in improper
and undisclosed activities related to the allocation of shares
in New Focus initial public
27
offering and seeks unspecified damages for claims under the
Exchange Act on behalf of a purported class of purchasers of
common stock from May 17, 2000 to December 6, 2000.
The lawsuit against New Focus is coordinated for pretrial
proceedings with a number of other pending litigations
challenging underwriter practices in over 300 cases, as In re
Initial Public Offering Securities Litigation, 21 MC 92
(SAS), including actions against Bookham Technology plc, now
known as Oclaro Technology Ltd (Bookham Technology) and Avanex
Corporation, now known as Oclaro (North America), Inc. (Avanex),
and certain of each entitys respective officers and
directors, and certain of the underwriters of their public
offerings. In October 2002, the claims against the directors and
officers of New Focus, Bookham Technology and Avanex were
dismissed, without prejudice, subject to the directors and
officers execution of tolling agreements.
The parties have reached a global settlement of the litigation.
On October 5, 2009, the Court entered an order certifying a
settlement class and granting final approval of the settlement.
Under the settlement, the insurers will pay the full amount of
the settlement share allocated to New Focus, Bookham Technology
and Avanex, and New Focus, Bookham Technology and Avanex will
bear no financial liability. New Focus, Bookham Technology and
Avanex, as well as the officer and director defendants who were
previously dismissed from the action pursuant to tolling
agreements, will receive complete dismissals from the case.
Certain objectors have appealed the Courts October 5,
2009 order to the Second Circuit Court of Appeals. If for any
reason the settlement does not become effective, we believe that
Bookham Technology, New Focus and Avanex have meritorious
defenses to the claims and therefore believe that such claims
will not have a material effect on our financial position,
results of operations or cash flows.
On February 13, 2009, Bijan Badihian filed a complaint
against Avanex Corporation, its then-CEO Giovanni Barbarossa,
then interim CFO Mark Weinswig and an administrative assistant
(who has since been dismissed from the action), in the Superior
Court for the State of California, Los Angeles County. On
June 8, 2009, after defendants filed a demurrer, plaintiff
filed a First Amended Complaint adding as defendants Oclaro,
Inc. as successor to Avanex, and Paul Smith, who was Chairman of
the Avanex Board of Directors. On April 28, 2010 Badihian
filed a Second Amended Complaint, which names Avanex, Oclaro (as
successor in interest), Greg Dougherty,
Joel Smith III, Paul Smith, Barbarossa, and Weinswig.
Messrs. Barbarossa, Dougherty and Smith III are
current members of Oclaros Board of Directors. The Second
Amended Complaint alleges that defendants failed to disclose
material facts regarding Avanexs operational performance
and future prospects, or engaged in conduct which negatively
impacted those future prospects. The Second Amended Complaint
alleges causes of action for (1) breach of fiduciary duty;
(2) intentional misrepresentation; (3) negligent
misrepresentation; (4) concealment; (5) constructive
fraud; (6) intentional infliction of emotional distress;
and (7) negligent infliction of emotional distress. The
Second Amended Complaint seeks at least $5 million in
compensatory damages plus prejudgment interest, unspecified
damages for emotional distress, punitive damages, and costs. On
August 6, 2010, the parties entered into a confidential
settlement agreement providing for the dismissal of the
litigation with prejudice. Consistent with the terms of the
settlement agreement, the Defendants deny any wrongdoing as
alleged by the Plaintiff.
On May 27, 2009, a patent infringement action captioned
QinetiQ Limited v. Oclaro, Inc., Civil Action
No. 1:09-cv-00372,
was filed in the United States District Court for the District
of Delaware. QinetiQs original complaint alleged
infringement of United States Patent Nos. 5,410,625 and
5,428,698, and sought a permanent injunction, money damages,
costs, and attorneys fees. We filed an answer to the
complaint and stated counterclaims against QinetiQ for judgments
that the
patents-in-suit
are invalid and unenforceable. Additionally, we filed a motion
to transfer venue to the Northern District of California, which
was granted on December 18, 2009. After transfer, the
litigation was assigned Civil Action
No. 4:10-cv-00080-SBA
by the Northern District Court. On June 21, 2010, QinetiQ
amended its complaint to allege infringement of a third patent,
U.S. Patent No. 5,379,354. We answered QinetiQs
amended complaint and asserted fraud counterclaims against
QinetiQ. A trial in this matter has not yet been set. We believe
the claims asserted against us by QinetiQ are without merit and
will continue to defend ourselves vigorously.
In addition, we are party to certain intellectual property
infringement litigation as more fully described above under
Risks Related to Our Business
Our products may infringe the intellectual
property rights of others which could result in expensive
litigation or require us to obtain a license to use the
technology from third parties, or we may be prohibited from
selling certain products in the future.
28
Litigation is subject to inherent uncertainties, and an adverse
result in these or other matters that may arise from time to
time could have a material adverse effect on our business,
results of operations and financial condition. Any litigation to
which we are subject may be costly and, further, could require
significant involvement of our senior management and may divert
managements attention from our business and operations.
Risks
Related to Our Common Stock
A
variety of factors could cause the trading price of our common
stock to be volatile or to decline and we may incur significant
costs from class action litigation due to our expected stock
volatility.
The trading price of our common stock has been, and is likely to
continue to be, highly volatile. Many factors could cause the
market price of our common stock to rise and fall. In addition
to the matters discussed in other risk factors included herein,
some of the reasons for the fluctuations in our stock price are:
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fluctuations in our results of operations;
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changes in our business, operations or prospects;
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hiring or departure of key personnel;
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new contractual relationships with key suppliers or customers by
us or our competitors;
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proposed acquisitions by us or our competitors;
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financial results that fail to meet public market analysts
expectations and changes in stock market analysts
recommendations regarding us, other optical technology companies
or the telecommunication industry in general;
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future sales of common stock, or securities convertible into or
exercisable for common stock;
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adverse judgments or settlements obligating us to pay damages;
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future issuances of common stock in connection with acquisitions
or other transactions;
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acts of war, terrorism, or natural disasters;
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industry, domestic and international market and economic
conditions, including the global macroeconomic downturn over the
last two years;
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low trading volume in our stock;
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developments relating to patents or property rights; and
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government regulatory changes.
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In connection with our acquisition of Xtellus in December 2009,
approximately 3.7 million of the shares of our common stock
that we issued to Xtellus stockholders are or were subject to
sale, transfer and other disposition restrictions. The
restrictions lapsed on half of such shares six months after the
closing date of the transaction and lapse on the remainder of
such shares 12 months after the closing date of the
transaction. The sale of these shares after the restrictions
lapse could negatively impact our stock price. In addition, in
connection with our recent acquisition of Mintera in July 2010,
we may pay up to $20.0 million in additional revenue-based
consideration to former stockholders of Mintera, determined
based on a set of sliding scale formulas, to the extent revenue
from Mintera products is more than $29.0 million in the
twelve months following the acquisition
and/or more
than $40.0 million in the 18 months following the
acquisition. Achieving cumulative revenues of $40 million
over the next 12 months and $70.0 million over the
next 18 month period would lead to the maximum
$20.0 million in additional consideration. This
post-closing consideration, if any, will be payable in cash or,
at our option, newly issued shares of our common stock, or a
combination of cash and stock. The issuance, if any, and
subsequent sale of these shares could also negatively impact our
stock price.
Since Oclaro Technology Ltds initial public offering in
April 2000, Oclaro Technology Ltds American Depository
Shares (ADSs) and ordinary shares, our shares of common stock
and the shares of our customers and competitors have experienced
substantial price and volume fluctuations, in many cases without
any direct
29
relationship to the affected companys operating
performance. An outgrowth of this market volatility is the
significant vulnerability of our stock price and the stock
prices of our customers and competitors to any actual or
perceived fluctuation in the strength of the markets we serve,
regardless of the actual consequence of such fluctuations. As a
result, the market prices for stock in these companies are
highly volatile. These broad market and industry factors caused
the market price of Oclaro Technology Ltds ADSs, ordinary
shares, and our common stock to fluctuate, and may in the future
cause the market price of our common stock to fluctuate,
regardless of our actual operating performance or the operating
performance of our customers.
When the market price of a stock has been volatile, as our stock
price may be, holders of that stock have occasionally brought
securities class action litigation against the company that
issued the stock. If any of our stockholders were to bring a
lawsuit of this type against us, even if the lawsuit were
without merit, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of
our management. In addition, if the suit were resolved in a
manner adverse to us, the damages we could be required to pay
may be substantial and would have an adverse impact on our
ability to operate our business.
Because
we do not intend to pay dividends, stockholders will benefit
from an investment in our common stock only if it appreciates in
value.
We have never declared or paid any dividends on our common
stock. We anticipate that we will retain any future earnings to
support operations and to finance the development of our
business and do not expect to pay cash dividends in the
foreseeable future. As a result, the success of an investment in
our common stock will depend entirely upon any future
appreciation in its value. There is no guarantee that our common
stock will appreciate in value or even maintain the price at
which stockholders have purchased their shares.
We can
issue shares of preferred stock that may adversely affect your
rights as a stockholder of our common stock.
Our certificate of incorporation authorizes us to issue up to
1,000,000 shares of preferred stock with designations,
rights and preferences determined from time-to-time by our board
of directors. Accordingly, our board of directors is empowered,
without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights
superior to those of holders of our common stock. For example,
an issuance of shares of preferred stock could:
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adversely affect the voting power of the holders of our common
stock;
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make it more difficult for a third-party to gain control of us;
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discourage bids for our common stock at a premium;
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limit or eliminate any payments that the holders of our common
stock could expect to receive upon our liquidation; or
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otherwise adversely affect the market price of our common stock.
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We may in the future issue shares of authorized preferred stock
at any time.
Delaware
law and our charter documents contain provisions that could
discourage or prevent a potential takeover, even if such a
transaction would be beneficial to our
stockholders.
Some provisions of our certificate of incorporation and bylaws,
as well as provisions of Delaware law, may discourage, delay or
prevent a merger or acquisition that a stockholder may consider
favorable. These include provisions:
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authorizing the board of directors to issue shares of preferred
stock;
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prohibiting cumulative voting in the election of directors;
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limiting the persons who may call special meetings of
stockholders;
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prohibiting stockholder actions by written consent;
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creating a classified board of directors pursuant to which our
directors are elected for staggered three-year terms;
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permitting the board of directors to increase the size of the
board and to fill vacancies;
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requiring a super-majority vote of our stockholders to amend our
bylaws and certain provisions of our certificate of
incorporation; and
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establishing advance notice requirements for nominations for
election to the board of directors or for proposing matters that
can be acted on by stockholders at stockholder meetings.
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We are subject to the provisions of Section 203 of the
Delaware General Corporation Law which limit the right of a
corporation to engage in a business combination with a holder of
15 percent or more of the corporations outstanding
voting securities, or certain affiliated persons. We do not
currently have a stockholder rights plan in place.
Although we believe that these charter and bylaw provisions, and
provisions of Delaware law provide an opportunity for the board
to assure that our stockholders realize full value for their
investment, they could have the effect of delaying or preventing
a change of control, even under circumstances that some
stockholders may consider beneficial.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal properties as of July 3, 2010 are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
|
|
|
|
Lease
|
Location
|
|
Feet
|
|
|
Principal Use
|
|
Ownership
|
|
Expiration
|
|
San Jose, California
|
|
|
52,000
|
|
|
Corporate headquarters, office space, manufacturing, research
and development
|
|
Lease
|
|
March 2011
|
Shenzhen, China
|
|
|
247,000
|
|
|
Office space, manufacturing, research and development
|
|
Own
|
|
Not Applicable
|
Caswell, United Kingdom
|
|
|
183,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
March 2026
|
Zurich, Switzerland
|
|
|
124,000
|
|
|
Manufacturing, research and development
|
|
Lease
|
|
June 2012
|
San Donato, Italy
|
|
|
66,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
June 2011
|
Santa Rosa, California
|
|
|
33,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
December 2011
|
In addition to the above properties, the Company also owns
and/or
leases administrative, manufacturing and research and
development facilities in Tucson, Arizona (29,500 square
feet); Shanghai, China (24,000 square feet); Paignton,
United Kingdom (18,000 square feet); Horseheads, New York
(15,000 square feet); Daejon, Korea (7,000 square
feet); Denville, New Jersey (6,000 square feet): Jerusalem,
Israel (5,000 square feet); and Ottawa, Canada
(4,000 square feet), with lease expiration dates ranging
from September 2010 to December 2017.
The Company also maintains approximately 345,000 square
feet of unused properties in three locations in Newark and
Camarillo, California which are currently subleased. The Newark
lease expires in November 2010 and the Camarillo lease expires
in April 2011.
As of July 3, 2010, we owned or leased a total of
approximately 1.2 million square feet worldwide, including
the locations listed above. We believe that our properties are
adequate to meet our business needs.
31
Our telecom segment utilizes the Shanghai, China; Paignton,
U.K.; Horseheads, New York; Daejon, Korea; Denville, New Jersey
and Jerusalem, Israel facilities; substantial portions of the
Shenzhen, China and Caswell, U.K. facilities; and it shares the
Santa Rosa and San Jose, California facilities and the
Zurich, Switzerland facilities with our advanced photonic
solutions segment. Our advanced photonics solutions segment
shares the San Jose and Santa Rosa, California facilities
and the Zurich, Switzerland facility with our telecom segment,
and utilizes a comparatively small portion of our Caswell, U.K.
facility. In addition, on July 21, 2010, in connection with
the acquisition by our telecom segment of Mintera, we entered
into a sublease for 23,000 square feet of manufacturing,
research and development and office space in Acton,
Massachusetts which expires in January 2011.
|
|
Item 3.
|
Legal
Proceedings
|
On June 26, 2001, the first of a number of securities class
actions was filed in the United States District Court for the
Southern District of New York against New Focus, Inc., now known
as Oclaro Photonics, Inc. (New Focus), certain of
its officers and directors, and certain underwriters for New
Focus initial and secondary public offerings. A
consolidated amended class action complaint, captioned In re
New Focus, Inc. Initial Public Offering Securities
Litigation, No. 01 Civ. 5822, was filed on
April 20, 2002. The complaint generally alleges that
various underwriters engaged in improper and undisclosed
activities related to the allocation of shares in New
Focus initial public offering and seeks unspecified
damages for claims under the Exchange Act on behalf of a
purported class of purchasers of common stock from May 17,
2000 to December 6, 2000.
The lawsuit against New Focus is coordinated for pretrial
proceedings with a number of other pending litigations
challenging underwriter practices in over 300 cases, as In re
Initial Public Offering Securities Litigation, 21 MC 92
(SAS), including actions against Bookham Technology plc, now
known as Oclaro Technology Ltd (Bookham Technology)
and Avanex Corporation, now known as Oclaro (North America),
Inc. (Avanex), and certain of each entitys
respective officers and directors, and certain of the
underwriters of their public offerings. In October 2002, the
claims against the directors and officers of New Focus, Bookham
Technology and Avanex were dismissed, without prejudice, subject
to the directors and officers execution of tolling
agreements.
The parties have reached a global settlement of the litigation.
On October 5, 2009, the Court entered an order certifying a
settlement class and granting final approval of the settlement.
Under the settlement, the insurers will pay the full amount of
the settlement share allocated to New Focus, Bookham Technology
and Avanex, and New Focus, Bookham Technology and Avanex will
bear no financial liability. New Focus, Bookham Technology and
Avanex, as well as the officer and director defendants who were
previously dismissed from the action pursuant to tolling
agreements, will receive complete dismissals from the case.
Certain objectors have appealed the Courts October 5,
2009 order to the Second Circuit Court of Appeals. If for any
reason the settlement does not become effective, we believe that
Bookham Technology, New Focus and Avanex have meritorious
defenses to the claims and therefore believe that such claims
will not have a material effect on our financial position,
results of operations or cash flows.
On February 13, 2009, Bijan Badihian filed a complaint
against Avanex Corporation, its then-CEO Giovanni Barbarossa,
then interim CFO Mark Weinswig and an administrative assistant
(who has since been dismissed from the action), in the Superior
Court for the State of California, Los Angeles County. On
June 8, 2009, after defendants filed a demurrer, plaintiff
filed a First Amended Complaint adding as defendants Oclaro,
Inc. as successor to Avanex, and Paul Smith, who was Chairman of
the Avanex Board of Directors. On April 28, 2010 Badihian
filed a Second Amended Complaint, which names Avanex, Oclaro (as
successor in interest), Greg Dougherty,
Joel Smith III, Paul Smith, Barbarossa, and Weinswig.
Messrs. Barbarossa, Dougherty and Smith III are
current members of Oclaros Board of Directors. The Second
Amended Complaint alleges that defendants failed to disclose
material facts regarding Avanexs operational performance
and future prospects, or engaged in conduct which negatively
impacted those future prospects. The Second Amended Complaint
alleges causes of action for (1) breach of fiduciary duty;
(2) intentional misrepresentation; (3) negligent
misrepresentation; (4) concealment; (5) constructive
fraud; (6) intentional infliction of emotional distress;
and (7) negligent infliction of emotional distress. The
Second Amended Complaint seeks at least $5 million in
compensatory damages plus prejudgment interest, unspecified
damages for emotional distress, punitive damages, and costs. On
August 6, 2010, the parties entered into a confidential
settlement agreement providing for the dismissal of the
litigation with prejudice. Consistent with the terms of the
settlement agreement, the Defendants deny any wrongdoing as
alleged by the Plaintiff.
32
On May 27, 2009, a patent infringement action captioned
QinetiQ Limited v. Oclaro, Inc., Civil Action
No. 1:09-cv-00372,
was filed in the United States District Court for the District
of Delaware. QinetiQs original complaint alleged
infringement of United States Patent Nos. 5,410,625 and
5,428,698, and sought a permanent injunction, money damages,
costs, and attorneys fees. Oclaro filed an answer to the
complaint and stated counterclaims against QinetiQ for judgments
that the
patents-in-suit
are invalid and unenforceable. Additionally, Oclaro filed a
motion to transfer venue to the Northern District of California,
which was granted on December 18, 2009. After transfer, the
litigation was assigned Civil Action
No. 4:10-cv-00080-SBA
by the Northern District Court. On June 21, 2010, QinetiQ
amended its complaint to allege infringement of a third patent,
U.S. Patent No. 5,379,354. Oclaro answered
QinetiQs amended complaint and asserted fraud
counterclaims against QinetiQ. A trial in this matter has not
yet been set. Oclaro believes the claims asserted against it by
QinetiQ are without merit and will continue to defend itself
vigorously.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information and Holders
Our common stock is quoted on the NASDAQ Global Market under the
symbol OCLR. On April 29, 2010, we effected a
1-for-5
reverse split of our common stock. The following table shows,
for the periods indicated, the high and low sale prices of our
common stock as reported on The NASDAQ Global Market. All
amounts in the table have been adjusted to give effect to the
reverse stock split.
|
|
|
|
|
|
|
|
|
|
|
Price Per Share of Common Stock
|
|
|
High
|
|
Low
|
|
Fiscal 2009 quarter ended:
|
|
|
|
|
|
|
|
|
September 27, 2008
|
|
$
|
10.45
|
|
|
$
|
5.25
|
|
December 27, 2008
|
|
|
6.40
|
|
|
|
1.50
|
|
March 28, 2009
|
|
|
2.90
|
|
|
|
1.05
|
|
June 27, 2009
|
|
|
6.50
|
|
|
|
1.95
|
|
Fiscal 2010 quarter ended:
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
$
|
6.20
|
|
|
$
|
2.70
|
|
January 2, 2010
|
|
|
7.65
|
|
|
|
5.10
|
|
April 3, 2010
|
|
|
14.50
|
|
|
|
7.25
|
|
July 3, 2010
|
|
|
15.99
|
|
|
|
10.15
|
|
On August 24, 2010, the closing sale price of our common
stock as reported on The NASDAQ Global Market was $10.10 per
share. According to the records of our transfer agent, there
were 9,983 stockholders of record of our common stock on
August 24, 2010. A substantially greater number of holders
of our common stock are street name or beneficial
owners, whose shares are held of record by banks, brokers and
other financial institutions.
Dividends
We have never paid cash dividends on our common stock or
ordinary shares. To the extent we generate earnings, we intend
to retain them for use in our business and, therefore, do not
anticipate paying any cash dividends on our common stock in the
foreseeable future. In addition, our credit facility with Wells
Fargo Capital Finance, Inc. contains restrictions on our ability
to pay cash dividends on our common stock.
33
Comparison
of Stockholder Return
The following graph compares the cumulative five-year total
return provided shareholders on Oclaro, Inc.s common stock
relative to the cumulative total returns of the NASDAQ Composite
Index and the NASDAQ Telecommunications Index.
Comparison
of Five-Year Cumulative Total Return*
Among Oclaro, Inc., the NASDAQ Composite Index
and the NASDAQ Telecommunications Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
|
|
July 1,
|
|
June 30,
|
|
June 28,
|
|
June 27,
|
|
July 3,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
Oclaro, Inc.
|
|
$
|
100.00
|
|
|
$
|
107.01
|
|
|
$
|
71.66
|
|
|
$
|
54.78
|
|
|
$
|
16.88
|
|
|
$
|
68.79
|
|
NASDAQ Composite Index
|
|
$
|
100.00
|
|
|
$
|
107.08
|
|
|
$
|
130.99
|
|
|
$
|
114.02
|
|
|
$
|
90.79
|
|
|
$
|
105.54
|
|
NASDAQ Telecommunications Index
|
|
$
|
100.00
|
|
|
$
|
104.77
|
|
|
$
|
148.09
|
|
|
$
|
129.55
|
|
|
$
|
101.24
|
|
|
$
|
105.45
|
|
|
|
|
* |
|
Assumes that $100.00 was invested in Oclaro common stock and in
each index at market closing prices on July 2, 2005, and
that all dividends were reinvested. No cash dividends have been
declared on our common stock. Stockholder returns over the
indicated period should not be considered indicative of future
stockholder returns. |
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data set forth below should be read in
conjunction with our consolidated financial statements and
related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Annual Report on
Form 10-K.
The selected financial data set forth below at July 3, 2010
and June 27, 2009, and for the fiscal years ended
July 3, 2010, June 27, 2009 and June 28, 2008,
are derived from our consolidated financial statements included
elsewhere in this Annual Report on
Form 10-K.
The selected financial data at June 28, 2008, June 30,
2007 and July 1, 2006, and for the fiscal years ended
June 30, 2007 and July 1, 2006 are derived from
audited financial
34
statements not included in this Annual Report on
Form 10-K,
after giving effect to the discontinued operations of our New
Focus business. On April 29, 2010, we effected a
1-for-5
reverse split of our common stock. All share and per share
amounts presented below are reflected on a post-reverse-split
basis.
Consolidated
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
July 3,
|
|
June 27,
|
|
June 28,
|
|
June 30,
|
|
July 1,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(Thousands, except per share data)
|
|
Revenues
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
$
|
202,663
|
|
|
$
|
171,183
|
|
|
$
|
206,037
|
|
Operating income (loss)
|
|
|
4,834
|
|
|
|
(34,811
|
)
|
|
|
(29,894
|
)
|
|
|
(79,871
|
)
|
|
|
(69,605
|
)
|
Income (loss) from continuing operations
|
|
|
10,961
|
|
|
|
(25,769
|
)
|
|
|
(23,261
|
)
|
|
|
(82,450
|
)
|
|
|
(80,018
|
)
|
Income (loss) from discontinued operations
|
|
|
1,420
|
|
|
|
(6,387
|
)
|
|
|
(179
|
)
|
|
|
275
|
|
|
|
(7,479
|
)
|
Net income (loss)
|
|
|
12,381
|
|
|
|
(32,156
|
)
|
|
|
(23,440
|
)
|
|
|
(82,175
|
)
|
|
|
(87,497
|
)
|
Income (loss) from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.27
|
|
|
$
|
(1.12
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(5.86
|
)
|
|
$
|
(8.57
|
)
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
(1.12
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(5.86
|
)
|
|
$
|
(8.57
|
)
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,322
|
|
|
|
22,969
|
|
|
|
18,620
|
|
|
|
14,067
|
|
|
|
9,336
|
|
Diluted
|
|
|
42,262
|
|
|
|
22,969
|
|
|
|
18,620
|
|
|
|
14,067
|
|
|
|
9,336
|
|
Consolidated
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
June 27,
|
|
June 28,
|
|
June 30,
|
|
July 1,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(Thousands)
|
|
Total assets
|
|
$
|
360,795
|
|
|
$
|
233,388
|
|
|
$
|
212,090
|
|
|
$
|
204,526
|
|
|
$
|
236,797
|
|
Total stockholders equity
|
|
|
252,534
|
|
|
|
140,390
|
|
|
|
149,062
|
|
|
|
120,967
|
|
|
|
135,141
|
|
Long-term obligations
|
|
|
9,785
|
|
|
|
4,923
|
|
|
|
1,336
|
|
|
|
1,908
|
|
|
|
5,337
|
|
The following items affect the comparability of our financial
data for the periods shown in the consolidated statements of
operations data above:
Revenues, operating income (loss), income (loss) from continuing
operations and net income (loss) in fiscal years 2010 and 2009
include the revenues, costs of revenues and operating expenses
of Avanex from April 27, 2009, the date of the merger. The
operating loss for the fiscal year ended June 27, 2009
includes $9.1 million in recognition of impairment of
goodwill and other intangible assets as more fully discussed in
Note 4, Goodwill and Other Intangible Assets, to our
consolidated financial statements included elsewhere in this
Annual Report on
Form 10-K.
Income (loss) from discontinued operations corresponds to the
net operating results of our New Focus business, which was sold
to Newport in the exchange of assets that closed in July 2009,
as more fully discussed in Note 3, Business
Combinations, to our consolidated financial statements
included elsewhere in this Annual Report on
Form 10-K.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with
Risk Factors appearing in Item 1A of this
Annual Report on
Form 10-K,
Selected Financial Data appearing in Item 6 of
this Annual Report on
Form 10-K
and our consolidated financial statements and related notes
appearing elsewhere in this Annual Report on
Form 10-K,
including Note 1, Business and Summary of Significant
Accounting Policies, to such consolidated financial
statements. This discussion and analysis contains
forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated
by the forward-looking statements due to, among other things,
our critical accounting estimates
35
discussed below and important other factors set forth in this
Annual Report on
Form 10-K.
Please see Special Note Regarding Forward-Looking
Statements above.
Overview
We are a leading provider of high-performance core optical
network components, modules and subsystems to global telecom
equipment manufacturers. We leverage our proprietary core
technologies and vertically integrated product development to
provide our customers with cost-effective and innovative optical
solutions in metro and long-haul network applications. In
addition, we utilize our optical expertise to address new and
emerging optical product opportunities in selective non-telecom
markets, such as materials processing, consumer, medical,
industrial, printing and biotechnology, which we refer to as our
advanced photonics solutions segment. We offer our customers a
differentiated solution that is designed to make it easier for
our customers to do business by combining optical technology
innovation, photonic integration, and a vertical approach to
manufacturing and product development. Our customers include
Huawei Technologies Co. Ltd. (Huawei);
Alcatel-Lucent; Ciena Corporation, including certain assets of
the former Metro Ethernet Network (MEN) division of
Nortel Networks Corporation; Tellabs, Inc., Infinera
Corporation; Cisco Systems, Inc.; ADVA Optical Networking;
Fujitsu Limited; NEC Corporation; Nokia-Siemens Networks and
Ericsson. We are the result of the April 27, 2009 merger of
Bookham, Inc., or Bookham, and Avanex Corporation, or Avanex,
with Bookham becoming the parent company and changing its name
to Oclaro, Inc. upon the close of the merger.
Results
of Operations
On June 3, 2009 we announced the signing of a definitive
agreement with Newport, under which Newport would acquire the
New Focus business of our advanced photonics solutions segment
in exchange for the Newport high power laser diodes business.
The transaction closed on July 4, 2009. We have classified
the financial results of the New Focus business as discontinued
operations for all periods presented in accordance with
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 360,
Property, Plant and Equipment. The following
presentations relate to continuing operations only, unless
otherwise indicated.
Fiscal
Years Ended July 3, 2010 and June 27,
2009
The following table sets forth our consolidated results of
operations for the fiscal years ended July 3, 2010 and
June 27, 2009, and the
year-over-year
increase (decrease) in our results, expressed both in dollar
amounts (thousands) and as a percentage of revenues, except
where indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Increase
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
Revenues
|
|
$
|
392,545
|
|
|
|
100.0
|
|
|
$
|
210,923
|
|
|
|
100.0
|
|
|
$
|
181,622
|
|
|
|
86.1
|
|
Cost of revenues
|
|
|
283,751
|
|
|
|
72.3
|
|
|
|
164,425
|
|
|
|
78.0
|
|
|
|
119,326
|
|
|
|
72.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
108,794
|
|
|
|
27.7
|
|
|
|
46,498
|
|
|
|
22.0
|
|
|
|
62,296
|
|
|
|
134.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
41,496
|
|
|
|
10.6
|
|
|
|
26,147
|
|
|
|
12.4
|
|
|
|
15,349
|
|
|
|
58.7
|
|
Selling, general and administrative
|
|
|
56,378
|
|
|
|
14.4
|
|
|
|
34,899
|
|
|
|
16.6
|
|
|
|
21,479
|
|
|
|
61.5
|
|
Amortization of intangible assets
|
|
|
951
|
|
|
|
0.2
|
|
|
|
487
|
|
|
|
0.2
|
|
|
|
464
|
|
|
|
95.3
|
|
Restructuring, merger and related costs
|
|
|
5,468
|
|
|
|
1.4
|
|
|
|
6,826
|
|
|
|
3.2
|
|
|
|
(1,358
|
)
|
|
|
(19.9
|
)
|
Legal settlements
|
|
|
|
|
|
|
|
|
|
|
3,829
|
|
|
|
1.8
|
|
|
|
(3,829
|
)
|
|
|
n/m
|
(1)
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
9,133
|
|
|
|
4.3
|
|
|
|
(9,133
|
)
|
|
|
n/m
|
(1)
|
Gain on sale of property and equipment
|
|
|
(333
|
)
|
|
|
(0.1
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(321
|
)
|
|
|
2,675.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
103,960
|
|
|
|
26.5
|
|
|
|
81,309
|
|
|
|
38.5
|
|
|
|
22,651
|
|
|
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Increase
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
Operating income (loss)
|
|
|
4,834
|
|
|
|
1.2
|
|
|
|
(34,811
|
)
|
|
|
(16.5
|
)
|
|
|
39,645
|
|
|
|
n/m
|
(1)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
36
|
|
|
|
|
|
|
|
575
|
|
|
|
0.3
|
|
|
|
(539
|
)
|
|
|
(93.7
|
)
|
Interest expense
|
|
|
(367
|
)
|
|
|
(0.1
|
)
|
|
|
(543
|
)
|
|
|
(0.3
|
)
|
|
|
176
|
|
|
|
(32.4
|
)
|
Gain on foreign currency translation
|
|
|
2,494
|
|
|
|
0.6
|
|
|
|
11,094
|
|
|
|
5.3
|
|
|
|
(8,600
|
)
|
|
|
(77.5
|
)
|
Other income (expense)
|
|
|
4,892
|
|
|
|
1.3
|
|
|
|
(685
|
)
|
|
|
(0.3
|
)
|
|
|
5,577
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
7,055
|
|
|
|
1.8
|
|
|
|
10,441
|
|
|
|
5.0
|
|
|
|
(3,386
|
)
|
|
|
(32.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
11,889
|
|
|
|
3.0
|
|
|
|
(24,370
|
)
|
|
|
(11.5
|
)
|
|
|
36,259
|
|
|
|
n/m
|
(1)
|
Income tax provision
|
|
|
928
|
|
|
|
0.2
|
|
|
|
1,399
|
|
|
|
0.7
|
|
|
|
(471
|
)
|
|
|
(33.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,961
|
|
|
|
2.8
|
|
|
|
(25,769
|
)
|
|
|
(12.2
|
)
|
|
|
36,730
|
|
|
|
n/m
|
(1)
|
Income (loss) from discontinued operations, net of tax
|
|
|
1,420
|
|
|
|
0.4
|
|
|
|
(6,387
|
)
|
|
|
(3.0
|
)
|
|
|
7,807
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,381
|
|
|
|
3.2
|
|
|
$
|
(32,156
|
)
|
|
|
(15.2
|
)
|
|
$
|
44,537
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues for the year ended
July 3, 2010 increased by $181.6 million, or
86 percent, compared to the year ended June 27, 2009.
For the year ended July 3, 2010, revenues in the telecom
and advanced photonics solution segments increased by
$151.2 million and $30.4 million, respectively,
compared to the year ended June 27, 2009. The increase in
our telecom segment was primarily related to our merger with
Avanex in April 2009, improvements in market conditions as
compared to the calendar year 2009 economic downturn, and market
share gains across the majority of our product areas. The
increase in our advanced photonics solutions segment was
primarily related to including revenues from our July 2009
acquisition of the Newport laser diode business in our results
of operations for the year ended July 3, 2010.
For the year ended July 3, 2010, Huawei accounted for
$51.9 million, or 13 percent, of our revenues and
Alcatel-Lucent accounted for $39.5 million, or
10 percent, of our revenues. For the year ended
June 27, 2009, Huawei accounted for $35.7 million, or
17 percent, of our revenues and Nortel Networks Corporation
(Nortel) accounted for $29.5 million, or
14 percent, of our revenues.
Cost of Revenues. Our cost of revenues
consists of the costs associated with manufacturing our
products, and includes the purchase of raw materials, labor
costs and related overhead, including stock-based compensation
charges, and the costs charged by our contract manufacturers on
the products they manufacture for us. Charges for excess and
obsolete inventory, including in regards to inventories procured
by contract manufacturers on our behalf, the cost of product
returns and warranty costs are also included in cost of
revenues. Costs and expenses related to our manufacturing
resources incurred in connection with the development of new
products are included in research and development expense.
Our cost of revenues for the year ended July 3, 2010
increased $119.3 million, or 73 percent, from the year
ended June 27, 2009. The increase was primarily related to
our merger with Avanex in April 2009 and the acquisition of the
Newport laser diode business in July 2009, as well as costs
associated with higher volumes of revenue resulting from
improved market conditions subsequent to the economic downturn
of calendar year 2009, which were partially offset by the
efficiencies from merger-related synergies and realizing the
benefits of previous cost reduction efforts.
37
Gross Profit. Gross profit is calculated as
revenues less cost of revenues. Gross margin rate is gross
profit reflected as a percentage of revenues.
Our gross margin rate increased to 28 percent for the year
ended July 3, 2010, compared to 22 percent for the
year ended June 27, 2009. The increase in gross margin rate
was primarily due to operating leverage from higher revenue
volumes, synergies from the merger with Avanex, including
related cost reductions and the internal sourcing of Oclaro
components into Avanex products, as well as the impact of other
cost reduction efforts during fiscal year 2010 and earlier.
Gross margin rate was also favorably impacted during year ended
July 3, 2010 relative to year ended June 27, 2009 due
to recognizing the costs associated with $2.7 million of
products shipped to Nortel in the year ended June 27, 2009,
which revenue was deferred in accordance with our revenue
recognition policy.
Research and Development Expenses. Research
and development expenses consist primarily of salaries and
related costs of employees engaged in research and design
activities, including stock-based compensation charges related
to those employees, costs of design tools and computer hardware,
costs related to prototyping and facilities costs for certain
research and development focused sites.
Research and development expenses increased to
$41.5 million for the year ended July 3, 2010 from
$26.1 million for the year ended June 27, 2009. The
increase was primarily due to an increase in research and
development in connection with the merger with Avanex in April
2009, the acquisitions of the Newport laser diode business in
July 2009 and Xtellus in December 2009, and increased investment
in research and development resources, primarily
personnel-related, as we have the objective of investing in
research and development to match the rate of our anticipated
revenue growth. Research and development expenses in fiscal year
2010 also included an additional one week of expenses due to our
fiscal calendar. The year ended July 3, 2010 was a
53 week year, while the year ended June 27, 2009 was a
52 week year. Personnel-related costs increased to
$26.9 million for the year ended July 3, 2010,
compared with $15.3 million for the year ended
June 27, 2009. Other costs, including the costs of design
tools and facilities-related costs increased to
$14.6 million for the year ended July 3, 2010,
compared with $10.8 million for the year ended
June 27, 2009.
Over the coming year, we intend to increase our research and
development expenditures consistent with the rate of our
anticipated revenue growth, with a continuing emphasis towards
investing in low cost regions where practical.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses consist primarily of personnel-related expenses,
including stock-based compensation charges related to employees
engaged in sales, general and administrative functions, legal
and professional fees, facilities expenses, insurance expenses
and certain information technology costs.
Selling, general and administrative expenses increased to
$56.4 million for the year ended July 3, 2010, from
$34.9 million for the year ended June 27, 2009. The
increase was primarily due to an increase in costs incurred in
connection with the merger with Avanex in April 2009 and the
acquisitions of the Newport laser diode business in July 2009
and Xtellus in December 2009, offset in part by synergies
related to integrating these operations. Selling, general and
administrative expenses in fiscal year 2010 also included an
additional one week of expenses due to our fiscal calendar. The
year ended July 3, 2010 was a 53 week year, while the
year ended June 27, 2009 was a 52 week year.
Personnel-related costs increased to $31.4 million for the
year ended July 3, 2010, compared with $19.4 million
for the year ended June 27, 2009. Other costs, including
legal and professional fees, facilities expenses and other
miscellaneous expenses increased to $25.0 million for the
year ended July 3, 2010, compared with $15.5 million
for the year ended June 27, 2009.
Amortization of Intangible
Assets. Amortization of intangible assets
increased to $1.0 million for the year ended July 3,
2010 from $0.5 million in the year ended June 27,
2009. This $0.5 million increase was driven by recent
acquisitions during the current fiscal year. Specifically, the
amortizable base of our intangible assets increased in the year
ended July 3, 2010 by $1.8 million from our Newport
acquisition, $7.3 million from our Xtellus acquisition and
$0.7 million from an asset purchase. We expect the
amortization of intangible assets to increase to
$1.5 million for fiscal year 2011 and $1.4 million for
fiscal years 2012 through 2015. These future amortization
expense amounts do not reflect any additional amortization
expense which may occur as a result of our recent acquisition of
Mintera Corporation.
38
Restructuring, Merger and Related Costs. For
the year ended July 3, 2010 we accrued $0.4 million in
expenses, net of adjustments, for revised estimates related to
lease cancellations and commitments and $2.2 million in
additional employee separation costs in connection with cost
reduction and restructuring plans implemented in prior years.
During the year ended July 3, 2010, we also initiated a new
restructuring plan resulting from our acquisition of the Newport
laser diode business. This plan involves the transfer of laser
diode manufacturing operations from Tucson, Arizona to our
European manufacturing facilities. We incurred $0.5 million
in restructuring accruals for employee separation charges under
the Newport plan. During the year ended July 3, 2010, we
also wrote-down $0.8 million in inventory, net of
adjustments, which became impaired through the integration of
our wavelength selective switch (WSS) product lines.
During the year ended July 3, 2010, we also recorded
$2.5 million for merger-related costs, which include
$1.5 million of professional fees and $1.0 million in
employee retention payments payable in connection with the
acquisition of Xtellus. During the second half of fiscal year
2010, we reassessed the fair value of the value protection
liability related to our Xtellus acquisition determining that
the fair value of this liability declined from $0.9 million
at January 2, 2010 to nil at July 3, 2010. This
$0.9 million change in fair value was recognized as a
reduction to merger-related costs during the year ended
July 3, 2010.
Legal Settlement. In April 2009, we settled
our outstanding litigation with a competitor, which resulted in
us recording $4.0 million in legal settlement expenses
during the year ended June 27, 2009. Of this amount,
$3.0 million represents settlement payments paid to the
competitor and $1.0 million represents legal fees incurred
in connection with the litigation and settlement. Legal fees
during the year ended June 27, 2009 were partially offset
by a $0.2 million benefit from the settlement of a legal
action in connection with our sale of land in Swindon, U.K. to a
third-party in 2005.
Impairment of Goodwill and Other Intangible
Assets. During the year ended June 27, 2009
we determined, in accordance with ASC Topic 360, that the
goodwill related to our New Focus and Avalon reporting units was
fully impaired, and we therefore recorded an impairment charge
of $7.9 million for goodwill impairment. In conjunction
with our review of goodwill, we recorded $1.2 million for
the impairment loss related to certain intangible assets related
to our Avalon reporting unit in our fiscal year
2009 statement of operations. The impairment charges will
not result in any current or future cash expenditures.
Gain on Sale of Property and Equipment. During
the year ended July 3, 2010, we recorded a net gain of
$0.3 million, primarily related to the sale of certain
fixed assets in Villebon, France made surplus in connection with
the closing of that facility.
Other Income (Expense). Other income (expense)
for the year ended July 3, 2010 decreased by
$3.4 million compared to the year ended June 27, 2009.
This decrease primarily resulted from an $8.6 million
decrease in gain from the re-measurement of short term
receivables and payables for fluctuations in the
U.S. dollar relative to our other local functional
currencies during the corresponding periods among certain of our
wholly-owned international subsidiaries and a $0.5 million
decrease in interest income due to lower average interest rates,
which was partially offset by a $5.3 million gain from the
bargain purchase of the high-power laser diodes business from
Newport on July 4, 2009.
Income Tax Provision (Benefit). For the year
ended July 3, 2010, our income tax provision of
$0.9 million primarily relates to $2.2 million in
current income taxes related to our operations in Italy, China
and the United States, which was partially offset by a release
of $1.3 million in our valuation allowance.
In the fourth quarter of fiscal year 2010, we determined that it
is more-likely-than-not that we will utilize net operating
losses in one of our foreign jurisdictions due to current
earnings and projections of future profitability. Accordingly,
we released $1.3 million of our valuation allowance against
$1.3 million of previously unrecognized deferred tax assets
during the fourth quarter of fiscal year 2010. This amount
represents the entire remaining deferred tax asset related to
the accumulated net operating losses of the foreign
jurisdiction. Due to the uncertainty surrounding the realization
of the tax attributes in other jurisdictions, we have recorded a
full valuation allowance against our remaining foreign and
domestic deferred tax assets as of July 3, 2010.
Income (Loss) From Discontinued
Operations. During the year ended July 3,
2010, we recorded income of $1.4 million from discontinued
operations from the sale of the New Focus business. For the year
ended June 27,
39
2009, we recorded a loss of $6.4 million related to the
operations of the New Focus business. For further details, refer
to Discontinued Operations appearing later in this
section as well as Note 3, Business Combinations, to
our consolidated financial statements included elsewhere in this
Annual Report on
Form 10-K.
Fiscal
Years Ended June 27, 2009 and June 28,
2008
The following table sets forth our consolidated results of
operations for the fiscal years ended June 27, 2009 and
June 28, 2008, and the
year-over-year
increase (decrease) in our results, expressed both in dollar
amounts (thousands) and as a percentage of revenues, except
where indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Increase
|
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
Revenues
|
|
$
|
210,923
|
|
|
|
100.0
|
|
|
$
|
202,663
|
|
|
|
100.0
|
|
|
$
|
8,260
|
|
|
|
4.1
|
|
Cost of revenues
|
|
|
164,425
|
|
|
|
78.0
|
|
|
|
161,902
|
|
|
|
79.9
|
|
|
|
2,523
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
46,498
|
|
|
|
22.0
|
|
|
|
40,761
|
|
|
|
20.1
|
|
|
|
5,737
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
26,147
|
|
|
|
12.4
|
|
|
|
28,608
|
|
|
|
14.1
|
|
|
|
(2,461
|
)
|
|
|
(8.6
|
)
|
Selling, general and administrative
|
|
|
34,899
|
|
|
|
16.6
|
|
|
|
40,948
|
|
|
|
20.2
|
|
|
|
(6,049
|
)
|
|
|
(14.8
|
)
|
Amortization of intangible assets
|
|
|
487
|
|
|
|
0.2
|
|
|
|
3,510
|
|
|
|
1.8
|
|
|
|
(3,023
|
)
|
|
|
(86.1
|
)
|
Restructuring, merger and related costs
|
|
|
6,826
|
|
|
|
3.2
|
|
|
|
3,033
|
|
|
|
1.5
|
|
|
|
3,793
|
|
|
|
125.1
|
|
Legal settlements
|
|
|
3,829
|
|
|
|
1.8
|
|
|
|
(2,882
|
)
|
|
|
(1.4
|
)
|
|
|
6,711
|
|
|
|
n/m
|
(1)
|
Impairment of goodwill and other intangible assets
|
|
|
9,133
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
9,133
|
|
|
|
n/m
|
(1)
|
Gain on sale of property and equipment
|
|
|
(12
|
)
|
|
|
|
|
|
|
(2,562
|
)
|
|
|
(1.3
|
)
|
|
|
2,550
|
|
|
|
(99.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
81,309
|
|
|
|
38.5
|
|
|
|
70,655
|
|
|
|
34.9
|
|
|
|
10,654
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(34,811
|
)
|
|
|
(16.5
|
)
|
|
|
(29,894
|
)
|
|
|
(14.8
|
)
|
|
|
(4,917
|
)
|
|
|
16.4
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
575
|
|
|
|
0.3
|
|
|
|
1,261
|
|
|
|
0.6
|
|
|
|
(686
|
)
|
|
|
(54.4
|
)
|
Interest expense
|
|
|
(543
|
)
|
|
|
(0.3
|
)
|
|
|
(682
|
)
|
|
|
(0.3
|
)
|
|
|
139
|
|
|
|
(20.4
|
)
|
Gain on foreign currency translation
|
|
|
11,094
|
|
|
|
5.3
|
|
|
|
6,059
|
|
|
|
3.0
|
|
|
|
5,035
|
|
|
|
83.1
|
|
Other income (expense)
|
|
|
(685
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(685
|
)
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
10,441
|
|
|
|
5.0
|
|
|
|
6,638
|
|
|
|
3.3
|
|
|
|
3,803
|
|
|
|
57.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(24,370
|
)
|
|
|
(11.5
|
)
|
|
|
(23,256
|
)
|
|
|
(11.5
|
)
|
|
|
(1,114
|
)
|
|
|
4.8
|
|
Income tax provision
|
|
|
1,399
|
|
|
|
0.7
|
|
|
|
5
|
|
|
|
|
|
|
|
1,394
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(25,769
|
)
|
|
|
(12.2
|
)
|
|
|
(23,261
|
)
|
|
|
(11.5
|
)
|
|
|
(2,508
|
)
|
|
|
10.8
|
|
Loss from discontinued operations, net of tax
|
|
|
(6,387
|
)
|
|
|
(3.0
|
)
|
|
|
(179
|
)
|
|
|
(0.1
|
)
|
|
|
(6,208
|
)
|
|
|
3,468.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,156
|
)
|
|
|
(15.2
|
)
|
|
$
|
(23,440
|
)
|
|
|
(11.6
|
)
|
|
$
|
(8,716
|
)
|
|
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues for the year ended
June 27, 2009 increased by $8.3 million, or
4 percent, compared to the year ended June 28, 2008.
The increase was primarily related to the inclusion of
$23.6 million of Avanex-related revenues subsequent to our
merger on April 27, 2009, largely offset by decreased
revenues of $11.2 million related
40
to our pre-merger telecom and $4.1 million related to our
advanced photonics solution segments. We believe the decrease in
our telecom sales was primarily attributable to the uncertainty
in the global economic downturn, in particular within North
America and Europe, and the resulting impact on certain of our
customers and the overall markets for our products. For the year
ended June 27, 2009, Huawei accounted for
$35.7 million, or 17 percent, of our revenues and
Nortel accounted for $29.5 million, or 14 percent, of
our revenues. For the year ended June 28, 2008, Nortel
accounted for $35.2 million, or 17 percent, of our
revenues and Huawei accounted for $24.8 million, or
12 percent, of our revenues.
Cost of Revenues. Our cost of revenues for the
year ended June 27, 2009 increased $2.5 million, or
2 percent, from the year ended June 28, 2008. The
increase was primarily related to the inclusion of
$17.6 million in Avanex-related cost of revenues subsequent
to our merger on April 27, 2009, largely offset by
decreases from realizing the full-year benefits of previous cost
reduction efforts described more fully in Note 5,
Restructuring Liabilities, to our consolidated financial
statements, appearing elsewhere in this Annual Report on
Form 10-K,
and temporary measures taken to reduce costs in our
manufacturing facilities during the economic downtown in the
second half of fiscal year 2009. Cost of revenues for the year
ended June 27, 2009 relative to the year ended
June 28, 2008, were also favorably impacted by a
$3.8 million reduction in our U.K. manufacturing costs
associated with the weakening of the U.K. pound sterling
relative to the U.S. dollar. Cost of revenues for the
fiscal year ended June 27, 2009 included $1.2 million
of stock-based compensation charges compared to
$2.1 million for the fiscal year ended June 28, 2008.
Gross Profit. Our gross margin rate increased
to 22 percent for the year ended June 27, 2009,
compared to 20 percent for the year ended June 28,
2008. The increase in gross margin rate was due to improved
costs and yields in certain product areas in our telecom
segment, including our tunable products, the benefit of previous
manufacturing overhead cost reduction efforts being in place for
an entire year, and from temporary measures to reduce the costs
in our manufacturing sites during the economic downturn. Gross
margin for the year ended June 27, 2009 relative to the
ended June 28, 2008, was also favorably impacted by a
$3.8 million reduction in our U.K. manufacturing costs
associated with the weakening of the U.K. pound sterling
relative to the U.S. dollar.
Research and Development Expenses. Research
and development expenses decreased by $2.5 million, or
9 percent, to $26.1 million for the year ended
June 27, 2009 from $28.6 million for the year ended
June 28, 2008. The decrease was primarily due to
$3.7 million in cost savings associated with the U.K. pound
sterling weakening relative to the U.S. dollar, of which
approximately $1.7 million was personnel related. There was
a further $1.1 million reduction in stock-based
compensation. These reductions were offset by increased spend on
materials used in new product development, increased research
and development expenditures of $0.8 million in our
Shenzhen, China site and the addition of $2.6 million in
research and development expenses from Avanex for the period
from April 27, 2009 to June 27, 2009.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses decreased by $6.0 million, or 15 percent, to
$34.9 million for the year ended June 27, 2009 from
$40.9 million for the year ended June 28, 2008. The
decrease was primarily the result of $3.0 million in cost
reductions associated with the U.K. pound sterling weakening
relative to the U.S. dollar, $2.3 million in lower
stock compensation charges, and $3.6 million in other cost
reductions, partially offset by $2.9 million in expenses
from Avanex for the period from April 27, 2009 to
June 27, 2009.
Amortization of Intangible Assets. During the
year ended June 27, 2009, certain of the purchased
intangible assets from our prior business acquisitions became
fully amortized. Additionally, purchased intangible assets
related to our Avalon reporting unit were determined to be
impaired in the third quarter of fiscal year 2009, and written
down to fair value as described above. Collectively, these
events reduced our expense for amortization of purchased
intangible assets for the year ended June 27, 2009 by
$3.0 million as compared to the year ended June 28,
2008. At June 27, 2009, there were $2.0 million in
remaining intangible assets, net of accumulated amortization and
impairment charges, subject to the amortization provisions of
ASC Topic 350, Intangibles Goodwill and
Other. The purchase accounting for our merger with Avanex on
April 27, 2009 did not generate additional intangible
assets.
Restructuring and Severance Charges. In
connection with our merger with Avanex, during the fourth
quarter of fiscal year 2009 we initiated an overhead cost
reduction plan which includes workforce rationalizations as well
as
41
shut downs
and/or
relocations of our Fremont, California and Villebon, France
facilities. During the year ended June 27, 2009 we accrued
merger-related restructuring charges of approximately
$5.1 million for employee separation charges and
$0.3 million in expenses for lease commitments related to
vacating our Fremont and Villebon locations.
In connection with earlier plans of restructuring, during the
year ended June 27, 2009 we accrued approximately
$1.7 million in additional expenses for revised estimates
of the cash flows for lease cancellations and commitments, and
approximately $0.6 million for additional employee
separation charges. These additional restructuring costs were
substantially associated with the advanced photonics solutions
segment.
In connection with earlier plans of restructuring, during the
year ended June 28, 2008 we accrued approximately
$1.1 million in additional expenses for revised estimates
of the cash flows for lease cancellations and commitments, and
approximately $2.3 million for additional employee
separation charges. The additional lease costs were associated
with the advanced photonics solutions segment and the additional
employee separation charges were primarily associated with our
telecom segment.
Legal Settlements. On April 2009, we settled
outstanding litigation with a competitor, which resulted in us
recording $4.0 million in legal settlement expenses during
the year ended June 27, 2009. Of this amount,
$3.0 million represents settlement payments and
$1.0 million represents legal fees incurred in connection
with the litigation and settlement. In the year ended
June 27, 2009, we also recorded $0.2 million in
additional gain, revising our original estimate of a gain on
settlement of a legal action in connection with our sale of land
in Swindon, U.K. to a third party in 2005.
In the year ended June 28, 2008, we recorded a gain from
legal settlements, net of costs, of $2.9 million associated
with the settlement of a legal action connected with our sale of
land in Swindon, U.K. to a third party in 2005.
Impairment of Goodwill and Other Intangible
Assets. During the year ended June 27, 2009
we determined, in accordance with ASC Topic 360, that the
goodwill related to our New Focus and Avalon reporting units was
fully impaired, and we therefore recorded an impairment charge
of $7.9 million for goodwill impairment. In conjunction
with our review of goodwill, we recorded $1.2 million for
the impairment loss related to certain intangible assets related
to our Avalon reporting unit in our fiscal year
2009 statement of operations.
Gain on Sale of Property and Equipment. Gain
on sale of property and equipment in the year ended
June 27, 2009 was not significant, compared to
$2.6 million in the year ended June 28, 2008. Gain on
sale of property and equipment in fiscal year 2008 was primarily
associated with the sale of fixed assets which became surplus as
a result of our various restructurings and cost reduction
programs, including the shutting down of sites and transfers of
certain manufacturing operations.
Other Income (Expense). Other income (expense)
for the year ended June 27, 2009 increased by
$3.8 million compared to the year ended June 28, 2008,
primarily related to an increase of $5.0 million related to
the
re-measurement
of short term balances among our international subsidiaries due
to fluctuations in the U.S. dollar during the periods
relative to our other local functional currencies, partially
offset by a $0.7 million expense related to the fair value
impairment of our short-term investment in a debt security of
Lehman Brothers Holdings Inc., and a $0.7 million decrease
in interest income for the year ended June 27, 2009 due to
lower average invested balances and lower average interest rates.
Interest expense was $0.5 million and $0.7 million in
the years ended June 27, 2009 and June 28, 2008,
respectively, and consisted of bank charges and costs primarily
associated with our $25.0 million senior secured bank
credit facility.
Gain (loss) on foreign exchange includes the net impact from the
re-measurement of intercompany balances and monetary accounts
not denominated in functional currencies, other than the
U.S. dollar, and realized and unrealized gains or losses on
foreign currency contracts not designated as hedges. The net
results for the years ended June 27, 2009 and June 28,
2008 are largely a function of exchange rate changes between the
U.S dollar and the U.K. pound sterling and to a lesser degree
the exchange rate changes between the U.S. dollar and the
Swiss franc, the Chinese yuan, the Euro and in fiscal year 2009,
the Thai baht.
42
Income Tax Provision. For the year ended
June 27, 2009 our income tax provision was
$1.4 million, primarily due to a one-time expense of
$1.0 million related to our restructuring activities in
France as a result of the Avanex merger and $0.4 million in
provision related to our manufacturing operations in Italy. Our
income tax provision was negligible for fiscal year 2008.
Discontinued
Operations
The following table sets forth the results of the discontinued
operations of our New Focus business, which was sold on
July 4, 2009, for the fiscal years ended July 3, 2010,
June 27, 2009 and June 28, 2008 and the
year-over-year
increases (decreases) in our results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(Thousands)
|
|
|
(Thousands)
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
24,829
|
|
|
$
|
(24,829
|
)
|
|
$
|
24,829
|
|
|
$
|
32,828
|
|
|
$
|
(7,999
|
)
|
Cost of revenues
|
|
|
|
|
|
|
17,113
|
|
|
|
(17,113
|
)
|
|
|
17,113
|
|
|
|
20,616
|
|
|
|
(3,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
7,716
|
|
|
|
(7,716
|
)
|
|
|
7,716
|
|
|
|
12,212
|
|
|
|
(4,496
|
)
|
Gross margin rate
|
|
|
0.0
|
%
|
|
|
31.1
|
%
|
|
|
|
|
|
|
31.1
|
%
|
|
|
37.2
|
%
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
14,106
|
|
|
|
(14,106
|
)
|
|
|
14,106
|
|
|
|
12,585
|
|
|
|
1,521
|
|
Other income (expense), net
|
|
|
1,420
|
|
|
|
53
|
|
|
|
1,367
|
|
|
|
53
|
|
|
|
194
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes
|
|
|
1,420
|
|
|
|
(6,337
|
)
|
|
|
7,757
|
|
|
|
(6,337
|
)
|
|
|
(179
|
)
|
|
|
(6,158
|
)
|
Income tax provision
|
|
|
|
|
|
|
50
|
|
|
|
(50
|
)
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations
|
|
$
|
1,420
|
|
|
$
|
(6,387
|
)
|
|
$
|
7,807
|
|
|
$
|
(6,387
|
)
|
|
$
|
(179
|
)
|
|
$
|
(6,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues of the New Focus business
decreased $8.0 million, or 24 percent, in fiscal year
2009 compared to fiscal year 2008, primarily as a result of
decreased sales to our semiconductor equipment manufacturing
customers due to the global economic downturn, and the resulting
impact on the market for their products.
Cost of Revenues. Cost of revenues of the New
Focus business decreased $3.5 million, or 17 percent,
in fiscal year 2009 compared to fiscal year 2008 due to the net
effect of a decrease in direct product costs, based on lower
revenues, offset by increased manufacturing overhead costs per
unit, as manufacturing overhead costs were spread over lower
volumes.
Gross Profit. The gross margin rate of the New
Focus business decreased to 31 percent for the year ended
June 27, 2009 compared to 37 percent for the year
ended June 28, 2008, as a result of costs associated with
the move of manufacturing operations from San Jose
California, to Shenzhen China, and also due to lower gross
margins from certain of the New Focus business OEM
products.
Operating Expenses. The increase of
$1.5 million in operating expenses in fiscal year 2009
compared to fiscal year 2008 is primarily a result of the
recognition of a $2.8 million charge for impairment of
intangible assets related to the 2004 acquisition of New Focus,
partially offset by cost reduction efforts initiated as a result
of the economic downturn in the second half of fiscal year 2009.
Other income (expense), net. During fiscal
year 2010, we recorded income of $1.4 million from the sale
of the New Focus business. For further details, refer to
Note 3, Business Combinations, to our consolidated
financial statements included elsewhere in this Annual Report on
Form 10-K.
Income Tax Provision. Oclaro Photonics, Inc.
has incurred substantial losses on a cumulative basis from the
date of acquisition in 2004. Accordingly our income tax
provision related to discontinued operations is negligible in
each period presented.
43
Liquidity
and Capital Resources
Cash
flows from Operating Activities
Net cash used by operating activities for the year ended
July 3, 2010 was $5.3 million, primarily resulting
from a $25.1 million decrease in cash due to changes in
operating assets and liabilities, which was partially offset by
net income of $12.4 million and non-cash adjustments of
$7.4 million. The $25.1 million decrease in cash due
to changes in operating assets and liabilities was comprised of
a $34.9 million increase in accounts receivable, a
$7.6 million decrease in accrued expenses and other
liabilities and an increase of $2.4 million in prepaid
expenses and other current assets, offset in part by cash
generated from a $15.4 million increase in accounts
payable, a $3.3 million decrease in inventory and a
$1.1 million decrease in other non-current assets. The
$7.4 million increase in cash resulting from non-cash
adjustments primarily consisted of $11.8 million of expense
related to depreciation and amortization and $4.4 million
of expense related to stock-based compensation, offset in part
by $5.3 million in gain from the bargain purchase of the
high-power laser diodes business from Newport, $1.4 million
in gain from the sale of the New Focus business,
$0.9 million from the amortization of deferred gain from a
sales-leaseback transaction, $0.9 million from the change
in fair value of the value protection guarantee related to the
Xtellus acquisition and $0.3 million in gain from the sale
of property and equipment.
Net cash used in operating activities for the year ended
June 27, 2009 was $3.1 million, resulting from the net
loss of $32.2 million offset by non-cash adjustments of
$28.5 million, primarily consisting of an
$11.9 million charge for impairment of goodwill and other
intangible assets, $12.5 million of expense related to
depreciation and amortization of certain assets and
$4.4 million of expense related to stock-based
compensation. Cash also increased $0.5 million from a net
change in our operating assets and liabilities, excluding those
assets and liabilities assumed in our merger with Avanex, due to
a $6.9 million decrease in inventories and
$0.7 million decrease in prepaid expenses and other current
and non-current assets, which were partially offset by a
$5.6 million decrease in accounts payable, a
$0.7 million decrease in accrued liabilities and a
$0.8 million increase in accounts receivable. Included in
net loss for the period is a gain of approximately
$11.1 million related to the revaluation of
U.S. dollar denominated operating intercompany receivables
on the books of our foreign subsidiaries.
Net cash used in operating activities for the year ended
June 28, 2008 was $16.2 million, primarily resulting
from the net loss of $23.4 million, offset by non-cash
accounting charges of $21.6 million, primarily consisting
of $8.8 million of expense related to stock-based
compensation and $16.9 million of expense related to
depreciation and amortization of certain assets. Increases in
operating assets and liabilities of $14.3 million also
contributed to the use of cash, primarily due to decreases in
accounts payables and accrued expenses and other liabilities,
and increases in accounts receivable and inventories, partially
offset by decreases in prepaid expenses and other current and
non-current assets.
Cash
flows from Investing Activities
Net cash used in investing activities for the year ended
July 3, 2010 was $6.7 million, primarily consisting of
$12.1 million used in capital expenditures,
$7.5 million used to acquire an equity interest in
ClariPhy, a privately-held company, and $0.3 million used
to acquire intangible assets, equipment and inventory through an
asset purchase, which were partially offset by $9.3 million
in sales and maturities of
available-for-sale
investments, $3.3 million in cash acquired from business
combinations and $0.9 million in proceeds from the sale of
certain fixed assets.
Net cash provided by investing activities for the year ended
June 27, 2009 was $21.4 million, primarily consisting
of $29.2 million in sales and maturities of
available-for-sale
investments and $11.5 million in cash acquired in the
merger with Avanex, which were partially offset by
$9.2 million used in capital expenditures,
$6.9 million used to purchase
available-for-sale
investments and $3.1 million in additional required
restricted cash related to lease obligations assumed in the
merger with Avanex.
Net cash used in investing activities for the year ended
June 28, 2008 was $18.8 million, primarily consisting
of $22.7 million in purchases of
available-for-sale
investments and $9.1 million used in capital expenditures,
partially offset by $5.0 million in sales and maturities of
available-for-sale
investments, $5.0 million from the release of
44
restricted cash which had been security for an unoccupied leased
facility and $3.0 million in proceeds from the sale of
fixed assets.
Cash
Flows from Financing Activities
Net cash of $77.3 million provided by financing activities
for the year ended July 3, 2010 primarily resulted from
$77.1 million in proceeds, net of estimated expenses and
commissions, from an underwritten public offering of
6.9 million shares of our common stock at a price to the
public of $12.00 per share. During fiscal year 2010 we received
$2.5 million in net proceeds from borrowings under our
Amended Credit Agreement, which was entirely repaid within the
fiscal year, and also received $0.3 million from issuance
of common stock primarily through stock option exercises. There
were no other significant cash flows from financing activities
for the year ended July 3, 2010.
There were no significant cash flows from financing activities
for the year ended June 27, 2009.
Net cash provided by financing activities for the year ended
June 28, 2008 was $36.9 million, primarily consisting
of $40.8 million in proceeds, net of expenses and
commissions, from an underwritten public offering of
3.2 million shares of our common stock at a price to the
public of $13.75 a share and $0.5 million drawn under our
credit facility with Wells Fargo Capital Finance, Inc. which
were partially offset by the repayment of $4.3 million
previously drawn under our credit facility.
The following represents a summary of recent public offerings of
our common stock:
On May 12, 2010, we completed a public offering of
6,900,000 shares of our common stock at a price to the
public of $12.00 pursuant to a shelf registration statement. We
received net proceeds of approximately $77.1 million from
the offering after deducting underwriting discounts and
commissions and estimated offering expenses. We intend to use
the net proceeds from this offering for general corporate
purposes, including working capital. To date, we have used
$7.5 million of the net proceeds for an investment in
ClariPhy and $12.0 million for our acquisition of Mintera.
We may use a portion of the remaining net proceeds to acquire or
invest in complementary businesses, products or technologies.
On November 13, 2007, we completed a public offering of
3,200,000 shares of our common stock at a price to the
public of $13.75 per share pursuant to a shelf registration
statement. We received net proceeds of approximately
$40.8 million of cash from the offering after deducting
underwriting discounts and commissions and estimated offering
expenses.
Effect
of Exchange Rates on Cash and Cash Equivalents for the Years
Ended July 3, 2010, June 27, 2009 and June 28,
2008
The effect of exchange rates on cash and cash equivalents for
year ended July 3, 2010 was a decrease of
$2.8 million, primarily consisting of a loss of
approximately $1.4 million related to the revaluation of
U.S. dollar denominated operating intercompany payables on
the books of our U.K. subsidiary and from $1.0 million in
net loss due to the revaluation of foreign currency cash
balances to the functional currency of the respective
subsidiaries.
The effect of exchange rates on cash and cash equivalents for
the year ended June 27, 2009 was a decrease of
$6.5 million, primarily consisting of approximately
$1.1 million in net gain due to the revaluation of foreign
currency cash balances to the functional currency of the
respective subsidiaries and a gain of approximately
$6.6 million related to the revaluation of U.S. dollar
denominated operating intercompany receivables on the books of
our U.K. subsidiary, which were partially offset by
$1.2 million of other miscellaneous increases in cash and
cash equivalents due to the effects of exchange rates.
The effect of exchange rates on cash and cash equivalents for
the year ended June 28, 2008 was a decrease of
$5.7 million, primarily consisting of approximately
$0.1 million in net gain due to the revaluation of foreign
currency cash balances to the functional currency of the
respective subsidiaries, a gain of approximately
$0.8 million related to the revaluation of U.S. dollar
denominated operating intercompany receivables on the books of
our U.K. subsidiary, and a gain of approximately
$4.8 million related to the revaluation of foreign currency
denominated operating intercompany receivables on the books of
our Shenzhen subsidiary.
45
Credit
Facility
On August 2, 2006, we entered into a $25.0 million
senior secured revolving credit facility with Wells Fargo
Capital Finance, Inc. and other lenders. On April 27, 2009,
the Company, with Oclaro Technology Ltd, Oclaro Photonics, Inc.
and Oclaro Technology, Inc., each a wholly-owned subsidiary,
collectively the Borrowers, entered into an amendment to our
existing credit agreement (the Amended Credit Agreement) with
Wells Fargo Capital Finance, Inc. and other lenders regarding
the $25.0 million senior secured revolving credit facility,
extending the term to August 1, 2012. Under the Amended
Credit Agreement, advances are available based on
80 percent of qualified accounts receivable, as
defined in the Amended Credit Agreement
The obligations of the Borrowers under the Amended Credit
Agreement are guaranteed by us, Oclaro (North America), Inc.,
Oclaro (Canada), Inc., Bookham Nominees Limited and Bookham
International Ltd., each also a wholly-owned subsidiary, (which
we refer to collectively as the Guarantors and together with the
Borrowers, as the Obligors), and are secured pursuant to a
security agreement, or the Security Agreement, by the assets of
the Obligors, including a pledge of the capital stock holdings
of the Obligors in some of their direct subsidiaries.
Pursuant to the terms of the Amended Credit Agreement,
borrowings made under the facility bear interest at a rate based
on either the London Interbank Offered Rate (LIBOR) plus
3.50 percentage points or the banks prime rate plus
3.50 percentage points, subject to a minimum LIBOR rate of
2.50 percentage points and a minimum prime rate which is
the greater of (i) 3.50 percentage points or
(ii) the
90-day LIBOR
rate plus 1.00 percentage point. In the absence of an event
of default, any amounts outstanding under the Amended Credit
Agreement may be repaid and re-borrowed anytime until maturity,
which is August 1, 2012.
The obligations of the Borrowers under the Amended Credit
Agreement may be accelerated upon the occurrence of an event of
default under the Amended Credit Agreement, which includes
customary events of default, including payment defaults,
defaults in the performance of affirmative and negative
covenants, the inaccuracy of representations or warranties, a
cross-default related to indebtedness in an aggregate amount of
$1.0 million or more, bankruptcy and insolvency related
defaults, defaults relating to such matters as ERISA and certain
judgments in excess of $1.0 million, and a change of
control default. The Amended Credit Agreement contains negative
covenants applicable to the Borrowers and their subsidiaries,
including financial covenants. The negative covenant limiting
capital expenditures was amended to allow us, the Borrowers and
their subsidiaries more flexibility to make capital
expenditures, which may not exceed $20.0 million in any
fiscal year unless the circumstances set forth in the Amended
Credit Agreement are met. The negative covenants were further
amended to replace certain minimum EBITDA covenants with a
requirement that the Borrowers maintain a minimum fixed charge
coverage ratio (defined as the ratio of EBITDA minus capital
expenditures made or incurred during such period, to fixed
charges for such period) of no less than 1.10 to 1.00, if the
Borrowers have not maintained minimum liquidity
(defined as $30.0 million of qualified cash and excess
availability, each as also defined in the Amended Credit
Agreement), and to also include restrictions on liens,
investments, indebtedness, fundamental changes to the
Borrowers business, dispositions of property, making
certain restricted payments (including restrictions on dividends
and stock repurchases), entering into new lines of business and
transactions with affiliates.
As of July 3, 2010 and June 27, 2009, there were no
amounts outstanding under the facility. As of July 3, 2010,
we had $2.0 million in an outstanding standby letter of
credit with a vendor secured under this credit agreement which
expired in August 2010. As of July 3, 2010, we had
contractual accounts receivable from Nortel totaling
$2.7 million, which as a result of Nortels
January 14, 2009 bankruptcy filing are not reflected in our
accompanying consolidated balance sheet as of such date, and are
not deemed to be qualified accounts receivable for
purposes of determining amounts that may be available under the
Amended Credit Agreement.
In connection with the Amended Credit Agreement, we paid a
closing fee of $250,000 and agreed to pay a monthly servicing
fee of $3,000 and an unused line fee equal to
0.50 percentage points per annum, payable monthly on the
unused amount of revolving credit commitments. To the extent
there are letters of credit outstanding under the Amended Credit
Agreement, the Borrowers are obligated to pay the administrative
agent a letter of credit fee at a rate equal to
3.50 percentage points per annum.
46
Future
Cash Requirements
As of July 3, 2010, we held $107.2 million in cash and
cash equivalents and $4.5 million in restricted cash. We
expect that our cash flows from operations, together with our
current cash balances and amounts expected to be available under
our Amended Credit Agreement, which are based on a percentage of
eligible accounts receivable (as defined in the Amended Credit
Agreement) at the time the advance is requested, will provide us
with sufficient financial resources in order to operate as a
going concern through at least the four fiscal quarters
subsequent to the fiscal year ended July 3, 2010. On
May 12, 2010, we completed a public offering of
6,900,000 shares of our common stock pursuant to a shelf
registration statement. We received net proceeds of
approximately $77.1 million from the offering after
deducting underwriting discounts and commissions and estimated
offering expenses. We intend to use the net proceeds from this
offering for general corporate purposes, including working
capital. To date, we have used $7.5 million of the net
proceeds for an investment in ClariPhy and $12.0 million
for our acquisition of Mintera. We may use a portion of the
remaining net proceeds to acquire or invest in complementary
businesses, products or technologies. In the future, in order to
strengthen our financial position, in the event of unforeseen
circumstances, or in the event we need to fund our growth in
future financial periods, we may need to raise additional funds
by any one or a combination of the following: issuing equity
securities, debt or convertible debt or the sale of certain
product lines
and/or
portions of our business. There can be no guarantee that we will
be able to raise additional funds on terms acceptable to us, or
at all.
From time to time, we have engaged in discussions with third
parties concerning potential acquisitions of product lines,
technologies and businesses, such as our merger with Avanex,
acquisitions of Xtellus and Mintera, and our exchange of assets
agreement with Newport, and we continue to consider potential
acquisition candidates. Any such transactions could involve the
issuance of a significant number of new equity securities, debt,
and/or cash
consideration. We may also be required to raise additional funds
to complete any such acquisition, through either the issuance of
equity securities or borrowings. If we raise additional funds or
acquire businesses or technologies through the issuance of
equity securities, our existing stockholders may experience
significant dilution.
Risk
Management Foreign Currency Risk
As our business is multinational in scope, we are increasingly
subject to fluctuations based upon changes in the exchange rates
between the currencies in which we collect revenues and pay
expenses. In the future we expect that a majority of our
revenues will be denominated in U.S. dollars, while a
significant portion of our expenses will continue to be
denominated in U.K. pounds sterling. Fluctuations in the
exchange rate between the U.S. dollar and the U.K. pound
sterling and, to a lesser extent, other currencies in which we
collect revenues and pay expenses could affect our operating
results. This includes the Chinese yuan, the Korean won, the
Israeli shekel, the Swiss franc and the Euro in which we pay
expenses in connection with operating our facilities in
Shenzhen, China; Daejeon, South Korea; Jerusalem, Israel;
Zurich, Switzerland and San Donato, Italy. To the extent
the exchange rate between the U.S. dollar and these
currencies were to fluctuate more significantly than experienced
to date, our exposure would increase. We enter into foreign
currency forward exchange contracts in an effort to mitigate a
portion of our exposure to such fluctuations between the
U.S. dollar and the U.K. pound sterling, and we may be
required to convert currencies to meet our obligations. Under
certain circumstances, foreign currency forward exchange
contracts can have an adverse effect on our financial condition.
As of July 3, 2010, we held seventeen foreign currency
forward exchange contracts with a notional value of
$18.3 million which include put and call options which
expire, or expired, at various dates from July 2010 to May 2011.
During the year ended July 3, 2010, we recorded a net loss
of $0.7 million in our statement of operations in
connection with foreign exchange contracts that expired during
that year. As of July 3, 2010 we recorded an unrealized
gain of $49,000 to Accumulated other comprehensive
income in connection with marking these contracts to fair
value.
47
Contractual
Obligations
Our contractual obligations at July 3, 2010, by nature of
the obligation and amount due over identified periods of time,
are set out in the table below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
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|
|
Sublease
|
|
|
Purchase
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|
|
Long-Term
|
|
|
|
Leases
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|
|
Income
|
|
|
Obligations
|
|
|
Obligations
|
|
|
|
(Thousands)
|
|
|
Fiscal Year:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
7,549
|
|
|
$
|
(160
|
)
|
|
$
|
74,218
|
|
|
$
|
140
|
|
2012
|
|
|
4,437
|
|
|
|
(9
|
)
|
|
|
1,997
|
|
|
|
140
|
|
2013
|
|
|
2,525
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
13
|
|
2014
|
|
|
2,398
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
2015
|
|
|
2,299
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
24,990
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,198
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|
|
$
|
(183
|
)
|
|
$
|
76,215
|
|
|
$
|
293
|
|
|
|
|
|
|
|
|
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|
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The purchase obligations consist of our total outstanding
purchase order commitments as at July 3, 2010. Any capital
purchases to which we are committed are included in these
outstanding purchase orders under standard terms and conditions.
Operating leases are future annual commitments under
non-cancelable operating leases, including rents payable for
land and buildings.
Off-Balance
Sheet Arrangements
We indemnify our directors and certain employees as permitted by
law, and have entered into indemnification agreements with our
directors and executive officers. We have not recorded a
liability associated with these indemnification arrangements as
we historically have not incurred any material costs associated
with such indemnification obligations. Costs associated with
such indemnification obligations may be mitigated by insurance
coverage that we maintain, however such insurance may not cover
any, or may cover only a portion of, the amounts we may be
required to pay. In addition, we may not be able to maintain
such insurance coverage in the future.
We also have indemnification clauses in various contracts that
we enter into in the normal course of business, such as those
issued by our bankers in favor of several of our suppliers or
indemnification in favor of customers in respect of liabilities
they may incur as a result of purchasing our products should
such products infringe the intellectual property rights of a
third party. We have not historically paid out any material
amounts related to these indemnifications, therefore no accrual
has been made for these indemnifications.
Other than as set forth above, we are not currently party to any
material off-balance sheet arrangements.
Recent
Significant Events
On April 14, 2010, we announced that our board of directors
had approved a
1-for-5
reverse split of our common stock, pursuant to previously
obtained stockholder authorization. This reverse stock split,
which became effective at 6:00 p.m., Eastern Time, on
April 29, 2010, reduced the number of shares of our common
stock issued and outstanding from approximately 212 million
to approximately 42 million and reduced the number of
authorized shares of our common stock from 450 million to
90 million. All share and per share amounts herein are
presented on a post-reverse-split basis.
On May 12, 2010, we completed a public offering of
6,900,000 shares of our common stock pursuant to a shelf
registration statement. We received net proceeds of
approximately $77.1 million from the offering after
deducting underwriting discounts and commissions and estimated
offering expenses. We intend to use the net proceeds from this
offering for general corporate purposes, including working
capital. To date, we have used $7.5 million of the net
proceeds for an investment in ClariPhy and $12.0 million
for our acquisition of Mintera. We may use a portion of the
remaining net proceeds to acquire or invest in complementary
businesses, products or technologies.
48
On July 21, 2010, we announced the acquisition of Mintera
Corporation, a privately-held provider of high-performance
optical transport
sub-systems
solutions. We paid $12.0 million in cash to the former
security holders and creditors of Mintera. We also agreed to pay
additional revenue-based consideration whereby former security
holders of Mintera are entitled to receive up to
$20.0 million, determined based on a set of sliding scale
formulas, to the extent revenue from Mintera products is more
than $29.0 million in the twelve months following the
acquisition
and/or more
than $40.0 million in the 18 months following the
acquisition. The post-closing consideration, if any, will be
payable in cash or, at our option, newly issued shares of our
common stock, or a combination of cash and stock. Achieving
cumulative revenues of $40.0 million over the next
12 month period and $70.0 million over the next
18 month period would lead to the maximum
$20.0 million in additional consideration. We believe this
acquisition will broaden our product portfolio for high-speed
transmission solutions, and will reinforce our position as one
of the leading optical communications providers. As a result of
the acquisition, Oclaro expects to offer components, modules and
sub-systems
covering all of the major modulation technologies necessary for
high-performance 40 Gb/s data transmission in regional, metro,
long-haul and ultra long-haul networks.
Recent
Accounting Pronouncements
See Note 1, Business and Summary of Significant
Accounting Policies, to our consolidated financial
statements for information regarding the effect of new
accounting pronouncements on our consolidated financial
statements.
Application
of Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements contained elsewhere in this Annual Report on
Form 10-K,
which have been prepared in accordance with accounting
principles generally accepted in the United States, or
U.S. GAAP. The preparation of our financial statements
requires us to make estimates and judgments that affect our
reported assets and liabilities, revenues and expenses and other
financial information. Actual results may differ significantly
from those based on our estimates and judgments or could be
materially different if we used different assumptions, estimates
or conditions. In addition, our financial condition and results
of operations could vary due to a change in the application of a
particular accounting standard.
We regard an accounting estimate or assumption underlying our
financial statements as a critical accounting
estimate where:
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the nature of the estimate or assumption is material due to the
level of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters
to change; and
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the impact of such estimates and assumptions on our financial
condition or operating performance is material.
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Our significant accounting policies are described in
Note 1, Business and Summary of Significant Accounting
Policies, to our consolidated financial statements included
elsewhere in this Annual Report on
Form 10-K.
Not all of these significant accounting policies, however,
require that we make estimates and assumptions that we believe
are critical accounting estimates. We have discussed
our accounting policies with the audit committee of our board of
directors, and we believe that the policies described below
involve critical accounting estimates.
Revenue
Recognition and Sales Returns
Revenue represents the amounts, excluding sales taxes, derived
from the sale of goods and services to third-party customers
during a given period. Our revenue recognition policy follows
ASC Topic 605, Revenue Recognition. Specifically, we
recognize product revenue when persuasive evidence of an
arrangement exists, the product has been shipped, title has
transferred, collectability is reasonably assured, fees are
fixed or determinable and there are no uncertainties with
respect to customer acceptance. For certain sales, we are
required to determine, in particular, whether the delivery has
occurred, whether items will be returned and whether we will be
paid under normal commercial terms. For certain products sold to
customers, we specify delivery terms in the agreement under
which the sale was made and assess each shipment against those
terms, and only recognize revenue when we are certain that the
delivery terms have been met. For shipments to new customers and
evaluation units, including initial shipments of new products,
where the customer has the right of return through the end of an
49
evaluation period, we recognize revenue on these shipments at
the end of the evaluation period, if not returned, and when
collection is reasonably assured. We record a provision for
estimated sales returns in the same period as the related
revenues are recorded, which is netted against revenue. These
estimates for sales returns are based on historical sales return
rates, other known factors and our return policy. Before
accepting a new customer, we review publicly available
information and credit rating databases to provide ourselves
with reasonable assurance that the new customer will pay all
outstanding amounts in accordance with our standard terms. For
existing customers, we monitor historic payment patterns to
assess whether we can expect payment in accordance with the
terms set forth in the agreement under which the sale was made.
We recognize revenues from financially distressed customers when
collectability becomes reasonably assured, assuming all other
above criteria for revenue recognition have been met. In fiscal
year 2009 we issued billings of $4.1 million for products
that were shipped to Nortel, but for which payment was not
received prior to Nortels bankruptcy filing on
January 14, 2009. As a result, the corresponding revenue
was deferred, and therefore was not recognized as revenues or
accounts receivable in the consolidated financial statements at
the time of such billings, as we determined that such amounts
were not reasonably assured of collectability in accordance with
our revenue recognition policy. As of July 3, 2010, we had
contractual receivables from Nortel totaling $2.7 million
which are not reflected in the accompanying consolidated balance
sheet. To the extent that collectability becomes reasonably
assured for these deferred billings in future periods, our
future results of operations will benefit from the recognition
of these amounts.
Inventory
Valuation
In general, our inventories are valued at the lower of cost to
acquire or manufacture our products or market value, less
write-offs of inventory we believe could prove to be unsaleable.
Manufacturing costs include the cost of the components purchased
to produce our products and related labor and overhead. We
review our inventory on a quarterly basis to determine if it is
saleable. Products may be unsaleable because they are
technically obsolete due to substitute products, specification
changes or excess inventory relative to customer forecasts. We
currently reduce the cost basis for inventory using methods that
take these factors into account. If we find that the cost of
inventory is greater than the current market price, we will
write the inventory down to the estimated selling price, less
the cost to complete and sell the product.
Business
Combinations
Through June 27, 2009, we accounted for our acquisitions
using the purchase accounting method in accordance with
Statement of Financial Accounting Standards No. 141
(SFAS No. 141), Business
Combinations. Under this method, we allocated the purchase
price of acquired companies to the assets acquired and
liabilities assumed, based on their estimated relative fair
values at the acquisition date, with any excess allocated to
goodwill (defined as the excess of the purchase price over the
fair value allocated to the assets acquired and liabilities
assumed). Our judgments as to fair value of the assets,
therefore, affected the amount of goodwill that we recorded.
These judgments include estimating the useful lives over which
the fair values are amortized to expense.
For tangible assets acquired in any acquisition, such as plant
and equipment, we estimate useful lives by considering
comparable lives of similar assets, past history, the intended
use of the assets and their condition. In estimating the useful
life of acquired intangible assets with definite lives, we
consider the industry environment and specific factors relating
to each product relative to our business strategy and the
likelihood of technological obsolescence. Acquired intangible
assets primarily include core and current technology, patents,
supply agreements, capitalized licenses and customer contracts.
We amortize our acquired intangible assets with definite lives
over periods generally ranging from three to six years and, in
the case of one specific customer contract, fifteen years.
Our acquisitions consummated after June 27, 2009, including
the acquisition of the high power laser diodes business from
Newport on July 4, 2009 and our acquisition of Xtellus on
December 17, 2009, were accounted for
50
pursuant to ASC Topic 805, Business Combinations. Under
ASC Topic 805, there are significant differences as compared to
SFAS No. 141 in determining the purchase price of an
acquired entity, including:
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Under ASC Topic 805, the purchase price is equivalent to the
fair value of consideration transferred on the date of the
business combination. Previously, the value of equity-based
consideration transferred was determined based on the fair value
at the time of announcement of the business combination.
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Tangible and identifiable intangible assets acquired and
liabilities assumed as of the acquisition date are recorded at
the acquisition date fair value. Such valuations require
management to make significant estimates and assumptions,
especially with respect to the identifiable intangible assets.
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Goodwill is recognized for any excess of purchase price over the
net fair value of assets acquired and liabilities assumed. A
bargain purchase gain results if the fair value of the purchase
price is less than the net fair value of the assets acquired and
liabilities assumed. We recorded a $5.3 million bargain
purchase gain related to our acquisition of Newports
high-power laser diodes business during fiscal year 2010.
|
Management makes estimates of fair value based upon assumptions
believed to be reasonable and that of a market participant. For
instance, the estimated fair value of our common stock issued in
connection with our acquisition of Xtellus was determined using
the closing price of $6.70 per share as of the acquisition date,
December 17, 2009, adjusted by a discount rate to reflect
the lack of marketability due to the shares being unregistered
and subject to restrictions on transfer under Rule 144 of
the Securities Act. In addition, the estimated fair value of the
value protection guarantee issued in connection with the Xtellus
acquisition was determined by using management estimates of
future operating results and a Monte Carlo simulation model to
determine the likelihood of achieving certain market conditions.
Our preliminary estimates of fair value are inherently uncertain
and subject to refinement. As a result, during the measurement
period for a business combination, which may be up to one year,
we may record adjustments to the values of assets acquired and
liabilities assumed. After the conclusion of the measurement
period or our final determination of the values of assets
acquired or liabilities assumed, whichever comes first,
subsequent adjustments affecting earnings are recorded to our
consolidated statements of operations.
As a result of adopting the revised accounting standards
provided for by ASC Topic 805 as of the beginning of our fiscal
year 2010, certain of our policies differ when accounting for
acquisitions consummated after June 27, 2009, including:
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the direct transaction costs associated with a business
combination are expensed as incurred (previously, direct
transaction costs were included as part of the purchase price);
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the costs to exit or restructure certain activities of an
acquired company are accounted for separately from the business
combination (previously, restructuring and exit costs directly
resulting from the business combination were included as a part
of the assumed obligations in deriving the purchase price
allocation); and
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the fair value of in-process research and development is
recorded as an indefinite-lived intangible asset until the
underlying project is completed, at which time the intangible
asset is amortized over its estimated useful life, or abandoned,
at which time the intangible asset is expensed (previously,
in-process research and development was expensed as of the
acquisition date).
|
Impairment
of Goodwill and Other Intangible Assets
Under ASC Topic 350, goodwill is tested annually for impairment,
in our case during the fourth quarter of each fiscal year, or
more often if an event or circumstance suggests impairment has
occurred. In addition, we review identifiable intangibles,
excluding goodwill, for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not
be recoverable. Circumstances which could trigger an impairment
test include, but are not limited to, significant decreases in
the market price of the asset, significant adverse changes to
the business climate or legal factors, current period cash flow
or operating losses or a forecast of continuing losses
associated with the use of the asset and a current expectation
that the asset will more likely than not be sold or disposed of
significantly below carrying value before the end of its
estimated useful life.
51
ASC Topic 350 requires that the first phase of testing goodwill
for impairment be based on a reporting units fair
value, which is generally determined through market
prices. In certain cases, due to the absence of market prices
for a particular element of our business, and as permitted by
ASC Topic 350, we have elected to base our testing on discounted
future expected cash flows. Although the discount rates and
other input variables may differ, the model we use in this
process is the same model we use to evaluate the fair value of
acquisition candidates and the fairness of offers to purchase
businesses that we are considering for divestiture. The
forecasted cash flows we use are derived from the annual
long-range planning process that we perform and present to our
board of directors. In this process, each reporting unit is
required to develop reasonable sales, earnings and cash flow
forecasts for the next three to seven years based on current and
forecasted economic conditions. For purposes of testing for
impairment, the cash flow forecasts are adjusted as needed to
reflect information that becomes available concerning changes in
business levels and general economic trends. The discount rates
used for determining discounted future cash flows are generally
based on our weighted-average cost of capital and are then
adjusted for plan risk (the risk that a business
will fail to achieve its forecasted results) and country
risk (the risk that economic or political instability in
the countries in which we operate will cause a business
units projections to be inaccurate). Finally, a growth
factor beyond the three to seven-year period for which cash
flows are planned is selected based on expectations of future
economic conditions. Virtually all of the assumptions used in
our models are susceptible to change due to global and regional
economic conditions as well as competitive factors in the
industry in which we operate. Unanticipated changes in discount
rates from one year to the next can also have a significant
effect on the results of the calculations. While we believe the
estimates and assumptions we use are reasonable, various
economic factors could cause the results of our goodwill testing
to vary significantly.
During the fiscal year ended June 27, 2009, we observed
indicators of potential impairment of our goodwill, including
the impact of the then current general economic downturn, our
future prospects and the continued decline of our market
capitalization, which caused us to conduct a goodwill impairment
analysis. Specifically, indicators emerged within our New Focus
reporting unit, which includes the technology acquired in the
March 2004 acquisition of Oclaro Photonics, Inc. and is in our
advanced photonics solutions segment, and one other reporting
unit in the advanced photonics solutions segment that includes
the technology acquired in the March 2006 acquisition of Avalon
Photonics AG (the Avalon reporting unit). These indicators led
us to conclude that an ASC Topic 350 impairment test was
required to be performed for goodwill related to these reporting
units.
During the fiscal year ended June 27, 2009, we determined,
in our first step goodwill impairment analysis, that the
goodwill related to our New Focus and Avalon reporting units
were in fact impaired. We completed our full evaluation of the
second step impairment analysis, which indicated that the
goodwill was fully impaired. We recorded $7.9 million for
impairment losses in our statement of operations for the year
ended June 27, 2009. The impairment will not result in any
current or future cash expenditures.
In conjunction with our full evaluation of the second step
goodwill impairment analysis, we also evaluated the fair value
of the intangible assets of these two reporting units in
accordance with ASC Topic 360, Property, Plant and
Equipment. Based on this testing, we determined that the
intangibles of our New Focus reporting unit and our Avalon
reporting units were impaired. We recorded $1.2 million for
the impairment loss related to these intangibles, net of
$2.8 million associated with the discontinued operations of
the New Focus business, in our statements of operations for the
year ended June 27, 2009.
During the fourth quarter of fiscal year ended July 3,
2010, we performed our annual ASC Topic 350 impairment
assessment of our goodwill and a separate impairment assessment
of our other intangible assets, concluding that no impairment
existed at the assessment dates.
Accounting
for Share-Based Payments
ASC Topic 718, Compensation Stock
Compensation, requires companies to recognize in their
statement of operations all share-based payments, including
grants of employee stock options and restricted stock, based on
their fair values on the grant dates. The application of ASC
Topic 718 involves significant amounts of judgment in the
determination of inputs into the Black-Scholes-Merton valuation
model which we use to determine the fair value of share-based
awards. These inputs are based upon highly subjective
assumptions as to the volatility of the underlying stock, risk
free interest rates and the expected life of the options.
Judgment is also required in estimating the number
52
of share-based awards that are expected to be forfeited during
any given period. As required under the accounting rules, we
review our valuation assumptions at each grant date, and, as a
result, our valuation assumptions used to value employee
stock-based awards granted in future periods may change. If
actual results or future changes in estimates differ
significantly from our current estimates, stock-based
compensation expense and our consolidated results of operations
could be materially impacted. During the years ended
July 3, 2010, June 27, 2009 and June 28, 2008, we
recognized $4.4 million, $4.1 million and
$8.3 million of stock-based compensation expense,
respectively, in our results from continuing operations. See
Note 11, Stock-based Compensation, to the
accompanying consolidated financial statements included
elsewhere in this Annual Report on
Form 10-K
for further information.
Income
Taxes
We provide for income taxes under the provisions of ASC Topic
740, Income Taxes. ASC Topic 740 requires an asset and
liability based approach of accounting for income taxes.
Deferred income tax assets and liabilities are recorded based on
the differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates. Valuation
allowances are provided against deferred income tax assets which
are not likely to be realized.
In the fourth quarter of fiscal year 2010, we determined that it
is more-likely-than-not that we will utilize net operating
losses in one of our foreign jurisdictions due to current
earnings and projections of future profitability. Accordingly,
we released $1.3 million of our valuation allowance against
$1.3 million of previously unrecognized deferred tax assets
during the fourth quarter of fiscal year 2010. This amount
represents the entire remaining deferred tax asset related to
the accumulated net operating losses of the foreign
jurisdiction. Due to the uncertainty surrounding the realization
of the tax attributes in other jurisdictions, we have recorded
full a valuation allowance against our remaining foreign and
domestic deferred tax assets as of July 3, 2010.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
rates
We finance our operations through a mixture of issuances of
equity securities, finance leases, working capital and by
drawing on the Amended Credit Agreement. Our only exposure to
interest rate fluctuations is on our cash deposits and for
amounts borrowed under the Amended Credit Agreement. At
July 3, 2010 there was no amount outstanding under the
Amended Credit Agreement. As of July 3, 2010, we had
$2.0 million in an outstanding standby letter of credit
with a vendor secured under this credit agreement.
We monitor our interest rate risk on cash balances primarily
through cash flow forecasting. Cash that is surplus to immediate
requirements is invested in short-term deposits with banks
accessible with one days notice and invested in overnight
money market accounts. We believe our current interest rate risk
is immaterial.
Foreign
currency
As our business has grown and become multinational in scope, we
have become increasingly subject to fluctuations based upon
changes in the exchange rates between the currencies in which we
collect revenues and pay expenses. Despite our change in
domicile from the United Kingdom to the United States in 2004,
and our movement of certain functions, including assembly and
test operations, from the United Kingdom to China, in the future
we expect that a majority of our revenues will continue to be
denominated in U.S. dollars, while a significant portion of
our expenses will continue to be denominated in U.K. pounds
sterling. Fluctuations in the exchange rate between the
U.S. dollar and the U.K. pound sterling and, to a lesser
extent, other currencies in which we collect revenues and pay
expenses, could affect our operating results. This includes the
Chinese yuan, the Korean won, the Israeli shekel, the Swiss
franc and the Euro in which we pay expenses in connection with
operating our facilities in Shenzhen, China; Daejeon, South
Korea; Jerusalem, Israel; Zurich, Switzerland and
San Donato, Italy. To the extent the exchange rate between
the U.S. dollar and these currencies were to fluctuate more
significantly than experienced to date, our exposure would
increase.
As of July 3, 2010, our U.K. subsidiary had
$33.6 million, net, in U.S. dollar denominated
operating intercompany payables and $70.0 million in
U.S. dollar denominated accounts receivable related to
sales to external customers. It is estimated that a
10 percent fluctuation in the U.S. dollar relative to
the U.K. pound sterling would
53
lead to a profit of $3.6 million (U.S. dollar
strengthening), or loss of $3.6 million (U.S. dollar
weakening) on the translation of these receivables, which would
be recorded as gain (loss) on foreign exchange in our
consolidated statement of operations.
Hedging
Program
We enter into foreign currency forward exchange contracts in an
effort to mitigate a portion of our exposure to such
fluctuations between the U.S. dollar and the U.K. pound
sterling. We do not currently hedge our exposure to the Chinese
yuan, Korean won, Israeli shekel, Swiss franc or the Euro, but
we may in the future if conditions warrant. We also do not
currently hedge our exposure related to our U.S. dollar
denominated intercompany payables and receivables. We may be
required to convert currencies to meet our obligations. Under
certain circumstances, foreign currency forward exchange
contracts can have an adverse effect on our financial condition.
As of July 3, 2010, we held seventeen foreign currency
forward exchange contracts with a notional value of
$18.3 million which include put and call options which
expire, or expired, at various dates from July 2010 to May 2011
and we have recorded an unrealized gain of $49,000 to
Accumulated other comprehensive income in connection
with marking these contracts to fair value. It is estimated that
a 10 percent fluctuation in the dollar between July 3,
2010 and the maturity dates of the put and call instruments
underlying these contracts would lead to a profit of
$0.9 million (U.S. dollar weakening) or loss of
$1.3 million (U.S. dollar strengthening) on our
outstanding foreign currency forward exchange contracts, should
they be held to maturity.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The financial statements required by this item may be found on
pages F-1 through F-45 of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures
|
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of July 3,
2010. The term disclosure controls and procedures,
as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, or the Exchange Act,
means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by
the company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated
and communicated to the companys management, including its
Chief Executive Officer and Chief Financial Officer, as the
principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure. Management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our
disclosure controls and procedures as of July 3, 2010, our
Chief Executive Officer and Chief Financial Officer concluded
that, as of such date, our disclosure controls and procedures
were effective at the reasonable assurance level.
Managements report on our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) is included immediately below and is
incorporated herein by reference.
|
|
(b)
|
Managements
Report on Internal Control Over Financial Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as such
term is defined in Exchange Act
Rule 13a-15(f).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements,
fraud or the results of fraud. Projections of
54
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of July 3, 2010. In
making its assessment of internal control over financial
reporting, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated Framework.
Based on our assessment, management concluded that, as of
July 3, 2010, our internal control over financial reporting
is effective based on these criteria.
Our independent registered public accounting firm has issued an
attestation report on the effectiveness of our internal control
over financial reporting. This report appears under Item 8
of this
Form 10-K.
Management excluded Xtellus Inc. and its subsidiaries from its
assessment of internal control over financial reporting as of
July 3, 2010, because this entity was acquired by the
Company in a business combination during the fiscal year ended
July 3, 2010.
|
|
(c)
|
Changes
in Internal Control over Financial Reporting
|
There were no changes in our internal controls over financial
reporting during the most recent fiscal quarter ended
July 3, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information required by this Item is incorporated by reference
to the information contained in Oclaros definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders under the
headings Proposal 1 Election of
Class III Directors, Corporate
Governance, Section 16(a) Beneficial Ownership
Reporting Compliance, Code of Business Conduct and
Ethics and
Non-Director
Executive Officers.
|
|
Item 11.
|
Executive
Compensation
|
Information required by this Item is incorporated by reference
to the information contained in Oclaros definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders under the
headings Executive Compensation, Director
Compensation, Compensation Committee Interlocks and
Insider Participation, Compensation Committee
Report, and Severance and Change of Control
Arrangements.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information required by this Item is incorporated by reference
to the information contained in Oclaros definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders under the
headings Security Ownership of Certain Beneficial Owners
and Management and Equity Compensation Plan
Information.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information required by this Item is incorporated by reference
to the information contained in Oclaros definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders under the
headings Policies and Procedures for Related Person
Transactions, Board Determination of
Independence, Severance and Change of Control
Arrangements, Proposal 1 Election
of Class III Directors, and Corporate
Governance.
55
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Information required by this Item is incorporated by reference
to the information contained in Oclaros definitive Proxy
Statement for its 2010 Annual Meeting of Stockholders under the
headings Principal Accounting Fees and Services and
Pre-Approval Policies and Procedures.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) The following documents are filed as part of or are
included in this Annual Report on
Form 10-K:
1. Financial Statements
See Index to Consolidated Financial Statements on
page F-1
of this Annual Report on Form
10-K.
2. Financial Statement Schedules
The Financial Statement Schedule II: Valuation and
Qualifying Accounts that follows the Notes to Consolidated
Financial Statements is filed as part of this Annual Report
Form 10-K.
Other financial statement schedules have been omitted since they
are either not required or the information is otherwise included.
3. List of Exhibits
The Exhibits filed as part of this Annual Report on
Form 10-K,
or incorporated by reference, are listed on the
Exhibit Index immediately preceding such Exhibits, which
Exhibit Index is incorporated herein by reference.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OCLARO, INC.
(Registrant)
|
|
|
|
|
|
September 1, 2010
|
|
By: /s/ Alain
Couder
Alain
Couder
Chief Executive Officer, President and Director
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alain
Couder
Alain
Couder
|
|
Chief Executive Officer,
President and Director
(Principal Executive Officer)
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Jerry
Turin
Jerry
Turin
|
|
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Bernard
J. Couillaud
Bernard
J. Couillaud
|
|
Chairman of the Board and Director
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Giovanni
Barbarossa
Giovanni
Barbarossa
|
|
Director
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Edward
B. Collins
Edward
B. Collins
|
|
Director
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Greg
Dougherty
Greg
Dougherty
|
|
Director
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Lori
Holland
Lori
Holland
|
|
Director
|
|
September 1, 2010
|
|
|
|
|
|
/s/ Joel
Smith III
Joel
Smith III
|
|
Director
|
|
September 1, 2010
|
57
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Oclaro, Inc.
We have audited the accompanying consolidated balance sheets of
Oclaro, Inc. (a Delaware corporation) and subsidiaries as of
July 3, 2010 and June 27, 2009, and the related
consolidated statements of operations, stockholders equity
and comprehensive income (loss), and cash flows for each of the
three years in the period ended July 3, 2010. Our audits of
the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15 (a)
(2). These financial statements and financial statement schedule
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Oclaro, Inc. and subsidiaries as of
July 3, 2010 and June 27, 2009, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended July 3, 2010 in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board, Oclaro, Inc.s
internal control over financial reporting as of July 3,
2010, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated September 1, 2010, expressed an
unqualified opinion on the effective operation of internal
control over financial reporting.
San Francisco, California
September 1, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Oclaro, Inc.
We have audited Oclaro, Inc. (a Delaware corporation) and
subsidiaries internal control over financial reporting as
of July 3, 2010, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Oclaro, Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on Oclaro
Inc.s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Oclaro, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of July 3, 2010, based on criteria established
in Internal Control Integrated Framework issued by
COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Oclaro, Inc. and subsidiaries as
of July 3, 2010 and June 27, 2009, and the related
consolidated statements of operations, stockholders equity
and comprehensive income (loss), and cash flows for each of the
three years in the period ended July 3, 2010. Our audits of
the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15 (a)
(2). Our report dated September 1, 2010 expressed an
unqualified opinion thereon.
San Francisco, California
September 1, 2010
F-3
OCLARO,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands, except par value)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
107,176
|
|
|
$
|
44,561
|
|
Short-term investments
|
|
|
|
|
|
|
9,259
|
|
Restricted cash
|
|
|
4,458
|
|
|
|
4,208
|
|
Accounts receivable, net of allowances for doubtful accounts and
sales returns of $2,046 and $645 in 2010 and $623 and $277 in
2009
|
|
|
93,412
|
|
|
|
58,483
|
|
Inventories
|
|
|
62,570
|
|
|
|
59,527
|
|
Prepaid expenses and other current assets
|
|
|
14,905
|
|
|
|
11,834
|
|
Assets held for sale
|
|
|
|
|
|
|
10,442
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
282,521
|
|
|
|
198,314
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
37,516
|
|
|
|
29,875
|
|
Other intangible assets, net
|
|
|
10,610
|
|
|
|
1,951
|
|
Goodwill
|
|
|
20,000
|
|
|
|
|
|
Other non-current assets
|
|
|
10,148
|
|
|
|
3,248
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
360,795
|
|
|
$
|
233,388
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
50,103
|
|
|
$
|
31,943
|
|
Accrued expenses and other liabilities
|
|
|
35,404
|
|
|
|
39,016
|
|
Liabilities held for sale
|
|
|
|
|
|
|
2,028
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
85,507
|
|
|
|
72,987
|
|
|
|
|
|
|
|
|
|
|
Deferred gain on sale-leaseback
|
|
|
12,969
|
|
|
|
15,088
|
|
Other non-current liabilities
|
|
|
9,785
|
|
|
|
4,923
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
108,261
|
|
|
|
92,998
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock: 1,000 shares authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value per share; 90,000 shares
authorized; 49,396 and 37,233 shares issued and outstanding
at July 3, 2010 and June 27, 2009, respectively
|
|
|
494
|
|
|
|
372
|
|
Additional paid-in capital
|
|
|
1,304,779
|
|
|
|
1,200,848
|
|
Accumulated other comprehensive income
|
|
|
26,907
|
|
|
|
30,905
|
|
Accumulated deficit
|
|
|
(1,079,646
|
)
|
|
|
(1,091,735
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
252,534
|
|
|
|
140,390
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
360,795
|
|
|
$
|
233,388
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-4
OCLARO,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
|
(Thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
$
|
202,663
|
|
Cost of revenues
|
|
|
283,751
|
|
|
|
164,425
|
|
|
|
161,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
108,794
|
|
|
|
46,498
|
|
|
|
40,761
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
41,496
|
|
|
|
26,147
|
|
|
|
28,608
|
|
Selling, general and administrative
|
|
|
56,378
|
|
|
|
34,899
|
|
|
|
40,948
|
|
Amortization of intangible assets
|
|
|
951
|
|
|
|
487
|
|
|
|
3,510
|
|
Restructuring, merger and related costs
|
|
|
5,468
|
|
|
|
6,826
|
|
|
|
3,033
|
|
Legal settlements
|
|
|
|
|
|
|
3,829
|
|
|
|
(2,882
|
)
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
9,133
|
|
|
|
|
|
Gain on sale of property and equipment
|
|
|
(333
|
)
|
|
|
(12
|
)
|
|
|
(2,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
103,960
|
|
|
|
81,309
|
|
|
|
70,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
4,834
|
|
|
|
(34,811
|
)
|
|
|
(29,894
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
36
|
|
|
|
575
|
|
|
|
1,261
|
|
Interest expense
|
|
|
(367
|
)
|
|
|
(543
|
)
|
|
|
(682
|
)
|
Gain on foreign currency translation
|
|
|
2,494
|
|
|
|
11,094
|
|
|
|
6,059
|
|
Other income (expense)
|
|
|
4,892
|
|
|
|
(685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
7,055
|
|
|
|
10,441
|
|
|
|
6,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
11,889
|
|
|
|
(24,370
|
)
|
|
|
(23,256
|
)
|
Income tax provision
|
|
|
928
|
|
|
|
1,399
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,961
|
|
|
|
(25,769
|
)
|
|
|
(23,261
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
1,420
|
|
|
|
(6,387
|
)
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,381
|
|
|
$
|
(32,156
|
)
|
|
$
|
(23,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.27
|
|
|
$
|
(1.12
|
)
|
|
$
|
(1.25
|
)
|
Income (loss) from discontinued operations
|
|
|
0.04
|
|
|
|
(0.28
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.31
|
|
|
$
|
(1.40
|
)
|
|
$
|
(1.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.26
|
|
|
$
|
(1.12
|
)
|
|
$
|
(1.25
|
)
|
Income (loss) from discontinued operations
|
|
|
0.03
|
|
|
|
(0.28
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.29
|
|
|
$
|
(1.40
|
)
|
|
$
|
(1.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,322
|
|
|
|
22,969
|
|
|
|
18,620
|
|
Diluted
|
|
|
42,262
|
|
|
|
22,969
|
|
|
|
18,620
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-5
OCLARO,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
|
(Thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,381
|
|
|
$
|
(32,156
|
)
|
|
$
|
(23,440
|
)
|
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on short-term investments
|
|
|
22
|
|
|
|
(100
|
)
|
|
|
(145
|
)
|
Amortization of deferred gain on sale-leaseback
|
|
|
(863
|
)
|
|
|
(938
|
)
|
|
|
(1,384
|
)
|
Depreciation and amortization
|
|
|
11,811
|
|
|
|
12,491
|
|
|
|
16,869
|
|
Change in fair value of value protection guarantee
|
|
|
(946
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of property and equipment
|
|
|
(333
|
)
|
|
|
(8
|
)
|
|
|
(2,562
|
)
|
Gain on bargain purchase
|
|
|
(5,267
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of New Focus business
|
|
|
(1,420
|
)
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
11,915
|
|
|
|
|
|
Impairment (recovery) of short-term investments
|
|
|
(28
|
)
|
|
|
706
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
4,432
|
|
|
|
4,436
|
|
|
|
8,812
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(34,914
|
)
|
|
|
(821
|
)
|
|
|
(11,930
|
)
|
Inventories
|
|
|
3,339
|
|
|
|
6,859
|
|
|
|
(2,426
|
)
|
Prepaid expenses and other current assets
|
|
|
(2,400
|
)
|
|
|
533
|
|
|
|
4,056
|
|
Other non-current assets
|
|
|
1,062
|
|
|
|
204
|
|
|
|
22
|
|
Accounts payable
|
|
|
15,415
|
|
|
|
(5,573
|
)
|
|
|
(1,211
|
)
|
Accrued expenses and other liabilities
|
|
|
(7,560
|
)
|
|
|
(677
|
)
|
|
|
(2,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(5,269
|
)
|
|
|
(3,129
|
)
|
|
|
(16,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(12,114
|
)
|
|
|
(9,231
|
)
|
|
|
(9,135
|
)
|
Proceeds from sales of property and equipment
|
|
|
885
|
|
|
|
32
|
|
|
|
2,972
|
|
Purchases of
available-for-sale
investments
|
|
|
|
|
|
|
(6,945
|
)
|
|
|
(22,699
|
)
|
Sales and maturities of
available-for-sale
investments
|
|
|
9,258
|
|
|
|
29,200
|
|
|
|
5,000
|
|
Transfer (to) from restricted cash
|
|
|
(256
|
)
|
|
|
(3,109
|
)
|
|
|
5,026
|
|
Purchase of intangibles and equipment from an asset purchase
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
Purchase of investment in a privately held company
|
|
|
(7,500
|
)
|
|
|
|
|
|
|
|
|
Cash acquired from business combinations
|
|
|
3,277
|
|
|
|
11,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(6,700
|
)
|
|
|
21,429
|
|
|
|
(18,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
77,390
|
|
|
|
4
|
|
|
|
40,785
|
|
Proceeds from borrowings under credit line
|
|
|
2,500
|
|
|
|
|
|
|
|
2,501
|
|
Repayment of borrowings under credit line and other loans
|
|
|
(2,552
|
)
|
|
|
(62
|
)
|
|
|
(6,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
77,338
|
|
|
|
(58
|
)
|
|
|
36,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(2,754
|
)
|
|
|
(6,544
|
)
|
|
|
(5,709
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
62,615
|
|
|
|
11,698
|
|
|
|
(3,768
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
44,561
|
|
|
|
32,863
|
|
|
|
36,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
107,176
|
|
|
$
|
44,561
|
|
|
$
|
32,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
244
|
|
|
$
|
220
|
|
|
$
|
244
|
|
Cash paid for income taxes
|
|
$
|
184
|
|
|
$
|
177
|
|
|
$
|
52
|
|
Supplemental disclosures of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, stock options, restricted stock and
warrants in merger with Avanex
|
|
$
|
|
|
|
$
|
32,347
|
|
|
$
|
|
|
Issuance of common stock and incurrence of escrow liability and
value protection liability for the acquisition of Xtellus
|
|
$
|
29,441
|
|
|
$
|
|
|
|
$
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-6
OCLARO,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(Thousands)
|
|
|
Balance at June 30, 2007
|
|
|
16,655
|
|
|
$
|
166
|
|
|
$
|
1,115,057
|
|
|
$
|
42,444
|
|
|
$
|
(1,036,700
|
)
|
|
|
|
|
|
$
|
120,967
|
|
Issuance of shares related to share awards and restricted stock
units
|
|
|
293
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy-back of accelerated stock options issued to former officer
of the Company
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Adjustment to prior years taxes payable to reflect effect of
adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
|
|
|
|
|
561
|
|
Common stock issued in public offering
|
|
|
3,200
|
|
|
|
32
|
|
|
|
40,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,786
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,598
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,615
|
|
|
|
|
|
|
|
1,615
|
|
|
|
1,615
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,440
|
)
|
|
|
(23,440
|
)
|
|
|
(23,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2008
|
|
|
20,148
|
|
|
$
|
201
|
|
|
$
|
1,164,404
|
|
|
$
|
44,036
|
|
|
$
|
(1,059,579
|
)
|
|
|
|
|
|
$
|
149,062
|
|
Issuance of shares related to share awards and restricted stock
units
|
|
|
52
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares upon the exercise of common stock options
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Common stock issued in connection with the acquisition of Avanex
|
|
|
17,030
|
|
|
|
170
|
|
|
|
32,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,347
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,264
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(631
|
)
|
|
|
|
|
|
|
(631
|
)
|
|
|
(631
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,496
|
)
|
|
|
|
|
|
|
(12,496
|
)
|
|
|
(12,496
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,156
|
)
|
|
|
(32,156
|
)
|
|
|
(32,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(45,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
37,233
|
|
|
$
|
372
|
|
|
$
|
1,200,848
|
|
|
$
|
30,905
|
|
|
$
|
(1,091,735
|
)
|
|
|
|
|
|
$
|
140,390
|
|
Adjustment to prior years retained earnings to reflect effect of
adoption of ASC 805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,092,027
|
)
|
|
|
|
|
|
|
|
|
Issuance of shares related to share awards and restricted stock
units
|
|
|
500
|
|
|
|
5
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
Issuance of shares upon the exercise of common stock options
|
|
|
71
|
|
|
|
1
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
Common stock issued in connection with acquisitions
|
|
|
3,698
|
|
|
|
37
|
|
|
|
22,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,246
|
|
Common stock placed in escrow for the acquisition of Xtellus
|
|
|
994
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in public offering
|
|
|
6,900
|
|
|
|
69
|
|
|
|
77,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,074
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,512
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594
|
|
|
|
|
|
|
|
594
|
|
|
|
594
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
(3,432
|
)
|
Adoption of ASC 715, net of tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
(1,153
|
)
|
|
|
(1,153
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Net income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,381
|
|
|
|
12,381
|
|
|
|
12,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
49,396
|
|
|
$
|
494
|
|
|
$
|
1,304,779
|
|
|
$
|
26,907
|
|
|
$
|
(1,079,646
|
)
|
|
|
|
|
|
$
|
252,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-7
OCLARO,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1.
|
Business
and Summary of Significant Accounting Policies
|
Business
Oclaro, Inc., a Delaware corporation (Oclaro or the
Company), is a leading provider of high-performance
core optical network components, modules and subsystems to
global telecommunications (telecom) equipment
manufacturers. The Company leverages its proprietary core
technologies and vertically integrated product development to
provide its customers with cost-effective and innovative optical
solutions in metro and long-haul network applications. In
addition, it utilizes its optical expertise to address new and
emerging optical product opportunities in selective non-telecom
markets, such as materials processing, consumer, medical,
industrial, printing and biotechnology, which it refers to as
its advanced photonics solutions segment. The Company offers its
customers a differentiated solution that is designed to make it
easier for its customers to do business by combining optical
technology innovation, photonic integration, and a vertical
approach to manufacturing and product development. For the year
ended July 3, 2010, the Companys primary operating
segment is its telecommunications (telecom) segment,
which addresses this optical communications market; and the
Companys remaining product lines, which address certain
other optics and photonics markets, such as material processing,
printing, medical and consumer applications, and which leverage
the resources, infrastructure and expertise of its telecom
segment, comprise its advanced photonics solutions segment.
On April 27, 2009, Oclaro, at the time named Bookham, Inc.
(Bookham), and Avanex Corporation
(Avanex) completed a merger of Avanex with and into
a subsidiary of Bookham with Avanex being the surviving
corporation as a wholly-owned subsidiary of Bookham.
In a separate transaction that also occurred on April 27,
2009, following the closing of the merger of Avanex into
Bookham, Bookham changed its name to Oclaro, Inc. This name
change was effected pursuant to Section 253 of the General
Corporation Law of the State of Delaware by the merger of a
wholly-owned subsidiary of Bookham (the Subsidiary)
into Bookham. Bookham was the surviving corporation in this
merger with the Subsidiary and, in connection with the merger,
amended its Restated Certificate of Incorporation to change its
name to Oclaro, Inc. pursuant to a Certificate of Ownership and
Merger filed on April 27, 2009 with the Secretary of State
of the State of Delaware. References herein to the
Company mean Bookham and its subsidiaries
consolidated business activities prior to April 27, 2009
and Oclaro and its subsidiaries consolidated business
activities since April 27, 2009. Subsequent to the merger,
Avanex changed its name to Oclaro (North America), Inc. All
references to Avanex in time periods after the
merger refer to Oclaro (North America), Inc.
Basis
of Presentation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
On April 14, 2010, the Company announced that its board of
directors had approved a
1-for-5
reverse split of its common stock, pursuant to previously
obtained stockholder authorization. This reverse stock split
became effective at 6:00 p.m., Eastern Time, on
April 29, 2010, which reduced the number of shares of the
Companys common stock issued and outstanding from
approximately 212 million to approximately 42 million
and reduced the number of authorized shares of common stock from
450 million to 90 million. All share and per share
amounts presented herein are reflected on a post-reverse-split
basis.
In June 2009, the Financial Accounting Standards Board
(FASB) issued guidance now codified as FASB
Accounting Standards Codification (ASC) Topic 105,
Generally Accepted Accounting Principles. ASC Topic 105
establishes the FASB Accounting Standards Codification
(Codification) as the single source of
authoritative accounting principles generally accepted in the
United States of America (U.S. GAAP). Under the
Codification, all existing accounting standards and
pronouncements are superseded and reorganized into a consistent
structure arranged by topic, subtopic, section and paragraph.
Since the Codification does not change or alter existing
U.S. GAAP, it did not have any impact on the Companys
consolidated financial statements; however, it changes the
F-8
way references to accounting standards and pronouncements are
presented. The provisions of ASC Topic 105 were adopted by the
Company in the first quarter of fiscal year 2010. References
made to FASB guidance throughout this Annual Report on
Form 10-K
refer to the Codification.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts
of revenue and expenses during the reported periods. Examples of
significant estimates and assumptions made by management involve
the fair value of goodwill and long-lived assets, the fair value
of purchase consideration paid and assets acquired in business
combinations, valuation allowances for deferred tax assets, fair
value of stock-based compensation, estimates for allowances for
doubtful accounts, and valuation of excess and obsolete
inventories. These judgments can be subjective and complex and
consequently actual results could differ materially from those
estimates and assumptions.
Fiscal
Years
The Company operates on a 52/53 week year ending on the
Saturday closest to June 30. The fiscal year ended
July 3, 2010 was a 53 week year. Each of the fiscal
years ended June 27, 2009 and June 28, 2008 were
52 week years.
Reclassifications
For presentation purposes, certain prior period amounts have
been reclassified to conform to the current period consolidated
financial statements. These reclassifications do not affect the
Companys consolidated net income (loss), cash flows, cash
and cash equivalents or stockholders equity, as previously
reported.
On June 3, 2009, the Company entered into a definitive
agreement to sell certain assets and liabilities of its Oclaro
Photonics, Inc. subsidiary, which are referred to collectively
herein as the New Focus business, to Newport Corporation
(Newport). This sale was completed on July 4,
2009. The assets and liabilities sold to Newport are classified
as assets held for sale and liabilities held for sale within
current assets and current liabilities, respectively, on the
consolidated balance sheets for periods prior to the
consummation of the sale. The financial results of the
Companys New Focus business are classified as discontinued
operations in the consolidated statements of operations for all
periods presented. These notes to the Companys
consolidated financial statements relate to the Companys
continuing operations only, unless otherwise indicated. See
Note 3, Business Combinations, for additional
details.
Cash,
Cash Equivalents and Short-Term Investments
Cash and cash equivalents are carried at market value. The
Company considers all liquid investment securities with an
original maturity date of three months or less to be cash
equivalents. Any realized gains and losses on liquid investment
securities are included in Other income (expense) in
the consolidated statements of operations. Restricted cash of
$4.5 million as of July 3, 2010 consists of collateral
for the performance of the Companys obligations under
certain facility lease agreements and bank accounts otherwise
restricted.
The Company classifies short-term investments, which consist
primarily of securities purchased with original maturities of
more than three months, as
available-for-sale
securities. These short-term investments are reported at market
value, with the aggregate unrealized holding gains and losses
reported as a component of accumulated other comprehensive
income in stockholders equity. All realized gains and
losses and unrealized losses resulting from declines in fair
value that are other than temporary and not involving credit
losses are recorded in the consolidated statements of operations
in the period they occur.
F-9
The following table provides details regarding the
Companys cash, cash equivalents and short-term investments
at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash-in-bank
|
|
$
|
23,962
|
|
|
$
|
24,162
|
|
Money market funds
|
|
|
83,214
|
|
|
|
20,399
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,176
|
|
|
$
|
44,561
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
United States agency securities
|
|
$
|
|
|
|
$
|
6,669
|
|
United States corporate bonds
|
|
|
|
|
|
|
2,590
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
9,259
|
|
|
|
|
|
|
|
|
|
|
As of June 27, 2009, all of the Companys short-term
investments had maturities of less than one year.
Concentration
of Credit Risks
The Company places its cash, cash equivalents and short-term
investments with and in the custody of financial institutions
which at times, are in excess of amounts insured by the Federal
Deposit Insurance Corporation (FDIC). Management monitors the
ongoing creditworthiness of these institutions. The
Companys investment policy limits the amounts invested
with any one institution, type of security and issuer. To date,
the Company has not experienced significant losses on these
investments.
The Companys trade accounts receivable are concentrated
with companies in the telecom industry. At July 3, 2010,
two customers accounted for 29 percent of the
Companys gross accounts receivable. At June 27, 2009,
two customers accounted for 30 percent of the
Companys gross accounts receivable.
Allowance
for Doubtful Accounts and Sales Return Allowance
The Company performs ongoing credit evaluations of its customers
and records specific allowances for doubtful accounts when a
customer is unable to meet its financial obligations, as in the
case of bankruptcy filings or deteriorated financial position.
Estimates are used in determining allowances for customers based
on factors such as current trends, the length of time the
receivables are past due and historical collection experience.
The Company writes off a receivable account when all rights,
remedies and recourses against the account and its principals
are exhausted and records a benefit when previously reserved
accounts are collected. The Company recorded provisions of
$1.5 million, $0.2 million and $16,000 as allowances
for doubtful accounts in fiscal years 2010, 2009 and 2008,
respectively.
The Company records a provision for estimated sales returns,
which is netted against revenues, in the same period as the
related revenues are recorded. These estimates are based on
historical sales returns, other known factors and the
Companys return policy. The Company recorded provisions of
$0.2 million, $0.1 million and $0.1 million as
sales return allowances in fiscal years 2010, 2009 and 2008,
respectively.
Inventories
Inventories, consisting of raw materials,
work-in-process
and finished goods are stated at the lower of cost (first in,
first out basis) or market. The Company plans production based
on orders received and forecasted demand and maintains a stock
of certain items. These production estimates are dependent on
the Companys assessment of current and expected orders
from its customers, including consideration that orders are
subject to cancellation with limited advance notice prior to
shipment. The Company assesses the valuation of its inventory,
including significant inventories held by contract manufacturers
on its behalf, on a quarterly basis. Products may be unsaleable
because they are technically obsolete due to substitute
products, specification changes or excess inventory relative to
customer forecasts. The Company adjusts the carrying value of
inventory using methods that take these factors into
F-10
account. If the Company finds that the cost basis of its
inventory is greater than the current market value, the Company
writes the inventory down to the estimated selling price, less
the estimated costs to complete and sell the product.
The following table provides details regarding the
Companys inventories at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
17,732
|
|
|
$
|
16,560
|
|
Work-in-process
|
|
|
32,491
|
|
|
|
29,825
|
|
Finished goods
|
|
|
12,347
|
|
|
|
13,142
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,570
|
|
|
$
|
59,527
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method based upon the estimated
useful lives of the assets, which generally range from three to
five years, except for buildings which are generally depreciated
over twenty years. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives or the
term of the related lease, whichever is shorter. When assets are
retired or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts. Gains
resulting from asset dispositions are included in gain on sale
of property and equipment in the accompanying consolidated
statements of operations. Repair and maintenance costs are
expensed as incurred.
The following table provides details regarding the
Companys property and equipment, net at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
16,104
|
|
|
$
|
16,696
|
|
Plant and machinery
|
|
|
97,186
|
|
|
|
80,881
|
|
Fixtures, fittings and equipment
|
|
|
1,142
|
|
|
|
1,085
|
|
Computer equipment
|
|
|
12,232
|
|
|
|
12,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,664
|
|
|
|
111,598
|
|
Less: accumulated depreciation
|
|
|
(89,148
|
)
|
|
|
(81,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,516
|
|
|
$
|
29,875
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $10.9 million, $11.0 million
and $12.0 million for the fiscal years ended July 3,
2010, June 27, 2009 and June 28, 2008, respectively.
Goodwill
and Other Intangible Assets
The Company reviews its goodwill and other intangible assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable
and also reviews goodwill annually. The values assigned to
goodwill and other intangible assets are based on estimates and
judgments regarding expectations for the success and life cycle
of products and technologies acquired.
Goodwill is tested for impairment using a two-step process. In
the first step, the fair value of a reporting unit is compared
to its carrying value. If the fair value of a reporting unit
exceeds the carrying value of the net assets assigned to a
reporting unit, goodwill is considered not impaired and no
further testing is required. If the carrying value of the net
assets assigned to a reporting unit exceeds the fair value of a
reporting unit, a second step of the impairment test is
performed whereby the Company hypothetically applies purchase
accounting to the reporting
F-11
unit using the fair values from the first step in order to
determine the implied fair value of a reporting units
goodwill.
Non-Marketable
Cost Method Investments
In May 2010, the Company made a $7.5 million investment in
ClariPhy Communications, Inc. (ClariPhy), a
privately-held company, receiving in exchange a less than
20 percent equity interest in ClariPhy. In addition,
ClariPhy and Oclaro executed a co-marketing and development
agreement under which the Company has the opportunity to
increase its initial equity interest stake in ClariPhy through
achievement of certain milestones related to this agreement.
Achievement of the maximum additional equity interest in
ClariPhy through the co-marketing and development agreement
would still result in a less than 20 percent equity
interest in ClariPhy.
As of July 3, 2010 and June 27, 2009, including the
investment in ClariPhy, the Company had $9.0 million and
$1.5 million, respectively, of investments in
privately-held companies. These investments consist of less than
20 percent equity ownership interests of common stock
and/or
preferred stock in these companies. These investments are
accounted for under the cost method of accounting since the
Company does not exercise any form of significant influence over
the financial or operating matters of these companies. Under the
cost method, an investment is recorded at cost and carried at
that amount until it is sold or otherwise disposed of, or until
it is written down due to an impairment. The Company
periodically performs an impairment assessment whenever events
or changes in circumstances indicate that the investments
respective carrying amounts may not be recoverable. These
investments are included in Other non-current assets
in the consolidated balance sheets.
Derivative
Financial Instruments
The Companys operating results are subject to fluctuations
based upon changes in the exchange rates between the currencies
in which it collects revenues and pays expenses. A majority of
the Companys revenues are denominated in
U.S. dollars, while a significant portion of its expenses
are denominated in United Kingdom (U.K.) pounds sterling, the
Chinese yuan, Swiss franc, and the Euro, in which it pays
expenses in connection with operating its facilities in the
U.K., China, Switzerland and Italy. The Company currently enters
into foreign currency forward exchange contracts in an effort to
mitigate a portion of its exposure to fluctuations between the
U.S. dollar and the U.K. pound sterling.
ASC Topic 815, Derivatives and Hedging, requires the
Company to recognize all derivatives, such as foreign currency
forward exchange contracts, on the consolidated balance sheets
at fair value regardless of the purpose for holding the
instrument. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative
will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through operating
results or recognized in accumulated other comprehensive income
until the hedged item is recognized in operating results in the
consolidated statements of operations.
At the end of each accounting period, the Company
marks-to-market
all foreign currency forward exchange contracts that have been
designated as cash flow hedges and changes in fair value are
recorded in Accumulated other comprehensive income
until the underlying cash flow is settled and the contract is
recognized in Other income (expense) in the
consolidated statements of operations. As of July 3, 2010,
the Company held seventeen outstanding foreign currency forward
exchange contracts to sell U.S. dollars and buy U.K. pounds
sterling. All of these contracts have all been designated as
cash flow hedges. These contracts had an aggregate notional
value of approximately $18.3 million of put and call
options which expire, or expired, at various dates ranging from
July 2010 through May 2011. To date, the Company has not entered
into any such contracts for longer than 12 months and,
accordingly, all amounts included in Accumulated other
comprehensive income as of July 3, 2010 will
generally be reclassified into Other income
(expense) within the next 12 months. As of
July 3, 2010, each of the seventeen designated cash flow
hedges was determined to be fully effective; therefore, the
Company has recorded an unrealized gain of $49,000 to
Accumulated other comprehensive income related to
recording the fair value of these foreign currency forward
exchange contracts for accounting purposes. For the fiscal year
ended July 3, 2010, a net loss of $0.7 million was
reclassified from Accumulated other comprehensive
income into Other income (expense).
F-12
Accrued
Expenses and Other Liabilities
The following table provides details for the Companys
accrued expenses and other liabilities at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Accrued expenses and other liabilities:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
4,464
|
|
|
$
|
3,826
|
|
Compensation and benefits related accruals
|
|
|
8,688
|
|
|
|
8,024
|
|
Warranty accrual
|
|
|
2,437
|
|
|
|
2,228
|
|
Current portion of restructuring accrual
|
|
|
4,338
|
|
|
|
9,485
|
|
Unrealized loss on currency instruments designated as hedges
|
|
|
|
|
|
|
545
|
|
Other accruals
|
|
|
15,477
|
|
|
|
14,908
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,404
|
|
|
$
|
39,016
|
|
|
|
|
|
|
|
|
|
|
Warranty
The Company accrues for the estimated costs to provide warranty
services at the time revenue is recognized. The Companys
estimate of costs to service its warranty obligations is based
on historical experience and expectation of future conditions.
To the extent the Company experiences increased warranty claim
activity or increased costs associated with servicing those
claims, the Companys warranty costs will increase,
resulting in a decrease in gross profit and a decrease in net
income.
Revenue
Recognition
The Companys revenue recognition policy follows ASC Topic
605, Revenue Recognition, for both its telecom and
advanced photonics solutions operating segments. Specifically,
the Company recognizes product revenue when (i) persuasive
evidence of an arrangement exists, (ii) the product has
been shipped and title has transferred,
(iii) collectability is reasonably assured, (iv) the
fees are fixed or determinable and (v) there are no
uncertainties with respect to customer acceptance.
For shipments to new customers and evaluation units, including
initial shipments of new products, where the customer has the
right of return through the end of an evaluation period, the
Company recognizes revenue on these shipments at the end of the
evaluation period, if not returned, and when collectability is
reasonably assured. The Company records a provision for
estimated sales returns in the same period as the related
revenues are recorded, which is netted against revenue. These
estimates are based on historical sales returns, other known
factors and the Companys return policy.
The Company recognizes revenues from financially distressed
customers when collectability becomes reasonably assured,
assuming all other above criteria for revenue recognition have
been met.
In the second quarter of fiscal year 2009 the Company issued
billings of $4.1 million for products that were shipped to
Nortel Networks Corporation (Nortel), but for which
payment was not received prior to Nortels bankruptcy
filing on January 14, 2009. As a result, the corresponding
revenue was deferred, and therefore was not recognized as
revenues or accounts receivable in the consolidated financial
statements at the time of such billings, as the Company
determined that such amounts were not reasonably assured of
collectability in accordance with its revenue recognition
policy. In fiscal year 2009, the Company recognized revenues of
$0.6 million from Nortel upon receipt of payment for
billings which had been previously deferred and Nortel returned
$0.8 million in products to the Company which had been
shipped to Nortel prior to the bankruptcy filing and which had
not been paid for by Nortel.
As of July 3, 2010, the Company had remaining contractual
receivables from Nortel, associated with product shipments
deferred as a result of Nortels January 14, 2009
bankruptcy filing, totaling $2.7 million which are not
reflected in the accompanying consolidated balance sheets. To
the extent that collectability becomes reasonably
F-13
assured for these deferred billings in future periods, our
future results will benefit from the recognition of these
amounts.
Research,
Development and Engineering Expenses
Research, development and engineering costs are expensed as
incurred.
Advertising
Expenses
Advertising costs are expensed as incurred. The Companys
advertising costs for the years ended July 3, 2010,
June 27, 2009 and June 28, 2008 were not significant.
Restructuring
Expenses
The Company records costs associated with employee terminations
and other exit activities in accordance with ASC Topic 420,
Exit or Disposal Cost Obligations. Under ASC Topic 420,
employee termination benefits are recorded as an operating
expense when the benefit arrangement is communicated to the
employee and no significant future services are required. If
employees are required to render service until they are
terminated in order to receive the termination benefits, the
fair value of the termination date liability is recognized
ratably over the future service period.
Impairment
of Long-Lived Assets
The Company reviews property and equipment and certain
identifiable intangibles, excluding goodwill, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable on an annual
basis. Recoverability of these assets is measured by comparing
their carrying amounts to market prices or the future
undiscounted cash flows the assets are expected to generate. If
property and equipment or certain identifiable intangibles are
considered to be impaired, the impairment to be recognized would
equal the amount by which the carrying value of the asset
exceeds its fair market value based on market prices or future
discounted cash flows.
The Companys goodwill and intangible assets with
indefinite useful lives are tested for impairment at least
annually or sooner whenever events or changes in circumstances
indicate that they may be impaired.
Intangible assets with definite lives are amortized over their
estimated useful lives and reviewed for impairment whenever
events or changes in circumstances indicate an assets
carrying value may not be recoverable. The Company amortizes its
acquired intangible assets with definite lives over the
estimated useful life of the assets, which is generally from 1.5
to 11 years and 15 years as to one specific customer
contract.
Stock-Based
Compensation
The Company has adopted the fair value recognition provisions of
ASC Topic 718, Compensation Stock
Compensation, using the modified prospective transition
method. Under that transition method, stock-based compensation
cost recognized during the years ended July 3, 2010,
June 27, 2009 and June 28, 2008 includes:
(a) compensation cost for all share-based payments granted
prior to, but not yet vested as of July 3, 2005, based on
the grant-date fair value estimated in accordance with the
original provisions of SFAS No. 123, Accounting for
Stock-based Compensation, and (b) compensation cost for
all share-based payments granted subsequent to July 3,
2005, based on the grant-date fair value estimated in accordance
with the provisions of ASC Topic 718.
The Company uses the Black-Scholes-Merton option pricing model
to value the compensation expense associated with its
stock-based awards. In addition, the Company estimates
forfeitures when recognizing compensation expense, and it
adjusts its estimate of forfeitures over the requisite service
period based on the extent to which actual forfeitures differ,
or are expected to differ, from such 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.
F-14
Stock options have a term of seven to ten years and generally
vest over a two to four year service period, and restricted
stock awards generally vest over a one to four year period, and
in certain cases each may vest earlier based upon the
achievement of specific performance-based objectives as set by
the Companys board of directors.
Foreign
Currency Transactions and Translation Gains and
Losses
The assets and liabilities of the Companys foreign
operations are translated from their respective functional
currencies into U.S. dollars at the rates in effect at the
consolidated balance sheet dates, and revenue and expense
amounts are translated at the average rate during the applicable
periods reflected on the consolidated statements of operations.
Foreign currency translation adjustments are recorded as
accumulated other comprehensive income, except for the
translation adjustment of short-term intercompany loans which
are recorded as other income or expense. Gains and losses from
foreign currency transactions, realized and unrealized in the
event of foreign currency transactions not designated as hedges,
and those transactions denominated in currencies other than the
Companys functional currency, are recorded as gain (loss)
on foreign exchange in the consolidated statements of operations.
Income
Taxes
The Company provides for income taxes under the provisions of
ASC Topic 740, Income Taxes. ASC Topic 740 requires an
asset and liability based approach in accounting for income
taxes. Deferred income tax assets and liabilities are recorded
based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates.
Valuation allowances are provided against deferred income tax
assets which are not likely to be realized.
Net
Income (Loss) Per Share
Basic net income (loss) per share is computed using only the
weighted-average number of shares of common stock outstanding
for the applicable period, while diluted net income (loss) per
share is computed assuming conversion of all potentially
dilutive securities, such as stock options, unvested restricted
stock awards, warrants and obligations under escrow agreements
during such period. For fiscal years ended June 27, 2009
and June 28, 2008, there were no stock options, unvested
restricted stock awards or warrants factored into the
computation of diluted shares outstanding since the Company
incurred a net loss in these periods which would have resulted
in their inclusion having an anti-dilutive effect.
Recent
Accounting Pronouncements
With the exception of those discussed below, there have been no
recent accounting pronouncements or changes in accounting
pronouncements that are of significance, or of potential
significance, to the Company.
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-17,
Revenue Recognition Milestone Method (Topic 605)
Revenue Recognition. ASU
2010-17
provides guidance on defining the milestone and determining when
the use of the milestone method of revenue recognition for
research or development transactions is appropriate. It provides
criteria for evaluating if the milestone is substantive and
clarifies that a vendor can recognize consideration that is
contingent upon achievement of a milestone as revenue in the
period in which the milestone is achieved, if the milestone
meets all the criteria to be considered substantive. ASU
2010-17 is
effective on a prospective basis for milestones achieved in
fiscal years, and interim periods within those years, beginning
on or after June 15, 2010. The Company is currently
evaluating the impact of ASU
2010-17, but
does not expect its adoption to have a material impact on the
Companys consolidated financial position or results of
operations.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820)
Improving Disclosures about Fair Value
Measurements. ASU
2010-06
requires companies to: disclose separately the amounts of
significant transfers into and out of Level 1 and
Level 2 fair value measurements and to describe the reasons
for such transfers. In addition, in the reconciliation for
Level 3 fair value measurements, companies are to present
separately information about purchases, sales, issuances, and
settlements on a gross basis. The revised authoritative guidance
for Level 1 and 2 fair value measurements is effective for
interim and annual
F-15
reporting periods beginning after December 15, 2009 and the
revised authoritative guidance for Level 3 fair value
measurements is effective for fiscal years beginning after
December 15, 2010 and interim periods within those fiscal
years with early application permitted. The Companys
adoption of the revised guidance for Levels 1 and 2 during
the three months ended April 3, 2010 did not have any
effect on its consolidated financial position or results of
operations. The Company intends to adopt the revised guidance
for Level 3 in the first quarter of fiscal year 2011 and it
does not expect the adoption to have a material effect on its
consolidated financial position or results of operations.
In October 2009, the FASB issued ASU
2009-14,
Software (Topic 985), Certain Revenue Arrangements that
Include Software Elements amending ASC Topic 985. ASU
2009-14
applies to vendors that sell or lease tangible products that
contain software that is more than incidental to the tangible
product as a whole. ASU
2009-14
removes tangible products from the scope of software revenue
guidance and provides direction for measuring and allocating
revenue between the deliverables within the arrangement. ASU
2009-14 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. The Company is currently evaluating the
impact of ASU
2009-14, but
does not expect its adoption to have a material impact on the
Companys consolidated financial position or results of
operations.
In October 2009, the FASB issued ASU
2009-13,
Revenue Recognition (Topic 605), Multiple-Deliverable Revenue
Arrangements amending ASC Topic 605. ASU
2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. ASU
2009-13
eliminates the residual method of revenue allocation and
requires revenue to be allocated using the relative selling
price method. ASU
2009-13 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. The Company is currently evaluating the
impact of ASU
2009-13, but
does not expect its adoption to have a material impact on the
Companys consolidated financial position or results of
operations.
In the first quarter of fiscal year 2009, the Company adopted
ASC Topic 820, Fair Value Measurements and Disclosures,
for all financial assets and financial liabilities and for
non-financial assets and non-financial liabilities recognized or
disclosed at fair value in the financial statements on a
recurring basis, at least annually. Effective with the first
quarter of fiscal year 2010, the Company adopted the provisions
of ASC Topic 820 for all non-financial assets and non-financial
liabilities. Under ASC Topic 820, the Company is required to
provide certain information according to a fair value hierarchy.
The fair value hierarchy ranks the quality and reliability of
the information used to determine fair values. The three levels
of inputs that may be used to measure fair value are as follows:
Level 1 Quoted prices in active markets
for identical assets or liabilities.
Level 2 Inputs other than Level 1
prices, such as quoted prices for similar assets or liabilities,
quoted prices of identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active
markets), or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3 Unobservable inputs to the
valuation methodology that are significant to the measurement of
the fair value of the assets or liabilities.
The Companys cash equivalents and short-term investment
instruments are generally classified within Level 1 or
Level 2 of the fair value hierarchy because they are valued
using quoted market prices, broker or dealer quotations, or
alternative pricing sources with reasonable levels of price
transparency. The types of instruments valued based on quoted
market prices in active markets include most
U.S. government and agency securities and money market
securities. Such instruments are generally classified within
Level 1 of the fair value hierarchy. The types of
instruments valued based on other observable inputs include
investment-grade corporate bonds, mortgage-backed and
asset-backed securities and foreign currency forward exchange
contracts. Such instruments are generally classified within
Level 2 of the fair value hierarchy.
The Companys non-financial assets, such as other
intangible assets, net, are classified within Level 3 of
the fair value hierarchy because they are valued using a
discounted cash flow model based on the Companys estimates
F-16
of future cash flows. The Company also classified a liability
within Level 3 for a value protection guarantee issued in
connection with the acquisition of Xtellus Inc. because it is
primarily valued using management estimates of future operating
results. The fair value of this value protection liability was
initially estimated at $0.9 million. During the second half
of fiscal year 2010, the Company reassessed the fair value of
this liability determining that its value declined from
$0.9 million at January 2, 2010 to nil at July 3,
2010. This $0.9 million change in fair value was recognized
as income within Restructuring, merger and related
costs during the year ended July 3, 2010. The Company
has classified the escrow liability for the Xtellus acquisition
within Level 2 of the fair value hierarchy, as its value is
derived from the gross liability of $7.0 million due
18 months after the acquisition discounted to present value
using the Companys incremental borrowing cost. See
Note 3, Business Combinations, for additional
details regarding these liabilities.
The Companys defined benefit pension plan assets are
comprised of $17.6 million in Level 1 assets, which
include cash, equity investments and fixed income investments,
and $2.6 million in Level 3 assets, which include real
estate and alternative investments. These pension plan assets
are not reflected in the accompanying consolidated balance
sheets and thus, are not included in the table below.
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
Assets and liabilities measured at fair value on a recurring
basis are shown in the table below by their corresponding
balance sheet caption and consisted of the following types of
instruments at July 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(Thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
83,214
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
83,214
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on currency instruments designated as hedges
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
49
|
|
Other intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
10,610
|
|
|
|
10,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
83,214
|
|
|
$
|
49
|
|
|
$
|
10,610
|
|
|
$
|
93,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrow liability for Xtellus acquisition
|
|
|
|
|
|
|
6,324
|
|
|
|
|
|
|
|
6,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
6,324
|
|
|
$
|
|
|
|
$
|
6,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $24.0 million in cash held in Company bank
accounts at July 3, 2010. |
|
|
Note 3.
|
Business
Combinations
|
Fiscal
2009 Acquisitions
On January 27, 2009, Oclaro entered into a definitive
agreement providing for the merger of Oclaro, Inc. and Avanex
Corporation. On April 27, 2009, the Company consummated the
combination with Avanex through the merger of Avanex with a
wholly-owned subsidiary of the Company following approval by the
stockholders of both companies. The Company issued approximately
17 million shares of its common stock for all of the
outstanding shares of Avanex on April 27, 2009.
F-17
Fiscal
2010 Acquisitions
On June 3, 2009, the Company signed a definitive agreement
with Newport Corporation (Newport), under which
Newport agreed to acquire the net assets of the Companys
New Focus business in exchange for the net assets of
Newports high power laser diodes business and
$3.0 million in cash proceeds. The transaction closed on
July 4, 2009. Under the agreement, the Company transferred
to Newport substantially all of the operating assets used or
held for use in its New Focus business. In exchange, the Company
received substantially all of the operating assets of
Newports Tucson, Arizona facility, as well as the
intellectual property of the high power laser diodes business.
On December 17, 2009, the Company acquired Xtellus Inc.
(Xtellus). Pursuant to the terms of the acquisition
agreement, Oclaro issued 4.7 million shares of its common
stock, a portion of which is being held in escrow for
18 months to support indemnification obligations of the
former Xtellus stockholders to Oclaro, which may be payable in
cash, or, at the Companys option, in newly issued shares
of its common stock, or a combination of cash and stock. Under
the terms of the acquisition agreement, the Company also
provides for a value protection guarantee under which former
Xtellus stockholders could receive additional consideration
subject to both the share price of Oclaro failing to achieve a
certain price level at the end of calendar year 2010 and on the
Xtellus business achieving certain revenue targets. Subsequent
to the merger, Xtellus changed its name to Oclaro (New Jersey),
Inc. All references to Xtellus in time periods after
the merger refer to Oclaro (New Jersey), Inc.
During the year ended July 3, 2010, the Company recorded
$2.5 million in legal and other direct merger-related costs
in connection with business combinations entered into in fiscal
year 2010. These costs are recorded within Restructuring,
merger and related costs in the consolidated statement of
operations.
As of June 27, 2009, the Company had capitalized
$0.3 million in legal and other deal-related costs
associated with the acquisition of the high-power laser diodes
business. Upon adoption of ASC Topic 805, Business
Combinations, on June 28, 2009, the Company wrote-off
these deferred assets to retained earnings as a cumulative
effect of a change in accounting principle.
Merger
of Oclaro Inc. and Avanex Corporation
The Company accounted for this acquisition under the purchase
method of accounting. For accounting purposes, the fair value of
the consideration paid to Avanex stockholders in the merger was
$36.2 million; which includes the issuance of
$31.8 million in common stock, based on a price of $1.87
per share of Oclaro common stock, which was the weighted-average
of the closing market prices of the Companys common stock
for a period beginning two days before and ending two days after
January 27, 2009, the day the merger was announced;
$0.6 million for the assumption of vested stock options and
warrants to purchase Oclaro common stock; and $3.9 million
in acquisition-related transaction costs.
The following table presents the allocation of the purchase
price, including the fair value of common stock options and
warrants assumed, professional fees and other related
transaction costs, to the assets acquired and liabilities
assumed, based on their estimated fair values as of
April 27, 2009:
|
|
|
|
|
|
|
Purchase
|
|
|
|
Price Allocation
|
|
|
|
(Thousands)
|
|
|
Cash, cash equivalents, short-term investments and restricted
cash
|
|
$
|
25,746
|
|
Accounts receivable
|
|
|
22,933
|
|
Inventories
|
|
|
13,703
|
|
Prepaid expenses and other current assets
|
|
|
6,802
|
|
Property and equipment
|
|
|
1,432
|
|
Other non-current assets
|
|
|
3,245
|
|
Accounts payable
|
|
|
(15,568
|
)
|
Accrued expenses and other liabilities
|
|
|
(17,687
|
)
|
Other long-term liabilities
|
|
|
(4,377
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
36,229
|
|
|
|
|
|
|
F-18
Sale
of the New Focus Business and Acquisition of Newports
High-Power Laser Diodes Business
The Companys estimate of the fair value of the assets and
liabilities of the New Focus business transferred to Newport is
$9.9 million. The carrying value of these assets and
liabilities on the Companys consolidated balance sheet as
of July 4, 2009, the date of the exchange, was
$8.5 million. In the year ended July 3, 2010, the
Company recorded a $1.4 million gain in income from
discontinued operations from the sale of the New Focus business.
In accordance with ASC Topic 360, Property, Plant and
Equipment, the financial results of the New Focus business
have been classified as discontinued operations for all periods
presented. The assets and liabilities of the discontinued
operation are presented as current assets and current
liabilities, separately under the captions Assets held for
sale and Liabilities held for sale in the
accompanying consolidated balance sheet at June 27, 2009
and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Assets held for sale:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
|
|
|
$
|
3,556
|
|
Inventories
|
|
|
|
|
|
|
5,566
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
46
|
|
Property and equipment, net
|
|
|
|
|
|
|
1,274
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
10,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Liabilities held for sale:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
1,197
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
2,028
|
|
|
|
|
|
|
|
|
|
|
The following table presents the statements of operations for
the discontinued operations of the New Focus business for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
24,829
|
|
|
$
|
32,828
|
|
Cost of revenues
|
|
|
|
|
|
|
17,113
|
|
|
|
20,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
7,716
|
|
|
|
12,212
|
|
Operating expenses
|
|
|
|
|
|
|
14,106
|
|
|
|
12,585
|
|
Other income (expense), net
|
|
|
1,420
|
|
|
|
53
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes
|
|
|
1,420
|
|
|
|
(6,337
|
)
|
|
|
(179
|
)
|
Income tax provision
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
1,420
|
|
|
$
|
(6,387
|
)
|
|
$
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company accounted for the assets acquired and liabilities
assumed of Newports high-power laser diodes business using
the purchase method of accounting. The total consideration given
to Newport in connection with the exchange described above has
been allocated to the assets acquired and liabilities assumed
based on their fair values as of the date of the exchange.
F-19
The Companys purchase price, based on the fair values of
the assets acquired and liabilities assumed as of the date of
the exchange, is as follows:
|
|
|
|
|
|
|
Purchase Price
|
|
|
|
(Thousands)
|
|
|
Cash
|
|
$
|
3,000
|
|
Accounts receivable
|
|
|
2,240
|
|
Inventories
|
|
|
4,863
|
|
Property and equipment
|
|
|
4,800
|
|
Other intangible assets
|
|
|
1,755
|
|
Accounts payable
|
|
|
(923
|
)
|
Accrued expenses and other current liabilities
|
|
|
(568
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
15,167
|
|
Gain on bargain purchase
|
|
|
(5,267
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
9,900
|
|
|
|
|
|
|
Any excess of the fair value of assets acquired and liabilities
assumed over the aggregate consideration given for such
acquisition results in a gain on bargain purchase. In the year
ended July 3, 2010, the Company recorded a gain on bargain
purchase of $5.3 million in connection with the acquisition
of Newports high-power laser diodes business, which is
included in Other income (expense) in the
accompanying consolidated statements of operations. The gain on
bargain purchase reflects the completion of the Companys
full valuation of the fair value of assets acquired and
liabilities assumed. Adjustments resulting from the completion
of the full valuation are presented retrospectively in the
Companys consolidated financial statements as though they
had been recorded as of the acquisition date.
Acquisition
of Xtellus
The Company accounted for the assets acquired and liabilities
assumed from its acquisition of Xtellus using the purchase
method of accounting. Under the terms of this acquisition,
Oclaro issued 3,693,181 unregistered shares of Oclaro common
stock with a fair value of $22.2 million as of the
acquisition closing date, December 17, 2009. Of these
shares issued, 3,466,204 shares were issued to former
Xtellus stockholders and 226,977 shares were issued to
certain former debt holders of Xtellus in order to extinguish
outstanding Xtellus debt. The fair value of these shares was
determined using the Companys closing price of $6.70 per
share of Oclaro common stock as of December 17, 2009,
adjusted by a discount of 10.4 percent to reflect the lack
of marketability due to the shares being unregistered and
subject to restrictions on transfer under Rule 144 of the
Securities and Exchange Commission (SEC).
The Company is also obligated to pay an additional
$7.0 million in consideration to the former Xtellus
stockholders after an 18 month escrow period established to
secure the indemnification obligations of the Xtellus
stockholders under the acquisition agreement. The
$7.0 million, less any indemnified obligations which may be
assumed by the Company, is payable in cash, or, at the
Companys option, in newly issued shares of its common
stock, or a combination of cash and stock. The Company
determined the fair value of this obligation to be
$6.3 million at the acquisition date, which it recorded as
a long-term liability in the consolidated balance sheet as of
July 3, 2010. The Company issued 994,318 shares of
Oclaro common stock into a third-party escrow account to secure
its obligation under the escrow agreement.
The Company also agreed to pay a valuation protection guarantee
(value protection liability) whereby former
stockholders of Xtellus are entitled to receive up to
$7.0 million in additional consideration if Oclaros
common stock trades below certain levels at the end of calendar
year 2010 and if revenue from Xtellus products is more than
$17.0 million in calendar year 2010. The post-closing
consideration, if any, is payable in cash or, at Oclaros
option, newly issued shares of Oclaro common stock, or a
combination of cash and stock. The estimated fair value of this
valuation protection liability was $0.9 million at
January 2, 2010. This estimate was determined using
management estimates of future operating results and a Monte
Carlo simulation model to determine the likelihood of achieving
certain market conditions. During fiscal year 2010, the Company
reassessed the fair value of
F-20
this liability, determining that its value declined from
$0.9 million at January 2, 2010 to nil at July 3,
2010. This $0.9 million change in fair value was recognized
as income within Restructuring, merger and related
costs during the year ended July 3, 2010. Subsequent
changes to the fair value of the value protection liability will
result in adjustments to the Companys results of
operations in the period of adjustment, up to a potential
maximum of $7.0 million.
For accounting purposes, the total fair value consideration
given in connection with the acquisition of Xtellus was
$29.4 million, consisting of the following:
|
|
|
|
|
|
|
Total Consideration
|
|
|
|
(Thousands)
|
|
|
Common shares issued to Xtellus stockholders and debtholders
|
|
$
|
22,171
|
|
Estimated fair value of escrow liability
|
|
|
6,324
|
|
Estimated fair value of value protection guarantee
|
|
|
946
|
|
|
|
|
|
|
|
|
$
|
29,441
|
|
|
|
|
|
|
This acquisition also provides for an employee retention program
under which certain former Xtellus employees will receive up to
an aggregate of $5.0 million in a combination of cash (up
to a maximum of $1.0 million) and restricted stock awards
which are generally subject to time-based vesting over two years
and partially subject to the achievement of certain revenue
targets during calendar year 2010. The costs of this retention
program are considered compensatory and are being recorded in
the Companys results of operations. During fiscal year
2010, the Company recorded $1.0 million in
Restructuring, merger and related costs in the
consolidated statements of operations related to cash payments
due under the retention program.
The total consideration given to former stockholders of Xtellus
has been allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of the date of
the acquisition. The Companys preliminary purchase price
allocation, based on the estimated fair values of the assets
acquired and liabilities assumed as of the date of the
acquisition, is as follows:
|
|
|
|
|
|
|
Preliminary
|
|
|
|
Purchase Price
|
|
|
|
(Thousands)
|
|
|
Cash
|
|
$
|
277
|
|
Accounts receivable
|
|
|
75
|
|
Inventories
|
|
|
1,560
|
|
Property and equipment
|
|
|
2,297
|
|
Prepaid expenses and other current assets
|
|
|
1,339
|
|
Other non-current assets
|
|
|
477
|
|
Other intangible assets
|
|
|
7,309
|
|
Accounts payable
|
|
|
(1,683
|
)
|
Accrued expenses and other current liabilities
|
|
|
(1,729
|
)
|
Other long-term liabilities
|
|
|
(481
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
9,441
|
|
Goodwill
|
|
|
20,000
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
29,441
|
|
|
|
|
|
|
During the fourth quarter of fiscal year 2010, the Company
continued its fair value assessment of the Xtellus acquisition,
which resulted in revised fair value estimates for consideration
given and certain assets acquired. Total estimated fair value of
the consideration given decreased from $32.7 million at
April 3, 2010 to $29.4 million at July 3, 2010.
Estimated fair value of goodwill decreased from
$25.2 million at April 3, 2010 to $20.0 million
at July 3, 2010, and estimated fair value of other
intangible assets increased from $5.3 million at
April 3, 2010 to $7.3 million at July 3, 2010.
The Company intends to finalize its purchase accounting with
respect to the Xtellus
F-21
acquisition by the first quarter of fiscal year 2011. Any
adjustments recorded will be retrospectively presented in the
Companys consolidated financial statements as though they
had been recorded as of the acquisition date.
Unaudited
Pro Forma Financial Information
The following unaudited pro forma consolidated results of
operations have been prepared as if the acquisitions of the
Newport high-power laser diodes business and Xtellus had
occurred as of June 29, 2008, the first day of the
Companys fiscal year 2009:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
July 3,
|
|
June 27,
|
|
|
2010
|
|
2009
|
|
|
(Thousands unaudited)
|
|
Revenues
|
|
$
|
395,523
|
|
|
$
|
245,381
|
|
Income (loss) from continuing operations
|
|
$
|
5,611
|
|
|
$
|
(37,272
|
)
|
Net income (loss)
|
|
$
|
7,031
|
|
|
$
|
(43,659
|
)
|
Net income (loss) per share Basic
|
|
$
|
0.17
|
|
|
$
|
(1.60
|
)
|
Net income (loss) per share Diluted
|
|
$
|
0.16
|
|
|
$
|
(1.60
|
)
|
Shares used in computing net income (loss) per share
Basic
|
|
|
42,346
|
|
|
|
27,310
|
|
Shares used in computing net income (loss) per share
Diluted
|
|
|
44,286
|
|
|
|
27,310
|
|
This unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of
the results of operations that actually would have been achieved
had the merger been consummated as of that time, nor is it
intended to be a projection of future results.
|
|
Note 4.
|
Goodwill
and Other Intangible Assets
|
Additions. In connection with the
Companys acquisition of the Newport high-power laser
diodes business on July 4, 2009, the Company recorded
$1.8 million in other intangible assets. The acquired other
intangible assets from Newport consist of core and current
technology assets of $1.1 million with a weighted average
life of 6 years, customer relationships of
$0.6 million with a weighted average life of 6 years,
and contract backlog of $0.1 million with a weighted
average life of 1.5 years.
In connection with the Companys acquisition of Xtellus on
December 17, 2009, the Company recorded $20.0 million
in goodwill and $7.3 million in other intangible assets.
The acquired other intangible assets from Xtellus consist of
core and current technology assets of $3.1 million with a
weighted average life of 8 years, customer relationships of
$1.2 million with a weighted average life of 6 years,
patents of $2.8 million with a weighted average life of
11 years and trade names of $0.2 million with a
weighted average life of 8 years. These amounts are subject
to change upon the finalization of the Companys purchase
accounting for the Xtellus acquisition. During fiscal year 2010,
the Company also acquired through an asset purchase
$0.7 million in core and current technology with a weighted
average life of 6 years.
Impairment Assessments. During the fiscal year
ended June 27, 2009, the Company observed indicators of
potential impairment of its goodwill, including the impact of
the current general economic downturn on the Companys
future prospects and the continued decline of its market
capitalization, which caused the Company to conduct a goodwill
impairment analysis. Specifically, indicators emerged within the
New Focus reporting unit, which includes the technology acquired
in the March 2004 acquisition of Oclaro Photonics, Inc. and is
in the Companys advanced photonics solutions segment, and
one other reporting unit in the advanced photonics solutions
segment that includes the technology acquired in the March 2006
acquisition of Avalon Photonics AG (the Avalon reporting unit).
These indicators led the Company to conclude that an impairment
test was required to be performed for goodwill related to these
reporting units.
During the fiscal year ended June 27, 2009, the Company
determined, in its first step goodwill impairment analysis, that
its goodwill related to the New Focus and Avalon reporting units
was in fact impaired. The Company completed its full evaluation
of the second step impairment analysis, which indicated that the
goodwill was fully
F-22
impaired. The Company recorded $7.9 million for impairment
losses in its statement of operations for the year ended
June 27, 2009. The impairment will not result in any
current or future cash expenditures.
In conjunction with its full evaluation of the second step
goodwill impairment analysis, the Company also evaluated the
fair value of the intangible assets of these two reporting
units. Based on this testing, the Company determined that the
intangibles of its New Focus reporting unit and its Avalon
reporting units were impaired. The Company recorded
$1.2 million for the impairment loss related to these
intangibles, net of $2.8 million associated with the
discontinued operations of the New Focus business, in its
statements of operations for the year ended June 27, 2009.
During the fourth quarter of fiscal year ended July 3,
2010, the Company performed its annual impairment assessment of
its goodwill and a separate impairment assessment of its other
intangible assets, concluding that no impairment existed at the
assessment dates.
Amortization. Amortization of other intangible
assets for the years ended July 3, 2010, June 27, 2009
and June 28, 2008, was $1.0 million, $0.5 million
and $3.5 million, respectively. Amortization is recorded as
an operating expense within the consolidated statements of
operations. Estimated future amortization expense of other
intangible assets is $1.5 million for fiscal year 2011 and
$1.4 million for fiscal years 2012 through 2015.
The following table summarizes the Companys goodwill by
reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
Photonics
|
|
|
|
Total
|
|
|
Telecom
|
|
|
Solutions
|
|
|
|
(Thousands)
|
|
|
Balance at June 30, 2007 and June 28, 2008
|
|
$
|
7,881
|
|
|
$
|
|
|
|
$
|
7,881
|
|
Impairment
|
|
|
(7,881
|
)
|
|
|
|
|
|
|
(7,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition arising from Xtellus acquisition
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the activity related to the
Companys other intangible assets for fiscal years ended
July 3, 2010, June 27, 2009 and June 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Translations
|
|
|
Balance
|
|
|
|
June 27,
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
July 3,
|
|
|
|
2009
|
|
|
Additions
|
|
|
Disposals
|
|
|
Amortization
|
|
|
Adjustments
|
|
|
2010
|
|
|
|
(Thousands)
|
|
|
Supply agreements
|
|
$
|
3,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(197
|
)
|
|
$
|
3,056
|
|
Customer relationships
|
|
|
719
|
|
|
|
1,760
|
|
|
|
(719
|
)
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
Customer databases
|
|
|
135
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Core and current technology
|
|
|
6,650
|
|
|
|
4,921
|
|
|
|
(6,650
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
4,909
|
|
Patent portfolio
|
|
|
1,385
|
|
|
|
2,780
|
|
|
|
(1,385
|
)
|
|
|
|
|
|
|
|
|
|
|
2,780
|
|
Backlog
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Tradename
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,142
|
|
|
|
9,771
|
|
|
|
(8,889
|
)
|
|
|
|
|
|
|
(209
|
)
|
|
|
12,815
|
|
Less accumulated amortization
|
|
|
(10,191
|
)
|
|
|
|
|
|
|
8,889
|
|
|
|
(951
|
)
|
|
|
48
|
|
|
|
(2,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
1,951
|
|
|
$
|
9,771
|
|
|
$
|
|
|
|
$
|
(951
|
)
|
|
$
|
(161
|
)
|
|
$
|
10,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Translations
|
|
|
Balance
|
|
|
|
June 28,
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
June 27,
|
|
|
|
2008
|
|
|
Additions
|
|
|
Disposals
|
|
|
Amortization
|
|
|
Adjustments
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Supply agreements
|
|
$
|
4,026
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(773
|
)
|
|
$
|
3,253
|
|
Customer relationships
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
(149
|
)
|
|
|
719
|
|
Customer databases
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Core and current technology
|
|
|
12,654
|
|
|
|
|
|
|
|
(2,734
|
)
|
|
|
(2,925
|
)
|
|
|
(345
|
)
|
|
|
6,650
|
|
Patent portfolio
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
|
(809
|
)
|
|
|
(22
|
)
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,199
|
|
|
|
|
|
|
|
(2,734
|
)
|
|
|
(4,034
|
)
|
|
|
(1,289
|
)
|
|
|
12,142
|
|
Less accumulated amortization
|
|
|
(12,370
|
)
|
|
|
|
|
|
|
2,734
|
|
|
|
(1,229
|
)
|
|
|
674
|
|
|
|
(10,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
7,829
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(5,263
|
)
|
|
$
|
(615
|
)
|
|
$
|
1,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Translations
|
|
|
Balance
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
June 28,
|
|
|
|
2007
|
|
|
Additions
|
|
|
Disposals
|
|
|
Amortization
|
|
|
Adjustments
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Supply agreements
|
|
$
|
4,213
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(187
|
)
|
|
$
|
4,026
|
|
Customer relationships
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
1,168
|
|
Customer databases
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
135
|
|
Core and current technology
|
|
|
35,155
|
|
|
|
385
|
|
|
|
(22,762
|
)
|
|
|
|
|
|
|
(124
|
)
|
|
|
12,654
|
|
Patent portfolio
|
|
|
19,446
|
|
|
|
|
|
|
|
(17,208
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
2,216
|
|
Customer contracts
|
|
|
3,695
|
|
|
|
|
|
|
|
(3,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,700
|
|
|
|
385
|
|
|
|
(43,665
|
)
|
|
|
|
|
|
|
(221
|
)
|
|
|
20,199
|
|
Less accumulated amortization
|
|
|
(51,934
|
)
|
|
|
(4,639
|
)
|
|
|
43,665
|
|
|
|
|
|
|
|
538
|
|
|
|
(12,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
11,766
|
|
|
$
|
(4,254
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
317
|
|
|
$
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5.
|
Restructuring
Liabilities
|
Fiscal Year 2008. In connection with earlier
plans of restructuring, during fiscal year 2008 the Company
accrued approximately $1.1 million in additional expenses
for revised estimates related to lease cancellations and
commitments, primarily due to changing
sub-lease
assumptions regarding previously exited buildings, and
approximately $2.3 million for additional employee
severance costs. The additional lease costs are associated with
the advanced photonics solutions segment. The additional
employee costs are primarily related to the telecom segment. The
Company continued to make scheduled payments during fiscal year
2008, reducing the related lease cancellation and commitment
liabilities.
Fiscal Year 2009. In connection with earlier
plans of restructuring, during fiscal year 2009 the Company
accrued approximately $1.7 million in additional expenses
for revised estimates of the cash flows for lease cancellations
and commitments, and approximately $0.6 million for
additional employee separation charges, and continued to make
scheduled payments during fiscal year 2009, reducing the related
lease liabilities and employee severance and retention
obligations. The additional lease costs are associated with the
advanced photonics solutions segment.
In connection with the merger with Avanex, during the fourth
quarter of fiscal year 2009 the Company initiated an overhead
cost reduction plan which includes workforce reductions as well
as facility and site consolidation of its Fremont, California
and Villebon, France locations. The Company also assumed from
Avanex facilities-related restructuring accruals of
$6.2 million related to four locations in Fremont and
Newark, California and one location in Villebon, France. During
fiscal year 2009 the Company accrued restructuring charges of
approximately $0.3 million for lease commitments related to
vacating the Fremont and Villebon locations, and approximately
F-24
$5.1 million for employee separation charges, and continued
to make scheduled payments, reducing the related lease
liabilities and employee severance and retention obligations.
Fiscal Year 2010. In connection with earlier
cost reduction and restructuring plans, the Company accrued
$0.4 million in additional expenses, net of adjustments,
for revised estimates related to lease cancellations and
commitments and $2.2 million in additional employee
separation costs. During fiscal year 2010, the Company initiated
a new restructuring plan resulting from its acquisition of
Newports high-power laser diodes business. This plan
involved the transfer of Newports high-power laser diodes
manufacturing operations from Tucson, Arizona to the
Companys European manufacturing facilities. The Company
incurred $0.5 million in restructuring accruals for
employee separation charges under the Newport plan. During
fiscal year 2010, the Company also wrote-down $0.8 million
in inventory, net of adjustments, which became impaired through
the integration of its wavelength selective switch
(WSS) product lines.
For all periods presented, separation payments under the
restructuring and cost reduction efforts were accrued and
charged to restructuring in the period that the amounts were
both determined and communicated to the affected employees.
Remaining net lease cancellation and commitment obligations as
of July 3, 2010 are included in the disclosures in
Note 8, Commitments and Contingencies.
The following tables summarize the activity related to the
Companys restructuring liability for the years ended
July 3, 2010, June 27, 2009 and June 28, 2008.
Accrued restructuring costs related to previous restructuring
activities of the New Focus business were not sold to Newport in
the July 4, 2009 exchange of assets, and are therefore
included at the corresponding balance sheet dates in the tables
below. The related amounts charged to restructuring and
severance charges are included in Income (loss) from
discontinued operations in the accompanying consolidated
statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Charged to
|
|
|
Amounts
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs at
|
|
|
Restructuring
|
|
|
Paid or
|
|
|
|
|
|
Costs at
|
|
|
|
June 27, 2009
|
|
|
Costs
|
|
|
Written-off
|
|
|
Adjustments
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
|
Lease cancellations and commitments and other charges
|
|
$
|
8,320
|
|
|
$
|
1,694
|
|
|
$
|
(5,422
|
)
|
|
$
|
(485
|
)
|
|
$
|
4,107
|
|
Termination payments to employees and related costs
|
|
|
4,719
|
|
|
|
2,706
|
|
|
|
(7,254
|
)
|
|
|
60
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring charges
|
|
|
13,039
|
|
|
$
|
4,400
|
|
|
$
|
(12,676
|
)
|
|
$
|
(425
|
)
|
|
|
4,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued restructuring charges
|
|
|
(3,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within accrued expenses
and other liabilities
|
|
$
|
9,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Charged to
|
|
|
Amounts
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs at
|
|
|
Restructuring
|
|
|
Paid or
|
|
|
|
|
|
Costs at
|
|
|
|
June 28, 2008
|
|
|
Costs
|
|
|
Written-off
|
|
|
Adjustments
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
2,074
|
|
|
$
|
2,027
|
|
|
$
|
(1,966
|
)
|
|
$
|
6,185
|
|
|
$
|
8,320
|
|
Termination payments to employees and related costs
|
|
|
754
|
|
|
|
5,693
|
|
|
|
(1,682
|
)
|
|
|
(46
|
)
|
|
|
4,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring charges
|
|
|
2,828
|
|
|
$
|
7,720
|
|
|
$
|
(3,648
|
)
|
|
$
|
6,139
|
|
|
|
13,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued restructuring charges
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within accrued expenses
and other liabilities
|
|
$
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Charged to
|
|
|
Amounts
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs at
|
|
|
Restructuring
|
|
|
Paid or
|
|
|
|
|
|
Costs at
|
|
|
|
June 30, 2007
|
|
|
Costs
|
|
|
Written-off
|
|
|
Adjustments
|
|
|
June 28, 2008
|
|
|
|
(Thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
3,845
|
|
|
$
|
1,141
|
|
|
$
|
(2,904
|
)
|
|
$
|
(8
|
)
|
|
$
|
2,074
|
|
Asset impairment
|
|
|
|
|
|
|
35
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
Termination payments to employees and related costs
|
|
|
546
|
|
|
|
2,350
|
|
|
|
(2,141
|
)
|
|
|
(1
|
)
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring charges
|
|
|
4,391
|
|
|
$
|
3,526
|
|
|
$
|
(5,080
|
)
|
|
$
|
(9
|
)
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued restructuring charges
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within accrued expenses
and other liabilities
|
|
$
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 2, 2006, the Company entered into a
$25.0 million senior secured revolving credit facility with
Wells Fargo Capital Finance, Inc. and other lenders. On
April 27, 2009, the Company, with Oclaro Technology Ltd
(formerly Oclaro Technology plc), Oclaro Photonics, Inc. and
Oclaro Technology, Inc., each a wholly-owned subsidiary,
collectively the Borrowers, entered into an amendment to its
existing credit agreement (the Amended Credit
Agreement) with Wells Fargo Capital Finance, Inc. and
other lenders regarding the $25.0 million senior secured
revolving credit facility, extending the term to August 1,
2012. Under the Amended Credit Agreement, advances are available
based on 80 percent of qualified accounts
receivable, as defined in the Amended Credit Agreement.
The obligations of the Borrowers under the Amended Credit
Agreement are guaranteed by the Company, Oclaro (North America),
Inc., Oclaro (Canada) Inc., Bookham Nominees Limited and Bookham
International Ltd., each also a wholly-owned subsidiary, (which
are referred to collectively as the Guarantors and together with
the Borrowers, as the Obligors), and are secured pursuant to a
security agreement, or the Security Agreement, by the assets of
the Obligors, including a pledge of the capital stock holdings
of the Obligors in some of their direct subsidiaries.
Pursuant to the terms of the Amended Credit Agreement,
borrowings made under the facility bear interest at a rate based
on either the London Interbank Offered Rate (LIBOR) plus
3.50 percentage points or the banks prime rate plus
3.50 percentage points, subject to a minimum LIBOR rate of
2.50 percentage points and a minimum prime rate which is
the greater of (i) 3.50 percentage points or
(ii) the
90-day LIBOR
rate plus 1.00 percentage point. In the absence of an event
of default, any amounts outstanding under the Amended Credit
Agreement may be repaid and re-borrowed anytime until maturity,
which is August 1, 2012.
The obligations of the Borrowers under the Amended Credit
Agreement may be accelerated upon the occurrence of an event of
default under the Amended Credit Agreement, which includes
customary events of default, including payment defaults,
defaults in the performance of affirmative and negative
covenants, the inaccuracy of representations or warranties, a
cross-default related to indebtedness in an aggregate amount of
$1.0 million or more, bankruptcy and insolvency related
defaults, defaults relating to such matters as ERISA and certain
judgments in excess of $1.0 million, and a change of
control default. The Amended Credit Agreement contains negative
covenants applicable to the Borrowers and their subsidiaries,
including financial covenants. The negative covenant limiting
capital expenditures was amended to allow the Company, the
Borrowers and their subsidiaries more flexibility to make
capital expenditures, which may not exceed $20.0 million in
any fiscal year unless the circumstances set forth in the
Amended Credit Agreement are met. The negative covenants were
further amended to replace certain minimum EBITDA covenants with
a requirement that the Borrowers maintain a minimum fixed charge
coverage ratio (defined as the ratio of EBITDA minus capital
expenditures made or incurred during such period, to fixed
charges for such period), of no less than 1.10 to 1.00, if the
Borrowers have not maintained minimum liquidity
(defined as $30.0 million of qualified cash and excess
availability, each as also defined in the Amended Credit
Agreement), and to also include restrictions on liens,
investments, indebtedness, fundamental changes to the
Borrowers business, dispositions of property, making
certain restricted payments (including restrictions on dividends
and stock repurchases), entering into new lines of business and
transactions with affiliates.
F-26
In connection with the Amended Credit Agreement, the Company
paid a closing fee of $250,000 and agreed to pay a monthly
servicing fee of $3,000 and an unused line fee equal to
0.50 percentage points per annum, payable monthly on the
unused amount of revolving credit commitments. To the extent
there are letters of credit outstanding under the Amended Credit
Agreement, the Borrowers are obligated to pay the administrative
agent a letter of credit fee at a rate equal to
3.50 percentage points per annum.
As of July 3, 2010 and June 27, 2009, there were no
amounts outstanding under the facility. At July 3, 2010 and
June 27, 2009, there were $2.0 million and
$0.3 million, respectively, in outstanding standby letters
of credit with vendors secured under this credit agreement. The
outstanding standby letter of credit for $2.0 million
expires in August 2010.
|
|
Note 7.
|
Post-Retirement
Benefits
|
401(k)
Plan
In the U.S., the Company sponsors a 401(k) plan that allows
voluntary contributions by eligible employees, who may elect to
contribute up to the maximum allowed under the
U.S. Internal Revenue Service regulations. The Company
generally makes 25 percent matching contributions (up to a
maximum of $2,000 per eligible employee per year) and it
recorded related expenses of $0.7 million,
$0.4 million and $0.5 million in the fiscal years
ended July 3, 2010, June 27, 2009 and June 28,
2008, respectively.
Defined
Contribution Plan
The Company contributes to a U.K. based defined contribution
pension scheme for employees. Contributions under this plan and
the related expenses were $1.1 million, $1.1 million
and $1.6 million in the fiscal years ended July 3,
2010, June 27, 2009 and June 28, 2008, respectively.
Switzerland
Defined Benefit Plan
The Company has a pension plan covering employees of its Swiss
subsidiary (the Swiss plan) which has historically
not been recorded in the financial statements because the
amounts were immaterial. Due to the increased significance of
the Companys Swiss pension plan in fiscal year 2010, the
Company concluded that as of July 3, 2010 its Swiss pension
plan should be recorded as a defined benefit plan. As a result,
the Company increased other non-current liabilities by
$1.5 million and other non-current assets by
$0.3 million, and decreased accumulated other comprehensive
income by $1.2 million, net of tax, to reflect the
underfunded pension liability.
Employer and employee contributions are made to the Swiss plan
based on various percentages of salary and wages that vary
according to employee age and other factors. Employer
contributions to the Swiss plan in fiscal years 2009 and 2010
were $1.6 million in each year. Employer contributions to
the Swiss plan in fiscal year 2011 are estimated to be
approximately $1.7 million.
The funded status of the Swiss plan at July 3, 2010 and
June 27, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of period
|
|
$
|
19,664
|
|
|
$
|
18,500
|
|
Service cost
|
|
|
1,523
|
|
|
|
1,339
|
|
Interest cost
|
|
|
690
|
|
|
|
607
|
|
Participant contributions
|
|
|
801
|
|
|
|
783
|
|
Benefits paid
|
|
|
(933
|
)
|
|
|
(142
|
)
|
Actuarial gain on obligation
|
|
|
(536
|
)
|
|
|
(336
|
)
|
Currency translation adjustment
|
|
|
523
|
|
|
|
(1,087
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of period
|
|
$
|
21,732
|
|
|
$
|
19,664
|
|
|
|
|
|
|
|
|
|
|
F-27
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of period
|
|
$
|
18,610
|
|
|
$
|
17,828
|
|
Actual return on plan assets
|
|
|
(334
|
)
|
|
|
(377
|
)
|
Employer contributions
|
|
|
1,624
|
|
|
|
1,567
|
|
Participant contributions
|
|
|
801
|
|
|
|
782
|
|
Benefits paid
|
|
|
(934
|
)
|
|
|
(142
|
)
|
Currency translation adjustment
|
|
|
496
|
|
|
|
(1,048
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, end of period
|
|
$
|
20,263
|
|
|
$
|
18,610
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
316
|
|
|
$
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Underfunded pension liability
|
|
$
|
1,469
|
|
|
$
|
|
|
Amounts recognized in accumulated other comprehensive income
(loss), net of tax:
|
|
|
|
|
|
|
|
|
Underfunded pension liability
|
|
$
|
1,153
|
|
|
$
|
|
|
Accumulated benefit obligation, end of period
|
|
$
|
18,113
|
|
|
$
|
16,390
|
|
Net periodic pension cost associated with the Swiss Plan in the
years ended July 3, 2010 and June 27, 2009 include the
following components:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Service cost
|
|
$
|
1,523
|
|
|
$
|
1,339
|
|
Interest cost
|
|
|
690
|
|
|
|
607
|
|
Expected return on plan assets
|
|
|
(794
|
)
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
1,419
|
|
|
$
|
1,232
|
|
|
|
|
|
|
|
|
|
|
The projected and accumulated benefit obligations for the Swiss
plan were calculated as of July 3, 2010 and June 27,
2009 using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
July 3,
|
|
June 27,
|
|
|
2010
|
|
2009
|
|
Discount rate
|
|
|
3.0
|
%
|
|
|
3.5
|
%
|
Salary increase rate
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Expected return on plan assets
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Expected average remaining working life (in years)
|
|
|
13.7
|
|
|
|
14.3
|
|
The discount rate is based on assumed pension benefit maturity
and estimates developed using the rate of return and yield
curves for high quality Swiss corporate and government bonds.
The 2.0 percent salary increase rate is based on the
Companys best assessment for on-going increases over time.
The 4.0 percent expected long term rate of return on plan
assets is based on the expected asset allocation and taking into
consideration historical long-term rates of return for the
relevant asset categories.
F-28
The Swiss plan is legally separate from the Company, as are the
assets of the plan. As of July 3, 2010 and June 27,
2009, the Swiss plans asset allocation was as follows:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
June 27,
|
|
|
2010
|
|
2009
|
|
Fixed income investments
|
|
|
24.0
|
%
|
|
|
21.0
|
%
|
Equity investments
|
|
|
48.0
|
%
|
|
|
55.0
|
%
|
Real estate
|
|
|
11.0
|
%
|
|
|
14.0
|
%
|
Cash
|
|
|
15.0
|
%
|
|
|
7.0
|
%
|
Alternative investments
|
|
|
2.0
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
In accordance with ASC Topic 820, the Swiss plan assets are
measured at fair value and are classified into one of three
distinct class levels, as defined in Note 2, Fair
Value. The Swiss plan assets are comprised of Level 1
assets, which include cash, equity investments and fixed income
investments, and Level 3 assets, which include real estate
and alternative investments. The investment strategy of the
Swiss plans pension committee is to achieve a consistent
long-term return which will provide sufficient funding for
future pension obligations while limiting risk. The investment
strategy is reviewed regularly.
None of the $1.2 million balance in accumulated other
comprehensive income at July 3, 2010 is expected to be
amortized into net periodic benefit income in fiscal year 2011.
Estimated future benefit payments from the Swiss plan are
$0.5 million in fiscal year 2011, $0.7 million in
fiscal year 2012, $1.0 million in fiscal year 2013,
$0.6 million in fiscal year 2014, $1.1 million in
fiscal year 2015 and $8.0 million in the following five
years.
|
|
Note 8.
|
Commitments
and Contingencies
|
Guarantees
The Company accounts for its guarantees in accordance with the
provisions of ASC Topic 460, Guarantees.
The Company indemnifies its directors and certain employees as
permitted by law, and has entered into indemnification
agreements with its directors and certain senior officers. The
Company has not recorded a liability associated with these
indemnification arrangements as the Company historically has not
incurred any material costs associated with such indemnification
arrangements. Costs associated with such indemnification
arrangements may be mitigated, in whole or only in part, by
insurance coverage that the Company maintains.
The Company also has indemnification clauses in various
contracts that it enters into in the normal course of business,
such as those issued by its banks in favor of several of its
suppliers. Additionally, the Company from
time-to-time,
in the normal course of business, indemnifies certain customers
with whom it enters into contractual relationships. The Company
has agreed to hold the other party harmless against third party
claims that the Companys products, when used for their
intended purposes, infringe the intellectual property rights of
such third parties. The Company has not historically paid out
any material amounts related to these indemnification
obligations, therefore no accrual has been made for these
indemnification obligations.
Warranty
accrual
The Company accrues for the estimated costs to provide warranty
services at the time revenue is recognized. The Companys
estimate of costs to service its warranty obligations is based
on historical experience and expectation of future conditions.
To the extent the Company experiences increased warranty claim
activity or increased costs associated with servicing those
claims, the Companys warranty costs will increase,
resulting in a decrease in gross profit.
F-29
The following table summarizes movements in the warranty accrual
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Warranty provision beginning of period
|
|
$
|
2,228
|
|
|
$
|
2,598
|
|
|
$
|
2,569
|
|
Warranties assumed in acquisition
|
|
|
261
|
|
|
|
250
|
|
|
|
|
|
Warranties issued
|
|
|
3,516
|
|
|
|
2,811
|
|
|
|
2,290
|
|
Warranties utilized or expired
|
|
|
(3,426
|
)
|
|
|
(3,000
|
)
|
|
|
(2,299
|
)
|
Currency translation adjustment
|
|
|
(142
|
)
|
|
|
(431
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty provision end of period
|
|
$
|
2,437
|
|
|
$
|
2,228
|
|
|
$
|
2,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
On June 26, 2001, the first of a number of securities class
actions was filed in the United States District Court for the
Southern District of New York against New Focus, Inc., now known
as Oclaro Photonics, Inc. (New Focus), certain of its officers
and directors, and certain underwriters for New Focus
initial and secondary public offerings. A consolidated amended
class action complaint, captioned In re New Focus, Inc.
Initial Public Offering Securities Litigation, No. 01
Civ. 5822, was filed on April 20, 2002. The complaint
generally alleges that various underwriters engaged in improper
and undisclosed activities related to the allocation of shares
in New Focus initial public offering and seeks unspecified
damages for claims under the Exchange Act on behalf of a
purported class of purchasers of common stock from May 17,
2000 to December 6, 2000.
The lawsuit against New Focus is coordinated for pretrial
proceedings with a number of other pending litigations
challenging underwriter practices in over 300 cases, as In re
Initial Public Offering Securities Litigation, 21 MC 92
(SAS), including actions against Bookham Technology plc, now
known as Oclaro Technology Ltd (Bookham Technology) and Avanex
Corporation, now known as Oclaro (North America), Inc. (Avanex),
and certain of each entitys respective officers and
directors, and certain of the underwriters of their public
offerings. In October 2002, the claims against the directors and
officers of New Focus, Bookham Technology and Avanex were
dismissed, without prejudice, subject to the directors and
officers execution of tolling agreements.
The parties have reached a global settlement of the litigation.
On October 5, 2009, the Court entered an order certifying a
settlement class and granting final approval of the settlement.
Under the settlement, the insurers will pay the full amount of
the settlement share allocated to New Focus, Bookham Technology
and Avanex, and New Focus, Bookham Technology and Avanex will
bear no financial liability. New Focus, Bookham Technology and
Avanex, as well as the officer and director defendants who were
previously dismissed from the action pursuant to tolling
agreements, will receive complete dismissals from the case.
Certain objectors have appealed the Courts October 5,
2009 order to the Second Circuit Court of Appeals. If for any
reason the settlement does not become effective, we believe that
Bookham Technology, New Focus and Avanex have meritorious
defenses to the claims and therefore believe that such claims
will not have a material effect on our financial position,
results of operations or cash flows.
On February 13, 2009, Bijan Badihian filed a complaint
against Avanex Corporation, its then-CEO Giovanni Barbarossa,
then interim CFO Mark Weinswig and an administrative assistant
(who has since been dismissed from the action), in the Superior
Court for the State of California, Los Angeles County. On
June 8, 2009, after defendants filed a demurrer, plaintiff
filed a First Amended Complaint adding as defendants Oclaro,
Inc. as successor to Avanex, and Paul Smith, who was Chairman of
the Avanex Board of Directors. On April 28, 2010 Badihian
filed a Second Amended Complaint, which names Avanex, Oclaro (as
successor in interest), Greg Dougherty, Joel Smith III, Paul
Smith, Barbarossa, and Weinswig. Messrs. Barbarossa,
Dougherty and Smith III are current members of
Oclaros Board of Directors. The Second Amended Complaint
alleges that defendants failed to disclose material facts
regarding Avanexs operational performance and future
prospects, or engaged in conduct which negatively impacted those
future prospects. The Second Amended Complaint alleges causes of
action for (1) breach of fiduciary duty;
(2) intentional misrepresentation; (3) negligent
misrepresentation; (4) concealment; (5) constructive
fraud; (6) intentional infliction of emotional distress;
and (7) negligent infliction of emotional distress. The
Second Amended Complaint seeks at least $5 million in
compensatory damages plus prejudgment interest, unspecified
damages for emotional distress, punitive damages, and costs. On
August 6, 2010, the parties entered into a
F-30
confidential settlement agreement providing for the dismissal of
the litigation with prejudice. Consistent with the terms of the
settlement agreement, the Defendants deny any wrongdoing as
alleged by the Plaintiff.
On May 27, 2009, a patent infringement action captioned
QinetiQ Limited v. Oclaro, Inc., Civil Action
No. 1:09-cv-00372,
was filed in the United States District Court for the District
of Delaware. QinetiQs original complaint alleged
infringement of United States Patent Nos. 5,410,625 and
5,428,698, and sought a permanent injunction, money damages,
costs, and attorneys fees. Oclaro filed an answer to the
complaint and stated counterclaims against QinetiQ for judgments
that the
patents-in-suit
are invalid and unenforceable. Additionally, Oclaro filed a
motion to transfer venue to the Northern District of California,
which was granted on December 18, 2009. After transfer, the
litigation was assigned Civil Action
No. 4:10-cv-00080-SBA
by the Northern District Court. On June 21, 2010, QinetiQ
amended its complaint to allege infringement of a third patent,
U.S. Patent No. 5,379,354. Oclaro answered
QinetiQs amended complaint and asserted fraud
counterclaims against QinetiQ. A trial in this matter has not
yet been set. Oclaro believes the claims asserted against it by
QinetiQ are without merit and will continue to defend itself
vigorously.
Sale-Leaseback
On March 10, 2006, the Companys Oclaro Technology Ltd
subsidiary entered into multiple agreements with a subsidiary of
Scarborough Development (Scarborough) for the sale and leaseback
of the land and buildings located at its Caswell, U.K.,
manufacturing site. The sale transaction, which closed on
March 30, 2006, resulted in immediate proceeds to Oclaro
Technology Ltd of £13.75 million (approximately
U.S. $24 million on the date of the transaction).
Under these agreements, Oclaro Technology Ltd leases back the
Caswell site for an initial term of 20 years, with options
to renew the lease term for 5 years following the initial
term and for rolling
2-year terms
thereafter. Based on the exchange rate of $1.5027 as of
July 2, 2010, annual rent of £1.1 million during
the first 5 years of the lease is approximately
$1.7 million per year; annual rent of
£1.2 million during the next 5 years of the lease
is approximately $1.9 million per year; annual rent of
£1.4 million during the next 5 years of the lease
is approximately $2.1 million per year; and
£1.6 million during the next 5 years of the lease
is approximately $2.4 million per year. Rent during the
optional renewal terms will be determined according to the then
market rent for the site. The obligations of Oclaro Technology
Ltd under these agreements are guaranteed by the Company. In
addition, Scarborough, Oclaro Technology Ltd and the Company
entered into a pre-emption agreement with the buyer under which
Oclaro Technology Ltd, within the next 20 years, has a
right to purchase the Caswell site in whole or in part on terms
acceptable to Scarborough if Scarborough agrees to terms with or
receives an offer from a third party to purchase the Caswell
facility. In accordance with ASC Topic 840, Leases, the
Company deferred a related gain of $20.4 million, which is
being amortized ratably against rent expense over the initial
20-year term
of the lease. As of July 3, 2010, the unamortized balance
of this deferred gain is $13.8 million.
At the inception of the Caswell lease, the Company determined
the total minimum lease payments which were to be paid over the
lease term, and it is recognizing the effects of scheduled rent
increases, which are included in the total minimum lease
payments, on a straight-line basis over the lease term, as
required by ASC Topic 840.
F-31
Operating
Leases
The Company leases certain facilities under non-cancelable
operating lease agreements that expire at various dates through
2026. The Companys future fiscal year minimum lease
payments under non-cancelable operating leases and related
sublease income, including the sale-leaseback of the Caswell
facility and $1.9 million related to unoccupied facilities
as a result of the Companys restructuring activities, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating Lease
|
|
|
Sublease
|
|
|
|
Payments
|
|
|
Income
|
|
|
|
(Thousands)
|
|
|
Fiscal Year:
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
7,549
|
|
|
$
|
(160
|
)
|
2012
|
|
|
4,437
|
|
|
|
(9
|
)
|
2013
|
|
|
2,525
|
|
|
|
(6
|
)
|
2014
|
|
|
2,398
|
|
|
|
(6
|
)
|
2015
|
|
|
2,299
|
|
|
|
(2
|
)
|
Thereafter
|
|
|
24,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,198
|
|
|
$
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
Rent expense for these leases was $9.1 million,
$6.8 million and $5.9 million during the fiscal years
ended July 3, 2010, June 27, 2009 and June 28,
2008, respectively.
|
|
Note 9.
|
Stockholders
Equity
|
Common
Stock
On May 12, 2010, the Company completed a public offering of
6,900,000 shares of our common stock pursuant to a shelf
registration statement that was previously filed and declared
effective by the Securities and Exchange Commission. The Company
received net proceeds of approximately $77.1 million from
the offering after deducting underwriting discounts and
commissions and estimated offering expenses.
On April 14, 2010, the Company announced that its board of
directors had approved a
1-for-5
reverse split of its common stock, pursuant to previously
obtained stockholder authorization. This reverse stock split,
which became effective at 6:00 p.m., Eastern Time, on
April 29, 2010, reduced the number of shares of its common
stock issued and outstanding from approximately 212 million
to approximately 42 million and reduced the number of
authorized shares of its common stock from 450 million to
90 million.
On December 17, 2009, in connection with the acquisition of
Xtellus, the Company issued 3,693,181 shares of its common
stock to the former shareholders and debt holders of Xtellus,
and issued 994,318 shares of its common stock into a
third-party escrow account to secure its obligations under an
18 month escrow agreement entered into in connection with
the acquisition.
On April 27, 2009, in connection with the merger of Avanex
and Oclaro, the Company issued approximately
17,030,400 shares of its common stock for all of the
outstanding shares of common stock of Avanex.
On April 27, 2009, the Company amended its restated
certificate of incorporation to increase the number of
authorized shares of common stock from 35,000,000 to
90,000,000 shares.
On November 13, 2007, the Company completed a public
offering of 3,200,000 shares of its common stock at a price
to the public of $13.75 per share that generated
$40.8 million of cash, net of underwriting commissions and
offering expenses.
F-32
Warrants
The following table summarizes activity relating to warrants to
purchase the Companys common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Warrants
|
|
Average
|
|
|
Outstanding
|
|
Exercise Price
|
|
|
(Thousands)
|
|
|
|
Balance at June 30, 2007
|
|
|
2,017
|
|
|
$
|
21.25
|
|
Expired
|
|
|
(1
|
)
|
|
|
200.00
|
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2008
|
|
|
2,016
|
|
|
|
21.20
|
|
Assumed April 27, 2009 in acquisition
|
|
|
531
|
|
|
|
37.15
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
2,547
|
|
|
|
24.55
|
|
Expired on December 20, 2009
|
|
|
(400
|
)
|
|
|
30.00
|
|
Expired on March 8, 2010
|
|
|
(531
|
)
|
|
|
37.15
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
1,616
|
|
|
|
18.78
|
|
|
|
|
|
|
|
|
|
|
On April 27, 2009, in connection with the merger of Avanex
and Oclaro, the Company issued approximately 531,000 replacement
warrants to existing Avanex warrant holders as of April 27,
2009. These warrants were exercisable during the period
beginning on April 28, 2009 through March 8, 2010, at
an exercise price of $37.15 per share. All of these warrants
expired on March 8, 2010.
On March 22, 2007, the Company entered into a private
placement agreement which included warrants to purchase up to
818,417 shares of common stock with certain institutional
accredited investors. The warrants have a five year term and are
exercisable beginning on September 23, 2007. As of
July 3, 2010, the exercise price was $13.48 per share,
which is subject to adjustment based on a weighted average
anti-dilution formula if the Company effects certain equity
issuances in the future for consideration per share that is less
than the then current exercise price per share of such warrants.
On August 31, 2006, the Company entered into a private
placement agreement which included issuance of warrants to
purchase up to 434,804 shares of common stock. On
September 19, 2006, through a second closing of this
private placement, the Company issued additional warrants to
purchase up to 144,935 shares of common stock. The warrants
are exercisable during the period beginning on March 2,
2007 through September 1, 2011, at an exercise price of
$20.00 per share.
In fiscal year 2006, the Company issued warrants to investors to
purchase 80,004 shares of common stock in connection with
the conversion of the Companys 7.0 percent senior
unsecured convertible debentures issued in December 2004. The
warrants are exercisable from July 13, 2006 to
January 13, 2011 at an exercise price per share of $35.00.
On January 13, 2006, the Company issued warrants to
purchase 137,202 shares of common stock to certain
accredited institutional investors in connection with their
purchase and subsequent retirement of other debt obligations.
The warrants are exercisable from July 13, 2006 to
January 13, 2011 at an exercise price per share of $35.00.
On December 20, 2004, in connection with the sale of
debentures, the Company provided holders thereof warrants to
purchase up to an aggregate of 400,393 shares of common
stock, exercisable during the five years from the date of grant,
at an initial exercise price of $30.00 per share. These warrants
were exercisable from December 20, 2004 to
December 20, 2009. All of these warrants expired on
December 20, 2009.
During fiscal year 2003, the Company assumed warrants to
purchase 976 shares of common stock as part of the terms of
its acquisition of Ignis Optics. The warrants have an exercise
price of $200.00 per share, and began expiring in fiscal year
2008.
F-33
Preferred
Stock
The Companys restated certificate of incorporation
authorizes it to issue up to 1,000,000 shares of preferred
stock with designations, rights and preferences determined from
time-to-time
by the board of directors. To date, the Company has not issued
any preferred stock.
Accumulated
Other Comprehensive Income
The components of accumulated other comprehensive income are as
follows:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Unrealized gain (loss) on currency instruments designated as
cash flow hedges
|
|
$
|
49
|
|
|
$
|
(545
|
)
|
Currency translation adjustments
|
|
|
28,011
|
|
|
|
31,443
|
|
Adoption of ASC 715, net of tax benefits
|
|
|
(1,153
|
)
|
|
|
|
|
Unrealized gain on short-term investments
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,907
|
|
|
$
|
30,905
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
|
Employee
Stock Plans
|
Under the Companys Amended and Restated 2004 Stock
Incentive Plan there are approximately 1.1 million shares
available for grant as of July 3, 2010. The Company
generally grants stock options that vest over a two to four year
service period, and restricted stock awards and units that vest
over a one to four year service period, and in certain cases
each may vest earlier based upon the achievement of specific
performance-based objectives as set by the Companys Board
of Directors.
On November 2, 2009, the Company filed a Tender Offer
Statement on Schedule TO with the SEC, related to an
offer by the Company to certain of its employees to exchange
some or all of their outstanding options to purchase the
Companys common stock for fewer replacement stock options
with exercise prices equal to $6.80 per share, which was the
closing price per share of the Companys common stock on
December 2, 2009, the date of grant and the last day of the
tender offer (the Offer). A stock option was
eligible for exchange in the Offer if: (i) it had an
exercise price of at least $10.00 per share; (ii) it was
granted at least 12 months prior to the commencement of the
Offer; (iii) it was held by an employee who was eligible to
participate in the Offer and (iv) it remained outstanding
(i.e., unexpired and unexercised) as of the date of grant of the
replacement options (Eligible Options). The Company
made the Offer to all of the U.S. and international
employees of the Company and its subsidiaries who held Eligible
Options (Eligible Employees), except for
(i) members of the Companys Board of Directors and
(ii) the Companys named executive officers. As of
December 2, 2009, when the Offer expired, Eligible
Employees surrendered approximately 0.8 million Eligible
Options with a weighted-average exercise price of $37.55 per
share in exchange for approximately 0.4 million replacement
stock options with an exercise price of $6.80 per share.
The fair value of the replacement options granted was measured
as the total of the unrecognized compensation cost of the
original options tendered and the incremental compensation cost
of the new options granted. The incremental compensation cost of
the new options granted was measured as the excess of the fair
value of the new options granted over the fair value of the
original options immediately before cancellation. The total
remaining unrecognized compensation expense related to the
original options tendered will be recognized over the remaining
requisite service period of the original options. The
incremental compensation cost of the new options granted was
$20,000.
During fiscal year 2010, the Company reduced its shares
available for grant by 0.7 million shares, of which
0.6 million shares available for grant were cancelled in
connection with the Offer and 0.1 million shares available
for grant were cancelled upon the expiration of the Avanex
Corporation 1998 Stock Plan in December 2009.
F-34
The following table summarizes the combined activity under all
of the Companys equity incentive plans for the three-year
period ended July 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Stock
|
|
Weighted-
|
|
Restricted Stock
|
|
Weighted-
|
|
|
Available
|
|
Options
|
|
Average
|
|
Awards / Units
|
|
Average Grant
|
|
|
for Grant
|
|
Outstanding
|
|
Exercise Price
|
|
Outstanding
|
|
Date Fair Value
|
|
|
(Thousands)
|
|
(Thousands)
|
|
|
|
(Thousands)
|
|
|
|
Balances at June 30, 2007
|
|
|
449
|
|
|
|
1,286
|
|
|
$
|
45.80
|
|
|
|
311
|
|
|
$
|
15.45
|
|
Authorized January 25, 2008
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(590
|
)
|
|
|
350
|
|
|
|
10.65
|
|
|
|
240
|
|
|
|
11.85
|
|
Exercised or released
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213
|
)
|
|
|
12.05
|
|
Cancelled, forfeited or expired
|
|
|
60
|
|
|
|
(271
|
)
|
|
|
33.20
|
|
|
|
(37
|
)
|
|
|
15.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 28, 2008
|
|
|
1,919
|
|
|
|
1,365
|
|
|
|
29.35
|
|
|
|
301
|
|
|
|
15.00
|
|
Assumed in acquisition
|
|
|
1,510
|
|
|
|
979
|
|
|
|
29.95
|
|
|
|
391
|
|
|
|
2.80
|
|
Granted
|
|
|
(1,149
|
)
|
|
|
1,149
|
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
Exercised or released
|
|
|
|
|
|
|
(3
|
)
|
|
|
1.50
|
|
|
|
(215
|
)
|
|
|
13.30
|
|
Cancelled or forfeited
|
|
|
281
|
|
|
|
(254
|
)
|
|
|
24.40
|
|
|
|
(46
|
)
|
|
|
20.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 27, 2009
|
|
|
2,561
|
|
|
|
3,236
|
|
|
|
21.00
|
|
|
|
431
|
|
|
|
4.15
|
|
Granted
|
|
|
(1,614
|
)
|
|
|
1,044
|
|
|
|
4.84
|
|
|
|
570
|
|
|
|
6.80
|
|
Granted in connection with tender offer
|
|
|
(354
|
)
|
|
|
354
|
|
|
|
6.80
|
|
|
|
|
|
|
|
|
|
Exercised or released
|
|
|
|
|
|
|
(71
|
)
|
|
|
3.98
|
|
|
|
(222
|
)
|
|
|
4.05
|
|
Cancelled or forfeited
|
|
|
536
|
|
|
|
(600
|
)
|
|
|
20.77
|
|
|
|
(76
|
)
|
|
|
3.35
|
|
Cancelled in connection with tender offer
|
|
|
704
|
|
|
|
(777
|
)
|
|
|
37.55
|
|
|
|
|
|
|
|
|
|
Reduction in available for grant
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 3, 2010
|
|
|
1,089
|
|
|
|
3,186
|
|
|
|
8.78
|
|
|
|
703
|
|
|
|
6.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure information about the Companys
stock options outstanding as of July 3, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
Shares
|
|
Exercise Price
|
|
Contractual Life
|
|
Value
|
|
|
(Thousands)
|
|
|
|
(Years)
|
|
(Thousands)
|
|
Options exercisable at July 3, 2010
|
|
|
1,054
|
|
|
$
|
15.88
|
|
|
|
6.5
|
|
|
$
|
4,033
|
|
Options outstanding at July 3, 2010
|
|
|
3,186
|
|
|
|
8.78
|
|
|
|
7.8
|
|
|
|
16,047
|
|
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value, based on the Companys
closing stock price of $10.80 as of July 2, 2010, which
would have been received by the option holders had all option
holders exercised their options as of that date. There were
approximately 0.7 million shares of common stock subject to
in-the-money
options which were exercisable as of July 3, 2010. The
Company settles employee stock option exercises with newly
issued shares of common stock.
|
|
Note 11.
|
Stock-based
Compensation
|
The Company accounts for stock-based compensation under ASC
Topic 718, which requires companies to recognize in their
statement of operations all share-based payments, including
grants of stock options, based on the grant date fair value of
such share-based awards. The application of ASC Topic 718
requires the Companys management to make judgments in the
determination of inputs into the Black-Scholes-Merton stock
option pricing model which the Company uses to determine the
grant date fair value of stock options it grants. This model
requires
F-35
assumptions to be made related to expected stock price
volatility, expected option life, risk-free interest rate and
dividend yield. While the risk-free interest rate is a less
subjective assumption, typically based on factual data derived
from public sources, the expected stock price volatility and
option life assumptions require a greater level of judgment,
which makes them critical accounting estimates.
The Company has not issued and does not anticipate issuing
dividends to stockholders and accordingly uses a zero percent
dividend yield assumption for all Black-Scholes-Merton stock
option pricing calculations. The Company uses an expected
stock-price volatility assumption that is based on historical
realized volatility of the underlying common stock during a
period of time. With regard to the weighted-average option life
assumption, the Company evaluates the exercise behavior of past
grants and comparison to industry peer companies as a basis to
predict future activity.
The assumptions used to value stock option grants for the fiscal
years ended July 3, 2010, June 27, 2009 and
June 28, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
July 3,
|
|
June 27,
|
|
June 28,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Expected life
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
Risk-free interest rate
|
|
|
2.2
|
%
|
|
|
2.4
|
%
|
|
|
3.6
|
%
|
Volatility
|
|
|
98.6
|
%
|
|
|
83.5
|
%
|
|
|
75.0
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in cost of revenues, operating expenses and
income (loss) from discontinued operations for stock-based
compensation expenses for the fiscal years ended July 3,
2010, June 27, 2009 and June 28, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Stock-based compensation by category of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
1,110
|
|
|
$
|
1,168
|
|
|
$
|
2,130
|
|
Research and development
|
|
|
1,090
|
|
|
|
888
|
|
|
|
1,939
|
|
Selling, general and administrative
|
|
|
2,232
|
|
|
|
2,016
|
|
|
|
4,266
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
364
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,432
|
|
|
$
|
4,436
|
|
|
$
|
8,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,865
|
|
|
$
|
3,477
|
|
|
$
|
3,927
|
|
Restricted stock awards
|
|
|
1,646
|
|
|
|
787
|
|
|
|
4,671
|
|
Inventory adjustment to cost of revenues
|
|
|
(79
|
)
|
|
|
172
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,432
|
|
|
$
|
4,436
|
|
|
$
|
8,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2010 and June 27, 2009, the Company had
capitalized $0.2 million of stock-based compensation as
inventory.
F-36
For financial reporting purposes, the Companys income
(loss) from continuing operations before income taxes includes
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Domestic
|
|
$
|
(6,211
|
)
|
|
$
|
(18,064
|
)
|
|
$
|
(7,086
|
)
|
Foreign
|
|
|
18,100
|
|
|
|
(6,306
|
)
|
|
|
(16,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,889
|
|
|
$
|
(24,370
|
)
|
|
$
|
(23,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the income tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
61
|
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
2,175
|
|
|
|
1,399
|
|
|
|
5
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(1,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
928
|
|
|
$
|
1,399
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of the income tax provision at the statutory
rate to the Companys income tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Tax expense (benefit) at U.S. federal statutory rate
|
|
$
|
4,043
|
|
|
$
|
(8,286
|
)
|
|
$
|
(7,907
|
)
|
Tax expense (benefit) at state statutory rate
|
|
|
189
|
|
|
|
(592
|
)
|
|
|
(769
|
)
|
Permanent adjustments
|
|
|
(1,466
|
)
|
|
|
3,278
|
|
|
|
(3,010
|
)
|
Foreign rate differential
|
|
|
(2,152
|
)
|
|
|
(427
|
)
|
|
|
6,033
|
|
Change in valuation allowance
|
|
|
240
|
|
|
|
7,034
|
|
|
|
5,638
|
|
Other
|
|
|
74
|
|
|
|
392
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
928
|
|
|
$
|
1,399
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended July 3, 2010, the Company recorded
income tax expense of approximately $0.9 million. This
included $2.2 million in expense related to its foreign
operations, which was partially offset by a $1.3 million
reduction in the Companys valuation allowance against its
deferred tax assets that will more likely than not be realized.
The primary differences between the effective tax rate and the
U.S. federal statutory tax rate relates to taxes in foreign
jurisdictions with a tax rate different than the
U.S. federal statutory rate, benefited and unbenefited
foreign and domestic tax attributes, and the release of
valuation allowance on certain foreign deferred tax assets due
to certainty around future profitability in relation to an
established transfer pricing regime.
During fiscal years 2009 and 2008, the Company recorded a tax
expense of approximately $1.4 million and $5,000,
respectively, due to its foreign operations. The primary
differences between the effective tax rate and the
U.S. federal statutory tax rate relates to taxes in foreign
jurisdictions with a tax rate different than the
U.S. federal statutory rate and both benefited and
unbenefited foreign and domestic tax attributes.
F-37
The Company has not provided for U.S. federal and state
income taxes on
non-U.S. subsidiaries
undistributed earnings as of July 3, 2010, because such
earnings are intended to be reinvested in the operations of its
international subsidiaries indefinitely. Upon distribution of
those earnings in the form of dividends or otherwise, the
Company would be subject to applicable U.S. federal and
state income taxes.
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
176,738
|
|
|
$
|
192,693
|
|
Depreciation and capital losses
|
|
|
64,230
|
|
|
|
70,011
|
|
Capitalized research and development
|
|
|
6,602
|
|
|
|
618
|
|
Tax credit carryforwards
|
|
|
5,882
|
|
|
|
6,587
|
|
Accruals and reserves
|
|
|
5,241
|
|
|
|
5,070
|
|
Stock compensation
|
|
|
2,432
|
|
|
|
2,072
|
|
Other asset impairments
|
|
|
1,678
|
|
|
|
1,551
|
|
Foreign pension plan
|
|
|
316
|
|
|
|
|
|
Inventory valuation
|
|
|
333
|
|
|
|
4,534
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
263,452
|
|
|
|
283,136
|
|
Valuation allowance
|
|
|
(251,447
|
)
|
|
|
(275,294
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
12,005
|
|
|
|
7,842
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangibles
|
|
|
(2,539
|
)
|
|
|
|
|
Other deferred liabilities
|
|
|
(7,842
|
)
|
|
|
(7,842
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(10,381
|
)
|
|
|
(7,842
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
1,624
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. In evaluating its ability to recover its deferred tax
assets, the Company considers all available positive and
negative evidence including its past operating results, the
existence of cumulative losses and its forecast of future
taxable income. In determining future taxable income, the
Company is responsible for assumptions utilized including the
amount of state, federal and international pre-tax operating
income, the reversal of temporary differences and the
implementation of feasible and prudent tax planning strategies.
These assumptions require significant judgment about the
forecasts of future taxable income and are consistent with the
plans and estimates the Company is using to manage the
underlying businesses.
In the fourth quarter of fiscal year 2010, the Company
determined that it is more-likely-than-not that it will utilize
net operating losses in one of its foreign jurisdictions due to
current earnings and projections of future profitability.
Accordingly, the Company released a previously recorded
valuation allowance of $1.3 million and recognized
$0.3 million related to a foreign pension plan resulting in
$1.6 million in net recognized deferred tax assets. The
$1.3 million represents the entire remaining deferred tax
asset related to the accumulated net operating losses of that
foreign jurisdiction and additionally, the $0.3 million
meets the more-likely-than not criteria for recognition and
thus, does not require a valuation allowance. Due to the
uncertainty surrounding the realization of the tax attributes in
other jurisdictions, the Company has recorded full a valuation
allowance against our remaining foreign and domestic deferred
tax assets as of July 3, 2010 and recorded a full valuation
allowance against our total net deferred tax assets at
June 27, 2009. The valuation allowance decreased
approximately $23.8 million from June 27, 2009 to
July 3, 2010.
F-38
As of July 3, 2010, the Company had foreign net operating
loss carry forwards of approximately $471.2 million,
$24.7 million, $0.3 million and $2.3 million in
the United Kingdom, Switzerland, Canada, and France,
respectively. The United Kingdom and France net operating losses
do not expire, the Swiss net operating loss will expire at
various times from 2011 through 2017 if unused, and the Canada
net operating loss will expire at various times from 2028
through 2030. The Company also has U.S. federal and
California net operating losses of approximately
$106.6 million and $41.8, million respectively, which will
expire in various years from 2013 through 2030 if unused.
As of July 3, 2010, the Company has U.S. federal,
California and foreign research and development credits of
approximately $0.3 million, $4.6 million and
$1.6 million, respectively. The U.S. federal credit
will expire from 2015 through 2030. The California credit may be
carried forward indefinitely and the foreign credit will expire
at various times from 2027 through 2030 if unused.
Utilization of net operating loss carryforwards and credit
carryforwards are subject to annual limitations due to ownership
changes as provided in the Internal Revenue Code of 1986, as
amended, as well as similar state and foreign tax laws. This
annual limitation may result in the expiration of a significant
portion of the net operating loss carryforwards and tax credits
before utilization.
The Companys total amount of unrecognized tax benefits as
of July 3, 2010 was approximately $8.4 million. The
total amount of unrecognized tax benefits that, if recognized,
would affect the effective tax rate is $0.5 million as of
July 3, 2010. While it is often difficult to predict the
final outcome of any particular uncertain tax position,
management does not expect that changes to our unrecognized tax
benefits will be significant in the next twelve months.
A reconciliation of the beginning balance and the ending balance
of gross unrecognized tax benefits, net of interest and
penalties, for fiscal year ended July 3, 2010 and
June 27, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Balance at beginning of period
|
|
$
|
2,451
|
|
|
$
|
92,280
|
|
Additions for tax positions related to the current year
|
|
|
598
|
|
|
|
439
|
|
Reductions related to discontinued operations of the New Focus
business
|
|
|
|
|
|
|
(41,001
|
)
|
Additions for tax positions related to prior years
|
|
|
5,348
|
|
|
|
|
|
Reductions for tax positions related to prior years
|
|
|
|
|
|
|
(49,267
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
8,397
|
|
|
$
|
2,451
|
|
|
|
|
|
|
|
|
|
|
Upon the adoption of FIN No. 48 (provisions of which
were subsequently incorporated into ASC Topic 740), the
Companys policy to include interest and penalties related
to unrecognized tax benefits within the Companys income
tax provision did not change. As of July 3, 2010 and
June 27, 2009, the Company has accrued approximately
$18,000 and nil for payment of interest and penalties related to
unrecognized tax benefits, respectively.
The Company files U.S. federal, U.S. state, and
foreign tax returns and has determined its major tax
jurisdictions are the United States, the United Kingdom, Italy,
France, Switzerland, and China. Certain jurisdictions remain
open to examination by the appropriate governmental agencies;
U.S. federal, Italy, France, and China tax years 2005 to
2009, various U.S. states tax years 2004 to 2009, and the
United Kingdom tax years 2003 to 2009. The Company is currently
under audit in both France and Canada.
F-39
|
|
Note 13.
|
Net
Income (loss) Per Share
|
The following table presents the calculation of basic and
diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands, except per share amounts)
|
|
|
Net income (loss)
|
|
$
|
12,381
|
|
|
$
|
(32,156
|
)
|
|
$
|
(23,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
40,322
|
|
|
|
22,969
|
|
|
|
18,620
|
|
Effect of dilutive potential common shares from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
535
|
|
|
|
|
|
|
|
|
|
Obligations under escrow agreement
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
42,262
|
|
|
|
22,969
|
|
|
|
18,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.31
|
|
|
$
|
(1.40
|
)
|
|
$
|
(1.26
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.29
|
|
|
$
|
(1.40
|
)
|
|
$
|
(1.26
|
)
|
ASC Topic 260, Earnings Per Share, requires dual
presentation of basic and diluted earnings per share on the face
of the statement of operations. Basic earnings per share is
computed using only the weighted-average number of shares of
common stock outstanding for the applicable period, while
diluted earnings per share is computed assuming conversion of
all potentially dilutive securities, such as stock options,
unvested restricted stock awards, warrants and obligations under
escrow agreements during such period.
For fiscal years 2009 and 2008, there were no stock options,
unvested restricted stock awards or warrants factored into the
computation of diluted shares outstanding since the Company
incurred a net loss in these periods which would have resulted
in their inclusion having an anti-dilutive effect.
For fiscal years ended July 3, 2010, June 27, 2009 and
June 28, 2008, the Company excluded 3.2 million,
4.5 million and 3.7 million, respectively, of
outstanding stock options and warrants from the calculation of
diluted net income per share because their effect would have
been anti-dilutive.
|
|
Note 14.
|
Operating
Segments and Related Information
|
The Company evaluates its reportable segments in accordance with
ASC Topic 280, Segment Reporting, which establishes
standards for reporting information about operating segments,
geographic areas and major customers in financial statements.
The Company is organized and operates as two operating segments:
(i) telecom and (ii) advanced photonics solutions. The
telecom segment is responsible for the design, development, chip
and filter level manufacturing, marketing and selling of high
performance core optical network components, module and
subsystem products to telecommunications systems vendors. The
advanced photonics solutions segment is responsible for the
design, manufacture, marketing and selling of optics and
photonics solutions for markets including material processing,
printing, medical and consumer applications.
The Companys Chief Executive Officer is the Companys
chief operating decision maker, and as such, evaluates the
performance of these segments and makes resource allocation
decisions based on segment revenues and segment operating income
(loss), after allocating manufacturing costs between these
operating segments and allocating the Companys corporate
general and administration costs to these operating segments,
exclusive of stock compensation, legal settlements, gain on sale
of property and equipment and impairment of goodwill and other
tangible and intangible assets, none of which are allocated to
these operating segments.
F-40
Segment information, presented for continuing operations for the
fiscal years ended July 3, 2010, June 27, 2009 and
June 28, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom
|
|
$
|
341,908
|
|
|
$
|
190,748
|
|
|
$
|
178,374
|
|
Advanced photonics solutions
|
|
|
50,637
|
|
|
|
20,175
|
|
|
|
24,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
$
|
202,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys telecom and advanced
photonics solutions segments operating income (loss) to
its consolidated operating income (loss), presented for
continuing operations for the fiscal years ended July 3,
2010, June 27, 2009 and June 28, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom
|
|
$
|
10,273
|
|
|
$
|
(14,101
|
)
|
|
$
|
(29,641
|
)
|
Advanced photonics solutions
|
|
|
(1,340
|
)
|
|
|
(3,688
|
)
|
|
|
2,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income (loss)
|
|
|
8,933
|
|
|
|
(17,789
|
)
|
|
|
(27,003
|
)
|
Stock compensation
|
|
|
4,432
|
|
|
|
4,072
|
|
|
|
8,335
|
|
Legal settlements
|
|
|
|
|
|
|
3,829
|
|
|
|
(2,882
|
)
|
Gain on sale of property and equipment
|
|
|
(333
|
)
|
|
|
(12
|
)
|
|
|
(2,562
|
)
|
Impairment of goodwill and other tangible and intangible assets
|
|
|
|
|
|
|
9,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss)
|
|
$
|
4,834
|
|
|
$
|
(34,811
|
)
|
|
$
|
(29,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows revenues by geographic area for the
fiscal years ended July 3, 2010, June 27, 2009 and
June 28, 2008, based on the delivery locations of the
Companys products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
United States
|
|
$
|
75,907
|
|
|
$
|
42,776
|
|
|
$
|
36,209
|
|
Canada
|
|
|
14,845
|
|
|
|
14,596
|
|
|
|
39,050
|
|
Europe
|
|
|
96,387
|
|
|
|
53,236
|
|
|
|
43,730
|
|
Asia
|
|
|
176,534
|
|
|
|
86,951
|
|
|
|
76,096
|
|
Rest of world
|
|
|
28,872
|
|
|
|
13,364
|
|
|
|
7,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
$
|
202,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
The following table sets forth the Companys long-lived
tangible assets and total assets by geographic region as of the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Tangible Assets
|
|
|
Total Assets
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
United States
|
|
$
|
8,213
|
|
|
$
|
2,252
|
|
|
$
|
151,821
|
|
|
$
|
94,539
|
|
Canada
|
|
|
275
|
|
|
|
185
|
|
|
|
886
|
|
|
|
363
|
|
Europe
|
|
|
8,824
|
|
|
|
7,390
|
|
|
|
139,383
|
|
|
|
81,065
|
|
Asia
|
|
|
20,204
|
|
|
|
20,048
|
|
|
|
68,705
|
|
|
|
57,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,516
|
|
|
$
|
29,875
|
|
|
$
|
360,795
|
|
|
$
|
233,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
Customers and Concentration of Credit Risk
For the fiscal year ended July 3, 2010, Huawei Technologies
Co., Ltd. (Huawei) accounted for 13 percent and
Alcatel-Lucent accounted for 10 percent of the
Companys revenues. For the fiscal year ended June 27,
2009, Huawei accounted for 17 percent and Nortel accounted
for 14 percent of revenues. For the fiscal year ended
June 28, 2008, Nortel accounted for 17 percent and
Huawei accounted for 12 percent of revenues.
As of July 3, 2010, Alcatel-Lucent accounted for
15 percent and Huawei accounted for 14 percent of the
Companys accounts receivable. As of June 27, 2009,
Huawei and Alcatel-Lucent each accounted for 15 percent of
the Companys accounts receivable.
In fiscal year 2009 the Company issued billings of
$4.1 million for products that were shipped to Nortel, but
for which payment was not received prior to Nortels
bankruptcy filing on January 14, 2009. As a result, the
corresponding revenue was deferred, and therefore was not
recognized as revenues or accounts receivable in the
consolidated financial statements at the time of such billings,
as the Company determined that such amounts were not reasonably
assured of collectability in accordance with its revenue
recognition policy. During fiscal year 2009, the Company
recognized revenues of $0.6 million from Nortel upon
receipt of payment for billings which had been previously
deferred and Nortel returned $0.8 million in products to
the Company which had been shipped to Nortel prior to the
bankruptcy filing and which had not been paid for by Nortel. As
of July 3, 2010 and June 27, 2009, the Company had
remaining contractual receivables from Nortel totaling
$2.7 million associated with product shipments deferred as
a result of Nortels January 14, 2009 bankruptcy
filing, which are not reflected in the accompanying consolidated
balance sheets.
|
|
Note 15.
|
Related
Party Transactions
|
Alain Couder, the Companys President and Chief Executive
Officer also serves as a director on the board of directors of
Sanmina-SCI Corporation (Sanmina). During the fiscal
years ended July 3, 2010, June 27, 2009 and
June 28, 2008, sales to Sanmina were $12.6 million,
$3.6 million and $4.1 million, respectively. As of
July 3, 2010 and June 27, 2009, accounts receivable
from Sanmina were $6.2 million and $0.8 million,
respectively.
In connection with the merger with Avanex on April 27,
2009, the Company entered into a one year consulting agreement
with Giovanni Barbarossa, which became effective upon
consummation of the merger. Under the consulting agreement,
Dr. Barbarossa provided consulting services to the Company
for the purpose of assisting in the integration of Avanexs
operations into those of Oclaro, including, among other things,
advice and assistance on strategic and technological matters and
customer relations. Under the consulting agreement,
Dr. Barbarossa received consulting fees of $300,000 and
$60,000 for the fiscal years ended July 3, 2010 and
June 27, 2009, respectively.
F-42
|
|
Note 16.
|
Subsequent
Event
|
On July 21, 2010, the Company announced the acquisition of
Mintera Corporation, a privately-held company providing
high-performance optical transport
sub-systems
solutions. The Company paid $12.0 million in cash to the
former security holders and creditors of Mintera. The Company
also agreed to pay additional revenue-based consideration
whereby former security holders of Mintera are entitled to
receive up to $20.0 million, determined based on a set of
sliding scale formulas, to the extent revenue from Mintera
products is more than $29.0 million in the twelve months
following the acquisition
and/or more
than $40.0 million in the 18 months following the
acquisition. The post-closing consideration, if any, will be
payable in cash or, at Oclaros option, newly issued shares
of Oclaro common stock, or a combination of cash and stock.
Achieving cumulative revenues of $40.0 million over the
next 12 month period and $70.0 million over the next
18 month period would lead to the maximum
$20.0 million in additional consideration.
|
|
Note 17.
|
Selected
Quarterly Consolidated Financial Data (Unaudited)
|
The following tables set forth the Companys unaudited
condensed consolidated statements of operations data for each of
the eight quarterly periods ended July 3, 2010. The Company
has prepared this unaudited information on a basis consistent
with its audited consolidated financial statements, reflecting
all normal recurring adjustments that it considers necessary for
a fair presentation of its financial position and operating
results for the fiscal quarters presented. Basic and diluted net
income (loss) per share are computed independently for each of
the quarters presented. Therefore, the sum of quarterly basic
and diluted per share information may not equal annual basic and
diluted net income (loss) per share. All amounts in these tables
have been adjusted to give effect to the
1-for-5
reserve stock split effective April 29, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 3,
|
|
|
April 3,
|
|
|
January 2,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
|
Revenues
|
|
$
|
112,709
|
|
|
$
|
101,152
|
|
|
$
|
93,574
|
|
|
$
|
85,110
|
|
Cost of revenues
|
|
|
78,595
|
|
|
|
73,322
|
|
|
|
68,715
|
|
|
|
63,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
34,114
|
|
|
|
27,830
|
|
|
|
24,859
|
|
|
|
21,991
|
|
Operating expenses
|
|
|
(25,490
|
)
|
|
|
(27,797
|
)
|
|
|
(27,604
|
)
|
|
|
(23,069
|
)
|
Other income (expense), net
|
|
|
1,668
|
|
|
|
671
|
|
|
|
790
|
|
|
|
3,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
10,292
|
|
|
|
704
|
|
|
|
(1,955
|
)
|
|
|
2,848
|
|
Income tax provision (benefit)
|
|
|
(318
|
)
|
|
|
499
|
|
|
|
524
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,610
|
|
|
|
205
|
|
|
|
(2,479
|
)
|
|
|
2,625
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,610
|
|
|
$
|
205
|
|
|
$
|
(2,479
|
)
|
|
$
|
4,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,153
|
|
|
|
41,095
|
|
|
|
37,980
|
|
|
|
37,240
|
|
Diluted
|
|
|
48,228
|
|
|
|
43,829
|
|
|
|
37,980
|
|
|
|
38,100
|
|
F-43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 27,
|
|
|
March 28,
|
|
|
December 27,
|
|
|
September 27,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Revenues
|
|
$
|
66,877
|
|
|
$
|
41,241
|
|
|
$
|
43,375
|
|
|
$
|
59,430
|
|
Cost of revenues
|
|
|
50,296
|
|
|
|
32,381
|
|
|
|
36,971
|
|
|
|
44,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,581
|
|
|
|
8,860
|
|
|
|
6,404
|
|
|
|
14,653
|
|
Operating expenses
|
|
|
(24,142
|
)
|
|
|
(17,910
|
)
|
|
|
(21,848
|
)
|
|
|
(17,409
|
)
|
Other income (expense), net
|
|
|
(4,712
|
)
|
|
|
(634
|
)
|
|
|
9,776
|
|
|
|
6,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(12,273
|
)
|
|
|
(9,684
|
)
|
|
|
(5,668
|
)
|
|
|
3,255
|
|
Income tax provision (benefit)
|
|
|
1,406
|
|
|
|
19
|
|
|
|
36
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(13,679
|
)
|
|
|
(9,703
|
)
|
|
|
(5,704
|
)
|
|
|
3,317
|
|
Loss from discontinued operations, net of tax
|
|
|
(928
|
)
|
|
|
(3,578
|
)
|
|
|
(757
|
)
|
|
|
(1,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(14,607
|
)
|
|
$
|
(13,281
|
)
|
|
$
|
(6,461
|
)
|
|
$
|
2,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.46
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
(0.46
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
0.11
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,707
|
|
|
|
20,084
|
|
|
|
20,068
|
|
|
|
20,016
|
|
Diluted
|
|
|
31,707
|
|
|
|
20,084
|
|
|
|
20,068
|
|
|
|
20,146
|
|
F-44
Financial
Statement Schedule II: Valuation and Qualifying Accounts
For the Years Ended July 3, 2010, June 27, 2009 and
June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
Allowance for
|
|
|
Allowance for
|
|
|
|
Doubtful Accounts
|
|
|
Sales Returns
|
|
|
|
(Thousands)
|
|
|
Balance at June 30, 2007
|
|
$
|
649
|
|
|
$
|
241
|
|
Additions charged to cost and expenses
|
|
|
16
|
|
|
|
133
|
|
Deductions and write-offs
|
|
|
(494
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2008
|
|
|
171
|
|
|
|
188
|
|
Balances assumed in acquisitions
|
|
|
332
|
|
|
|
144
|
|
Additions charged to cost and expenses
|
|
|
171
|
|
|
|
53
|
|
Deductions and write-offs
|
|
|
(51
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
623
|
|
|
|
277
|
|
Balances assumed in acquisitions
|
|
|
186
|
|
|
|
|
|
Additions charged to cost and expenses
|
|
|
1,500
|
|
|
|
243
|
|
Deductions, write-offs and adjustments
|
|
|
(263
|
)
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
$
|
2,046
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
F-45
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger and Reorganization dated
January 27, 2009 by and among Oclaro Inc., Ultraviolet
Acquisition Sub, Inc., and Avanex Corporation (previously filed
as Annex A to Registrants Registration Statement on
Form S-4
dated February 26, 2009 and incorporated herein by
reference).
|
|
2
|
.2
|
|
Agreement of Merger among: Oclaro, Inc., a Delaware corporation;
Rio Acquisition corp., a Delaware corporation; Xtellus Inc., a
Delaware corporation; and Alta Berkeley LLP, as the
Stockholders Agent. Dated as of December 16, 2009
(previously filed as Exhibit 2.1 to Registrants
Current Report on
Form 8-K
filed on December 22, 2009 and incorporated herein by
reference).
|
|
2
|
.3
|
|
Agreement of Merger among: Oclaro, Inc., a Delaware corporation;
Nikko Acquisition Corp., a Delaware corporation; Mintera
Corporation, a Delaware corporation; and Shareholder
Representative Services LLC, as the Stockholders Agent.
Dated as of July 20, 2010 (previously filed as
Exhibit 2.1 to Registrants Current Report on
Form 8-K
filed on July 26, 2010 and incorporated herein by
reference).
|
|
3
|
.1
|
|
Amended and Restated Bylaws of Oclaro, Inc. (formerly Bookham,
Inc.) (previously filed as Exhibit 3.1 to Registrants
Registration Statement on
Form S-8
dated May 5, 2009 and incorporated herein by reference).
|
|
3
|
.2(3)
|
|
Restated Certificate of Incorporation of Oclaro, Inc.
|
|
3
|
.3
|
|
Certificate of Ownership and Merger merging Oclaro, Inc. into
Bookham, Inc. (previously filed as Exhibit 3.1 to
Registrants Current Report on
Form 8-K
dated April 27, 2009 and incorporated herein by reference).
|
|
10
|
.1
|
|
Form of Warrant (previously filed as Exhibit 99.2 to
Registrants Current Report on
Form 8-K
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.2
|
|
Form of Warrant (previously filed as Exhibit 99.5 to
Registrants Current Report on
Form 8-K
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.3
|
|
Form of Warrant (previously filed as Exhibit 99.3 to
Registrants Current Report on
Form 8-K
filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.4
|
|
Form of Warrant (previously filed as Exhibit 99.3 to
Registrants Current Report on
Form 8-K
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.5
|
|
Credit Agreement, dated as of August 2, 2006, among Oclaro,
Inc., Oclaro Technology Ltd (formerly Bookham Technology plc),
Oclaro Photonics, Inc. (formerly New Focus, Inc.) and Oclaro
Technology, Inc. (formerly Bookham (US), Inc.), Wells Fargo
Capital Finance, Inc. (formerly Wells Fargo Foothill, Inc.) and
other lenders party thereto. (previously filed as
Exhibit 10.53 to Registrants Annual Report on
Form 10-K
for the year ended July 1, 2006, and incorporated herein by
reference).
|
|
10
|
.6(3)
|
|
Amendment Number One to Credit Agreement, dated as of
April 30, 2007, by and among Wells Fargo Capital Finance,
Inc., Oclaro, Inc., Oclaro Technology Ltd, Oclaro Photonics,
Inc. and Oclaro Technology, Inc.
|
|
10
|
.7(3)
|
|
Amendment Number Two to Credit Agreement, dated as of
April 30, 2007, by and among Wells Fargo Capital Finance,
Inc., Oclaro, Inc., Oclaro Technology Ltd, Oclaro Photonics,
Inc. and Oclaro Technology, Inc.
|
|
10
|
.8
|
|
Amendment Number Three to Credit Agreement, dated as of
April 27, 2009, by and among Wells Fargo Capital Finance,
Inc., Oclaro, Inc., Oclaro Technology Ltd, Oclaro Photonics,
Inc. and Oclaro Technology, Inc. (previously filed as
Exhibit 99.1 to the registrants Current Report on
Form 8-K
on May 1, 2009, and incorporated herein by reference).
|
|
10
|
.9(3)
|
|
Amendment Number Four to Credit Agreement, dated as of
May 22, 2009, by and among Wells Fargo Capital Finance,
Inc., Oclaro, Inc., Oclaro Technology Ltd, Oclaro Photonics,
Inc. and Oclaro Technology, Inc.
|
|
10
|
.10(3)
|
|
Amendment Number Five to Credit Agreement, dated as of
December 16, 2009, by and among Wells Fargo Capital
Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd, Oclaro
Photonics, Inc. and Oclaro Technology, Inc.
|
|
10
|
.11(3)
|
|
Amendment Number Six to Credit Agreement, dated as of
July 20, 2010, by and among Wells Fargo Capital Finance,
Inc., Oclaro, Inc., Oclaro Technology Ltd, Oclaro Photonics,
Inc. and Oclaro Technology, Inc.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.12
|
|
Security Agreement, dated as of August 2, 2006, among
Oclaro, Inc., Onetta, Inc., Focused Research, Inc., Globe Y.
Technology, Inc., Ignis Optics, Inc., Oclaro (Canada) Inc.,
Bookham Nominees Limited and Bookham International Ltd., Wells
Fargo Capital Finance, Inc. and other secured parties party
thereto. (previously filed as Exhibit 10.54 to
Registrants Annual Report on
Form 10-K
for the year ended July 1, 2006, and incorporated herein by
reference).
|
|
10
|
.13
|
|
Share Purchase Agreement dated August 10, 2005 among London
Industrial Leasing Limited, Deutsche Bank AG (acting through its
London Branch) and Oclaro Technology Ltd (previously filed as
Exhibit 10.1 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.14
|
|
Loan Facility Agreement dated August 10, 2005 between City
Leasing (Creekside) Limited and Deutsche Bank AG, Limited, for a
facility of up to £18,348,132.33 (previously filed as
Exhibit 10.2 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.15
|
|
Loan Facility Agreement dated August 10, 2005 between City
Leasing (Creekside) Limited and Deutsche Bank AG, Limited for a
facility of up to £42,500,000.00 (previously filed as
Exhibit 10.3 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.16
|
|
Lease dated December 23, 1999 by and between Silicon Valley
Properties, LLC and Oclaro Photonics, Inc., with respect to 2580
Junction Avenue, San Jose, California (previously filed as
Exhibit 10.32 to Registrants Amendment No. 1 to
Transition Report on
Form 10-K
for the for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.17
|
|
Agreement for Sale and Leaseback dated as of March 10,
2006, by and among Oclaro Technology Ltd, Coleridge
(No. 24) Limited and Oclaro, Inc. (previously filed as
Exhibit 10.3 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.18
|
|
Pre-emption Agreement dated as of March 10, 2006, by and
among Oclaro Technology Ltd, Coleridge
(No. 24) Limited and Oclaro, Inc. (previously filed as
Exhibit 10.4 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.19
|
|
Lease dated as of March 10, 2006, by and among Oclaro
Technology Ltd, Coleridge (No. 24) Limited and Oclaro,
Inc. (previously filed as Exhibit 10.5 to Registrants
Quarterly Report on
Form 10-Q
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.20(1)
|
|
Volume Supply Agreement, dated May 6, 2004, between Avanex
Corporation and Fabrinet. (previously filed as
Exhibit 10.12 of Avanex Corporations Quarterly Report
(File
No. 000-29175)
on
Form 10-Q
filed on February 14, 2006, and incorporated herein by
reference).
|
|
10
|
.21(1)
|
|
First Amendment to the Volume Supply Agreement, dated
April 1, 2008, between Avanex Corporation and Fabrinet.
(previously filed as Exhibit 10.33 of Avanex
Corporations Annual Report on
Form 10-K
(File
No. 000-29175)
filed on September 5, 2008, and incorporated herein by
reference).
|
|
10
|
.22(2)
|
|
2004 Employee Stock Purchase Plan (previously filed as
Exhibit 10.18 to Registrants Transition Report on
Form 10-K
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.23(2)
|
|
2004 Sharesave Scheme (previously filed as
Exhibit 10.20 to Registrants Transition Report on
Form 10-K
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.24(2)
|
|
U.K. Subplan to the 2004 Stock Incentive Plan (previously filed
as Exhibit 10.4 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.25(2)
|
|
Form of Incentive Stock Option, Form of Non-Statutory Stock
Option, Form of Restricted Stock Unit Agreement and Form of
Restricted Stock Agreement (previously filed as part of
Exhibit 10.1 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2005 and incorporated
herein by reference)
|
|
10
|
.26(2)
|
|
Amended and Restated 2004 Stock Incentive Plan (previously filed
as Exhibit 10.1 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended December 29, 2007, and incorporated
herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.27(2)
|
|
Form of amendment to restricted stock award agreement issued
pursuant to Amended and Restated 2004 Stock Incentive Plan
(previously filed as Exhibit 10.4 to Registrants
Quarterly Report on
Form 10-Q
dated May 7, 2009 and incorporated herein by reference).
|
|
10
|
.28(2)
|
|
Contract of Employment between Oclaro Technology Ltd and Jim
Haynes (previously filed as Exhibit 10.38 to
Registrants Annual Report on
Form 10-K
for the year ended July 2, 2005, and incorporated herein by
reference).
|
|
10
|
.29(2)
|
|
Form of Indemnification Agreement, dated October 26, 2005,
between Oclaro, Inc. and each of Giorgio Anania and Liam Nagle,
(previously filed as Exhibit 99.1 to Registrants
Current Report on
Form 8-K
filed on November 1, 2005, and incorporated herein by
reference).
|
|
10
|
.30(2)
|
|
Restricted Stock Agreement dated November 11, 2005 between
Oclaro, Inc. and Jim Haynes (previously filed as
Exhibit 10.5 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2005, and incorporated
herein by reference).
|
|
10
|
.31(2)
|
|
Amended and Restated Employment Agreement, dated August 4,
2010, between the Oclaro, Inc. and Alain Couder (previously
filed as Exhibit 10.1 to Registrants Current Report
on
Form 8-K
filed on August 10, 2010 and incorporated herein by
reference).
|
|
10
|
.32(2)
|
|
Form of Indemnification Agreement, between Oclaro, Inc. and
directors and executive officers (previously filed as
Exhibit 10.2 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended December 29, 2007 and incorporated
herein by reference).
|
|
10
|
.33(2)
|
|
Form of Executive Severance and Retention Agreement, between
Oclaro, Inc. and its executive officers (previously filed as
Exhibit 10.1 to Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 29, 2008 and incorporated
herein by reference).
|
|
10
|
.34(2)
|
|
Summary of cash bonus plan (previously provided in
Registrants Current Report on
Form 8-K
filed on October 29, 2008 and incorporated herein by
reference).
|
|
10
|
.35(2)
|
|
Summary of cash bonus plan (previously provided in
Registrants Current Report on
Form 8-K
filed on February 24, 2009, and incorporated herein by
reference).
|
|
10
|
.36(2)
|
|
Summary of cash bonus plan (previously provided in
Registrants Current Report on
Form 8-K
filed on July 27, 2009 and incorporated herein by
reference).
|
|
10
|
.37(2)
|
|
Consulting Agreement between Oclaro, Inc. (formerly known as
Bookham, Inc.), Avanex Corporation and Giovanni Barbarossa
(previously filed as Exhibit 10.40 to Registrants
Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
10
|
.38(2)
|
|
Separation and Release Agreement between Oclaro, Inc. (formerly
known as Bookham, Inc.), Avanex Corporation and Giovanni
Barbarossa (previously filed as Exhibit 10.41 to
Registrants Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
10
|
.39(2)
|
|
Form of Indemnification Agreement between Avanex Corporation and
each of its directors and officers (previously filed as
Exhibit 10.1 of Avanex Corporations Registration
Statement
No. 333-92027
on
Form S-1
filed on December 3, 1999, and incorporated herein
by reference).
|
|
10
|
.40(2)
|
|
Avanex 1998 Stock Plan, as amended and restated (previously
filed as Exhibit 10.2 of Avanex Corporations Annual
Report on
Form 10-K
(File
No. 000-29175)
filed on September 5, 2008, and incorporated herein by
reference).
|
|
10
|
.41(2)
|
|
Avanex 1999 Director Option Plan, as amended (previously
filed as Exhibit 10.5 of Avanex Corporations Annual
Report on
Form 10-K
(File
No. 000-29175)
filed on September 5, 2008, and incorporated herein by
reference).
|
|
10
|
.42(2)
|
|
Form of stock option agreement between Avanex and certain of its
directors (previously filed as Exhibit 10.45 to
Registrants Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
10
|
.43(2)
|
|
Form of stock option agreement between Avanex and certain of its
executive officers (previously filed as Exhibit 10.46 to
Registrants Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
10
|
.44(2)
|
|
Form of stock option agreement between Avanex and certain of its
employees (previously filed as Exhibit 10.47 to
Registrants Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.45(2)
|
|
Form of Restricted Stock Unit Agreement between Avanex and
certain of its executive officers (previously filed as
Exhibit 10.48 to Registrants Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
10
|
.46(2)
|
|
Form of Restricted Stock Unit Agreement between Avanex and
certain of its employees (previously filed as Exhibit 10.49
to Registrants Annual Report on
Form 10-K
for the year ended June 27, 2009, and incorporated herein
by reference).
|
|
10
|
.47(2)
|
|
Variable Pay Plan (previously filed as Exhibit 5.02 to
Registrants Current report on
Form 8-K
filed on August 2, 2010 and incorporated herein by
reference).
|
|
21
|
.1(3)
|
|
List of Oclaro, Inc. subsidiaries
|
|
23
|
.1(3)
|
|
Consent of Independent Registered Public Accounting Firm
|
|
31
|
.1(3)
|
|
Certification of Chief Executive Officer Pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2(3)
|
|
Certification of Chief Financial Officer Pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1(3)
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
|
|
32
|
.2(3)
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
|
|
|
|
(1) |
|
Portions of this exhibit have been omitted pursuant to a request
for confidential treatment granted by the Commission. |
|
(2) |
|
Management contract or compensatory plan or arrangement. |
|
(3) |
|
Filed herewith. |