e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2011
OR
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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: 0-21969
Ciena Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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23-2725311 |
(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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1201 Winterson Road, Linthicum, MD
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21090 |
(Address of Principal Executive Offices)
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(Zip Code) |
(410) 865-8500
(Registrants telephone number, including area code)
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 þ 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 þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2
of the Exchange Act). YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date:
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Class |
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Outstanding at June 3, 2011 |
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common stock, $.01 par value |
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95,681,685 |
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CIENA CORPORATION
INDEX
FORM 10-Q
2
PART I FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Quarter Ended April 30, |
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Six Months Ended April 30, |
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2010 |
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2011 |
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2010 |
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2011 |
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Revenue: |
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Products |
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$ |
206,420 |
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$ |
336,026 |
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$ |
355,474 |
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$ |
688,453 |
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Services |
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47,051 |
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81,868 |
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73,873 |
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162,749 |
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Total revenue |
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253,471 |
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417,894 |
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429,347 |
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851,202 |
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Cost of goods sold: |
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Products |
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118,221 |
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202,665 |
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194,890 |
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417,066 |
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Services |
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30,308 |
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49,396 |
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49,355 |
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99,797 |
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Total cost of goods sold |
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148,529 |
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252,061 |
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244,245 |
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516,863 |
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Gross profit |
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104,942 |
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165,833 |
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185,102 |
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334,339 |
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Operating expenses: |
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Research and development |
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71,142 |
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99,624 |
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121,175 |
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195,414 |
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Selling and marketing |
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45,328 |
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61,768 |
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79,565 |
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118,860 |
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General and administrative |
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21,503 |
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32,480 |
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34,266 |
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70,794 |
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Acquisition and integration costs |
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39,221 |
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10,741 |
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66,252 |
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34,926 |
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Amortization of intangible assets |
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17,121 |
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13,674 |
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23,102 |
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42,458 |
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Restructuring costs |
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1,849 |
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3,164 |
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1,828 |
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4,686 |
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Change in fair value of contingent consideration |
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(3,289 |
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Total operating expenses |
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196,164 |
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221,451 |
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326,188 |
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463,849 |
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Loss from operations |
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(91,222 |
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(55,618 |
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(141,086 |
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(129,510 |
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Interest and other income (loss), net |
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3,748 |
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4,229 |
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2,975 |
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10,494 |
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Interest expense |
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(4,113 |
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(9,406 |
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(5,941 |
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(18,956 |
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Loss before income taxes |
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(91,587 |
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(60,795 |
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(144,052 |
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(137,972 |
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Provision (benefit) for income taxes |
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(1,578 |
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1,891 |
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(710 |
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3,770 |
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Net loss |
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$ |
(90,009 |
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$ |
(62,686 |
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$ |
(143,342 |
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$ |
(141,742 |
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Basic net loss per common share |
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$ |
(0.97 |
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$ |
(0.66 |
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$ |
(1.55 |
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$ |
(1.49 |
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Diluted net loss per potential common share |
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$ |
(0.97 |
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$ |
(0.66 |
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$ |
(1.55 |
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$ |
(1.49 |
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Weighted average basic common shares outstanding |
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92,614 |
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95,360 |
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92,590 |
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94,928 |
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Weighted average dilutive potential common shares outstanding |
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92,614 |
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95,360 |
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92,590 |
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94,928 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
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October 31, |
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April 30, |
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2010 |
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2011 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
688,687 |
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$ |
506,840 |
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Accounts receivable, net |
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343,582 |
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391,330 |
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Inventories |
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261,619 |
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285,696 |
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Prepaid expenses and other |
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147,680 |
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139,536 |
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Total current assets |
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1,441,568 |
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1,323,402 |
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Long-term investments |
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50,098 |
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Equipment, furniture and fixtures, net |
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120,294 |
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126,399 |
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Other intangible assets, net |
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426,412 |
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369,775 |
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Other long-term assets |
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129,819 |
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135,210 |
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Total assets |
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$ |
2,118,093 |
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$ |
2,004,884 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
200,617 |
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$ |
178,747 |
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Accrued liabilities |
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193,994 |
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190,618 |
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Deferred revenue |
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75,334 |
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99,187 |
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Total current liabilities |
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469,945 |
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468,552 |
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Long-term deferred revenue |
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29,715 |
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24,861 |
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Other long-term obligations |
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16,435 |
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19,232 |
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Convertible notes payable |
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1,442,705 |
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1,442,534 |
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Total liabilities |
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1,958,800 |
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1,955,179 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock par value $0.01; 20,000,000
shares authorized; zero shares issued and
outstanding |
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Common stock par value $0.01; 290,000,000 shares
authorized; 94,060,300 and 95,659,218 shares issued
and outstanding |
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941 |
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957 |
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Additional paid-in capital |
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5,702,137 |
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5,728,532 |
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Accumulated other comprehensive income |
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1,062 |
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6,805 |
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Accumulated deficit |
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(5,544,847 |
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(5,686,589 |
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Total stockholders equity |
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159,293 |
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49,705 |
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Total liabilities and stockholders equity |
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$ |
2,118,093 |
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$ |
2,004,884 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended April 30, |
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2010 |
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2011 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(143,342 |
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$ |
(141,742 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization
of premium (discount) on marketable securities |
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575 |
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(12 |
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Change in fair value of embedded redemption feature |
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(6,640 |
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(9,160 |
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Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements |
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13,543 |
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29,367 |
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Share-based compensation costs |
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16,799 |
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18,886 |
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Amortization of intangible assets |
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33,618 |
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56,637 |
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Provision for inventory excess and obsolescence |
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7,100 |
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6,413 |
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Provision for warranty |
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8,847 |
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5,646 |
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Other |
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1,037 |
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3,474 |
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Changes in assets and liabilities, net of effect of acquisition: |
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Accounts receivable |
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(53,255 |
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(48,351 |
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Inventories |
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(38,250 |
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(30,490 |
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Prepaid expenses and other |
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4,944 |
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963 |
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Accounts payable, accruals and other obligations |
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84,831 |
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(26,078 |
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Deferred revenue |
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(3,043 |
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18,999 |
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Net cash used in operating activities |
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(73,236 |
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(115,448 |
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Cash flows used in investing activities: |
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Payments for equipment, furniture, fixtures and intellectual property |
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(18,275 |
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(29,420 |
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Restricted cash |
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(9,046 |
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(11,853 |
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Purchase of available for sale securities |
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(63,591 |
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(49,894 |
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Proceeds from maturities of available for sale securities |
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424,841 |
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Proceeds from sales of available for sale securities |
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179,380 |
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Acquisition of business |
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(711,932 |
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Receipt of contingent consideration related to business acquisition |
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16,394 |
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Net cash used in investing activities |
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(198,623 |
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(74,773 |
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Cash flows from financing activities: |
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Proceeds from issuance of 4.0% convertible notes payable, net |
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369,660 |
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Proceeds from issuance of common stock and warrants |
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831 |
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7,525 |
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Net cash provided by financing activities |
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370,491 |
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7,525 |
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Effect of exchange rate changes on cash and cash equivalents |
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(108 |
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849 |
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Net increase (decrease) in cash and cash equivalents |
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98,632 |
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(182,696 |
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Cash and cash equivalents at beginning of period |
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485,705 |
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688,687 |
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Cash and cash equivalents at end of period |
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$ |
584,229 |
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$ |
506,840 |
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Supplemental disclosure of cash flow information |
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Cash paid during the period for interest |
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$ |
2,560 |
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$ |
16,411 |
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Cash paid (refunded) during the period for income taxes, net |
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$ |
1,294 |
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$ |
(231 |
) |
Non-cash investing and financing activities |
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Purchase of equipment in accounts payable |
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$ |
649 |
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$ |
3,242 |
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Debt issuance costs in accrued liabilities |
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$ |
5,021 |
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$ |
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Fixed assets acquired under capital leases |
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$ |
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$ |
1,401 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
CIENA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) INTERIM FINANCIAL STATEMENTS
The interim financial statements included herein for Ciena Corporation (Ciena) have been
prepared by Ciena, without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, financial statements included in this report
reflect all normal recurring adjustments that Ciena considers necessary for the fair statement of
the results of operations for the interim periods covered and of the financial position of Ciena at
the date of the interim balance sheets. Certain information and footnote disclosures normally
included in the annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and regulations. The
October 31, 2010 Condensed Consolidated Balance Sheet was derived from audited financial
statements, but does not include all disclosures required by accounting principles generally
accepted in the United States of America. However, Ciena believes that the disclosures are adequate
to understand the information presented. The operating results for interim periods are not
necessarily indicative of the operating results for the entire year. These financial statements
should be read in conjunction with Cienas audited consolidated financial statements and notes
thereto included in Cienas annual report on Form 10-K for the fiscal year ended October 31, 2010.
On March 19, 2010, Ciena completed its acquisition of substantially all of the optical
networking and Carrier Ethernet assets of Nortels Metro Ethernet Networks (MEN Business).
Cienas results of operations for the second quarter and six-month period ended April 30, 2010
reflect the operations of the MEN Business beginning on the March 19, 2010 acquisition date. See
Note 3 below.
Ciena has a 52 or 53 week fiscal year, which ends on the Saturday nearest to the last day of
October of each year. For purposes of financial statement presentation, each fiscal year is
described as having ended on October 31, and each fiscal quarter is described as having ended on
January 31, April 30 and July 31 of each fiscal year.
(2) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires management to make estimates
and judgments that affect the amounts reported in the Condensed Consolidated Financial Statements
and accompanying notes. Estimates are used for purchase accounting, bad debts, valuation of
inventories and investments, recoverability of intangible assets, other long-lived assets, income taxes, warranty obligations, restructuring liabilities, derivatives, contingencies
and litigation. Ciena bases its estimates on historical experience and assumptions that it believes
are reasonable. Actual results may differ materially from managements estimates.
Cash and Cash Equivalents
Ciena considers all highly liquid investments purchased with maturities of three months or
less to be cash equivalents. Restricted cash collateralizing letters of credit are included in
other current assets and other long-term assets depending upon the duration of the restriction.
Investments
Cienas investments are classified as available-for-sale and are reported at fair value, with
unrealized gains and losses recorded in accumulated other comprehensive income. Ciena recognizes
losses when it determines that declines in the fair value of its investments, below their cost
basis, are other-than-temporary. In determining whether a decline in fair value is
other-than-temporary, Ciena considers various factors including market price (when available),
investment ratings, the financial condition and near-term prospects of the investee, the length of
time and the extent to which the fair value has been less than Cienas cost basis, and its intent
and ability to hold the investment until maturity or for a period of time sufficient to allow for
any anticipated recovery in market value. Ciena considers all marketable debt securities that it
expects to convert to cash within one year or less to be short-term investments. All others are
considered long-term investments.
Ciena has certain minority equity investments in privately held technology companies that are
classified as other assets. These investments are carried at cost because Ciena owns less than 20%
of the voting equity and does not have the ability to exercise significant influence over these
companies. These investments involve a high degree of risk as the markets for the technologies or products manufactured by these
6
companies are usually early stage at the time
of Cienas investment and such markets may never be significant. Ciena could lose its entire
investment in some or all of these companies. Ciena monitors these investments for impairment and
makes appropriate reductions in carrying values when necessary.
Inventories
Inventories are stated at the lower of cost or market, with cost computed using standard cost,
which approximates actual cost, on a first-in, first-out basis. Ciena records a provision for
excess and obsolete inventory when an impairment has been identified.
Segment Reporting
Cienas chief operating decision maker, its chief executive officer, evaluates performance and
allocates resources based on multiple factors, including segment profit (loss) information for the
following product categories: (i) Packet-Optical Transport; (ii) Packet-Optical Switching; (iii)
Carrier Ethernet Service Delivery; and (iv) Software and Services. Operating segments are defined
as components of an enterprise: that engage in business activities which may earn revenue and incur
expense; for which discrete financial information is available; and for which such information is
evaluated regularly by the chief operating decision maker for purposes of allocating resources and
assessing performance. Ciena considers the four product categories above to be its operating
segments for reporting purposes. See Note 18.
Long-lived Assets
Long-lived assets include: equipment, furniture and fixtures; intangible assets; and
maintenance spares. Ciena tests long-lived assets for impairment whenever triggering events or
changes in circumstances indicate that the assets carrying amount is not recoverable from its
undiscounted cash flows. An impairment loss is measured as the amount by which the carrying amount
of the asset or asset group exceeds its fair value. Cienas long-lived assets are assigned to asset
groups which represent the lowest level for which cash flows can be identified.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. Depreciation and amortization are
computed using the straight-line method over useful lives of two years to five years for equipment,
furniture and fixtures and the shorter of useful life or lease term for leasehold improvements.
Qualifying internal use software and website development costs incurred during the application
development stage that consist primarily of outside services and purchased software license costs,
are capitalized and amortized straight-line over the estimated useful lives of two years to five
years.
Intangible Assets
Ciena has recorded finite-lived intangible assets as a result of several acquisitions.
Finite-lived intangible assets are carried at cost less accumulated amortization. Amortization is
computed using the straight-line method over the expected economic lives of the respective assets,
from nine months to seven years, which approximates the use of intangible assets.
Maintenance Spares
Maintenance spares are recorded at cost. Spares usage cost is expensed ratably over four
years.
Concentrations
Substantially all of Cienas cash and cash equivalents are maintained at two major U.S.
financial institutions. The majority of Cienas cash equivalents consist of money market funds.
Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally,
these deposits may be redeemed upon demand and, therefore, management believes that they bear
minimal risk.
Historically, a large percentage of Cienas revenue has been the result of sales to a small
number of communications service providers. Consolidation among Cienas customers has increased
this concentration. Consequently, Cienas accounts receivable are concentrated among these
customers. See Notes 7 and 18 below.
7
Additionally, Cienas access to certain materials or components is dependent upon sole or
limited source suppliers. The inability of any supplier to fulfill Cienas supply requirements
could affect future results. Ciena relies on a small number of contract manufacturers to perform
the majority of the manufacturing for its products. If Ciena cannot effectively manage these
manufacturers and forecast future demand, or if they fail to deliver products or components on
time, Cienas business and results of operations may suffer.
Revenue Recognition
Ciena recognizes revenue when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is
fixed or determinable; and collectibility is reasonably assured. Customer purchase agreements and
customer purchase orders are generally used to determine the existence of an arrangement. Shipping
documents and evidence of customer acceptance, when applicable, are used to verify delivery or
services rendered. Ciena assesses whether the price is fixed or determinable based on the payment
terms associated with the transaction and whether the sales price is subject to refund or
adjustment. Ciena assesses collectibility based primarily on the creditworthiness of the customer
as determined by credit checks and analysis, as well as the customers payment history. Revenue for
maintenance services is generally deferred and recognized ratably over the period during which the
services are to be performed.
Ciena applies the percentage of completion method to long-term arrangements where it is
required to undertake significant production, customizations or modification engineering, and
reasonable and reliable estimates of revenue and cost are available. Utilizing the percentage of
completion method, Ciena recognizes revenue based on the ratio of actual costs incurred to date to
total estimated costs expected to be incurred. In instances that do not meet the percentage of
completion method criteria, recognition of revenue is deferred until there are no uncertainties
regarding customer acceptance.
Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectibility is probable. In instances where
final acceptance criteria of the software is specified by the customer, revenue is deferred until
there are no uncertainties regarding customer acceptance.
Ciena limits the amount of revenue recognition for delivered elements to the amount that is
not contingent on the future delivery of products or services, future performance obligations or
subject to customer-specified return or refund privileges.
Accounting for multiple element arrangements entered into prior to fiscal 2011
Arrangements with customers may include multiple deliverables, including any combination of
equipment, services and software. If multiple element arrangements include software or
software-related elements that are essential to the equipment, Ciena allocates the arrangement fee
among separate units of accounting. Multiple element arrangements that include software are
separated into more than one unit of accounting if the functionality of the delivered element(s) is
not dependent on the undelivered element(s), there is vendor-specific objective evidence (VSOE)
of the fair value of the undelivered element(s), and general revenue recognition criteria related
to the delivered element(s) have been met. The amount of product and services revenue recognized is
affected by Cienas judgments as to whether an arrangement includes multiple elements and, if so,
whether VSOE of fair value exists. VSOE is established based on Cienas standard pricing and
discounting practices for the specific product or service when sold separately. In determining
VSOE, Ciena requires that a substantial majority of the selling prices for a product or service
fall within a reasonably narrow pricing range. Changes to the elements in an arrangement and
Cienas ability to establish VSOE for those elements could affect the timing of revenue
recognition. For all other multiple element arrangements, Ciena separates the elements into more
than one unit of accounting if the delivered element(s) have value to the customer on a stand-alone
basis, objective and reliable evidence of fair value exists for the undelivered element(s), and
delivery of the undelivered element(s) is probable and substantially in Cienas control. Revenue is
allocated to each unit of accounting based on the relative fair value of each accounting unit or
using the residual method if objective evidence of fair value does not exist for the delivered
element(s). The revenue recognition criteria described above are applied to each separate unit of
accounting. If these criteria are not met, revenue is deferred until the criteria are met or the
last element has been delivered.
Accounting for multiple element arrangements entered into or materially modified in fiscal
2011
In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting
standard for revenue recognition with multiple deliverables which provided guidance on how the
arrangement fee should be allocated and allows the use of managements best estimate of selling
price (BESP) for individual elements of an arrangement when VSOE or third-party evidence (TPE)
is unavailable. Additionally, it eliminates the residual method of revenue recognition in
accounting for multiple deliverable arrangements. The FASB also amended the accounting guidance for
revenue arrangements with software elements to exclude from the scope of the software revenue
recognition guidance, tangible
products that contain both software and non-software components that function together to
deliver the products essential functionality.
8
Ciena adopted the new accounting guidance on a prospective basis for arrangements entered into
or materially modified on or after November 1, 2010. Under the new guidance, Ciena separates
elements into more than one unit of accounting if the delivered element(s) have value to the
customer on a stand-alone basis, and delivery of the undelivered element(s) is probable and
substantially in Cienas control. Therefore, the new guidance allows for deliverables, for which
revenue was previously deferred due to an absence of fair value, to be separated and recognized as
revenue as delivered. Also, because the residual method has been eliminated, discounts offered by
Ciena are allocated to all deliverables, rather than to the delivered element(s). Cienas adoption
of the new guidance for revenue arrangements changed the accounting for certain Ciena products that
consist of hardware and software components, in which these components together provided the
products essential functionality. For arrangements involving these products entered into prior to
fiscal 2011, Ciena recognized revenue based on software revenue recognition guidance.
Revenue for multiple element arrangements is allocated to each unit of accounting based on the
relative selling price of each delivered element, with revenue recognized when the revenue
recognition criteria are met for each delivered element. Ciena determines the selling price for
each deliverable based upon the selling price hierarchy for multiple-deliverable arrangements.
Under this hierarchy, Ciena uses VSOE of selling price, if it exists, or TPE of selling price if
VSOE does not exist. If neither VSOE nor TPE of selling price exists for a deliverable, Ciena uses
its BESP for that deliverable.
VSOE is established based on Cienas standard pricing and discounting practices for the
specific product or service when sold separately. In determining VSOE, which exists across certain
of Cienas service offerings, Ciena requires that a substantial majority of the selling prices for
a product or service fall within a reasonably narrow pricing range. Ciena has been unable to
establish TPE of selling price because its go-to-market strategy differs from that of others in its
markets, and the extent of customization and differentiated features and functions varies among
comparable products or services from its peers. Ciena determines BESP based upon
management-approved pricing guidelines, which consider multiple factors including the type of
product or service, gross margin objectives, competitive and market conditions, and the
go-to-market strategy; all of which can affect pricing practices.
Historically, for arrangements with multiple elements, Ciena was typically able to establish
fair value for undelivered elements and so Ciena applied the residual method. Assuming the adoption
of the accounting guidance above on a prospective basis for arrangements entered into or materially
modified on or after November 1, 2009, the effect on revenue recognized for the six months ended
April 30, 2010 would not have been materially different.
Warranty Accruals
Ciena provides for the estimated costs to fulfill customer warranty obligations upon the
recognition of the related revenue. Estimated warranty costs include estimates for material costs,
technical support labor costs and associated overhead. The warranty liability is included in cost
of goods sold and determined based upon actual warranty cost experience, estimates of component
failure rates and managements industry experience. Cienas sales contracts do not permit the right
of return of product by the customer after the product has been accepted.
Accounts Receivable, Net
Cienas allowance for doubtful accounts is based on its assessment, on a specific
identification basis, of the collectibility of customer accounts. Ciena performs ongoing credit
evaluations of its customers and generally has not required collateral or other forms of security
from its customers. In determining the appropriate balance for Cienas allowance for doubtful
accounts, management considers each individual customer account receivable in order to determine
collectibility. In doing so, management considers creditworthiness, payment history, account
activity and communication with such customer. If a customers financial condition changes, Ciena
may be required to record an allowance for doubtful accounts, which would negatively affect its
results of operations.
Research and Development
Ciena charges all research and development costs to expense as incurred. Types of expense
incurred in research and development include employee compensation, prototype, consulting,
depreciation, facility costs and information technologies.
Advertising Costs
9
Ciena expenses all advertising costs as incurred.
Legal Costs
Ciena expenses legal costs associated with litigation defense as incurred.
Share-Based Compensation Expense
Ciena measures and recognizes compensation expense for share-based awards based on estimated
fair values on the date of grant. Ciena estimates the fair value of each option-based award on the
date of grant using the Black-Scholes option-pricing model. This model is affected by Cienas stock
price as well as estimates regarding a number of variables including expected stock price
volatility over the expected term of the award and projected employee stock option exercise
behaviors. Ciena estimates the fair value of each share-based award based on the fair value of the
underlying common stock on the date of grant. In each case, Ciena only recognizes expense to its
consolidated statement of operations for those options or shares that are expected ultimately to
vest. Ciena uses two attribution methods to record expense, the straight-line method for grants
with service-based vesting and the graded-vesting method, which considers each performance period
or tranche separately, for all other awards. See Note 16 below.
Income Taxes
Ciena accounts for income taxes using an asset and liability approach that recognizes deferred
tax assets and liabilities for the expected future tax consequences attributable to differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their
respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax
consequences, Ciena considers all expected future events other than the enactment of changes in tax
laws or rates. Valuation allowances are provided, if, based upon the weight of the available
evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized.
In the ordinary course of business, transactions occur for which the ultimate outcome may be
uncertain. In addition, tax authorities periodically audit Cienas income tax returns. These audits
examine significant tax filing positions, including the timing and amounts of deductions and the
allocation of income tax expenses among tax jurisdictions. Ciena is currently under audit in India
for 2007. Management does not expect the outcome of this audit to have a material adverse effect on
the Companys consolidated financial position, result of operations or cash flows. Cienas major
tax jurisdictions and the earliest open tax years are as follows: United States (2007), United
Kingdom (2005), Canada (2005) and India (2007). However, limited adjustments can be made to Federal
tax returns in earlier years in order to reduce net operating loss carryforwards. Ciena classifies
interest and penalties related to uncertain tax positions as a component of income tax expense. All
of the uncertain tax positions, if recognized, would decrease the effective income tax rate.
Ciena has not provided U.S. deferred income taxes on the cumulative unremitted earnings of its
non-U.S. affiliates as it plans to permanently reinvest cumulative unremitted foreign earnings
outside the U.S. and it is not practicable to determine the unrecognized deferred income taxes.
These cumulative unremitted foreign earnings relate to ongoing operations in foreign jurisdictions
and are required to fund foreign operations, capital expenditures, and any expansion requirements.
Ciena recognizes windfall tax benefits associated with the exercise of stock options or
release of restricted stock units directly to stockholders equity only when realized. A windfall
tax benefit occurs when the actual tax benefit realized by Ciena upon an employees disposition of
a share-based award exceeds the deferred tax asset, if any, associated with the award that Ciena
had recorded. When assessing whether a tax benefit relating to share-based compensation has been
realized, Ciena follows the tax law with-and-without method. Under the with-and-without method,
the windfall is considered realized and recognized for financial statement purposes only when an
incremental benefit is provided after considering all other tax benefits including Cienas net
operating losses. The with-and-without method results in the windfall from share-based compensation
awards always being effectively the last tax benefit to be considered. Consequently, the windfall
attributable to share-based compensation will not be considered realized in instances where Cienas
net operating loss carryover (that is unrelated to windfalls) is sufficient to offset the current
years taxable income before considering the effects of current-year windfalls.
Loss Contingencies
Ciena is subject to the possibility of various losses arising in the ordinary course of
business. These may relate to disputes, litigation and other legal actions. Ciena considers the
likelihood of loss or the incurrence of a liability, as well as Cienas ability to reasonably
estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is
accrued when it is probable that a liability has been incurred and the amount of loss can be
reasonably estimated. Ciena regularly evaluates current information to determine whether any
accruals should be adjusted and whether new accruals are required.
10
Fair Value of Financial Instruments
The carrying value of Cienas cash and cash equivalents, accounts receivable, accounts
payable, and accrued liabilities, approximates fair market value due to the relatively short period
of time to maturity. For information related to the fair value of Cienas convertible notes, see
Note 14 below.
Fair value for the measurement of financial assets and liabilities is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in
pricing an asset or liability. Ciena utilizes a valuation hierarchy for disclosure of the inputs
for fair value measurement. This hierarchy prioritizes the inputs into three broad levels as
follows:
|
|
|
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or
liabilities; |
|
|
|
|
Level 2 inputs are quoted prices for identical or similar assets or liabilities in less
active markets or model-derived valuations in which significant inputs are observable for
the asset or liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument; |
|
|
|
|
Level 3 inputs are unobservable inputs based on Cienas assumptions used to measure
assets and liabilities at fair value. |
By distinguishing between inputs that are observable in the marketplace, and therefore more
objective, and those that are unobservable and therefore more subjective, the hierarchy is designed
to indicate the relative reliability of the fair value measurements. A financial asset or
liabilitys classification within the hierarchy is determined based on the lowest level input that
is significant to the fair value measurement.
Restructuring
From time to time, Ciena takes actions to align its workforce, facilities and operating costs
with perceived market opportunities and business conditions. Ciena implements these restructuring
plans and incurs the associated liability concurrently. Generally accepted accounting principles
require that a liability for the cost associated with an exit or disposal activity be recognized in
the period in which the liability is incurred, except for one-time employee termination benefits
related to a service period of more than 60 days, which are accrued over the service period. See
Note 4 below.
Foreign Currency
Some of Cienas foreign branch offices and subsidiaries use the U.S. dollar as their
functional currency, because Ciena, as the U.S. parent entity, exclusively funds the operations of
these branch offices and subsidiaries. For those subsidiaries using the local currency as their
functional currency, assets and liabilities are translated at exchange rates in effect at the
balance sheet date, and the statement of operations is translated at a monthly average rate.
Resulting translation adjustments are recorded directly to a separate component of stockholders
equity. Where the monetary assets and liabilities are transacted in a currency other than the
entitys functional currency, re-measurement adjustments are recorded in other income. The net gain
(loss) on foreign currency re-measurement and exchange rate changes is immaterial for separate
financial statement presentation.
Derivatives
Cienas 4.0% convertible senior notes include a redemption feature that is accounted for as a
separate embedded derivative. The embedded redemption feature is recorded at fair value on a
recurring basis and these changes are included in interest and other income, net on the Condensed
Consolidated Statement of Operations.
From time to time, Ciena uses foreign currency forward contracts to reduce variability in certain forecasted non
US-dollar denominated operating expenses. Generally, these derivatives have maturities of twelve
months or less and are designated as cash flow hedges.
At the inception of the cash flow hedge and on an ongoing basis, Ciena assesses the hedging
relationship to determine if the forward contracts have been effective in offsetting changes in cash flows attributable to the
hedged risk during the hedging period. The effective portion of the derivatives net gain or
loss is initially reported as a component of accumulated other
comprehensive income (loss), and upon the occurrence of the
forecasted transaction, is subsequently reclassified to the operating expense line item to which the hedged transaction relates.
11
Any net gain or loss associated with the ineffectiveness
of the hedging instrument is reported in interest and other income, net. See Note 13 below.
Computation of Basic Net Income (Loss) per Common Share and Diluted Net Income (Loss) per Dilutive
Potential Common Share
Ciena calculates basic earnings per share (EPS) by dividing earnings attributable to common
stock by the weighted-average number of common shares outstanding for the period. Diluted EPS
includes other potential dilutive common stock that would occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Ciena uses a dual presentation of
basic and diluted EPS on the face of its income statement. A reconciliation of the numerator and
denominator used for the basic and diluted EPS computations is set forth in Note 15.
Software Development Costs
Ciena develops software for sale to its customers. Generally accepted accounting principles
require the capitalization of certain software development costs that are incurred subsequent to
the date technological feasibility is established and prior to the date the product is generally
available for sale. The capitalized cost is then amortized straight-line over the estimated life of
the product. Ciena defines technological feasibility as being attained at the time a working model
is completed. To date, the period between Ciena achieving technological feasibility and the general
availability of such software has been short, and software development costs qualifying for
capitalization have been insignificant. Accordingly, Ciena has not capitalized any software
development costs.
(3) BUSINESS COMBINATIONS
Acquisition of MEN Business
On March 19, 2010, Ciena completed its acquisition of the MEN Business. Ciena acquired the MEN
Business in an effort to strengthen its technology leadership position in next-generation,
converged optical Ethernet networking, accelerate the execution of its corporate and research and
development strategies and enable Ciena to better compete with larger equipment vendors. The
acquisition expands Cienas geographic reach, customer relationships, and portfolio of network
solutions.
In accordance with the agreements for the acquisition, the $773.8 million aggregate purchase
price was subsequently adjusted downward by $80.6 million based upon the amount of net working
capital transferred to Ciena at closing. As a result, Ciena paid $693.2 million in cash for the
purchase of the MEN Business.
In connection with the acquisition, Ciena entered into an agreement with Nortel to lease the
Lab 10 building on Nortels Carling Campus in Ottawa, Canada (the Carling lease) for a term of
ten years. The lease agreement contained a provision that allowed Nortel to reduce the term of the
lease, and in exchange, Ciena could receive a payment of up to $33.5 million. This amount was
placed into escrow by Nortel in accordance with the acquisition agreements. The fair value of this
contingent refund right of $16.4 million was recorded as a reduction to the consideration paid,
resulting in a purchase price of $676.8 million.
On October 19, 2010, Nortel issued a public announcement that it had entered into a sale
agreement of its Carling campus with Public Works and Government Services Canada (PWGSC) and had
been directed to exercise its early termination rights under the Carling lease, shortening the
lease term from ten years to five years. As a result, and based on this change in circumstances and
expected outcome probability, during the fourth quarter of fiscal 2010 Ciena recorded an unrealized
gain of $13.8 million resulting in a fair value of $30.2 million for the contingent consideration
right. During the first quarter of fiscal 2011, Ciena received notice of early termination from
Nortel and the corresponding payment of the $33.5 million described above, resulting in a gain of
$3.3 million.
During fiscal 2010, Ciena incurred $101.4 million in
transaction, consulting and third party service fees, $8.5 million in restructuring expense, and an
additional $12.4 million in costs primarily related to purchases of capitalized information
technology equipment. During the first six months of fiscal 2011, Ciena incurred $34.9 million in
transaction, consulting and third party service fees, $4.7 million in restructuring expense, and an
additional $7.0 million in costs primarily related to purchases of capitalized information
technology equipment.
The following table summarizes the
final allocation related to the MEN Business based on the
estimated fair value of the acquired assets and assumed liabilities (in thousands):
12
|
|
|
|
|
Unbilled receivables |
|
$ |
7,136 |
|
Inventories |
|
|
146,272 |
|
Prepaid expenses and other |
|
|
32,517 |
|
Other long-term assets |
|
|
21,924 |
|
Equipment, furniture and fixtures |
|
|
41,213 |
|
Developed technology |
|
|
218,774 |
|
In-process research and development |
|
|
11,000 |
|
Customer relationships, outstanding purchase orders and contracts |
|
|
260,592 |
|
Trade name |
|
|
2,000 |
|
Deferred revenue |
|
|
(28,086 |
) |
Accrued liabilities |
|
|
(33,845 |
) |
Other long-term obligations |
|
|
(2,644 |
) |
|
|
|
|
Total purchase price allocation |
|
$ |
676,853 |
|
|
|
|
|
Unbilled receivables represent unbilled claims for which Ciena will invoice customers upon its
completion of the acquired projects.
Under the acquisition method of accounting, Ciena revalued the acquired finished goods
inventory to fair value, which was determined to be most appropriately recognized as the estimated
selling price less the sum of (a) costs of disposal, and (b) a reasonable profit allowance for
Cienas selling effort.
Prepaid expenses and other include product demonstration units used to support research and
development projects and indemnification assets related to uncertain tax contingencies acquired and
recorded as part of other long-term obligations. Other long-term assets represent spares used to
support customer maintenance commitments.
Developed technology represents purchased technology that had reached technological
feasibility and for which development had been completed as of the date of the acquisition.
Developed technology will be amortized on a straight line basis over its estimated useful lives of
two to seven years.
In-process research and development represents development projects that had not reached
technological feasibility at the time of the acquisition. This in-process research and development
was completed during the fourth quarter of fiscal 2010 and is being amortized over the period of
seven years. Expenditures to complete the in-process research and development were expensed as
incurred.
Customer relationships, outstanding purchase orders and contracts represent agreements with
existing customers of the MEN Business. These intangible assets are expected to have estimated
useful lives of nine months to seven years, with the exception of $14.6 million related to a
contract asset for acquired in-process projects to be billed by Ciena and recognized as a reduction
in revenue. As of April 30, 2011, Ciena has billed $13.4 million of these contract assets. The
remaining $1.2 million will be billed during the remainder of fiscal 2011. Trade name represents
acquired product trade names that are expected to have a useful life of nine months.
Deferred revenue represents obligations assumed by Ciena to provide maintenance support
services for which payment for such services was already made to Nortel.
Accrued liabilities represent assumed warranty obligations, other customer contract
obligations, and certain employee benefit plans. Other long-term obligations represent uncertain
tax contingencies.
The following unaudited pro forma financial information summarizes the results of operations
for the period indicated as if Cienas acquisition of the MEN Business had been completed as of the
beginning of the period presented. These pro forma amounts (in thousands) do not purport to be
indicative of the results that would have actually been obtained if the acquisition occurred as of
the beginning of the periods presented or that may be obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2010 |
|
|
2010 |
|
Pro forma revenue |
|
$ |
351,248 |
|
|
$ |
783,160 |
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(160,420 |
) |
|
$ |
(384,790 |
) |
|
|
|
|
|
|
|
13
(4) RESTRUCTURING COSTS
Ciena has committed to certain restructuring actions principally affecting Cienas North
America global product group and EMEAs global field and supply chain organizations. On November
16, 2010, Ciena announced a headcount reduction affecting approximately 50 employees in North
America related to this restructuring plan. The action in North America resulted in a
restructuring charge of $0.9 million and the previously announced EMEA action resulted in a
restructuring charge of $1.0 million in the first six months of fiscal 2011. To consolidate
Cienas global distribution centers and related operations, on February 28, 2011, Ciena proposed
changes in its distribution model that may affect 50 to 60 roles related to its supply chain
operations and workforce in Monkstown, Northern Ireland. Execution of any specific reorganization
or headcount reduction is subject to local legal requirements, including notification and
consultation processes with employees and employee representatives. This action resulted in a
restructuring charge of $2.8 million in the first six months of fiscal 2011. Ciena expects this
action to result in an additional restructuring charge in the range of $1.0 million to $2.0 million
during the remainder of fiscal 2011. The following table sets forth the activity and balance of the
restructuring liability accounts for the six months ended April 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation |
|
|
|
|
|
|
Workforce |
|
|
of excess |
|
|
|
|
|
|
reduction |
|
|
facilities |
|
|
Total |
|
Balance at October 31, 2010 |
|
$ |
1,576 |
|
|
$ |
6,392 |
|
|
$ |
7,968 |
|
Additional liability recorded |
|
|
4,686 |
|
|
|
|
|
|
|
4,686 |
|
Cash payments |
|
|
(3,084 |
) |
|
|
(622 |
) |
|
|
(3,706 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2011 |
|
$ |
3,178 |
|
|
$ |
5,770 |
|
|
$ |
8,948 |
|
|
|
|
|
|
|
|
|
|
|
Current restructuring liabilities |
|
$ |
3,178 |
|
|
$ |
1,196 |
|
|
$ |
4,374 |
|
|
|
|
|
|
|
|
|
|
|
Non-current restructuring liabilities |
|
$ |
|
|
|
$ |
4,574 |
|
|
$ |
4,574 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the activity and balance of the restructuring liability
accounts for the six months ended April 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation |
|
|
|
|
|
|
Workforce |
|
|
of excess |
|
|
|
|
|
|
reduction |
|
|
facilities |
|
|
Total |
|
Balance at October 31, 2009 |
|
$ |
170 |
|
|
$ |
9,435 |
|
|
$ |
9,605 |
|
Additional liability recorded |
|
|
1,828 |
|
|
|
|
|
|
|
1,828 |
|
Cash payments |
|
|
(101 |
) |
|
|
(1,525 |
) |
|
|
(1,626 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2010 |
|
$ |
1,897 |
|
|
$ |
7,910 |
|
|
$ |
9,807 |
|
|
|
|
|
|
|
|
|
|
|
Current restructuring liabilities |
|
$ |
1,897 |
|
|
$ |
1,373 |
|
|
$ |
3,270 |
|
|
|
|
|
|
|
|
|
|
|
Non-current restructuring liabilities |
|
$ |
|
|
|
$ |
6,537 |
|
|
$ |
6,537 |
|
|
|
|
|
|
|
|
|
|
|
(5) MARKETABLE SECURITIES
As of the date indicated, long-term investments are comprised of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
Estimated Fair |
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. government obligations |
|
$ |
49,906 |
|
|
$ |
192 |
|
|
$ |
|
|
|
$ |
50,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,906 |
|
|
$ |
192 |
|
|
$ |
|
|
|
$ |
50,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in long-term investments |
|
|
49,906 |
|
|
|
192 |
|
|
|
|
|
|
|
50,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,906 |
|
|
$ |
192 |
|
|
$ |
|
|
|
$ |
50,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes final legal maturities of debt investments at April 30, 2011
(in thousands):
14
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
Less than one year |
|
$ |
|
|
|
$ |
|
|
Due in 1-2 years |
|
|
49,906 |
|
|
|
50,098 |
|
|
|
|
|
|
|
|
|
|
$ |
49,906 |
|
|
$ |
50,098 |
|
|
|
|
|
|
|
|
At
October 31, 2010, Ciena did not have any investments in marketable debt securities.
(6) FAIR VALUE MEASUREMENTS
As of the date indicated, the following table summarizes the fair value of assets that are
recorded at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
|
$ |
50,098 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,098 |
|
Foreign
currency forward contracts |
|
|
|
|
|
|
277 |
|
|
|
|
|
|
|
277 |
|
Embedded redemption feature |
|
|
|
|
|
|
|
|
|
|
13,380 |
|
|
|
13,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
50,098 |
|
|
$ |
277 |
|
|
$ |
13,380 |
|
|
$ |
63,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of the date indicated, the assets above were presented on Cienas Condensed Consolidated
Balance Sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other |
|
$ |
|
|
|
$ |
277 |
|
|
$ |
|
|
|
$ |
277 |
|
Long-term investments |
|
|
50,098 |
|
|
|
|
|
|
|
|
|
|
|
50,098 |
|
Other long-term assets |
|
|
|
|
|
|
|
|
|
|
13,380 |
|
|
|
13,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
50,098 |
|
|
$ |
277 |
|
|
$ |
13,380 |
|
|
$ |
63,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cienas Level 3 assets included in other long-term assets reflect the embedded redemption
feature contained within Cienas 4.0% convertible senior notes. See Note 14 below. The embedded
redemption feature is bifurcated from Cienas 4.0% convertible senior notes using the
with-and-without approach. As such, the total value of the embedded redemption feature is
calculated as the difference between the value of the 4.0% convertible senior notes (the Hybrid
Instrument) and the value of an identical instrument without the embedded redemption feature (the
Host Instrument). Both the Host Instrument and the Hybrid Instrument are valued using a modified
binomial model. The modified binomial model utilizes a risk free interest rate, an implied
volatility of Cienas stock, the recovery rates of bonds and the implied default intensity of the
4.0% convertible senior notes.
As of the dates indicated, the following table sets forth, in thousands, the
reconciliation of changes in fair value measurements of Level 3 assets:
|
|
|
|
|
|
|
Level 3 |
|
Balance at October 31, 2010 |
|
$ |
34,415 |
|
Issuances |
|
|
|
|
Settlements |
|
|
(30,195 |
) |
Changes in unrealized gain (loss) |
|
|
9,160 |
|
Transfers into Level 3 |
|
|
|
|
Transfers out of Level 3 |
|
|
|
|
|
|
|
|
Balance at April 30, 2011 |
|
$ |
13,380 |
|
|
|
|
|
(7) ACCOUNTS RECEIVABLE
As of October 31, 2010 and April 30, 2011, no customers accounted for greater than 10% of net
trade accounts receivable. Allowance for doubtful accounts was $0.1 million and $0.7 million as of
October 31, 2010 and April 30, 2011,
respectively. Ciena has not historically experienced a significant amount of bad debt
expense.
15
(8) INVENTORIES
As of the dates indicated, inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
Raw materials |
|
$ |
30,569 |
|
|
$ |
40,106 |
|
Work-in-process |
|
|
6,993 |
|
|
|
8,445 |
|
Finished goods |
|
|
177,994 |
|
|
|
197,636 |
|
Deferred cost of goods sold |
|
|
76,830 |
|
|
|
69,216 |
|
|
|
|
|
|
|
|
|
|
|
292,386 |
|
|
|
315,403 |
|
Provision for excess and
obsolescence |
|
|
(30,767 |
) |
|
|
(29,707 |
) |
|
|
|
|
|
|
|
|
|
$ |
261,619 |
|
|
$ |
285,696 |
|
|
|
|
|
|
|
|
Ciena writes down its inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated net realizable value based
on assumptions about future demand and market conditions. During the first six months of fiscal
2011, Ciena recorded a provision for excess and obsolescence of $6.4 million, primarily related to
changes in forecasted sales for certain products. Deductions from the provision for excess and
obsolete inventory relate to disposal activities.
The following table summarizes the activity in Cienas reserve for excess and obsolete
inventory for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
beginning of |
|
|
|
|
|
|
|
|
|
Balance at |
April 30, |
|
period |
|
Provisions |
|
Disposals |
|
end of period |
2010 |
|
$ |
24,002 |
|
|
$ |
7,100 |
|
|
$ |
3,105 |
|
|
$ |
27,997 |
|
2011 |
|
$ |
30,767 |
|
|
$ |
6,413 |
|
|
$ |
7,473 |
|
|
$ |
29,707 |
|
(9) PREPAID EXPENSES AND OTHER
As of the dates indicated, prepaid expenses and other are comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
Prepaid VAT and other taxes |
|
$ |
46,352 |
|
|
$ |
41,948 |
|
Deferred deployment expense |
|
|
6,918 |
|
|
|
9,610 |
|
Product demonstration equipment, net |
|
|
29,449 |
|
|
|
46,269 |
|
Prepaid expenses |
|
|
15,087 |
|
|
|
11,098 |
|
Restricted cash |
|
|
12,994 |
|
|
|
22,774 |
|
Contingent consideration |
|
|
30,195 |
|
|
|
|
|
Other non-trade receivables |
|
|
6,685 |
|
|
|
7,837 |
|
|
|
|
|
|
|
|
|
|
$ |
147,680 |
|
|
$ |
139,536 |
|
|
|
|
|
|
|
|
Prepaid expenses and other as of April 30, 2011 include $46.3 million related to product
demonstration equipment, net. Depreciation of product demonstration equipment was $4.5 million for
the first six months of fiscal 2011.
(10) EQUIPMENT, FURNITURE AND FIXTURES
As of the dates indicated, equipment, furniture and fixtures are comprised of the following
(in thousands):
16
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
Equipment, furniture and fixtures |
|
$ |
360,908 |
|
|
$ |
391,890 |
|
Leasehold improvements |
|
|
49,595 |
|
|
|
52,130 |
|
|
|
|
|
|
|
|
|
|
|
410,503 |
|
|
|
444,020 |
|
Accumulated depreciation and amortization |
|
|
(290,209 |
) |
|
|
(317,621 |
) |
|
|
|
|
|
|
|
|
|
$ |
120,294 |
|
|
$ |
126,399 |
|
|
|
|
|
|
|
|
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements
was $13.5 million and $24.9 million for the first six months of fiscal 2010 and 2011,
respectively.
(11) OTHER INTANGIBLE ASSETS
As of the dates indicated, other intangible assets are comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
|
Intangible |
|
|
Amortization |
|
|
Intangible |
|
|
Intangible |
|
|
Amortization |
|
|
Intangible |
|
Developed technology |
|
$ |
417,833 |
|
|
$ |
(186,129 |
) |
|
$ |
231,704 |
|
|
$ |
417,833 |
|
|
$ |
(210,261 |
) |
|
$ |
207,572 |
|
Patents and licenses |
|
|
45,388 |
|
|
|
(45,167 |
) |
|
|
221 |
|
|
|
45,388 |
|
|
|
(45,237 |
) |
|
|
151 |
|
Customer relationships, covenants not to
compete, outstanding purchase orders and
contracts |
|
|
323,573 |
|
|
|
(129,086 |
) |
|
|
194,487 |
|
|
|
323,573 |
|
|
|
(161,521 |
) |
|
|
162,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets |
|
$ |
786,794 |
|
|
$ |
(360,382 |
) |
|
$ |
426,412 |
|
|
$ |
786,794 |
|
|
$ |
(417,019 |
) |
|
$ |
369,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of finite-lived other intangible assets was $33.6 million and
$56.6 million for the first six months of fiscal 2010 and 2011, respectively. Expected future
amortization of finite-lived other intangible assets for the fiscal years indicated is as follows
(in thousands):
|
|
|
|
|
Period ended October 31, |
|
|
|
|
2011 (remaining six months) |
|
$ |
40,032 |
|
2012 |
|
|
73,564 |
|
2013 |
|
|
71,145 |
|
2014 |
|
|
56,987 |
|
2015 |
|
|
52,714 |
|
Thereafter |
|
|
75,333 |
|
|
|
|
|
|
|
$ |
369,775 |
|
|
|
|
|
(12) OTHER BALANCE SHEET DETAILS
As of the dates indicated, other long-term assets are comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
Maintenance spares inventory, net |
|
$ |
53,654 |
|
|
$ |
50,582 |
|
Deferred debt issuance costs, net |
|
|
28,853 |
|
|
|
26,149 |
|
Embedded redemption feature |
|
|
4,220 |
|
|
|
13,380 |
|
Restricted cash |
|
|
37,796 |
|
|
|
39,869 |
|
Other |
|
|
5,296 |
|
|
|
5,230 |
|
|
|
|
|
|
|
|
|
|
$ |
129,819 |
|
|
$ |
135,210 |
|
|
|
|
|
|
|
|
Deferred debt issuance costs are amortized using the straight line method, which
approximates the effect of the effective interest rate method, through the maturity of the related
debt. Amortization of debt issuance costs, which is included in interest expense, was $1.5 million
and $2.7 million during the first six months of fiscal 2010 and fiscal 2011, respectively.
As of the dates indicated, accrued liabilities are comprised of the following (in thousands):
17
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
Warranty |
|
$ |
54,372 |
|
|
$ |
47,252 |
|
Compensation, payroll related tax and benefits |
|
|
39,391 |
|
|
|
50,312 |
|
Vacation |
|
|
20,412 |
|
|
|
27,028 |
|
Current restructuring liabilities |
|
|
2,784 |
|
|
|
4,374 |
|
Interest payable |
|
|
4,345 |
|
|
|
4,357 |
|
Other |
|
|
72,690 |
|
|
|
57,295 |
|
|
|
|
|
|
|
|
|
|
$ |
193,994 |
|
|
$ |
190,618 |
|
|
|
|
|
|
|
|
The following table summarizes the activity in Cienas accrued warranty for the fiscal periods
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
Six months ended |
|
Beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
end of |
April 30, |
|
Balance |
|
Acquired |
|
Provisions |
|
Settlements |
|
period |
2010
|
|
$ |
40,196 |
|
|
|
26,000 |
|
|
|
8,847 |
|
|
|
(10,362 |
) |
|
$ |
64,681 |
|
2011
|
|
$ |
54,372 |
|
|
|
- |
|
|
|
5,646 |
|
|
|
(12,766 |
) |
|
$ |
47,252 |
|
During the first quarter of fiscal 2010, Ciena recorded an adjustment to reduce its
warranty liability and cost of goods sold by $3.3 million, to correct an overstatement of warranty
expenses related to prior periods. The adjustment related to an error in the methodology of
computing the annual failure rate used to calculate the warranty accrual. There was no tax impact
as a result of this adjustment. Ciena believes this adjustment is not material to its financial
statements for prior annual or interim periods.
As a result of the substantial completion of integration activities related to the MEN
Acquisition, Ciena consolidated certain support operations and processes during the first quarter
of fiscal 2011, resulting in a reduction in costs to service future warranty obligations. As a
result of the lower expected costs, Ciena reduced its warranty liability by $6.9 million, which had
the effect of reducing the provisions in the table above.
As of the dates indicated, deferred revenue is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
Products |
|
$ |
31,187 |
|
|
$ |
39,001 |
|
Services |
|
|
73,862 |
|
|
|
85,047 |
|
|
|
|
|
|
|
|
|
|
|
105,049 |
|
|
|
124,048 |
|
Less current portion |
|
|
(75,334 |
) |
|
|
(99,187 |
) |
|
|
|
|
|
|
|
Long-term deferred revenue |
|
$ |
29,715 |
|
|
$ |
24,861 |
|
|
|
|
|
|
|
|
(13) FOREIGN CURRENCY FORWARD CONTRACTS
From
time to time, Ciena uses foreign currency forward contracts to reduce variability in certain forecasted
non-US dollar denominated operating expenses. Generally, these
derivatives have maturities of 12
months or less and are designated as cash flow hedges. Ciena considers several factors when
evaluating hedges of its forecasted foreign currency exposures, such as significance of the
exposure, offsetting economic exposures, potential costs of hedging, and the potential for hedge
ineffectiveness. Ciena does not enter into derivative transactions for purposes other than
hedging economic exposures. During the second quarter of fiscal 2011, Ciena entered into forward
contracts to reduce the variability in its Canadian Dollar and Indian Rupee denominated operating
expenses which principally relate to the Companys research and development activities. These
derivative contracts have been designated as cash flow hedges and are reported on Cienas Balance
Sheet as derivative assets or liabilities as shown in the table below
(in thousands):
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Derivatives Designated as Cash |
|
|
|
|
|
|
|
|
|
Derivative Asset |
|
|
Derivative Liability |
|
|
Derivative Asset |
|
Flow Hedging Instruments |
|
Notional Amount* |
|
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value as of: |
|
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Receive INR / Pay USD |
|
$ |
|
|
|
$ |
5,259 |
|
|
$ |
|
|
|
$ |
28 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
28 |
|
Receive CAD / Pay USD |
|
$ |
|
|
|
$ |
12,674 |
|
|
$ |
|
|
|
$ |
249 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
277 |
(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Notional amounts are computed at the contract exchange rate. |
|
|
|
(1) Amount is included within prepaid expenses and other on the Condensed Consolidated Balance Sheet. |
At the inception of the cash flow hedge and on an ongoing basis, Ciena assesses the
hedging relationship to determine if the forward contracts have been effective in offsetting
changes in cash flows attributable to changes in the relevant foreign currency exchange rate during
the hedging period. The effective portion of the derivatives gain or loss is initially reported
as a component of accumulated other comprehensive income (loss), and upon the occurrence of the
forecasted transaction, is subsequently reclassified to the operating expense line item to which
the hedged transaction relates. Ciena records the net gain or loss associated with any ineffective
portion of the hedging instruments in interest and other income, net. The amounts deferred in
other comprehensive income and recorded on the balance sheet and ineffective amounts recorded in
other income (in thousands) are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion |
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
Line Item in Condensed Consolidated Balance Sheet |
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Accumulated other comprehensive income |
|
$ |
|
|
|
$ |
277 |
|
|
$ |
|
|
|
$ |
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffective Portion |
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
Line Item in Condensed Consolidated Statement of Operations |
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Other income, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
Reclassified to Condensed Consolidated Statement of Operations |
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
Line
Item in Condensed Consolidated Statement of Operations |
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Research and development |
|
$ |
|
|
|
$ |
71 |
|
|
$ |
|
|
|
$ |
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
71 |
|
|
$ |
|
|
|
$ |
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) CONVERTIBLE NOTES PAYABLE
The following table sets forth, in thousands, the carrying value and the estimated current
fair value of Cienas outstanding convertible notes:
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
Description |
|
Carrying Value |
|
|
Fair Value |
|
0.25% Convertible Senior Notes due May 1, 2013 |
|
$ |
216,210 |
|
|
$ |
221,210 |
|
4.0% Convertible Senior Notes due March 15, 2015 (1) |
|
|
376,324 |
|
|
|
586,172 |
|
0.875% Convertible Senior Notes due June 15, 2017 |
|
|
500,000 |
|
|
|
496,563 |
|
3.75% Convertible Senior Notes due October 15, 2018 |
|
|
350,000 |
|
|
|
561,094 |
|
|
|
|
|
|
|
|
|
|
$ |
1,442,534 |
|
|
$ |
1,865,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes unamortized bond premium related to embedded redemption feature |
The fair value reported above is based on the quoted market price for the notes on the
date above.
(15) EARNINGS (LOSS) PER SHARE CALCULATION
The following table (in thousands except per share amounts) is a reconciliation of the
numerator and denominator of the basic net income
19
(loss) per common share (Basic EPS) and the diluted net income (loss) per
potential common share (Diluted EPS). Basic EPS is computed using the weighted average number of
common shares outstanding. Diluted EPS is computed using the weighted average number of (i) common
shares outstanding, (ii) shares issuable upon vesting of restricted stock units, (iii) shares
issuable upon exercise of outstanding stock options, employee stock purchase plan options and
warrants using the treasury stock method; and (iv) shares underlying Cienas outstanding
convertible notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Net loss |
|
$ |
(90,009 |
) |
|
$ |
(62,686 |
) |
|
$ |
(143,342 |
) |
|
$ |
(141,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
Quarter Ended April 30, |
|
Six Months Ended April 30, |
|
|
2010 |
|
2011 |
|
2010 |
|
2011 |
Basic weighted average shares outstanding |
|
|
92,614 |
|
|
|
95,360 |
|
|
|
92,590 |
|
|
|
94,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average shares outstanding |
|
|
92,614 |
|
|
|
95,360 |
|
|
|
92,590 |
|
|
|
94,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS |
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Basic EPS |
|
$ |
(0.97 |
) |
|
$ |
(0.66 |
) |
|
$ |
(1.55 |
) |
|
$ |
(1.49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
(0.97 |
) |
|
$ |
(0.66 |
) |
|
$ |
(1.55 |
) |
|
$ |
(1.49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the weighted average shares excluded from the calculation
of the denominator for Basic and Diluted EPS due to their anti-dilutive effect for the fiscal years
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
Six Months Ended April 30, |
|
|
2010 |
|
2011 |
|
2010 |
|
2011 |
Shares underlying stock options, restricted stock
units and warrants |
|
|
2,082 |
|
|
|
6,657 |
|
|
|
1,864 |
|
|
|
6,658 |
|
0.25% Convertible Senior Notes due May 1, 2013 |
|
|
7,539 |
|
|
|
5,470 |
|
|
|
7,539 |
|
|
|
5,470 |
|
4.00% Convertible Senior Notes due March 15, 2015 |
|
|
9,607 |
|
|
|
18,396 |
|
|
|
4,777 |
|
|
|
18,396 |
|
0.875% Convertible Senior Notes due June 15, 2017 |
|
|
13,108 |
|
|
|
13,108 |
|
|
|
13,108 |
|
|
|
13,108 |
|
3.75% Convertible Senior Notes due October 15, 2018 |
|
|
|
|
|
|
17,356 |
|
|
|
|
|
|
|
17,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluded due to anti-dilutive effect |
|
|
32,336 |
|
|
|
60,987 |
|
|
|
27,288 |
|
|
|
60,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16) SHARE-BASED COMPENSATION EXPENSE
Ciena grants equity awards under its 2008 Omnibus Incentive Plan (2008 Plan) and 2003
Employee Stock Purchase Plan (ESPP). These plans were approved by shareholders and are described
in Cienas annual report on Form 10-K. In connection with its acquisition of the MEN Business,
Ciena also adopted the 2010 Inducement Equity Award Plan (2010 Plan) pursuant to which it has
made awards to eligible persons as described below.
2008 Plan
Ciena has previously granted stock options and restricted stock units under its 2008 Plan.
Pursuant to Board and stockholder approval, effective April 14, 2010, Ciena amended its 2008 Plan
to (i) increase the number of shares available for issuance by five million shares; and (ii) reduce
from 1.6 to 1.31 the fungible share ratio used for counting full value awards, such as restricted
stock units, against the shares remaining available under the 2008 Plan. As of April 30, 2011,
there were approximately 4.0 million shares authorized and remaining available for issuance under
the 2008 Plan.
2010 Inducement Equity Award Plan
On December 8, 2009, the Compensation Committee of the Board of Directors approved the 2010
Inducement Plan. The 2010 Plan was intended to enhance Cienas ability to attract and retain
certain key employees transferred to Ciena in connection with its acquisition of the MEN Business.
The 2010 Plan authorized the issuance of restricted stock or restricted stock units representing up
to 2.25 million shares of Ciena common stock, of which 1.7 million shares were awarded prior to the
March 19, 2011 termination date. Upon termination, those shares remaining available under the 2010
Plan, ceased to be available for issuance under the 2010 Plan or any other existing Ciena equity
incentive plan.
20
Stock Options
Outstanding stock option awards to employees are generally subject to service-based vesting
restrictions and vest incrementally over a four-year period. The following table is a summary of
Cienas stock option activity for the periods indicated (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Underlying |
|
|
Weighted |
|
|
|
Options |
|
|
Average |
|
|
|
Outstanding |
|
|
Exercise Price |
|
Balance as of October 31, 2010 |
|
|
5,002 |
|
|
$ |
40.96 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(370 |
) |
|
|
15.39 |
|
Canceled |
|
|
(375 |
) |
|
|
92.76 |
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2011 |
|
|
4,257 |
|
|
$ |
38.61 |
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the first six months of fiscal 2010
and fiscal 2011, was $0.7 million and $2.1 million, respectively. The weighted average fair value
of each stock option granted by Ciena during the first six months of fiscal 2010 was $6.95. There
were no stock options granted by Ciena during the first six months of fiscal 2011.
The following table summarizes information with respect to stock options outstanding at April
30, 2011, based on Cienas closing stock price of $28.24 per share on the last trading day of
Cienas second fiscal quarter of 2011 (shares and intrinsic value in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at April 30, 2011 |
|
Vested Options at April 30, 2011 |
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Remaining |
|
Weighted |
|
|
|
|
|
Remaining |
|
Weighted |
|
|
Range of |
|
Number |
|
Contractual |
|
Average |
|
Aggregate |
|
Number |
|
Contractual |
|
Average |
|
Aggregate |
Exercise |
|
of |
|
Life |
|
Exercise |
|
Intrinsic |
|
of |
|
Life |
|
Exercise |
|
Intrinsic |
Price |
|
Shares |
|
(Years) |
|
Price |
|
Value |
|
Shares |
|
(Years) |
|
Price |
|
Value |
$ 0.01 $ 16.52 |
|
661 |
|
5.69 |
|
$11.24 |
|
$11,244 |
|
518 |
|
5.03 |
|
$11.57 |
|
$8,645 |
$16.53 $ 17.43 |
|
361 |
|
4.37 |
|
17.20 |
|
3,981 |
|
343 |
|
4.21 |
|
17.20 |
|
3,783 |
$17.44 $ 22.96 |
|
349 |
|
3.97 |
|
21.80 |
|
2,245 |
|
331 |
|
3.81 |
|
21.86 |
|
2,111 |
$22.97 $ 31.71 |
|
1,267 |
|
3.61 |
|
29.43 |
|
708 |
|
1,229 |
|
3.51 |
|
29.46 |
|
675 |
$31.72 $ 46.90 |
|
789 |
|
4.97 |
|
39.47 |
|
|
|
719 |
|
4.81 |
|
39.69 |
|
|
$46.91 $ 73.78 |
|
400 |
|
1.62 |
|
59.13 |
|
|
|
400 |
|
1.62 |
|
59.13 |
|
|
$73.79 $422.38 |
|
430 |
|
0.46 |
|
118.77 |
|
|
|
430 |
|
0.46 |
|
118.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01 $422.38 |
|
4,257 |
|
3.77 |
|
$38.61 |
|
$18,178 |
|
3,970 |
|
3.51 |
|
$39.94 |
|
$15,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions for Option-Based Awards
Ciena recognizes the fair value of service-based options as share-based compensation expense
on a straight-line basis over the requisite service period. Ciena did not grant any option-based
awards during the first six months of fiscal 2011. During the first six months of fiscal 2010,
Ciena estimated the fair value of each option award on the date of grant using the Black-Scholes
option-pricing model, with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
April 30, |
|
April 30, |
|
|
2010 |
|
2010 |
Expected volatility |
|
61.9% |
|
61.9% |
Risk-free interest rate |
|
2.8 3.0% |
|
2.4 3.0%
|
Expected life (years) |
|
5.3 5.5 |
|
5.3 5.5 |
Expected dividend yield |
|
0.0% |
|
0.0% |
21
Ciena considered the implied volatility and historical volatility of its stock price in
determining its expected volatility, and, finding both to be equally reliable, determined that a
combination of both would result in the best estimate of expected volatility.
The risk-free interest rate assumption is based upon observed interest rates appropriate for
the expected term of Cienas employee stock options.
The expected life of employee stock options represents the weighted-average period the stock
options are expected to remain outstanding. Ciena uses historical information about specific
exercise behavior of its grantees to determine the expected term.
The dividend yield assumption is based on Cienas history and expectation of dividend payouts.
Because share-based compensation expense is recognized only for those awards that are
ultimately expected to vest, the amount of share-based compensation expense recognized reflects a
reduction for estimated forfeitures. Ciena estimates forfeitures at the time of grant and revises
those estimates in subsequent periods based upon new or changed information. Ciena relies upon
historical experience in establishing forfeiture rates. If actual forfeitures differ from current
estimates, total unrecognized share-based compensation expense will be adjusted for future changes
in estimated forfeitures.
Restricted Stock Units
A restricted stock unit is a stock award that entitles the holder to receive shares of Ciena
common stock as the unit vests. Cienas outstanding restricted stock unit awards are subject to
service-based vesting conditions and/or performance-based vesting conditions. Awards subject to
service-based conditions typically vest in increments over a three to four year period. Awards with
performance-based vesting conditions require the achievement of certain operational, financial or
other performance criteria or targets as a condition of vesting, or acceleration of vesting, of
such awards.
Cienas outstanding restricted stock units include performance-accelerated restricted stock
units (PARS), which vest in full four years after the date of grant (assuming that the grantee is
still employed by Ciena at that time). At the beginning of each of the first three fiscal years
following the date of grant, the Compensation Committee establishes one-year performance targets
which, if satisfied, provide for the acceleration of vesting of one-third of the award. As a
result, the recipient has the opportunity, subject to satisfaction of performance conditions, to
vest as to the entire award in three years. Ciena recognizes the estimated fair value of
performance-based awards, net of estimated forfeitures, as share-based expense over the performance
period, using graded vesting, which considers each performance period or tranche separately, based
upon Cienas determination of whether it is probable that the performance targets will be achieved.
At each reporting period, Ciena reassesses the probability of achieving the performance targets and
the performance period required to meet those targets.
The
aggregate fair value of Cienas restricted stock units is based on Cienas closing
stock price on the last trading day of each period as indicated. The following table is a summary
of Cienas restricted stock unit activity for the periods
indicated, with the aggregate fair
value of the balance outstanding at the end of each period, based on Cienas closing stock price on
the last trading day of the relevant period (shares and aggregate
fair value in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Restricted |
|
|
Grant Date |
|
|
Aggregate |
|
|
|
Stock Units |
|
|
Fair Value |
|
|
Fair |
|
|
|
Outstanding |
|
|
Per Share |
|
|
Value |
|
Balance as of October 31, 2010 |
|
|
5,191 |
|
|
$ |
13.81 |
|
|
$ |
71,681 |
|
Granted |
|
|
1,732 |
|
|
|
|
|
|
|
|
|
Vested |
|
|
(1,090 |
) |
|
|
|
|
|
|
|
|
Canceled or forfeited |
|
|
(438 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2011 |
|
|
5,395 |
|
|
$ |
15.59 |
|
|
$ |
84,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock units that vested and were converted into common
stock during the first six months of fiscal 2010 and fiscal 2011 was $12.0 million and $24.3
million, respectively. The weighted average fair value of each restricted stock unit granted by
Ciena during the first six months of fiscal 2010 and fiscal 2011 was $13.34 and $19.85,
respectively.
22
Assumptions for Restricted Stock Unit Awards
The fair value of each restricted stock unit award is estimated using the intrinsic value
method, which is based on the closing price on the date of grant. Share-based expense for
service-based restricted stock unit awards is recognized, net of estimated forfeitures, ratably
over the vesting period on a straight-line basis.
Share-based expense for performance-based restricted stock unit awards, net of estimated
forfeitures, is recognized ratably over the performance period based upon Cienas determination of
whether it is probable that the performance targets will be achieved. At each reporting period,
Ciena reassesses the probability of achieving the performance targets and the performance period
required to meet those targets. The estimation of whether the performance targets will be achieved
involves judgment, and the estimate of expense is revised periodically based on the probability of
achieving the performance targets. Revisions are reflected in the period in which the estimate is
changed. If any performance goals are not met, no compensation cost is ultimately recognized
against that goal and, to the extent previously recognized, compensation cost is reversed.
2003 Employee Stock Purchase Plan
In March 2003, Ciena stockholders approved the 2003 Employee Stock Purchase Plan (the ESPP),
which has a ten-year term. Ciena stockholders subsequently approved an amendment increasing the
number of shares available to 3.6 million and adopting an evergreen provision. On December 31 of
each year, the number of shares available under the ESPP will increase by up to 0.6 million shares,
provided that the total number of shares available at that time shall not exceed 3.6 million. Under
the ESPP, eligible employees may enroll in a six-month offer period during certain open enrollment
periods. The six-month offer periods begin on December 21 and June 21 of each year with an initial
stub period running from October 1, 2010 through December 20, 2010. The purchase price is equal to
85% of the lower of the fair market value of Ciena common stock on the day preceding each offer
period or the last day of each offer period. The current ESPP is considered compensatory for
purposes of share-based compensation expense. During the first six months of fiscal 2011, Ciena
estimated the fair value of each ESPP option on the first date of the offer period using the
Black-Scholes option-pricing model, with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
April 30, |
|
April 30, |
|
|
2011 |
|
2011 |
Expected volatility |
|
|
39.8 |
% |
|
39.8 49.1% |
Risk-free interest rate |
|
|
0.19 |
% |
|
0.19 0.64% |
Expected life (years) |
|
|
0.5 |
|
|
0.25 0.50 |
Expected dividend yield |
|
|
0.0 |
% |
|
0.0% |
The following table is a summary of ESPP activity and shares available for issuance for the
periods indicated (shares and intrinsic value in thousands):
|
|
|
|
|
|
|
|
|
|
|
ESPP shares available |
|
Intrinsic value at stock |
|
|
for issuance |
|
issuance date |
Balance as of October 31, 2010 |
|
|
3,498 |
|
|
|
|
|
Issued December 20, 2010 |
|
|
(139 |
) |
|
$ |
1,117 |
|
Evergreen at December 31, 2010 |
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2011 |
|
|
3,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-Based Compensation Expense for Periods Reported
The following table summarizes share-based compensation expense for the periods indicated (in
thousands):
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Product costs |
|
$ |
549 |
|
|
$ |
505 |
|
|
$ |
927 |
|
|
$ |
1,079 |
|
Service costs |
|
|
452 |
|
|
|
502 |
|
|
|
883 |
|
|
|
1,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in cost of sales |
|
|
1,001 |
|
|
|
1,007 |
|
|
|
1,810 |
|
|
|
2,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
2,259 |
|
|
|
2,597 |
|
|
|
4,646 |
|
|
|
5,168 |
|
Sales and marketing |
|
|
2,665 |
|
|
|
3,143 |
|
|
|
5,123 |
|
|
|
6,134 |
|
General and administrative |
|
|
2,301 |
|
|
|
2,140 |
|
|
|
4,876 |
|
|
|
5,141 |
|
Acquisition and integration costs |
|
|
345 |
|
|
|
74 |
|
|
|
345 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in operating expense |
|
|
7,570 |
|
|
|
7,954 |
|
|
|
14,990 |
|
|
|
16,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense capitalized in inventory, net |
|
|
(53 |
) |
|
|
60 |
|
|
|
(1 |
) |
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation |
|
$ |
8,518 |
|
|
$ |
9,021 |
|
|
$ |
16,799 |
|
|
$ |
18,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of April 30, 2011, total unrecognized compensation expense was $71.7 million: (i) $2.8
million, which relates to unvested stock options and is expected to be recognized over a
weighted-average period of 0.6 year; and (ii) $68.9 million, which relates to unvested restricted
stock units and is expected to be recognized over a weighted-average period of 1.7 years.
(17) COMPREHENSIVE LOSS
The components of comprehensive loss were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Net loss |
|
$ |
(90,009 |
) |
|
$ |
(62,686 |
) |
|
$ |
(143,342 |
) |
|
$ |
(141,742 |
) |
Change in
unrealized gain (loss) on available-for-sale securities, net of
tax |
|
|
(272 |
) |
|
|
192 |
|
|
|
(458 |
) |
|
|
375 |
|
Change in
unrealized gain (loss) on foreign currency forward contracts, net of tax |
|
|
|
|
|
|
175 |
|
|
|
|
|
|
|
175 |
|
Change in accumulated translation adjustments |
|
|
98 |
|
|
|
5,625 |
|
|
|
(535 |
) |
|
|
5,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(90,183 |
) |
|
$ |
(56,694 |
) |
|
$ |
(144,335 |
) |
|
$ |
(135,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(18) SEGMENT AND ENTITY WIDE DISCLOSURES
Segment Reporting
Cienas segments are discussed in the following product and service groupings:
|
|
|
Packet-Optical Transport includes optical transport solutions that increase network
capacity and enable more rapid delivery of a broader mix of high-bandwidth services. These
products are used by network operators to facilitate the cost effective and efficient
transport of voice, video and data traffic in core networks, as well as regional, metro and
access networks. Our principal products in this segment include the ActivFlex 6500
Packet-Optical Platform (ActivFlex 6500); ActivFlex 6110 Multiservice Optical Platform
(ActivFlex 6110); ActivSpan 5200 (ActivSpan 5200); ActivSpan Common Photonic Layer (CPL);
Optical Multiservice Edge 1000 series (OME 1000); and Optical Metro 3500 (OM 3500) from the
MEN Business. This segment includes sales of our ActivSpan 4200® FlexSelect®Advanced
Services Platform (ActivSpan 4200) and our Corestream® Agility Optical Transport System
(Corestream) from Cienas pre-acquisition portfolio. This segment also includes sales from
legacy SONET/SDH products and legacy data networking products, as well as certain
enterprise-oriented transport solutions that support storage and LAN extension,
interconnection of data centers, and virtual private networks. This segment also includes
operating system software and enhanced software features embedded in each of these
products. Revenue from this segment is included in product revenue on the Condensed
Consolidated Statement of Operations. |
|
|
|
|
Packet-Optical Switching includes optical switching platforms that enable automated
optical infrastructures for the delivery of a wide variety of enterprise and
consumer-oriented network services. Our principal products in this segment include our
CoreDirector® Multiservice Optical Switch, CoreDirector FS; and our ActivFlex 5430
Reconfigurable Switching System, our packet Optical Transport Network
(OTN) configuration for the 5400 family.
These products include multiservice, multi-protocol switching systems that consolidate the
functionality of an add/drop multiplexer, digital cross-connect and packet switch into a
single, high-capacity intelligent switching system. These products address both the core
and metro segments of communications networks and support key managed service services,
Ethernet/TDM Private Line, Triple Play and IP services. This segment also includes sales of
operating system |
24
|
|
|
software and enhanced software features embedded in each of these
products. Revenue from this segment is included in product revenue on the Condensed
Consolidated Statement of Operations. |
|
|
|
|
Carrier Ethernet Service Delivery - includes the ActivEdge 3900 family of service
delivery switches and service aggregation switches, as well as the ActivEdge 5000 series
and ActivEdge 5410 Service Aggregation Switch, our Carrier Ethernet
configuration for the 5400 family. These products support the access and
aggregation tiers of communications networks and have principally been deployed to support
wireless backhaul infrastructures and business data services. Employing sophisticated
Carrier Ethernet switching technology, these products deliver quality of service
capabilities, virtual local area networking and switching functions, and carrier-grade
operations, administration, and maintenance features. This segment
includes the legacy metro
Ethernet routing switch (MERS) product line, from the MEN
Business, and broadband
products, including our CNX-5 Broadband DSL System (CNX-5), that transitions legacy voice
networks to support Internet-based (IP) telephony, video services and DSL. This segment
also includes sales of operating system software and enhanced software features embedded in
each of these products. Revenue from this segment is included in product revenue on the
Condensed Consolidated Statement of Operations. |
|
|
|
|
Software and Services - includes our integrated network and service management software
designed to automate and simplify network management and operation, while increasing
network performance and functionality. These software solutions can track individual
services across multiple product suites, facilitating planned network maintenance, outage
detection and identification of customers or services affected by network troubles. This
segment also includes a broad range of consulting and support services, including
installation and deployment, maintenance support, consulting, network design and training
activities. Except for revenue from the software portion of this segment, which is included
in product revenue, revenue from this segment is included in services revenue on the
Condensed Consolidated Statement of Operations. |
Reportable segment asset information is not disclosed because it is not reviewed by the chief
operating decision maker for purposes of evaluating performance and allocating resources.
The table below (in thousands, except percentage data) sets forth Cienas segment revenue for
the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packet-Optical Transport |
|
$ |
97,689 |
|
|
|
38.5 |
|
|
$ |
272,635 |
|
|
|
65.2 |
|
|
$ |
181,159 |
|
|
|
42.2 |
|
|
$ |
559,116 |
|
|
|
65.7 |
|
Packet-Optical Switching |
|
|
32,434 |
|
|
|
12.8 |
|
|
|
31,267 |
|
|
|
7.5 |
|
|
|
55,832 |
|
|
|
13.0 |
|
|
|
66,541 |
|
|
|
7.8 |
|
Carrier Ethernet Service Delivery |
|
|
74,806 |
|
|
|
29.5 |
|
|
|
30,931 |
|
|
|
7.4 |
|
|
|
115,245 |
|
|
|
26.8 |
|
|
|
58,559 |
|
|
|
6.9 |
|
Software and Services |
|
|
48,542 |
|
|
|
19.2 |
|
|
|
83,061 |
|
|
|
19.9 |
|
|
|
77,111 |
|
|
|
18.0 |
|
|
|
166,986 |
|
|
|
19.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue |
|
$ |
253,471 |
|
|
|
100.0 |
|
|
$ |
417,894 |
|
|
|
100.0 |
|
|
$ |
429,347 |
|
|
|
100.0 |
|
|
$ |
851,202 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
Segment Profit (Loss)
Segment profit (loss) is determined based on internal performance measures used by the chief
executive officer to assess the performance of each operating segment in a given period. In
connection with that assessment, the chief executive officer excludes the following items: selling
and marketing costs; general and administrative costs; acquisition and integration costs;
amortization of intangible assets; restructuring costs; change in fair value of contingent
consideration; interest and other income (net); interest expense; equity investment gains or losses
and provisions (benefit) for income taxes.
The table below (in thousands) sets forth Cienas segment profit (loss) and the reconciliation
to consolidated net income (loss) during the respective periods:
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packet-Optical Transport |
|
$ |
(6,595 |
) |
|
$ |
36,506 |
|
|
$ |
13,528 |
|
|
$ |
75,532 |
|
Packet-Optical Switching |
|
|
5,467 |
|
|
|
8,487 |
|
|
|
3,429 |
|
|
|
21,364 |
|
Carrier Ethernet Service Delivery |
|
|
25,972 |
|
|
|
3,497 |
|
|
|
34,854 |
|
|
|
5,890 |
|
Software and Services |
|
|
8,956 |
|
|
|
17,719 |
|
|
|
12,116 |
|
|
|
36,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment profit (loss) |
|
|
33,800 |
|
|
|
66,209 |
|
|
|
63,927 |
|
|
|
138,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other nonperformance items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
(45,328 |
) |
|
|
(61,768 |
) |
|
|
(79,565 |
) |
|
|
(118,860 |
) |
General and administrative |
|
|
(21,503 |
) |
|
|
(32,480 |
) |
|
|
(34,266 |
) |
|
|
(70,794 |
) |
Acquisition and integration costs |
|
|
(39,221 |
) |
|
|
(10,741 |
) |
|
|
(66,252 |
) |
|
|
(34,926 |
) |
Amortization of intangible assets |
|
|
(17,121 |
) |
|
|
(13,674 |
) |
|
|
(23,102 |
) |
|
|
(42,458 |
) |
Restructuring costs |
|
|
(1,849 |
) |
|
|
(3,164 |
) |
|
|
(1,828 |
) |
|
|
(4,686 |
) |
Change in fair value of contingent consideration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,289 |
|
Interest and other financial charges, net |
|
|
(365 |
) |
|
|
(5,177 |
) |
|
|
(2,966 |
) |
|
|
(8,462 |
) |
(Provision) benefit for income taxes |
|
|
1,578 |
|
|
|
(1,891 |
) |
|
|
710 |
|
|
|
(3,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss |
|
$ |
(90,009 |
) |
|
$ |
(62,686 |
) |
|
$ |
(143,342 |
) |
|
$ |
(141,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Wide Reporting
The following table reflects Cienas geographic distribution of revenue based on the location
of the purchaser, with any country accounting for greater than 10% of total revenue in the period
specifically identified. Revenue attributable to geographic regions outside of the United States is
reflected as Other International revenue. For the periods below, Cienas geographic distribution
of revenue was as follows (in thousands, except percentage data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
United States |
|
$ |
180,523 |
|
|
|
71.2 |
|
|
$ |
230,801 |
|
|
|
55.2 |
|
|
$ |
304,435 |
|
|
|
70.9 |
|
|
$ |
451,150 |
|
|
|
53.0 |
|
Other International |
|
|
72,948 |
|
|
|
28.8 |
|
|
|
187,093 |
|
|
|
44.8 |
|
|
|
124,912 |
|
|
|
29.1 |
|
|
|
400,052 |
|
|
|
47.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
253,471 |
|
|
|
100.0 |
|
|
$ |
417,894 |
|
|
|
100.0 |
|
|
$ |
429,347 |
|
|
|
100.0 |
|
|
$ |
851,202 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
The following table reflects Cienas geographic distribution of equipment, furniture and
fixtures, with any country accounting for greater than 10% of total equipment, furniture and
fixtures specifically identified. Equipment, furniture and fixtures attributable to geographic
regions outside of the United States and Canada are reflected as Other International. For the
periods below, Cienas geographic distribution of equipment, furniture and fixtures was as follows
(in thousands, except percentage data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
United States |
|
$ |
63,675 |
|
|
|
52.9 |
|
|
$ |
63,649 |
|
|
|
50.3 |
|
Canada |
|
|
45,103 |
|
|
|
37.5 |
|
|
|
50,294 |
|
|
|
39.8 |
|
Other International |
|
|
11,516 |
|
|
|
9.6 |
|
|
|
12,456 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
120,294 |
|
|
|
100.0 |
|
|
$ |
126,399 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total equipment, furniture and fixtures |
For the periods below, customers accounting for at least 10% of Cienas revenue were as
follows (in thousands, except percentage data):
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
Company A |
|
$ |
70,808 |
|
|
|
27.9 |
|
|
$ |
66,104 |
|
|
|
15.8 |
|
|
$ |
113,323 |
|
|
|
26.4 |
|
|
$ |
126,941 |
|
|
|
14.9 |
|
Company B |
|
|
36,531 |
|
|
|
14.4 |
|
|
|
n/a |
|
|
|
|
|
|
|
51,867 |
|
|
|
12.1 |
|
|
|
n/a |
|
|
|
|
|
Company C |
|
|
n/a |
|
|
|
|
|
|
|
42,159 |
|
|
|
10.1 |
|
|
|
n/a |
|
|
|
|
|
|
|
89,981 |
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
107,339 |
|
|
|
42.3 |
|
|
$ |
108,263 |
|
|
|
25.9 |
|
|
$ |
165,190 |
|
|
|
38.5 |
|
|
$ |
216,922 |
|
|
|
25.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
Denotes revenue representing less than 10% of total revenue for the period |
|
* |
|
Denotes % of total revenue |
(19) CONTINGENCIES
Foreign Tax Contingencies
Ciena has received assessment notices from the Mexican tax authorities asserting deficiencies
in payments between 2001 and 2005 related primarily to income taxes and import taxes and duties.
Ciena has filed judicial petitions appealing these assessments. As of October 31, 2010 and April
30, 2011, Ciena had accrued liabilities of $1.4 million and $1.6 million, respectively, related to
these contingencies, which are reported as a component of other current accrued liabilities. As of
April 30, 2011, Ciena estimates that it could be exposed to possible losses of up to $5.8 million,
for which it has not accrued liabilities. Ciena has not accrued the additional income tax
liabilities because it does not believe that such losses are more likely than not to be incurred.
Ciena has not accrued the additional import taxes and duties because it does not believe the
incurrence of such losses are probable. Ciena continues to evaluate the likelihood of probable and
reasonably possible losses, if any, related to these assessments. As a result, future increases or
decreases to accrued liabilities may be necessary and will be recorded in the period when such
amounts are estimable and more likely than not (for income taxes) or probable (for non-income
taxes).
In addition to the matters described above, Ciena is subject to various tax liabilities
arising in the ordinary course of business. Ciena does not expect that the ultimate settlement of
these liabilities will have a material effect on our results of operations, financial position or
cash flows.
Litigation
On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the
Northern District of Georgia against Ciena and four other defendants, alleging, among other things,
that certain of the parties products infringe U.S. Patent 6,542,673 (the 673 Patent), relating
to an identifier system and components for optical assemblies. The complaint, which seeks
injunctive relief and damages, was served upon Ciena on January 20, 2009. Ciena filed an answer to
the complaint and counterclaims against Graywire on March 26, 2009, and an amended answer and
counterclaims on April 17, 2009. On April 27, 2009, Ciena and certain other defendants filed an
application for inter partes reexamination of the 673 Patent with the U.S. Patent and Trademark
Office (the PTO). On the same date, Ciena and the other defendants filed a motion to stay the
case pending reexamination of all of the patents-in-suit. On July 17, 2009, the district court
granted the defendants motion to stay the case. On July 23, 2009, the PTO granted the defendants
application for reexamination with respect to certain claims of the
673 Patent. On March 17, 2011, the PTO granted a third party
application for reexamination with respect to one claim of the
673 Patent. Ciena believes
that it has valid defenses to the lawsuit and intends to defend it vigorously in the event the stay
of the case is lifted.
As a result of its June 2002 merger with ONI Systems Corp., Ciena became a defendant in a
securities class action lawsuit filed in the United States District Court for the Southern District
of New York in August 2001. The complaint named ONI, certain former ONI officers, and certain
underwriters of ONIs initial public offering (IPO) as defendants, and alleges, among other things,
that the underwriter defendants violated the securities laws by failing to disclose alleged
compensation arrangements in ONIs registration statement and by engaging in manipulative practices
to artificially inflate ONIs stock price after the IPO. The complaint also alleges that ONI and
the named former officers violated the securities laws by failing to disclose the underwriters
alleged compensation arrangements and manipulative practices. The former ONI officers have been
dismissed from the action without prejudice. Similar complaints have been filed against more than
300 other issuers that have had initial public offerings since 1998, and all of these actions have
been included in a single coordinated proceeding. On October 6, 2009, the Court entered an opinion
granting final approval to a settlement among the plaintiffs, issuer defendants and underwriter
defendants, and directing that the Clerk of the Court close these actions. Notices of appeal of the
opinion granting final approval have been filed, all of which have
been either resolved or dismissed, except one. A description of this litigation and the history
of the proceedings can be found in Item 3. Legal Proceedings of Part I of Cienas Annual Report
on Form 10-K filed with the Securities and Exchange Commission on December 22, 2010. No specific
amount of damages has been claimed in this action. Due to the inherent uncertainties of litigation
and because the settlement remains subject to appeal, the ultimate outcome of the matter is
uncertain.
27
In addition to the matters described above, Ciena is subject to various legal proceedings,
claims and litigation arising in the ordinary course of business. Ciena does not expect that the
ultimate costs to resolve these matters will have a material effect on its results of operations,
financial position or cash flows.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Some of the statements contained, or incorporated by reference, in this quarterly report
discuss future events or expectations, contain projections of results of operations or financial
condition, changes in the markets for our products and services, or state other forward-looking
information. Cienas forward-looking information is based on various factors and was derived
using numerous assumptions. In some cases, you can identify these forward-looking statements by
words like may, will, should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of those words and other comparable words.
You should be aware that these statements only reflect our current predictions and beliefs. These
statements are subject to known and unknown risks, uncertainties and other factors, and actual
events or results may differ materially. Important factors that could cause our actual results to
be materially different from the forward-looking statements are disclosed throughout this report,
particularly in Item 1A Risk Factors of Part II of this report below. You should review these
risk factors and the rest of this quarterly report in combination with the more detailed
description of our business and managements discussion and analysis of financial condition in our
annual report on Form 10-K, which we filed with the Securities and Exchange Commission on December
22, 2010, for a more complete understanding of the risks associated with an investment in Cienas
securities. Ciena undertakes no obligation to revise or update any forward-looking statements.
Overview
We are a provider of communications networking equipment, software and services that
support the transport, switching, aggregation and management of voice, video and data traffic. Our
Packet-Optical Transport, Packet-Optical Switching and Carrier Ethernet Service Delivery products
are used, individually or as part of an integrated solution, in networks operated by communications
service providers, cable operators, governments and enterprises around the globe.
We are a network specialist targeting the transition of disparate, legacy
communications networks to converged, next-generation architectures that are optimized to handle
increased traffic volumes and deliver more efficiently a broader mix of high-bandwidth
communications services. Our communications networking products, through their embedded software
and our network management software suites, enable network operators to efficiently and
cost-effectively deliver critical enterprise and consumer-oriented communication services. Together
with our comprehensive design, implementation and support services, our networking solutions
offering seeks to enable software-defined, automated networks that address the business challenges,
communications infrastructure requirements and service delivery needs of our customers. Our
customers face a challenging and rapidly changing environment that requires their networks be
robust enough to address increasing capacity needs from a growing set of consumer and business
applications, and flexible enough to quickly adapt to execute new business strategies and support
the delivery of innovative, revenue-creating services. By improving network productivity and
automation, reducing network costs and providing flexibility to enable differentiated service
offerings, our networking solutions offering creates business and operational value for our
customers.
Acquisition of Nortel Metro Ethernet Networks Business (the MEN Acquisition)
On March 19, 2010, we completed our acquisition of substantially all of the optical networking
and Carrier Ethernet assets of Nortels Metro Ethernet Networks business (the MEN Business) for a
purchase price of $676.8 million. See Note 3 to the Condensed Consolidated Financial Statements in
Item 1 of this report for more information.
Integration Activities and Costs
During the second quarter of fiscal 2011, we integrated the MEN Business
operations into Cienas enterprise resource planning system and other critical business systems.
This system integration enabled us to substantially end our reliance upon transition
services performed by an affiliate of Nortel following the MEN
Acquisition. Accomplishing this important integration achievement necessitated a
temporary shut-down of supply chain operations early in our second quarter of fiscal 2011, which
affected our operations and results as described below. With critical integration activities
substantially complete, we are focused on optimizing and gaining leverage from our business
systems, processes, operations and resources to support the growth of the combined business.
Restructuring Activities
28
Since the MEN Acquisition, we have undertaken a number of restructuring activities intended to
reduce operating expense and better align our workforce and operating costs with market
opportunities, product development and business strategies for the combined operations. On
November 16, 2010, we announced a headcount reduction affecting approximately 50 employees,
principally in our global product group in North America. To consolidate our global distribution
centers and related operations, on February 28, 2011, we proposed changes in our distribution model
that may affect 50 to 60 roles related to our supply chain operations and workforce in Monkstown,
Northern Ireland. Execution of any specific reorganization or headcount reduction is subject to
local legal requirements, including notification and consultation processes with employees and
employee representatives. During the first six months of fiscal 2011, we incurred approximately
$4.7 million in restructuring costs related to these actions, and a previously announced
reorganization of our business and operations in EMEA. We expect these actions to result in an additional restructuring
charge in the range of $1.0 million to $2.0 million during the remainder of fiscal 2011. As we look to
manage operating expense and optimize the resources of the combined operations, we
will continue to assess the allocation of headcount, facilities and other resources toward key
growth opportunities for our business and evaluate additional cost reduction measures.
Effect of MEN Acquisition upon Results of Operations and Financial Condition
Due to the relative scale of its operations, the MEN Acquisition has materially affected our
operations, financial results and liquidity and may make period to period comparisons difficult.
Our revenue and operating expense increased materially compared to periods prior to the MEN
Acquisition, with increases in our concentration of Packet-Optical
Transport revenue and revenue from outside of the United States. From the closing of the MEN Acquisition through the second quarter of
fiscal 2011, we incurred significant integration costs and transition services expense. Integration activities resulted in $136.3 million in
transaction, consulting and third party service fees, $13.2 million in severance expense, and an
additional $19.4 million, primarily related to purchases of capitalized information technology
equipment through the second quarter of fiscal 2011. We anticipate that we will incur approximately $5.0 million to $10.0 million in
additional integration costs during the remainder of fiscal 2011. Transition services cost principally
reflected in operating expense, were related to services performed by a Nortel affiliate associated with
finance and accounting functions, supply chain and logistics management, maintenance and product
support, order management and fulfillment, trade compliance, and information technology. In
addition, as a result of the MEN Acquisition, we recorded $492.4 million in other intangible assets
that will be amortized over their useful lives and increase our operating expense.
Gross margin was adversely affected by the valuation, required under accounting rules, of the
acquired finished goods inventory of the MEN Business to fair value upon closing. This valuation
increased marketable inventory carrying value by $62.3 million, of which $48.0 million and $12.4
million were recognized in cost of goods sold during fiscal 2010 and the first six months of fiscal
2011 respectively. See Critical Accounting Policies and
Estimates- Long-lived Assets and Note 3 of the Condensed Consolidated Financial Statements found
under Item 1 of this report.
Competitive Landscape
We continue to encounter a competitive marketplace, in part, due to our increased market
share, technology leadership and global presence resulting from the MEN Acquisition. Following the
MEN Acquisition, we have experienced increased customer activity and been afforded increased
consideration and opportunities to participate in competition for network builds and upgrades,
including in new geographies, markets and applications for our products. For example, we
have made early progress in the sale of our products for application in submarine networks and with
sales to customers in the Middle East. Securing these opportunities, particularly for international sales, often
requires that we agree to less favorable commercial terms or pricing, financial commitments
requiring collateralized performance bonds or similar instruments
that place cash resources at risk,
and other committments that place a disproportionate allocation of
risk upon the vendor.
Competition has also intensified as we and our competitors more
aggressively seek to capture market
share, secure next-generation network build opportunities, and
displace incumbent equipment vendors at large carrier customers. We expect this level of
competition, particularly in North America, to continue and potentially increase, as larger foreign
equipment vendors seek to gain entry into the U.S. market, and other competitors seek to retain
incumbent positions with customers.
Strategy
We believe that a number of important underlying drivers represent significant long-term
opportunities and growing demand for converged optical Ethernet networking solutions in our target
markets. We believe that market trends including the proliferation of mobile web applications,
prevalence of video applications and shift of enterprise applications to the cloud or virtualized
environments are emblematic of increased use and dependence by consumers and enterprises upon a
growing variety of broadband applications and services. These services will continue to add network
traffic and consume available bandwidth, requiring our customers to invest in high-capacity,
next-generation network infrastructures that are more efficient and robust, and better able to
handle multiservice traffic, more dynamic traffic patterns and increased transmission rates.
29
To capitalize on the market dynamics above, we have been investing heavily in our business and
are in the process of introducing, or transitioning to, significant, new solutions offerings in
each of our segments. These developments include the enhancement of our 100G coherent optical
transport solution to further improve network flexibility, performance, spectral efficiency and
reach. We are also bringing to market a re-architected, integrated network management software
platform that unifies visibility, control and service enablement across our product portfolio.
Within Packet-Optical Switching, we are transitioning from CoreDirector to our data-optimized,
ActivFlex 5430 Reconfigurable Switching System, to enable an end-to-end Optical Transport Network
(OTN) architecture that offers improved cost per bit, flexibility and reliability. We are also
expanding our Carrier Ethernet Service Delivery portfolio to include the ActivEdge 5410; our
high-capacity (terabit scale) Ethernet metro aggregation switch to support wireless backhaul,
Ethernet business services and residential broadband applications. Simultaneously, we have also
been investing in market entry into multiple, new geographies and vertical segments, as well as the
expansion of footprint within our traditional customer base. Managing these platform introductions
and market expansions has required increased investment that has impacted and continues to impact a
number of financial and operational metrics, including margin, operating expense and cash flows.
These investments are a critical element of our effort to address evolving industry trends and end
user network requirements, and we believe they will position us to seize market opportunities for
long-term growth. Additional components of our corporate strategy include:
Diversify our customer segments and customer application of our products. Historically,
service providers have represented the largest portion of our revenue, with their application of
our products largely supporting terrestrial, wireline networks. Part of our strategy is to seek
opportunities to address new customer segments, and increase our sales to wireless providers, cable
and multiservice operators, enterprises, government agencies and research and educational
institutions. We are also seeking to sell our product and service solutions to support additional
network applications, including in submarine networks, content delivery networks, business Ethernet
services and mobile backhaul.
Expand our geographic reach. We seek to enhance our brand
internationally and build upon the broader global presence of our business
provided by the MEN Acquisition. In particular, we seek to expand our geographic reach and market share in
growing markets including Brazil, the Middle East, Russia and India.
Some of these jurisdictions maintain restrictions on importation, trade protection measures and other domestic
preference requirements that could limit our access or success in these markets. For example, India has recently
implemented certain security requirements affecting non-Indian network equipment vendors and has imposed
significant tariffs upon certain telecommunications equipment manufactured in China; where we assemble certain
products and source many components and parts. These requirements may make sales in these markets costly or
necessitate changes in our supply chain and operations.
Increase sales of Packet-Optical Switching and Carrier Ethernet Service Delivery solutions. Through
cross-selling and other sales initiatives, we seek to increase the number of customers of and
revenue from our Packet-Optical Switching and Carrier Ethernet Service Delivery products,
particularly in international markets. By extending our technology leadership in next-generation,
coherent transport technology, we seek to drive additional business opportunities for our
Packet-Optical Switching and Carrier Ethernet Service Delivery products. Each of these product
segments is in the early stages of significant platform transitions and we expect our revenue,
gross margin and results of operations may fluctuate in the future in large part depending upon our
success in selling new platforms within these segments.
Leverage our consultative, network specialist approach to drive
service and software sales. Our close,
consultative relationship with customers enables us to bring strategic value to customer relationships beyond the sale
of next-generation communications networking solutions. By understanding and addressing their business needs
and the challenging markets in which they compete, we can offer solutions that create additional business and
operational value for our customers. We intend to leverage this approach to drive customized opportunities for our
Ciena specialist services and sales of integrated, network management software solutions that enable service level
management across network layers, rapid service provisioning and
increased automation.
Optimize operations, infrastructure and resources to achieve desired operating leverage. With
critical integration activities substantially complete, we are focused on optimizing and gaining
leverage from our business processes, systems, infrastructure and resources. These initiatives
include the enhancement and further automation of business processes and systems, and the
consolidation of our supply chain, third party manufacturers, logistics providers and facilities.
We seek to leverage these and other longer-term opportunities, to improve operating efficiencies
and promote the growth of the business.
Financial Results
Revenue for the second quarter of fiscal 2011 was $417.9 million, which represented
a sequential decrease of 3.6% from $433.3 million in the first quarter of fiscal 2011. Our second
quarter revenue was affected by the temporary shut-down of supply chain operations early in the
quarter as part of the significant system integration effort described above,
which, in part,
contributed to a higher concentration of shipments later in the second quarter.
Revenue for the first quarter of fiscal 2011 benefitted, to a degree, from customer requests that we
accelerate shipments of certain orders to enable them to avoid any
effect of the temporary shut-down. Revenue-related details reflecting sequential changes in quarterly revenue from the first quarter
of fiscal 2011 include:
|
|
|
Product revenue for the second quarter of fiscal 2011 decreased by $16.4 million,
reflecting decreases of $13.8 million in Packet-Optical Transport revenue, $4.0 million in
Packet-Optical Switching revenue and $1.9 million in sales of integrated network and
service management software. These decreases were partially offset by an increase of $3.3
million in sales of Carrier Ethernet Service Delivery products. |
|
|
|
|
Service revenue for the second quarter of fiscal 2011 increased by $1.0 million. |
|
|
|
|
Revenue from the United States for the second quarter of fiscal 2011 was $230.8 million,
an increase from $220.3 million in the first quarter of fiscal 2011. |
30
|
|
|
International revenue for the second quarter of fiscal 2011 was $187.1 million, a
decrease from $213.0 million in the first quarter of fiscal 2011. |
|
|
|
|
As a percentage of revenue, international revenue was 44.8% during the second quarter of
fiscal 2011, a decrease from 49.1% during the first quarter of fiscal 2011. |
|
|
|
|
For the second quarter of fiscal 2011, two customers accounted for greater than 10% of
revenue, representing 25.9% of total revenue. This compares to two customers that accounted
for 25.1% of total revenue in the first quarter of fiscal 2011. |
Gross margin for the second quarter of fiscal 2011 was 39.7%, an increase from 38.9% in the
first quarter of fiscal 2011. Gross margin has been affected in recent periods by increased
competitive pressures and initial deployment of lower margin common equipment within our
Packet-Optical Transport product segment, reflective of our strategy to gain new customers, enter new
markets and capture additional market share for our 40G and 100G coherent optical transport
solutions. The effects of this aggressive effort to capture market share for our next-generation
optical transport solutions offset certain reductions in costs of goods sold due to improved
manufacturing efficiencies.
Operating expense was $221.5 million for the second quarter of fiscal 2011, a decrease from
$242.4 million in the first quarter of fiscal 2011. Second quarter operating expense reflects lower
costs associated with amortization of intangible assets, acquisition and integration expense, and
general and administrative expense. These reductions were partially offset by higher costs
associated with research and development, in part due to the weakening of the U.S. dollar in
relation to the Canadian dollar, and variable sales compensation.
Our loss from operations for the second quarter of fiscal 2011 was $55.6 million.
This compares to a $73.9 million loss from operations during the first quarter of fiscal 2011. Our
net loss for the second quarter of fiscal 2011 was $62.7 million, or $0.66 per share. This compares
to a net loss of $79.1 million, or $0.84 per share, for the first quarter of fiscal 2011.
We used $51.8 million in cash from operations during the second quarter of fiscal 2011,
consisting of $41.4 million in cash used for changes in working capital and $10.4 million from net
losses (adjusted for non-cash charges). Use of cash for the second quarter of fiscal 2011 reflects
cash payments of $26.4 million of acquisition and integration-related expense and restructuring
costs, of which $13.9 million was reflected in net losses (adjusted for non-cash charges) and $12.5
million was reflected in changes in working capital. This compares with the use of $63.7 million in
cash from operations during the first quarter of fiscal 2011, consisting of $43.6 million in cash
used for changes in working capital and $20.1 million from net losses (adjusted for non-cash
charges). Use of cash for the first quarter of fiscal 2011 reflects cash payments of $24.5 million
of acquisition and integration-related expense and restructuring costs, of which $25.7 million was
reflected in net losses (adjusted for non-cash charges) and $1.2 million was reflected in changes
in working capital. During the first quarter of fiscal 2011, we received $33.5 million related to
the early termination of our lease of the Lab 10 building
on Nortels former Carling Campus in Ottawa, Canada
(Carling lease), of which $17.1 million reduced the cash used from
operations above and $16.4 million reduced cash used in investing activities.
As of April 30, 2011, we had $506.8 million in cash and cash equivalents and $50.1
million of long-term investments in U.S. treasury securities. This compares to $625.8 million and
$688.7 million in cash and cash equivalents at January 31, 2011 and October 31, 2010, respectively.
As
of April 30, 2011, headcount was 4,301, an increase from 4,254 at January 31, 2011 and 4,201 at October 31, 2010.
Consolidated Results of Operations
Our results of operations for the second quarter and six-month period ended April 30, 2010
reflect the operations of the MEN Business beginning on the
March 19, 2010 acquisition date and therefore only reflect partial periods of combined operations. Our
internal organizational structure and the management of our business and results of operations are
presented based upon the following operating segments:
|
|
|
Packet-Optical Transport includes optical transport solutions that increase network
capacity and enable more rapid delivery of a broader mix of high-bandwidth services. These
products are used by network operators to facilitate the cost effective and efficient
transport of voice, video and data traffic in core networks, as well as regional, metro and
access networks. Our principal products in this segment include the ActivFlex 6500
Packet-Optical Platform (ActivFlex 6500); ActivFlex 6110 Multiservice Optical Platform
(ActivFlex 6110); ActivSpan 5200 (ActivSpan 5200); ActivSpan Common Photonic Layer (CPL);
Optical Multiservice Edge 1000 series (OME 1000); and Optical Metro 3500 (OM 3500) from the
MEN Business. This segment includes sales of our ActivSpan 4200® |
31
|
|
|
FlexSelect®Advanced
Services Platform (ActivSpan 4200) and our Corestream® Agility Optical Transport System
(Corestream) from Cienas pre-acquisition portfolio. This segment also includes sales from
legacy SONET/SDH products and legacy data networking products, as well as certain
enterprise-oriented transport solutions that support storage and LAN extension,
interconnection of data centers, and virtual private networks. This segment also includes
operating system software and enhanced software features embedded in each of these
products. Revenue from this segment is included in product revenue on the Condensed Consolidated
Statement of Operations. |
|
|
|
Packet-Optical Switching includes optical switching platforms that enable automated
optical infrastructures for the delivery of a wide variety of enterprise and
consumer-oriented network services. Our principal products in this segment include our
CoreDirector® Multiservice Optical Switch, CoreDirector FS; and our ActivFlex 5430
Reconfigurable Switching System, our packet OTN configuration for the 5400 family.
These products include multiservice, multi-protocol switching systems that consolidate the
functionality of an add/drop multiplexer, digital cross-connect and packet switch into a
single, high-capacity intelligent switching system. These products address both the core
and metro segments of communications networks and support key managed service services,
Ethernet/TDM Private Line, Triple Play and IP services. This segment also includes sales of
operating system software and enhanced software features embedded in each of these
products. Revenue from this segment is included in product revenue on the Condensed
Consolidated Statement of Operations. |
|
|
|
|
Carrier Ethernet Service Delivery - includes the ActivEdge 3900 family of service
delivery switches and service aggregation switches, as well as the ActivEdge 5000 series
and ActivEdge 5410 Service Aggregation Switch, our Carrier Ethernet
configuration for the 5400 family. These products support the access and
aggregation tiers of communications networks and have principally been deployed to support
wireless backhaul infrastructures and business data services. Employing sophisticated
Carrier Ethernet switching technology, these products deliver quality of service
capabilities, virtual local area networking and switching functions, and carrier-grade
operations, administration, and maintenance features. This segment
includes the legacy metro Ethernet routing switch
(MERS) product line, from the MEN Business, and our broadband
products, including our CNX-5 Broadband DSL System (CNX-5), that transitions legacy voice
networks to support Internet-based (IP) telephony, video services and DSL. This segment
also includes sales of operating system software and enhanced software features embedded in
each of these products. Revenue from this segment is included in product revenue on the
Condensed Consolidated Statement of Operations. |
|
|
|
|
Software and Services - includes our integrated network and service management software
designed to automate and simplify network management and operation, while increasing
network performance and functionality. These software solutions can track individual
services across multiple product suites, facilitating planned network maintenance, outage
detection and identification of customers or services affected by network troubles. This
segment also includes a broad range of consulting and support services, including
installation and deployment, maintenance support, consulting, network design and training
activities. Except for revenue from the software portion of this segment, which is included
in product revenue, revenue from this segment is included in services revenue on the
Condensed Consolidated Statement of Operations. |
Quarter ended April 30, 2010 compared to the quarter ended April 30, 2011
Revenue
The table below (in thousands, except percentage data) sets forth the changes in our operating
segment revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packet-Optical Transport |
|
$ |
97,689 |
|
|
|
38.5 |
|
|
$ |
272,635 |
|
|
|
65.2 |
|
|
$ |
174,946 |
|
|
|
179.1 |
|
Packet-Optical Switching |
|
|
32,434 |
|
|
|
12.8 |
|
|
|
31,267 |
|
|
|
7.5 |
|
|
|
(1,167 |
) |
|
|
(3.6 |
) |
Carrier Ethernet Service Delivery |
|
|
74,806 |
|
|
|
29.5 |
|
|
|
30,931 |
|
|
|
7.4 |
|
|
|
(43,875 |
) |
|
|
(58.7 |
) |
Software and Services |
|
|
48,542 |
|
|
|
19.2 |
|
|
|
83,061 |
|
|
|
19.9 |
|
|
|
34,519 |
|
|
|
71.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue |
|
$ |
253,471 |
|
|
|
100.0 |
|
|
$ |
417,894 |
|
|
|
100.0 |
|
|
$ |
164,423 |
|
|
|
64.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Packet-Optical Transport revenue increased reflecting a $130.6 million
increase in ActivFlex 6500 revenue, |
32
|
|
|
largely driven by service provider demand for
high-capacity, optical transport, including coherent 40G and 100G network
infrastructures. Packet-Optical Transport revenue also benefited from sales increases of
$20.1 million in CPL, $10.5 million in ActivSpan 5200, $6.6 million in ActivFlex 6110, $3.8
million in ActivSpan 4200, $1.9 million in legacy transport products, and $1.4 million in
Corestream. |
|
|
|
|
Packet-Optical Switching revenue decreased reflecting a $1.2 million decrease
in CoreDirector revenue. Packet-Optical Switching revenue has historically reflected sales
of our CoreDirector platform, which has a concentrated customer base. Our Packet-Optical
Switching segment is in the initial stages of a platform transition to our next-generation
ActivFlex 5430 switching system. As a result of these factors, revenue for this segment
can fluctuate considerably depending upon individual customer
purchasing decisions and the level of initial deployments with
customers. |
|
|
|
|
Carrier Ethernet Service Delivery revenue decreased reflecting a $45.0 million
decrease in sales of our ActivEdge 3000 service-delivery switches and
ActivEdge 5000 series of
service aggregation switches. Revenue for the second quarter of fiscal 2010 reflected significant sales volume, largely to two customers
in support of wireless backhaul. Quarterly revenue for this segment remains subject to fluctuation due to
customer concentration, and the timing of customer purchasing and deployment cycles. We expect
segment results to be dependent upon further adoption of these products to support business
Ethernet service applications and the level of customer adoption of our ActivEdge 5410 Service Aggregation Switch,
our high-capacity Carrier Ethernet configuration for the 5400 family to support wireless backhaul,
Ethernet business services and residential broadband applications.
|
|
|
|
|
Software and Services revenue increased primarily due
to increases of $25.7
million in maintenance support revenue and $9.1 million in installation, deployment and
consulting services. |
Revenue from sales to customers outside of the United States is reflected as International in
the geographic distribution of revenue below. The table below (in thousands, except percentage
data) sets forth the changes in geographic distribution of revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
United States |
|
$ |
180,523 |
|
|
|
71.2 |
|
|
$ |
230,801 |
|
|
|
55.2 |
|
|
$ |
50,278 |
|
|
|
27.9 |
|
International |
|
|
72,948 |
|
|
|
28.8 |
|
|
|
187,093 |
|
|
|
44.8 |
|
|
|
114,145 |
|
|
|
156.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
253,471 |
|
|
|
100.0 |
|
|
$ |
417,894 |
|
|
|
100.0 |
|
|
$ |
164,423 |
|
|
|
64.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
United States revenue increased primarily due to a $90.0 million increase in sales
of Packet-Optical Transport products and an $11.3 million increase in services revenue.
These increases were partially offset by a $45.0 million decrease in Carrier Ethernet
Service Delivery sales and a $5.7 million decrease in Packet-Optical Switching revenue. |
|
|
|
|
International revenue increased primarily due to an $84.9 million increase in
Packet-Optical Transport revenue, a $23.5 million increase in services revenue, and a $4.6
million increase in sales of Packet-Optical Switching products. |
A
sizable portion of our revenue continues to come from sales to a small number of service providers,
particularly within our Packet-Optical Switching and Carrier-Ethernet Service Delivery businesses.
As a result, our financial results are significantly affected by spending levels and the business challenges
encountered by these customers. Moreover, our contracts do not have terms that obligate these
customers to purchase any minimum or specific amounts of equipment or services. Our concentration
of revenue can be adversely affected by consolidation activity among our customers. In
addition, some of our customers are pursuing efforts to outsource the management and operation of
their networks, or have indicated a procurement strategy to reduce the number of vendors from which
they purchase equipment, which could further affect our concentration of revenue where we
participate in these efforts. For the second quarter of fiscal 2011, two customers accounted for
greater than 10% of revenue, representing 25.9% of total revenue. This compares to two customers
that accounted for 42.3% of total revenue in the second quarter of fiscal 2010.
Cost of Goods Sold and Gross Profit
Product cost of goods sold consists primarily of amounts paid to third-party contract
manufacturers, component costs, employee-related costs and overhead, shipping and logistics costs
associated with manufacturing-related operations, warranty
and other contractual obligations, royalties, license fees, amortization of intangible assets, cost of
excess and obsolete inventory and, when applicable, estimated losses on committed customer
contracts.
33
Services cost of goods sold consists primarily of direct and third-party costs, including
employee-related costs, associated with our provision of services including installation,
deployment, maintenance support, consulting and training activities, and, when applicable,
estimated losses on committed customer contracts.
Gross profit as a percentage of revenue, or gross margin, continues to be susceptible to
quarterly fluctuation due to a number of factors. Gross margin can vary significantly depending
upon the mix and concentration of revenue by segment or product line, the concentration of lower
margin common equipment sales within a segment or product line, geographic mix and the mix of
customers and services in a given fiscal quarter. Gross margin can also be affected by our
introduction of new products, charges for excess and obsolete inventory, changes in warranty costs
and sales volume. We expect that gross margins will be subject to fluctuation based on our
level of success in driving cost reductions, rationalizing our supply chain and consolidating
third party contract manufacturers and distribution sites as part of our effort to optimize
combined operations with the MEN Business. Gross margin can also be adversely affected by the
competitive environment and level of pricing pressure we encounter. The combination of the recent
period of uncertain market conditions, recent constraints on customer capital expenditures and
increased competition has resulted in a heightened customer focus on pricing and return on network
investment, as customers address network traffic growth and strive to increase revenue and profit.
Our exposure to pricing pressure has been most severe in metro and core applications for our
Packet-Optical Transport platforms, particularly in international markets. As a result, in an
effort to retain or secure customers, enter new markets or capture market share, in the past we
have and in the future we may agree to pricing or other unfavorable commercial terms that result in
lower or negative gross margins on a particular order or group of orders. Because Packet-Optical Transport and international revenue comprise a greater percentage of our
overall revenue than in prior periods, these market dynamics may adversely affect our
gross margins and results of operations in certain periods.
Service gross margin can be affected by the mix of customers and services, particularly the
mix between deployment and maintenance services, geographic mix and the timing and extent of any
investments in internal resources to support this business.
The tables below (in thousands, except percentage data) set forth the changes in revenue, cost
of goods sold and gross profit for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Total revenue |
|
$ |
253,471 |
|
|
|
100.0 |
|
|
$ |
417,894 |
|
|
|
100.0 |
|
|
$ |
164,423 |
|
|
|
64.9 |
|
Total cost of goods sold |
|
|
148,529 |
|
|
|
58.6 |
|
|
|
252,061 |
|
|
|
60.3 |
|
|
|
103,532 |
|
|
|
69.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
104,942 |
|
|
|
41.4 |
|
|
$ |
165,833 |
|
|
|
39.7 |
|
|
$ |
60,891 |
|
|
|
58.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Product revenue |
|
$ |
206,420 |
|
|
|
100.0 |
|
|
$ |
336,026 |
|
|
|
100.0 |
|
|
$ |
129,606 |
|
|
|
62.8 |
|
Product cost of goods sold |
|
|
118,221 |
|
|
|
57.3 |
|
|
|
202,665 |
|
|
|
60.3 |
|
|
|
84,444 |
|
|
|
71.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross profit |
|
$ |
88,199 |
|
|
|
42.7 |
|
|
$ |
133,361 |
|
|
|
39.7 |
|
|
$ |
45,162 |
|
|
|
51.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of product revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Service revenue |
|
$ |
47,051 |
|
|
|
100.0 |
|
|
$ |
81,868 |
|
|
|
100.0 |
|
|
$ |
34,817 |
|
|
|
74.0 |
|
Service cost of goods sold |
|
|
30,308 |
|
|
|
64.4 |
|
|
|
49,396 |
|
|
|
60.3 |
|
|
|
19,088 |
|
|
|
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service gross profit |
|
$ |
16,743 |
|
|
|
35.6 |
|
|
$ |
32,472 |
|
|
|
39.7 |
|
|
$ |
15,729 |
|
|
|
93.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of service revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Gross profit as a percentage of revenue decreased due to lower product gross
margins described below, partially offset by improved service gross margin. |
|
|
|
|
Gross profit on products as a percentage of product revenue was adversely
affected by an increased concentration of revenue from our Packet-Optical Transport segment
and initial deployments of lower margin common equipment within this segment as part of our strategy to
gain new customers, enter new markets or capture market share for our 40G and 100G coherent
optical transport solutions. Gross profit for the second quarter of fiscal 2010 was
adversely affected by an $11.1 million increase in costs of goods sold due to the required
valuation of acquired finished goods inventory of the MEN Business to fair value and $6.6
million of higher than typical excess and obsolete inventory charges and excess purchase
commitment losses on Cienas pre-acquisition inventory relating to product rationalization
decisions upon the closing of the MEN Acquisition. |
|
|
|
|
Gross profit on services as a percentage of services revenue increased due to
higher concentration of maintenance support and professional services as a percentage of
revenue, and improved operational efficiencies. |
Operating Expense
Research and development expense primarily consists of salaries and related employee expense
(including share-based compensation expense), prototype costs relating to design, development,
testing of our products, depreciation expense and third-party consulting costs.
Sales and marketing expense primarily consists of salaries, commissions and related employee
expense (including share-based compensation expense), and sales and marketing support expense,
including travel, demonstration units, trade show expense, and third-party consulting costs.
General and administrative expense primarily consists of salaries and related employee expense
(including share-based compensation expense), and costs for third-party consulting and other
services.
Amortization of intangible assets primarily reflects purchased technology and customer
relationships from our acquisitions.
The table below (in thousands, except percentage data) sets
forth the changes in operating expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Research and development |
|
$ |
71,142 |
|
|
|
28.1 |
|
|
$ |
99,624 |
|
|
|
23.8 |
|
|
$ |
28,482 |
|
|
|
40.0 |
|
Selling and marketing |
|
|
45,328 |
|
|
|
17.9 |
|
|
|
61,768 |
|
|
|
14.8 |
|
|
|
16,440 |
|
|
|
36.3 |
|
General and administrative |
|
|
21,503 |
|
|
|
8.5 |
|
|
|
32,480 |
|
|
|
7.8 |
|
|
|
10,977 |
|
|
|
51.0 |
|
Acquisition and integration costs |
|
|
39,221 |
|
|
|
15.5 |
|
|
|
10,741 |
|
|
|
2.6 |
|
|
|
(28,480 |
) |
|
|
(72.6 |
) |
Amortization of intangible assets |
|
|
17,121 |
|
|
|
6.8 |
|
|
|
13,674 |
|
|
|
3.3 |
|
|
|
(3,447 |
) |
|
|
(20.1 |
) |
Restructuring costs |
|
|
1,849 |
|
|
|
0.7 |
|
|
|
3,164 |
|
|
|
0.8 |
|
|
|
1,315 |
|
|
|
71.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
196,164 |
|
|
|
77.5 |
|
|
$ |
221,451 |
|
|
|
53.1 |
|
|
$ |
25,287 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
35
|
|
|
Research and development expense was adversely affected by $3.8 million in foreign
exchange rates, primarily due to the weakening of the U.S. dollar in relation to the
Canadian dollar. The $28.5 million increase primarily reflects increases of $17.2 million
in employee compensation and related costs, $5.1 million in professional services and fees,
$4.2 million in facilities and information systems and $2.8 million in depreciation
expense, partially offset by a $1.0 million decrease in prototype expense. |
|
|
|
|
Selling and marketing expense was adversely affected by $1.1 million in foreign
exchange rates primarily due to the weakening of the U.S. dollar in relation to the Euro
and the Canadian dollar. The $16.4 million increase primarily reflects increases of $11.0
million in employee compensation and related costs, $2.2 million in travel-related
expenditures, $1.6 million in facilities and information systems, and $1.6 million in
channel marketing programs expense and trade show costs. |
|
|
|
|
General and administrative expense increased by $7.5 million in employee
compensation and related costs and $2.5 million in consulting expense. |
|
|
|
|
Acquisition and integration costs principally consist of transaction,
consulting and third party service fees related to the integration of the MEN Business into
the combined operations. |
|
|
|
|
Amortization of intangible assets decreased due to
certain intangible assets from the MEN Acquisition reaching the end
of their economic lives. See Note 3 to our
Condensed Consolidated Financial Statements in Item 1 of Part I of this report. |
|
|
|
|
Restructuring costs primarily reflect the headcount reductions and
restructuring activities described in Note 4 to our Condensed Consolidated Financial
Statements in Item 1 of Part I of this report. |
Other items
The table below (in thousands, except percentage data) sets forth the changes in other items
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
Increase |
|
|
|
|
2010 |
|
%* |
|
2011 |
|
%* |
|
(decrease) |
|
%** |
Interest and other
income (loss), net |
|
$ |
3,748 |
|
|
|
1.5 |
|
|
$ |
4,229 |
|
|
|
1.0 |
|
|
$ |
481 |
|
|
|
12.8 |
|
Interest expense |
|
$ |
4,113 |
|
|
|
1.6 |
|
|
$ |
9,406 |
|
|
|
2.3 |
|
|
$ |
5,293 |
|
|
|
128.7 |
|
Provision (benefit)
for income taxes |
|
$ |
(1,578 |
) |
|
|
(0.6 |
) |
|
$ |
1,891 |
|
|
|
0.5 |
|
|
$ |
3,469 |
|
|
|
(219.8 |
) |
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Interest and other income (loss), net is a result of changes in non-cash gain or
losses related to the change in fair value of the embedded redemption feature associated
with our 4.0% convertible senior notes due March 15, 2015 and the effect of foreign
exchange rates on assets and liabilities denominated in a currency other than the relevant
functional currency. See Notes 6 and 14 to the Condensed Consolidated Financial Statements
found under Item 1 of Part I of this report for more information regarding the issuance of
these convertible notes and the fair value of the redemption feature contained therein. |
|
|
|
|
Interest expense increased due to our private placements during fiscal 2010 of
$375.0 million in aggregate principal amount of 4.0% convertible senior notes on March 15,
2010 and $350.0 million in aggregate principal amount of 3.75% convertible senior notes on
October 18, 2010. See Note 14 to the Condensed Consolidated Financial Statements found
under Item 1 of Part I of this report. |
|
|
|
|
Provision for income taxes increased primarily due to increased foreign taxes
and the reductions in benefits due to the expiration of the statute of limitations
applicable to the acquired, uncertain tax contingency during the second quarter of fiscal
2010. |
Six months ended April 30, 2010 compared to the six months ended April 30, 2011
Revenue
The table below (in thousands, except percentage data) sets forth the changes in our operating
segment revenue for the periods indicated:
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packet-Optical Transport |
|
$ |
181,159 |
|
|
|
42.2 |
|
|
$ |
559,116 |
|
|
|
65.7 |
|
|
$ |
377,957 |
|
|
|
208.6 |
|
Packet-Optical Switching |
|
|
55,832 |
|
|
|
13.0 |
|
|
|
66,541 |
|
|
|
7.8 |
|
|
|
10,709 |
|
|
|
19.2 |
|
Carrier Ethernet Service Delivery |
|
|
115,245 |
|
|
|
26.8 |
|
|
|
58,559 |
|
|
|
6.9 |
|
|
|
(56,686 |
) |
|
|
(49.2 |
) |
Software and Services |
|
|
77,111 |
|
|
|
18.0 |
|
|
|
166,986 |
|
|
|
19.6 |
|
|
|
89,875 |
|
|
|
116.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue |
|
$ |
429,347 |
|
|
|
100.0 |
|
|
$ |
851,202 |
|
|
|
100.0 |
|
|
$ |
421,855 |
|
|
|
98.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Packet-Optical Transport revenue increased reflecting a $279.4 million
increase in sales of our ActivFlex 6500, largely driven by service provider demand for
high-capacity, optical transport, including coherent 40G and 100G network infrastructures.
Packet-Optical Transport revenue also benefited from sales increases of $46.9 million in
ActivSpan 5200, $29.9 million in CPL, $17.1 million in
ActivFlex 6110, and $16.8 million
in legacy transport products. These increases were partially offset by decreases of $8.2
million in Corestream and $3.9 million in ActivSpan 4200. |
|
|
|
|
Packet-Optical Switching revenue reflects a $9.1 million increase in
CoreDirector revenue and the addition of $1.6 million related to ActivFlex 5430, our ultra
high-capacity, multi-terabit platform that can be configured to support any mix of OTN,
SONET/SDH and Ethernet/MPLS. Revenue for these products remains subject to fluctuation
due to customer concentration and the effect of the timing of customer buying cycles for
the relatively nascent technology adoption of our next-generation products within this
segment. |
|
|
|
|
Carrier Ethernet Service Delivery revenue reflects decreases of $65.4 million
in sales of our ActivEdge 3000 service-delivery switches and ActivEdge 5000 service
aggregation switches. Carrier Ethernet Service Delivery revenue benefited from $6.3
million in initial revenue from the introduction of the ActivEdge 5410 Service Aggregation
Switch, our high-capacity, Carrier Ethernet configuration for the 5400 family to support
wireless backhaul, Ethernet business services, and residential broadband applications. |
|
|
|
|
Software and Services revenue increased reflecting a $63.8 million increase in
maintenance support revenue and $26.1 million in installation, deployment and consulting
services. |
Revenue from sales to customers outside of the United States is reflected as International in
the geographic distribution of revenue below. The table below (in thousands, except percentage
data) sets forth the changes in geographic distribution of revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
United States |
|
$ |
304,435 |
|
|
|
70.9 |
|
|
$ |
451,150 |
|
|
|
53.0 |
|
|
$ |
146,715 |
|
|
|
48.2 |
|
International |
|
|
124,912 |
|
|
|
29.1 |
|
|
|
400,052 |
|
|
|
47.0 |
|
|
|
275,140 |
|
|
|
220.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
429,347 |
|
|
|
100.0 |
|
|
$ |
851,202 |
|
|
|
100.0 |
|
|
$ |
421,855 |
|
|
|
98.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
United States revenue increased primarily due to a $165.0 million increase in sales
of Packet-Optical Transport products, a $38.9 million increase in services revenue, and a
$2.6 million increase in Packet-Optical Switching revenue. These increases were partially
offset by a $59.3 million decrease in Carrier Ethernet Service Delivery sales. |
|
|
|
|
International revenue increased primarily due to a $213.0 million increase in
Packet-Optical Transport revenue, a $49.9 million increase in services revenue, and a $8.1
million increase in sales of Packet-Optical Switching products. Increased Packet-Optical
Transport and services revenue principally reflect the addition of the MEN Business. |
37
Cost of Goods Sold and Gross Profit
The tables below (in thousands, except percentage data) set forth the changes in revenue, cost
of goods sold and gross profit for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Total revenue |
|
$ |
429,347 |
|
|
|
100.0 |
|
|
$ |
851,202 |
|
|
|
100.0 |
|
|
$ |
421,855 |
|
|
|
98.3 |
|
Total cost of goods sold |
|
|
244,245 |
|
|
|
56.9 |
|
|
|
516,863 |
|
|
|
60.7 |
|
|
|
272,618 |
|
|
|
111.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
185,102 |
|
|
|
43.1 |
|
|
$ |
334,339 |
|
|
|
39.3 |
|
|
$ |
149,237 |
|
|
|
80.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Product revenue |
|
$ |
355,474 |
|
|
|
100.0 |
|
|
$ |
688,453 |
|
|
|
100.0 |
|
|
$ |
332,979 |
|
|
|
93.7 |
|
Product cost of goods sold |
|
|
194,890 |
|
|
|
54.8 |
|
|
|
417,066 |
|
|
|
60.6 |
|
|
|
222,176 |
|
|
|
114.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross profit |
|
$ |
160,584 |
|
|
|
45.2 |
|
|
$ |
271,387 |
|
|
|
39.4 |
|
|
$ |
110,803 |
|
|
|
69.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of product revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Service revenue |
|
$ |
73,873 |
|
|
|
100.0 |
|
|
$ |
162,749 |
|
|
|
100.0 |
|
|
$ |
88,876 |
|
|
|
120.3 |
|
Service cost of goods sold |
|
|
49,355 |
|
|
|
66.8 |
|
|
|
99,797 |
|
|
|
61.3 |
|
|
|
50,442 |
|
|
|
102.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service gross profit |
|
$ |
24,518 |
|
|
|
33.2 |
|
|
$ |
62,952 |
|
|
|
38.7 |
|
|
$ |
38,434 |
|
|
|
156.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of service revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Gross profit as a percentage of revenue decreased due to lower product gross
margins described below, partially offset by improved service gross margin. |
|
|
|
|
Gross profit on products as a percentage of product revenue was adversely
affected by an increased concentration of revenue from our Packet-Optical Transport
segment, resulting from the MEN Acquisition, and sales of lower margin common equipment
within this segment as part of our strategy to gain new customers, enter new markets or
capture market share for our 40G and 100G coherent optical transport
solutions. Gross
profit was also affected by a number of items relating to the MEN Acquisition that
increased costs of goods sold during the first quarter of fiscal 2011. These items include
increased amortization of intangible assets and the required revaluation of acquired
finished goods inventory of the MEN Business to fair value as described above. |
|
|
|
|
Gross profit on services as a percentage of services revenue increased due to
higher concentration of maintenance support and professional services as a percentage of
revenue, and improved operational efficiencies. |
Operating Expense
38
The table below (in thousands,
except percentage data) sets forth the changes in operating expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
Increase |
|
|
|
|
|
|
2010 |
|
|
%* |
|
|
2011 |
|
|
%* |
|
|
(decrease) |
|
|
%** |
|
Research and development |
|
$ |
121,175 |
|
|
|
28.2 |
|
|
$ |
195,414 |
|
|
|
23.0 |
|
|
$ |
74,239 |
|
|
|
61.3 |
|
Selling and marketing |
|
|
79,565 |
|
|
|
18.5 |
|
|
|
118,860 |
|
|
|
14.0 |
|
|
|
39,295 |
|
|
|
49.4 |
|
General and administrative |
|
|
34,266 |
|
|
|
8.0 |
|
|
|
70,794 |
|
|
|
8.3 |
|
|
|
36,528 |
|
|
|
106.6 |
|
Acquisition and integration costs |
|
|
66,252 |
|
|
|
15.4 |
|
|
|
34,926 |
|
|
|
4.1 |
|
|
|
(31,326 |
) |
|
|
(47.3 |
) |
Amortization of intangible assets |
|
|
23,102 |
|
|
|
5.4 |
|
|
|
42,458 |
|
|
|
5.0 |
|
|
|
19,356 |
|
|
|
83.8 |
|
Restructuring costs |
|
|
1,828 |
|
|
|
0.4 |
|
|
|
4,686 |
|
|
|
0.6 |
|
|
|
2,858 |
|
|
|
156.3 |
|
Change in fair value of contingent consideration |
|
|
|
|
|
|
0.0 |
|
|
|
(3,289 |
) |
|
|
(0.4 |
) |
|
|
(3,289 |
) |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
326,188 |
|
|
|
75.9 |
|
|
$ |
463,849 |
|
|
|
54.6 |
|
|
$ |
137,661 |
|
|
|
42.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Research and development expense was adversely affected by $6.7 million in foreign
exchange rates, primarily due to the weakening of the U.S. dollar in relation to the
Canadian dollar. The $74.2 million increase primarily reflects increases of $44.2 million
in employee compensation and related costs, $12.3 million in professional services and
fees, $12.0 million in facilities and information systems, $6.7 million in depreciation
expense, partially offset by a $1.5 million decrease in prototype expense. |
|
|
|
|
Selling and marketing expense increased by $39.3 million primarily reflecting
increases of $25.2 million in employee compensation and related costs, $4.5 million in
facilities and information systems, $4.2 million in travel-related expenditures, $2.9
million in channel marketing programs expense and trade show costs, 1.5 million in
professional services and fees, and $1.1 million in depreciation expense. |
|
|
|
|
General and administrative expense increased by $15.3 million in employee
compensation and related costs, $11.3 million in consulting expense, and $9.2 million in
facilities and information systems expense. |
|
|
|
|
Acquisition and integration costs principally consist of transaction,
consulting and third party service fees related to the integration of the MEN Business into
the combined operations. |
|
|
|
|
Amortization of intangible assets decreased due to
certain intangible assets from the MEN Acquisition reaching the end
of their economic lives. See Note 3 to our
Condensed Consolidated Financial Statements in Item 1 of Part I of this report. |
|
|
|
|
Restructuring costs primarily reflect the headcount reductions and
restructuring activities described in Note 4 to our Condensed Consolidated Financial
Statements in Item 1 of Part I of this report. |
|
|
|
|
Change in fair value of contingent consideration is related to the contingent
refund right we received relating to the Carling lease entered into as part of the MEN
Acquisition. See Note 3 to our Condensed Consolidated Financial Statements in Item 1 of
Part I for additional information relating to Nortels exercise of its early termination of
the Carling lease. |
Other items
The table below (in thousands, except percentage data) sets forth the changes in other items
for the periods indicated:
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
|
|
|
Increase |
|
|
|
|
2010 |
|
%* |
|
2011 |
|
%* |
|
(decrease) |
|
%** |
Interest and other
income (loss),
net |
|
$ |
2,975 |
|
|
|
0.7 |
|
|
$ |
10,494 |
|
|
|
1.2 |
|
|
$ |
7,519 |
|
|
|
252.7 |
|
Interest expense |
|
$ |
5,941 |
|
|
|
1.4 |
|
|
$ |
18,956 |
|
|
|
2.2 |
|
|
$ |
13,015 |
|
|
|
219.1 |
|
Provision (benefit)
for income taxes |
|
$ |
(710 |
) |
|
|
(0.2 |
) |
|
$ |
3,770 |
|
|
|
0.4 |
|
|
$ |
4,480 |
|
|
|
(631.0 |
) |
|
|
|
* |
|
Denotes % of total revenue |
|
** |
|
Denotes % change from 2010 to 2011 |
|
|
|
Interest and other income (loss), net reflects
increases of $3.8 million due to
the positive effect of foreign exchange rates on assets and liabilities denominated in a
currency other than the relevant functional currency, and $2.5 million in non-cash gains
related to the change in fair value of the redemption feature associated with our 4.0%
convertible senior notes due March 15, 2015. Fiscal 2010 reflects a $2.0 million charge
relating to the termination of an indemnification asset upon the expiration of the statute
of limitations applicable to one of the uncertain tax contingencies acquired as part of the
MEN Acquisitions. See Notes 6 and 14 to the Condensed Consolidated Financial Statements
found under Item 1 of Part I of this report for more information regarding the issuance of
these convertible notes and the fair value of the redemption feature contained therein. |
|
|
|
|
Interest expense increased due to our private placements during fiscal 2010 of
$375.0 million in aggregate principal amount of 4.0% convertible senior notes on March 15,
2010 and $350.0 million in aggregate principal amount of 3.75% convertible senior notes on
October 18, 2010. See Note 14 to the Condensed Consolidated Financial Statements found
under Item 1 of Part I of this report. |
|
|
|
|
Provision for income taxes increased primarily due to
increased foreign taxes and the reductions in benefits due to the
expiration of the statute of limitations applicable to the acquired
uncertain tax contingency during the second quarter of fiscal 2010. |
Segment Profit (Loss)
The table below (in thousands, except percentage data) sets forth the changes in our segment
profit (loss), including the presentation of prior periods to reflect the change in reportable
segments, for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended April 30, |
|
Increase |
|
|
|
|
2010 |
|
2011 |
|
(decrease) |
|
%* |
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packet-Optical Transport |
|
$ |
(6,595 |
) |
|
$ |
36,506 |
|
|
$ |
43,101 |
|
|
|
653.5 |
|
Packet-Optical Switching |
|
$ |
5,467 |
|
|
$ |
8,487 |
|
|
$ |
3,020 |
|
|
|
55.2 |
|
Carrier Ethernet Service Delivery |
|
$ |
25,972 |
|
|
$ |
3,497 |
|
|
$ |
(22,475 |
) |
|
|
(86.5 |
) |
Software and Services |
|
$ |
8,956 |
|
|
$ |
17,719 |
|
|
$ |
8,763 |
|
|
|
97.8 |
|
|
|
|
* |
|
Denotes % change from 2010 to 2011 |
|
|
|
Packet-Optical Transport segment profit was significantly affected by the MEN
Acquisition. Segment profit increased due to higher sales volume, partially offset by
lower product gross margin and increased research and development costs. |
|
|
|
|
Packet-Optical Switching segment profit increased due to higher sales volume,
increased product gross margin and decreased research and development costs. |
|
|
|
|
Carrier Ethernet Service Delivery segment profit decreased due to lower sales
volume and increased research and development costs partially offset by higher improved
gross margin. |
|
|
|
|
Software and Services segment profit was significantly affected by the MEN
Acquisition. Segment profit increased due to increased sales volume and improved gross
margin, partially offset by increased research and development costs. |
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
Increase |
|
|
|
|
2010 |
|
2011 |
|
(decrease) |
|
%* |
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packet-Optical Transport |
|
$ |
13,528 |
|
|
$ |
75,532 |
|
|
$ |
62,004 |
|
|
|
458.3 |
|
Packet-Optical Switching |
|
$ |
3,429 |
|
|
$ |
21,364 |
|
|
$ |
17,935 |
|
|
|
523.0 |
|
Carrier Ethernet Service Delivery |
|
$ |
34,854 |
|
|
$ |
5,890 |
|
|
$ |
(28,964 |
) |
|
|
(83.1 |
) |
Software and Services |
|
$ |
12,116 |
|
|
$ |
36,139 |
|
|
$ |
24,023 |
|
|
|
198.3 |
|
|
|
|
* |
|
Denotes % change from 2010 to 2011 |
|
|
|
Packet-Optical Transport segment profit was significantly affected by the MEN
Acquisition. Segment profit increased due to higher sales volume, partially offset by
lower product gross margin and increased research and development costs. |
|
|
|
|
Packet-Optical Switching segment profit increased due to higher sales volume,
increased product gross margin and decreased research and development costs. |
|
|
|
|
Carrier Ethernet Service Delivery segment profit decreased due to lower sales
volume and increased research and development costs partially offset by higher improved
gross margin. |
|
|
|
|
Software and Services segment profit was significantly affected by the MEN
Acquisition. Segment profit increased due to increased sales volume and improved gross
margin, partially offset by increased research and development costs. |
Liquidity and Capital Resources
At April 30, 2011, our principal sources of liquidity were cash and cash equivalents and
long-term investments in marketable debt securities, representing U.S. treasuries. The following
table summarizes our cash and cash equivalents and long-term investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2011 |
|
|
(decrease) |
|
Cash and cash equivalents |
|
$ |
688,687 |
|
|
$ |
506,840 |
|
|
$ |
(181,847 |
) |
Long-term investments in marketable debt securities |
|
|
|
|
|
|
50,098 |
|
|
|
50,098 |
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and investments in
marketable debt securities |
|
$ |
688,687 |
|
|
$ |
556,938 |
|
|
$ |
(131,749 |
) |
|
|
|
|
|
|
|
|
|
|
During the first six months of fiscal 2011, we received $33.5 million related to the early
termination of the Carling lease, of which $17.1 million reduced
cash used by operations and
$16.4 million reduced cash used by investing activities. See Note 3 to our Condensed Consolidated
Financial Statements in Item 1 of Part I for additional information relating to the valuation of
this contingent refund right at closing of the MEN Acquisition and the early termination of the
Carling lease.
The decrease in total cash and cash equivalents and investments in marketable debt securities
during the first six months of fiscal 2011, including the effect of the receipt of the early
termination payment above, was primarily related to the following:
|
|
|
$115.4 million cash used from operations, consisting of $85.0 million for changes in
working capital and $30.4 million from net losses (adjusted for non-cash charges). Use
of cash reflects cash payments of $51.0 million of acquisition and integration-related
expense and restructuring costs, of which $39.6 million was reflected in net losses
(adjusted for non-cash charges) and $11.4 million was reflected in changes in working
capital, |
|
|
|
|
$29.4 million for purchases of equipment, furniture, fixtures and intellectual
property; and |
|
|
|
|
$11.9 million transferred to restricted cash as collateral for our standby
letters of credit. |
These decreases were partially offset by receipts of $7.5 million from the exercise of employee
stock purchase plans and stock options.
Based
on past performance and current expectations, we believe that our cash, cash
equivalent and investments will satisfy our working capital needs, capital
expenditures, and other liquidity requirements associated with
41
our existing operations through at
least the next 12 months. As expected, the investment in working capital for the first six months
of fiscal 2011 reflects the increased scale of our business as the result of the MEN Acquisition.
We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund
our operating plans and may consider capital raising and other market opportunities that may be available to us.
The following sections set forth the components of our $115.4 million of cash used by
operating activities during the first six months of fiscal 2011:
Net loss (adjusted for non-cash charges)
The following tables set forth (in thousands) our net loss (adjusted for non-cash charges)
during the period:
|
|
|
|
|
|
|
Six months ended |
|
|
|
April 30, |
|
|
|
2011 |
|
Net loss |
|
$ |
(141,742 |
) |
Adjustments for non-cash charges: |
|
|
|
|
Amortization of premium on marketable securities |
|
|
(12 |
) |
Change in fair value of embedded redemption feature |
|
|
(9,160 |
) |
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements |
|
|
29,367 |
|
Share-based compensation costs |
|
|
18,886 |
|
Amortization of intangible assets |
|
|
56,637 |
|
Provision for inventory excess and obsolescence |
|
|
6,413 |
|
Provision for warranty |
|
|
5,646 |
|
Other |
|
|
3,474 |
|
|
|
|
|
Net losses (adjusted for non-cash charges) |
|
$ |
(30,491 |
) |
|
|
|
|
Working Capital
Accounts Receivable, Net
Cash
used by accounts receivable, net of $0.7 million in allowance for doubtful accounts,
during the first six months of fiscal 2011 was $48.4 million primarily due to higher sales volume.
Our days sales outstanding (DSOs) increased from 75
days for the first six months of fiscal 2010 to 83 days for the first six months of fiscal
2011. Our DSOs increased due to a larger proportion of sales occurring later in our second quarter
of fiscal 2011 and, to a lesser extent, an increase in international
sales, which generally involve longer payment cycles. The following table sets forth (in thousands)
changes to our accounts receivable, net of allowance for doubtful accounts, from the end of fiscal
2010 through the end of the second quarter of fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2011 |
|
|
(decrease) |
|
Accounts receivable, net |
|
$ |
343,582 |
|
|
$ |
391,330 |
|
|
$ |
47,748 |
|
|
|
|
|
|
|
|
|
|
|
Inventory
Cash
consumed by inventory during the first six months of fiscal 2011 was
$30.5 million due to
increased inventory levels to support a higher sales volume. Our inventory turns increased from 1.7
turns during the first six months of fiscal 2010 to 2.9 turns during the first six months of fiscal
2011. During the first six months of fiscal 2011, changes in inventory reflect a $6.4 million
reduction related to a non-cash provision for excess and obsolescence. The following table sets
forth (in thousands) changes to the components of our inventory from the end of fiscal 2010 through
the end of the second quarter of fiscal 2011:
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2011 |
|
|
(decrease) |
|
Raw materials |
|
$ |
30,569 |
|
|
$ |
40,106 |
|
|
$ |
9,537 |
|
Work-in-process |
|
|
6,993 |
|
|
|
8,445 |
|
|
|
1,452 |
|
Finished goods |
|
|
177,994 |
|
|
|
197,636 |
|
|
|
19,642 |
|
Deferred cost of goods sold |
|
|
76,830 |
|
|
|
69,216 |
|
|
|
(7,614 |
) |
|
|
|
|
|
|
|
|
|
|
Gross inventory |
|
|
292,386 |
|
|
|
315,403 |
|
|
|
23,017 |
|
Provision for inventory excess and obsolescence |
|
|
(30,767 |
) |
|
|
(29,707 |
) |
|
|
1,060 |
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
$ |
261,619 |
|
|
$ |
285,696 |
|
|
$ |
24,077 |
|
|
|
|
|
|
|
|
|
|
|
Prepaid expense and other
Cash from operations generated by prepaid expense and other during the first six months of
fiscal 2011 was $1.0 million. This usage was primarily related to increases in product
demonstration units and value added tax receivables, partially offset by the receipt of the
contingent refund receivable related to the Carling Lease termination.
Accounts payable, accruals and other obligations
Cash used in operations related to accounts payable, accruals and other obligations during the
first six months of fiscal 2011 was $26.1 million. Between the end of fiscal 2010 and the second
quarter of fiscal 2011, the change in unpaid equipment purchases was $2.0 million. Changes in
accrued liabilities reflect non-cash provisions of $5.6 million related to warranties. The
following table sets forth (in thousands) changes in our accounts payable, accruals and other
obligations from the end of fiscal 2010 through the end of the second quarter of fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2011 |
|
|
(decrease) |
|
Accounts payable |
|
$ |
200,617 |
|
|
$ |
178,747 |
|
|
$ |
(21,870 |
) |
Accrued liabilities |
|
|
193,994 |
|
|
|
190,618 |
|
|
|
(3,376 |
) |
Other long-term obligations |
|
|
16,435 |
|
|
|
19,232 |
|
|
|
2,797 |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accruals and other obligations |
|
$ |
411,046 |
|
|
$ |
388,597 |
|
|
$ |
(22,449 |
) |
|
|
|
|
|
|
|
|
|
|
Interest Payable on Convertible Notes
Interest on our outstanding 0.25% convertible senior notes, due May 1, 2013, is payable on May
1 and November 1 of each year. We paid $0.3 million in interest on these convertible notes during
the first six months of fiscal 2011.
Interest on our outstanding 4.0% convertible senior notes, due March 15, 2015, is payable on
March 15 and September 15 of each year. We paid $7.5 million in interest on these convertible notes
during the first six months of fiscal 2011.
Interest on our outstanding 0.875% convertible senior notes, due June 15, 2017, is payable on
June 15 and December 15 of each year. We paid $2.2 million in interest on these convertible notes
during the first six months of fiscal 2011.
Interest on our outstanding 3.75% convertible senior notes, due October 15, 2018, is payable
on April 15 and October 15 of each year. We paid $6.4 million in interest on these convertible
notes during the first six months of fiscal 2011.
For additional information about our convertible notes, see Note 14 to the Condensed
Consolidated Financial Statements under Item 1 of Part I of this report
Deferred revenue
Deferred revenue increased by $19.0 million during the first six months of fiscal 2011.
Product deferred revenue represents payments received in advance of shipment and payments received
in advance of our ability to recognize revenue. Services deferred revenue is related to payment for
service contracts that will be recognized over the contract term. The following table reflects (in
thousands) the balance of deferred revenue and the change in this balance from the end of fiscal
2010 through the end of the second quarter of fiscal 2011:
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2011 |
|
|
(decrease) |
|
Products |
|
$ |
31,187 |
|
|
$ |
39,001 |
|
|
$ |
7,814 |
|
Services |
|
|
73,862 |
|
|
|
85,047 |
|
|
|
11,185 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue |
|
$ |
105,049 |
|
|
$ |
124,048 |
|
|
$ |
18,999 |
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
During the first quarter of fiscal 2011, we received notice from Nortel of the exercise of its
early termination rights under the Carling lease, shortening our lease term from ten years to five
years and materially reducing the operating lease commitments in the table below. The following is
a summary of our future minimum payments under contractual obligations as of April 30, 2011 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one |
|
|
One to three |
|
|
Three to five |
|
|
|
|
|
|
Total |
|
|
year |
|
|
years |
|
|
years |
|
|
Thereafter |
|
Interest due on convertible notes |
|
$ |
188,227 |
|
|
$ |
33,041 |
|
|
$ |
65,811 |
|
|
$ |
50,000 |
|
|
$ |
39,375 |
|
Principal due at maturity on convertible notes |
|
|
1,441,210 |
|
|
|
|
|
|
|
216,210 |
|
|
|
375,000 |
|
|
|
850,000 |
|
Operating leases (1) |
|
|
116,446 |
|
|
|
33,460 |
|
|
|
54,199 |
|
|
|
22,706 |
|
|
|
6,081 |
|
Purchase obligations (2) |
|
|
162,135 |
|
|
|
162,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (3) |
|
$ |
1,908,018 |
|
|
$ |
228,636 |
|
|
$ |
336,220 |
|
|
$ |
447,706 |
|
|
$ |
895,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount for operating leases above does not include insurance, taxes, maintenance and
other costs required by the applicable operating lease. These costs are variable and are not
expected to have a material impact. |
|
(2) |
|
Purchase obligations relate to purchase order commitments to our contract manufacturers and
component suppliers for inventory. In certain instances, we are permitted to cancel, reschedule or
adjust these orders. Consequently, only a portion of the amount reported above relates to firm,
non-cancelable and unconditional obligations. |
|
(3) |
|
As of April 30, 2011, we also had approximately $8.4 million of other long-term obligations in
our Condensed Consolidated Balance Sheet for unrecognized tax positions that are not included in
this table because the timing or amount of any cash settlement with the respective tax authority
cannot be reasonably estimated. |
Some
of our commercial commitments, including some of the future
minimum payments in operating leases set forth above and certain
commitments to customers, are secured by standby letters of credit
collateralized by restricted cash. Restricted cash balances are
included in other current assets or other long-term assets
depending upon the duration of the underlying letter of credit
obligation. The following is a
summary, as of April 30, 2011, of our commitments secured by standby letters of credit by expiration
date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one |
|
|
One to three |
|
|
Three to five |
|
|
|
Total |
|
|
year |
|
|
years |
|
|
years |
|
Standby letters of credit |
|
$ |
63,728 |
|
|
$ |
60,445 |
|
|
$ |
2,718 |
|
|
$ |
565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financing arrangements. In particular, we do not
have any equity interests in so-called limited purpose entities, which include special purpose
entities (SPEs) and structured finance entities.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires that we make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related
disclosure of contingent assets and liabilities. By their nature, these estimates and judgments are
subject to an inherent degree of uncertainty. On an ongoing basis, we reevaluate our estimates,
including those related to bad debts, inventories, intangible assets, income taxes, warranty
obligations, restructuring, derivatives and hedging, and contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Among other things, these estimates form the basis for
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or
conditions. To the extent that there are material differences between our estimates and actual
results, our consolidated financial statements will be affected.
44
We believe that the following critical accounting policies reflect those areas where
significant judgments and estimates are used in the preparation of our consolidated financial
statements.
Revenue Recognition
We recognize revenue when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is
fixed or determinable; and collectibility is reasonably assured. Customer purchase agreements and
customer purchase orders are generally used to determine the existence of an arrangement. Shipping
documents and evidence of customer acceptance, when applicable, are used to verify delivery or
services rendered. We assess whether the price is fixed or determinable based on the payment
terms associated with the transaction and whether the sales price is subject to refund or
adjustment. We assess collectibility based primarily on the creditworthiness of the customer as
determined by credit checks and analysis, as well as the customers payment history. Revenue for
maintenance services is generally deferred and recognized ratably over the period during which the
services are to be performed.
We apply the percentage of completion method to long-term arrangements where it is required to
undertake significant production, customizations or modification engineering, and reasonable and
reliable estimates of revenue and cost are available. Utilizing the percentage of completion
method, we recognize revenue based on the ratio of actual costs incurred to date to total estimated
costs expected to be incurred. In instances that do not meet the percentage of completion method
criteria, recognition of revenue is deferred until there are no uncertainties regarding customer
acceptance.
Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectibility is probable. In instances where
final acceptance criteria of the software is specified by the customer, revenue is deferred until
there are no uncertainties regarding customer acceptance.
We limit the amount of revenue recognition for delivered elements to the amount that is not
contingent on the future delivery of products or services, future performance obligations or
subject to customer-specified return or refund privileges.
Accounting for multiple element arrangements entered into prior to fiscal 2011
Arrangements with customers may include multiple deliverables, including any combination of
equipment, services and software. If multiple element arrangements include software or
software-related elements that are essential to the equipment, we allocate the arrangement fee
among separate units of accounting. Multiple element arrangements that include software are
separated into more than one unit of accounting if the functionality of the delivered element(s) is
not dependent on the undelivered element(s), there is vendor-specific objective evidence (VSOE)
of the fair value of the undelivered element(s), and general revenue recognition criteria related
to the delivered element(s) have been met. The amount of product and services revenue recognized is
affected by our judgment as to whether an arrangement includes multiple elements and, if so,
whether VSOE of fair value exists. VSOE is established based on our standard pricing and
discounting practices for the specific product or service when sold separately. In determining
VSOE, we require that a substantial majority of the selling prices for a product or service fall
within a reasonably narrow pricing range. Changes to the elements in an arrangement and our ability
to establish VSOE for those elements could affect the timing of revenue recognition. For all other
multiple element arrangements, we separate the elements into more than one unit of accounting if
the delivered element(s) have value to the customer on a stand-alone basis, objective and reliable
evidence of fair value exists for the undelivered element(s), and delivery of the undelivered
element(s) is probable and substantially in our control. Revenue is allocated to each unit of
accounting based on the relative fair value of each accounting unit or using the residual method if
objective evidence of fair value does not exist for the delivered element(s). The revenue
recognition criteria described above are applied to each separate unit of accounting. If these
criteria are not met, revenue is deferred until the criteria are met or the last element has been
delivered.
Accounting for multiple element arrangements entered into or materially modified in fiscal
2011
In October 2009, the Financial Accounting Standards Board, (FASB) amended the accounting
standard for revenue recognition with multiple deliverables which provided guidance on how the
arrangement fee should be allocated. The amended guidance allows the use of managements best
estimate of selling price (BESP) for individual elements of an arrangement when VSOE or
third-party evidence (TPE) is unavailable. Additionally, it eliminates the residual method of
revenue recognition in accounting for multiple deliverable arrangements. The FASB also amended the
accounting guidance for revenue arrangements with software elements to exclude from the scope of
the software revenue recognition guidance, tangible products that contain both software and
non-software components that function together to deliver the products essential functionality.
45
We adopted the new accounting guidance on a prospective basis for arrangements entered into or
materially modified on or after November 1, 2010. Under the new guidance, we separate elements into
more than one unit of accounting if the delivered element(s) have value to the customer on a
stand-alone basis, and delivery of the undelivered element(s) is probable and substantially in our
control. Therefore, the new guidance allows for deliverables, for which revenue was previously
deferred due to an absence of fair value, to be separated and recognized as revenue as delivered.
Also, because the residual method has been eliminated, discounts offered are allocated to all
deliverables, rather than to the delivered element(s). Our adoption of the new guidance for revenue
arrangements changed the accounting for certain products that consist of hardware and software
components, in which these components together provided the products essential functionality. For
transactions involving these products entered into prior to fiscal 2011, we recognized revenue
based on software revenue recognition guidance.
Revenue for multiple element arrangements is allocated to each unit of accounting based on the
relative selling price of each element, with revenue recognized when the revenue recognition
criteria are met for each delivered element. We determine the selling price for each deliverable
based upon the selling price hierarchy for multiple-deliverable arrangements. Under this hierarchy,
we use VSOE of selling price, if it exists, or TPE of selling price if VSOE does not exist. If
neither VSOE nor TPE of selling price exists for a deliverable, we use our BESP for that
deliverable.
VSOE is established based on our standard pricing and discounting practices for the specific
product or service when sold separately. In determining VSOE, which exists across certain of our
service offerings, we require that a substantial majority of the selling prices for a product or
service fall within a reasonably narrow pricing range. We have generally been unable to establish
TPE of selling price because our go-to-market strategy differs from that of others in our markets,
and the extent of customization and differentiated features and functions varies among comparable
products or services from our peers. We determine BESP based upon management-approved pricing
guidelines, which consider multiple factors including the type of product or service, gross margin
objectives, competitive and market conditions, and the go-to-market strategy; all of which can
affect pricing practices.
Historically, for arrangements with multiple elements, we were typically able to establish
fair value for undelivered elements and so we applied the residual method. As a result, assuming
the adoption of the accounting guidance above on a
prospective basis for arrangements entered into or materially modified on or after November 1,
2009, the effect on revenue recognized for the six months ended April 30, 2010 would not have been
materially different.
The new accounting guidance for revenue recognition is not expected to have a significant
effect on revenue after the initial period of adoption when applied to multipleelement
arrangements based on our current go-to-market strategies. However, we expect that this new
accounting guidance will facilitate our efforts to optimize our offerings due to the better
alignment between the economics of an arrangement and the accounting. This may lead to engaging in
new go-to-market practices in the future. In particular, we expect that the new accounting
standards will enable us to better integrate products and services without VSOE into existing
offerings and solutions. As these go-to-market strategies evolve, we may modify our pricing
practices in the future, which could result in changes in selling prices, including both VSOE and
BESP. As a result, our future revenue recognition for multiple-element arrangements could differ
materially from the results in the current period. We are currently unable to determine the impact
that the newly adopted accounting guidance could have on our revenue as these go-to-market
strategies evolve.
Our total deferred revenue for products was $31.2 million and $39.0 million as of October 31,
2010 and April 30, 2011, respectively. Our services revenue is deferred and recognized ratably over
the period during which the services are to be performed. Our total deferred revenue for services
was $73.9 million and $85.0 million as of October 31, 2010 and April 30, 2011, respectively.
Business Combinations
We record acquisitions using the purchase method of accounting. All of the assets acquired,
liabilities assumed, contractual contingencies and contingent consideration are recognized at their
fair value as of the acquisition date. The excess of the purchase price over the estimated fair
values of the net tangible and net intangible assets acquired is recorded as goodwill. The
application of the purchase method of accounting for business combinations requires management to
make significant estimates and assumptions in the determination of the fair value of assets
acquired and liabilities assumed in order to properly allocate purchase price consideration between
assets that are depreciated and amortized from goodwill. These assumptions and estimates include a
market participants use of the asset and the appropriate discount rates for a market participant.
Our estimates are based on historical experience, information obtained from the management of the
acquired companies and, when appropriate, includes assistance from independent third-party
appraisal firms. Our significant assumptions and estimates can include, but are not limited to, the
cash flows that an asset is expected to generate in the future, the appropriate weighted-average
cost of capital, and the cost savings expected to be derived from acquiring an asset.
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These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and
circumstances may occur which may affect the accuracy or validity of such estimates. During fiscal
2010, we completed the MEN Acquisition for a purchase price of $676.8 million. As a result of the
purchase price allocation to the assets acquired and liabilities assumed, as well as contingent
consideration, there was no value assigned to goodwill. See Note 3 to the Condensed Consolidated
Financial Statements included in Item 1 of Part I of this report.
Share-Based Compensation
We measure and recognize compensation expense for share-based awards based on estimated fair
values on the date of grant. We estimate the fair value of each option-based award on the date of
grant using the Black-Scholes option-pricing model. This option pricing model requires that we make
several estimates, including the options expected life and the price volatility of the underlying
stock. The expected life of employee stock options represents the weighted-average period the stock
options are expected to remain outstanding. We calculate the expected term using detailed
historical information about specific exercise behavior of our grantees. We considered the implied
volatility and historical volatility of our stock price in determining our expected volatility,
and, finding both to be equally reliable, determined that a combination of both measures would
result in the best estimate of expected volatility. We recognize the estimated fair value of
option-based awards, net of estimated forfeitures, as share-based compensation expense on a
straight-line basis over the requisite service period.
We estimate the fair value of our restricted stock unit awards based on the fair value of our
common stock on the date of grant. Our outstanding restricted stock unit awards are subject to
service-based vesting conditions and/or performance-based vesting conditions. We recognize the
estimated fair value of service-based awards, net of estimated forfeitures, as share-based expense
ratably over the vesting period on a straight-line basis. Awards with performance-based vesting
conditions require the achievement of certain financial or other performance criteria or targets as
a condition to the vesting, or acceleration of vesting. We recognize the estimated fair value of
performance-based awards, net of estimated forfeitures, as share-based expense over the performance
period, using graded vesting, which considers each performance period or tranche separately, based
upon our determination of whether it is probable that the performance targets will be achieved. At
each reporting period, we reassess the probability of achieving the performance targets and the
performance period required to meet those targets. Determining whether the performance targets will
be achieved involves judgment, and the estimate of expense may be
revised periodically based on changes in the probability of achieving the performance targets.
Revisions are reflected in the period in which the estimate is changed. If any performance goals
are not met, no compensation cost is ultimately recognized against that goal, and, to the extent
previously recognized, compensation cost is reversed.
Because share-based compensation expense is based on awards that are ultimately expected to
vest, the amount of expense takes into account estimated forfeitures. We estimate forfeitures at
the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Changes in these estimates and assumptions can materially affect the measure of
estimated fair value of our share-based compensation. See Note 16 to our Condensed Consolidated
Financial Statements in Item 1 of Part I of this report for information regarding our assumptions
related to share-based compensation and the amount of share-based compensation expense we incurred
for the periods covered in this report. As of April 30, 2011, total unrecognized compensation
expense was $71.7 million: (i) $2.8 million, which relates to unvested stock options and is
expected to be recognized over a weighted-average period of 0.6 year; and (ii) $68.9 million, which
relates to unvested restricted stock units and is expected to be recognized over a weighted-average
period of 1.7 years.
We recognize windfall tax benefits associated with the exercise of stock options or release of
restricted stock units directly to stockholders equity only when realized. A windfall tax benefit
occurs when the actual tax benefit realized by us upon an employees disposition of a share-based
award exceeds the deferred tax asset, if any, associated with the award that we had recorded. When
assessing whether a tax benefit relating to share-based compensation has been realized, we follow
the tax law with-and-without method. Under the with-and-without method, the windfall is
considered realized and recognized for financial statement purposes only when an incremental
benefit is provided after considering all other tax benefits including our net operating losses.
The with-and-without method results in the windfall from share-based compensation awards always
being effectively the last tax benefit to be considered. Consequently, the windfall attributable to
share-based compensation will not be considered realized in instances where our net operating loss
carryover (that is unrelated to windfalls) is sufficient to offset the current years taxable
income before considering the effects of current-year windfalls.
Reserve for Inventory Obsolescence
We make estimates about future customer demand for our products when establishing the
appropriate reserve for excess and obsolete inventory. We write down inventory that has become
obsolete or unmarketable by an amount equal to the difference between the cost of inventory and the
estimated market value based on assumptions about future demand and market conditions. Inventory
write downs are a component of our product cost of goods sold. Upon recognition of the write
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down, a new lower cost basis for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly established cost basis. We
recorded charges for excess and obsolete inventory of $7.1 million and $6.4 million in the first
six months of fiscal 2010 and 2011, respectively. These charges were primarily related to excess
inventory due to a change in forecasted sales across our product line. In an effort to limit our
exposure to delivery delays and to satisfy customer needs we purchase inventory based on forecasted
sales across our product lines. In addition, part of our research and development strategy is to
promote the convergence of similar features and functionalities across our product lines. Each of
these practices exposes us to the risk that our customers will not order products for which we have
forecasted sales, or will purchase less than we have forecasted. Historically, we have experienced
write downs due to changes in strategic direction, discontinuance of a product and declines in
market conditions. If actual market conditions worsen or differ from those we have assumed, if
there is a sudden and significant decrease in demand for our products, or if there is a higher
incidence of inventory obsolescence due to a rapid change in technology, we may be required to take
additional inventory write-downs, and our gross margin could be adversely affected. Our inventory
net of allowance for excess and obsolescence was $261.6 million and $285.7 million as of October
31, 2010 and April 30, 2011, respectively.
Allowance for Doubtful Accounts Receivable
Our allowance for doubtful accounts receivable is based on managements assessment, on a
specific identification basis, of the collectibility of customer accounts. We perform ongoing
credit evaluations of our customers and generally have not
required collateral or other forms of security from customers. In determining the appropriate
balance for our allowance for doubtful accounts receivable, management considers each individual
customer account receivable in order to determine collectibility. In doing so, we consider
creditworthiness, payment history, account activity and communication with such customer. If a
customers financial condition changes, or if actual defaults are higher than our historical
experience, we may be required to take a charge for an allowance for doubtful accounts receivable
which could have an adverse impact on our results of operations. Our accounts receivable net of
allowance for doubtful accounts was $343.6 million and $391.3 million as of October 31, 2010 and
April 30, 2011, respectively. Our allowance for doubtful accounts was $0.1 million and $0.7
million as of October 31, 2010 and April 30, 2011, respectively.
Long-lived Assets
Our long-lived assets include: equipment, furniture and fixtures; finite-lived intangible
assets; and maintenance spares. As of October 31, 2010 and April 30, 2011 these assets totaled
$600.4 million and $546.8 million, net, respectively. We test long-lived assets for impairment
whenever events or changes in circumstances indicate that the assets carrying amount is not
recoverable from its undiscounted cash flows. Our long-lived assets are assigned to asset groups
which represents the lowest level for which we identify cash flows.
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Derivatives
Our 4.0% convertible senior notes include a redemption feature that is accounted for as a
separate embedded derivative. The embedded redemption feature is bifurcated from these notes using
the with-and-without approach. As such, the total value of the embedded redemption feature is
calculated as the difference between the value of these notes (the Hybrid Instrument) and the
value of an identical instrument without the embedded redemption feature (the Host Instrument).
Both the Host Instrument and the Hybrid Instrument are valued using a modified binomial model. The
modified binomial model utilizes a risk free interest rate, an implied volatility of our stock, the
recovery rates of bonds, and the implied default intensity of the 4.0% convertible senior notes.
The embedded redemption feature is recorded at fair value on a recurring basis and these changes
are included in interest and other income (expense), net on the Condensed Consolidated Statement of
Operations. We recorded a $9.2 million non-cash gain related to the change in fair value of this
embedded redemption feature in the first six months of fiscal 2011.
Deferred Tax Valuation Allowance
As of April 30, 2011, we have recorded a valuation allowance offsetting nearly all our net
deferred tax assets of $1.4 billion. When measuring the need for a valuation allowance, we assess
both positive and negative evidence regarding the realizability of these deferred tax assets. We
record a valuation allowance to reduce our deferred tax assets to the amount that is more likely
than not to be realized. In determining net deferred tax assets and valuation allowances,
management is required to make judgments and estimates related to projections of profitability, the
timing and extent of the utilization of net operating loss carryforwards, applicable tax rates,
transfer pricing methodologies and tax planning strategies. The valuation allowance is reviewed
quarterly and is maintained until sufficient positive evidence exists to support a reversal.
Because evidence such as our operating results during the most recent three-year period is afforded
more weight than forecasted results for future periods, our cumulative loss during this three-year
period represents sufficient negative evidence regarding the need for nearly a full valuation
allowance. We will release this valuation allowance when management determines that it is more
likely than not that our deferred tax assets will be realized. Any future release of valuation
allowance may be recorded as a tax benefit increasing net income or as an adjustment to paid-in
capital, based on tax ordering requirements.
Uncertain Tax Positions
We account for uncertainty in income tax positions using a two-step approach. The first step
is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the
tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Significant judgment is required in evaluating our uncertain tax positions and determining our
provision for income taxes. Although we believe our reserves are reasonable, no assurance can be
given that the final tax outcome of these matters will not be different from that which is
reflected in our historical income tax provisions and accruals. We adjust these reserves in light
of changing facts and circumstances, such as the closing of a tax audit or the refinement of an
estimate. To the extent that the final tax outcome of these matters is different than the amounts
recorded, such differences will affect the provision for income taxes in the period in which such
determination is made. As of April 30, 2011, we had $0.9 million and $8.4 million recorded as
current and long-term obligations, respectively, related to uncertain tax positions. The provision
for income taxes includes the effect of reserve provisions and changes to reserves that are
considered appropriate, as well as the related net interest. The total amount of unrecognized tax
benefits as of April 30, 2011 was $9.3 million, which includes $1.5 million of interest and some
minor penalties.
Warranty
Our liability for product warranties, included in other accrued liabilities, was $54.4 million
and $47.3 million as of October 31, 2010 and April 30, 2011, respectively. Our products are
generally covered by a warranty for periods ranging from one to five years. We accrue for warranty
costs as part of our cost of goods sold based on associated material costs, technical support labor
costs, and associated overhead. Material cost is estimated based primarily upon historical trends
in the volume of product returns within the warranty period and the cost to repair or replace the
equipment. Technical support labor cost is estimated based primarily upon historical trends and the
cost to support the customer cases within the warranty period. The provision for product warranties
was $8.8 million and $5.6 million for the first six months of fiscal 2010 and 2011, respectively.
As a result of the substantial completion of integration activities related to the MEN Acquisition,
Ciena consolidated certain support operations and processes during the first quarter of fiscal
2011, resulting in a reduction in costs to service future warranty obligations. Due to this
consolidation and resulting efficiencies, Ciena expects to realize lower failure rate costs and
accordingly reversed a $6.9 million non-cash loss contingency included in its warranty liability.
The provision for warranty claims may fluctuate on a quarterly basis depending upon the mix of
products and customers in that period. If actual product failure rates, material replacement costs,
service or labor costs differ from our estimates, revisions to
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the estimated warranty provision would be required. An increase in warranty claims or the related costs associated with satisfying
these warranty obligations could increase our cost of sales and negatively affect our gross margin.
Loss Contingencies
We are subject to the possibility of various losses arising in the ordinary course of
business. These may relate to disputes, litigation and other legal actions. We consider the
likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate
the amount of loss, in determining loss contingencies. A loss is accrued when it is probable that 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 any accruals should be adjusted
and whether new accruals are required.
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
The following discussion about our market risk disclosures involves forward-looking
statements. Actual results could differ materially from those projected in the forward-looking
statements. We are exposed to market risk related to changes in interest rates and foreign currency
exchange rates.
Interest Rate Sensitivity. We currently hold an investment in a U.S. Government obligation
that matures in January 2013. See Notes 5 and 6 to our Condensed Consolidated Financial Statements
for information relating to investments and fair value. This investment is sensitive to interest
rate movements and its fair value will decline as interest rates rise and increase as interest
rates decline. The estimated impact on this investment of a 100 basis point (1.0%) increase in
interest rates across the yield curve from rates in effect as of the balance sheet date would be a
$0.9 million decline in value.
Foreign Currency Exchange Risk. As a global concern, our business and results of operations
are exposed to adverse movements in foreign currency exchange rates. Historically, our sales have
primarily been denominated in U.S. dollars and the impact of foreign currency fluctuations on
revenue has not been material. As a result of our increased global presence, in large part
resulting from the MEN Acquisition, a larger percentage of our revenue is non-U.S. dollar
denominated with Canadian Dollars and Euros being our most
significant foreign currency revenue streams. As a result, if
the U.S. dollar strengthens against these currencies, our revenues could be adversely affected. For
our U.S. dollar denominated sales, an increase in the value of the U.S. dollar would increase the
real cost to our customers of our products in markets outside the
United States which could impact our competitive position.
With regard to operating expense, our primary exposure to foreign currency exchange risk
relates to operating expense incurred in Canadian Dollars, British Pounds, Euros and Indian Rupees.
During the first six months of fiscal 2011, approximately 43.9% of our operating expense was
non-U.S. dollar denominated. If these currencies strengthen, costs reported in U.S. dollars will
increase, which would adversely affect our operating results.
For the first six months of fiscal 2011, research and development was negatively affected by
approximately $6.7 million, net of hedging, respectively due to unfavorable foreign exchange rates
related to the weakening of the U.S. dollar in relation to the Canadian Dollar.
From time to time, Ciena uses foreign currency forward contracts to reduce part of the variability in
certain forecasted non-US dollar denominated operating expenses. Generally, these derivatives are for
maturities 12 months or less and are designated as cash flow hedges. Ciena considers several factors when
evaluating hedges of its forecasted foreign currency exposures, such as significance of the exposure,
offsetting economic exposures, potential costs of hedging, and the potential for hedge ineffectiveness.
Ciena does not enter into derivative transactions for purposes other than hedging economic exposures.
During the second quarter of fiscal 2011, Ciena entered into forward contracts to reduce the variability in
its Canadian Dollar and Indian Rupee denominated operating expenses which principally relate to the Companys research and development activities.
Convertible Debt Outstanding. The fair market value of each of our outstanding issues of
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 our 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,
and may affect the prices at which we would be able to repurchase such notes were we to do so.
These changes do not impact our financial position, cash flows or results of
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operations. For additional information on the fair value of our outstanding notes, see Note 14 to our Condensed
Consolidated Financial Statements included in Item 1 of Part I of this report.
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Item 4. |
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Controls and Procedures |
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation
under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the most
recently completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
As described elsewhere in this report, we acquired the MEN Business on March 19, 2010. During
the second quarter of fiscal 2011, we integrated the MEN Business operations into
Cienas enterprise resource planning system and other critical business systems. This system
integration enabled us to substantially end our reliance upon transition services performed
by an affiliate of Nortel following the MEN Acquisition and represented the completion of our critical integration milestones. The
combined operations will be part of our evaluation of the effectiveness of internal control over
financial reporting in our Annual Report on Form 10-K for our fiscal year ending October 31, 2011,
in which report we will be initially required to include the MEN Business in our annual assessment.
PART II OTHER INFORMATION
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Item 1. |
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Legal Proceedings |
On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the
Northern District of Georgia against Ciena and four other defendants, alleging, among other things,
that certain of the parties products infringe U.S. Patent 6,542,673 (the 673 Patent), relating
to an identifier system and components for optical assemblies. The complaint, which seeks
injunctive relief and damages, was served upon Ciena on January 20, 2009. Ciena filed an answer to
the complaint and counterclaims against Graywire on March 26, 2009, and an amended answer and
counterclaims on April 17, 2009. On April 27, 2009, Ciena and certain other defendants filed an
application for inter partes reexamination of the 673 Patent with the U.S. Patent and Trademark
Office (the PTO). On the same date, Ciena and the other defendants filed a motion to stay the
case pending reexamination of all of the patents-in-suit. On July 17, 2009, the district court
granted the defendants motion to stay the case. On July 23, 2009, the PTO granted the defendants
application for reexamination with respect to certain claims of the
673 Patent. On March 17, 2011, the PTO granted a third party
application for reexamination with respect to one claim of the
673 Patent. We believe that we
have valid defenses to the lawsuit and intend to defend it vigorously in the event the stay of the
case is lifted.
As a result of our June 2002 merger with ONI Systems Corp., we became a defendant in a
securities class action lawsuit filed in the United States District Court for the Southern District
of New York in August 2001. The complaint named ONI, certain former ONI officers, and certain
underwriters of ONIs initial public offering (IPO) as defendants, and alleges, among other things,
that the underwriter defendants violated the securities laws by failing to disclose alleged
compensation arrangements in ONIs registration statement and by engaging in manipulative practices
to artificially inflate ONIs stock price after the IPO. The complaint also alleges that ONI and
the named former officers violated the securities laws by failing to disclose the underwriters
alleged compensation arrangements and manipulative practices. The former ONI officers have been
dismissed from the action without prejudice. Similar complaints have been filed against more than
300 other issuers that have had initial public offerings since 1998, and all of these actions have
been included in a single coordinated proceeding. On October 6, 2009, the Court entered an opinion
granting final approval to a settlement among the plaintiffs, issuer defendants and underwriter
defendants, and directing that the Clerk of the Court close these actions. Notices of appeal of the
opinion granting final approval have been filed, all of which have
been either resolved or dismissed, except one. A description of this litigation and the history
of the proceedings can be found in Item 3. Legal Proceedings of Part I of Cienas Annual Report
on Form 10-K filed with the Securities and Exchange Commission on December 22, 2010. No specific
amount of damages has been claimed in this action. Due to the inherent uncertainties of litigation
and because the settlement remains subject to appeal, the ultimate outcome of the matter is
uncertain.
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In addition to the matters described above, we are subject to various legal proceedings,
claims and litigation arising in the ordinary course of business. We do not expect that the
ultimate costs to resolve these matters will have a material effect on our results of operations,
financial position or cash flows.
Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. In addition to the other
information contained in this report, you should consider the following risk factors before
investing in our securities.
A small number of communications service providers account for a significant portion of our revenue
and the loss of any of these customers, or a significant reduction in their spending, would have a
material adverse effect on our business and results of operations.
A significant portion of our revenue is concentrated among a few, large global communications
service providers. By way of example, AT&T accounted for approximately 21.6% of fiscal 2010
revenue. Consequently, our financial results are closely correlated with the spending of a
relatively small number of service providers and can be significantly affected by market or
industry changes that affect their businesses.
These factors can include consumer and enterprise spending on
communication services, the introduction and
adoption of new communications
products and services, and the capacity requirements and speed of networks required to meet end user demands.
The terms of our frame contracts generally do not
obligate these customers to purchase any minimum or specific amounts of equipment or services.
Because spending by communications service providers can be unpredictable and sporadic, our revenue
and operating results can fluctuate on a quarterly basis. Reliance upon a relatively small number
of customers increases our exposure to changes in their network and purchasing strategies. Some of
our customers are pursuing efforts to outsource the management and operation of their networks, or
have indicated a procurement strategy to reduce or rationalize the number of vendors from which
they purchase equipment. These strategies may present challenges to our business and could benefit
our larger competitors. Our concentration in revenue has increased in recent years, in part, as a
result of consolidations among a number of our largest customers. Consolidations may increase the
likelihood of temporary or indefinite reductions in customer spending or changes in network
strategy that could harm our business and operating results. The loss of one or more large service
provider customers, or a significant reduction in their spending, would have a material adverse
effect on our business, financial condition and results of operations.
Our revenue and operating results can fluctuate unpredictably from quarter to quarter.
Our revenue and results of operations can fluctuate unpredictably from quarter to quarter. Our
budgeted expense levels depend in part on our expectations of long-term, future revenue and gross
margin, and substantial reductions in expense are difficult and can take time to implement.
Uncertainty or lack of visibility into customer spending, and changes in economic or market
conditions that affect customer spending, can make it difficult to prepare reliable estimates of
future revenue and corresponding expense levels. Consequently, our level of operating expense or
inventory purchases may be high relative to our revenue, which could harm our profitability and
cash flow. Lower levels of backlog orders resulting from periods of cautious customer spending and
the consequent need to increase the percentage of quarterly revenue relating to orders placed in
that quarter could result in more variability and less predictability in our quarterly results.
Additional factors that contribute to fluctuations in our revenue and operating results
include:
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broader economic and market conditions affecting our customers, their business and
their networks; |
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changes in capital spending by large communications service providers; |
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the timing and size of orders, including our ability to recognize revenue under
customer contracts; |
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variations in the mix between higher and lower margin products and services, including
the mix of revenue by segment, geography and customer; |
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the level of pricing pressure we encounter, particularly for our Packet-Optical
Transport products which comprise a significant concentration of our
revenue; |
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the transition of sales from legacy to new, next-generation
technology platforms; and |
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our ability to optimize our resources, improve manufacturing
efficiencies and achieve cost reductions in our supply chain. |
Many factors affecting our results of operations are beyond our control, particularly in the
case of large service provider orders and multi-vendor or multi-technology network infrastructure
builds where the achievement of certain thresholds for acceptance is subject to the readiness and
performance of the customer or other providers, and changes in customer requirements or
installation plans. The factors above may cause our revenue and operating results to fluctuate
unpredictably from quarter to quarter. These fluctuations may cause our operating results to be
below the expectations of securities analysts or investors, which may cause our stock price to
decline.
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We face intense competition that could hurt our sales and results of operations.
The markets in which we compete for sales of networking equipment, software and services are
extremely competitive. Competition is particularly intense as we and our competitors more
aggressively seek to displace incumbent equipment vendors at large carrier customers and secure new
customers and additional market share for new, next-generation products. In an effort to secure
new or long-term customers and capture market share, we have in the past, and may in the future,
agree to onerous commercial terms or pricing that result in low or negative gross margins on a
particular order or group of orders. We expect this level of competition to continue and
potentially increase, as larger Chinese equipment vendors seek to gain entry into the U.S. market,
and other global competitors seek to retain incumbent positions with customers.
Competition in our markets, generally, is based on any one or a combination of the following
factors: price, product features, functionality and performance, service offering, manufacturing
capability and lead-times, incumbency and existing business relationships, scalability and the
flexibility of products to meet the immediate and future network and service requirements of
customers. A small number of very large companies have dominated our industry. These competitors
have substantially greater financial and marketing resources, greater manufacturing capacity,
broader product offerings and more established relationships with service providers and other
potential customers than we do. Because of their scale and resources, they may be perceived to be a
better fit for the procurement, or network operating and management, strategies of large service
providers. We also compete with a number of smaller companies that provide significant competition
for a specific product, application, customer segment or geographic market. Due to the narrower
focus of their efforts, these competitors may achieve commercial availability of their products
more quickly or may be more attractive to customers.
Increased competition in our markets has resulted in aggressive business tactics, including:
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significant price competition, particularly for our Packet-Optical Transport
platforms; |
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customer financing assistance provided by other vendors or their sponsors; |
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assumption of onerous or atypical commercial terms that
involve a greater degree of risk; |
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offers to repurchase our equipment from existing customers;
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intellectual property assertions and disputes. |
The tactics described above can be particularly effective in an increasingly concentrated base
of potential customers such as communications service providers. If competitive pressures increase
or we fail to compete successfully in our markets, our sales and profitability would suffer.
Our reliance upon third party manufacturers exposes us to risks that could negatively affect our
business and operations.
We rely upon third party contract manufacturers to perform the substantially all of the
manufacturing of our products and a significant portion of our component sourcing. We do not have
contracts in place with some of our manufacturers, do not have guaranteed supply of components or
access to manufacturing capacity, and in some cases are utilizing temporary or transitional
commercial arrangements intended to facilitate the integration of the MEN Business. Our reliance
upon third party manufacturers could expose us to increased risks related to lead times, continuity
of supply, on-time delivery, quality assurance, and compliance with environmental standards and
other regulations. Reliance upon third party manufacturers exposes us to risks related to their
operations, financial position, business continuity and continued viability. Our operations may
also be affected by geopolitical events, natural disasters, military actions or health pandemics in
the countries where our products or critical components are manufactured. Our product manufacturing
principally takes place in Mexico, Canada, Thailand and China. Significant disruptions in these
countries affecting supply and manufacturing capacity, or other difficulties with our contract
manufacturers would negatively affect our business and results of operations.
In an effort to drive cost reductions and further optimize Cienas operations following the
MEN Acquisition, we are working to rationalize our supply chain and
consolidate third party
contract manufacturers and distribution facilities. We also intend to pursue additional
opportunities for direct fulfillment of products from our manufacturers to our customers. There can
be no assurance that these efforts, including any reallocation of the third party manufacturing and
sourcing or changes in fulfillment involving our manufacturers, will not ultimately result in
additional costs, changes in quality or disruptions in our operations and business.
Difficulties with third party component suppliers, including sole and limited source suppliers,
could increase our costs
and harm our business and customer relationships.
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We depend on third party suppliers for our product components and subsystems, as well as for
equipment used to manufacture and test our products. Our products include key optical and
electronic components for which reliable, high-volume supply is often available only from sole or
limited sources. Increases in market demand or periods of economic weakness have previously
resulted in shortages in availability of important components. Unfavorable economic conditions or
other challenges in their businesses can affect our suppliers liquidity levels, ability to
continue to invest in their business, stocking of components in
sufficient quantity, and increased lead
times, and can result in a higher incidence of component discontinuation. These difficulties could
result in lost revenue, additional product costs and deployment delays that could harm our business
and customer relationships. We do not have any guarantee of supply from these third parties, and in
certain cases relating to the MEN Business, are relying upon temporary or transitional commercial
arrangements intended to facilitate the integration. As a result, there is no assurance that we
will be able to secure the components or subsystems that we require in sufficient quantity and
quality on reasonable terms. The loss of a source of supply, or lack of sufficient availability of
key components, could require that we locate an alternate source or redesign our products, each of
which could increase our costs and negatively affect our product gross margin and results of
operations. Our business and results of operations would be negatively affected if we were to
experience any significant disruption of difficulties with key suppliers affecting the price,
quality, availability or timely delivery of required components.
Investment of research and development resources in technologies for which there is not a matching
market opportunity, or failure to sufficiently or timely invest in technologies for which there is
market demand, would adversely affect our revenue and profitability.
The market for communications networking equipment is characterized by rapidly evolving
technologies and changes in market demand. We continually invest in research and development to
sustain or enhance our existing products and develop or acquire new product technologies. Our
current development efforts are focused upon the platform evolution of our CoreDirector
Multiservice Optical Switch family to our ActivFlex 5430, expansion of our ActivEdge service
delivery and aggregation switches, and extension of our 40G and 100G coherent technologies and
capabilities for our Packet-Optical Transport platforms. There is often a lengthy period between
commencing these development initiatives and bringing a new or improved product to market. During
this time, technology preferences, customer demand and the market for our products may move in
directions we had not anticipated. There is no guarantee that new products or enhancements will
achieve market acceptance or that the timing of market adoption will be as predicted. There is a
significant possibility, therefore, that some of our development decisions, including significant
expenditures on acquisitions, research and development costs, or investments in technologies, will
not turn out as anticipated, and that our investment in some projects will be unprofitable. There
is also a possibility that we may miss a market opportunity because we failed to invest, or
invested too late, in a technology, product or enhancement. Changes in market demand or investment
priorities may also cause us to discontinue existing or planned development for new products or
features, which can have a disruptive effect on our relationships with customers. These product
development risks can be compounded in the context of rationalizing offerings and the significant
development work required to integrate products and network management software following a
significant acquisition. If we fail to make the right investments or fail to make them at the right
time, our competitive position may suffer and our revenue and profitability could be harmed.
Our business and operating results could be adversely affected by unfavorable changes in
macroeconomic and market conditions and reductions in the level of capital expenditure by customers
in response to these conditions.
Broad macroeconomic weakness has previously resulted in sustained periods of decreased demand
for our products and services that have adversely affected our operating results. In response to
these conditions, many of our customers significantly reduced their network infrastructure
expenditures as they sought to conserve capital, reduce debt or address uncertainties or changes in
their own business models brought on by broader market challenges. Continuation of or an increase
in challenging economic and market conditions could result in:
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difficulty forecasting, budgeting and planning due to limited visibility into the
spending plans of current or prospective customers; |
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increased competition for fewer network projects and sales opportunities; |
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increased pricing pressure that may adversely affect revenue and gross margin; |
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higher overhead costs as a percentage of revenue; |
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increased risk of charges relating to excess and obsolete inventories and the write
off of other intangible assets; and |
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customer financial difficulty and increased difficulty in collecting accounts
receivable. |
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Our business and operating results could be materially affected by reduced customer spending
in response to unfavorable or uncertain macroeconomic and market conditions, globally or specific
to a particular region where we operate.
The international scale of our operations could expose us to additional risks and expense and
adversely affect our results of operations.
We market, sell and service our products globally and rely upon a global supply chain for
sourcing of important components and manufacturing of our products. International operations are
subject to inherent risks, including:
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effects of changes in currency exchange rates; |
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greater difficulty in collecting accounts receivable and longer collection periods; |
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difficulties and costs of staffing and managing foreign operations; |
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the impact of economic conditions in countries outside the United States; |
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less protection for intellectual property rights in some countries; |
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adverse tax and customs consequences, particularly as related to transfer-pricing
issues; |
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social, political and economic instability; |
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higher incidence of corruption or unethical business practices; |
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trade protection measures, export compliance, domestic preference procurement
requirements, qualification to transact business and additional regulatory requirements;
and |
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natural disasters, epidemics and acts of war or terrorism. |
Moreover, while we have seen early progress and sales opportunities with new customers in the
Middle East, there can be no assurance that recent instability and unrest in the region will not
adversely affect our business, operations and financial results relating to these and other
opportunities
We expect that we may enter new markets and withdraw from or reduce operations in
others. In some countries, our success will depend in part on our ability to form relationships
with local partners. Our inability to identify appropriate partners or reach mutually satisfactory
arrangements could adversely affect our business and operations. Our
global operations may result in increased risk and expense to our business and could give rise to
unanticipated liabilities or difficulties that could adversely affect our operations and financial
results.
Product performance problems could damage our business reputation and negatively affect our results
of operations.
The development and production of sophisticated communications network equipment is
complicated. Some of our products can be fully tested only when deployed in communications networks
or when carrying traffic with other equipment. As a result, undetected defects or errors, and
product quality, reliability and performance problems are often more acute for initial deployments
of new products and product enhancements. Unanticipated problems can relate to the design,
manufacturing, installation or integration of our products. Product performance problems can also
relate to defects in components, software or manufacturing services supplied by third parties.
Product performance, reliability and quality problems can negatively affect our business,
including:
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increased costs to remediate software or hardware defects or replace products; |
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payment of liquidated damages or similar claims for performance failures or delays; |
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increased inventory obsolescence; |
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increased warranty expense or estimates resulting from higher failure rates,
additional field service obligations or other rework costs related to defects; |
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delays in recognizing revenue or collecting accounts receivable; and |
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declining sales and order cancellations. |
Product performance problems could also damage our business reputation and harm our prospects with
potential customers. These consequences of product defects or quality problems, including any
significant costs to remediate, could negatively affect our business and results of operations.
Network equipment sales to large communications service providers often involve lengthy sales
cycles and protracted contract negotiations and may require us to assume terms or conditions that
negatively affect our pricing, payment terms and the timing of revenue recognition.
Our future success will depend in large part on our ability to maintain and expand our sales
to large communications service providers. These sales typically involve lengthy sales cycles,
extensive product testing, and demonstration laboratory or network certification, including
network-specific or region-specific product certification or homologation processes. These sales
also often involve protracted and sometimes difficult contract negotiations in which we may be
required to agree to contract terms or conditions that negatively affect pricing, payment terms and
the timing of revenue recognition in order to consummate a sale. We may also be requested to
provide extended payment terms, vendor or third-party financing, or offer other alternative
purchase structures. These terms may, in turn, negatively affect our revenue and results of
operations and increase our risk and susceptibility to quarterly fluctuations in our results.
Service providers may ultimately insist upon terms and conditions that we deem too onerous or not
in our best interest. Moreover, our purchase agreements generally do not require that a customer
guarantee any minimum purchase level and customers often have the right to modify, delay, reduce or
cancel previous orders. As a result, we may incur substantial expense and devote time and resources
to potential sales opportunities that never materialize or result in lower than anticipated sales.
We may not be successful in selling our products into new markets and developing and managing new
sales channels.
We have expanded our geographic presence significantly in recent years, including as a result
of our acquisition of the MEN Business. We continue to take steps to sell our products into new
markets and to a broader customer base, including other large communications service providers,
enterprises, wireless operators, cable operators, submarine network
operators, content providers, research and education institutions, and federal, state and local governments. In many cases, we have less experience in these markets
and customers have less familiarity with our company. To succeed in some of these markets we
believe we must develop and manage new sales channels and distribution arrangements. We expect
these relationships to be an important part of our business internationally as well as for sales to
federal, state and local governments. Failure to manage additional sales channels effectively, and
exposure to liabilities relating to their actions or omissions, would limit our ability to succeed
in these new markets and could adversely affect our result of operations and the growth of our
business.
We may experience delays in the development of our products that may negatively affect our
competitive position and business.
Our products are based on complex technology, and we can experience unanticipated delays in
developing,
55
manufacturing or deploying them. Each step in the development life cycle of our products presents
serious risks of failure, rework or delay, any one of which could adversely affect the
cost-effective and timely development of our products. The development of our products, including
the integration of the products acquired from the MEN Business into our portfolio and the
development of an integrated software tool to manage the combined portfolio, present significant
complexity. In addition, intellectual property disputes, failure of critical design elements, and
other execution risks may delay or even prevent the release of these products. Delays in product
development may affect our reputation with customers and the timing and level of demand for our
products. If we do not develop and successfully introduce products in a timely manner, our
competitive position may suffer and our business, financial condition and results of operations
would be harmed.
We may be required to write off significant amounts of inventory as a result of our inventory
purchase practices, the convergence of product lines or unfavorable market conditions.
To avoid delays and meet customer demand for shorter delivery terms, we place orders with our
contract manufacturers and suppliers to manufacture components and complete assemblies based in
part on forecasts of customer demand. As a result, our inventory purchases expose us to the risk
that our customers either will not order the products we have forecasted, or will purchase fewer
products than forecasted. Market conditions can limit visibility into customer spending plans and
compound the difficulty of forecasting inventory at appropriate levels. Moreover, our customer
purchase agreements generally do not guarantee any minimum purchase level, and customers often have
the right to modify, reduce or cancel purchase quantities. As a result, we may purchase inventory
in anticipation of sales that ultimately do not occur. Historically, our inventory write-offs have
resulted from the circumstances above. As features and functionalities converge across our product
lines, and we introduce new products, however, we face an additional risk that customers may forego
purchases of one product we have inventoried in favor of another product with similar
functionality. If we are required to write off or write down a significant amount of inventory, our
results of operations for the period would be materially adversely affected.
Restructuring activities could disrupt our business and affect our results of operations.
We have previously taken steps, including reductions in force, office closures, and internal
reorganizations to reduce the size and cost of our operations and to better match our resources
with market opportunities. We may take similar steps in the future, particularly as we seek to
realize operating synergies and cost reductions associated with the MEN Acquisition. These changes
could be disruptive to our business and may result in significant expense including accounting
charges for inventory and technology-related write-offs, workforce reduction costs and charges
relating to consolidation of excess facilities. Substantial expense or charges resulting from
restructuring activities could adversely affect our results of operations in the period in which we
take such a charge.
Our failure to manage effectively our relationships with third party service partners could
adversely impact our financial results and relationship with customers.
We rely on a number of third party service partners, both domestic and international, to
complement our global service and support resources. We rely upon these partners for certain
installation, maintenance and support functions. In order to ensure the proper installation and
maintenance of our products, we must identify, train and certify qualified service partners.
Certification can be costly and time-consuming, and our partners often provide similar services for
other companies, including our competitors. We may not be able to manage effectively our
relationships with our service partners and cannot be certain that they will be able to deliver
services in the manner or time required. If our service partners are unsuccessful in delivering
services:
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we may suffer delays in recognizing revenue; |
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our services revenue and gross margin may be adversely affected; and |
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our relationship with customers could suffer. |
If we do not manage effectively our relationships with third party service partners,
or they fail to perform these services in the manner or time required, our financial results and relationship with customers could be adversely affected.
Our intellectual property rights may be difficult and costly to enforce.
We generally rely on a combination of patents, copyrights, trademarks and trade secret laws to
establish and maintain proprietary rights in our products and technology. Although we have been
issued numerous patents and other patent applications are currently pending, there can be no
assurance that any of these patents or other proprietary rights will not be challenged, invalidated
or circumvented or that our rights will provide us with any competitive advantage. In addition,
there can be no assurance that patents will be issued from pending applications or that claims
allowed on any patents will be sufficiently broad to protect our technology. Further, the laws of
some foreign countries may not protect our proprietary rights to the same extent as do the laws of
the United States.
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We are subject to the risk that third parties may attempt to use our intellectual property
without authorization. Protecting against the unauthorized use of our products, technology and
other proprietary rights is difficult, time-consuming and expensive, and we cannot be certain that
the steps that we are taking will prevent or minimize the risks of such unauthorized use.
Litigation may be necessary to enforce or defend our intellectual property rights or to determine
the validity or scope of the proprietary rights of others. Such litigation could result in
substantial cost and diversion of management time and resources, and there can be no assurance that
we will obtain a successful result. Any inability to protect and enforce our intellectual property
rights, despite our efforts, could harm our ability to compete effectively.
We may incur significant costs in response to claims by others that we infringe their intellectual
property rights.
From time to time third parties may assert claims or initiate litigation or other proceedings
related to patent, copyright, trademark and other intellectual property rights to technologies and
related standards that are relevant to our business. These assertions have increased over time due
to our growth, the increased number of products and competitors in the communications network
equipment industry and the corresponding overlaps, and the general increase in the rate of patent
claims assertions, particularly in the United States. Asserted claims, litigation or other
proceedings can include claims against us or our manufacturers, suppliers or customers, alleging
infringement of third party proprietary rights with respect our existing or future products and
technology or components of those products. Regardless of the merit of these claims, they can be
time-consuming, divert the time and attention of our technical and management personnel, and result
in costly litigation. These claims, if successful, can require us to:
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pay substantial damages or royalties; |
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comply with an injunction or other court order that could prevent us from offering
certain of our products; |
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seek a license for the use of certain intellectual property, which may not be available
on commercially reasonable terms or at all; |
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develop non-infringing technology, which could require significant effort and expense
and ultimately may not be successful; and |
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indemnify our customers pursuant to contractual obligations and pay damages on their
behalf. |
Any of these events could adversely affect our business, results of operations and financial
condition. Our exposure to risks associated with the use of intellectual property may be increased
as a result of acquisitions, as we have a lower level of visibility into the development process
with respect to such technology or the steps taken to safeguard against the risks of infringing the
rights of third parties.
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We may fail to realize the anticipated benefits of our acquisition of the MEN Business, which could
adversely affect our operating results and the market price of our common stock.
The success of our acquisition of the MEN Business will depend, in significant part, on our
ability to grow the combined business and realize the anticipated strategic benefits and operating
synergies from the combination. Achieving these benefits requires revenue growth and the
realization of targeted sales, cost reductions in our supply chain, and other operating and
research and development synergies. As a result, we may not realize the benefits of this
transaction or these benefits may be less significant than we expect, or may take longer to achieve
than anticipated. If we are not able to realize the anticipated benefits of the MEN Acquisition
within a reasonable time, our results of operations and the value of Cienas common stock may be
adversely affected.
Our use and reliance upon development resources in India may expose us to unanticipated costs or
liabilities.
We have a significant development center in India and, in recent years, have increased
headcount and development activity at this facility. There is no assurance that our reliance upon
development resources in India will enable us to achieve meaningful cost reductions or greater
resource efficiency. Further, our development efforts and other operations in India involve
significant risks, including:
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difficulty hiring and retaining appropriate engineering resources due to intense
competition for such resources and resulting wage inflation; |
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exposure to misappropriation of intellectual property and proprietary information; |
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heightened exposure to changes in the economic, regulatory, security and political
conditions of India; and |
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fluctuations in currency exchange rates and tax compliance in India. |
Difficulties resulting from the factors above and other risks related to our operations in
India could expose us to increased expense, impair our development efforts, harm our competitive
position and damage our reputation.
We may be exposed to unanticipated risks and additional obligations in connection with our resale
of complementary products or technology of other companies.
We have entered into agreements with strategic partners that permit us to distribute their
products or technology. We may rely upon these relationships to add complementary products or
technologies, diversify our product portfolio, or address a particular customer or geographic
market. We may enter into additional original equipment manufacturer (OEM), resale or similar
strategic arrangements in the future, including in support of our selection as a domain supply
partner with AT&T. We may incur unanticipated costs or difficulties relating to our resale of third
party products. Our third party relationships could expose us to risks associated with the business
and viability of such partners, as well as delays in their development, manufacturing or delivery
of products or technology. We may also be required by customers to assume warranty, indemnity,
service and other commercial obligations greater than the commitments, if any, made to us by our
technology partners. Some of our strategic partners are relatively small companies with limited
financial resources. If they are unable to satisfy their obligations to us or our customers, we may
have to expend our own resources to satisfy these obligations. Exposure to these risks could harm
our reputation with key customers and negatively affect our business and our results of operations.
Our exposure to the credit risks of our customers and resellers may make it difficult to collect
receivables and could adversely affect our revenue and operating results.
In the course of our sales to customers, we may have difficulty collecting receivables and
could be exposed to risks associated with uncollectible accounts. We may be exposed to similar
risks relating to third party resellers and other sales channel partners. Lack of liquidity in the
capital markets or a sustained period of unfavorable economic conditions may increase our exposure
to credit risks. Our attempts to monitor these situations carefully and take appropriate measures
to protect ourselves may not be sufficient, and it is possible that we may have to write down or
write off doubtful accounts. Such write-downs or write-offs could negatively affect our operating
results for the period in which they occur, and, if large, could have a material adverse effect on
our revenue and operating results.
If we are unable to attract and retain qualified personnel, we may be unable to manage our business
effectively.
Competition to attract and retain highly skilled technical, engineering and other personnel
with experience in our
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industry is intense and our employees have been the subject of targeted hiring by our competitors. We
may experience difficulty retaining and motivating existing employees and attracting qualified
personnel to fill key positions. Because we rely upon equity awards as a significant component of
compensation, particularly for our executive team, a lack of positive performance in our stock
price, reduced grant levels, or changes to our compensation program may adversely affect our
ability to attract and retain key employees. It may be difficult to replace members of our
management team or other key personnel, and the loss of such individuals could be disruptive to our
business. In addition, none of our executive officers is bound by an employment agreement for any
specific term. If we are unable to attract and retain qualified personnel, we may be unable to
manage our business effectively and our operations and results of operations could suffer.
We may be adversely affected by fluctuations in currency exchange rates.
As a global concern, we face exposure to adverse movements in foreign currency exchange rates.
Historically, our sales were primarily denominated in U.S. dollars. As a result of our increased
global presence, a larger percentage of our revenue and operating expense are now non-U.S. dollar
denominated and therefore subject to foreign currency fluctuation. We face exposure to currency
exchange rates as a result of the growth in our non-U.S. dollar
denominated operating expense in Canada, Europe, Asia, and Latin America. From time to time, we may hedge against currency exposure
associated with anticipated foreign currency cash flows. There can be
no assurance that any hedging instruments will be effective and losses associated with these
instruments and the adverse effect of foreign currency exchange rate fluctuation may negatively
affect our results of operations.
Our products incorporate software and other technology under license from third parties and our
business would be adversely affected if this technology was no longer available to us on
commercially reasonable terms.
We integrate third-party software and other technology into our embedded operating system,
network management system tools and other products. Licenses for this technology may not be
available or continue to be available to us on commercially reasonable terms. Third party licensors
may insist on unreasonable financial or other terms in connection with our use of such technology.
Difficulties with third party technology licensors could result in termination of such licenses,
which may result in significant costs and require us to obtain or develop a substitute technology.
Difficulty obtaining and maintaining third-party technology licenses may disrupt development of our
products and increase our costs, which could harm our business.
Our business is dependent upon the proper functioning of our internal business processes and
information systems and modifications may disrupt our business, processes and internal controls.
The successful operation of various internal business processes and information systems is
critical to the efficient operation of our business. If these systems fail or are interrupted, our
operations may be adversely affected and operating results could be harmed. Our business processes
and information systems need to be sufficiently scalable to support the future growth of our
business and may require modifications that expose us to a number of operational risks. These
changes may be costly and disruptive, and could impose substantial demands on management time.
These changes may also require the modification of a number of internal control procedures and
significant training of employees. Any material disruption, malfunction or similar problems with
our business processes or information systems, or the transition to new processes and systems,
could have a negative effect on the operation of our business and our results of operations.
Strategic acquisitions and investments may expose us to increased costs and unexpected liabilities.
We may acquire or make investments in other technology companies, or enter into other
strategic relationships, to expand the markets we address, diversify our customer base or acquire
or accelerate the development of technology or products. To do so, we may use cash, issue equity
that would dilute our current stockholders ownership, or incur debt or assume indebtedness. These
transactions involve numerous risks, including:
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significant integration costs; |
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disruption due to the integration and rationalization of operations, products,
technologies and personnel; |
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diversion of managements attention; |
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difficulty completing projects of the acquired company and costs related to in-process
projects; |
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the loss of key employees; |
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ineffective internal controls over financial reporting; |
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dependence on unfamiliar suppliers or manufacturers; |
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exposure to unanticipated liabilities, including intellectual property infringement
claims; and |
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adverse tax or accounting effects including amortization expense related to intangible
assets and charges associated with impairment of goodwill. |
As a result of these and other risks, our acquisitions, investments or strategic transactions
may not reap the intended benefits and may ultimately have a negative impact on our business,
results of operation and financial condition.
Changes in government regulation affecting the communications industry and the businesses of our
customers could harm our prospects and operating results.
The Federal Communications Commission, or FCC, has jurisdiction over the U.S. communications
industry and similar agencies have jurisdiction over the communication industries in other
countries. Many of our largest customers are subject to the rules and regulations of these
agencies. Changes in regulatory requirements in the United States or other countries could inhibit
service providers from investing in their communications network infrastructures or introducing new
services. These changes could adversely affect the sale of our products and services. Changes in
regulatory tariff requirements or other regulations relating to pricing or terms of carriage on
communications networks could slow the development or expansion of network infrastructures and
adversely affect our business, operating results, and financial condition.
Governmental regulations affecting the use, import or export of products could negatively affect
our revenue.
The United States and various foreign governments have imposed controls, license requirements
and other restrictions on the usage, import or export of some of the technologies that we sell.
Governmental regulation of usage, import or export of our products, or our failure to obtain
required approvals for our products, could harm our international and domestic sales and adversely
affect our revenue and costs of sales. Failure to comply with such regulations could result in
enforcement actions, fines or penalties and restrictions on export privileges. In addition, costly
tariffs on our equipment, restrictions on importation, trade protection measures and domestic
preference requirements of certain countries could limit our access to these markets and harm our
sales. For example, Indias government has recently implemented and is considering additional rules
applicable to non-Indian network equipment vendors and has imposed significant tariffs that may inhibit
sales of certain communications equipment; including equipment manufactured in China, where certain
of our products are assembled. These and other regulations could adversely affect the sale or use
of our products, substantially increase our cost of sales and could adversely affect our business and revenue.
Governmental regulations related to the environment and potential climate change, could adversely
affect our business and operating results.
Our operations are regulated under various federal, state, local and international laws
relating to the environment and potential climate change. We could incur fines, costs related to
damage to property or personal injury, and costs related to investigation or remediation
activities, if we were to violate or become liable under these laws or regulations. Our product
design efforts, and the manufacturing of our products, are also subject to evolving requirements
relating to the presence of certain materials or substances in our equipment, including regulations
that make producers for such products financially responsible for the collection, treatment and
recycling of certain products. For example, our operations and financial results may be negatively
affected by environmental regulations, such as the Waste Electrical and Electronic Equipment (WEEE)
and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment
(RoHS) that have been adopted by the European Union. Compliance with these and similar
environmental regulations may increase our cost of designing, manufacturing, selling and removing
our products. These regulations may also make it difficult to obtain supply of compliant components
or require us to write off non-compliant inventory, which could have an adverse effect our business
and operating results.
We may be required to write down long-lived assets and these impairment charges would adversely
affect our operating results.
As of April 30, 2011, our balance sheet includes $546.8 million in long-lived assets, which
includes $369.8 million of intangible assets. Valuation of our long-lived assets requires us to
make assumptions about future sales prices and sales volumes for our products. These assumptions
are used to forecast future, undiscounted cash flows. Given the significant uncertainty and
instability of macroeconomic conditions in recent periods, forecasting future business is
difficult and subject to modification. If actual market conditions differ or our forecasts change,
we may be required to reassess long-lived assets and could record an impairment charge. Any
impairment charge relating to long-lived assets would have the effect of decreasing our earnings
or increasing our losses in such period. If we are required to take a substantial impairment
charge, our operating results could be materially adversely affected in such period.
Failure to maintain effective internal controls over financial reporting could have a material
adverse effect on our business, operating results and stock price.
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Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a
report containing managements assessment of the effectiveness of our internal controls over
financial reporting as of the end of our fiscal year and a statement as to whether or not such
internal controls are effective. Compliance with these requirements has resulted in, and is likely
to continue to result in, significant costs and the commitment of time and operational resources.
Changes in our business, including the integration of the MEN Business and wind down of transition
support services, will necessitate modifications to our internal control systems, processes and
information systems, both on a transition basis, and over the longer-term as we fully integrate the
combined company. Our increased global operations and expansion into new regions could pose
additional challenges to our internal control systems. We cannot be certain that our current design
for internal control over financial reporting, or any additional changes to be made during fiscal
2011, will be sufficient to enable management to determine that our internal controls are effective
for any period, or on an ongoing basis. If we are unable to assert that our internal controls over
financial reporting are effective, our business may be harmed. Market perception of our financial
condition and the trading price of our stock may be adversely affected, and customer perception of
our business may suffer.
Outstanding indebtedness under our convertible notes may adversely affect our business.
At April 30, 2011, indebtedness on our outstanding convertible notes totaled approximately
$1.4 billion in aggregate principal. Our indebtedness could have important negative consequences,
including:
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increasing our vulnerability to adverse economic and industry conditions; |
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limiting our ability to obtain additional financing, particularly in light of
unfavorable conditions in the credit markets; |
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reducing the availability of cash resources for other purposes, including capital
expenditures; |
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limiting our flexibility in planning for, or reacting to, changes in our business and
the markets in which we compete; and |
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placing us at a possible competitive disadvantage to competitors that have better
access to capital resources. |
We may also add additional indebtedness such as equipment loans, working capital lines of
credit and other long-term debt.
Our stock price is volatile.
Our common stock price has experienced substantial volatility in the past and may remain
volatile in the future. Volatility in our stock price can arise as a result of a number of the
factors discussed in this Risk Factors section. During fiscal 2010, our closing stock price
ranged from a high of $19.24 per share to a low of $10.67 per share. As of the end of the second
quarter of fiscal 2011, our closing stock price was $28.24. The stock market has experienced
extreme price and volume fluctuations that have affected the market price of many technology
companies, with such volatility often unrelated to the operating performance of these companies.
Divergence between our actual or anticipated financial results and published expectations of
analysts can cause significant swings in our stock price. Our stock price can also be affected by
announcements that we, our competitors, or our customers may make, particularly announcements
related to acquisitions or other significant transactions. Our common stock is included in a number
of market indices and any change in the composition of these indices to exclude our company would
adversely affect our stock price. These factors, as well as conditions affecting the general
economy or financial markets, may materially adversely affect the market price of our common stock
in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Removed and Reserved
Item 5. Other Information
On June 8, 2011, Ciena adopted the U.S. Executive Severance Benefit Plan (the Severance
Plan), as approved by the Compensation Committee of Cienas Board of Directors. The Severance Plan
provides certain U.S.-based employees of Ciena Corporation and certain of its affiliates, including
the Cienas executive officers and employees of the rank of vice president or above (each, a
participant), with certain severance benefits in the event of an involuntary termination of his
or her services by Ciena without cause.
Under the Severance Plan, benefits payable to participants upon an involuntary separation of
service without cause consist of the following:
Cash Severance Payment. Participants will be entitled to a lump sum cash severance
payment as set forth below. Cienas Chief Executive Officer will be entitled to severance
equal to two times his annual base salary and annual target incentive bonus, while our other
executive officers will be entitled to severance equal to one times their annual base salary
and annual target incentive bonus or commission. All other participants will be entitled to
severance ranging from a minimum of 26 weeks to a maximum of 52 weeks of base salary,
depending upon length of service. The base salary and, where applicable, bonus payments
above would be determined based on the salary rate and incentive compensation program in
effect immediately prior to the date of termination. Bonus amounts are to be paid at the
target level.
Benefits Continuation. For a period of 18 months, in the case of Cienas Chief
Executive Officer, 12 months for
Senior Vice Presidents,
and, for other participants, the equivalent period of the applicable cash severance period,
the participant and his or her family will be eligible to continue to participate
in our group medical, dental and vision plans. If we cannot continue benefits coverage, we
will provide equivalent coverage for the applicable coverage period above at our expense.
Outplacement Assistance. For a period of 12 months, in the case of Cienas Chief
Executive Officer and other executive officers, and six months for all other participants,
Ciena will provide executive outplacement assistance, at its expense, through its
then-current agency.
As a condition of receiving benefits under the Severance Plan, each participant shall agree to
deliver a release of claims, comply with certain non-competition and non-solicitation obligations
for a 12 month period, and comply with certain continuing obligations with respect to confidential
and proprietary information and inventions. Failure to comply with these and other conditions set
forth in the Severance Plan will require the repayment of severance benefits in full. In addition,
severance payments are subject to recoupment in accordance with applicable law and any future
clawback policy adopted by Ciena.
Should any payment of severance benefits be subject to excise tax imposed under federal law,
or any related interest or penalties, severance benefits shall be either (a) paid in full by us, or
(b) paid in a lesser amount such that no portion of the payments would be subject to the excise tax, whichever results in receipt by the executive of a greater amount. This best
choice mechanism above does not require Ciena to pay any excise taxes, or to make any gross-up
payments related to excise taxes resulting from any payment of severance benefits.
Under the Severance Plan, a separation of service includes a termination of employment by
the participant where Ciena and participant anticipate that participant will perform no further
services for Ciena, or that the level of services to be performed will permanently decrease to no
more than 20% of the average level of services performed over the immediately preceding 36 month
period. In addition, under the Severance Plan, cause means the occurrence of any one or more of
the following:
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the participants willful and continued failure substantially to perform his or
her duties (other than as a result of disability), provided in the case of
executive officers, such failure shall be determined by the Board following written
notice to the participant and an opportunity to be heard; |
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any willful act or omission by the participant in connection with his or her
responsibilities as an employee constituting dishonesty, fraud or other
malfeasance, immoral conduct or gross misconduct; |
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any willful material violation by the participant of Cienas Code of Business
Conduct and Ethics or the Proprietary Information, Inventions and Non-Solicitation
Agreement; or |
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the participants conviction of, or plea of nolo contendere to, a felony or a
crime of moral turpitude under the laws of the United States or any state thereof
or any other jurisdiction in which Ciena conducts business. |
No act or failure to act above shall be deemed willful unless effected by the participant not in
good faith and without a reasonable belief that such act or failure to act was in or not opposed to
Cienas best interests.
The Severance Plan provides that the benefits to which a participant is entitled under the
Severance Plan will be reduced by amounts paid under other Ciena severance plans, policies,
programs or practice.
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Item 6. Exhibits
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10.1
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Ciena Corporation U.S.
Executive Severance Benefit Plan |
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31.1
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS*
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XBRL Instance Document |
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101.SCH*
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XBRL Taxonomy Extension Schema Document |
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document |
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* |
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In accordance with Regulation S-T, XBRL (Extensible Business Reporting Language) related
information in Exhibit No. (101) to this Quarterly Report on Form 10-Q shall be deemed furnished
and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that section, and shall not be incorporated by reference
into any registration statement pursuant to the Securities Act of 1933, as amended. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Ciena Corporation
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Date: June 9, 2011 |
By: |
/s/ Gary B. Smith
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Gary B. Smith |
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President, Chief Executive Officer and Director
(Duly Authorized Officer) |
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Date: June 9, 2011 |
By: |
/s/ James E. Moylan, Jr.
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James E. Moylan, Jr. |
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Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer) |
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