UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31,September 30, 2006

OR

For the transition period from            to            

Commission file numberFile Number 0-22874

JDS Uniphase Corporation

(Exact name of registrantRegistrant as specified in its charter)

(408) 546-5000

(Registrant’s telephone number, including area code)

1768 Automation Parkway, San Jose, CA 95131N/A

(Former name, former address, and former fiscal year, if changed since last report)

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  x    No  ¨

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

Large accelerated filer  x                Accelerated filer  ¨                Non-accelerated filer  ¨

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

Number of shares of common stock outstanding as of April 29,September 30, 2006 was 1,684,868,570211,086,059 including 52,584,9826,423,946 exchangeable shares of JDS Uniphase Canada Ltd. The par value of each share of common stock is $0.001. 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. The number of shares outstanding reflects a 1-for-8 reverse stock split effected by the Registrant on October 16, 2006.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

JDS UNIPHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

Note: Shares used in per share calculation for basic and diluted reflect a 1-for-8 reverse stock split effected by the Company on October 16, 2006.

See accompanying notes to condensed consolidated financial statements

JDS UNIPHASE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value data)

(unaudited)

Note: Shares used in per share calculation for basic and diluted reflect a 1-for-8 reverse stock split effected by the Company on October 16, 2006.

See accompanying notes to condensed consolidated financial statements

JDS UNIPHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

See accompanying notes to condensed consolidated financial statements

JDS UNIPHASE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The financial information as of March 31,September 30, 2006 and for the ninethree months ended March 31,September 30, 2006 and 2005 is unaudited, but includes all normal and recurring adjustments that management considers necessary for a fair statement of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2005.2006.

The balance sheet as of June 30, 20052006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three and nine months ended March 31,September 30, 2006 may not be indicative of results for the year ending June 30, 20062007 or any future periods.

Reverse Stock Split:

On September 21, 2006, the Company’s Board of Directors approved a 1-for-8 reverse split of its common stock, following approval by the Company’s stockholders on December 1, 2005. The reverse stock split was effective at 11:59 pm on October 16, 2006 before trading began on Tuesday, October 17, 2006. As a result, the Company’s issued and outstanding common stock was reduced from approximately 1.7 billion to approximately 211 million shares. The par value of the common stock was not affected by the reverse stock split and remains at $0.001 per share. Consequently, on the Company’s balance sheet, the aggregate par value of the issued common stock was reduced by reclassifying the par value amount of the eliminated shares of common stock to Additional Paid-in Capital. The Company will pay cash in lieu of any fractional shares to which a holder of common stock would otherwise be entitled as a result of the reverse stock split, including fractional shares for the in-the-money stock options. The number of authorized shares of common stock was reduced from 6 billion to 1 billion. The exchangeable shares of JDS Uniphase Canada Ltd., a subsidiary of the Company listed on the Toronto Stock Exchange, took effect a comparable reverse stock split at the same ratio of 1-for-8. The reverse split will reduce the number of exchangeable shares outstanding from approximately 51 million to approximately 6 million. All per share amounts and outstanding shares, including all common stock equivalents (stock options, other equity incentive awards, equity compensation plans, and convertible notes) have been restated in the Condensed Consolidated Financial Statements and in the Notes to the Condensed Consolidated Financial Statements for all periods presented to reflect the reverse stock split.

Fiscal Years:

The Company (or “JDSU”) utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The first quarters of fiscal 2007 and 2006 ended on September 30, 2006 and October 1, 2005, respectively. For comparative presentation purposes, all accompanying consolidated financial statements and notes thereto have been shown as ending on September 30th.

Principles of Consolidation:

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

Reclassifications and Out of Period Adjustments:

For the three monthsquarterly period ended March 31,September 30, 2006, the Company recorded adjustments related to returnsinventory reserve, accounting for inventory variances and license fee, restructuring, contract engineering and other expenses not previously recorded.restructuring. The corrections resulted in the Company recording $2.6 million in additional cost of sales and operating expense in its first quarter related to prior quarters. Management and the Audit Committee believe that such amounts are not material to previously reported financial statements. These adjustments resulted in $0.01 additional net loss per share for the three months ended September 30, 2006.

For the quarterly period ended September 30, 2005, the Company recorded adjustments related to the under accrual of asset retirement obligations for several of its leased facilities and the allocation of rent expense over the term of certain leases.

The corrections resulted in the Company recording $7.0 million in additional operating losses of $1.1 millionexpense in its first quarter related to prior quarters and years. Management and the Audit Committee believe that such amounts are not material to previously reported financial statements. There was no impact onThese adjustments resulted in $0.04 additional net loss per share from these adjustments.

Forfor the ninethree months ended March 31, 2006, the Company recorded adjustments relatedSeptember 30, 2005.

Reclassifications:

Certain amounts relating to the recognitionconsolidated balance sheets, statements of asset retirement obligations for several leased facilities, the initial market value of certain marketable securities not previously recorded, the allocation of deferred rent expense over the term of certain leases, returnscash flows, and license fee, restructuring, contract engineering and other expenses not previously recorded. The corrections resultedsegment reporting in additional net losses of $6.9 million ($8.3 million in operating losses and $1.4 million in gains on investments) related to prior quarters and years. Management and the Audit Committee believe that such amounts are not material to previously reported financial statements. There was no impact on net loss per share from these adjustments.

Fiscal Years:

The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The third quarters of fiscal 2006 and 2005 ended on April 1, 2006 and April 2, 2005, respectively. For the ease of discussion and comparative presentation purposes, all accompanying financial statements and footnotes thereto have been shown as ending on the last day of the calendar month.

Principles of Consolidation:

The consolidatedperiod’s financial statements have been prepared in accordance with accounting principles generally acceptedreclassified to conform to the current year presentation. For the three months ended September 30, 2005, the Company reclassified expenses related to amortization of acquired developed technology in the United StatesConsolidated Statement of Operations which was previously included as part of operating expense to cost of sales. The Company has also reclassified gains and includelosses related to the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Equity investmentssale of assets in the Consolidated Statements of Operations which the Company exercises significant influence but do not control and are not the primary beneficiary are accounted for using the equity method. Investments inwere previously included as part of Other Income (Expense), net to operating expense. Furthermore, losses which the Company is not ablewere previously included as part of loss on sale of subsidiaries’ net assets were reclassified to exercise significant influence over the investees are accounted for under the cost method.operating expenses.

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 liabilities, revenues and expensesliabilities at the date of the financial statements and the related disclosurereported amount of contingent assetsnet revenue and liabilities.expenses during the period. 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, which are discussed below. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

Comprehensive Income (Loss)

The Company’s accumulated other comprehensive income (loss) consists of the accumulated net unrealized gains or losses on available-for-sale investments and foreign currency translation adjustments.

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

At September 30, 2006 and June 30, 2006, balances for unrealized gains (losses) on investments and foreign currency translation were as follows (in millions):

Net Loss Per Share

As the Company incurred net losses for the three months ended September 30, 2006 and 2005, potential dilutive securities from stock options and the employee stock purchase plan (“ESPP”) totaling 17.1 million and 19.1 million equivalent shares, respectively, have been excluded from the diluted net loss per share computations as their effect was deemed anti-dilutive. In addition, unvested restricted stock awards are excluded from the diluted net loss per share as they are anti-dilutive. In

Acquisitionaccordance with Statement of Acterna, Inc.

On August 3, 2005,Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”) and Emerging Issues Task Force Abstract No. 90-19, “Convertible Bonds with Issuer Option to Settle for Cash upon Conversion” (“EITF 90-19”), the Company completedalso has excluded from the acquisitioncalculation of privately held Acterna, Inc. (“Acterna”), a leading worldwide providerdiluted net loss per share approximately 12.0 million shares relating to its Zero Coupon Senior Convertible Notes that are anti-dilutive. As of broadband and optical test and measurement solutions for telecommunications and cable service providers and network equipment manufacturers. Starting the first quarter of fiscalSeptember 30, 2006, the addition of Acterna’s Test and Measurement business comprises a new reportable segment to the Company’s business.

Reclassifications:

Certain amountsno contingent issuable shares were included relating to the consolidated balance sheets, statements1% Senior Convertible Notes in accordance with Emerging Issues Task Force Abstract No. 04-8, “The Effect of cash flows,Contingently Convertible Debt on Diluted Earnings Per Share” (“EITF 04-8”). Depending on the stock price on the conversion date, up to a maximum of 14.0 million shares, subject to certain adjustments, may be issued upon conversion of the 1% Senior Convertible Notes. For additional information, see “Note 9. Convertible Debt and segment reporting Letters of Credit”.

The following table sets forth, on a post reverse stock split basis, the computation of basic and diluted net income (loss) per share (in prior period’s financial statements have been reclassified to conformmillions, except per share data):

The following table sets forth the common shares that were added to the current year presentation.number of common shares outstanding from the exercise of stock options and issuance from ESPP during the respective period (in millions):

In addition, during the first fiscal quarter of 2006, the Company issued approximately 25.1 million shares of common stock related to the Acterna acquisitions. See “Note 3. Mergers and Acquisitions” for more detail.

Note 2. Recent Accounting Pronouncements

SFAS No. 123(R)SAB 108

Effective July 3, 2005, the first day of fiscalIn September 2006, the Company adopted Statement of Financial Accounting Standard No. 123, “Share-Based Payment (Revised 2004)”(“SFAS 123(R)”) on a modified prospective basis. As a result, the Company began to include stock-based compensation costs in its results of operations starting the quarter ended September 30, 2005. See Note 4. “Stock-Based Compensation” for more details.

SAB 107

In March 2005, the Securities Exchange Commission (“SEC”)SEC staff issued Staff Accounting Bulletin No. 107, “Share-Based Payment,108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 107”108”). SAB 107 provides guidance regarding108 requires that public companies utilize a “dual-approach” to assessing the interactions between SFAS 123(R) and certain SEC rules and regulations, including guidance related to valuation methods, the classification of compensation expense, non-GAAP financial measures, the accounting for income taxquantitative effects of share-based payment arrangements, disclosures in Management’s Discussionfinancial misstatements. This dual approach includes both an income statement focused assessment and Analysis (“MD&A”) subsequent to adoption of SFAS 123(R), and modifications of options prior to the adoption of SFAS 123(R).a balance sheet focused assessment. The Company began adhering to the guidance in SAB 107 upon108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company is currently assessing the impact of adopting SAB 108 but does not expect that it will have a material effect on its consolidated financial position or results of operations.

SFAS No. 157

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”(“SFAS 157”), to provide enhanced guidance when using fair value to measure assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 applies whenever other pronouncements require or permit assets or liabilities to be measured at fair value and, while not requiring new fair value measurements, may change current practices. The Company is currently evaluating the impact SFAS 157 will have on its consolidated financial statements. SFAS 157 is effective for the Company beginning in fiscal year 2009.

SFAS No. 158

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Accumulated Other Comprehensive Income, net of tax effects, until they are amortized as a component of net periodic benefit cost. In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the Company’s fiscal year end. Presently, the Company uses June 30 to measure its pension and postretirement benefit plans. SFAS 158 is effective for publicly-held companies as of the end of the fiscal year ending after December 15, 2006, except for the measurement date provision, which is effective for fiscal years ending after December 15, 2008. The Company will implement SFAS 158 in the fourth quarter of this fiscal year and expects that the implementation of SFAS 123(R) startingwill result in a change in the quarter ended September 30, 2005. See Note 4 “Stock-Based Compensation,” and “Employee Stock Options” in MD&A for more details.pension liability stated on the balance sheet to record previously unrecognized actuarial gains.

SFAS No. 154

In June 2005, the FASB issued Statement of Financial Accounting Standard No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”). The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. SFAS 154 requires that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. Opinion 20 previously required that such a change be reported as a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

FIN 47

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, “(FIN 47”) which clarifies that the term “conditional asset retirement obligation” as used in Statement of Financial Accounting Standard No. 143, “Accounting for Asset Retirement Obligations”(“SFAS 143”), refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. However, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires that the uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company does not believe the adoption of FIN 47 on July 1, 2006 willthis pronouncement did not have a material impact on itsthe Company’s financial statements.

FIN 48

In June 2006, FASB issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FAS No. 109)” (“FIN 48”). This interpretation prescribes a recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this interpretation is a two-step process. In the first step, recognition, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets the more-likely-than-not criteria. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in a) an increase in a liability for income taxes payable or a reduction of an income tax refund receivable, b) a reduction in a deferred tax asset or an increase in a deferred tax liability or c) both a and b. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be de-recognized in the first subsequent financial reporting period in which that threshold is no longer met. Use of a valuation allowance as described in FAS No. 109 is not an appropriate substitute for the de-recognition of a tax position. The requirement to assess the need for a valuation allowance for deferred tax assets based on sufficiency of future taxable income is unchanged by this interpretation. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact FIN 48 will have on the Company’s consolidated balance sheet and statement of operations.

EITF 06-3

In March 2006, the Emerging Issues Task Force published Abstracts No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (“EITF 06-3”) which requires a policy be adopted to present externally imposed taxes on revenue-producing transactions on either a gross or net basis. Gross or net presentation may be elected for each different type of tax, but similar taxes should be presented consistently. Taxes within the scope of this issue would include taxes that are imposed on a revenue transaction between a seller and a customer. EITF 06-3 is effective in interim and annual financial periods beginning after December 15, 2006. The adoption of EITF 06-3 will not have a material impact on the Company’s financial statements.

Note 3. Mergers and Acquisitions

Agility Communications,Test-Um Inc.

On November 30, 2005In May 2006, the Company purchased Agility Communications,Test-Um Inc. (“Agility”Test-Um”) for 22,598,149 shares of the Company’s common stock with a market value of $54.1 million at the measurement date and $10.7$17.2 million in cash, including $0.5$0.2 million of direct transaction costs incurred in connection with the acquisition. PriorIn addition, JDSU is obligated to pay contingent cash consideration of up to $5.5 million if certain revenue targets are achieved during the 12 months following the acquisition date. This payment, if made, would increase the Company had invested $3.0 million in Agility’s convertible preferred stock. Asrecorded value of March 31, 2006, the Company had acquired all of Agility’s outstanding common and preferred stock.goodwill.

AgilityTest-Um is a leading provider of widely tunable laser solutionsportable test, talk and trace products for opticaldatacom and communications networks. Tunable lasers simplify the deployment of high-speed metro and long-haul networks and help enable the delivery of next-generation services. The acquisition is expected to further expandestablish JDSU as a leader in the Company’s product offeringsgrowing market for home and enterprise network testing. Test-Um is a well-known manufacturer of high-quality, low cost instruments which are used in the field to service providers for their agiletroubleshoot, test, map and certify various types of networks. The transaction was accounted for as a purchase in accordance with Statement of Financial Accounting StandardStandards No. 141, “Business Combinations” (“SFAS 141”); therefore, the tangible assets acquired were recorded at fair value on the acquisition date. The preliminary allocation of the purchase price was based, in part, upon a valuation, and the estimates and assumptions used therein are subject to change.

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

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

A portion of the purchase price was allocated to developed product technology, which includes products that are already technologically feasible. Test-Um’s developed product technology comprised a portfolio of test and analytical tools. The Income Approach, which is based on the premise that the value of an asset is the present value of its future earning capacity, was the primary valuation technique employed. A discount rate of 12% was applied to developed product technology.

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

Goodwill, which represents the excess of the purchase price over the fair value of tangible and identified intangible assets acquired, is not being amortized but will be reviewed annually for impairment, or more frequently if impairment indicators arise, in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). In part, goodwill reflects the competitive advantages the Company expects to realize from Test-Um’s existing product lines. Goodwill has been assigned to the Communications Test & Measurement segment and is not expected to be deductible for tax purposes.

Test-Um’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.

The former shareholders of Test-Um made certain representations and warranties to the Company and agreed to indemnify JDSU against damages which might arise from a breach of those undertakings. As security for this indemnification obligation of the former Test-Um shareholders, JDSU retained $1.7 million of the cash consideration, which is scheduled to be released on the 12 month anniversary of the acquisition date.

Agility Communications, Inc.

In November 2005, the Company purchased Agility Communications, Inc. (“Agility”) for 2,824,768 shares of the Company’s common stock with a market value of $54.1 million at the measurement date and $10.7 million in cash, including $0.5 million of direct transaction costs incurred in connection with the acquisition. Prior to the acquisition, the Company had invested $3.0 million in Agility’s convertible preferred stock. As of December 31, 2005, the Company had acquired all of Agility’s outstanding common and preferred stock.

Agility is a leading provider of widely tunable laser solutions for optical networks. Tunable lasers simplify the deployment of high-speed metro and long-haul networks and help enable the delivery of next-generation services. The acquisition is expected to further expand the Company’s product offerings to service providers for their agile networks. The transaction was accounted for as a purchase in accordance with SFAS 141; therefore, the tangible assets acquired were recorded at fair value on the acquisition date. The allocation of the purchase price was based, in part, upon a valuation, and the estimates and assumptions used therein are subject to change.

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

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

Net tangible assets acquired include a charge of $1.2$1.1 million to eliminate duplicative positions at Agility (see “Note 14, Restructuring and Global Realignment”).Agility. Under Emerging Issues Task Force IssueAbstracts No. 95–3 “Recognition of Liabilities in Connection with a Purchase Business Combination” (“EITF 95–3”), this charge was included in the allocation of acquisition cost rather than period expenses. During the first quarter ended March 31, 2006,of fiscal 2007, the Company reduced the value of certain property and equipment by $1.2has accrued a further $0.2 million to better reflect the estimated fair market value at acquisition date.in employee termination cost. As a result, goodwill increased $0.8 million and identified intangible assets increased by a total of $0.4$0.2 million.

A portion of the purchase price was allocated to developed product technology and in-process research and development (“IPR&D”). They were identified and valued through an analysis of data provided by Agility concerning developmental products, their stage of development, the time and resources needed to complete them, target markets, their expected income generating ability and associated risks. The Income Approach, which is based on the premise that the value of an asset is the present value of its future earning capacity, was the primary valuation technique employed. Discount rates of 12% and 16% were applied to developed product technology and IPR&D, respectively.

Developed product technology, which includes products that are already technologically feasible, is primarily comprised of a portfolio of tunable lasers, transmitters and transponders.

Developmental projects that had not reached technological feasibility and had no future alternative uses were classified as IPR&D and expensed on the acquisition date. Efforts required to develop IPR&D into commercially viable products include the 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.

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

Goodwill, which represents the excess of the purchase price over the fair value of tangible and identified intangible assets acquired, is not being amortized but will be reviewed annually for impairment, or more frequently if impairment indicators arise, in accordance with Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).142. In part, goodwill reflects the competitive advantages the Company expects to realize from incorporating Agility’s technologies into existing product lines and developing new markets. Goodwill has been assigned to the Optical Communications operating segment and is not expected to be deductible for tax purposes.

Agility’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.

The former shareholders of Agility made certain representations and warranties to the Company and agreed to indemnify the Company against damages which might arise from a breach of those undertakings. As security for this indemnification obligation of the former Agility shareholders, approximately $10.0 million of the cash consideration is being held in escrow until the twelve month anniversary of the closing date.

Acterna Inc.

OnIn August 3, 2005, the Company purchased Acterna Inc. (“Acterna”) for 200,467,80225,058,475 shares of the Company’s common stock with a market value of $304.7 million at the measurement date and $460.0$459.3 million in cash, including $10.0 million of direct transaction costs incurred in connection with the acquisition.

Acterna is a leading worldwide provider of broadband and optical test and measurement solutions for telecommunications and cable service providers and network equipment manufacturers. The acquisition is expected to expandhas established JDSU as a leading provider of test instruments, systems and services for the Company’s portfolioreliable, cost-effective deployment of IP-based data, voice, and video products and services over long haul, metro, fiber-to-the-home, DSL and cablebroadband networks. The transaction was accounted for as a purchase in accordance with SFAS 141; therefore, the tangible assets acquired were recorded at fair value on acquisition date. The preliminary allocation of the purchase price was based, in part, upon a valuation and estimates, and assumptions which are subject to change. The primary areas of the purchase price allocation that are not yet finalized relate to certain legal matters, income and non-income based taxes and residual goodwill. We expect the valuation process to be completed during the fourth quarter of fiscal 2006.

The purchase price has beenwas allocated on a preliminary basis as follows (in millions):

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

The above purchase price allocation includes net reductions to goodwillGoodwill and developed technology of $8.1 million and $1.6 million, respectively, since the acquisition date. Developed technology wasacquired intangible assets are adjusted quarterly to record the effect of currency translation adjustments. Goodwill was increased to reflect modifications to pension obligations and decreased to reflect modifications to inventory and warranty reserves, tax accruals, other assets and liabilities andAt September 30, 2006, the net effect of these currency translation adjustments.adjustments was to increase goodwill and intangible assets by $3.6 million and $2.4 million, respectively.

A portion of the purchase price was allocated to developed product technology and IPR&D. They were identified and valued through an analysis of data provided by Acterna concerning developmental products, their stage of development, the time and resources needed to complete them, target markets, their expected income generating ability and associated risks. The Income Approach, which is based on the premise that the value of an asset is the present value of its future earning capacity, was the primary valuation technique employed. Discount rates of 10% and 14% were applied to developed product technology and IPR&D, respectively.

Developed product technology, which includes products that are already technologically feasible, is primarily comprised of a portfolio of testing, analysis, maintenance, and optimization tools.

Developmental projects that had not reached technological feasibility and had no future alternative uses were classified as IPR&D and expensed on the acquisition date. Efforts required to develop IPR&D into commercially viable products include the 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. The principal projects at merger date were extensions of existing technologies for tools used to install, maintain and test optical and other communications networks. The Company incurred post-acquisition cost of approximately $25.7 million to date for these projects and estimates that additional investment of approximately $4.5 million in research and development will be required during the remainder of fiscal 2007 to complete them.

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

Goodwill, which represents the excess of the purchase price over the fair value of tangible and identified intangible assets acquired, is not being amortized but will be reviewed annually for impairment, or more frequently if impairment indicators arise, in accordance with SFAS 142. Goodwill has been assigned to the Communications Test and& Measurement operating segment and is not expected to be deductible for tax purposes. The results of operations of Acterna have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. The combined operating results of the Company and Acterna for fiscal 2006, on a pro forma basis, increase reported net revenue $26.0 million and reported net loss $38.4 million. As a result, the pro forma net loss per share (basic and diluted) increases from $(0.09) as reported to $(0.11).

The former shareholders ofIn connection with the merger, Acterna made certain representations and warranties to the Company, and Acterna’s former security holders agreed to indemnify the Company against damages which might arise from a breach of those representation and warranties. Under the terms of the acquisition, the former Acterna security holders set aside approximately $50.4 million of the cash consideration for payment of indemnification claims made by the Company prior to the earlier of August 31, 2006 or filing of the Company’s annual report on Form 10-K for the fiscal year ending June 30, 2006.

During fiscal 2006, the Company determined that a liability was probable for certain material pre-merger tax contingencies. Consequently, since these tax matters are not yet resolved, the Company made indemnification claims against the Acterna former security holders that may exceed the entire $50.4 million, which is the limit of the former Acterna security holders for these indemnification claims. The principal claim derives from a tax audit in Germany that was initiated during fiscal 2005. If the German tax matters are resolved unfavorably, the Company’s minimum estimated tax exposure would be approximately $37.2 million, plus interest. The Company’s maximum estimated tax exposure would be approximately $62.4 million, plus interest. If the ultimate tax liability is greater than the amount indemnified, the Company expects that the excess would be accounted for as additional goodwill.

Photonic Power Systems, Inc.

In May 2005, JDSU purchased Photonic Power Systems, Inc. (“PPS”), for approximately $9.7 million in cash, including direct transaction costs of $0.1 million and $0.3 million in fair value of options granted to purchase 29,843 shares of JDSU common stock. The former shareholders of PPS made certain representations and warranties to JDSU and agreed to indemnify the Company against damages which might arise from a breach of those undertakings. As security for this indemnification obligation of the former ActernaPPS shareholders, JDSU retained approximately $55.0$1.5 million of the cash consideration, which is being held in escrow untilscheduled to be released on the earlier of August 31, 2006 or filing18 month anniversary of the Company’s annual report on Form 10-K foracquisition date.

In addition to the fiscal year ending June 30, 2006.

The Company has not currently identified any material pre-merger contingencies where a liability is probable and$10.0 million purchase price listed above, JDSU was obligated to pay contingent cash consideration of up to $2.0 million if certain revenue targets were achieved during the amount12 months following the acquisition date. This payment, if made, would have increased the recorded value of goodwill. As none of the liability can be reasonably estimated. However, itrevenue targets were met within the timeframe specified, no additional consideration is possible that a tax assessment could result from an auditdue or payable.

PPS has pioneered the delivery of electrical power over fiber to drive low powered electrical circuitry. Acquiring PPS diversifies JDSU’s customer base, creates opportunities in Germany that was initiated during fiscal 2005. Acterna had a three-tier holding structure in Germany. Tax pooling structures were established between these entities beginning with the fiscal year ended March 31, 2001. During fiscal 2005 a German tax audit asserted a procedural error that could result in the tax pooling structure between two of the entities being disallowed. While the Company believes that the alleged error can be remediednew markets and should not be sufficient to invalidate the tax pooling, there can be no assurance as to the timing or outcome of this matter. If the contested tax pooling structure is ultimately disallowed,industries, expands the Company’s income tax exposure could be as much as 27.2 million EUR ($32.7 million) plus interest through the settlement date. Under the merger agreement, such a tax assessment would be paid from cash heldinvestments in escrowfuture optical technologies and strengthens its vertically integrated products portfolio. The transaction was accounted for as a reductionpurchase in accordance with SFAS 141; therefore, the tangible assets acquired were recorded at fair value on acquisition date. The purchase price.price was allocated as follows (in millions):

In addition,

The following table summarizes the Company has assumed certain contingent U.S. income tax obligations for 2003 and 2004components of a predecessor Acterna entity. The Company has preliminarily assessed that any tax liability exposure is remote.the tangible assets acquired (in millions):

For other pre-merger contingencies, if information becomes available to the Company prior to the end

A portion of the purchase price allocation periodwas allocated to developed product technology, which indicatesincludes products that a liabilityare already

technologically feasible. PPS’s developed products technology is probableprimarily comprised of the photovoltaic power converter, the photovoltaic power module and the amounts can be reasonablyoptical power transceiver. The Income Approach, which is based on the premise that the value of an asset is the present value of its future earning capacity, was the primary valuation technique employed. A discount rate of 14.5% was applied to developed product technology.

The acquired intangible assets are being amortized over their estimated such items will be includeduseful lives, which are presented in the table below:

Goodwill, which represents the excess of the purchase price allocation.

over the fair value of tangible and identified intangible assets acquired, is not being amortized but will be reviewed annually for impairment, or more frequently if impairment indicators arise, in accordance with SFAS 142. Goodwill was assigned to the “All Other” category for the purpose of segment reporting and is not expected to be tax deductible. The results of operations of ActernaPPS 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 combined results of operations of the Company and Acterna, on a pro forma basis, as though the companies had been combined as of the beginning of each of the periods presented:

The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of each of the periods presented. The pro forma financial information for the nine months ended March 31, 2006 includes merger related expenses of $24.4 million recorded by Acterna and a charge of $19.6 million for IPR&D.

Note 4. Stock-Based Compensation

Effective July 3, 2005 the Company adopted SFAS 123(R) using the modified prospective application transition method, which establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and recognized in expense over the requisite service period. The Company previously applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related Interpretations and provided the pro forma disclosures required by FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).

Periods prior to the adoption of SFAS 123(R)Lightwave Electronics Corporation

Prior to the adoptionIn May 2005, JDSU purchased Lightwave Electronics Corporation (“Lightwave”) for approximately $67.2 million in cash, including $0.5 million of SFAS 123(R), the Company provided the disclosures required under SFAS 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures” (“SFAS 148”). The Company generally did not recognize stock-based compensation expense in its statement of operations for periods prior to the adoption of SFAS 123(R) as most options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net loss and net loss per share as if the Company had applied the fair value recognition provisions of SFAS 123(R) to options granted under the Company’s stock-based compensation plans prior to the adoption. For purposes of this pro forma disclosure the value of the options was estimated using a Black-Scholes-Merton (“BSM”) option-pricing formula and amortized on a straight-line basis over the respective vesting periods of the awards. Disclosures for the three and nine months ended March 31, 2006 are not presented because stock-based payments were accounted for under SFAS 123(R)’s fair-value method during this period.

Adoption of SFAS 123(R)

During the fourth quarter of fiscal 2005, the Company accelerated certain unvested “out-of-the-money” stock options with exercise prices equal to or greater than $2.50 per share thereby reducing stock-based compensation in subsequent periods.

Effective the quarter ended September 30, 2005, the Company recorded stock-based compensation cost totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS 123(R). Results for prior periods have not been restated. The effect of recording stock-based compensation for the three and nine month period ended March 31, 2006 was as follows:

As required by SFAS 123(R), management has made an estimate of expected forfeitures and is recognizing compensationdirect transaction costs only for those equity awards expected to vest. The cumulative effect of initially adopting SFAS 123(R) was not material.

Stock Options:During the three and nine months ended March 31, 2006, the Company granted approximately 2.8 million and 21.0 million stock options with an estimated total grant-date fair value of $4.5 million and $20.5 million, respectively. Of these amounts, the Company estimated that the stock-based compensation for the awards not expected to vest was $0.9 million and $6.3 million, respectively. During the three and nine months ended March 31, 2006, the Company recorded stock-based compensation related to stock options of $3.2 million and $6.5 million, respectively, for all unvested options granted prior to and options granted after the adoption of SFAS 123(R).

Employee Stock Purchase Plan (ESPP):The compensation costincurred in connection with the plan for the threeacquisition. The former shareholders of Lightwave made certain representations and nine months ended March 31, 2006 was $0.4 millionwarranties to JDSU and $3.0 million, respectively. The expense relatedagreed to the Company’s employee stock purchase plan is amortized on a straight-line basis over the relevant subscription period.

Restricted Shares and Restricted Stock Units: In connection with restricted shares and restricted stock units granted,indemnify the Company recorded deferred stock compensationagainst damages which represents the difference between the exercise pricemight arise from a breach of those undertakings. As security for this indemnification obligation of the options and the fair market valueformer Lightwave shareholders, JDSU retained approximately $10.8 million of the Company’s common sharescash consideration, which is scheduled to be released on the dates the awards were granted, net of expected forfeitures. This stock compensation was being amortized on a straight-line basis over the probable vesting periods of the underlying stock rewards. During the three and nine months ended March 31, 2006, the Company recorded $0.7 million and $2.0 million of such compensation expenses, respectively. During the three and nine months ended March 31, 2005, the Company recorded $0.1 million and $0.2 million of such compensation expenses, respectively.

Valuation Assumptions

In connection with the adoption of SFAS 123(R), the Company estimated the fair value of stock options using a BSM valuation model. The fair value of each option grant is estimated on the date of grant using the BSM option valuation model and the straight-line attribution approach with the following weighted-average assumptions:

Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.

Expected Volatility: The fair value of stock-based payments made through the quarter ended September 30, 2004, were valued using a volatility factor based on the Company’s historical stock prices. Commencing in the quarter ended March 31, 2005 and through the quarter ended June 30, 2005, the Company’s volatility factor was estimated using its traded options. Effective the quarter ended September 30, 2005, the Company re-evaluated the assumptions used to estimate volatility, including whether implied volatility of its traded options appropriately reflects the market’s expectations of future volatility and determined that it would use a combination of the implied volatility of its traded options and historical volatility of its stock price based on the expected term of the equity instrument.

Expected Dividend:The BSM valuation model calls for a single expected dividend yield as an input. The Company has not paid and does not anticipate paying any dividends in the near future.

Risk-Free Interest Rate: The Company bases the risk-free interest rate used in the BSM valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Where the expected term of the Company’s stock-based awards do not correspond with the terms for which interest rates are quoted, the Company performed a straight-line interpolation to determine the rate from the available maturities.

Estimated Pre-vesting Forfeitures: 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 results as the stock-based awards vest.

Stock Option Activity

The following is a summary of options activities since June 30, 2005 (amount in millions except per share amounts):

The options outstanding and exercisable at March 31, 2006 were in the following exercise price ranges (amount in millions except per share amounts and contractual lives):

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s average stock price of $3.28 during the quarter ended March 31, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of March 31, 2006 was 36.3 million.

The weighted average exercise price of options granted during the three months ended March 31, 2006 was $3.37 per share. The total fair value of shares vested during the three months ended March 31, 2006 was $0.7 million. The total intrinsic value of options exercised during the three months ended March 31, 2006 was $3.5 million. The total cash received from employees as a result of employee stock option exercises and employee stock purchase plan during the three months ended March 31, 2006 was $24.6 million. In connection with these exercises, there was no tax benefit realized by the Company due to the Company’s current loss position.

The Company issues new shares of common stock upon exercise of stock options.

A summary of the status of the Company’s nonvested shares as of March 31, 2006 and changes during the same period is presented below (amount in millions, except per share amounts):

The number of shares vested is small compared to the number of grants from prior periods mainly due to the low unvested shares balance resulting from the acceleration of stock options with exercise prices equal to or greater than $2.50 per share in the fourth quarter of fiscal 2005. In addition, all new hire or focal grants vest over four years with 25% vesting on the first18 month anniversary of the dateacquisition date.

Lightwave is a leading provider of grantsolid-state lasers for commercial markets including materials processing, semiconductor fabrication, and 6% vesting every quarter thereafter.

ESPP Activity

biotech. The following table showsacquisition reinforces the shares issued, and their respective exercise price, pursuantCompany’s commitment to the Company’s employee stock purchase plan during the three months ended March 31, 2006OEM laser business and September 30, 2005. There were no purchases during the quarter ended December 31, 2005.