This Quarterly Report on Form 10-Q 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. You can identify these statements by the fact that they do not relate strictly to historical or current events, and contain words such as "anticipate," "estimate," "expect," "project," "intend," "will," "plan," "believe," "should," "outlook," "could," "target" and other words of similar meaning in connection with discussion of future operating or financial performance. We have based our forward looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. There are a number of important factors that could cause our actual results or events to differ materially from those indicated by such forward-looking statements, including (i) the future performance of Oclaro and its ability to effectively integrate the operations of acquired companies following the closing of acquisitions and mergers, including its merger with Opnext, (ii) the potential inability to realize the expected and ongoing benefits and synergies of acquisitions and mergers, (iii) the impact to our operations, revenues and financial condition attributable to the flooding in Thailand, (iv) the impact of continued uncertainty in world financial markets and any resulting reduction in demand for our products, (v) our ability to meet or exceed our gross margin expectations, (vi) the effects of fluctuating product mix on our results, (vii) our ability to timely develop and commercialize new products, (viii) our ability to reduce costs and operating expenses, (ix) our ability to respond to evolving technologies and customer requirements and demands, (x) our dependence on a limited number of customers for a significant percentage of our revenues, (xi) our ability to maintain strong relationships with certain customers, (xii) our ability to effectively compete with companies that have greater name recognition, broader customer relationships and substantially greater financial, technical and marketing resources than we do,
(xiii) our ability to effectively and efficiently transition to an outsourced back-end assembly and test model, (xiv) our ability to timely capitalize on any increase in capital demand, (xv) increased costs related to downsizing and compliance with regulatory and legal requirements in connection with such downsizing, (xvi) competition and pricing pressure, (xvii) the potential lack of availability of credit or opportunity for equity based financing, (xviii) the risks associated with our international operations, (xix) our ability to service and repay our outstanding indebtedness pursuant to the terms of the applicable agreements, (xx) the outcome of tax audits or similar proceedings, (xxi) the outcome of pending litigation against the company, (xxii) our ability to maintain or increase our cash reserves and obtain financing on terms acceptable to us, and (xxiii) other factors described in Oclaro's most recent annual report on Form 10-K, quarterly report on Form 10-Q and other documents we periodically file with the SEC. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference.

OVERVIEW

We are a tier-one provider of optical communications and laser components, modules and subsystems for a broad range of diverse markets, including telecommunications (telecom), industrial, scientific, consumer electronics and medical. In all markets, our approach is to offer 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 vertically integrated approach to manufacturing and product development.

Our customers include Huawei Technologies Co. Ltd (Huawei); Alcatel-Lucent; Ciena Corporation (Ciena); Fujitsu Limited (Fujitsu); Tellabs, Inc.; Infinera Corporation; Cisco Systems, Inc. (Cisco); ADVA Optical Networking; Laserline Inc.; and Ericsson.

RESULTS OF OPERATIONS

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



                                                              Three Months Ended                                               Increase
                                              December 29, 2012               December 31, 2011              Change           (Decrease)
                                           (Thousands)          %          (Thousands)          %          (Thousands)            %
Revenues                                  $     159,465        100.0      $      86,488        100.0      $      72,977              84.4
Cost of revenues                                137,966         86.5             75,613         87.4             62,353              82.5

Gross profit                                     21,499         13.5             10,875         12.6             10,624              97.7

Operating expenses:
Research and development                         25,750         16.1             17,024         19.7              8,726              51.3
Selling, general and administrative              23,092         14.5             14,425         16.7              8,667              60.1
Amortization of intangible assets                 2,402          1.5                723          0.9              1,679             232.2
Restructuring, acquisition and related
(gains) costs, net                              (23,665 )      (14.8 )            3,219          3.7            (26,884 )             n/m (1)
Flood-related expense                               641          0.4              9,088         10.5             (8,447 )           (92.9 )
Loss on sale of property and equipment                6           -                  37           -                 (31 )           (83.8 )

Total operating expenses                         28,226         17.7             44,516         51.5            (16,290 )           (36.6 )

Operating loss                                   (6,727 )       (4.2 )          (33,641 )      (38.9 )           26,914             (80.0 )
Other income (expense):
Interest income (expense), net                     (649 )       (0.4 )             (245 )       (0.3 )             (404 )           164.9
Gain (loss) on foreign currency
translation                                      (3,423 )       (2.2 )            1,298          1.5             (4,721 )             n/m (1)
Other income                                         -            -               2,238          2.6             (2,238 )          (100.0 )

Total other income (expense)                     (4,072 )       (2.6 )            3,291          3.8             (7,363 )             n/m (1)

Loss before income taxes                        (10,799 )       (6.8 )          (30,350 )      (35.1 )           19,551             (64.4 )
Income tax provision                              1,424          0.9                478          0.5                946             197.9

Net loss                                  $     (12,223 )       (7.7 )    $     (30,828 )      (35.6 )    $      18,605             (60.4 )

(1) Not meaningful.

                                                              Six Months Ended                                                Increase
                                             December 29, 2012               December 31, 2011              Change           (Decrease)
                                          (Thousands)          %          (Thousands)          %          (Thousands)            %
Revenues                                 $     308,278        100.0      $     192,309        100.0      $     115,969              60.3
Cost of revenues                               268,942         87.2            157,401         81.8            111,541              70.9

Gross profit                                    39,336         12.8             34,908         18.2              4,428              12.7

Operating expenses:
Research and development                        51,515         16.7             34,691         18.0             16,824              48.5
Selling, general and administrative             47,658         15.5             31,959         16.6             15,699              49.1
Amortization of intangible assets                4,428          1.5              1,449          0.8              2,979             205.6
Restructuring, acquisition and related
(gains) costs, net                             (11,029 )       (3.6 )            1,454          0.8            (12,483 )             n/m (1)
Flood-related expense                              905          0.3              9,088          4.7             (8,183 )           (90.0 )
(Gain) loss on sale of property and
equipment                                          (12 )       (0.0 )               97          0.1               (109 )             n/m (1)

Total operating expenses                        93,465         30.4             78,738         41.0             14,727              18.7

Operating loss                                 (54,129 )      (17.6 )          (43,830 )      (22.8 )          (10,299 )            23.5
Other income (expense):
Interest income (expense), net                  (1,127 )       (0.4 )             (402 )       (0.2 )             (725 )           180.3
Gain (loss) on foreign currency
translation                                     (3,227 )       (1.0 )            2,690          1.4             (5,917 )             n/m (1)
Other income                                        -            -               2,238          1.1             (2,238 )          (100.0 )
Gain on bargain purchase                        39,460         12.8                 -            -              39,460               n/m (1)

Total other income (expense)                    35,106         11.4              4,526          2.3             30,580             675.7

Loss before income taxes                       (19,023 )       (6.2 )          (39,304 )      (20.5 )           20,281             (51.6 )
Income tax provision                             2,607          0.8              6,106          3.1             (3,499 )           (57.3 )

Net loss                                 $     (21,630 )       (7.0 )    $     (45,410 )      (23.6 )    $      23,780             (52.4 )

(1) Not meaningful.

Revenues

Revenues for the three months ended December 29, 2012 increased by $73.0 million, or 84 percent, compared to the three months ended December 31, 2011. The increase was primarily due to the inclusion of revenues in fiscal year 2013 generated through the acquisition of Opnext on July 23, 2012. Compared to the three months ended December 31, 2011, revenues from sales of our 40 Gb/s and 100 Gb/s transmission modules increased by $19.5 million, or 105 percent; revenues from sales of our 10 Gb/s transmission modules increased by $35.1 million, or 275 percent; revenues from sales of our amplification, filtering and optical switching products increased by $10.8 million, or 53 percent mostly due to the recovery from the adverse impact of the Thai flood on sales of amplification products in the second quarter of fiscal 2012; and revenues from sales of our industrial and consumer products increased by $7.8 million, or 63 percent. The increase in revenue for these respective product groups was mainly attributable to our acquisition of Opnext and also recovery from the Thai flood. Revenues from sales of our transmission components remained relatively flat due to unfavorable market conditions.

For the three months ended December 29, 2012, Cisco Systems, Inc. (Cisco) accounted for $17.9 million, or 11 percent, of our revenues, Alcatel-Lucent accounted for $16.5 million, or 10 percent, of our revenues, and Huawei Technologies Co., Ltd. (Huawei) accounted for $16.0 million, or 10 percent, of our revenues. For the three months ended December 31, 2011, Fujitsu Limited (Fujitsu) accounted for $12.4 million, or 14 percent, of our revenues; Infinera Corporation (Infinera) accounted for $9.1 million, or 11 percent, of our revenues; and Ciena Corporation (Ciena) accounted for $8.3 million, or 10 percent, of our revenues.

Revenues for the six months ended December 29, 2012 increased by $116.0 million, or 60 percent, compared to the six months ended December 31, 2011. The increase was primarily due to the inclusion of revenues in fiscal year 2013 generated through the acquisition of Opnext on July 23, 2012. Compared to the six months ended December 31, 2011, revenues from sales of our 40 Gb/s and 100 Gb/s transmission modules increased by $35.5 million, or 111 percent; revenues from sales of our 10 Gb/s transmission modules increased by $63.3 million, or 272 percent; revenues from sales of our transmission components increased by $2.4 million, or 5 percent; revenues from sales of our amplification, filtering and optical switching products increased by $6.0 million, or 10 percent mostly due to the recovery from the adverse impact of the Thai flood on sales of amplification products in the second quarter of fiscal 2012; and revenues from sales of our industrial and consumer products increased by $8.8 million, or 30 percent. The increase in revenue for these respective product groups was mainly attributable to our acquisition of Opnext and also recovery from the Thai flood.

For the six months ended December 29, 2012, Cisco accounted for $37.5 million, or 12 percent, of our revenues, Huawei accounted for $32.7 million, or 11 percent, of our revenues, and Alcatel-Lucent accounted for $30.5 million, or 10 percent, of our revenues. For the six months ended December 31, 2011, Fujitsu accounted for $23.8 million, or 12 percent, of our revenues, and Huawei accounted for $21.0 million, or 11 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. 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 which are incurred in connection with the development of new products are included in research and development expense.

Our cost of revenues for the three months ended December 29, 2012 increased by $62.4 million, or 83 percent, from the three months ended December 31, 2011. The increase was primarily related to higher costs associated with the inclusion of cost of revenues in fiscal year 2013 generated through the acquisition of Opnext on July 23, 2012.

Our cost of revenues for the six months ended December 29, 2012 increased by $111.5 million, or 71 percent, from the six months ended December 31, 2011. The increase was primarily related to higher costs associated with the inclusion of cost of revenues in fiscal year 2013 generated through the acquisition of Opnext on July 23, 2012.

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 by 1 percent for the three months ended December 29, 2012, to 14 percent, compared to the three months ended December 31, 2011. The increase in gross margin rate was primarily due to lower revenues in the second quarter of fiscal 2012 in relation to overhead expenses resulting in lower gross margin for that period.

Our gross margin rate decreased to 13 percent for the six months ended December 29, 2012, compared to 18 percent for the three months ended December 31, 2011. Of the 5 percentage point decline in gross margin rate, approximately 3 percentage points were attributable to product mix with a higher mix of lower margin 10 Gb/s transmission products, and approximately 2 percentage points were attributable to an increase in other costs of sales because of unfavorable manufacturing variances resulting from higher overhead, and period costs.

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 $25.8 million for the three months ended December 29, 2012 from $17.0 million for the three months ended December 31, 2011. The increase was primarily related to the inclusion of research and development expenses in fiscal year 2013 to fund research and development associated with products acquired through the acquisition of Opnext on July 23, 2012, partially offset by a reduction in research and development expenses of $0.3 million related to synergies from aligning and reducing combined research and development resources of Oclaro and Opnext in association with the merger, and other cost reduction efforts in response to softening market conditions and lower post-flood revenues. Personnel-related costs increased to $15.0 million for the three months ended December 29, 2012, compared with $9.8 million for the three months ended December 31, 2011, primarily as a result of an increase in personnel numbers following our acquisition of Opnext. In addition, in the second quarter of fiscal year 2012, as part of our Thailand flood recovery efforts, certain of our research and development employees were redirected to efforts to restore our production capacity. As a result, our research and development expenses were $0.6 million lower than they would have been otherwise, as these amounts were recorded in flood-related expense for the three months ended December 31, 2011. Other costs, including the costs of design tools and facilities-related costs increased to $10.7 million for the three months ended December 29, 2012, compared with $7.2 million for the three months ended December 31, 2011.

Research and development expenses increased to $51.5 million for the six months ended December 29, 2012 from $34.7 million for the six months ended December 31, 2011. The increase was primarily related to the inclusion of research and development expenses in fiscal year 2013 to fund research and development associated with products acquired through the acquisition of Opnext on July 23, 2012, partially offset by a reduction in research and development expenses of $0.5 million related to synergies from aligning and reducing combined research and development resources of Oclaro and Opnext in association with the merger, and other cost reduction efforts in response to softening market conditions and lower post-flood revenues. Personnel-related costs increased to $29.5 million for the six months ended December 29, 2012, compared with $20.3 million for the six months ended December 31, 2011, primarily as a result of an increase in personnel numbers following our acquisition of Opnext. In addition, in the second quarter of fiscal year 2012, as part of our Thailand flood recovery efforts, certain of our research and development employees were redirected to efforts to restore our production capacity. As a result, our research and development expenses were $0.6 million lower than they would have been otherwise, as these amounts were recorded in flood-related expense for the six months ended December 31, 2011. Other costs, including the costs of design tools and facilities-related costs increased to $22.0 million for the six months ended December 29, 2012, compared with $14.4 million for the six months ended December 31, 2011.

In the second half of fiscal year 2013, we expect research and development expenses to decrease approximately 10 to 15 percent from the pro forma combined expenditures of Oclaro and Opnext of approximately $54.6 million for the six months ended December 29, 2012, as we implement cost synergies resulting from the acquisition.

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 $23.1 million for the three months ended December 29, 2012, from $14.4 million for the three months ended December 31, 2011. The increase was primarily related to the inclusion of selling, general and administrative expenses in fiscal year 2013 attributable to the operations of Opnext, partially offset by a reduction in selling, general and administrative expenses related to synergies from aligning and reducing combined selling, general and administrative resources of Oclaro and Opnext in association with the merger, and other cost reduction efforts in response to softening market conditions and lower post-flood revenues. Personnel-related costs increased to $13.6 million for the three months ended December 29, 2012, compared with $9.3 million for the three months ended December 31, 2011, primarily as a result of an increase in personnel numbers following our acquisition of Opnext. Other costs, including legal and professional fees, facilities expenses and other miscellaneous expenses, increased to $9.5 million for the three months ended December 29, 2012, compared with $5.1 million for the three months ended December 31, 2011. Of the $9.5 million in other costs incurred in the second quarter of fiscal year 2013, $3.2 million related to audit, professional fees and insurance costs, $2.7 million related to sales and marketing costs, $1.9 million related to information technology costs, $1.1 million related to legal and executive costs, and $0.6 million related to human resources costs.

Selling, general and administrative expenses increased to $47.7 million for the six months ended December 29, 2012, from $32.0 million for the six months ended December 31, 2011. The increase was primarily related to the inclusion of selling, general and administrative expenses in fiscal year 2013 attributable to the operations of Opnext, partially offset by a reduction in selling, general and administrative expenses related to synergies from aligning and reducing combined selling, general and administrative resources of Oclaro and Opnext in association with the merger, and other cost reduction efforts in response to softening market conditions and lower post-flood revenues. Personnel-related costs increased to $27.2 million for the six months ended December 29, 2012, compared with $19.4 million for the six months ended December 31, 2011, primarily as a result of an increase in personnel numbers following our acquisition of Opnext. Other costs, including legal and professional fees, facilities expenses and other miscellaneous expenses, increased to $20.4 million for the six months ended December 29, 2012, compared with $12.6 million for the six months ended December 31, 2011. Of the $20.4 million in other costs incurred during the six months ended December 29, 2012, $7.2 million related to audit, professional fees and insurance costs, $5.6 million related to sales and marketing costs, $4.0 million related to information technology costs, $2.5 million related to legal and executive costs, and $1.3 million related to human resources costs.

In the second half of fiscal year 2013, we expect selling, general and administrative expenses to decrease approximately 15 to 20 percent from the pro forma combined expenditures of Oclaro and Opnext of approximately $50.8 million for the six months ended December 29, 2012, as we implement cost synergies resulting from the acquisition.

Amortization of Intangible Assets

Amortization of intangible assets increased to $2.4 million and $4.4 million for the three and six months ended December 29, 2012, respectively, from $0.7 million and $1.4 million for the three and six months ended December 31, 2011, respectively. The increase is a result of our acquisition of Opnext, in which we recorded $28.0 million in intangible assets as our preliminary estimate of the fair value of acquired intangible assets.

Restructuring, Acquisition and Related Costs

In connection with the acquisition of Opnext, during the six months ended December 29, 2012, we recorded $2.6 million in legal and professional fees, and initiated a restructuring plan to integrate the businesses. Under this restructuring plan, during the three months ended December 29, 2012, we recorded $0.8 million related to workforce reductions, which are included in restructuring, acquisition and related costs in the condensed consolidated statement of operations. During the six months ended December 29, 2012, we recorded $7.8 million related to workforce reductions, $0.9 million related to the impairment of certain technology that is now considered redundant following the acquisition and $0.4 million related to the write-off of net book value inventory that supported this technology during the first quarter of fiscal year 2013, which costs are included in restructuring, acquisition and related costs in the condensed consolidated statement of operations.

During fiscal year 2012, we initiated a restructuring plan in connection with the transfer of our Shenzhen, China manufacturing operations to Venture. We expect this transition to occur in a phased and gradual transfer of products over a three year period ending in 2015 and result in approximately $35 million in lower working capital requirements, net of related costs incurred. In connection with this transition, we recorded restructuring charges for employee separation charges of $1.4 million and $2.9 million, respectively, during the three and six months ended December 29, 2012.

During the three months ended December 29, 2012, we sold our thin film filter business and interleaver product line in exchange for a total purchase price of $27.0 million in cash. In the second quarter of fiscal 2013, we recorded a gain of $25.0 million related to this sale.

During the three months ended December 31, 2011, we recorded $0.5 million in employee separation costs related to previously announced restructuring plans and incurred $1.8 million in external consulting charges related to our optimization of past acquisitions. During the three months ended December 31, . . .