NOTE 5. BUSINESS COMBINATIONS AND DISPOSITIONS

Sale of Zurich Business

On September 12, 2013, we completed a share and asset purchase agreement with II-VI, pursuant to which we sold our Oclaro Switzerland GmbH subsidiary and associated laser diodes and pump business to II-VI. We received proceeds of $90.6 million in cash on September 12, 2013. We will also receive $6.0 million subject to hold-back by II-VI until December 31, 2014 to address any post-closing adjustments or claims, and $2.0 million subject to a potential post-closing working capital adjustment, which will be calculated based on the level of working capital in the Oclaro Switzerland GmbH subsidiary at the September 12, 2013 close versus a target based on working capital at June 29, 2013. In addition, we retained approximately $14.7 million in accounts receivable related to the Zurich Business and approximately $9.6 million of supplier and employee related payables related to the Zurich Business which were not included in the Zurich subsidiary.

As part of the agreement, II-VI purchased our Switzerland subsidiary, which includes its GaAs fabrication facility, and also the corresponding high power laser diodes, VCSEL and 980 nm pump laser product lines, including intellectual property, inventory, equipment and a related research and development facility in Tucson, all of which are associated with the business.

We will continue the back-end manufacturing of the 980 nm pump and some high power laser diode products at our Shenzhen, China manufacturing facility and supply them to II-VI under a manufacturing services agreement. The employees of Shenzhen, China will continue to be employed by us. In addition, various supply and transition service agreements have been established between the companies to ensure a smooth transition.

We have classified the sale of our Zurich Business as a discontinued operation. In connection with this transaction, we transferred $32.5 million in net assets to II-VI. We also incurred approximately $4.9 million in legal fees, commissions and other administrative costs related to this transaction. We recognized a gain of $62.8 million on the sale of the Zurich Business, which is recorded within discontinued operations in the condensed consolidated statements of operations for the three months ended September 28, 2013. We also recorded $3.1 million in income from discontinued operations within the condensed consolidated statement of operations related to the cumulative translation adjustment from deconsolidating our Swiss subsidiary. As of September 28, 2013, we recorded a $2.0 million receivable in prepaid expenses and other current assets and a $6.0 million receivable in other non-current assets from II-VI related to the holdback for potential post-closing working capital adjustments and other adjustments or claims.

The assets and liabilities of the discontinued operation are presented as current assets and current liabilities, separately under the captions assets of discontinued operations held for sale and liabilities of discontinued operations held for sale in the accompanying condensed consolidated balance sheets at September 28, 2013 and June 29, 2013, and consist of the following:


	September 28, 2013		June 29, 2013
	(Thousands)
Assets of Discontinued Operations Held for Sale
Accounts receivable, net		—		79
Inventories		—		23,762
Prepaid expenses and other current assets		—		1,294
Property and equipment, net		—		12,749
Deferred tax asset, non-current		—		2,283

	$	—	$	40,167


	September 28, 2013		June 29, 2013
	(Thousands)
Liabilities Held for Sale
Accounts payable		—		2,315
Accrued expenses and other liabilities		—		5,571
Other non-current liabilities		—		8,367

	$	—	$	16,253

The following table presents the statements of operations for the discontinued operations of the Zurich Business for the three months ended September 28, 2013 and September 29, 2012:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
Revenues	$	13,896	$	25,285
Cost of revenues		11,593		20,154

Gross profit		2,303		5,131
Operating expenses		3,416		4,351
Other income (expense), net		61,150		158

Income from discontinued operations before income taxes		60,037		938
Income tax provision		163		265

Income from discontinued operations	$	59,874	$	673

Sale of Amplifier Business

In connection with the sale of the Zurich Business on September 12, 2013, II-VI acquired an exclusive option for $5.0 million to purchase our Amplifier Business, which was to be credited against the purchase price of the business, if the sale occurred. We received the $5.0 million in cash proceeds on September 12, 2013. As of September 28, 2013, we recorded the $5.0 million as a deferred gain in accrued expenses and other liabilities in our condensed consolidated balance sheet.

On October 10, 2013, II-VI exercised the option and purchased our Amplifier Business for $88.6 million. On November 1, 2013, the sale was completed. The sale is more fully discussed in Note 16, Subsequent Events.

We have classified the sale of our Amplifier Business as a discontinued operation as of September 12, 2013, the date management committed to sell the business. The assets of the discontinued operation are presented as current assets under the caption assets of discontinued operations held for sale in the accompanying condensed consolidated balance sheets at September 28, 2013 and June 29, 2013, and consist of the following:


	September 28, 2013		June 29, 2013
	(Thousands)
Assets of Discontinued Operations Held for Sale
Inventories	$	6,792	$	8,225
Prepaid expenses and other current assets		407		494
Property and equipment, net		7,034		6,741

	$	14,233	$	15,460

The following table presents the statements of operations for the discontinued operations of the Amplifier Business for the three months ended September 28, 2013 and September 29, 2012:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
Revenues	$	28,316	$	27,893
Cost of revenues		20,715		21,448

Gross profit		7,601		6,445
Operating expenses		3,936		4,130
Other income (expense), net		—		—

Income from discontinued operations before income taxes		3,665		2,315
Income tax provision		—		—

Income from discontinued operations	$	3,665	$	2,315

Acquisition of Opnext

On March 26, 2012, we entered into an Agreement and Plan of Merger and Reorganization, by and among Opnext, Tahoe Acquisition Sub, Inc., a newly formed wholly-owned subsidiary of Oclaro (Merger Sub), and Oclaro, pursuant to which we acquired Opnext through a merger of Merger Sub with and into Opnext. On July 23, 2012, we consummated the acquisition following approval by the stockholders of both companies.

Any excess of the fair value of assets acquired and liabilities assumed over the aggregate consideration given for such acquisition results in a gain on bargain purchase. In the first quarter of fiscal year 2013, we initially recorded a gain on bargain purchase of $39.5 million in connection with the acquisition of Opnext, which was subsequently adjusted to $24.9 million, upon completing our purchase price allocation and finalizing our fair value estimates of assets acquired and liabilities assumed in the fourth quarter of fiscal year 2013.

This acquisition is more fully discussed in Note 3, Business Combinations and Asset Dispositions, to our consolidated financial statements included in our 2013 Form 10-K.

Acquisition of Mintera

In July 2010, we acquired Mintera Corporation (Mintera). Under the terms of this acquisition, we agreed to pay certain revenue-based consideration, whereby former security holders of Mintera were entitled to receive earnouts up to $20.0 million, determined based on revenue from Mintera products following the acquisition. In the first quarter of fiscal year 2013, we settled the remaining earnout obligations of $8.6 million in cash.

This acquisition is more fully discussed in Note 3, Business Combinations and Asset Dispositions, to our consolidated financial statements included in our 2013 Annual Report on Form 10-K.