CIENA Reports Third Quarter Results
CEO and CFO Certify Current and Historic Financial Reports
Linthicum, MD — 08/22/2002Ciena® Corporation (NASDAQ: CIEN) today reported revenue of $50.0 million for its third fiscal quarter ended July 31, 2002. Under GAAP, Ciena’s reported net loss for the period was $160.0 million, or a net loss of $0.42 per share.
Ciena completed its acquisition of ONI Systems Corp. on June 21, 2002. As a result, the Company’s third quarter results include approximately six weeks of combined Ciena and ONI financial results.
During the quarter, Ciena took a restructuring charge of approximately $18.6 million, associated with workforce reductions, lease terminations, non-cancelable lease costs and the write-down of certain property, equipment and leasehold improvements. The Company also recorded a credit to doubtful accounts of $1.2 million. In addition, Ciena recorded a charge of approximately $41.2 million, primarily related to excess inventory associated with its long-haul transport products and non-cancelable purchase commitments with suppliers.
“In the face of the pronounced downturn in telecom spending, Ciena continues to strive for a balance between sustained, strategic investment that will drive future revenues and prudent cost management that will help return us to profitability,” said Gary Smith, Ciena’s president and chief executive officer. “Achieving that balance means making tough decisions and prioritizing our resources based on market opportunity. As a result, during the third quarter we successfully reduced our ongoing operating expenses even with the inclusion of approximately six weeks of ONI-related expenses.”
Despite the difficult telecom environment, Ciena continued to broaden its customer base, adding 19 new customers in the quarter, including 14 customers as a result of its acquisition of ONI.
In addition to GAAP results, management also analyzes Ciena’s results by excluding certain charges or credits that are required by GAAP. These items, which are identified in the table below, 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.
|
Quarter Ended |
|||
|
July 31, 2002 |
Per Share | ||
Item |
(in thousands) |
Effect | |
|
Payroll tax on stock options |
$ 3 |
$ 0.00 | |
|
Deferred stock compensation costs |
4,958 |
0.01 | |
|
Amortization of intangible asset |
2,343 |
0.01 | |
|
Restructuring costs |
18,562 |
0.05 | |
|
Provision for doubtful accounts |
(1,242) |
(0.01) | |
|
Income tax effect |
47,164 |
0.13 | |
|
$ 71,788 |
$ 0.19 |
*Please see appendix A for additional information about this table.
The total per share effect of the items identified in the table above on Ciena’s GAAP reported net loss was $0.19. Adjusting Ciena’s quarterly GAAP results by this per share effect would reduce the Company’s net loss in the quarter to $0.23 per share. In addition, adjusting further to account for the approximately $0.07 after-tax per share effect of the $41.2 million excess and obsolete inventory charge in the quarter would further reduce the Company’s net loss in the quarter to $0.16 per share. These adjustments are not in accordance with GAAP and making such adjustments may not permit meaningful comparisons to other companies.
Business Outlook
“Service providers’ re-evaluation of their networks and their business models has resulted in uncertainty and volatility in the telecom equipment industry, but we believe longer-term, this process will provide the opportunity for new leaders to emerge,” said Smith. “We firmly believe Ciena’s ability to offer carriers identifiable, measurable economic benefits from next-generation solutions that are proven in large, distributed network environments uniquely positions us to capture capex dollars that, in a more complacent environment, might have gone to legacy solutions.”
“Ciena’s short-term goals are focused on increasing our presence with incumbent carriers and preserving our strong cash balance. As demonstrated by our recent Telmex win and other positive indicators we’ve received from incumbents, we believe we are making solid progress in this market. We also are taking steps across the company to minimize our quarterly cash burn rate and to lower our break-even revenue point,” continued Smith.
“Our ongoing deployment at an incumbent carrier combined with the general level of activity we see entering our fiscal fourth quarter leads us to believe that Ciena’s fiscal fourth quarter revenue could be flat to slightly up from our fiscal third quarter results. In addition, we are guardedly optimistic about opportunities we are currently pursuing that should we be successful, could restore revenue stability and growth over the course of 2003,” concluded Smith.
Certification of Financial Statements
Ciena’s President and CEO, Gary Smith and Senior Vice President, Finance and CFO, Joseph Chinnici, in accordance with SEC Order No. 4-460 and Section 906 of the Sarbanes-Oxley Act, today will sign and submit to the U.S. Securities and Exchange Commission (SEC) statements affirming the accuracy of Ciena’s current and historic financial reports.
Live Web Broadcast of Q3 Fiscal Year 2002 Results
In conjunction with this announcement, Ciena will host a discussion of its fiscal third quarter results with investors and financial analysts on Thursday, August 22, 2002 at 8:30 AM (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: www.Ciena.com/investors.
(Condensed Consolidated Statements of Operations and Consolidated Balance Sheets follow)
Ciena Corporation's market-leading optical networking systems form the core for the new era of networks and services worldwide. Ciena's LightWorks architecture enables next-generation optical services and changes the fundamental economics of service-provider networks by simplifying the network and reducing the cost to operate it. Additional information about Ciena can be found at www.ciena.com.
This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions of Ciena (the Company) that involve risks and uncertainties. Forward-looking statements in this release, including in the face of the pronounced downturn in telecom spending, Ciena continues to strive for a balance between sustained, strategic investment that will drive future revenues and prudent cost management that will help return us to profitability, achieving that balance means making tough decisions and prioritizing our resources based on market opportunity, service providers’ re-evaluation of their networks and their business models has resulted in uncertainty and volatility in the telecom equipment industry, but we believe longer-term, this process will provide the opportunity for new leaders to emerge, we firmly believe Ciena’s ability to offer carriers identifiable, measurable economic benefits from next-generation solutions that are proven in large, distributed network environments uniquely positions us to capture capex dollars that, in a more complacent environment, might have gone to legacy solutions, Ciena’s short-term goals are focused on increasing our presence with incumbent carriers and preserving our strong cash balance, as demonstrated by our recent Telmex win and other positive indicators we’ve received from incumbents, we believe we are making solid progress in this market, we also are taking steps across the company to minimize our quarterly cash burn rate and to lower our break-even revenue point, our ongoing deployment at an incumbent carrier combined with the general level of activity we see entering our fiscal fourth quarter leads us to believe that Ciena’s fiscal fourth quarter revenue could be flat to slightly up from our fiscal third quarter results, we are guardedly optimistic about opportunities we are currently pursuing that should we be successful, could restore revenue stability and growth over the course of 2003, Ciena’s President and CEO, Gary Smith and Senior Vice President, Finance and CFO, Joseph Chinnici, in accordance with SEC Order No. 4-460 and Section 906 of the Sarbanes-Oxley Act, today will sign and submit to the U.S. Securities and Exchange Commission (SEC) statements affirming the accuracy of Ciena’s current and historic financial reports, are based on information available to the Company as of the date hereof. The Company’s actual results could differ materially from those stated or implied in such forward-looking statements, due to risks and uncertainties associated with the Company’s business, which include the risk factors disclosed in the Company’s Report on Form 10-Q filed with the Securities and Exchange Commission on August 22, 2002. Forward-looking statements include statements regarding the Company’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. The Company assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
Ciena CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)| Quarter Ended | Nine Months Ended | |||
| July 31, 2001 | July 31, 2002 | July 31, 2001 | July 31, 2002 | |
|
Revenue |
$ 458,070 | $ 50,028 | $ 1,235,455 | $ 299,237 |
|
Excess and obsolete inventory costs |
37,767 | 41,192 | 51,825 | 284,883 |
|
Cost of goods sold |
221,882 | 50,960 | 631,170 | 257,758 |
|
Gross profit (loss) |
198,421 | (42,124) | 552,460 | (243,404) |
|
Operating expenses: |
||||
|
Research and development (exclusive of $6,464, $3,860, $8,136, $11,277 deferred stock compensation costs) |
65,788 | 53,950 | 162,636 | 178,264 |
|
Selling and marketing (exclusive of $6,928, $842, $7,419, $2,649 deferred stock compensation costs) |
39,622 | 30,829 | 108,040 | 98,264 |
|
General and administrative (exclusive of $8,839, $256, $9,411, $658 deferred stock compensation costs) |
14,790 | 10,798 | 42,722 | 37,729 |
|
Deferred stock compensation costs |
22,231 | 4,958 | 24,966 | 14,584 |
|
Amortization of goodwill |
75,642 | - | 101,913 | - |
|
Amortization of intangible assets |
1,382 | 2,343 | 2,491 | 5,969 |
|
In-process research and development |
- | - | 45,900 | - |
|
Restructuring costs |
- | 18,562 | - | 146,738 |
|
Provision for doubtful accounts |
(6,579) | (1,242) | (6,579) | 14,813 |
|
Total operating expenses |
212,876 | 120,198 | 482,089 | 496,361 |
|
Income (loss) from operations |
(14,455) | (162,322) | 70,371 | (739,765) |
|
Interest and other income, net |
19,820 | 13,558 | 44,823 | 44,775 |
|
Interest expense |
(11,278) | (10,614) | (18,493) | (29,756) |
|
Loss on equity investments, net |
- | - | - | (5,740) |
|
Income (loss) before income taxes |
(5,913) | (159,378) | 96,701 | (730,486) |
|
Provision (benefit) for income taxes |
(11,567) | 607 | 88,481 | 112,243 |
|
Net income (loss) |
$ 5,654 | $ (159,985) | $ 8,220 | $ (842,729) |
|
Basic net income (loss) per common share |
$ 0.02 | $ (0.42) | $ 0.03 | $ (2.45) |
|
Diluted net income (loss) per common share |
||||
|
and dilutive potential common share |
$ 0.02 | $ (0.42) | $ 0.03 | $ (2.45) |
|
Weighted average basic common shares outstanding |
324,368 | 376,548 | 305,965 | 344,242 |
|
Weighted average basic common and |
||||
|
dilutive potential common shares |
||||
|
outstanding |
337,877 | 376,548 | 319,722 | 344,242 |
Ciena CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited)
| October 31, 2001 | July 31, 2002 | |
| ASSETS | ||
|
Current assets: |
||
|
Cash and cash equivalents |
$ 397,890 |
$ 715,180 |
|
Short-term investments |
902,594 |
971,762 |
|
Accounts receivable, net of allowance of $1,491 and $16,331 |
395,063 |
43,289 |
|
Inventories, net |
254,968 |
65,478 |
|
Deferred income taxes, net |
186,861 |
19,324 |
|
Prepaid expenses and other |
53,713 |
45,476 |
|
Total current assets |
2,191,089 |
1,860,509 |
|
Long-term investments |
494,657 |
566,535 |
|
Equipment, furniture and fixtures, net |
331,490 |
248,135 |
|
Goodwill |
178,891 |
765,913 |
|
Other intangible assets, net |
47,874 |
57,005 |
|
Deferred income taxes, net |
- |
54,479 |
|
Other long-term assets |
73,300 |
77,455 |
|
Total assets |
$ 3,317,301 |
$3,630,031 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||
|
Current liabilities: |
||
|
Accounts payable |
$ 68,735 |
$ 53,143 |
|
Accrued liabilities |
133,084 |
156,310 |
|
Restructuring liabilities |
15,439 |
17,845 |
|
Unfavorable lease commitments |
- |
8,112 |
|
Income taxes payable |
6,649 |
7,271 |
|
Deferred revenue |
29,480 |
20,174 |
|
Other current obligations |
995 |
1,239 |
|
Total current liabilities |
254,382 |
264,094 |
|
Deferred income taxes |
64,072 |
58,318 |
|
Long-term deferred revenue |
- |
15,333 |
|
Other long-term obligations |
5,982 |
5,436 |
|
Long-term restructuring liabilities |
- |
35,840 |
|
Long-term unfavorable lease commitments |
- |
70,200 |
|
Convertible notes payable |
863,883 |
910,591 |
|
Total liabilities |
$ 1,188,319 |
$ 1,359,812 |
|
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; |
||
|
328,022,264 and 431,507,332 shares issued and outstanding |
3,280 |
4,315 |
|
Additional paid-in capital |
3,667,512 |
4,649,754 |
|
Notes receivable from stockholders |
(3,236) |
(6,595) |
|
Accumulated other comprehensive income |
4,842 |
8,890 |
|
Accumulated deficit |
(1,543,416) |
(2,386,145) |
|
Total stockholders' equity |
2,128,982 |
2,270,219 |
|
Total liabilities and stockholders' equity |
$ 3,317,301 |
$ 3,630,031 |
Appendix A
The adjustments management makes in analyzing Ciena's third quarter GAAP results are as follows:
- Payroll tax on stock options - an uncontrollable expense, largely unrelated to normal operations, that fluctuates significantly depending largely on the price of our stock and the magnitude of option exercises in a given period.
- Deferred stock compensation costs - a non-cash expense largely unrelated to normal operations, and which arises under GAAP accounting from the assumption of unvested stock options issued by any companies we acquire, including Cyras.
- Amortization of intangible asset - a non-cash expense unrelated to normal operations arising from acquisitions of intangible assets, principally developed technology acquired in the Cyras acquisition which Ciena is required to amortize over its expected useful life.
- Restructuring costs - non-recurring charges, unrelated to normal operations, incurred as a result of reducing the size of the Company's operations to align its resources with the reduced size of the telecommunications market.
- Provision for doubtful accounts - non-recurring charges that are outside of the Company's control that arise when our customers' ability to pay is in doubt, in recent periods primarily related to the financial health of service provider customers.
- Income tax effect - the income tax charge or benefit on the adjusted net loss, which is a necessary adjustment for consistency.
Nicole Anderson
Ciena Corporation
(877) 857 -7377
pr@ciena.com
Marie Downing
Ciena Corporation
(888) 243-6223
ir@ciena.com
