XNAS:JDSU JDS Uniphase Corp (CA) Annual Report 10-K Filing - 6/30/2012

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INDEX TO FINANCIAL STATEMENTS

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


Form 10-K

(Mark One)    

þ

 

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

 

 

For the fiscal year ended June 30, 2012

 

 

OR

o

 

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

 

 

For the transition period from                                    to                                   

Commission File Number 0-22874

JDS UNIPHASE CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware   94-2579683
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

430 North McCarthy Boulevard, Milpitas, California 95035
(Address of principal executive offices including Zip code)

(408) 546-5000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of exchange on which registered
Common Stock, par value of $0.001 per share   The NASDAQ Stock Market LLC
Preferred Stock Purchase Rights    

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 ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o    No ý

         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 ý    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 ý    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 Registrant's 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. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         As of December 31, 2011 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $2.4 billion, based upon the closing sale prices of the common stock as reported on the NASDAQ Stock Market LLC. Shares of common stock held by executive officers and directors have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

         As of July 28, 2012, the Registrant had 231,916,378 shares of common stock outstanding, including 3,937,789 exchangeable shares of JDS Uniphase Canada Ltd. Each exchangeable share is exchangeable at any time into common stock on a one-for-one basis, entitles a holder to dividend and other rights economically equivalent to those of the common stock, and through a voting trust, votes at meetings of stockholders of the Registrant.

         Documents Incorporated by Reference: Portions of the Registrant's Notice of Annual Meeting of stockholders and Proxy Statement to be filed pursuant to Regulation 14A within 120 days after Registrant's fiscal year end of June 30, 2012 are incorporated by reference into Part III of this Report.


Table of Contents


TABLE OF CONTENTS

 
   
   
  PAGE
PART I    
    ITEM 1.   BUSINESS   4
    ITEM 1A.   RISK FACTORS   21
    ITEM 1B.   UNRESOLVED STAFF COMMENTS   29
    ITEM 2.   PROPERTIES   29
    ITEM 3.   LEGAL PROCEEDINGS   30
    ITEM 4.   MINE SAFETY DISCLOSURES   30
PART II    
    ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   31
    ITEM 6.   SELECTED FINANCIAL DATA   33
    ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   35
    ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   67
    ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   69
    ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   137
    ITEM 9A.   CONTROLS AND PROCEDURES   137
    ITEM 9B.   OTHER INFORMATION   137
PART III    
    ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   138
    ITEM 11.   EXECUTIVE COMPENSATION   138
    ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   138
    ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   138
    ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES   138
PART IV    
    ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES   139

SIGNATURES

 

143

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FORWARD-LOOKING STATEMENTS

        Statements contained in this Annual Report on Form 10-K which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as "anticipates," "believes," "can impact," "could," "continue," "estimates," "expects," "intends," "may," "ongoing," "plans," "potential," "projects," "should," "will," "will continue to be," "would," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include statements such as:

    our expectations regarding demand for our products, including continued trends in end-user behavior and technological advancements that may drive such demand and the expected effects of overall market conditions on such demand;

    our belief that the Company is well positioned to benefit from certain industry trends and advancements, and our expectations of the role we will play in those advancements;

    our plans for growth and innovation opportunities;

    our plans to continue to operate as a Company comprised of a portfolio of businesses with a focus on optical and broadband innovation;

    financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, sources of revenue, sources of competition and pricing pressures, the future impact of certain accounting pronouncements and global economic conditions and our estimation of the potential impact and materiality of litigation that arises in the ordinary course of business;

    our plans for continued development, use and protection of our intellectual property;

    our strategies for achieving our current business objectives, including related risks and uncertainties;

    our plans relating to investments, acquisitions, partnerships and other strategic opportunities;

    our strategies for reducing our dependence on sole suppliers or otherwise mitigating the risk of supply chain interruptions;

    our research and development plans; and

    our expectations related to our products, including costs associated with the development of new products, product yields, quality and other issues.

        Management cautions that forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These forward-looking statements are only predictions and are subject to risks and uncertainties including those set forth in Part I, Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission. Moreover, neither we assume nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform such statements to actual results or to changes in our expectations.

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PART I

ITEM 1.    BUSINESS

General

Overview

        JDS Uniphase Corporation ("JDSU," also referred to as "the Company," "we," "our," and "us") is a leading provider of communications test and measurement solutions and optical products for telecommunications service providers, wireless operators, cable operators, network-equipment manufacturers ("NEMs"), and enterprises. JDSU also is an established leader in providing anti-counterfeiting technologies for currencies and other high value documents and products. In addition, the Company is leveraging its core networking and optical technology expertise to deliver high-powered commercial lasers for manufacturing applications and expand into emerging markets, including gesture—recognition solutions for consumer electronics.

        To serve its markets, JDSU operates the following business segments: Communications Test and Measurement ("CommTest"), which accounted for approximately 44.9% of net revenue in fiscal 2012; Communications and Commercial Optical Products ("CCOP"), which accounted for approximately 41.7% of net revenue in fiscal 2012; and Advanced Optical Technologies ("AOT"), which accounted for approximately 13.4% of net revenue in fiscal 2012.

Industry Trends

        The trends that drive the broadband communications industry influence our CommTest and CCOP businesses. Adoption of smart mobile devices and demand for high-speed broadband access to support video and other high-bandwidth network traffic applications are straining networks and creating new challenges for JDSU's customers. The growing use of social networking and cloud computing also make network traffic more unpredictable, generating sudden spikes in volume and making it harder to deliver a quality end user experience. Meeting these challenges requires the deployment of advanced network and service enablement solutions and next generation network technologies such as LTE, 40/100G and FTTx. JDSU is well positioned to continue to benefit from these industry trends, and the network complexity they create, due to its leadership in broadband test and measurement and optical communications.

        Trends related to the increasing threat of counterfeiting impact our AOT business. Counterfeiting for currency, pharmaceuticals and other goods, is on the rise because, penalties are relatively light and technological advances, including cheaper, higher-quality printing technology, online marketing that enables counterfeiters to market their products cheaply and anonymously, and cheaper distribution means have made counterfeiting easier than ever. JDSU enjoys long-standing positions with government and leading commercial enterprises built on decades of anti-counterfeiting expertise. JDSU's optically variable pigment technologies protect the integrity of currency and other high value products and documents. We also provide critical optical components for safety, security and consumer markets.

        In addition to communications network and service enablement and anti-counterfeiting solutions, JDSU extends its technology expertise to solve complex problems and deliver unique solutions in other industries. For example, our high-precision lasers enable the trend toward smaller integrated circuits for use in today's compact consumer electronics, the classification and sorting of biological cells using induced fluorescence, and deoxyribonucleic acid ("DNA") sequencing through the appropriate application of monochromatic light. New concentrator photovoltaic ("CPV") cell technology from JDSU captures concentrated sunlight for electrical power generation. Precision optical coatings are

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used for emerging gesture-recognition and 3D applications as well as high-performance applications in aerospace, entertainment, and biomedical instrumentation.

Sales and Marketing

        JDSU markets its products to telecommunications and cable service providers, NEMs, original equipment manufacturers ("OEM"), enterprises, government organizations, distributors and strategic partners worldwide. Each business segment has a dedicated sales force that communicates directly with customers' executive, technical, manufacturing, and purchasing personnel as needed to determine design, performance, and cost requirements. In addition, all business segments are working to expand opportunities in emerging geographic markets directly and through alternate channels of distribution.

        A high level of support is necessary to develop and maintain long-term collaborative relationships with our customers. JDSU develops innovative products by engaging the customer at the initial design phase and continues to build the relationship as customer needs change and develop. Service and support are provided through JDSU offices and those of its partners worldwide.

Additional Information

        JDSU was incorporated in California in 1979 and reincorporated in Delaware in 1993. JDSU is the product of several significant mergers and acquisitions including, among others, the combination of Uniphase Corporation and JDS FITEL in 1999, and the acquisition of Acterna, Inc. in 2005. Our strategy is to operate as a company comprised of a portfolio of businesses with a focus on optical and broadband innovation.

        We are subject to the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, pursuant to which we file annual, quarterly and periodic reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We also post all of our SEC filings on our website at www.jdsu.com/investors as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.

Corporate Strategy

        Our objective is to continue to be a leading provider for all markets and industries we serve. In support of our business segments, we are pursuing a corporate strategy that we believe will best position us for future opportunities. The key elements of our corporate strategy include:

    Enable our customers through collaborative innovation

    We are committed to working closely with our customers from initial product design and manufacturing through to solution deployment and training. We strive to engage with our customers at the early stages of development to provide them with the most innovative and timely products and services and ensure that our focus remains aligned with their emerging requirements. Our sales, customer support, product marketing, and development efforts are organized to maximize effectiveness in our customer interactions.

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    Maintain and improve our financial flexibility

    We continue to take actions to maintain and improve our financial flexibility to support our global business operations and additional investments in growth and innovation. Key elements of this strategy include maintaining a healthy balance sheet with a strong liquidity position, continued generation of positive cash flow, diligent management of our cash conversion cycle, managing our capital structure to minimize cost of capital and preserve access to additional financing, managing capital market risk and refinancing risk with periodic debt issuance and/or maintenance of revolving credit facilities, and maintaining healthy bank relationships.

    Build a lean and scalable business

    We continue to streamline our manufacturing operations and reduce costs by using contract manufacturers where appropriate and consolidating to reduce our footprint and total fixed costs. In addition, our shared corporate functions model cost-effectively provides our business segments with the centralized strength and depth of a larger company, while allowing each segment to remain focused and responsive to its own market needs.

    Invest in profitable, market-based innovation

    Based on current and anticipated demand, we continue to invest in research and development ("R&D") and through acquisitions and partnerships in new technologies, products and services that offer our customers increased efficiency, higher performance, improved functionality, and/or higher levels of integration. In fiscal 2012, we continued to invest in product development in line with our profitability and growth objectives. The acquisition of Dyaptive Systems Inc. ("Dyaptive") expanded our mobile test product portfolio, supporting our customers' need for solutions that improve the reliability and quality of wireless communications. We also acquired product design, intellectual property and other assets from QuantaSol Limited ("QuantaSol"), a CPV provider based in the United Kingdom. The acquired technology allows more light to be converted to electrical power by raising the efficiency of CPV cells, the most important metric in the solar industry.

    Expand our global market presence

    Long term, we expect higher rates of growth in the Asia-Pacific, Latin America and Eastern Europe regions. Therefore, we are developing products, sales, marketing and customer support to meet the specific needs in these regions in order to serve these customers better.

        Although we expect to successfully implement our strategy, internal and/or external factors could impact our ability to meet any, or all, of our objectives. These factors are discussed under Item 1A—Risk Factors.

Business Segments

        JDSU operates in the following business segments: CommTest, CCOP and AOT. Each segment has its own engineering, manufacturing, sales, and marketing groups to better serve customers and respond quickly to the market needs. In addition, our business segments share common corporate services that provide capital, infrastructure, resources, and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets.

Communications Test and Measurement

        The CommTest business provides instruments, software and services that enable the design, deployment, and maintenance of communication equipment and broadband networks and ensure the quality of services delivered to the end user. These solutions help accelerate the deployment of new

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services and lower operating expenses while improving performance and reliability. Included in the product portfolio are test tools, platforms, software, and services for wireless and wireline networks. CommTest products address the test requirements across and at all layers of the network and are used in all phases of the network lifecycle, from R&D in the lab and production line validation to field deployment and service assurance. JDSU also provides test solutions for private enterprise networks, including storage and storage-network technologies.

Markets

        JDSU provides instruments, software, service assurance systems, and services for communications network operators and equipment manufacturers that deliver and/or operate broadband/IP networks (fixed and mobile) that deliver voice, video, and data services. JDSU communications test solutions support the research, development, and manufacture of network equipment; field service test for fixed and wireless networks, including triple-play deployments for cable, telecom, FTTx, and home networking; and service assurance, which includes monitoring and maintaining quality of experience ("QoE") for cable, wireless and fixed/telecom networks. JDSU also provides protocol-test solutions for the development and field deployment of storage networks.

Customers

        JDSU customers for CommTest include the world's largest communications service providers, NEMs, government organizations, and large corporate customers. These include major telecom and cable operators such as AT&T, Bell Canada, Bharti Airtel Limited, British Telecom, China Mobile, China Telecom, Chunghwa Telecom, Comcast, CSL, Deutsche Telecom, France Telecom, TalkTalk, Telefónica, Telmex, TimeWarner Cable, and Verizon. JDSU test and measurement customers also include many of the NEMs served by our CCOP segment, including Alcatel-Lucent, Ciena, Cisco Systems, Fujitsu and Huawei. JDSU test and measurement customers also include chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Storage-segment customers include Brocade, Cisco Systems, EMC, Hewlett-Packard and IBM.

Trends

        As content and application developer providers are developing new business models to expand their distribution capabilities, they are increasingly adopting on-line channels for rich broadband content such as music, gaming, video programming, and movies. Telecommunications and cable service providers are, in turn, planning to increase profitability and average revenue per subscriber ("ARPU") by expanding the capabilities of their packet-based networks to increase their network capacity and to deliver sophisticated, more reliable levels of service required to meet the requirements of content providers, application developers and end users.

        Telecommunications, cable television, satellite, and wireless service providers are competing with each other to offer content providers and consumers the ability to carry virtually any type of voice, data and video content to any device, including smart phones and tablets. With more applications and content available, potential benefits for service providers include increased ARPU and less customer turnover due to better service quality, thus increasing profitability and long-term competitive advantage. As a result, many providers are developing consolidated network architectures intended to enable integrated voice, data and video services from a single provider rather than three separate services from different providers. Integrating legacy and next generation network technology and services create new challenges for communications service providers and undermines service quality and reliability.

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        Additionally, growth in the number of worldwide mobile subscribers and the proliferation of new and higher bandwidth services, including video-based content such as news, movies, and gaming, is generating strong growth in demand for network capacity and faster transmission rates. These trends are driving disproportionate capital spending in network technologies related to next-generation wireless, including 3G and 4G/Long Term Evolution ("LTE") and Ethernet-based backhaul of mobile traffic from cell towers; higher-capacity transport solutions to support video communications (40G/100G); and software-driven network and service enablement systems.

        Increasing deployments of higher speed networks, the expansion of IP-based services, the need to reduce deployment time and cost, and the importance of increasing ARPU results in demand for communications test and measurement instruments, systems, software, and services. These solutions support the rapid deployment of new services and sources of revenue, increase customer satisfaction by helping technicians complete installation and repair work quickly and correctly, and lower operating expenses by automating and improving network installation, maintenance, and management processes. Our broad portfolio of test and measurement solutions positions us well to benefit from these developments.

Strategy

        The CommTest business segment plans to improve profitability and increase revenue by continuing to develop and offer higher-margin, software-based solutions that can remotely and more cost-effectively gather network intelligence our customers need to deliver a quality end user experience, increase ARPU, reduce customer churn and lower operating expenses.

Competition

        JDSU competes against various companies, including Agilent, Anritsu, Danaher (i.e. Fluke and Tektronix), Exfo, Ixia and Spirent. While JDSU faces multiple competitors for each of its product families, it continues to have one of the broadest portfolios of wireline and wireless products and solutions available in the communications test and measurement industry.

Offerings

        JDSU provides end-to-end communications test and measurement solutions for wireless and wireline communications networks, including the core, metro, access, and home networking environments. JDSU is a leader in the test and measurement market and has an installed base of hundreds of thousands of test instruments and systems deployed in communications networks around the world.

Instruments

        JDSU provides instruments that speed the deployment of network technologies and services, ensure reliability and reduce network expenses. Designed to be mobile, these products assist service provider technicians in assessing the performance of network elements and segments or verifying the integrity of the information being transmitted across the network. These instruments incorporate high levels of intelligence and have user interfaces that are designed to simplify operation and minimize training. JDSU test instruments also include those used by NEMs in the design and manufacture of next-generation network equipment. Thorough testing by NEMs plays a critical role in producing the components and equipment that are the building blocks of network infrastructure.

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Software

        JDSU provides software products and custom software development services to its customers. The Company recently introduced PacketPortal™, a software platform that uses microprobe technology to cost-effectively gather intelligence anywhere in the network for use with a suite of customer care, marketing and other applications. These software applications are created by JDSU as well as third-party application development partners. Another software-driven solution, PacketInsight™, was introduced this year and allows service providers to quickly pinpoint critical data in the core network. JDSU's software solutions are designed to help service providers profitably scale to unprecedented bandwidth demand while providing a high-quality subscriber experience.

Solutions

        JDSU solutions typically consist of integrated hardware and software components that reside in communication networks, such as service assurance solutions. Using an integrated test and measurement system, JDSU customers are able to analyze critical network elements, transmission technologies and protocols from a single console, simplifying the process of deploying, provisioning and managing network equipment and services. From a centralized location, technicians can access the test systems within the network and perform simultaneous test and monitoring functions on one or more elements, either manually or automatically. These capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, help to make necessary repairs faster and, as a result, lower costs while providing higher quality and more reliable services.

Services

        JDSU offers a range of product support and professional services geared to comprehensively address our customers' requirements. These services include repair, calibration, software support services and technical assistance for its products. JDSU also offers product and technology training as well as consulting services. JDSU professional services, provided in conjunction with system integration projects, include project management installation and implementation.

Communications and Commercial Optical Products

        The CCOP business segment provides optical communications products used by NEMs for telecommunications and enterprise data communications. These products enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables. Transmission products primarily consist of optical transceivers, optical transponders, and their supporting components such as modulators and source lasers, including innovative products such as the tunable XFP. Transport products primarily consist of amplifiers and reconfigurable optical add/drop multiplexers ("ROADMs") and their supporting components such as pump lasers, passive devices, and arrayed waveguides ("AWGs"). In fact, many of today's most advanced optical networks are built on our transport and transmission components, modules and subsystems.

        CCOP also provides lasers employed in a wide variety of OEM applications. JDSU laser products serve customers in markets and applications such as manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, and solar cell scribing. These products include diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers.

        In addition, our photovoltaics ("PV") products include CPV cells and receivers for generating energy from sunlight, as well as fiber optic-based systems for delivering and measuring electrical power.

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Markets

        The CCOP business segment participates in the optical communications, laser, and PV markets.

        JDSU optical communications products include a wide range of components, modules, and subsystems to support and maintain customers in our two market segments: telecommunications, including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide), and submarine (undersea) networks; and enterprise data communications, including storage-access networks ("SANs"), local-area networks ("LANs"), and Ethernet wide-area networks ("WANs").

        JDSU's portfolio of laser products includes components and subsystems used in a wide variety of OEM applications that range in output power from milliwatts to kilowatts and include ultraviolet ("UV"), visible, and infrared ("IR") wavelengths. JDSU supports customer applications in the biotechnology, graphics and imaging, remote sensing, materials processing and other precision machining arenas.

        The PV business unit provides photonic power for a range of remote sensing applications, including those used by the electric power industry to measure power transmission and is also developing high efficiency concentrator PV cells for the generation of electric power from solar radiation.

Customers

        CCOP serves optical communications equipment manufacturers such as Adva, Alcatel-Lucent, Ciena, Cisco Systems, Ericsson, Fujitsu, Huawei, Infinera, Nokia Siemens Networks, and Tellabs. Customers for JDSU Commercial Lasers include Amada, ASML, Beckman Coulter, Becton Dickinson, Disco, Electro Scientific Industries, and KLA-Tencor. Customers for PV products include Amplifier Research, Beijing Bosin Industrial Technology, ETS-Lindgren, and Siemens.

Trends

        Long-term trends suggest growing opportunities for CCOP. These trends are discussed, by market, below:

        Optical Communications: To remain competitive, network operators worldwide must offer broader suites of digital services. To do this, they are migrating to Internet-protocol ("IP") networks, which effectively deliver triple-play services while lowering capital and operating costs of dense-wavelength-division multiplexing ("DWDM") networks. In data communications, demand for broadband is driven by the growing needs of intracompany LAN and intercompany WAN networks. The growing demand for capacity encourages the adoption of optical communications products across the telecom sector, including long-haul, metro (core and access), cable television ("CATV"), submarine, and FTTP or FTTx. It also increases demand for optical products in the storage and enterprise sectors, including LAN, SAN and WAN.

        New, bandwidth-intensive applications can result in sudden and severe changes in demand almost anywhere on the network. Increasing agility in optical networks by employing ROADMs, tunable transponders, and other agile optical products provides an effective way to respond to unpredictable bandwidth demands and manage expenses. With more agile optical networks, a service provider can add capacity by using remote management applications rather than by dispatching technicians to perform manual operations in the field.

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        In addition, the high-end routers, switches, and cross-connect equipment that must handle legacy and IP traffic are becoming increasingly complex in order to meet higher bandwidth, scalability, speed, and reliability needs. Products must provide higher levels of functionality and performance in compact designs that must also meet requirements for emissions, cost, and reduced power consumption.

        Deployment of fiber closer to the end user increases the availability of high-bandwidth services and should result in increased demand on the metro and long-haul networks into which these services feed. The dynamically reconfigurable nature of today's agile networks enables lower operating costs and other competitive advantages, allowing service providers to use and scale network capacity more flexibly, streamline service provisioning, accelerate rerouting around points of failure, and modify network topology through simple point-and-click network management systems.

        JDSU is a leading provider of the optical products mentioned above which support the trends in this market. JDSU innovation, particularly in the area of photonic integrated circuits, which can replace many discrete components with a single photonic chip, is resulting in products that have more functionality, are smaller, require less power, and are more cost-effective. For example, the tunable XFP transceiver is 85% smaller than previous tunable models. JDSU also developed the industry's first tunable SFP+ transceiver for enterprise and metro networks. Higher levels of integration have also led to development of the Super Transport Blade ("STB"), which delivers all transport functions in a single, integrated platform, essentially replacing three blades with one.

        JDSU, with its innovative optical communications and flexible, cost-effective transport portfolio, is positioned to be the supplier of choice for next-generation networks.

        Lasers: As technology advances, high-tech and other vital industries increasingly turn to lasers when they need more precision, higher productivity, and energy efficient or "green" alternatives for problems that cannot be solved by mechanical, electronic or other means. For example, lasers have been used for years to help achieve the scale and precision needed in semiconductor processing. In biotech applications, lasers have been instrumental for advances (and new standard procedures) in cytology, hematology, genome sequencing, and crime scene investigations, among others. The long term trends in these industries should lead to increased demand for lasers.

        In addition, demand continues for electronic products, as well as products and components in other industries, to offer greater functionality while becoming smaller, lighter, and less expensive. Product designs that achieve this are requiring precise micromachining and materials processing, such as micro bending, soldering and welding—especially for plastics. At the scale and processing speed needed, lasers are replacing mature mechanical tools such as drills for tiny holes, or "vias," in printed circuit boards and saws and scribes for singulating silicon wafers, resulting in greater precision and productivity. As these trends continue, we believe that manufacturers and industries will increase their reliance on lasers in order to maintain or increase their competitiveness.

        There is an increasing trend towards energy efficiency and "green" industry. Industries are using lasers to develop products that are smaller and lighter, and that increase productivity and yield, thereby lowering their energy consumption. More directly, this trend has provided for significant growth in the solar power market segment and applications for lasers used in the production of solar panels.

        JDSU is well-positioned with key OEM providers of laser solutions to these industries. We continue to develop our laser portfolio to offer smaller and more cost-effective products designed specifically for the performance, integration, reliability and support needs of our OEM customers.

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        Photonic Power and Photovoltaics: The trend toward lighter, cleaner, efficient solutions has led to opportunities for photonics in a variety of applications. The use of photonic power for remote sensors solves the problem of electromagnetic interference ("EMI"), radio frequency ("RF") and other interference associated with the use of electrical power. The need for clean energy is fueling an increase in demand for concentrated photovoltaic power. JDSU proprietary technology already in use for powering remote sensors has led to high efficiency products applicable to electric power generation from solar energy.

        On July 7, 2011, JDSU acquired product design, intellectual property and other assets from QuantaSol, a CPV provider based in the United Kingdom. The acquisition allows JDSU to leverage industry-leading multiple-quantum-well ("MQW") technology from QuantaSol for its CPV cell product platform. MQW technology allows more light to be converted to electrical power by raising the efficiency of CPV cells, the most important metric in the solar industry.

Strategy

        In optical communications, we are focused on technology leadership through collaborative innovation with our customers, cost leadership, and functional integration. We will continue to align the latest technologies with best-in-class, scalable manufacturing and operations to drive the next phase of optical communications with highly integrated technologies that are faster, more agile, and more reliable, making us a valuable business and technology partner for NEMs.

        JDSU leverages its long-term relationships with OEM customers to develop commercial laser innovation. Leveraging established manufacturing, engineering, telecommunications, and photonics expertise, JDSU delivers products that meet cost-of-ownership and reliability needs while delivering on volume production demands.

        In photonic power and PV, JDSU is developing best-in-class performance technology applicable to the growing solar power market.

Competition

        JDSU competes against various public and private companies in markets served by CCOP. A partial list of public company competitors providing optical communications includes Finisar, Fujitsu, Furukawa Electric, Oclaro, Oplink Communications, and Sumitomo Electric. JDSU competitors in the laser market include Coherent, IPG Photonics, Rofin-Sinar, CVI-Melles, and the Spectra-Physics division of Newport Corporation. JDSU competes against Spectrolab and Emcore in the PV market.

        In addition to these established companies, JDSU faces significant and focused competition from other companies and emerging startups. While each of its product families has multiple competitors, JDSU has a broad range of products and leading technologies that are aligned with industry trends and the needs of its customers.

Offerings

        CCOP serves the optical communications, laser and PV markets.

Optical Communications

        JDSU optical communications offerings address two market segments: telecommunications and enterprise data communications. In addition to a full selection of active and passive components, JDSU offers increasing levels of functionality and integration in modules, circuit packs, and subsystems for

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transmission, amplification, wavelength management, and more. Our optical communications product offerings are described below:

        In the telecommunications market segment, we offer transmission and transport solutions for the synchronous optical network ("SONET"), synchronous-digital-hierarchy ("SDH") and wavelength-division multiplexer ("WDM") applications. Transmission products, such as our tunable transponder, transceiver, and transmitter modules, transmit and receive signals. JDSU also offers transmission components for the previously mentioned products, which include active components such as tunable lasers, detectors/receivers, and modulators.

        JDSU transport products, such as ROADMs and other amplifiers, provide switching, routing and conditioning of signals. JDSU also provides components for transport, including passive components such as our attenuators, circulators, couplers/splitters/WDMs, gain flattening filters, hybrid interleavers, multiplexer/demultiplexers polarization components, switches, and wavelength lockers.

        Industry-leading innovation led to the STB, which integrates all major optical transport functions (wavelength switching, preamplification, postamplification, and monitoring) into a single-slot blade. This all-in-one solution reduces the size, cost, and power requirements of optical components, incorporates nano wavelength selective switch ("WSS") technology, and enables greater chassis density and a smaller footprint.

        In the enterprise data communications market segment, which relies on storing and moving vast amounts of data, JDSU offers transmission products, such as our optical transceivers for Fibre Channel and Gigabit Ethernet applications. JDSU transceivers are also used in Ethernet connections for servers, routers, hubs, and switches for Internet and e-mail services.

        JDSU integrated fiber optic transceivers provide a high-speed, serial electrical interface for connecting processors, switches, and peripherals. They are available in hot-pluggable or pin-through-hole versions with a small footprint for use in compact system designs. This allows manufacturers to double the density of transceivers on a board compared to conventional designs.

        For higher data transfer rates of 40 and 100G, JDSU offers VCSELs. VCSELs reduce power consumption, heat, EMI, and cost while increasing speed, reliability, and link distance. Our compact arrays offer an innovative solution for the LANs, SANs, broadband Internet, and metro-area network applications that currently depend on high-end routers, switches, and cross-connect equipment to handle legacy and IP traffic.

Lasers

        Our broad range of products includes diode-pumped solid-state, fiber, diode, direct-diode, and gas lasers such as argon-ion and helium-neon ("HeNe") lasers.

        Diode-pumped solid-state and fiber lasers that provide excellent beam quality, low noise, and exceptional reliability are used in biotechnology, graphics and imaging, remote sensing, materials processing, and precision machining applications.

        Diode and direct-diode lasers address a wide variety of applications, including laser pumping, thermal exposure, illumination, ophthalmology, image recording, printing, plastic welding, and selective soldering.

        Gas lasers such as argon-ion and helium-neon lasers provide a stable, low-cost and reliable solution over a wide range of operating conditions, making them well suited for complex, high-resolution OEM

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applications such as flow cytometry, DNA sequencing, graphics and imaging, and semiconductor inspection.

Photonic power and photovoltaics

        Photonic power is an innovative power-over-fiber delivery system that converts optical power to electrical power. Since it is delivered over nonconducting fiber optic cable, it is not affected by RF or EMI, is lighter, generates less heat, is spark-free, and can be used to drive sensors, gauges, actuators, low-power communications devices, and other electronic devices.

        JDSU capabilities in converting optical power to electrical power are now being applied to the solar energy market. Multijunction CPV cells generate power under concentrated sunlight. JDSU has developed CPV cells to be available both as chips and in receiver assemblies for generating solar power.

Advanced Optical Technologies

        The AOT business segment leverages its core technology strengths of optics and materials science to manage light and color effects. With decades of experience in optical coating and authentication technology, AOT develops innovative anti-counterfeiting solutions for the currency, pharmaceutical and other markets.

Markets

        Our AOT segment provides overt and covert product verification for protection against diversion, brand erosion, and lost revenue due to counterfeiting. These technologies safeguard currency and high security government documents as well as brands in the transaction card, pharmaceutical, consumer electronics, printing/imaging supplies, and fast-moving consumer goods industries through innovative optically variable pigment, holographic, and microtaggant technologies.

        AOT also produces precise, high-performance, optical thin-film coatings for a variety of applications in government and aerospace, biomedical, consumer electronics, telecommunications, office automation, and other markets. These applications include gesture-recognition, night-vision goggles, satellite solar covers, medical instrumentation, computer-driven projectors, 3D cinema and event lighting.

        In addition, we offer, custom color solutions for product finishes and decorative packaging that can be applied to a wide variety of substrates. These include innovative optically-based color-shifting and other solutions that provide product enhancement for brands in the pharmaceutical, automotive, consumer electronics, sports apparel, and fast-moving consumer goods industries.

Customers

        The AOT business segment serves customers such as 3M, Kingston, Lockheed Martin, Northrop Grumman, Pan Pacific, Seiko Epson and SICPA. JDSU technology is used to protect the currencies of China, the European Union, the United States, and other governments around the world. Leading pharmaceutical companies worldwide also use JDSU solutions to protect their brands, as do major issuers of transaction cards such as MasterCard and American Express. JDSU custom color product differentiation and brand enhancement solutions are used by customers such as DuPont.

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Trends

        Product integrity is a worldwide, multi-billion dollar issue that poses consumer health and safety risks as well as issues such as, corporate liability, devaluation of brand image, weakening of brand loyalty, and lost revenues. Favored targets include currency, pharmaceuticals, imaging supplies, apparel, automotive parts, consumer electronics, and electronic media. Other issues, such as product diversion where distributors divert products intended for lower-priced markets to higher-priced markets, increasingly require brand protection. The spread of counterfeiting can be attributed to several factors, including using the Internet to facilitate distribution, a ready availability of low-cost, high-quality printing equipment to reproduce product packaging, the elimination of international trade barriers, and an increasingly mobile global society.

        JDSU technology has become a worldwide standard for currency protection. Additionally, the need to protect high-value documents and offer solutions for authenticating personal, identification, and financial documents also is growing. Our authentication products can be combined to offer multilayer solutions for creating effective security programs that combine secure authentication, flexible aesthetics, and ease of application.

        Demand for optical solutions to solve complex problems extends to the aerospace, defense and medical/environmental instrumentation markets, which require customized, high-precision coated products and optical components that selectively absorb, transmit, or reflect light to meet the performance requirements of sophisticated systems. Our custom optics products offer an array of advanced technologies and precision optics—from the UV to the far IR portion of the light spectrum. Most products are custom optical filters, on either a simple or complex irregular shape, that require from one to several hundred layers to create the coating.

        Another challenge is the need to differentiate products in order to build brands. Global competition and an increasing range of product offerings are driving designers to look for innovative ways to increase the aesthetic value of their products and make them stand out. Our custom color solutions are used in coatings and packaging to create unique and striking visual effects.

Strategy

        The AOT business segment develops technologies that differentiate and effectively protect valuable brands via a secure, flexible, aesthetically striking optical platform. It also strives to supply the highest-quality, best-in-class optical components and assemblies with innovative thin-film coating processes that help customers protect and/or differentiate their products. JDSU will continue to leverage its intellectual property and leading expertise in optics, light management and material technology to develop solutions that provide a unique advantage to customers.

Competition

        JDSU's competitors in the markets addressed by AOT include providers of special-effect pigments like Merck KGA and from manufacturers of security holograms including Kurz, De La Rue and OpSec; from coating companies such as Nidek, Toppan, and Toray; from display-component companies such as Asahi, Fuji Photo-Optical, Nikon, and Nitto Optical; and from optics companies such as Barr Associates and Deposition Sciences.

Offerings

        AOT consists of the Authentication Solutions Group ("ASG"), which has offerings for brand protection and document authentication; the Custom Optics Product Group ("COPG"), which offers

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optical thin-film coatings for a range of markets; and the Flex Products Group ("Flex"), which offers currency protection, custom color solutions, and printing services.

Currency Protection

        JDSU's optically variable pigment technology overt security technology has become a standard used by governments worldwide for currency protection. This technology provides a color-shifting effect that enables positive, easy visual verification and deters counterfeiting. In fiscal 2012, we completed most of the expansion of our capacity for optically variable pigment anti-counterfeiting production capabilities in Beijing, China.

Brand Protection

        To strengthen brand integrity, many corporate brand owners are introducing overt protective measures in packaging that provide consumers and/or inspection personnel with the ability to quickly determine product authenticity by visually detecting a color effect on the package. Covert solutions provide an additional layer of protection that cannot be seen or detected without a visual aid.

        JDSU offers both overt and covert solutions for security, including SecureShift® light-interference technology (which allows inks or plastics to exhibit different colors and visual effects from different viewing angles), holographic technology, and Charms™ microstructured taggants. Applications include transaction cards, pharmaceuticals, imaging supplies, electronics, computer, and other consumer goods. JDSU offers these solutions in a wide range of choices by incorporating them into printing inks, product labels, and product packaging.

Document authentication

        JDSU optically variable pigment technology, which produces color-shifting and other optical effects, and other authentication technologies are used to combat forgery and counterfeiting, protect against alteration of data, and allow for immediate verification of high-value documents. JDSU works closely with its customers to design these solutions to meet their specific needs for passports, personal identification, and other government and secure documents.

Custom Optics

        Optical thin-film coatings are submicroscopic (nanometer to micrometer) layers of materials, such as silicon and magnesium fluoride, that are applied to the surface of a substrate, including glass, plastic or metal. Thin-film coatings control the behavior of light to produce effects such as reflection, refraction, absorption, abrasion resistance, antiglare, oxygen and/or moisture transmission, and electrical conductivity for a variety of applications.

        Aerospace and defense: JDSU provides customized optics for solar-cell coverglass, thermal-control mirror technology, and optical sensors for aerospace applications. JDSU thin-film optics products can be found on spacecraft and satellites. In addition, JDSU supplies filters used in military applications such as infrared night-vision goggles and electronic countermeasures.

        Consumer and commercial electronics: JDSU manufactures and sells coated optics for use in home and business display systems and 3D entertainment systems. These products include bandpass filters, mirrors, polarization compensators, heater panels and other coated optics, and assemblies. Products for the automation market include photo receptors and mirrors for photocopiers, scanners, computer-driven projectors, and facsimile machines.

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        Instrumentation and lighting: JDSU provides multicavity and linear variable optical filters on a variety of substrates for applications including gas monitoring and analysis, thermal imaging, smart munitions, fire detection, spectroscopy, and pollution monitoring. These filters are also used in biomedical applications, semiconductor test systems, and test and measurement equipment. JDSU also provides advanced optical filters used to create dramatic lighting effects and rich, saturated color in intelligent lighting systems for entertainment and architectural lighting.

Custom Color Solutions

        For product differentiation and brand enhancement, JDSU provides custom color solutions for a variety of applications using our ChromaFlair® and SpectraFlair® pigments to create color effects that emphasize body contours, create dynamic environments, or enhance products in motion. These pigments are added to paints, plastics, or textiles for products and packaging.

        Our line of custom color products uses proprietary manufacturing processes and light interference or diffractive technology to provide specific color characteristics that can be designed to meet the needs of individual products, brands or markets. The products create a durable finish with striking color properties for automotive, consumer electronics, and other applications.

        The design process is critical to delivering custom color solutions that meet the needs of specific customers, markets and brands. JDSU color specialists, Color Lab, and prototyping capabilities help customers overcome color design challenges during the design stage.

Printing Services

        Proprietary printing processes and a current good manufacturing practices ("cGMP") compliant environment deliver solutions for labels, closures, hang tags, and flexible packaging for authentication and custom color solutions. In addition, JDSU provides high quality flexographic and gravure printing for labels for retail and apparel, healthcare, food and beverage, automotive, consumer goods and personal care.

Acquisitions

        As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets for our products. We believe we have strengthened our business model by expanding our addressable markets, customer base, and expertise, diversifying our product portfolio, and fortifying our core businesses through acquisition as well as through organic initiatives.

        In January 2012, we completed the acquisition of Dyaptive based in Vancouver, Canada. The Company acquired tangible and intangible assets and assumed liabilities of Dyaptive for a total purchase price of approximately CAD 15.0 million in cash, including a holdback payment of approximately CAD 2.1 million which is due in December 2012.

        In July 2011, we completed the acquisition of critical product design, patented intellectual property and other assets from QuantaSol, for a cash purchase price consideration of approximately $3.7 million.

        In May 2010, we completed the acquisition of the Network Solutions Division ("NSD") of Agilent Technologies, Inc. ("Agilent"), where we acquired certain assets and assumed certain liabilities of NSD for a total cash purchase price consideration of approximately $163.8 million.

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        In July 2009, we completed the acquisition of the Storage Network Tools business ("SNT") from Finisar Corporation ("Finisar"), where we acquired certain assets and assumed certain liabilities of SNT for a total cash purchase price consideration of approximately $40.7 million.

        Please refer to "Note 5. Mergers and Acquisitions" of Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for further discussion of the acquisitions completed during fiscal 2012, 2011 and 2010.

Restructuring Programs

        We continue to consolidate the manufacturing of our products based on core competencies, cost efficiency, and alternative manufacturers, where appropriate. Among other things, we continue to strengthen our partnerships with contract manufacturers. We completed the process of outsourcing a portion of manufacturing in our AOT segment in North America during fiscal 2012. In the last three fiscal years, we restructured and reorganized our CommTest segment to improve the efficiency of the manufacturing operations, R&D and sales organization by reducing/rationalizing headcount, consolidating the number of contract manufacturer locations worldwide and moving them to lower cost regions, and consolidating and centralizing similar functions to fewer sites designed to improve leverage. In the current fiscal year, we initiated the transition of moving the repair organization to an outsourced partner. Additionally, we continue to centralize many administrative functions such as information technology, human resources, and finance to take advantage of common processes and controls, and economies of scale.

        Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations under Item 7 and the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for further discussion on these charges.

Research and Development

        During fiscal 2012, 2011, and 2010, we incurred R&D expenses of $246.0 million, $239.9 million, and $174.9 million, respectively. The number of employees engaged in R&D was approximately 1,400 as of June 30, 2012, 1,450 as of July 2, 2011, and 1,350 as of July 3, 2010.

        We devote substantial resources to R&D to develop new and enhanced products to serve our markets. Once the design of a product is complete, our engineering efforts shift to enhancing both the performance of that product and our ability to manufacture it in greater volume and at lower cost.

        In our CommTest segment, we develop portable test instruments for field service technicians, systems and software used in Network Operations Centers, and instruments used in the development, testing and production of communications network components, modules and equipment. We are increasing our focus on IP-based service assurance and customer experience management, and test instruments for wireless networks and services, while continuing to develop tools for fiber optic, optical transport, Ethernet, broadband access, video test and storage network testing. We have centers of excellence for product marketing and development in Asia, Europe and North America.

        In our CCOP segment, we are increasing our focus on the most promising markets while maintaining our capability to provide products throughout the network. We are increasing our emphasis on self-aware network components and modules, such as ROADMs and tunable devices needed for long-haul and metro market segments, as well as expanding our transmission transceiver portfolio to support telecom, local area network, storage area network, and enterprise market segments. We are also responding to our customers' requests for higher levels of integration, including the integration of optics, electronics and software in our modules, subsystems, and circuit packs. We are providing optical

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technology for gesture-recognition systems that enable the control of technology by natural body gestures instead of using a remote, mouse, or other device. Emerging gesture recognition systems simplify the way that people interact with technology, and are initially being used in applications for home entertainment and computing. In addition, our CCOP and AOT segments have been working together to develop CPV cells for the solar market aimed at large commercial and utility scale installations. We continue to develop new product offerings in both solid-state and fiber lasers that take advantage of technologies and components developed within our CCOP segment. All these developments are targeted at serving customers engaging in biotechnology, graphics and imaging, remote sensing, and materials processing and precision micromachining markets.

        In our AOT segment, our R&D efforts concentrate on developing more innovative solutions from our core anti-counterfeiting technology expertise. Our strong participation in the currency security market is being augmented with new advances in optically variable pigment technology. We are also developing anti-counterfeiting solutions for the pharmaceutical and consumer electronic markets. AOT leverages its optical coating technology expertise to develop applications for the government and defense markets. AOT has also developed new products in the growing spectrometer market, introducing an innovative handheld solution with applications in the law enforcement, pharmaceutical, food and agriculture, and defense and security markets.

Manufacturing

        As of June 30, 2012 our significant manufacturing facilities were located in the United States, China, France, and Germany. Additionally, our significant contract manufacturing partners were located in China, Malaysia, Mexico, and Thailand.

Sources and Availability of Raw Materials

        JDSU uses various suppliers and contract manufacturers to supply parts and components for the manufacture and support of multiple product lines. Although our intention is to establish at least two sources of supply for materials whenever possible, for certain components we have sole or limited source supply arrangements. We may not be able to procure these components from alternative sources at acceptable prices within a reasonable time or at all; therefore the loss or interruption of such arrangements could have an impact on our ability to deliver certain products on a timely basis.

Patents and Proprietary Rights

        Intellectual property rights that apply to our various products include patents, trade secrets, and trademarks. We do not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter into acceptable patent cross-license agreements. As of June 30, 2012, we owned approximately 1,550 U.S. patents and approximately 800 foreign patents, and we have approximately 740 patent applications pending throughout the world.

Backlog

        Backlog consists of purchase orders for products for which we have assigned shipment dates within the following 12 months. As of June 30, 2012 our backlog was approximately $417 million as compared to $398 million at July 2, 2011. Because of possible changes in product delivery schedules and cancellation of product orders and because our sales often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period.

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Employees

        We employed approximately 4,950 employees as of June 30, 2012, compared to approximately 5,000 and 4,700 as of July 2, 2011 and July 3, 2010, respectively. Our workforce as of June 30, 2012 included approximately 1,950 employees in manufacturing, 1,400 employees in R&D, 600 employees in general and administration, and 1,000 employees in sales and marketing, respectively.

        Similar to other technology companies, we rely upon our ability to use stock options, "Full Value Awards", and other forms of stock-based compensation as key components of our executive and employee compensation structure. Full Value Awards include Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares that are granted with the exercise price equal to zero and are converted to shares immediately upon vesting. Historically, these components have been critical to our ability to retain important personnel and offer competitive compensation packages. Without these components, we would be required to significantly increase cash compensation levels or develop alternative compensation structures to retain our key employees.

        Outside of the United Sates, our businesses are subject to labor laws that differ from those in the United States. The Company follows statutory requirements and in certain European countries, it is common for a works council, consisting of elected employees, to represent the sites when discussing matters such as compensation, benefits or terminations of employment. We consider our employee relations to be very good.

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ITEM 1A.    RISK FACTORS

We have a history of net losses, and our future profitability is not assured.

        Although we had net profits of $71.6 million in fiscal 2011, we incurred net losses of $55.6 million and $61.8 million in fiscal years 2012 and 2010, respectively. As a portfolio company, comprised of many product lines, with diverse operating metrics and markets, our profit performance in a particular period is generally a function of both revenue and product mix factors. For example, our product portfolio has a broad gross margin range. Moreover, the profit contribution of each of our business segments currently varies materially. Additionally, for the last several years, we have undergone multiple manufacturing, facility, organizational and product line transitions. We expect some of these activities to continue for the foreseeable future. These activities are costly and impair our profitability objectives while ongoing. Specific factors that may undermine our financial objectives include, among others:

    uncertain future telecom carrier and cable operator capital and R&D spending levels, which particularly affects our CCOP and CommTest segments;

    adverse changes to our product mix, both fundamentally (resulting from new product transitions, the declining profitability of certain legacy products and the termination of certain products with declining margins, among other things) and due to quarterly demand fluctuations;

    intense pricing pressure across our product lines due to competitive forces, increasingly from Asia, and to a highly concentrated customer base for many of our product lines, which continues to offset many of the cost improvements we are realizing quarter over quarter;

    availability and cost of components for our products, particularly in our CCOP segment;

    increasing commoditization of previously differentiated products, and the attendant negative effect on average selling prices and profit margins, particularly in our CCOP segment;

    execution challenges, which limit revenue opportunities and harm profitability, market opportunities and customer relations;

    revenue declines periodically associated with terminated or divested product lines;

    redundant costs related to periodic transitioning of manufacturing to low-cost locations;

    ongoing costs associated with organizational transitions, consolidations and restructurings, which are expected to continue in the nearer term;

    continuing high levels of selling, general and administrative, ("SG&A") expenses; and

    seasonal fluctuations in revenue from our CommTest segment.

        Taken together, these factors limit our ability to predict future profitability levels and to achieve our long-term profitability objectives. While some of these factors may diminish over time as we improve our cost structure and focus on enhancing our product mix, several factors, such as continuous pricing pressure, increasing Asia-based competition, increasing commoditization of previously-differentiated products, a highly concentrated customer base for many of our product lines and seasonal CommTest segment revenue fluctuations, are likely to remain endemic to our businesses. If we fail to achieve profitability expectations, the price of our debt and equity securities, as well as our business and financial condition, may be materially adversely impacted.

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Our operating results may be adversely affected by unfavorable economic and market conditions.

        Economic conditions worldwide have from time to time contributed to slowdowns in the technology industry at large, as well as to the specific segments and markets in which we operate. When combined with ongoing customer consolidation activity and periodic manufacturing and inventory initiatives, the recent worldwide economic downturn and uncertain recovery, including but not limited to the effects of deteriorating credit markets, could lead to reduced demand from our customers and increased price competition for our products, increased risk of excess and obsolete inventories and higher overhead costs as a percentage of revenue. The worldwide economic downturn may further negatively impact our operations by affecting the solvency of our customers, the solvency of our key suppliers or the ability of our customers to obtain credit to finance purchases of our products. If the global economy and credit markets deteriorate and our future sales decline, our financial condition and results of operations would likely be materially adversely impacted.

        In particular, recent economic uncertainty in Europe has led to reduced demand in our optical communications product portfolios. If economic conditions in Europe do not recover or continue to deteriorate this may further adversely affect our operations. Actual or perceived currency or budget crises could increase economic uncertainty in Europe, and globally, which could have an adverse effect on our customers' operations, which could reduce demand for our products.

        In addition, we have significant long-lived assets recorded on our balance sheet. We will continue to evaluate the recoverability of the carrying amount of our goodwill and long-lived assets on an ongoing basis, and we may incur substantial impairment charges, which would adversely affect our financial results. There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment charges. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result. If, in any period, our stock price decreases to the point where the fair value of the Company, as determined by our market capitalization, is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period.

The manufacture, quality and distribution of our products, as well as our customer relations, may be affected by several factors, including the rapidly changing market for our products, supply issues and internal restructuring efforts. We expect the impact of these issues will become more pronounced as we continue to introduce new product offerings and when overall demand increases.

        Our success depends upon our ability to deliver both our current product offerings and new products and technologies on time and at acceptable cost to our customers. The markets for our products are characterized by rapid technological change, frequent new product introductions, substantial capital investment, changes in customer requirements and a constantly evolving industry. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these issues and provide solutions that meet our customers' current and future needs. As a technology company, we also constantly encounter quality, volume and cost concerns such as:

    Our continuing cost reduction programs, which include site and organization consolidations, asset divestitures, outsourcing the manufacture of certain products to contract manufacturers and reductions in employee headcount, require the re-establishment and re-qualification by our customers of complex manufacturing lines, as well as modifications to systems, planning and operational infrastructure. During this process, we have experienced, and continue to

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      experience additional costs, delays in re-establishing volume production levels, planning difficulties, inventory issues, factory absorption concerns, and systems integration problems.

    We have experienced increases in demand for certain of our products, in the midst of our cost reduction programs, which have strained our execution abilities as well as those of our suppliers. Because of this, we at times experience periodic and varying capacity, workforce and materials constraints, enhanced by the impact of our ongoing product and operational transfers.

    We have experienced variability of manufacturing yields caused by difficulties in the manufacturing process, the effects from a shift in product mix, changes in product specifications and the introduction of new product lines. These difficulties can reduce yields or disrupt production and thereby increase our manufacturing costs and adversely affect our margin.

    We may incur significant costs to correct defective products (despite rigorous testing for quality both by our customers and by us), which could include lost future sales of the affected product and other products, and potentially severe customer relations problems, litigation and damage to our reputation.

    We are dependent on a limited number of vendors, who are often small and specialized, for raw materials, packages and standard components. We also rely on contract manufacturers around the world to manufacture certain of our products. Our business and results of operations have been, and could continue to be adversely affected by this dependency. Specific concerns we periodically encounter with our suppliers include stoppages or delays of supply, insufficient vendor resources to supply our requirements, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of supplies, and an inability to obtain reduced pricing from our suppliers in response to competitive pressures. Additionally, the ability of our contract manufacturers to fulfill their obligations may be affected by economic, political or other forces that are beyond our control. Any such failure could have a material impact on our ability to meet customers' expectations and may materially impact our operating results.

    New product programs and introductions involve changing product specifications and customer requirements, unanticipated engineering complexities, difficulties in reallocating resources and overcoming resource limitations and with their increased complexity, which expose us to yield and product risk internally and with our suppliers.

        These factors have caused considerable strain on our execution capabilities and customer relations. We have and could continue to see (a) periodic difficulty responding to customer delivery expectations for some of our products, (b) yield and quality problems, particularly with some of our new products and higher volume products, and (c) additional funds and other resources to respond to these execution challenges. From time to time, we have had to divert resources from new product research and development and other functions to assist with resolving these matters. If we do not improve our performance in all of these areas, our operating results will be harmed, the commercial viability of new products may be challenged and our customers may choose to reduce or terminate their purchases of our products and purchase additional products from our competitors.

We rely on a limited number of customers for a significant portion of our sales.

        We believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues for the foreseeable future. Any failure by us to continue capturing a significant share of these customers could materially harm our business. Dependence on a limited number of customers exposes us to the risk that order reductions from any one customer can have a material

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adverse effect on periodic revenue. Further, to the extent that there is consolidation between our direct communications equipment manufacturer customer base and their customer base, the service providers, we will have increased dependence on fewer customers who may be able to exert increased pressure on our prices and contractual terms in general. Customer consolidation activity and periodic manufacturing and inventory initiatives could also create the potential for disruptions in demand for our products as a consequence of such customers streamlining, reducing or delaying purchasing decisions.

        We have a strategic alliance with SICPA, our principal customer for our light interference microflakes that are used to, among other things, provide security features in currency. Under a license and supply agreement, we rely exclusively on SICPA to market and sell one of these product lines, optically variable pigment, for document authentication applications worldwide. The agreement requires SICPA to purchase minimum quantities of these pigments over the term of the agreement. If SICPA fails to purchase these quantities, as and when required by the agreement, our business and operating results (including, among other things, our revenue and gross margin) will be harmed as we may be unable to find a substitute marketing and sales partner or develop these capabilities ourselves.

We face a number of risks related to our strategic transactions.

        Our strategy continues to include periodic acquisitions and divestitures of businesses and technologies. Strategic transactions of this nature involve numerous risks, including the following:

    difficulties and costs in integrating or disintegrating the operations, technologies, products, IT and other systems, facilities, and personnel of the affected businesses;

    inadequate internal control procedures and disclosure controls to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or poor integration of a target company's or business's procedures and controls;

    diversion of management's attention from normal daily operations of the business;

    potential difficulties in completing projects associated with in-process research and development;

    difficulties in entering markets in which we have no or limited prior experience and where competitors have stronger market positions;

    difficulties in obtaining or providing sufficient transition services and accurately projecting the time and cost associated with providing these services;

    an acquisition may not further our business strategy as we expected or we may overpay for, or otherwise not realize the expected return on, our investments;

    insufficient net revenue to offset increased expenses associated with acquisitions;

    potential loss of key employees of the acquired companies; and

    difficulty in forecasting revenues and margins.

        Acquisitions may also cause us to:

    issue common stock that would dilute our current shareholders' percentage ownership and may decrease earnings per share;

    assume liabilities, some of which may be unknown at the time of such acquisitions;

    record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;

    incur additional debt to finance such acquisitions;

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    incur amortization expenses related to certain intangible assets; or

    acquire, assume, or become subject to litigation related to the acquired businesses or assets.

Certain of our products are subject to governmental and industry regulations, certifications and approvals.

        The commercialization of certain of the products we design, manufacture and distribute through our AOT and CCOP segments may be more costly due to required government approval and industry acceptance processes. Development of applications for our light interference and diffractive microflakes may require significant testing that could delay our sales. For example, certain uses in cosmetics may be regulated by the U.S. Food and Drug Administration, which has extensive and lengthy approval processes. Durability testing by the automobile industry of our decorative microflakes used with automotive paints can take up to three years. If we change a product for any reason, including technological changes or changes in the manufacturing process, prior approvals or certifications may be invalid and we may need to go through the approval process again. If we are unable to obtain these or other government or industry certifications in a timely manner, or at all, our operating results could be adversely affected.

We face risks related to our international operations and revenue.

        Our customers are located throughout the world. In addition, we have significant offshore operations and operations outside North America, including product development, manufacturing, sales and customer support operations.

        In particular, as a result of our efforts to reduce costs, we have expanded our use of contract manufacturers in Shenzhen, China, and we expect to expand our research and development activities there. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations, such as those relating to taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and other matters, which laws and regulations remain highly underdeveloped and subject to change, with little or no prior notice, for political or other reasons.

        Our international presence exposes us to certain risks, including the following:

    currency fluctuations;

    our ability to comply with customs, import/export and other regulations of the countries in which we do business, together with any unexpected changes in such regulations;

    difficulties in establishing and enforcing our intellectual property rights;

    tariffs and other trade barriers;

    political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and product development facilities;

    difficulties in staffing and management;

    language and cultural barriers;

    seasonal reductions in business activities in the countries where our international customers are located;

    integration of foreign operations;

    longer payment cycles;

    difficulties in management of foreign distributors; and

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    potential adverse tax consequences.

        Net revenue from customers outside the Americas accounted for 49.6%, 51.4% and 51.5% of our total net revenue for fiscal 2012, 2011 and 2010, respectively. We expect that net revenue from customers outside North America will continue to account for a significant portion of our total net revenue. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may materially and adversely affect our business. In addition, the revenues we derive from many of our customers depend on international sales and consequently further expose us to the risks associated with such international sales.

Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure.

        We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to our changing needs. For example, we recently implemented a global Oracle system rollout to improve system integration and performance. In addition, we rely upon certain third party hosting and support services. Any failure to manage, expand and update our information technology infrastructure, any failure in the extension or operation of this infrastructure, or any failure by our hosting and support partners in certain sites in the performance of their services could materially and adversely harm our business.

        Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses, natural disasters, unauthorized access and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruptions or security breach results in a loss or damage to our data, or in inappropriate disclosure of confidential information, it could cause significant damage to our reputation and affect our relationships with our customers and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Failure to maintain effective internal controls may adversely affect our stock price.

        Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report by management on the effectiveness of the Company's internal control over financial reporting in their annual reports on Form 10-K. In addition, our independent registered public accounting firm must report on the effectiveness of our internal control over financial reporting. Although we review our internal control over financial reporting in order to ensure compliance with these requirements, if we or our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which these controls are documented, designed, operated or reviewed, or if our independent registered public accounting firm interprets the requirements, rules and/or regulations differently from our interpretation, then they may issue a qualified report . This could result in a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact our stock price.

In 2006 we issued $425 million of 1% Senior Convertible Notes due 2026, which could cause dilution to our existing stockholders and lower our reported per share earnings.

        We issued $425 million of indebtedness in May and June 2006 in the form of 1% Senior Convertible Notes due 2026. As of June 30, 2012, the principal amount of these notes which remained outstanding is $311.0 million. The issuance of these notes substantially increased our principal payment obligations. The degree to which we are leveraged could materially and adversely affect our ability to

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successfully obtain financing for working capital, acquisitions, or other purposes and could make us more vulnerable to industry downturns and competitive pressures. In addition, the holders of those notes are entitled to convert those notes into shares of our common stock or a combination of cash and shares of common stock under certain circumstances which would cause dilution to our existing stockholders and lower our reported per share earnings.

If we have insufficient proprietary rights or if we fail to protect those we have, our business would be materially harmed.

Our intellectual property rights may not be adequate to protect our products or product roadmaps.

        We seek to protect our products and our product roadmaps in part by developing and/or securing proprietary rights relating to those products, including patents, trade secrets, know-how and continuing technological innovation. The steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that are similar to our own. It is possible that patents may not be issued from any of our pending applications or those we may file in the future and, if patents are issued, the claims allowed may not be sufficiently broad to deter or prohibit others from making, using or selling products that are similar to ours. We do not own patents in every country in which we sell or distribute our products, and thus others may be able to offer identical products in countries where we do not have intellectual property protection. In addition, the laws of some territories in which our products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States.

        Any patents issued to us may be challenged, invalidated or circumvented. Additionally, we are currently a licensee in all of our operating segments for a number of third-party technologies, software and intellectual property rights from academic institutions, our competitors and others, and are required to pay royalties to these licensors for the use thereof. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products, impede the sale of some of our current products, substantially increase the cost to provide these products to our customers, and could have a significant adverse impact on our operating results. In the past, licenses generally have been available to us where third-party technology was necessary or useful for the development or production of our products. In the future licenses to third-party technology may not be available on commercially reasonable terms, if at all.

Our products may be subject to claims that they infringe the intellectual property rights of others.

        Lawsuits and allegations of patent infringement and violation of other intellectual property rights occur in our industry on a regular basis. We have received in the past, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe their proprietary rights. Over the past few years there has been a marked increase in the number and potential severity of third-party patent infringement claims, primarily from two distinct sources. First, large technology companies, including some of our customers and competitors, are seeking to monetize their patent portfolios and have developed large internal organizations that have approached us with demands to enter into license agreements. Second, numerous patent-holding companies, entities that do not make or sell products (often referred to as "patent trolls"), have claimed that our products infringe upon their proprietary rights. We will continue to respond to these claims in the course of our business operations. In the past, the settlement and disposition of these disputes has not had a material adverse impact on our business or financial condition, however this may not be the case in the future. Further, the litigation or settlement of these matters, regardless of the merit of the claims, could result in

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significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful. If we are unsuccessful, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be successful in such development, or such licenses may not be available on terms acceptable to us, if at all. Without such a license, we could be enjoined from future sales of the infringing product or products, which could adversely affect our revenues and operating results.

The use of open source software in our products, as well as those of our suppliers, manufacturers and customers, may expose us to additional risks and harm our intellectual property position.

        Certain of the software and/or firmware that we use and distribute (as well as that of our suppliers, manufacturers and customers) may be, be derived from, or contain, "open source" software, which is software that is generally made available to the public by its authors and/or other third parties. Such open source software is often made available under licenses which impose obligations in the event the software or derivative works thereof are distributed or re-distributed. These obligations may require us to make source code for the derivative works available to the public, and/or license such derivative works under a particular type of license, rather than the forms of license customarily used to protect our own software products. While we believe we have complied with our obligations under the various applicable licenses for open source software, in the event that a court rules that these licenses are unenforceable, or in the event the copyright holder of any open source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public and/or stop distribution of that work. Additionally, open source licenses are subject to occasional revision. In the event future iterations of open source software are made available under a revised license, such license revisions may adversely affect our ability to use such future iterations.

We face certain litigation risks that could harm our business.

        We are and may become subject to various legal proceedings and claims that arise in or outside the ordinary course of business. The results of complex legal proceedings are difficult to predict. Moreover, many of the complaints filed against us do not specify the amount of damages that plaintiffs seek, and we therefore are unable to estimate the possible range of damages that might be incurred should these lawsuits be resolved against us. While we are unable to estimate the potential damages arising from such lawsuits, certain of them assert types of claims that, if resolved against us, could give rise to substantial damages. Thus, an unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our financial condition, liquidity and results of operations. Even if these lawsuits are not resolved against us, the uncertainty and expense associated with unresolved lawsuits could seriously harm our business, financial condition and reputation. Litigation is costly, time-consuming and disruptive to normal business operations. The costs of defending these lawsuits, particularly the securities class actions and stockholder derivative actions, have been significant, will continue to be costly and may not be covered by our insurance policies. The defense of these lawsuits could also result in continued diversion of our management's time and attention away from business operations, which could harm our business. For additional discussion regarding litigation, see the "Legal Proceedings" portion of this Annual Report.

We may be subject to environmental liabilities which could increase our expenses and harm our operating results.

        We are subject to various federal, state and foreign laws and regulations governing the environment, including those governing pollution and protection of human health and the environment and, recently, those restricting the presence of certain substances in electronic products and holding producers of those products financially responsible for the collection, treatment, recycling and disposal

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of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate. We will need to ensure that we comply with such laws and regulations as they are enacted, as well as all environmental laws and regulations, and as appropriate or required, that our component suppliers also comply with such laws and regulations. If we fail to comply with such laws, we could face sanctions for such noncompliance, and our customers may refuse to purchase our products, which would have a materially adverse effect on our business, financial condition and results of operations.

        With respect to compliance with environmental laws and regulations in general, we have incurred and in the future could incur substantial costs for the cleanup of contaminated properties, either those we own or operate or to which we have sent wastes in the past, or to comply with such environmental laws and regulations. Additionally, we could be subject to disruptions to our operations and logistics as a result of such clean-up or compliance obligations. If we were found to be in violation of these laws, we could be subject to governmental fines and liability for damages resulting from such violations. If we have to make significant capital expenditures to comply with environmental laws, or if we are subject to significant expenditures in connection with a violation of these laws, our financial condition or operating results could be materially adversely impacted.

Our rights plan and certain provisions in our charter and under Delaware laws could hinder a takeover attempt.

        In February 2003, we amended and restated our Stockholder Rights Agreement, which contains provisions that may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change in control. We are also subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions providing for the limitations of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving staggered, three-year terms, allowing vacancies on our board of directors to be filled by the vote of a majority of the remaining directors, granting our board of directors the authority to establish additional series of preferred stock and to designate the rights, preferences and privileges of such shares (commonly known as "blank check preferred") and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders, which may only be called by the Chairman of the board, the Chief Executive Officer or the board of directors. These provisions also may have the effect of deterring hostile takeovers or delaying changes in control or management of us.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        We own and lease various properties in the United States and in 23 other countries around the world. We use the properties for executive and administrative offices, data centers, product development offices, customer service offices, and manufacturing facilities. Our corporate headquarters of approximately 163,000 square feet is located in Milpitas, California. As of June 30, 2012, our leased and owned properties in total provided us with aggregate square footage of approximately 2.1 million, of which less than 15,000 square feet is owned. Larger leased sites include properties located in China,

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Canada, France, Germany, Singapore, and the United States. We believe that our existing properties, including both owned and leased sites, are in good condition and suitable for the conduct of our business.

        From time to time we consider various alternatives related to our long-term facilities' needs. While we believe our existing facilities are adequate to meet our immediate needs, it may become necessary to lease, acquire, or sell additional or alternative space to accommodate future business needs.

ITEM 3.    LEGAL PROCEEDINGS

        The Company is subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against the Company, individually or in aggregate, will not have a material adverse impact on its financial position, results of operations or statement of cash flows, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on the Company's financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable.

ITEM 4.    MINE SAFETY DISCLOSURES

        None.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is traded on the NASDAQ Global Select Market under the symbol "JDSU" and our exchangeable shares of JDS Uniphase Canada Ltd. are traded on the Toronto Stock Exchange under the symbol "JDU." Holders of exchangeable shares may tender their holdings for common stock on a one-for-one basis at any time. As of July 28, 2012, we had 231,916,378 shares of common stock outstanding, including 3,937,789 exchangeable shares. The closing price on July 27, 2012 was $9.95 for the common stock and Canadian $10.07 for the exchangeable shares. The following table summarizes the high and low closing sales prices for our common stock as reported on the NASDAQ Global Select Market during fiscal 2012 and 2011.

 
  High   Low  

Fiscal 2012:

             

Fourth Quarter

  $ 14.59   $ 9.45  

Third Quarter

    14.93     10.68  

Second Quarter

    12.64     8.99  

First Quarter

    16.70     9.85  

Fiscal 2011:

             

Fourth Quarter

  $ 22.06   $ 15.51  

Third Quarter

    28.16     14.78  

Second Quarter

    14.63     10.24  

First Quarter

    12.82     9.19  

        As of July 28, 2012, we had 5,562 holders of record of our common stock and exchangeable shares. We have not paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.

        In May 2012, we repurchased $14.0 million aggregate principal amount of the 1% Senior Convertible Notes for $13.9 million in cash.

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STOCK PERFORMANCE GRAPH

        The information contained in the following graph shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.

        The following graph and table set forth the Company's total cumulative stockholder return, assuming reinvestment of dividends, of an investment of $100 in June 2007 and ending June 2012 in: (i) the Company's Common Stock, (ii) the S&P 500 Index, (iii) the NASDAQ Stock Market (U.S.) Index and, (iv) the NASDAQ Telecommunications Index. Historical stock price performance is not necessarily indicative of future stock price performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among JDS Uniphase Corporation

GRAPHIC

          *$100 invested on 6/30/07 in stock or index.

 
  6/07   6/08   6/09   6/10   6/11   6/12  

JDS Uniphase Corporation

    100.00     84.59     42.59     73.27     124.05     81.91  

S&P 500

    100.00     85.14     61.15     68.56     87.85     90.61  

NASDAQ Composite

    100.00     88.08     70.49     81.02     106.54     112.75  

NASDAQ Telecommunications

    100.00     89.12     72.12     71.84     81.44     70.79  

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ITEM 6.    SELECTED FINANCIAL DATA

        This table sets forth selected financial data of JDSU, in millions, except share and per share amounts, for the periods indicated. This data should be read in conjunction with and is qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this Annual Report on Form 10-K and our audited consolidated financial statements, including the notes thereto and our independent registered public accounting firm's report thereon and the other financial information included in Item 8 of this Form 10-K. The selected data in this section are not intended to replace the consolidated financial statements included in this report.

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011(4)
  July 3,
2010(1)(2)(3)
  June 27,
2009(1)(2)
  June 28,
2008(1)(2)
 

Consolidated Statement of Operations Data:

                               

Net revenue

  $ 1,682.1   $ 1,804.5   $ 1,363.9   $ 1,283.3   $ 1,512.0  

Gross profit

    710.0     790.9     547.1     486.6     579.6  

Amortization of other intangibles

    28.9     32.2     27.8     27.0     30.0  

Impairment of goodwill

                741.7     37.0  

Loss (gain) on disposal and impairment of long-lived assets

    22.7     1.5     (2.0 )   13.2     6.7  

Restructuring and related charges

    12.5     14.8     17.7     38.5     6.7  

Total operating expense

    739.1     725.5     601.3     1,386.5     713.8  

(Loss) income from operations

    (29.1 )   65.4     (54.2 )   (899.9 )   (134.2 )

(Loss) income from continuing operations, net of tax

    (55.6 )   71.6     (59.7 )   (906.2 )   (41.5 )

Net (loss) income

    (55.6 )   71.6     (61.8 )   (909.5 )   (40.3 )

(Loss) income from continuing operations per share—basic

    (0.24 )   0.32     (0.27 )   (4.20 )   (0.19 )

(Loss) income from continuing operations per share—diluted

    (0.24 )   0.31     (0.27 )   (4.20 )   (0.19 )

Net (loss) income per share—basic

    (0.24 )   0.32     (0.28 )   (4.22 )   (0.18 )

Net (loss) income per share—diluted

    (0.24 )   0.31     (0.28 )   (4.22 )   (0.18 )

 

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011(1)
  July 3,
2010(1)(3)
  June 27,
2009(1)
  June 28,
2008(1)
 

Consolidated Balance Sheet Data:

                               

Cash, cash equivalents, short-term investments, and restricted cash

  $ 752.7   $ 728.7   $ 600.1   $ 695.5   $ 884.7  

Working capital

    656.1     885.5     723.7     797.9     983.8  

Total assets

    1,869.5     1,950.7     1,703.6     1,668.1     2,904.6  

Long-term obligations

    176.6     466.7     444.0     423.7     524.8  

Total stockholders' equity

    1,038.8     1,065.4     908.7     934.5     1,934.5  

(1)
Effective June 28, 2009, the first day of fiscal 2010, we adopted authoritative guidance which applies to convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. As a result, we have retrospectively applied this guidance to all past periods presented.

(2)
On September 4, 2009, we sold certain non-core assets related to our wholly owned subsidiary da Vinci Systems LLC ("da Vinci"). As a result, the operations of da Vinci have been presented as discontinued operations for all periods presented.

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(3)
On May 1, 2010, we acquired the Network Solutions Division ("NSD") of Agilent Technologies, Inc. ("Agilent") in a transaction accounted for as a purchase. The Consolidated Statement of Operations for fiscal 2010 included the results of operations from NSD subsequent to May 1, 2010 and the Consolidated Balance Sheet as of July 3, 2010 included NSD's financial position.

(4)
Effective July 4, 2010, the first day of fiscal 2011, we adopted authoritative guidance which applies to revenue arrangements with multiple deliverables and to certain software arrangements. We adopted both sets of guidance on a prospective basis for applicable transactions originating or materially modified on or after July 4, 2010.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Industries and Developments

        JDSU is a leading provider of communications test and measurement solutions and optical products for telecommunications service providers, wireless operators, cable operators, NEMs, and enterprises. JDSU is also an established leader in developing anti-counterfeiting technologies for currencies and other high value documents and products. In addition, the Company is leveraging its core networking and optical technology expertise to deliver high-powered commercial lasers for manufacturing applications and expand into emerging markets, including gesture—recognition solutions for consumer electronics.

        To serve its markets, JDSU operates in the following business segments: Communications Test and Measurement ("CommTest"), Communications and Commercial Optical Products ("CCOP"), and Advanced Optical technology ("AOT").

Communications Test and Measurement

        The CommTest business segment provides instruments, software and services for communications network operators and equipment manufacturers that deliver and/or operate wireline and wireless networks.

        JDSU communications test solutions help accelerate the deployment of new services, lower operating expenses, reduce customer turnover, and increase productivity across each critical phase of the network lifecycle, including R&D, production, deployment, and customer experience management ("CEM"). JDSU enables the effective management of voice, data and video services by providing visibility into the end-user experience and also by providing repair, calibration, instrument management, and other services to aid its customers in the rapid deployment and repair of networks and services.

        JDSU test solutions address lab and production (capacity expansion, 40G/100G), field service (triple-play deployments for cable, telecom, FTTx, and home networking), wireless (load testing, drive test, protocol test), and CEM (quality of experience for wireless and wireline networks). JDSU also provides protocol test solutions for the development and field deployment of storage and storage-network technologies.

        JDSU test and measurement customers include the world's largest communications service providers, communications-equipment manufacturers, and government organizations. These include major telecom service providers, wireless operators and cable operators including AT&T, Bell Canada, Bharti Airtel Limited, British Telecom, China Mobile, China Telecom, Chunghwa Telecom, Comcast, CSL, Deutsche Telecom, France Telecom, TalkTalk, Telefónica, Telmex, TimeWarner Cable, and Verizon. Network equipment manufacturing customers include Alcatel-Lucent, Ciena, Cisco Systems, Fujitsu, and Huawei. Customers in the storage group are chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Storage group customers include Brocade, Cisco Systems, EMC, Hewlett-Packard, and IBM.

Communications and Commercial Optical Products

        The CCOP business segment is a leading provider of products and technologies used in the optical communications and commercial laser markets.

        CCOP optical communications products include a wide range of components, modules, subsystems, and solutions for two markets: telecommunications, including access (local), metro (intracity), long-haul

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(city-to-city and worldwide), and submarine (undersea) networks; and, enterprise data communications including SANs, LANs, and Ethernet WANs. CCOP products enable the transmission and transport of video, audio, and data over high-capacity, fiber-optic cables. Transmission products primarily consist of optical transceivers, optical transponders, and their supporting components such as modulators and source lasers including VCSELs. Transport products primarily consist of amplifiers, ROADMs, and STBs, and their supporting components such as 980 nanometer ("nm") pumps, passive devices, and array waveguides ("AWG"s).

        CCOP laser products serve a wide variety of OEM applications from low- to high-power output and with UV, visible, and IR wavelengths. The broad portfolio addresses the needs of laser clients in applications such as micromachining, materials processing, bioinstrumentation, consumer electronics, graphics, medical/dental, and optical pumping. Core laser technologies include continuous-wave ("cw"), q-switched, and mode-locked lasers addressing application needs from cw to megahertz repetition rates. Laser products include diode, direct-diode, diode-pumped solid-state ("DPSS"), fiber and gas lasers.

        CCOP provides two lines of PV products. CPV cell products convert light into electrical energy, enabling high efficiency multijunction solar cells and receiver assemblies. Photonic power ("PP") products transport energy over optical fiber, enabling electromagnetic- and radio-interference-free power and data transmission for remote sensors such as high-voltage line current monitors.

        Today's most advanced optical networks are built with JDSU transport and transmission components, modules, and subsystems. Customers for our Optical Communications products include Adva, Alcatel-Lucent, Ciena, Cisco Systems, Ericsson, Fujitsu, Huawei, Infinera, Nokia Siemens Networks, and Tellabs. Customers for JDSU Commercial Lasers include Amada, ASML, Beckman Coulter, Becton Dickinson, Disco, Electro Scientific Industries, and KLA-Tencor. Customers for Photovoltaic Products include Amplifier Research, Beijing Bosin Industrial Technology, ETS-Lindgren, and Siemens.

Advanced Optical Technologies

        The AOT business segment leverages its core technology strengths in optics and materials science to manage light and/or color effects for a wide variety of markets—from product security to space exploration. AOT consists of our Custom Optics Product Group ("COPG"), Flex Products Group ("Flex") , and our Authentication Solutions Group ("ASG").

        The Flex group produces color-shifting pigments that protect the currencies of more than 100 countries including China, those in the European Union, and the United States. It also provides anti-counterfeiting solutions to the pharmaceutical and other industries.

        The COPG group provides precise, high-performance, optical thin-film coatings for a variety of applications in government and aerospace, biomedical, display, office automation, entertainment, and other emerging markets. These applications include night-vision goggles, satellite solar covers, medical instrumentation, information displays, office equipment, computer-driven projectors, 3D cinema and gesture recognition.

        ASG provides multilayer authentication solutions that include overt, covert, forensic, and digital technologies for protection from product and document counterfeiting and tampering. These solutions, many of which leverage AOT color-shifting and holographic technologies, safeguard brands in the secure document, transaction card, pharmaceutical, consumer electronics, printing/imaging supplies, licensing, and fast-moving consumer goods industries.

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        The AOT business segment serves customers such as 3M, Kingston, Lockheed Martin, Northrop Grumman, Pan Pacific, Seiko Epson, and SICPA.

Overview

    Net revenue in fiscal 2012 decreased 6.8%, or $122.4 million, to $1,682.1 million from $1,804.5 million in fiscal 2011. Net revenue in fiscal 2012 consisted of $754.8 million, or approximately 44.9% of net revenue, from CommTest, $701.6 million, or approximately 41.7% of net revenue, from CCOP, and $225.7 million, or approximately 13.4% of net revenue, from AOT.

    Gross margin in fiscal 2012 decreased 1.6 percentage points to 42.2% from 43.8% in fiscal 2011. The decrease in gross margin was primarily due to decreased sales in our CCOP and CommTest segments, reduced absorption of manufacturing costs and decreased operating efficiency due to a decline in volume in our CCOP segment, and pricing reductions impacting certain product lines in our CCOP and AOT segments.

    R&D expense in fiscal 2012 increased 2.5%, or $6.1 million, to $246.0 million from $239.9 million in fiscal 2011. The increase was primarily due to increased investment in R&D projects to develop new product platforms and drive future growth, particularly in our CCOP segment. As a percentage of revenue, R&D expense increased to 14.6% from 13.3% in fiscal 2011.

    SG&A expense in fiscal 2012 decreased 1.9%, or $8.1 million, to $429.0 million from $437.1 million in fiscal 2011. The decrease was primarily a result of decreased variable incentive pay and lower sales commissions due to a decrease in operating income, partially offset by increased investment in information technology and a litigation settlement. As a percentage of revenue, SG&A expenses increased to 25.5% from 24.2% in fiscal 2011.

Recently Issued Accounting Pronouncements

        In December 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance will be effective for the Company beginning in the first quarter of fiscal 2014. The adoption of this guidance may expand existing disclosure requirements, which the Company is currently evaluating.

        In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminates one of the presentation options provided by current U.S. GAAP that is to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for the Company beginning in the first quarter of fiscal 2013, and will be applied retrospectively. The adoption of this guidance will expand existing disclosure requirements but will not have a material impact on the consolidated financial statements.

Critical Accounting Policies and Estimates

        The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses, and the related disclosures. We

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base our estimates on historical experience, our knowledge of economic and market factors and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, such as demand for our products and economic conditions. Accordingly, our estimates and judgments may prove to be incorrect and actual results may differ from these estimates under different estimates, assumptions or conditions. We believe the following critical accounting policies are affected by significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements:

Revenue Recognition

        We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided, risk of loss has transferred and in cases where formal acceptance is required, customer acceptance has been obtained or customer acceptance provisions have lapsed. In situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications, revenue is recognized upon shipment provided all other revenue recognition criteria are met. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

        We reduce revenue for rebates and other similar allowances. Revenue is recognized only if these estimates can be reliably determined. Our estimates are based on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

        In addition to the aforementioned general policies, the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue.

Multiple-Element Arrangements

        In October 2009, the FASB issued authoritative guidance that applies to arrangements with multiple deliverables. The guidance eliminates the residual method of revenue recognition, on non-software arrangements, and allows the use of management's best estimate of selling price ("BESP") for individual elements of an arrangement when vendor-specific objective evidence ("VSOE") or third-party evidence ("TPE") is unavailable. In addition, the FASB issued authoritative guidance which removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products. We have adopted these standards at the beginning of our first quarter of fiscal 2011 on a prospective basis for applicable transactions originating or materially modified on or after July 3, 2010.

        When a sales arrangement contains multiple deliverables, such as sales of products that include services, the multiple deliverables are evaluated to determine the units of accounting, and the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price. Under this approach, the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of VSOE of fair value if available, TPE if VSOE is not available, or BESP if neither VSOE nor TPE is available. Revenue is recognized when the revenue recognition criteria for each unit of accounting are met.

        We establish VSOE of selling price using the price charged for a deliverable when sold separately and, in remote circumstances, using the price established by management having the relevant authority. TPE of selling price is established by evaluating similar and interchangeable competitor goods or

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services in sales to similarly situated customers. When VSOE or TPE are not available then we use BESP. Generally, we are not able to determine TPE because our product strategy differs from that of others in our markets, and the extent of customization varies among comparable products or services from our peers. We establish BESP using historical selling price trends and considering multiple factors including, but not limited to geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. When determining BESP, we apply significant judgment in establishing pricing strategies and evaluating market conditions and product lifecycles.

        The determination of BESP is made through consultation with and approval by the Segment management. Segment management may modify or develop new pricing practices and strategies in the future. As these pricing strategies evolve, we may modify our pricing practices in the future, which may result in changes in BESP. The aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from the current fiscal quarter, which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement.

        To the extent that a deliverable(s) in a multiple-element arrangement is subject to specific guidance (for example, software that is subject to the authoritative guidance on software revenue recognition) we allocate the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance. Some of our product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment. We believe that this equipment is not considered software related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition.

        If the transactions entered into or materially modified on or after July 3, 2010 were subject to the previous accounting guidance, the reported net revenue amount during the year ended July 2, 2011, would decrease by approximately $7 million.

Hardware

        Revenue from hardware sales is recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement. Any cost of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized.

Services

        Revenue from services and system maintenance is typically recognized on a straight-line basis over the term of the contract. Revenue from time and material contracts is recognized at the contractual rates as labor hours are delivered and direct expenses are incurred. Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period. We also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service.

Software

        Our software arrangements generally consist of a perpetual license fee and Post-Contract Support ("PCS"). Generally we have established VSOE of fair value for PCS contracts based on the renewal rate or the bell curve methodology. Revenue from maintenance, unspecified upgrades and technical support is recognized over the period such items are delivered. In multiple-element revenue arrangements that include software, software related and non software-related elements are accounted for in accordance with the following policies.

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    Non software and software related products are bifurcated based on a relative selling price

    Software related products are separated into units of accounting if all of the following criteria are met:

    The functionality of the delivered element(s) is not dependent on the undelivered element(s).

    There is VSOE of fair value of the undelivered element(s).

    Delivery of the delivered element(s) represents the culmination of the earnings process for that element(s).

        If these criteria are not met, the software revenue is deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If there is VSOE of the undelivered item(s) but no such evidence for the delivered item(s), the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate VSOE of the undelivered elements. In cases where VSOE is not established for PCS, revenue is recognized ratably over the PCS period after all software deliverables have been made and the only undelivered item is PCS.

Allowances for Doubtful Accounts

        We perform credit evaluations of our customers' financial condition. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We record our bad debt expenses as SG&A expenses. When we become aware that a specific customer is unable to meet its financial obligations to us, for example, as a result of bankruptcy or deterioration in the customer's operating results or financial position, we record a specific allowance to reflect the level of credit risk in the customer's outstanding receivable balance. In addition, we record additional allowances based on certain percentages of our aged receivable balances. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers, and if circumstances related to our customers deteriorate, our estimates of the recoverability of our trade receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provide more allowances than we need, we may reverse a portion of such provisions in future periods based on our actual collection experience.

Stock-based Compensation

        We estimate the fair value of stock options with service conditions and employee stock purchase plan awards ("ESPP") using the Black-Scholes-Merton option-pricing model and a single option award approach. This option-pricing model requires the input of highly subjective assumptions, including the award's expected life and the price volatility of the underlying stock. The expected stock price volatility assumption is determined using a combination of historical and implied volatility of our common stock. We use the Lattice model to estimate the fair value of certain performance based options with market conditions. The fair value of the time based Full Value Awards is based on the closing market price of our common stock on the date of award. We use a Monte Carlo simulation to estimate the fair value of certain performance based Full Value Awards with market conditions.

        Pursuant to the authoritative guidance, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. When estimating forfeitures, we consider voluntary termination behavior as well as future workforce reduction programs. Estimated forfeiture

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rates are trued-up to actual forfeiture as the equity awards vest. The total fair value of the equity awards, net of forfeiture, is recorded on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period, except for performance based Full Value Awards and options with market conditions which are amortized based upon a graded vesting method.

Investments

        Our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments, net of tax, are reported as a separate component of stockholders' equity. Gains or losses on trading securities resulting from changes in fair value are recognized currently in earnings. Our short-term investments include securities with stated maturities of longer than twelve months which are classified as current assets as they are highly liquid and available to support current operations.

        We periodically review our investments for impairment. If a debt security's market value is below amortized cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record an other-than-temporary impairment charge to investment income (loss) for the entire amount of the impairment. For the remaining debt securities, if an other-than-temporary impairment exists, we separate the other-than-temporary impairment into the portion of the loss related to credit factors, or the credit loss portion, and the portion of the loss that is not related to credit factors, or the noncredit loss portion. The credit loss portion is the difference between the amortized cost of the security and our best estimate of the present value of the cash flows expected to be collected from the debt security. The noncredit loss portion is the residual amount of the other-than-temporary impairment. The credit loss portion is recorded as a charge to earnings (loss), and the noncredit loss portion is recorded as a separate component of other comprehensive income (loss).

Inventory Valuation

        We assess the value of our inventory on a quarterly basis and write-down those inventories which are obsolete or in excess of our forecasted usage to their estimated realizable value. Our estimates of realizable value are based upon our analysis and assumptions including, but not limited to, forecasted sales levels by product, expected product lifecycle, product development plans and future demand requirements. Our product line management personnel play a key role in our excess review process by providing updated sales forecasts, managing product rollovers and working with manufacturing to maximize recovery of excess inventory. If actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

Goodwill Valuation

        We test goodwill for possible impairment on an annual basis in our fourth quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that could trigger an impairment test include, but are not limited to: a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; change in customer, target market and strategy; unanticipated competition; loss of key personnel; or the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed.

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        In fiscal 2012, the FASB amended its guidance to simplify testing goodwill for impairment. The amended guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If an entity determines that as a result of the qualitative assessment that it is more likely than not (>50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. We elected to early adopt this accounting guidance for our annual impairment test performed in the fourth quarter of fiscal 2012.

        Application of the goodwill impairment test requires judgments, including: identification of the reporting units; assigning assets and liabilities to reporting units; assigning goodwill to reporting units; a qualitative assessment to determine whether there are any impairment indicators; determining the fair value of each reporting unit; forecasting of future operating results used in the preparation of the estimated future cash flows, including forecasted revenues and costs, timing of overall market growth and our percentage of that market, discount rates and growth rates in terminal values.

        We base our estimates on historical experience and on various assumptions about the future that we believe are reasonable based on available information. Unanticipated events and circumstances may occur that affect the accuracy of our assumptions, estimates and judgments. For example, if the price of our common stock were to significantly decrease combined with other adverse changes in market conditions, thus indicating that the underlying fair value of our reporting units may have decreased, we might be required to reassess the value of our goodwill in the period such circumstances were identified.

Long-lived Asset Valuation (Property, Plant and Equipment and Intangible Assets)

Long-lived assets held and used

        We test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

        Recoverability is assessed based on the carrying amounts of the long-lived assets or asset groups and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisals in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Long-lived assets held for sale

        Long-lived assets are classified as held for sale when certain criteria are met, which include: management commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; whether the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; whether the assets are being marketed at reasonable prices in relation to their fair value; and how unlikely it is that significant changes will be made to the plan to sell the assets. See "Note 10. Loss (Gain) on Disposal and Impairment of Long-Lived Assets" for more detail.

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        We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value less cost to sell. Fair value is determined using quoted market prices or the anticipated cash flows discounted at a rate commensurate with the risk involved.

Income Taxes

        In accordance with the authoritative guidance on accounting for income taxes, we recognize income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.

        The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur. With the exception of certain international jurisdictions, we have determined that at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire. Accordingly, we have established a valuation allowance for such deferred tax assets. If there is a change in our ability to realize our deferred tax assets, then our tax provision may decrease in the period in which we determine that realization is more likely than not.

        The authoritative guidance on accounting for uncertainty in income taxes clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, it provides guidance on recognition, classification, and disclosure of tax positions. We are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate. The determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. We recognize liabilities based on our estimate of whether, and the extent to which, additional tax liabilities are more likely than not. If we ultimately determine that the payment of such a liability is not necessary, then we reverse the liability and recognize a tax benefit during the period in which the determination is made that the liability is no longer necessary.

        The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that we make certain estimates and judgments. Changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period.

Warranty Accrual

        We provide reserves for the estimated costs of product warranties at the time revenue is recognized. We estimate the costs of our warranty obligations based on our historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Should our actual experience relative to these factors differ from our estimates, we may be required to record additional warranty reserves. Alternatively, if we provide more reserves than we need, we may reverse a portion of such provisions in future periods.

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Restructuring Accrual

        In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities, generally costs associated with restructuring activities are recognized when they are incurred. However, in the case of leases, the expense is estimated and accrued when the property is vacated. Given the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made from the time the property was vacated, including evaluating real estate market conditions for expected vacancy periods and sub-lease income. Additionally, a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion of such provisions.

Pension and Other Postretirement Benefits

        The funded status of our retirement-related benefit plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal year end, the measurement date. For defined benefit pension plans, the benefit obligation is the projected benefit obligation ("PBO") and for the nonpension postretirement benefit plan the benefit obligation is the accumulated postretirement benefit obligation ("APBO"). The PBO represents the actuarial present value of benefits expected to be paid upon retirement. The APBO represents the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan assets represents the current market value of cumulative Company contributions made to an irrevocable trust fund, held for the sole benefit of participants. Unfunded or partially funded plans, with the benefit obligation exceeding the fair value of plan assets, are aggregated and recorded as a retirement and nonpension postretirement benefit obligation equal to this excess. The current portion of the retirement-related benefit obligation represents the actuarial present value of benefits payable in the next 12 months in excess of the fair value of plan assets, measured on a plan-by-plan basis. This liability is recorded in other current liabilities in the Consolidated Balance Sheets.

        (Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost (income) in the Consolidated Statement of Operations as they arise are recognized as a component of accumulated other comprehensive income in the Consolidated Balances Sheets, net of tax. Those (gains) losses and prior service cost (credit) are subsequently recognized as a component of net periodic pension period cost (income) pursuant to the recognition and amortization provisions of applicable accounting standards. (Gains) losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan amendments.

        Net periodic pension cost (income) is recorded in the Consolidated Statement of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service cost and (gains) losses previously recognized as a component of accumulated other comprehensive income. Service cost represents the actuarial present value of participant benefits earned in the current year. Interest cost represents the time value of money cost associated with the passage of time. Certain events, such as changes in employee base, plan amendments and changes in actuarial assumptions, result in a change in the benefit obligation and the corresponding change in other comprehensive income. The result of these events is amortized as a component of net periodic cost (income) over the

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service lives of the participants, provided such amounts exceed thresholds which are based upon the benefit obligation or the value of plan assets.

        The measurement of the benefit obligation and net periodic pension cost (income) is based on our estimates and actuarial valuations provided by third-party actuaries which are approved by our management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, and mortality rates. In estimating the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plan's invested assets. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions that may be required under new legislation, accounting pronouncements, or otherwise, may materially affect our pension and other post-retirement obligations and our future expense.

Loss Contingencies

        We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals are required.

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Results of Operations

        The following table sets forth the components of our Consolidated Statements of Operations as a percentage of net revenue:

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Segment net revenue:

                   

CommTest

    44.9 %   44.5 %   47.1 %

CCOP

    41.7     42.7     36.6  

AOT

    13.4     12.8     16.3  
               

Net revenue

    100.0     100.0     100.0  

Cost of sales

    54.3     53.0     56.2  

Amortization of acquired technologies

    3.5     3.2     3.7  
               

Gross profit

    42.2     43.8     40.1  
               

Operating expenses:

                   

Research and development

    14.6     13.3     12.8  

Selling, general and administrative

    25.5     24.2     28.1  

Amortization of other intangibles

    1.7     1.8     2.0  

Loss (gain) on disposal and impairment of long-lived assets

    1.3     0.1     (0.1 )

Restructuring and related charges

    0.8     0.8     1.3  
               

Total operating expenses

    43.9     40.2     44.1  
               

(Loss) income from operations

    (1.7 )   3.6     (4.0 )

Interest and other income (expense), net

    0.7     0.1     0.6  

Interest expense

    (1.6 )   (1.4 )   (1.8 )

Gain on sale of investments

    0.1     0.2     1.0  
               

(Loss) income from continuing operations before income taxes

    (2.6 )   2.5     (4.2 )

Provision for (benefit from) income taxes

    0.7     (1.5 )   0.2  
               

(Loss) income from continuing operations, net of tax

    (3.3 )   4.0     (4.4 )

(Loss) income from discontinued operations, net of tax

            (0.1 )
               

Net (loss) income

    (3.3 )%   4.0 %   (4.5 )%
               

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Financial Data for Fiscal 2012, 2011, and 2010

        The following table summarizes selected Consolidated Statement of Operations items (in millions, except for percentages):

 
  2012   2011   Change   Percentage
Change
  2011   2010   Change   Percentage
Change
 

Segment net revenue:

                                                 

CommTest

  $ 754.8   $ 803.0   $ (48.2 )       $ 803.0   $ 642.7   $ 160.3        

CCOP

    701.6     770.8     (69.2 )         770.8     499.3     271.5        

AOT

    225.7     230.7     (5.0 )         230.7     221.9     8.8        
                                       

Net revenue

  $ 1,682.1   $ 1,804.5   $ (122.4 )   (6.8 )% $ 1,804.5   $ 1,363.9   $ 440.6     32.3 %
                                       

Gross profit

   
710.0
   
790.9
   
(80.9

)
 
(10.2

)%
 
790.9
   
547.1
   
243.8
   
44.6

%

Gross margins

    42.2 %   43.8 %               43.8 %   40.1 %            

Research and development

   
246.0
   
239.9
   
6.1
   
2.5

%
 
239.9
   
174.9
   
65.0
   
37.2

%

Percentage of net revenue

    14.6 %   13.3 %               13.3 %   12.8 %            

Selling, general and administrative

   
429.0
   
437.1
   
(8.1

)
 
(1.9

)%
 
437.1
   
382.9
   
54.2
   
14.2

%

Percentage of net revenue

    25.5 %   24.2 %               24.2 %   28.1 %            

Amortization of intangibles

   
87.5
   
89.1
   
(1.6

)
 
(1.8

)%
 
89.1
   
78.4
   
10.7
   
13.6

%

Percentage of net revenue

    5.2 %   4.9 %               4.9 %   5.7 %            

Loss (gain) on disposal and impairment of long-lived assets

   
22.7
   
1.5
   
21.2
   
1,413.3

%
 
1.5
   
(2.0

)
 
3.5
   
(175.0

)%

Percentage of net revenue

    1.3 %   0.1 %               0.1 %   (0.1 )%            

Restructuring and related charges

   
12.5
   
14.8
   
(2.3

)
 
(15.5

)%
 
14.8
   
17.7
   
(2.9

)
 
(16.4

)%

Percentage of net revenue

    0.7 %   0.8 %               0.8 %   1.3 %            

Net Revenue

        Net revenue in fiscal 2012 decreased 6.8%, or $122.4 million, to $1,682.1 million from $1,804.5 million in fiscal 2011. The decrease was primarily due to a decline in volume in our CommTest and CCOP segments.

        Net revenue decreased by $48.2 million in our CommTest segment primarily due to uncertainty in the macro-economic environment which reduced carriers' spending in North America broadly across products in the instruments product portfolio. Carriers are spending cautiously as their end customers are delaying purchases, particularly in Europe and North America. This decrease was partially offset by growth within the instruments product portfolio and the customer experience management ("CEM") product portfolio in the Asia-Pacific region. Net revenue decreased by $69.2 million in our CCOP segment. The decrease was primarily driven by a decline in volume due to reduced demand in our optical communications product portfolios arising from uncertainty in the macro-economic environment, particularly in Europe, flooding in Thailand and price reductions in line with business expectations. This decline was partially offset by an increase in volume and demand in our Pluggables and Fiber Lasers product lines. Within the optical communications product portfolio, volume declined in our gesture recognition products compared to the successful launch of these products in fiscal 2011. Volume also declined in our Circuit Packs and ROADMs product lines. During the second fiscal quarter of 2012 flooding in Thailand temporarily suspended operations of Fabrinet, one of CCOP's

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primary manufacturing partners, affecting net revenue by approximately $15 million. Net revenue in our AOT segment decreased $5.0 million due primarily due to reduced demand for our gesture recognition products, which was partially offset by increases in our currency products.

        Net revenue in fiscal 2011 increased 32.3%, or $440.6 million, to $1,804.5 million from $1,363.9 million in fiscal 2010. This increase was primarily due to an increased demand for our products driven by a broad based improvement in the global macro-economic environment, and specifically in the markets in which our segments operate. The significant yearly revenue increase was magnified relative to fiscal 2010, because fiscal 2010 net revenue was adversely impacted by the worldwide global recession in the first half of fiscal 2010. We saw the recovery from this recession begin during the second half of fiscal 2010 and continue at an increasing pace in fiscal 2011. In addition to the impact of the improvements in the global macro-economic environment on demand for our products, there were other factors which contributed to our increase in net revenue, as discussed below.

        CommTest revenue increased $160.3 million largely due to the NSD acquisition in May 2010, the fourth quarter of fiscal 2010, which contributed $112.3 million of the increase in revenue in fiscal 2011. The overall improvements in the macro-economic environment in fiscal 2011 helped drive an increase in revenues across a broad portfolio of our product lines, including Fiber, Video Broadband & Access and Metro/Transport. CCOP revenue increased $271.5 million primarily due to improvements in the economic environment of the optical communication industry in fiscal 2011 that led to an increase in demand and volume of our Pluggables, High Powered Lasers, Modulators, Tunables, ROADMS, Commercial Lasers and Circuit Pack product lines. Another factor in the fiscal 2011 increase in revenue was the introduction of new product platforms and product variants and the expansion of our market share in certain customer accounts. The full year impact of revenue from new products such as Tunable XFP and Gesture Recognition in the CCOP segment, which were introduced in the second and third quarter of fiscal 2010, respectively, was realized in fiscal 2011. The CCOP segment released new ROADM product variants in fiscal 2011, which also contributed to the increase in net revenue. AOT revenue increased $8.8 million due to higher demand for Gesture Recognition and Transaction Card products.

        Going forward, we expect to continue to encounter a number of industry and market structural risks and uncertainties that may limit our visibility, and consequently, our ability to predict future revenue, profitability and general financial performance, and that could create quarter over quarter variability in our financial measures. For example, recent economic uncertainty in Europe has led to decreased demand in our optical communications product portfolios, and we cannot predict when or to what extent this demand will recover. These structural risks and uncertainties include: (a) strong pricing pressures, particularly within our CCOP markets, due to, among other things, a highly concentrated customer base, increasing Asia-based competition, and a general commoditization trend for certain products; (b) high product mix variability, particularly in our CCOP markets, which causes revenue variability, as well as gross profit variability due to, among other things, factory utilization fluctuations and inventory and supply chain management complexities; and (c) continuing service provider seasonality, which causes demand, revenue and profitability volatility at each level of the communications industry. Moreover, the current trend of communication industry consolidations is expected to continue, directly affecting our CCOP and CommTest customer base and adding additional risk and uncertainty to our financial and business predictability. Our program of assembly manufacturing transitions will continue, but until completed, these activities will continue to present additional supply chain and product delivery disruption risks, yield and quality concerns and risk of increased cost. These risks, while expected to diminish over the next several quarters, limit our ability to predict longer term revenue, profitability and general financial performance.

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        We operate primarily in three geographic regions: Americas, Europe Middle East and Africa ("EMEA") and Asia-Pacific. The following table presents net revenue by geographic regions (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Net revenue:

                   

Americas

  $ 847.9   $ 877.6   $ 662.0  

EMEA

    402.7     475.5     374.6  

Asia-Pacific

    431.5     451.4     327.3  
               

Total net revenue

  $ 1,682.1   $ 1,804.5   $ 1,363.9  
               

        Net revenue was assigned to geographic regions based on the customers' shipment locations. Net revenue for Americas included net revenue from United States of $686.8 million, $695.9 million, and $532.8 million, for the fiscal years ended 2012, 2011, and 2010, respectively, based on customers' shipment location. Net revenue from customers outside the Americas represented 49.6%, 51.4%, and 51.5% of net revenue for the fiscal years ended 2012, 2011, and 2010, respectively. Consolidated revenues decreased year over year and in each geographical region in which we operate. While the proportion of consolidated revenues contributed by each geographical region did not change significantly from fiscal 2011 to fiscal 2012, the impact of the uncertainty in the macro-environment in Europe resulted in a small decrease in the proportion of revenue attributed to that region. We expect revenue from our customers outside of North America to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth.

        During fiscal 2012, 2011, and 2010, no one single customer accounted for more than 10% of net revenue.

Gross Margin

        Gross margin in fiscal 2012 decreased 1.6 percentage points to 42.2% from 43.8% in fiscal 2011. The decrease in gross margin was primarily due to declines in net revenue and unfavorable product mix in our CCOP and AOT segments. Net revenue decreased in our optical communications product portfolios of our CCOP segment, particularly in our gesture recognition products and Circuit Pack and ROADMs product lines, due to reductions in pricing and volume which reduced absorption of manufacturing costs and decreased operating efficiency. Additionally, our CCOP segment experienced higher production variances as a result of flooding in Thailand which temporarily suspended the operations of Fabrinet, one of CCOP's primary manufacturing partners, during the second fiscal quarter of 2012. Net revenue decreased in our gesture recognition products of our AOT segment, due to reductions in volume, which reduced absorption of manufacturing costs. Additionally, the decline in gross margin in our AOT segment, was due to a decline in the pricing of certain currency products. Gross margin in our CommTest segment remained relatively flat in fiscal 2012 compared to fiscal 2011.

        Gross margin in fiscal 2011 increased 3.7 percentage points to 43.8% from 40.1% in fiscal 2010. The increase in gross margin was primarily due to greater manufacturing efficiencies resulting from increases in product volume, which improved overhead absorption in our CCOP and CommTest segments, as well as improved product mix. Our CCOP segment experienced higher absorption of manufacturing cost from higher product volumes, thereby increasing gross margin, particularly in our Pluggables, High Powered Lasers, Modulators, Tunables, ROADMS, Commercial Lasers and Circuit Pack product lines. Our CCOP segment also introduced new product platforms and product variants in fiscal 2010 and 2011 and further increased manufacturing efficiencies in fiscal 2011 as compared to

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fiscal 2010 from the on-going consolidation of CCOP manufacturing sites which took place in fiscal 2010 and fiscal 2009 contributing to an increase in gross margin. In our CommTest segment, the increase in gross margin was primarily due to improved product mix, which in part was driven by the acquisition of the NSD business in the fourth quarter of fiscal 2010. The acquisition of the NSD business helped to significantly improve product offering mix with an emphasis on software and solution sales contributing to higher gross margin for the overall CommTest segment. As in our CCOP segment, CommTest also benefitted significantly from higher volumes of multiple product lines such as Fiber, Video Broadband & Access, Metro/Transport which also resulted in higher absorption of manufacturing cost thereby increasing gross margin. Gross margin decreased slightly in the AOT segment due to change in product mix.

        As discussed in more detail under "Net Revenue" above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific based competition), are price sensitive and are affected by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in quarterly variability of our gross margin.

Research and Development

        R&D expense in fiscal 2012 increased 2.5%, or $6.1 million, to $246.0 million from $239.9 million in fiscal 2011. The increase in R&D expense was primarily due to increased investment in R&D projects to develop new product platforms and drive future growth, particularly in our CCOP segment. The increase was partially offset by reductions in our CommTest segment's R&D spending as a result of restructuring activities, reductions in headcount, and decreased variable incentive pay due to a decrease in operating income. Total R&D headcount decreased from approximately 1,450 in fiscal 2011 to 1,400 in fiscal 2012. As a percentage of revenue, R&D expense increased from 13.3% in fiscal 2011 to 14.6% in fiscal 2012.

        R&D expense in fiscal 2011 increased 37.2%, or $65.0 million, to $239.9 million from $174.9 million in fiscal 2010. The increase was primarily a result of increased investment in development projects, together with higher compensation and benefits costs due to increased headcount, partly as a result of the acquisition of NSD in fiscal 2010, but also as a result of increased organic investment. Total R&D headcount increased from approximately 1,350 in fiscal 2010 to 1,450 in fiscal 2011. As a percentage of revenue, R&D expense slightly increased from 12.8% in fiscal 2010 to 13.3% in fiscal 2011.

        We believe that investment in R&D is critical to attaining our strategic objectives. Historically, we have devoted significant engineering resources to assist with production, quality and delivery challenges which can impact our new product development activities. We plan to continue to invest in R&D and new products that will further differentiate us in the marketplace.

Selling, General and Administrative ("SG&A")

        SG&A expense in fiscal 2012 decreased 1.9%, or $8.1 million, to $429.0 million from $437.1 million in fiscal 2011. The decrease in SG&A expense was primarily due to decreased variable incentive pay and lower sales commissions due to a decrease in net revenue and operating income, partially offset by increased investment in information technology and a litigation settlement. Please refer to "Note 18. Commitment and Contingencies" for more information on legal proceedings. As a percentage of revenue, SG&A expenses increased from 24.2% in fiscal 2011 to 25.5% in fiscal 2012.

        SG&A expense in fiscal 2011 increased 14.2%, or $54.2 million, to $437.1 million from $382.9 million in fiscal 2010. The dollar increase was primarily related to higher sales commissions due

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to increased revenues, increased variable incentive pay due to improved operating performance and increased investment in information technology, together with increases associated with the NSD acquisition. As a percentage of revenue, SG&A expenses decreased from 28.1% in fiscal 2010 to 24.2% in fiscal 2011.

        We intend to continue to focus on reducing our SG&A expenses as a percentage of revenue. We have in the recent past, experienced and may continue to experience in the future, certain non-core expenses, such as mergers and acquisitions related expenses and legal expenses in connection with litigation, which could increase our SG&A expenses, and potentially impact our profitability, in any particular quarter. We are also increasing SG&A expenses in near term to upgrade business infrastructure and systems.

Amortization of Intangibles

        Amortization of intangibles for fiscal 2012 decreased 1.8%, or $1.6 million, to $87.5 million from $89.1 million in fiscal 2011.

        Amortization of intangibles for fiscal 2011 increased 13.6%, or $10.7 million, to $89.1 million from $78.4 million in fiscal 2010, due to additional intangible assets acquired through the NSD acquisition during the fourth quarter of fiscal 2010.

Acquired In-Process Research and Development ("IPR&D")

        In accordance with authoritative guidance, we recognize IPR&D at fair value as of the acquisition date, and subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated R&D efforts. We periodically review the stage of completion and likelihood of success of each IPR&D project. The nature of the efforts required to develop IPR&D projects into commercially viable products principally relates to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. During fiscal 2010, we acquired IPR&D through the acquisitions of SNT and NSD. The current status of our significant IPR&D projects from acquisitions is as follows:

SNT Acquisition

        SNT was acquired in July 2009 and was accounted for in accordance with the authoritative guidance on business combinations. At the time of acquisition, SNT was in the process of developing technology, on two projects, to be used in the next generation of test and measurement platform. During the fourth quarter of fiscal 2010 we completed one project and began amortizing the developed technology over a 5 year useful life. During the second quarter of fiscal 2011 we completed the second project and began amortizing the developed technology over an 8 year useful life.

NSD Acquisition

        NSD was acquired in May 2010 and was accounted for in accordance with the authoritative guidance on business combinations. At the time of acquisition, NSD was in the process of developing the next generation network probes. During the third quarter of fiscal 2012 we completed the $9.8 million IPR&D project and transferred it from indefinite life intangible assets to acquired developed technology and began amortizing the developed technology intangible asset over its useful life of 5 years.

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Loss (gain) on Disposal and Impairment of Long-Lived Assets

        During fiscal 2012 and 2011, we recorded $22.7 million and $1.5 million, respectively of loss on disposal and impairments of our long-lived assets in accordance with the authoritative accounting guidance regarding disposal or impairment of long-lived assets. During fiscal 2010, we recorded $2.0 million of gain on disposal and impairment of our long-lived assets in accordance with the same guidance.

        The following table summarizes the components of the impairment of intangibles and gain/loss on long-lived assets (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Loss (gain) on Disposal and Impairment of Long-Lived Assets:

                   

Assets held and used

  $ 21.5   $   $  

(Gain) on the sale of assets

    (0.6 )   (0.1 )   (0.1 )

Long-lived assets to be disposed of other than sale

    1.8     1.6     (1.9 )
               

Total loss (gain) on disposal and impairment of long-lived assets

  $ 22.7   $ 1.5   $ (2.0 )
               

Fiscal 2012

Assets Held and Used:

        In the fourth quarter of fiscal 2012, Company made an assessment based on business conditions and market forecast to explore strategic alternatives for its holograms business within AOT reportable segment which may result in exit activities significantly before the end of its previously estimated useful life.

        Correspondingly, under the authoritative guidance, the Company estimated the future net undiscounted cash flows expected to be generated using a probability-weighed approach for various scenarios. The cash flow period was based on the remaining useful life of the primary asset. The estimated future net undiscounted cash flows were then compared to the carrying amount of the long-lived asset group. The result of the analysis indicated that the estimated undiscounted cash flows were less than the carrying amount of the long-lived asset group, and accordingly the long-lived asset group related to holograms business is not recoverable. The Company recorded the long-lived asset impairment charge of $18.8 million related to the intangibles and $2.7 million related to plant, property and equipment based on the discounted cash-flows under various scenarios. The entire impairment amount was recorded in the Consolidated Statements of Operations as a component of Loss (gain) on disposal and impairment of long lived assets.

        The fair value of the aforementioned long-lived assets was determined based on an income approach using the discounted cash flow method. These assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement.

Asset Disposal Other than Sale:

        During fiscal 2012, we recorded a loss of $1.8 million on the disposal of assets other than sale primarily related to accelerated depreciation in facilities at Everbright, Camerillo and Fort Collins sites.

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Sale of Asset

        During fiscal 2012, we recorded a gain of $0.7 million on the sale of asset primarily related to sale of certain building and land in Eningen, Germany under a sale and leaseback arrangement. See "Note 18. Commitments and Contingencies" for details.

Fiscal 2011

Asset Disposal Other than Sale:

        During fiscal 2011, we recorded loss of $1.6 million on the disposal of assets other than sale primarily related to accelerated depreciation in facilities at Ottawa and Fort Collins sites.

Fiscal 2010

Asset Disposal Other than Sale:

        During fiscal 2010, we recorded a gain of $1.9 million for the disposal of assets other than sale primarily related to cash receipts from Sanmina-SCI on leasehold improvements related to the sale of certain assets and liabilities related to manufacturing operations in Shenzhen, China in fiscal 2009 that had previously been written-off, partially offset by accelerated depreciation.

Restructuring and Related Charges

        We continue to take advantage of opportunities to further reduce costs through targeted restructuring efforts intended to consolidate and rationalize business functions and related locations based on core competencies and cost efficiencies, together with the need to align the business in response to the market conditions. We estimate annualized cost savings of approximately $32 million excluding any one-time charge as a result of the restructuring activities initiated in the past year. See "Note 12. Restructuring and Related Charges" for more detail.

        As of June 30, 2012, our total restructuring accrual was $12.6 million.

        During the twelve months ended June 30, 2012, we incurred restructuring expenses of $12.5 million. The charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

      (i)
      During the fourth quarter of fiscal 2012, management approved the CommTest Operation and Repair Outsourcing Restructuring Plan which focuses on three areas in the CommTest segment: (1) moving the repair organization to a repair outsourcing partner; (2) reorganizing the R&D global team because of portfolio prioritization primarily in the CEM (Customer Experience Management) business to consolidate key platforms from several sites to single site; (3) reorganizing Global Sales to focus on strategic software growth, wireless growth, and to ensure sales account resources on the most critical global growth accounts. As a result, a restructuring charge of $4.3 million was recorded towards severance and employee benefits for 117 employees in manufacturing, research and development and selling, general and administrative functions. Payments related to the severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2013.

      (ii)
      During the fourth quarter of fiscal 2012, management approved the AOT Business Consolidation plan to consolidate and re-align the various business units within its AOT segment to improve synergies. As a result, a restructuring charge of $0.8 million was recorded towards severance and employee benefits for 17 employees primarily in

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        manufacturing, research and development and selling, general and administrative functions. Payments related to the severance and benefits accrual are expected to be paid by the end of the second quarter of fiscal 2013.

      (iii)
      During the third quarter of fiscal 2012, management approved the CommTest Manufacturing Support Consolidation Plan to continue to consolidate its manufacturing support operations in the CommTest segment, by reducing the number of contract manufacturer locations worldwide and moving most of them to lower cost regions such as Mexico and China. As a result, a restructuring charge of $2.8 million was recorded towards severance and employee benefits for 80 employees in manufacturing, research and development and selling, general and administrative functions. Payments related to the severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2013.

      (iv)
      During the second quarter of fiscal 2012, management approved the CommTest Solution Business Restructuring Plan to re-organize the Customer Experience Management business of the CommTest segment to improve business efficiencies with greater focus on the mobility and video software test business, and to re-organize CommTest's global operations to reduce costs by moving towards an outsourcing model. As a result, a restructuring charge of $1.7 million was recorded towards severance and employee benefits for 57 employees in manufacturing, research and development and selling, general and administrative functions. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the second quarter of fiscal 2013.

      (v)
      During the second quarter of fiscal 2012, management approved the CommTest Germantown Tower Restructuring Plan to consolidate workspace in Germantown, Maryland, primarily used by the CommTest segment. As of December 31, 2011, the Company exited the workspace in Germantown under the plan. We accrued $0.6 million exit costs in accordance with authoritative guidance related to lease and contract terminations. The fair value of the remaining contractual obligations, net of sublease income as of June 30, 2012 was $0.5 million. Payments related to the lease costs are expected to be paid by the end of the second quarter of fiscal 2019.

      (vi)
      During the first quarter of fiscal 2012, management approved the CCOP Fiscal Q1 2012 Plan to restructure certain CCOP segment functions and responsibilities to drive efficiency and segment profitability in light of current economic conditions. As a result, a restructuring charge of $1.1 million was recorded towards severance and employee benefits for 40 employees in manufacturing, research and development and selling, general and administrative functions. Payments related to the severance and benefits were paid by October 2011.

      (vii)
      The Company also incurred restructuring and related charges from previously announced restructuring plans in fiscal 2012 on the following: (i) $0.5 million benefit arising primarily from $1.2 million benefit to adjust down the previous accrual of employee severance and benefits under CommTest Sales and Market Rebalancing Plan due to management's decision to re-locate employees and realize co-location efficiencies, offset by $0.7 million on severance and employee benefits, primarily on continued implementation of the CommTest Germany Restructuring Plan; (ii) $1.6 million for manufacturing transfer costs in the CommTest and AOT segments which were the result of the transfer of certain production processes into existing sites in the United States or to contract manufacturers; and (iii) $0.1 million charge arising primarily from $1.0 million lease termination cost under CommTest Market Rebalancing Restructuring Plan, offset by $0.9 million benefit to adjust the accrual for previously restructured leases in the CommTest segment which were the result of our continued efforts to reduce and/or consolidate manufacturing locations.

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        During the twelve months ended July 2, 2011, we incurred restructuring expenses of $14.8 million. The charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

      (i)
      During the third quarter of fiscal 2011, management approved a plan to outsource a portion of manufacturing in the AOT segment to a contract manufacturer resulting in termination of employment and manufacturing transfer costs. As a result, a restructuring charge of $1.1 million was recorded consisting of $0.4 million towards manufacturing transfer costs and $0.7 million towards severance and related employee benefits for approximately 35 employees in manufacturing operations. Payments related to the severance and benefits were paid off by the first quarter of fiscal 2012.

      (ii)
      During the fourth quarter of fiscal 2011, the Company approved the CommTest Sales Rebalancing Plan to reorganize the sales organization and one of our product portfolios in the segment to focus efforts on higher growth technologies and regions. As a result, a restructuring charge of $4.6 million was recorded towards severance and employee benefits for approximately 110 employees in manufacturing, research and development and selling, general and administrative functions. Payments related to the severance and benefits were paid off by the fourth quarter of fiscal 2012.

      (iii)
      The Company also incurred restructuring and related charges from previously announced restructuring plans in fiscal 2011 on the following: (i) $1.2 million on severance and employee benefits, primarily on continued implementation of the CommTest Germany Restructuring Plan; (ii) $2.1 million for manufacturing transfer costs in the CommTest and CCOP segments which were the result of the transfer of certain production processes into existing sites in the U.S. or to contract manufacturers; and (iii) $0.4 million benefit arising primarily from $0.8 million benefit to adjust the accrual for previously restructured leases in the CommTest segment which were the result of our continued efforts to reduce and/or consolidate manufacturing locations offset by accrual for previously restructured leases.

        During the twelve months ended July 3, 2010, we incurred restructuring expenses of $17.7 million. The charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

      (i)
      $7.1 million for severance and benefits primarily in the CommTest segment which relates to the sale of certain non-core assets, the expansion of the Europe, Middle East, and Africa ("EMEA") sales force from a primarily direct customer-only team to include a channel partners-oriented sales force, and the implementation of the EMEA early retirement program. These activities were completed by the third quarter of fiscal 2011. We also restructured and reorganized our CommTest segment to improve the efficiency of the research and development organization by reducing/rationalizing headcount, transitioning research and development investment to lower cost locations, and consolidating and centralizing similar functions to fewer sites designed to improve leverage. These activities were completed by the end of the fourth quarter of fiscal 2010;

      (ii)
      $8.5 million for manufacturing transfer cost primarily in the CCOP segment, which were the result of a production site closure in California, the consolidation of Lasers manufacturing operations at a contract manufacturer in Asia, the transfer of certain production processes into existing sites in California, and the reduction in force of our manufacturing support organization across all sites. We completed these activities by the end of the third quarter of fiscal 2010; and

      (iii)
      $2.1 million for charges for restructured leases primarily in the CommTest segment, which were the result of our continued efforts to reduce and consolidate manufacturing locations. Payments related to the lease costs are expected to be paid by the second quarter of 2015.

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        Our ability to generate sublease income, as well as our ability to terminate lease obligations and recognize the anticipated related savings, is highly dependent upon the economic conditions, particularly commercial real estate market conditions in certain geographies, at the time we negotiate the lease termination and sublease arrangements with third parties as well as the performances by such third parties of their respective obligations. While the amount we have accrued represents the best estimate of the remaining obligations we expect to incur in connection with these plans, estimates are subject to change. Routine adjustments are required and may be required in the future as conditions and facts change through the implementation period. Our restructuring and other lease exit cost obligations are net of sublease income or lease settlement estimates of approximately $4.0 million. If adverse macroeconomic conditions continue, particularly as they pertain to the commercial real estate market, or if, for any reason, tenants under subleases fail to perform their obligations, we may be required to reduce estimated future sublease income and adjust the estimated amounts of future settlement agreements, and accordingly, increase estimated costs to exit certain facilities. Amounts related to the lease expense, net of anticipated sublease proceeds, will be paid over the respective lease terms through fiscal 2019.

Interest and Other Income (Expense), Net

        During fiscal 2012, interest and other income (expense), net, increased by 409.1%, or $9.0 million, to $11.2 million from $2.2 million in fiscal 2011. The increase was primarily due to $9.4 million of other income recorded in fiscal 2012 related to the insurance proceeds received from our claims on loss associated with the Thailand flooding. This increase was partially offset by $0.7 million loss on repurchase of convertible notes in fiscal 2012.

        During fiscal 2011, interest and other income (expense), net decreased by 73.2%, or $6.0 million, to $2.2 million from $8.2 million in fiscal 2010. The decrease was primarily due to $3.4 million of gains recorded in 2010 related to the distribution of proceeds from a class action settlement with Nortel, $2.0 million of gains on sale of equity investments in fiscal 2010 and $2.4 million reduction in interest income due to lower interest rates and lower average cash balances. The decrease was partially offset by an additional $1.2 million in other-than-temporary impairment charges on equity investments and asset-backed securities in fiscal 2010 compared to fiscal 2011.

Interest Expense

        During fiscal 2012, interest expense increased by 7.5%, or $1.9 million, to $27.3 million from $25.4 million in fiscal 2011, primarily due to an increase in accretion of debt discount cost.

        During fiscal 2011, interest expense decreased by 4.5%, or $1.1 million, to $25.4 million from $24.3 million in fiscal 2010, primarily due to an increase in accretion of debt discount cost.

Gain on Sale of Investments

        During fiscal 2012 we recorded net gains on sale of investment of $1.6 million.

        During fiscal 2011, we recorded net gains on sale of investment of $3.4 million, primarily due to the sale of 393,150 shares of common stock in Fabrinet at $10.00 per share, receiving net proceeds of $3.7 million after deduction of 7% for underwriting fees. These shares of common stock had a carrying value of $1.00 per share.

        During fiscal 2010, we recorded net gains on sale of investments of $13.1 million, primarily due to the sale of 1,606,850 shares of common stock in Fabrinet, in connection with their initial public offering, receiving net proceeds of $14.9 million or $9.30 per share, after deduction of 7% for

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underwriting fees, on June 30, 2010. These shares of common stock had a carrying value of $1.00 per share.

Provision for (Benefit from) Income Tax

Fiscal 2012 Tax Expense

        We recorded an income tax expense of $12.0 million for fiscal 2012. The expected tax benefit derived by applying the federal statutory rate to our loss before income taxes for fiscal 2012 differed from the income tax expense recorded primarily as a result of domestic and foreign losses that were not benefited due to valuation allowances.

        Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management has determined that in most of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2012, the valuation allowance for deferred tax assets increased by $25.8 million. The increase was primarily due to domestic and foreign tax net operating losses sustained during the fiscal year, offset by utilization and expiration of domestic and foreign net operating losses. We are currently subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

Fiscal 2011 Tax Benefit

        We recorded an income tax benefit of $26.0 million for fiscal 2011. The expected tax expense derived by applying the federal statutory rate to our income before income taxes for fiscal 2011 differed from the income tax benefit recorded primarily due to a net reduction in our valuation allowance related to the valuation allowance release and utilization of domestic and foreign net operating losses.

        During fiscal 2011, we determined that it is more likely than not that a portion of the deferred tax assets of a subsidiary in a non-US jurisdiction (the "foreign subsidiary") will be realized after considering all positive and negative evidence. Prior to fiscal 2011, because of significant negative evidence including principally continued economic uncertainty in the industry in the foreign jurisdiction specifically and reorganization activity that would adversely affect the foreign subsidiary's future operations and profit levels on a continuing basis in future years, we determined that it was more likely than not that the deferred tax assets would not be realized. However, during fiscal 2011, the foreign subsidiary had realized cumulative pre-tax income for the preceding three years and as a result of the finalization of our reorganization plans during the year had forecasted future pre-tax income sufficient to realize a portion of its deferred tax assets prior to the expiration of its operating losses and tax credit carryforwards. Upon considering the relative impact of all evidence, both negative and positive, and the weight accorded to each, we concluded that it was more likely than not that a portion of the deferred tax assets of the foreign subsidiary would be realized and that such portion of the valuation allowance should be released.

        Accordingly, a deferred tax valuation allowance release of $34.9 million was recorded as an income tax benefit during the year. Our conclusion that it is more likely than not that a portion of such deferred tax assets will be realized is strongly influenced by our forecast of future taxable income. We believe our forecast of future taxable income is reasonable; however, it is inherently uncertain. Therefore, if we realize materially less future taxable income than forecasted or have material unforeseen losses, then our ability to generate sufficient income necessary to realize a portion of the deferred tax assets may be reduced and an additional charge to increase the valuation allowance may

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be recorded. Conversely, if we generate taxable income materially greater than what was forecasted, then a further release of valuation allowance may be possible.

        Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management has determined that in most of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2011, the valuation allowance for deferred tax assets decreased by $91.4 million. The decrease was primarily related to the valuation release mentioned above and the utilization and expiration of domestic and foreign net operating losses. We are currently subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

Fiscal 2010 Tax Expense

        We recorded an income tax expense of $2.5 million for fiscal 2010. The expected tax benefit derived by applying the federal statutory rate to our loss before income taxes for fiscal 2010 differed from the income tax expense recorded primarily due to a net increase in our valuation allowance related to the increase in domestic and foreign tax net operating losses sustained during the fiscal year.

        Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management has determined that in most of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2010, the valuation allowance for deferred tax assets increased by $26.0 million. The increase was primarily due to domestic and foreign tax net operating losses sustained during the fiscal year, offset by utilization and expiration of domestic and foreign net operating losses.We are currently subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

Discontinued Operations

        During fiscal 2010, we sold certain non-core assets related to our wholly owned subsidiary da Vinci Systems LLC ("da Vinci"). Da Vinci represented a separate component of the CommTest segment and was considered as discontinued operations for financial reporting purposes. The sale generated total gross proceeds of $2.5 million and a gain of $0.2 million, which was recognized in the first fiscal quarter of 2010.

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Operating Segment Information (dollars in millions)

 
  2012   2011   Change   Percentage
Change
  2011   2010   Change   Percentage
Change
 

Communications Test and Measurement

                                                 

Net Revenue

  $ 754.8   $ 803.0   $ (48.2 )   (6.0 )% $ 803.0   $ 642.7   $ 160.3     24.9 %

Operating income

    98.3     119.4     (21.1 )   (17.7 )   119.4     81.5     37.9     46.5  

Communications and Commercial Optical Products

                                                 

Net Revenue

    701.6     770.8     (69.2 )   (9.0 )   770.8     499.3     271.5     54.4  

Operating income (loss)

    72.0     130.0     (58.0 )   (44.6 )   130.0     33.4     96.6     289.2  

Advanced Optical Technologies

                                                 

Net Revenue

    225.7     230.7     (5.0 )   (2.2 )   230.7     221.9     8.8     4.0  

Operating income

    72.7     77.7     (5.0 )   (6.4 )   77.7     82.5     (4.8 )   (5.8 )

Communications Test and Measurement:

        The decrease in CommTest net revenue fiscal 2012 and fiscal 2011 was primarily due to uncertainty in the macro-economic environment in North America within the instruments product portfolio, slightly offset by growth in the Asia-Pacific region. The decline in operating income was primarily driven by the decrease in net revenue, partially offset by reductions in SG&A and R&D expense as a result of savings obtained through our targeted restructuring activities to consolidate and rationalize business functions to achieve cost efficiencies within the CommTest segment.

        The increase in CommTest net revenue between fiscal 2011 and fiscal 2010 was mainly related to the NSD acquisition, which contributed a further $112.3 million to revenue in fiscal 2011, combined with continued improvement in macro-economic conditions during the whole of the year. Operating income increased due to increased revenue and continued focus on expense management, offset by increased investments in research and development.

Communications and Commercial Optical Products:

        The decrease in CCOP net revenue between fiscal 2012 and 2011 was due was primarily due to uncertainty in the macro-economic environment in Europe impacting our optical communications product portfolio, flooding in Thailand and price reductions in line with business expectations. Specifically, volume declined in our gesture recognition products compared to the successful launch of these products in fiscal 2011 and in our Circuit Packs and ROADMs product lines. The decline in operating income was primarily due to decreased net revenue, paired with increased investments in research and development.

        The increase in CCOP net revenue between fiscal 2011 and 2010 was due to an increase in demand in most product lines, such as Pluggables, High Powered Lasers, Modulators, Tunables, ROADMS, Commercial Lasers and Circuit Packs, and the introduction of new product platforms which improved the profitability of our portfolio. Operating income increased year over year due to the increased volumes, together with an improved mix of higher margin products, offset by increased investments in research and development.

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Advanced Optical Technologies:

        The decrease in AOT net revenue between fiscal 2012 and fiscal 2011 was primarily due reduced demand for our gesture recognition products, which was partially offset by increases in our currency products. The decline in operating income was primarily due to reduced demand in gesture recognition products and a decline in pricing for certain currency products, resulting in reduced absorption of manufacturing costs.

        The increase in AOT net revenue between fiscal 2011 and fiscal 2010 was primarily due to greater demand in our Gesture Recognition and Transaction Card product markets. Operating income declined as a result of lower margins resulting from changes in product mix, together with increased investments in research and development.

Liquidity and Capital Resources

        Our cash investments are made in accordance with an investment policy approved by the Audit Committee of our Board of Directors. In general, our investment policy requires that securities purchased be rated A-1/P-1, A/A2 or better. Securities that are downgraded subsequent to purchase are evaluated and may be sold or held at management's discretion. No security may have an effective maturity that exceeds 37 months, and the average duration of our holdings may not exceed 18 months. At any time, no more than 5% of the investment portfolio may be concentrated in a single issuer other than the U.S. government or U.S. agencies. Our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders' equity. We did not hold any investments in auction rate securities, mortgage backed securities, collateralized debt obligations, or variable rate demand notes at June 30, 2012 and virtually all debt securities held were of investment grade (at least BBB-/Baa3). As of June 30, 2012, approximately 88% of our cash, cash equivalents, and short-term investments were held in the U.S.

        As of June 30, 2012, the majority of our cash investments have maturities of 90 days or less and are of high credit quality. During fiscal 2012, we recognized $0.3 million of investment losses and can provide no assurances that the value or the liquidity of our other investments will not also be impacted by adverse conditions in the financial markets. In addition, we maintain cash balances in operating accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail.

Fiscal 2012

        We had a combined balance of cash and cash equivalents, short-term investments and restricted cash of $752.7 million at June 30, 2012, an increase of $24.0 million from July 2, 2011. Cash and cash equivalents increased by $5.7 million in the twelve months ended June 30, 2012, primarily due to cash provided by operating activities of $119.8 million, offset by $72.2 million used for the purchases of property, plant and equipment, net cash outflows of $26.6 million used for the purchase of available-for-sale investments, $12.5 million used for the acquisition of QuantaSol and Dyaptive and $2.6 million used in financing activities.

        Cash provided by operating activities was $119.1 million, resulting from our net income adjusted for non-cash items such as depreciation, amortization, impairment of long-lived assets and stock-based compensation of $199.4 million, and changes in operating assets and liabilities that used $80.3 million

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related primarily to a decrease in accounts payable of $29.2 million, a decrease in accrued payroll and related expenses of $25.3 million, an increase in other current and non-current assets of $16.8 million, a decrease in other current and non-current liabilities of $12.6 million, and an increase in inventories of $7.7 million, offset by a decrease in accounts receivable of $17.2 million primarily due to decrease in net revenue compared with fiscal 2011.

        The $29.2 decrease in accounts payable was primarily due to timing of purchases and payments. The $25.3 million decrease in accrued payroll and related expenses was primarily due to timing of salary and payroll tax payments and lower bonus and commission accruals. The $16.8 million increase in other current and non-current assets was primarily due to higher advances to our contract manufacturers to support future growth and increases in value-added tax receivables and prepayments of license and maintenance fees. The $12.6 million decrease in other current and non-current liabilities was mainly due to timing of invoicing and lower accrual related to contract manufacturing scrap expenses.

        Cash used by investing activities was $105.7 million, primarily related to cash used for the purchase of property, plant and equipment of $72.2 million, net cash outflows used for the purchase of available-for-sale investments of $26.6 million, and cash used for the acquisition of QuantaSol and Dyaptive of $12.5 million, offset by proceeds from sale of assets of $2.1 million. Since we continue to invest in new technology, laboratory equipment, and manufacturing capacity to support revenue growth across all three segments, significant investments were made during fiscal 2012 to increase our manufacturing capacity in Asia and the U.S. and to upgrade our information technology systems.

        Our financing activities used cash of $1.9 million, related to repayments of the carrying amount and reacquisition of the equity component of our 1% Senior Convertible Notes in the amount of $13.2 million, payments made on financing obligations of $11.6 million primarily related to software licenses, and payments for issuance cost of our revolving credit facility of $1.9 million, offset by proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan of $17.9 million and proceeds from financing obligation of $6.9 million related to the Eningen sale and leaseback transaction.

Fiscal 2011

        We had a combined balance of cash and cash equivalents, short-term investments and restricted cash of $728.7 million at July 2, 2011, an increase of $128.6 million from July 3, 2010. Significant inflows included $205.3 million provided by operating activities and $38.1 million from the exercise of stock options and the issuance of stock under employee stock plans. Significant outflows included $116.7 million of cash used for purchases of property, plant and equipment. Cash and cash equivalents increased by $55.2 million in fiscal 2011, primarily due to the above-referenced items offset by purchases of available-for-sale investments in excess of sales and maturities of $70.0 million.

        Operating activities provided $205.3 million of cash during fiscal 2011, resulting from our net income adjusted for non-cash items such as depreciation, amortization, and various gains and losses of $288.8 million, together with changes in operating assets and liabilities that used $83.5 million related primarily to an increase in trade receivable of $52.8 million due to the increase in sales, an increase in inventories of $38.6 million, an increase in other current and non-current assets of $23.7 million and a decrease in accrued expenses and other current and non-current liabilities of $17.2 million offset by an increase in deferred revenue of $44.1 and an increase of $9.7 million in accounts payable.

        Cash used by investing activities was $188.3 million during fiscal 2011, primarily due to $116.7 million of cash used for purchases of property and equipment, $73.6 million for purchases of available-for-sale investments, net of maturities and sales of investments, offset by $3.6 million from the

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sale of our Fabrinet investment. Since we continue to invest in new technology, lab equipment, and manufacturing capacity to support revenue growth across all three segments, significant investments were made during fiscal 2011 to increase our manufacturing capacity in China and the United States, to set up and /or improve facilities and purchase equipment to support our NSD business, and to upgrade our information technology systems.

        Our financing activities provided cash of $31.1 million, primarily related to proceeds from the exercise of stock options and issuance of stock under employee stock plans of $38.1 million offset by the payments on financing obligations of $6.8 million.

Fiscal 2010

        We had a combined balance of cash and cash equivalents, short-term investments and restricted cash of $600.1 million at July 3, 2010, a decrease of $95.4 million from June 27, 2009. Significant inflows included $119.2 million provided by operating activities, $14.9 million from the sale of our Fabrinet investment, and $9.6 million from the exercise of stock options and the issuance of stock under employee stock plans. Significant outflows included $207.3 million of cash used in acquisitions and $41.4 million for purchases of property, plant and equipment. Cash and cash equivalents increased by $53.3 million in fiscal 2010, primarily due to the above-referenced items and sales and maturities of investments in excess of purchases of $181.5 million.

        Operating activities provided $119.2 million of cash during fiscal 2010, resulting from our net loss adjusted for non-cash items such as depreciation, amortization, and various gains and losses, of $118.2 million, together with changes in operating assets and liabilities that provided $1.0 million related primarily to an increase in deferred revenue of $33.4 million, a decrease in inventory of $22.2 million, an increase in accounts payable of $20.8 million, a decrease in other current and non-current assets of $18.3 million and an increase in accrued payroll and related of $11.7 million, offset by an increase in accounts receivable of $62.3 million due to the increase in sales, a decrease in accrued expenses and other current and non-current liabilities of $33.6 million and a decrease in income taxes payable of $9.5 million.

        Cash used by investing activities was $65.4 million during fiscal 2010, primarily due to $207.3 million of cash used for acquisitions, net of cash acquired and $41.4 million used for purchases of property and equipment offset by $196.4 million from sales and maturities of investments in excess of purchases, including $14.9 million from the sale of our Fabrinet investment.

        Our financing activities provided cash of $1.0 million, primarily related to proceeds from the exercise of stock options and issuance of stock under employee stock plans of $9.6 million offset by the payments on financing obligations of $8.6 million.

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Contractual Obligations

        The following summarizes our contractual obligations at June 30, 2012, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in millions):

 
  Payments due by period  
 
  Total   Less than
1 year
  1-3
years
  3-5
years
  More than
5 years
 

Contractual Obligations

                               

Asset retirement obligations—expected cash payments

  $ 10.8   $ 1.6   $ 3.7   $ 2.1   $ 3.4  

Short-term debt: (1)

                               

1% Senior convertible notes

    311.0     311.0              

Estimated interest payments

    2.7     2.7              

Purchase obligations (2)

    139.4     129.4     8.1     1.9      

Operating lease obligations (2)

    147.2     29.4     51.4     35.3     31.1  

Software lease obligations (2)

    3.8     1.9     1.9          

Pension and postretirement benefit payments (3)

    89.5     5.1     9.8     12.1     62.5  
                       

Total

  $ 704.4   $ 481.1   $ 74.9   $ 51.4   $ 97.0  
                       

(1)
See "Note 11. Convertible Debt and Letters of Credit" for more information.

(2)
See "Note 18. Commitments and Contingencies" for more information.

(3)
See "Note 16. Employee Benefit Plans" for more information.

        As of June 30, 2012, operating lease obligations of $6.8 million in connection with our restructuring and related activities were accrued in our Consolidated Balance Sheet. Operating lease obligations of $1.6 million were included in "Other current liabilities" and $5.2 million was accrued in "Other non-current liabilities."

        Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Of the $139.4 million of purchase obligations as of June 30, 2012, $50.6 million are related to inventory and the $88.8 million are non-inventory items.

        As of June 30, 2012, our other non-current liabilities primarily relate to asset retirement obligations, pension and financing obligations which are presented in various lines in the preceding table.

        As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits including penalties and interest, the table does not include $26.8 million of such liabilities recorded on our consolidated balance sheet as of June 30, 2012.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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Acquisitions

        As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets for our products. We believe we strengthened our business model by expanding our addressable market, customer base, and expertise, diversifying our product portfolio, and fortifying our core businesses through acquisition as well as through organic initiatives.

        In January 2012, we completed the acquisition of Dyaptive based in Vancouver, Canada. The Company acquired tangible and intangible assets and assumed liabilities of Dyaptive for a total purchase price of approximately CAD 15.0 million in cash, including a holdback payment of approximately CAD 2.1 million which is due in December 2012.

        In July 2011, we completed the acquisition of critical product design, patented intellectual property and other assets from QuantaSol, for a cash purchase price consideration of approximately $3.7 million.

        In May 2010, we completed the acquisition of NSD from Agilent, where we acquired certain assets and assumed certain liabilities of NSD, for a total purchase price consideration of approximately $163.8 million.

        In July 2009, we completed the acquisition of the SNT business from Finisar, where we acquired certain assets and assumed certain liabilities of SNT for a total cash purchase price consideration of approximately $40.7 million.

        Please refer to "Note 5. Mergers and Acquisitions" of our Notes to Consolidated Financial Statements.

Employee Stock Options

        Our stock option and Full Value Award program is a broad-based, long-term retention program that is intended to attract and retain employees and align stockholder and employee interests. As of June 30, 2012, we have available for issuance 6.3 million shares of common stock for grant primarily under our Amended and Restated 2003 Equity Incentive Plan (the "2003 Plan") and 2005 Acquisition Equity Incentive Plan (the "2005 Plan"). The exercise price for the options is equal to the fair market value of the underlying stock at the date of grant. Options generally become exercisable over a four-year or three-year period and, if not exercised, expire from five to ten years post grant date. The majority of our employees participate in our stock option program. "Full Value Awards" refer to Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares that are granted with the exercise price equal to zero and are converted to shares immediately upon vesting. These Full Value Awards are performance based, time based, or a combination of both and are expected to vest over one to five years except with respect to awards with performance conditions, which are achieved on a different timeline. The fair value of the time based Full Value Awards is based on the closing market price of our common stock on the date of award. See "Note 15. Stock-Based Compensation" for more detail.

Pension and Other Postretirement Benefits

        As a result of acquiring Acterna in August 2005 and NSD in May 2010, we sponsor pension plans for certain past and present employees in the United Kingdom ("UK") and Germany. We also are responsible for the nonpension postretirement benefit obligation of a previously acquired subsidiary. Most of these plans have been closed to new participants and no additional service costs are being accrued, except for the plans assumed during fiscal 2010 in connection with the NSD acquisition. The

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UK plan is partially funded and the German plans, which were initially established as "pay-as-you-go" plans, are unfunded. The authoritative guidance of pension and other postretirement benefits requires the recognition of the funded status of the pension plans and nonpension postretirement benefit plans (retirement-related benefit plans) as an asset or a liability in the Consolidated Balance Sheets. The authoritative guidance also requires the recognition of changes in that funded status in the year in which they occur through the Gains and (losses) not affecting retained earnings, net of tax, and the recognition of previously unrecognized gains/(losses), prior service costs/(credits) and transition assets as a component of Accumulated gains and (losses) not affecting retained earnings in the Consolidated Statement of Stockholders' Equity. The funded status of a retirement plan is the difference between the projected benefit obligation and the fair value of its plan assets. The projected benefit obligation is the actuarial present value of all benefits attributed by the plan's benefit formula to employee service. At June 30, 2012, our pension plans were under funded by $88.4 million since the projected benefit obligation exceeded the fair value of its plan assets. Similarly, we had accrued $1.1 million related to our non-pension postretirement benefit plan.

        We anticipate future annual outlays related to the German plans will approximate estimated future benefit payments. These future benefit payments have been estimated based on the same actuarial assumptions used to measure our projected benefit obligation and currently are forecasted to range between $3.9 million and $5.1 million per annum. In addition, we expect to contribute approximately $0.7 million to the UK plan during fiscal 2013.

        During fiscal 2012 and fiscal 2011, we contributed GBP 0.3 million and GBP 0.2 million or approximately $0.4 million and $0.3 million, respectively, to our UK pension plan. These contributions allowed the Company to comply with regulatory funding requirements.

        A key actuarial assumption in calculating the net periodic cost and the projected benefit obligation ("PBO") is the discount rate. Changes in the discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact that the projected benefit obligation ("PBO") is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a 50 basis point decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately $7.0 million based upon June 30, 2012 data.

Liquidity and Capital Resources Requirement

        Our primary liquidity and capital spending requirements over the next 12 months will be the funding of our operating activities, capital expenditures, and making periodic interest payments on our outstanding debt. As of June 30, 2012 our expected commitments for capital expenditures totals approximately $10.6 million. We believe that our existing cash balances, investments and availability under our revolving credit facility will be sufficient to meet our liquidity and capital spending requirements, including the repayment of the principal balance of $311.0 million outstanding under the 1% Senior Convertible Notes, which is expected to be paid no later than May 2013 based on the put and call provisions of the 1% Senior Convertible Notes. However, there are a number of factors that could positively or negatively impact our liquidity position, including:

    global economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers;

    changes in accounts receivable, inventory or other operating assets and liabilities which affect our working capital;

    increase in capital expenditure to support the revenue growth opportunity of our business;

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    the tendency of customers to delay payments or to negotiate favorable payment term to manage their own liquidity positions;

    timing of payments to our suppliers;

    factoring or sale of accounts receivable;

    volatility in fixed income, credit, and foreign exchange markets which impact the liquidity and valuation of our investment portfolios;

    possible investments or acquisitions of complementary businesses, products or technologies;

    issuance or repurchase of debt or equity securities;

    potential funding of pension liabilities either voluntarily or as required by law or regulation, and

    compliance with covenants and other terms and conditions related to our financing arrangements.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

        We utilize foreign exchange forward contracts and other instruments, including option contracts, to hedge foreign currency risk associated with foreign currency denominated assets and liabilities, primarily certain short-term intercompany receivables and payables. Our foreign exchange forward contracts and other instruments are accounted for as derivatives whereby the fair value of the contracts are reflected as other current assets or other current liabilities and the associated gains and losses are reflected in Interest and other income (expense), net in the Consolidated Statements of Operations. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements. The gains and losses on those derivatives are expected to be offset by re-measurement gains and losses on the foreign currency denominated assets and liabilities.

        The following table provides information about our foreign currency forward and option contracts outstanding as of June 30, 2012. The forward contracts, most with a term of less than 120 days, were transacted near month end; therefore, the fair value of the contracts is not significant.

(in millions)
  Contract
Amount
(Local Currency)
  Contract
Amount
(USD)
 

Canadian Dollar (contracts to buy CAD / sell USD)

    CAD 42.6   $ 41.4  

Chinese Renmimbi (contracts to buy CNY / sell USD)

    CNY 230.9     36.3  

British Pound (contracts to sell GBP / buy USD)

    GBP 2.2     3.4  

Euro (contracts to buy EUR / sell USD)

    EUR 8.0     10.0  

Hong Kong Dollar (contracts to sell HKD / buy USD)

    HKD 61.8     8.0  

Singapore Dollar (contracts to sell SGD / buy USD)

    SGD 42.5     33.3  

Mexican Peso (contracts to buy MXN / sell USD)

    MXN 56.1     4.1  

Australian Dollar (contracts to sell AUD / buy USD)

    AUD 7.0     7.0  

Brazilian Real (contracts to sell BRL / buy USD)

    BRL 2.2     1.0  

Japanese Yen (contracts to sell JPY / buy USD)

    JPY 648.2     8.1  
             

Total notional amount of outstanding Foreign Exchange Contracts

        $ 152.6  
             

        The counterparties to these hedging transactions are creditworthy multinational banks. The risk of counterparty nonperformance associated with these contracts is not considered to be material. Notwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign currency exposures, and there can be no assurances that our mitigating activities related to the exposures that we do hedge will adequately protect us against the risks associated with foreign currency fluctuations.

Investments

        We maintain an investment portfolio in a variety of financial instruments, including, but not limited to, U.S. government and agency bonds, corporate obligations, money market funds, asset-backed securities, and other investment-grade securities. The majority of these investments pay a fixed rate of interest. The securities in the investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness, marketability, and other factors. These investments are generally classified as available-for-sale and, consequently, are recorded on our Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of Stockholders' equity.

        Investments in both fixed-rate and floating-rate interest earning instruments carry a degree of interest rate risk. The fair market values of our fixed-rate securities decline if interest rates rise, while

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floating-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may be less than expectations because of changes in interest rates or we may suffer losses in principal if we sell securities that have experienced a decline in market value because of changes in interest rates.

        The following table (in millions) presents the hypothetical changes in fair value in the available-for-sale debt instruments held at June 30, 2012 that are sensitive to changes in interest rates. These instruments are not leveraged or hedged and are held for purposes other than trading. Investments in money market funds and similar investment funds that seek to maintain a constant net asset value per unit of investment are not considered to be subject to market price risk and are not included in this sensitivity analysis. The modeling technique used measures the change in fair values arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points ("BPS"), 100 BPS, and 150 BPS over a 12-month horizon. Beginning fair values represent the market value, excluding accrued interest and dividends at June 30, 2012.

 
  Valuation of Securities Given
an Interest Rate Decrease
of "X" BPS
   
  Valuation of Securities Given
an Interest Rate Increase
of "X" BPS
 
 
  150
BPS
  100
BPS
  50
BPS
  Fair Value as
of June 30,
2012
  50
BPS
  100
BPS
  150
BPS
 

U.S. treasuries

  $ 52.8   $ 52.5   $ 52.2   $ 52.0   $ 51.7   $ 51.4   $ 51.1  

U.S. agencies

    66.7     66.2     65.8     65.3     64.8     64.4     63.9  

Foreign agencies

    3.4     3.3     3.3     3.3     3.3     3.3     3.3  

Municipals

    11.5     11.5     11.4     11.4     11.3     11.3     11.2  

Asset-backed securities

    21.9     21.9     21.8     21.7     21.6     21.5     21.5  

Corporate securities

    184.9     184.5     184.1     183.6     183.2     182.8     182.4  
                               

Total

  $ 341.2   $ 339.9   $ 338.6   $ 337.3   $ 335.9   $ 334.7   $ 333.4  
                               

        We seek to mitigate the credit risk of our portfolio of fixed-income securities by holding only high-quality, investment-grade obligations with effective maturities of 37 months or less. We also seek to mitigate marketability risk by holding only highly liquid securities with active secondary or resale markets. However, the investments may decline in value or marketability due to changes in perceived credit quality or changes in market conditions.

Debt

        The fair market value of the 1% Senior Convertible Notes ("Convertible Notes") is subject to interest rate and market price risk due to the convertible feature of the notes and other factors. Generally the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair market value of the notes may also increase as the market price of JDSU stock rises and decrease as the market price of the stock falls. Interest rate and market value changes affect the fair market value of the notes but do not impact our financial position, cash flows or results of operations. Based on quoted market prices, as of June 30, 2012 and July 2, 2011, the fair market value of the 1% Senior Convertible Notes was approximately $307.3 million and $332.1 million, respectively. Changes in fair market value reflect changes in the market price of the notes. For additional information, see "Note 11. Debt and Letters of Credit".

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of JDS Uniphase Corporation:

        In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of JDS Uniphase Corporation and its subsidiaries at June 30, 2012 and July 2, 2011, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        As discussed in Note 1 to the consolidated financial statements, the Company adopted the authoritative guidance which applies to revenue arrangements with multiple deliverables and to certain software arrangements on a prospective basis for applicable transactions originating or materially modified on or after July 4, 2010.

        A company's 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 company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's 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.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
August 24, 2012

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JDS UNIPHASE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(
in millions, except per share data)

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Net revenue

  $ 1,682.1   $ 1,804.5   $ 1,363.9  

Cost of sales

    913.5     956.7     766.2  

Amortization of acquired technologies

    58.6     56.9     50.6  
               

Gross profit

    710.0     790.9     547.1  
               

Operating expenses:

                   

Research and development

    246.0     239.9     174.9  

Selling, general and administrative

    429.0     437.1     382.9  

Amortization of other intangibles

    28.9     32.2     27.8  

Loss (gain) on disposal and impairment of long-lived assets

    22.7     1.5     (2.0 )

Restructuring and related charges

    12.5     14.8     17.7  
               

Total operating expenses

    739.1     725.5     601.3  
               

(Loss) income from operations

    (29.1 )   65.4     (54.2 )

Interest and other income (expense), net

    11.2     2.2     8.2  

Interest expense

    (27.3 )   (25.4 )   (24.3 )

Gain on sale of investments

    1.6     3.4     13.1  
               

(Loss) income from continuing operations before income taxes

    (43.6 )   45.6     (57.2 )

Provision for (benefit from) income taxes

    12.0     (26.0 )   2.5  
               

(Loss) income from continuing operations, net of tax

    (55.6 )   71.6     (59.7 )

Loss from discontinued operations, net of tax

            (2.1 )
               

Net (loss) income

  $ (55.6 ) $ 71.6   $ (61.8 )
               

Basic net (loss) income per share from:

                   

Continuing operations

  $ (0.24 ) $ 0.32   $ (0.27 )

Discontinued operations

            (0.01 )
               

Net (loss) income

  $ (0.24 ) $ 0.32   $ (0.28 )
               

Diluted net (loss) income per share from:

                   

Continuing operations

  $ (0.24 ) $ 0.31   $ (0.27 )

Discontinued operations

            (0.01 )
               

Net (loss) income

  $ (0.24 ) $ 0.31   $ (0.28 )
               

Shares used in per share calculation:

                   

Basic

    230.0     224.4     218.9  

Diluted

    230.0     232.6     218.9  

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

CONSOLIDATED BALANCE SHEETS
(
in millions, except share and par value data)

 
  June 30,
2012
  July 2,
2011
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 401.1   $ 395.4  

Short-term investments

    320.5     297.4  

Restricted cash

    31.1     35.9  

Accounts receivable, net (Note 6)

    305.8     334.0  

Inventories, net

    174.5     171.2  

Prepayments and other current assets

    77.2     70.2  
           

Total current assets

    1,310.2     1,304.1  

Property, plant and equipment, net

    252.9     248.9  

Goodwill

    68.7     67.4  

Intangibles, net

    178.8     275.4  

Long-term investments

    1.3     2.9  

Other non-current assets

    57.6     52.0  
           

Total assets

  $ 1,869.5   $ 1,950.7  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Accounts payable

  $ 117.6   $ 145.4  

Accrued payroll and related expenses

    68.6     76.7  

Income taxes payable

    20.7     21.5  

Deferred revenue

    81.2     83.5  

Accrued expenses

    35.3     50.5  

Short-term debt

    292.8      

Other current liabilities

    37.9     41.0  
           

Total current liabilities

    654.1     418.6  
           

Long-term debt

        285.8  

Other non-current liabilities

    176.6     180.9  

Commitments and contingencies (Note 18)

             

Stockholders' equity:

             

Preferred Stock, $0.001 par value; 1 million shares authorized; 1 share at June 30, 2012 and July 2, 2011, issued and outstanding

             

Common Stock, $0.001 par value; 1 billion shares authorized; 232 million shares at June 30, 2012 and 228 million shares at July 2, 2011, issued and outstanding

    0.2     0.2  

Additional paid-in capital

    69,695.7     69,641.4  

Accumulated deficit

    (68,664.6 )   (68,609.0 )

Accumulated other comprehensive income

    7.5     32.8  
           

Total stockholders' equity

    1,038.8     1,065.4  
           

Total liabilities and stockholders' equity

  $ 1,869.5   $ 1,950.7  
           

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(
in millions)

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

OPERATING ACTIVITIES:

                   

Net income (loss)

  $ (55.6 ) $ 71.6   $ (61.8 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

                   

Depreciation expense

    70.3     64.1     58.3  

Asset retirement obligations and deferred rent expenses

    (0.2 )   0.7     (7.1 )

Amortization of acquired technologies and other intangibles

    87.5     89.1     78.4  

Amortization of stock-based compensation

    49.1     41.4     43.1  

Amortization of debt issuance costs and accretion of debt discount

    20.9     19.5     17.9  

Amortization of discount and premium on investments, net

    3.8     3.5     2.9  

Loss (gain) on disposal and impairment of long-lived assets

    22.7     1.5     (1.3 )

Gain on sale of investments, net

    (1.6 )   (3.4 )   (13.1 )

Impairment of investments

    0.3     0.2     1.4  

Dividends received from long-term investments

            (2.0 )

Allowance for doubtful accounts and sales returns

    2.2     0.6     1.5  

Changes in operating assets and liabilities, net of impact of acquisitions of businesses and dispositions of assets:

                   

Accounts receivable

    17.2     (52.8 )   (62.3 )

Inventories

    (7.7 )   (38.6 )   22.2  

Other current and non-current assets

    (16.8 )   (23.7 )   18.3  

Accounts payable

    (29.2 )   9.7     20.8  

Income taxes payable

    (0.8 )   (4.0 )   (9.5 )

Deferred revenue, current and non-current

    (5.1 )   44.1     33.4  

Accrued payroll and related expenses

    (25.3 )   (1.0 )   11.7  

Accrued expenses and other current and non-current liabilities

    (12.6 )   (17.2 )   (33.6 )
               

Net cash provided by operating activities

    119.1     205.3     119.2  
               

INVESTING ACTIVITIES:

                   

Purchases of available-for-sale investments

    (444.8 )   (355.3 )   (427.1 )

Maturities and sales of investments

    418.2     285.3     623.5  

Changes in restricted cash

    3.5     (2.3 )   (21.1 )

Acquisitions, net of cash acquired

    (12.5 )       (207.3 )

Purchases of long-term investments

            (0.5 )

Proceeds received from divestiture of business, net of selling costs

            2.0  

Acquisition of property and equipment

    (72.2 )   (116.7 )   (41.4 )

Proceeds from sale of assets, net of selling costs

    2.1     0.7     1.0  

Proceeds from sale of subsidiary

            3.5  

Dividends received from long-term investments

            2.0  
               

Net cash used in investing activities

    (105.7 )   (188.3 )   (65.4 )
               

FINANCING ACTIVITIES:

                   

Payment of financing obligations

    (11.6 )   (6.8 )   (8.6 )

Proceeds from financing obligations

    6.9          

Redemption of convertible debt

    (13.2 )   (0.2 )    

Payment of debt issuance costs

    (1.9 )        

Proceeds from exercise of employee stock options and employee stock purchase plan

    17.9     38.1     9.6  
               

Net cash (used in) provided by financing activities

    (1.9 )   31.1     1.0  
               

Effect of exchange rates on cash and cash equivalents

    (5.8 )   7.1     (1.5 )

Increase in cash and cash equivalents

    5.7     55.2     53.3  

Cash and cash equivalents at beginning of period

    395.4     340.2     286.9  
               

Cash and cash equivalents at end of period

  $ 401.1   $ 395.4   $ 340.2  
               

Supplemental disclosure of cash flow information:

                   

Cash paid for interest

  $ 6.0   $ 5.8   $ 6.1  

Cash paid for taxes

    16.2     15.3     9.6  

Non-cash transactions:

                   

Purchase of infrastructure technology equipment and licenses

    3.2     7.1      

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(
in millions)

 
  Common Stock    
   
  Accumulated
Other
Comprehensive
Income
   
 
 
  Additional
Paid-In
Capital
  Accumulated
Deficit
   
 
 
  Shares   Amount   Total  

Balance at June 27, 2009

    217.0     0.2     69,530.5     (68,618.8 )   22.6     934.5  

Net loss

                (61.8 )       (61.8 )

Change in net unrealized gains on available-for-sale investments

                    6.2     6.2  

Foreign currency translation adjustment

                    (4.6 )   (4.6 )

Defined benefit obligation, net of tax

                    (9.1 )   (9.1 )
                                     

Comprehensive income (loss)

                          (69.3 )
                                     

Shares issued under employee stock plans, net of tax effects

    4.1         0.4             0.4  

Stock-based compensation

            43.1             43.1  
                           

Balance at July 3, 2010

    221.1     0.2     69,574.0     (68,680.6 )   15.1     908.7  

Net income

                71.6         71.6  

Change in net unrealized loss on available-for-sale investments

                    (2.3 )   (2.3 )

Foreign currency translation adjustment

                    12.1     12.1  

Defined benefit obligation, net of tax

                    7.9     7.9  
                                     

Comprehensive income (loss)

                        89.3  
                                     

Shares issued under employee stock plans, net of tax effects

    6.5         25.7             25.7  

Stock-based compensation

            41.7             41.7  
                           

Balance at July 2, 2011

    227.6     0.2     69,641.4     (68,609.0 )   32.8     1,065.4  

Net loss

                (55.6 )       (55.6 )

Change in net unrealized loss on available-for-sale investments

                    (1.2 )   (1.2 )

Foreign currency translation adjustment

                    (9.4 )   (9.4 )

Defined benefit obligation, net of tax

                    (14.7 )   (14.7 )
                                     

Comprehensive income (loss)

                        (80.9 )
                                     

Shares issued under employee stock plans, net of tax effects

    4.3         5.0             5.0  

Stock-based compensation

            49.5             49.5  

Reacquisition of equity component related to convertible debt repurchase

            (0.2 )           (0.2 )
                           

Balance at June 30, 2012

    231.9   $ 0.2   $ 69,695.7   $ (68,664.6 ) $ 7.5   $ 1,038.8  
                           

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business

        JDS Uniphase Corporation ("JDSU") is a leading provider of communications test and measurement solutions and optical products for telecommunications service providers, cable operators, and network equipment manufacturers. JDSU technologies also enable broadband and optical innovation in many essential industries such as biomedical and environmental instrumentation, semiconductor processing, aerospace and defense, and brand protection. In addition, our optical coatings are used in visual display and decorative product differentiation applications.

Fiscal Years

        The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The Company's fiscal 2012 ended on June 30, 2012 and was a 52 week year. The Company's fiscal 2011 ended on July 2, 2011 was a 52 week year. The Company's fiscal 2010 ended on July 3, 2010 was a 53 week year.

Principles of Consolidation

        The consolidated financial statements have been prepared in accordance in accordance with U.S. GAAP and include the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Use of Estimates

        The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenue and expenses and the disclosure of commitments and contingencies during the reporting periods. The Company bases estimates on historical experience and on various assumptions about the future that are believed to be reasonable based on available information. The Company's reported financial position or results of operations may be materially different under different conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

Cash and Cash Equivalents

        The Company considers highly liquid instruments such as treasury bills, commercial paper and money market instruments with original maturities of 90 days or less at the time of purchase to be cash equivalents.

Restricted Cash

        At June 30, 2012 and July 2, 2011, the Company's short-term restricted cash balances were $31.1 million and $35.9 million, respectively, and the Company's long-term restricted cash balances were $6.6 million and $5.4 million, respectively. They primarily include interest-bearing investments in

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JDS UNIPHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

bank certificates of deposit and money market funds which act as collateral supporting the issuance of letters of credit and performance bonds for the benefit of third parties.

Investments

        The Company's investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments, net of tax, are reported as a separate component of stockholders' equity. Gains or losses on trading securities resulting from changes in fair value are recognized currently in earnings. The Company's short-term investments include securities with stated maturities of longer than twelve months which are classified as current assets as they are highly liquid and available to support current operations.

        The Company periodically reviews these investments for impairment. If a debt security's market value is below amortized cost and the Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to investment income (loss) for the entire amount of the impairment. For the remaining debt securities, if an other-than-temporary impairment exists, the Company separates the other-than-temporary impairment into the portion of the loss related to credit factors, or the credit loss portion, and the portion of the loss that is not related to credit factors, or the noncredit loss portion. The credit loss portion is the difference between the amortized cost of the security and the Company's best estimate of the present value of the cash flows expected to be collected from the debt security. The noncredit loss portion is the residual amount of the other-than-temporary impairment. The credit loss portion is recorded as a charge to earnings (loss), and the noncredit loss portion is recorded as a separate component of other comprehensive income (loss).

Fair Value of Financial Instruments

        The carrying amounts of certain of the Company's financial instruments, including cash equivalents, accounts receivable, accounts payable, and deferred compensation liability, approximate fair value because of their short maturities. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions about the factors that market participants would use in valuing the asset or liability.

        Estimates of fair value of fixed-income securities are based on third party, market-based pricing sources which the Company believes to be reliable. These estimates represent the third parties' good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale. For instruments that are not actively traded, estimates may be based on current treasury yields adjusted by an estimated market credit spread for the specific instrument. The use of different valuation methodologies or market assumptions could have a material impact on estimated fair value amounts. The fair market value of the Company's 1% Senior Convertible Notes fluctuates with interest rates and

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JDS UNIPHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

with the market price of the stock, but does not affect the carrying value of the debt on the balance sheet. Refer to the Company's "Note 11. Debts and Letters of Credit" for more detail.

Inventories

        Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable market value. The Company assesses the valuation on a quarterly basis and writes down the value for estimated excess and obsolete inventory based upon estimates of future demand, including warranty requirements.

Property, Plant and Equipment

        Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the following estimated useful lives of the assets: 10 to 50 years for building and improvements, 2 to 10 years for machinery and equipment, and 2 to 5 years for furniture, fixtures, software and office equipment. Leasehold improvements are amortized by the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease.

        Costs related to software acquired, developed or modified solely to meet the Company's internal requirements and for which there are no substantive plans to market are capitalized in accordance with the authoritative guidance on accounting for the costs of computer software developed or obtained for internal use. Only costs incurred after the preliminary planning stage of the project and after management has authorized and committed funds to the project are eligible for capitalization. Costs capitalized for computer software developed or obtained for internal use are included in Property, Plant and Equipment on the Consolidated Balance Sheets.

Goodwill

        Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable assets acquired and liabilities assumed. The Company tests for impairment of goodwill on an annual basis in the fourth quarter and at any other time when events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. See "Note 8. Goodwill" for more detail.

        Circumstances that could trigger an impairment test include, but are not limited to: a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; change in customer, target market and strategy; unanticipated competition; loss of key personnel; or the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed.

        In fiscal 2012, the FASB amended its guidance to simplify testing goodwill for impairment. The amended guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If an entity determines that as a result of the qualitative assessment that it is more likely than not (>50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The Company elected to early adopt this accounting guidance for its annual impairment test performed in the fourth quarter of fiscal 2012.

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        Under the quantitative test, if the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recorded in the Statement of Operations as "Impairment of goodwill". Measurement of the fair value of a reporting unit is based on one or more of the following fair value measures including: amounts at which the unit as a whole could be bought or sold in a current transaction between willing parties; using present value techniques of estimated future cash flows; or using valuation techniques based on multiples of earnings or revenue, or a similar performance measure.

Intangible Assets

        Intangible assets consist primarily of intellectual property acquired and purchased intangible assets. Purchased intangible assets primarily include acquired developed technologies (developed and core technology), proprietary know-how, trade secrets, trademarks and trade names, and customer base. Intangible assets are amortized using the straight-line method over estimated useful lives which is the period during which expected cash flows support the fair value of such intangible assets.

Loss (gain) on disposal and impairment of long-lived assets

Long-lived assets held and used

        The Company tests long-lived assets for recoverability, at the asset group level, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. See "Note 10. Loss (Gain) on Disposal and Impairment of Long-Lived Assets" for more detail.

        Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized in the Statement of Operations as "Loss (gain) on disposal and impairment of long-lived assets" when the carrying amount is not recoverable and exceeds fair value.

Long-lived assets held for sale

        Long-lived assets are classified as held for sale when certain criteria are met, which include: management commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; whether the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; whether the assets are being marketed at reasonable prices in relation to their fair value; and how unlikely it is that significant changes will be made to the plan to sell the assets. See "Note 10. Loss (Gain) on Disposal and Impairment of Long-Lived Assets" for more detail.

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        The Company measures long-lived assets to be disposed of by sale at the lower of carrying amount or fair value less cost to sell. Fair value is determined using quoted market prices or the anticipated cash flows discounted at a rate commensurate with the risk involved.

Pension and Other Postretirement Benefits

        The funded status of the Company's retirement-related benefit plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal year end, the measurement date. For defined benefit pension plans, the benefit obligation is the projected benefit obligation ("PBO") and for the nonpension postretirement benefit plan the benefit obligation is the accumulated postretirement benefit obligation ("APBO"). The PBO represents the actuarial present value of benefits expected to be paid upon retirement. The APBO represents the actuarial present value of postretirement benefits attributed to employee services already rendered. The fair value of plan assets represents the current market value of cumulative company contributions made to an irrevocable trust fund, held for the sole benefit of participants, which are invested by the trust fund. Unfunded or partially funded plans, with the benefit obligation exceeding the fair value of plan assets, are aggregated and recorded as a retirement and nonpension postretirement benefit obligation equal to this excess. The current portion of the retirement-related benefit obligation represents the actuarial present value of benefits payable in the next 12 months in excess of the fair value of plan assets, measured on a plan-by-plan basis. This liability is recorded in other current liabilities in the Consolidated Balance Sheets.

        (Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost (income) in the Consolidated Statement of Operations as they arise are recognized as a component of accumulated other comprehensive income in the Consolidated Balances Sheets, net of tax. Those (gains) losses and prior service cost (credit) are subsequently recognized as a component of net periodic pension period cost (income) pursuant to the recognition and amortization provisions of applicable accounting standards. (Gains) losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan amendments.

        Net periodic pension cost (income) is recorded in the Consolidated Statement of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service cost and (gains) losses previously recognized as a component of accumulated other comprehensive income. Service cost represents the actuarial present value of participant benefits earned in the current year. Interest cost represents the time value of money cost associated with the passage of time. Certain events, such as changes in employee base, plan amendments and changes in actuarial assumptions, result in a change in the benefit obligation and the corresponding change in other comprehensive income. The result of these events is amortized as a component of net periodic cost (income) over the service lives of the participants, provided such amounts exceed thresholds which are based upon the benefit obligation or the value of plan assets.

        The measurement of the benefit obligation and net periodic pension cost (income) is based on the Company's estimates and actuarial valuations provided by third-party actuaries which are approved by the Company's management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, and

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mortality rates. In estimating the expected return on plan assets, the Company considers historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plan's invested assets. While the Company believes that these assumptions are appropriate, significant differences in the actual experience or significant changes in the assumptions that may be required under new legislation, or accounting pronouncements, or otherwise may materially affect the Company's pension and other post-retirement obligations and related future expense.

Concentration of Credit and Other Risks

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, investments and trade receivables. The Company's cash equivalents and short-term investments are held in safekeeping by large, creditworthy financial institutions. The Company invests its excess cash primarily in U.S. government and agency bonds, corporate securities, money market funds, asset-backed securities, and other investment-grade securities. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity.

        The Company performs credit evaluations of its customers' financial condition and generally does not require collateral from its customers. These evaluations require significant judgment and are based on a variety of factors including, but not limited to, current economic trends, historical payment, bad debt write-off experience, and financial review of the customer.

        The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. When the Company becomes aware that a specific customer is unable to meet its financial obligations, the Company records a specific allowance to reflect the level of credit risk in the customer's outstanding receivable balance. In addition, the Company records additional allowances based on certain percentages of aged receivable balances. These percentages take into account a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience.The Company classifies bad debt expenses as selling, general and administrative expenses.

        The Company is not able to predict changes in the financial stability of its customers. Any material change in the financial status of any one or a group of customers could have a material adverse effect on the Company's results of operations and financial condition. Although such losses have been within management's expectations to date, there can be no assurance that such allowances will continue to be adequate. The Company has significant trade receivables concentrated in the telecommunications industry. While the Company's allowance for doubtful accounts balance is based on historical loss experience along with anticipated economic trends, unanticipated financial instability in the telecommunications industry could lead to higher than anticipated losses. No one customer accounted for greater than 10% of accounts receivables and revenue during the periods presented.

        The Company generally uses a rolling twelve month forecast based on anticipated product orders, customer forecasts, product order history and backlog to determine its material requirements. Lead times for the parts and components that the Company orders vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. If the forecast does not meet actual demand, the Company may have excess or shortfalls of some materials and components, as well as excess inventory purchase commitments. The Company could experience

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reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase costs and could have a material adverse impact on the Company's results of operations.

Foreign Currency Forward Contracts

        The Company conducts its business and sells its products directly to customers primarily in North America, Europe and Asia. In the normal course of business, the Company's financial position is routinely subject to market risks associated with foreign currency rate fluctuations due to balance sheet positions in foreign currencies. The Company evaluates foreign exchange risks and utilizes foreign currency forward contracts to reduce such risks. The change in fair value of these foreign currency forward contracts is recorded as income or loss in the Company's Consolidated Statements of Operations as a component of Interest and other income (expense), net.

Foreign Currency Translation

        Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated into U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income, within Shareholder's Equity. Income and expense accounts are translated at the prior month balance sheet exchange rates, which are deemed to approximate average monthly rate. Gains and losses from re-measurement of assets and liabilities denominated in currencies other than the respective functional currencies are included in the Consolidated Statements of Operations as a component of Interest and other income (expense), net.

Revenue Recognition

        The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided, risk of loss has transferred and in cases where formal acceptance is required, customer acceptance has been obtained or customer acceptance provisions have lapsed. In situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications, revenue is recognized upon shipment provided all other revenue recognition criteria are met. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

        The Company reduces revenue for rebates and other similar allowances. Revenue is recognized only if these estimates can be reliably determined. The Company's estimates are based on its historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

        In addition to the aforementioned general policies, the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue.

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Multiple-Element Arrangements

        In October 2009, the FASB issued authoritative guidance that applies to arrangements with multiple deliverables. The guidance eliminates the residual method of revenue recognition, on non-software arrangements, and allows the use of management's best estimate of selling price ("BESP") for individual elements of an arrangement when vendor-specific objective evidence ("VSOE") or third-party evidence ("TPE") is unavailable. In addition, the FASB issued authoritative guidance which removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products. The Company adopted these standards at the beginning of its first quarter of fiscal year 2011 on a prospective basis for applicable transactions originating or materially modified on or after July 3, 2010.

        When a sales arrangement contains multiple deliverables, such as sales of products that include services, the multiple deliverables are evaluated to determine the units of accounting, and the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price. Under this approach, the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of VSOE of fair value if available, TPE if VSOE is not available, or BESP if neither VSOE nor TPE is available. Revenue is recognized when the revenue recognition criteria for each unit of accounting are met.

        The Company establishes VSOE of selling price using the price charged for a deliverable when sold separately and, in remote circumstances, using the price established by management having the relevant authority. TPE of selling price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly situated customers. When VSOE or TPE are not available the Company then uses BESP. Generally, the Company is not able to determine TPE because its product strategy differs from that of others in our markets, and the extent of customization varies among comparable products or services from its peers. The Company establishes BESP using historical selling price trends and considering multiple factors including, but not limited to geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. When determining BESP, the Company applies significant judgment in establishing pricing strategies and evaluating market conditions and product lifecycles.

        The determination of BESP is made through consultation with and approval by the segment management. Segment management may modify or develop new pricing practices and strategies in the future. As these pricing strategies evolve, we may modify our pricing practices in the future, which may result in changes in BESP. The aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from fiscal 2011, which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement.

        To the extent that a deliverable(s) in a multiple-element arrangement is subject to specific guidance (for example, software that is subject to the authoritative guidance on software revenue recognition) the Company allocates the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance. Some product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment. The Company believes that this equipment is not considered software related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition.

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        If the transactions entered into or materially modified on or after July 3, 2010 were subject to the previous accounting guidance, the reported net revenue amount during the year ended July 2, 2011, would decrease by approximately $7 million.

Hardware

        Revenue from hardware sales is recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement. Any cost of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized.

Services

        Revenue from services and system maintenance is typically recognized on a straight-line basis over the term of the contract. Revenue from time and material contracts is recognized at the contractual rates as labor hours are delivered and direct expenses are incurred. Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period. The Company also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service.

Software

        The Company's software arrangements generally consist of a perpetual license fee and PCS. Generally the Company has established VSOE of fair value for PCS contracts based on the renewal rate or the bell curve methodology. Revenue from maintenance, unspecified upgrades and technical support is recognized over the period such items are delivered. In multiple-element revenue arrangements that include software, software related and non software-related elements are accounted for in accordance with the following policies.

    Non software and software related products are bifurcated based on a relative selling price

    Software related products are separated into units of accounting if all of the following criteria are met:

    The functionality of the delivered element(s) is not dependent on the undelivered element(s).

    There is VSOE of fair value of the undelivered element(s).

    Delivery of the delivered element(s) represents the culmination of the earnings process for that element(s).

        If these criteria are not met, the software revenue is deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If there is VSOE of the undelivered item(s) but no such evidence for the delivered item(s), the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate VSOE of the undelivered elements. In cases where VSOE is not established for PCS, revenue is recognized ratably over the PCS period after all software deliverables have been made and the only undelivered item is PCS.

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Warranty

        The Company provides reserves for the estimated costs of product warranties at the time revenue is recognized. It estimates the costs of its warranty obligations based on its historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

Shipping and Handling Costs

        The Company records costs related to shipping and handling of revenue in cost of sales for all periods presented.

Advertising Expense

        The Company expenses advertising costs as incurred. Advertising costs totaled $1.2 million, $1.4 million, and $1.5 million in fiscal 2012, 2011, and 2010, respectively.

Research and Development ("R&D") Expense

        Costs related to research and development, which primarily consists of labor and benefits, supplies, facilities, consulting, and outside service fees, are charged to expense as incurred, except as follows: capitalization of material software development costs begins when a product's technological feasibility has been established in accordance with the authoritative accounting guidance. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model, and which typically occurs when beta testing commences, and the general availability of such software has been very short. Accordingly, software development costs have been expensed as incurred.

Stock-Based Compensation

        The Company estimates the fair value of stock options with service conditions and employee stock purchase plan awards ("ESPP") using the Black-Scholes-Merton option-pricing model and a single option award approach. This option-pricing model requires the input of highly subjective assumptions, including the award's expected life and the price volatility of the underlying stock. The expected stock price volatility assumption is determined using a combination of historical and implied volatility of the Company's common stock. The Company uses the Lattice model to estimate the fair value of certain performance based options with market conditions. The fair value of the time based Full Value Awards is based on the closing market price of the Company's common stock on the date of award. The Company uses the Monte Carlo simulation to estimate the fair value of certain performance based Full Value Awards with market conditions.

        The Company estimates the expected forfeiture rate and only recognizes expense for those shares expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as future workforce reduction programs. Estimated forfeiture rates are trued-up to actual forfeiture as the equity awards vest. The total fair value of the equity awards, net of forfeiture, is recorded on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period, except for performance based Full Value Awards and options with market conditions which are amortized based upon graded vesting method.

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Income Taxes

        In accordance with the authoritative guidance on accounting for income taxes, the Company recognizes income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in its consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.

        The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur. With the exception of certain international jurisdictions, the Company has determined that at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to its ability to utilize its net operating loss carryforwards before they expire. Accordingly, the Company has established a valuation allowance for such deferred tax assets. If there is a change in the Company's ability to realize its deferred tax assets, then its tax provision may decrease in the period in which it determines that realization is more likely than not.

        The authoritative guidance on accounting for uncertainty in income taxes clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, it provides guidance on recognition, classification, and disclosure of tax positions. The Company is subject to income tax audits by the respective tax authorities in all of the jurisdictions in which it operates. The determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. The Company recognizes liabilities based on its estimate of whether, and the extent to which, additional tax liabilities are more likely than not. If the Company ultimately determines that the payment of such a liability is not necessary, then it reverses the liability and recognizes a tax benefit during the period in which the determination is made that the liability is no longer necessary.

        The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that the Company make certain estimates and judgments. Changes to these estimates or a change in judgment may have a material impact on the Company's tax provision in a future period.

Restructuring Accrual

        In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities, generally costs associated with restructuring activities are recognized when they are incurred. However, in the case of leases, the expense is estimated and accrued when the property is vacated. Given the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made from the time the property was vacated, including evaluating real estate market conditions for expected vacancy periods and sub-lease income. Additionally, a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. The Company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives. Although the Company believes that these

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estimates accurately reflect the costs of its restructuring plans, actual results may differ, thereby requiring the Company to record additional provisions or reverse a portion of such provisions.

Loss Contingencies

        The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.

Asset Retirement Obligations

        Asset retirement obligations ("ARO") are legal obligations associated with the retirement of long-lived assets. These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount as the liability. Asset retirement costs are subsequently depreciated over the useful lives of the related assets. Subsequent to initial recognition, the Company records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. The Company derecognizes ARO liabilities when the related obligations are settled. At June 30, 2012 and July 2, 2011, $1.6 million and $0.9 million of ARO was included in the Consolidated Balance Sheets in "Other current liabilities" and the remainder of $9.2 million and $9.4 million was included in "Other non-current liabilities".

(in millions)
  Balance at
Beginning of
Period
  Liabilities
Incurred
  Liabilities
Settled
  Accretion
Expense
  Revisions
to
Estimates
  Balance at
End of
Period
 

Asset Retirement Obligations:

                                     

Year ended June 30, 2012

  $ 10.3     0.4     (0.5 )   0.6       $ 10.8  

Year ended July 2, 2011

  $ 7.9     1.9     0.1     0.5     (0.1 ) $ 10.3  

Note 2. Recently Issued Accounting Pronouncements

        In December 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance will be effective for the Company beginning in the first quarter of fiscal 2014. The adoption of this guidance may expand existing disclosure requirements, which the Company is currently evaluating.

        In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminates one of the presentation options provided by current U.S. GAAP that is to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for the Company beginning in the first quarter of fiscal 2013, and will be

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applied retrospectively. The adoption of this guidance will expand existing disclosure requirements but will not have a material impact on the consolidated financial statements.

Note 3. Earnings Per Share

        The following table sets forth the computation of basic and diluted net (loss) income per share (in millions, except per share data):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Numerator:

                   

(Loss) income from continuing operations, net of tax

  $ (55.6 ) $ 71.6   $ (59.7 )

(Loss) from discontinued operations, net of tax

            (2.1 )
               

Net (loss) income

  $ (55.6 ) $ 71.6   $ (61.8 )
               

Denominator:

                   

Weighted-average number of common shares outstanding

                   

Basic

    230.0     224.4     218.9  

Effect of dilutive securities from stock-based benefit plans

        8.2      
               

Diluted

    230.0     232.6     218.9  
               

(Loss) income from continuing operations, net of tax—basic

  $ (0.24 ) $ 0.32   $ (0.27 )

(Loss) from discontinued operations, net of tax—basic

            (0.01 )
               

Net (loss) income—basic

  $ (0.24 ) $ 0.32   $ (0.28 )
               

(Loss) income from continuing operations, net of tax—diluted

  $ (0.24 ) $ 0.31   $ (0.27 )

(Loss) from discontinued operations, net of tax—diluted

            (0.01 )
               

Net (loss) income—diluted

  $ (0.24 ) $ 0.31   $ (0.28 )
               

        The following table sets forth the weighted-average potentially dilutive securities excluded from the computation of the diluted (loss) income per share because their effect would have been anti-dilutive (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Stock options and ESPP

    9.9     3.8     18.9  

Restricted shares and stock units

    7.7         6.4  
               

Total potentially dilutive securities

    17.6     3.8     25.3  
               

        The 1% convertible notes are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the "in-the-money" conversion benefit feature at the conversion price above $30.30 per share is payable in shares of the Company's common stock or cash. See "Note 11. Debts and Letters of Credit" for more details.

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Note 4. Accumulated Other Comprehensive Income

        The Company's accumulated other comprehensive income consists of the accumulated net unrealized gains or losses on available-for-sale investments, foreign currency translation adjustments, and defined benefit obligation. At June 30, 2012 and July 2, 2011, balances for the components of accumulated other comprehensive income were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Unrealized losses on investments, net of tax

  $ (2.8 ) $ (1.6 )

Foreign currency translation gains

    10.6     20.0  

Defined benefit obligation, net of tax

    (0.3 )   14.4  
           

Accumulated other comprehensive income

  $ 7.5   $ 32.8  
           

        The components of comprehensive income (loss), net of tax, were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Net (loss) income

  $ (55.6 ) $ 71.6   $ (61.8 )

Other comprehensive income (loss):

                   

Net change in unrealized gains (losses) on investments, net of tax

    (1.2 )   (2.3 )   6.2  

Net change in cumulative translation adjustment

    (9.4 )   12.1     (4.6 )

Net change in defined benefit obligation, net of tax

    (14.7 )   7.9     (9.1 )
               

Net change in other comprehensive income (loss)

    (25.3 )   17.7     (7.5 )
               

Comprehensive (loss) income

  $ (80.9 ) $ 89.3   $ (69.3 )
               

Note 5. Mergers and Acquisitions

Fiscal 2012 Acquisitions

Dyaptive Systems Inc. ("Dyaptive")

        In January 2012, the Company completed the acquisition of Dyaptive Systems Inc. ("Dyaptive") based in Vancouver, Canada. The Company acquired tangible and intangible assets and assumed liabilities of Dyaptive for a total purchase price of CAD 14.9 million (approximately USD 14.8 million) in cash, including a holdback payment of CAD 2.0 million (approximately USD 2.0 million), which is reserved for potential breach of representations and warranties, due on December 14, 2012.

        Dyaptive is a provider of wireless laboratory test tools for base station and network load simulators. By acquiring Dyaptive, the Company expects to strengthen its laboratory product portfolio and to offer field service and production test tools that are complementary to its current products. Dyaptive is included in the Company's Communications Test and Measurement ("CommTest") segment.

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        The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date.

        The purchase price was allocated as follows (in millions, in USD):

Net tangible assets acquired

  $ 3.4  

Intangible assets acquired:

       

Developed technology

    6.2  

Customer relationships

    2.3  

Others

    0.9  

Goodwill

    2.0  
       

Total purchase price

  $ 14.8  
       

        The following table summarizes the components of the tangible assets acquired and liabilities assumed at fair value (in millions):

Cash

  $ 4.0  

Accounts receivable

    0.9  

Inventories

    0.8  

Property and equipment

    0.5  

Accounts payable

    (0.2 )

Deferred revenue

    (0.3 )

Employee related liabilities

    (2.3 )
       

Net tangible assets acquired

  $ 3.4  
       

        The fair value of acquired developed technology and customer relationships was determined based on an income approach using the discounted cash flow method. The acquired developed technology and customer relationship intangible assets are being amortized over their estimated useful lives of four years. Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement.

        The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Dyaptive. Goodwill is not being amortized but is reviewed annually for impairment, or more frequently if impairment indicators arise, in accordance with authoritative guidance. Goodwill has been assigned to the CommTest segment and is not deductible for tax purposes.

        Dyaptive's results of operations have been included in the Company's consolidated financial statements subsequent to the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.

QuantaSol Limited ("QuantaSol")

        In July 2011, the Company purchased critical product design, patented intellectual technology, and other assets from QuantaSol, a concentrated photovoltaic ("CPV") provider, for a total cash purchase

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price consideration of $3.7 million. The purchased assets are included in the Company's Communications and Commercial Optical Products ("CCOP") segment.

        The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired were recorded at fair value on the acquisition date. The acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement.

        The $3.7 million purchase price was allocated primarily to developed technology and is being amortized over an estimated useful life of four years.

Fiscal 2010 Acquisitions

Network Solutions Division of Agilent Technologies, Inc. ("NSD")

        In May 2010, the Company purchased NSD from Agilent Technologies, Inc. for a total purchase price consideration of approximately $163.8 million in cash. NSD is included in the Company's CommTest segment.

        The purchase price was allocated as follows (in millions):

Net tangible assets acquired

  $ 27.9  

Intangible assets acquired:

       

Developed technology

    42.7  

Customer relationships

    30.8  

In-process research and development

    9.8  

Customer backlog

    5.8  

Goodwill

    46.8  
       

Total purchase price

  $ 163.8  
       

        The following table summarizes the components of the tangible assets acquired at fair value (in millions):

Accounts receivable

  $ 26.8  

Inventories

    4.7  

Property and equipment

    4.8  

Accounts payable

    (4.8 )

Deferred revenue

    (6.3 )

Other assets and liabilities, net

    2.7  
       

Net tangible assets acquired

  $ 27.9  
       

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        The acquired intangible assets, except for in-process research and development ("IPR&D"), are being amortized over their estimated useful lives, which are presented in the table below :

Developed technology

  5 years

Customer relationships

  5 to 9 years

Customer backlog

  1 to 2 years

        NSD's results of operations have been included in the Company's consolidated financial statements subsequent to the date of acquisition. The financial information in the table below summarizes the results of operations of the Company and NSD, on a pro forma basis, as though the companies have been combined as of the beginning of each of the years presented:

(in millions, except per share data)
  July 3, 2010  

Pro forma net revenue

    1,497.5  

Pro forma net loss

    (79.1 )

Pro Forma net loss per share—basic and diluted

    (0.36 )

Storage Network Tools Business of Finisar Corporation ("SNT")

        In July 2009, the Company purchased the Storage Network Tools business ("SNT") from Finisar for approximately $40.7 million in cash. SNT is included in JDSU's Communications Test and Measurement segment.

        The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date.

        The purchase price was allocated as follows (in millions, in USD):

Net tangible assets acquired

  $ 1.8  

Intangible assets acquired:

       

Developed technology

    16.2  

Customer relationships

    10.0  

In-process research and development

    1.5  

Other

    1.3  

Goodwill

    9.9  
       

Total purchase price

  $ 40.7  
       

        The following table summarizes the components of the tangible assets acquired at fair value (in millions):

Inventories

  $ 1.5  

Property and equipment

    0.6  

Deferred revenue

    (0.1 )

Other assets and liabilities, net

    (0.2 )
       

Net tangible assets acquired

  $ 1.8  
       

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        The acquired intangible assets, except for IPR&D, are being amortized over their estimated useful lives, which are presented in the table below:

Customer relationships

  6 years

Developed technology

  5 years

Trademark/tradename

  5 years

Internally used software

  3 years

Note 6. Balance Sheet and Other Details

Accounts Receivable Reserves and Allowances

        The components of account receivable reserves and allowances were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Allowance for doubtful accounts

  $ 2.2   $ 2.3  

Allowance for sales returns and other

    0.4     0.5  
           

Total accounts receivable reserves and allowances

  $ 2.6   $ 2.8  
           

        The activities and balances for allowance for doubtful accounts are as follows (in millions):

 
  Balance at
Beginning of Period
  Charged to Costs
and Expenses
  Deduction(1)   Balance at
End of Period
 

Allowance for doubtful accounts:

                         

Year ended June 30, 2012

  $ 2.3   $ 1.8     (1.9 ) $ 2.2  

Year ended July 2, 2011

    2.6     0.5     (0.8 )   2.3  

Year ended July 3, 2010

    2.3     1.2     (0.9 )   2.6  

(1)
Write-offs of uncollectible accounts, net of recoveries.

Inventories, Net

        Inventories are stated at the lower of cost or market, and include material, labor and manufacturing overhead costs. The components of inventories, net were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Finished goods

  $ 89.5   $ 86.5  

Work in process

    37.3     30.4  

Raw materials and purchased parts

    47.7     54.3  
           

Total inventories, net

  $ 174.5   $ 171.2  
           

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Property, Plant and Equipment, Net

        The components of property, plant and equipment, net were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Land

  $ 14.1   $ 16.5  

Buildings and improvements

    35.8     39.9  

Machinery and equipment

    421.3     370.8  

Furniture, fixtures, software and office equipment

    166.1     152.4  

Leasehold improvements

    95.3     86.5  

Construction in progress

    33.0     36.8  
           

    765.6     702.9  

Less: Accumulated depreciation

    (512.7 )   (454.0 )
           

Property, plant and equipment, net

  $ 252.9   $ 248.9  
           

        At June 30, 2012 and July 2, 2011, net included $14.6 million and $17.3 million in land and buildings, respectively, related to the Santa Rosa sale and leaseback transactions accounted for under the financing method. At June 30, 2012, property, plant and equipment, net included $6.8 million in land and buildings related to the Eningen site sale and leaseback transactions accounted for under the financing method. See "Note 18. Commitments and Contingencies" for more detail.

        During fiscal 2012, 2011, and 2010, the Company recorded $70.3 million, $64.1 million, and $58.3 million, respectively, of depreciation expense.

        During fiscal 2012 and 2011, the Company recorded a loss on disposal and impairment of long-lived assets of $22.7 million and $1.5 million , respectively. During fiscal 2010, the Company recorded a gain on disposal and impairment of long-lived assets of $2.0 million. See "Note 10. Loss (Gain) on Disposal and Impairment of Long-Lived Assets" for more detail.

Prepayments and Other Current Assets

        The components of prepayments and other current assets were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Prepayments

  $ 30.9   $ 33.4  

Advances to contract manufacturers

    18.4     13.2  

Deferred income tax

    2.3     2.0  

Refundable income taxes

    4.7     2.5  

Other receivables

    13.0     10.0  

Other current assets

    7.9     9.1  
           

Total prepayments and other current assets

  $ 77.2   $ 70.2  
           

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Other Current Liabilities

        The components of other current liabilities were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Deferred compensation plan

  $ 4.6   $ 5.7  

Warranty accrual

    8.1     7.9  

VAT liabilities

    2.7     3.2  

Restructuring accrual

    8.6     11.0  

Deferred taxes

    3.1     1.5  

Other

    10.8     11.7  
           

Total other current liabilities

  $ 37.9   $ 41.0  
           

Other Non-Current Liabilities

        The components of other non-current liabilities were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
 

Pension accrual and post-employment benefits

  $ 85.2   $ 81.3  

Deferred taxes

    4.7     8.6  

Restructuring accrual

    4.0     4.4  

Financing obligation

    35.4     33.2  

Non-current income taxes payable

    9.3     10.2  

Asset retirement obligations

    9.2     9.4  

Long-term deferred revenue

    16.1     22.1  

Other

    12.7     11.7  
           

Total other non-current liabilities

  $ 176.6   $ 180.9  
           

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Interest and other income (expense), net

        The components of interest and other income (expense), net were as follows (in millions):

 
  Years Ended  
 
  June 30,
2012
  July 2,
2011
  July 3,
2010
 

Interest income

  $ 3.5   $ 3.9   $ 6.3  

Foreign exchange gains (losses), net

    0.3     (1.5 )   (0.7 )

Proceeds from Nortel class action settlement (1)

    0.3     0.3     3.4  

Proceeds from insurance claims (2)

    9.4          

Loss on repurchase of Convertible Notes

    (0.7 )        

Gain on equity investments

            2.0  

Impairment of investments

    (0.3 )   (0.2 )   (1.4 )

Other income (expense), net

    (1.3 )   (0.3 )   (1.4 )
               

Total interest and other income (expense), net

  $ 11.2   $ 2.2   $ 8.2  
               

(1)
In February 2001, the Company received approximately 65.7 million shares (the "Nortel Shares") of Nortel Networks Corporation ("Nortel") common stock in connection with the sale of its Zurich, Switzerland subsidiary to Nortel. Beginning in February 2001 Nortel has been involved with two class action lawsuits on behalf of persons who purchased Nortel common stock during the class period. The Company began selling the Nortel Shares in 2001 and had sold all of its holdings by July 2005.

In December 2007, the Company was notified by the settlement administrator that its Proof of Claim and Release submitted in relation to the case had been accepted. The initial distribution of cash and common shares to participants in the settlement was approved in March and April of 2008. The Company continues to periodically receive payments related to the settlement, including approximately $0.3 million in cash during the first quarter of fiscal 2012, approximately $0.3 million in cash during the fourth quarter of fiscal 2011 and approximately $3.4 million in cash during the third quarter of fiscal 2010.

(2)
During the three months ended December 31, 2011, one of Company's primary CCOP segment manufacturing partners, Fabrinet, experienced significant flooding which resulted in suspension of operations for a portion of the quarter. As a result, the Company filed an insurance claim for business interruption and miscellaneous property losses related to the event. During the fourth quarter of fiscal 2012, the Company received $10.5 million net of deductibles from the insurance company of which $9.4 million was recorded in Interest and other income (expense), net.

Note 7. Investments and Fair Value Measurements

Available-For-Sale Investments

        The Company's investments in marketable debt and equity securities were primarily classified as available-for-sale investments.

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        At June 30, 2012 the Company's available-for-sale securities were as follows (in millions):

 
  Amortized
Cost /
Carrying
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Estimated
Fair Value
 

Debt securities:

                         

U.S. treasuries

  $ 52.0   $   $   $ 52.0  

Agencies

                         

U.S. 

    65.1     0.2         65.3  

Foreign

    3.3