BASIS OF PREPARATION (Policies)

3 Months Ended

Sep. 29, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Oclaro, Inc., a Delaware corporation, is sometimes referred to in this Quarterly Report on Form 10-Q as “Oclaro,” “we,” “us” or “our.”

The accompanying unaudited condensed consolidated financial statements of Oclaro as of September 29, 2018 and for the three months ended September 29, 2018 and September 30, 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission ("SEC") Regulation S-X, and include the accounts of Oclaro and all of our subsidiaries. Accordingly, they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our consolidated financial position and results of operations have been included. The condensed consolidated results of operations for the three months ended September 29, 2018 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 29, 2019.

The condensed consolidated balance sheet as of June 30, 2018 has been derived from our audited financial statements as of such date, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2018 ("2018 Form 10-K").

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Examples of significant estimates and assumptions made by management involve the valuation allowances for deferred tax assets, the fair value of stock-based compensation, the fair value of pension liabilities, estimates for allowances for doubtful accounts and valuation of excess and obsolete inventories. These judgments can be subjective and complex and consequently actual results could differ materially from those estimates and assumptions. Descriptions of the key estimates and assumptions are included in our 2018 Form 10-K.

Fiscal Years

We operate on a 52/53 week year ending on the Saturday closest to June 30. Our fiscal year ending June 29, 2019 will be a 52 week year, with the quarter ended September 29, 2018 being a 13 week quarterly period. Our fiscal year ended June 30, 2018 was a 52 week year, with the quarter ended September 30, 2017 being a 13 week quarterly period.

Reclassifications

For presentation purposes, we have reclassified certain prior period amounts to conform to the current period financial statement presentation, including an adjustment relating to an immaterial error of approximately $10.4 million, increasing cash flows from operations associated with changes in accounts payable and increasing cash flows used in investing activities associated with purchases of property and equipment, in our condensed consolidated statement of cash flows for the three months ended September 30, 2017. We determined that the adjustment did not have a material impact to our prior period condensed consolidated financial statements.

Functional Currency

Effective October 1, 2017, the functional currency for our worldwide operations is the U.S. dollar. Prior to October 1, 2017, the functional currency for each of our foreign subsidiaries was the respective local currency for that subsidiary. The change in our functional currency is a result of significant changes in economic facts and circumstances, including (i) a re-organization of our operating environment, which includes consolidating and integrating our sales, supply chain and manufacturing organizations; (ii) a transition to centrally negotiating worldwide supplier contracts and capital expenditures in U.S. dollars; and (iii) a shift to recording all intercompany transactions in U.S. dollars.

Translation adjustments reported prior to October 1, 2017, remain as a component of accumulated other comprehensive income in our condensed consolidated balance sheet. The translated values for any non-monetary assets and liabilities as of October 1, 2017 became the new accounting basis for those assets.

Effective October 1, 2017, monetary assets and liabilities denominated in currencies other than the U.S. dollar functional currency are re-measured each reporting period into U.S. dollars, with the resulting exchange gains and losses reported in (loss) gain on foreign currency transactions, net within our condensed consolidated statement of operations.

U.S. Tax Reform

New Accounting Standards

Recently Adopted Accounting Standards

Revenue Recognition

In May 2014 and May 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, respectively. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance. We adopted this guidance on July 1, 2018, the start to our first quarter of fiscal 2019, using the modified retrospective method. There was no cumulative catch-up adjustment upon adoption of this guidance.

Our revenue from contracts with customers is generated through the sale of products, which consists of a single performance obligation. We recognize revenue at a point in time in an amount that reflects the fair value of the consideration to be received for the products sold, net of sales tax and other tax amounts collected from customers for remittance to governmental authorities. We elected to account for shipping and handling activities as a fulfillment cost.

Our contracts with customers are typically comprised of a customer purchase order and/or an executed agreement. Our payment terms vary by customer and location, however, the time period between when revenue is recognized and when payment is due is not significant. Before accepting a new customer, we review publicly available information and credit rating databases to provide ourselves with reasonable assurance that the new customer will pay all outstanding amounts in accordance with our standard terms. For existing customers, we monitor historic payment patterns and we perform ongoing credit evaluations to assess whether we can expect payment in accordance with the terms set forth in the agreement under which the sale was made.

We satisfy the performance obligation and record revenues when transfer of control of our product has passed to the customer. We specify delivery terms in the agreement under which the sale was made and assess each shipment against those terms, and only recognize revenue when we are certain that the delivery terms have been met and transfer of control has occurred.

Our sales terms do not allow for a right of return, except for matters related to manufacturing defects, which are covered under our warranty. Our warranties are considered an assurance-only type of service.

See Note 11, Geographic Information, Product Groups, Market Applications and Customer Concentration Information, for a presentation of revenue disaggregated by geography and product group.

We elected to apply the practical expedient to recognize the incremental costs of obtaining a contract, specifically sales commissions and other contract administration costs, when incurred because the amortization period for these costs is one year or less.

Cash Flows

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash to standardize the presentation of transfers between cash and restricted cash in the cash flow statement. We adopted this guidance in the first quarter of 2019, and as a result, restricted cash has been included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets for the periods indicated that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows:



	September 29, 2018		September 30, 2017
	(Thousands)
Cash and cash equivalents	$	337,920	$	192,420
Restricted cash	—		268
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	337,920	$	192,688

Recent Accounting Standards Pending Adoption

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Disclosure Framework, which amends the disclosure requirements for single-employer defined benefit plans, removing disclosures that are not considered cost-beneficial, clarifying the specific requirements of disclosures, and adding disclosure requirements identified as relevant. The guidance will be effective for us at the end of fiscal 2021, with early adoption permitted. We are currently evaluating the likely impact the implementation of this standard will have on our financial statements and footnote disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework, which aims to improve the effectiveness of fair value measurement disclosures. The amendments ASU-2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The guidance will be effective for us in the first quarter of fiscal 2021, with early adoption permitted. We are currently evaluating the likely impact the implementation of this standard will have on our financial statements and footnote disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases: Targeted Improvements, which provide entities with an additional (and optional) transition method to adopt the new lease requirements by allowing entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The guidance also provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if certain conditions are met. This guidance will be effective for us in the first quarter of fiscal 2020, with early adoption permitted. We are currently evaluating the likely impact the implementation of this standard will have on our financial statements and footnote disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. The guidance will be effective for us in the first quarter of fiscal 2020, with early adoption permitted. We are currently evaluating the likely impact the implementation of this standard will have on our financial statements and footnote disclosures.

- Definition

Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.

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