EX-99.1 2 a5035798ex991.txt EXHIBIT 99.1 Exhibit 99.1 Ciena Reports Unaudited Fiscal Fourth Quarter and Year-End Results; Quarterly Revenue of $118.2 Million Represents 44% Year-over-Year Growth; Gross Margin Improves More Than 500 Basis Points Sequentially LINTHICUM, Md.--(BUSINESS WIRE)--Dec. 8, 2005--Ciena(R) Corporation (NASDAQ:CIEN), the network specialist, today announced unaudited results for its fiscal fourth quarter and year ending October 31, 2005. Ciena's unaudited fiscal fourth quarter revenue was $118.2 million, representing a 7% sequential increase from fiscal third quarter revenue of $110.5 million and an increase of 44% over revenue of $82.0 million for the same period a year ago. For the twelve months ending October 31, 2005, Ciena's unaudited revenue was $427.3 million, representing an increase of 43% over revenue of $298.7 million for the same year-ago period. "In the last year, Ciena's employees have demonstrated extraordinary focus on execution of our strategy and, as a result, have driven the Company's significant revenue growth and meaningful financial performance improvement," said Ciena CEO and President, Gary Smith. "With our seventh sequential quarter of revenue growth, and with continued gross margin improvement, our fiscal fourth quarter's results demonstrate Ciena's steady progress toward profitability and positive cash flow, and more importantly, our continued progress toward future earnings growth." On the basis of generally accepted accounting principles (GAAP), Ciena's unaudited fiscal fourth quarter net loss was $252.9 million, or a net loss of $0.44 per share. This loss compares to a GAAP net loss of $495.1 million, or a net loss of $0.87 per share, in the same period a year ago. In accordance with Statement of Financial Accounting Standards (SFAS) 142, an accounting rule that requires annual testing of possible goodwill impairment, the Company's unaudited fiscal fourth quarter 2005 GAAP net loss reflects a goodwill impairment loss of $176.6 million, representing $0.31 of the quarter's total GAAP net loss per share. For the twelve months ending October 31, 2005, Ciena's GAAP net loss was $435.7 million, or a net loss of $0.76 per share. This compares to a GAAP net loss of $789.5 million, or a net loss of $1.51 per share, in the same twelve-month period a year ago. Non-GAAP Presentation of Results In evaluating the operating performance of its business, Ciena's management excludes certain charges or credits that are required by GAAP. These items, which are identified in the table that follows (in thousands except per share data), share one or more of the following characteristics: they are unusual, and Ciena does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of the Company's control. -0- Quarter Quarter Year Year Ended Ended Ended Ended Oct. 31, Oct. 31, Oct. 31, Oct. 31, 2004 2005 2004 2005 ---------- ---------- ---------- ---------- Stock compensation costs $ 3,184 $ 631 $ 11,883 $ 9,441 Amortization of intangible assets 11,381 8,514 30,839 38,782 In-process research and development - - 30,200 - Restructuring costs 34,982 2,773 57,107 18,018 Goodwill impairment 371,712 176,600 371,712 176,600 Long-lived asset impairments 8,709 45,728 15,926 45,862 Recovery of use tax payments - - (5,388) - Provision for (recovery of) doubtful accounts, net - (2) (2,794) 2,602 Accelerated amortization of leasehold improvements 8,382 - 22,535 - Loss on equity investments, net 4,500 500 4,107 9,486 Loss (gain) on extinguishment of debt - - 8,216 (3,882) Income tax benefit on adjusted net loss 18,328 6,477 86,521 49,435 ---------- ---------- ---------- ---------- Total adjustments $ 461,178 $ 241,221 $ 630,864 $ 346,344 ========== ========== ========== ========== GAAP Net Loss $(495,073) $(252,870) $(789,464) $(435,699) Adjustment for items above 461,178 241,221 630,864 346,344 ---------- ---------- ---------- ---------- Adjusted (non-GAAP) net loss $ (33,895) $ (11,649) $(158,600) $ (89,355) ========== ========== ========== ========== Weighted average basic common and dilutive potential shares outstanding 569,462 578,822 521,454 575,187 Adjusted (non-GAAP) net loss per share $ (0.06) $ (0.02) $ (0.30) $ (0.16) Please see Appendix A for additional information about this table. Adjusting Ciena's unaudited fiscal fourth quarter 2005 GAAP net loss of $252.9 million for the items noted above would reduce the Company's net loss in the quarter to $11.6 million, or a loss of $0.02 per share. This compares with an adjusted net loss of $33.9 million, or a loss of $0.06 per share, in the same year-ago period. Adjusting Ciena's unaudited twelve-month fiscal year 2005 GAAP net loss of $435.7 million for the items noted above would reduce the Company's net loss for the year to $89.4 million, or a loss of $0.16 per share. This compares with an adjusted net loss of $158.6 million, or a loss of $0.30 per share, in the same year-ago period. These adjustments are not in accordance with GAAP, and making these adjustments may not permit meaningful comparisons to other companies. -0- Fourth Quarter 2005 Operational Highlights -- Ciena delivered sequential revenue growth of 7% and year-over-year revenue growth of 44%. -- As a result of continued product and manufacturing-related cost reductions and product mix in the quarter, overall gross margin improved more than 500 basis points, from 34.1% in the fiscal third quarter to 39.9% in the fiscal fourth quarter. -- Improved product gross margin from 35.6% in the fiscal third quarter to 42.2% in the fiscal fourth quarter. -- Improved services-related gross margin from 22.5% in the fiscal third quarter to 24.5% in the fiscal fourth quarter. -- Ciena used $8.9 million in cash for operations in the fiscal fourth quarter compared to fiscal third quarter cash use of $39.3 million (which was inclusive of a $12.9 million semi-annual interest payment on the Company's outstanding 3.75% convertible notes). -- Ciena ended the fiscal fourth quarter 2005 with cash and short- and long-term investments of $1.11 billion. -- Ciena expanded the Company's global presence with the launch of a research and development centre located in Gurgaon, India. Fourth Quarter 2005 Customer and Product Highlights -- Ciena strengthened its relationship with EMC Corporation, adding the Ciena CN 4200(TM) FlexSelect Advanced Services Platform to the EMC(R) Select Program and joining the EMC Authorized Services Network's (ASN) Solution Alliances. -- Telecom Ottawa announced the availability of a suite of SONET, WDM and storage extension services enabled by Ciena platforms and designed to provide Canadian federal government agencies, as well as enterprises and carriers, with reliable, high-performance 10-Gigabit Ethernet (GbE) connectivity throughout the Ottawa metropolitan region. -- Adelphia Communications Corporation, a leading U.S. cable provider, deployed Ciena's optical Ethernet platforms across western New York to interconnect 106 school districts serving 189,000 students with a wide range of applications for distance learning, including video conferencing and broadband data networking. -- HSE&DEM, the Republic of Slovenia's largest producer of electricity, selected Ciena's next-generation optical multiservice switches, optical multiplexers, storage extension platforms and network management systems to interconnect its locations nationwide with a reliable, high-performance Adaptive WAN(TM) (wide area network) to deliver IT services used in the production and delivery of electrical energy to customers. -- Ciena successfully completed interoperability testing and qualification of its ONLINE Metro(TM) Multiservice DWDM Platform for IBM GDPS eServer zSeries mainframe environments. IBM's validation of ONLINE Metro was based upon the successful completion of test scenarios on IBM zSeries mainframes deemed vital to GDPS operation. Business Outlook "We continue to see signs of improving overall market strength and expect our network specialist approach will enable us to continue to grow faster than the market in 2006," said Smith. "In addition, as a result of relentless execution across the Company, including our ongoing efforts to reduce product and manufacturing-related costs, we expect to demonstrate gross margin improvement over the course of the year," said Smith. "Provided we execute on plan, we believe we are well positioned to achieve profitability on an as-adjusted basis during a quarter prior to the end of fiscal 2006." "We expect our fiscal first quarter revenue will be flat to up slightly from our fiscal fourth quarter revenue, and we expect to see sequential gross margin improvement in our fiscal first quarter," concluded Smith. Live Web Broadcast of Unaudited Fiscal Fourth Quarter Results Ciena will host a discussion of its unaudited fiscal fourth quarter results with investors and financial analysts today, Thursday, December 8, 2005 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena's homepage at www.ciena.com. An archived version of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena's website at: http://www.ciena.com/investors/investors.htm. NOTE TO INVESTORS This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements are based on information available to the Company as of the date hereof; and Ciena's actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Report on Form 10-Q filed with the Securities and Exchange Commission on September 1, 2005. Forward-looking statements include statements regarding Ciena's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. Forward-looking statements in this release include: with our seventh sequential quarter of revenue growth, and continued gross margin improvement, our fiscal fourth quarter's results demonstrate Ciena's steady progress toward profitability and positive cash flow, and more importantly, our continued progress toward future earnings growth; we continue to see signs of improving overall market strength and expect our network specialist approach will enable us to continue to grow faster than the market in 2006; as a result of relentless execution across the Company, including our ongoing efforts to reduce product and manufacturing-related costs, we expect to demonstrate gross margin improvement over the course of the year; provided we execute on plan, we believe we are well positioned to achieve profitability on an as-adjusted basis during a quarter prior to the end of fiscal 2006; we expect our fiscal first quarter revenue will be flat to up slightly from our fiscal fourth quarter revenue and we expect to see continued gross margin improvement sequentially in our fiscal first quarter. Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise. -0- CIENA CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) ASSETS October 31, -------------------------- Current assets: 2004 2005 ------------ ------------ Cash and cash equivalents $ 202,623 $ 372,781 Short-term investments 753,251 579,531 Accounts receivable, net 45,878 72,786 Inventories, net 47,614 49,333 Prepaid expenses and other 29,906 27,491 ------------ ------------ Total current assets 1,079,272 1,101,922 Long-term investments 329,704 155,944 Equipment, furniture and fixtures, net 51,252 28,090 Goodwill 408,615 232,015 Other intangible assets, net 208,015 120,324 Other long-term assets 60,196 36,934 ------------ ------------ Total assets $ 2,137,054 $ 1,675,229 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,509 $ 43,868 Accrued liabilities 76,045 76,491 Restructuring liabilities 16,203 15,492 Unfavorable lease commitments 9,902 9,011 Income taxes payable 3,354 5,785 Deferred revenue 21,566 27,817 ------------ ------------ Total current liabilities 158,579 178,464 Long-term deferred revenue 16,010 15,701 Long-term restructuring liabilities 65,180 54,285 Long-term unfavorable lease commitments 51,341 41,364 Other long-term obligations 1,522 1,296 Convertible notes payable 690,000 648,752 ------------ ------------ Total liabilities 982,632 939,862 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred stock - par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding - - Common stock - par value $0.01; 980,000,000 shares authorized; 571,656,659 and 580,340,947 shares issued and outstanding 5,717 5,803 Additional paid-in capital 5,482,175 5,489,613 Deferred stock compensation (13,761) (2,286) Notes receivable from stockholders (48) - Changes in unrealized gains on investments, net (2,488) (4,673) Translation adjustment (277) (495) Accumulated deficit (4,316,896) (4,752,595) ------------ ------------ Total stockholders' equity 1,154,422 735,367 ------------ ------------ Total liabilities and stockholders' equity $ 2,137,054 $ 1,675,229 ============ ============ CIENA CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data) (unaudited) Quarter Ended Year Ended October 31, October 31, --------------------- --------------------- 2004 2005 2004 2005 ---------- ---------- ---------- ---------- Revenue: Products $ 68,774 $ 102,909 $ 250,210 $ 374,275 Services 13,231 15,274 48,497 52,982 ---------- ---------- ---------- ---------- Total revenue 82,005 118,183 298,707 427,257 ---------- ---------- ---------- ---------- Costs: Products 47,543 59,484 186,461 248,931 Services 10,281 11,535 40,493 42,136 ---------- ---------- ---------- ---------- Total cost of goods sold 57,824 71,019 226,954 291,067 ---------- ---------- ---------- ---------- Gross profit 24,181 47,164 71,753 136,190 ---------- ---------- ---------- ---------- Operating expenses: Research and development 47,432 31,805 198,850 132,841 Selling and marketing 28,248 28,178 108,259 110,618 General and administrative 7,222 7,544 27,274 33,082 Stock compensation costs: Research and development 1,041 356 6,514 4,404 Selling and marketing 1,904 147 4,051 4,404 General and administrative 239 128 1,318 633 Amortization of intangible assets 11,381 8,514 30,839 38,782 In-process research and development - - 30,200 - Restructuring costs 34,982 2,773 57,107 18,018 Goodwill impairment 371,712 176,600 371,712 176,600 Long-lived asset impairments 8,709 45,728 15,926 45,862 Recovery of sale, export, use tax liabilities and payments - - (5,388) - Provision (benefit) for doubtful accounts - (2) (2,794) 2,602 ---------- ---------- ---------- ---------- Total operating expenses 512,870 301,771 843,868 567,846 ---------- ---------- ---------- ---------- Loss from operations (488,689) (254,607) (772,115) (431,656) Interest and other income (expense), net 4,680 8,524 22,908 28,311 Interest expense (6,487) (6,082) (26,813) (25,430) Loss on equity investments, net (4,500) (500) (4,107) (9,486) Gain (loss) on extinguishment of debt - - (8,216) 3,882 ---------- ---------- ---------- ---------- Loss before income taxes (494,996) (252,665) (788,343) (434,379) Provision for income taxes 77 205 1,121 1,320 ---------- ---------- ---------- ---------- Net loss $(495,073) $(252,870) $(789,464) $(435,699) ========== ========== ========== ========== Basic and diluted loss per common share and dilutive potential common share $ (0.87) $ (0.44) $ (1.51) $ (0.76) ========== ========== ========== ========== Weighted average basic common and dilutive potential common shares outstanding 569,462 578,822 521,454 575,187 ========== ========== ========== ========== CIENA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Year Ended October 31, -------------------------- 2004 2005 ------------ ------------ Cash flows from operating activities: Net loss $ (789,464) $ (435,699) Adjustments to reconcile net loss to net cash used in operating activities: Early extinguishment of debt 8,216 (3,882) Amortization of premium on marketable securities 26,924 13,636 Non-cash loss from equity investments 4,107 9,486 Non-cash impairment of long-lived assets 15,926 45,862 Accretion of convertible notes payable 599 - In-process research and development 30,200 - Depreciation and amortization of leasehold improvements 72,213 33,377 Goodwill impairment 371,712 176,600 Stock compensation 11,883 9,441 Amortization of intangibles 34,708 42,651 Provision for doubtful accounts 284 2,602 Provision for inventory excess and obsolescence 4,172 5,232 Provision for warranty and other contractual obligations 8,351 9,738 Other 3,449 3,218 Changes in assets and liabilities: Accounts receivable (2,562) (29,510) Inventories 962 (6,951) Deferred income tax asset - - Prepaid expenses and other 15,253 7,420 Accounts payable and accruals (67,671) (19,633) Income taxes payable (1,286) 2,431 Deferred revenue and other obligations 6,589 5,942 ------------ ------------ Net cash used in operating activities (245,435) (128,039) ------------ ------------ Cash flows from investing activities Additions to equipment, furniture, fixtures and intellectual property (32,999) (11,315) Proceeds from sale of equipment, furniture and fixtures 1,857 278 Purchase of available for sale securities (696,344) (578,846) Maturities of available for sale securities 897,738 910,505 Acquisition of business, net of cash acquired 4,864 - Minority equity investments, net (4,407) 4,882 ------------ ------------ Net cash provided by investing activities 170,709 325,504 ------------ ------------ Cash flows from financing activities: Net proceeds from (repayment of) other obligations 100 - Repayment of convertible notes payable (49,243) (36,913) Proceeds from issuance of common stock and warrants 16,780 9,558 Repayment of notes receivable from stockholders 47 48 ------------ ------------ Net cash used in financing activities (32,316) (27,307) ------------ ------------ Net (decrease) increase in cash and cash equivalents (107,042) 170,158 Cash and cash equivalents at beginning of period 309,665 202,623 ------------ ------------ Cash and cash equivalents at end of period $ 202,623 $ 372,781 ============ ============ Appendix A The adjustments management makes in analyzing Ciena's fiscal fourth quarter 2004 and 2005 GAAP results are as follows: -- Stock compensation costs - a non-cash expense (unrelated to share-based payment expense under SFAS 123(R) which the Company adopted in its fiscal first quarter 2006), which arises under GAAP accounting from the assumption of unvested stock options issued by any companies we acquire and which the Company feels is not reflective of its ongoing operating costs. -- Amortization of intangible assets - a non-cash expense arising from acquisitions of intangible assets, principally developed technology, which Ciena is required to amortize over its expected useful life and which the Company feels is not reflective of its ongoing operating costs. -- In-process research and development - a non-recurring expense related to in-process technology that, as of the date of acquisition, has not reached technological feasibility and has no alternative future use. -- Restructuring costs - non-recurring charges incurred as the result of reducing the size of the Company's operations to align its resources with the reduced size of the telecommunications market as well as the result of targeting new segment opportunities within the overall market, which the Company feels are not reflective of its ongoing operating costs. -- Goodwill impairment - non-cash expense resulting from the decline in the forecasted market demand for the Company's products. -- Long-lived asset impairments - non-recurring charges, incurred as a result of excess equipment classified as held for sale which the Company feels are not reflective of its ongoing operating costs. -- Recovery of use tax payments - a non-recurring gain unrelated to normal operations -- Provision for (recovery of) doubtful accounts - a non-recurring charge unrelated to normal operations resulting from an assessment of doubtful payment due to a customer's financial condition. -- Accelerated amortization of leasehold improvements - a non-cash expense related to the closure of our San Jose, California facility. -- Loss on equity investments, net - a non-recurring gain or loss related to changes in the value of the Company's equity investments which the Company feels is not reflective of its ongoing operating costs. -- Loss (gain) on extinguishment of debt - a non-recurring gain or loss related to the early extinguishment of outstanding debt. -- Income tax benefit on adjusted net loss - the income tax charge or benefit on the adjusted net loss, which is a necessary adjustment for consistency. The Company currently has a full valuation allowance for GAAP reporting purposes and accordingly does not recognize a tax benefit for losses generated. About Ciena Ciena Corporation is the network specialist, focused on expanding the possibilities for its customers' networks while reducing their cost of ownership. The Company's systems, software and services target and cure specific network pain points so that telcos, cable operators, governments and enterprises can best exploit the new applications that are driving their businesses forward. For more information, visit www.ciena.com. CONTACT: Ciena Corporation Press Contact: Nicole Anderson, 410-694-5786 pr@ciena.com or Investor Contact: Jessica Towns, 888-243-6223 ir@ciena.com