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[CIENA LOGO]
Filed pursuant to Rule 424(b)(4)
Registration No. 333-53922
11,000,000 Shares
CIENA CORPORATION
Common Stock
The common stock is quoted on the Nasdaq National Market under the symbol
"CIEN". The last reported sale price for the common stock on February 5, 2001
was $84.50 per share.
Concurrently with this offering, CIENA is also conducting a separate
offering of $600 million in 3.75% convertible notes due February 1, 2008 by a
separate prospectus. Neither the completion of the convertible debt offering nor
the completion of this common stock offering is contingent upon the other.
See "Risk Factors" beginning on page 6 in this prospectus to read about
certain factors you should consider before buying shares of the common stock.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Per Share Total
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Initial price to public..................................... $83.50 $918,500,000
Underwriting discount....................................... $ 3.55 $ 39,050,000
Proceeds, before expenses, to CIENA......................... $79.95 $879,450,000
To the extent the underwriters sell more than 11,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional
1,650,000 shares from CIENA at the initial price to public, less the
underwriting discount.
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The underwriters expect to deliver the shares in New York, New York on
February 9, 2001.
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
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Prospectus dated February 5, 2001.
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PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our financial statements and accompanying notes
incorporated by reference in this prospectus.
CIENA CORPORATION
We are an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide, including long-distance and
metropolitan optical transport, intelligent optical core switching and network
management solutions. Our customers include long-distance carriers, competitive
and incumbent local exchange carriers, Internet service providers and wholesale
carriers. We have pursued a strategy to develop and leverage the power of our
technologies to change the fundamental economics of building carrier-class tele-
and data-communications networks, thereby providing our customers with a
competitive advantage. Our intelligent optical networking products are designed
to enable carriers to deliver any time, any size, any priority bandwidth to
their customers. Our optical networking products add intelligence to the
network, enabling communications service providers to optimize network capacity
and to offer a new range of services on demand at a substantially lower cost
than traditional products. Furthermore, our products allow service providers to
optimize their investments in fiber-optic infrastructure while positioning them
to easily transition to next-generation optical network architectures.
Rapidly increasing use of the Internet and Internet-based applications and
services has fueled dramatic growth in the volume of data traffic in the public
communications network. In response, communications service providers are making
significant investments to upgrade their network infrastructure by laying
fiber-optic cable and installing transmission equipment based on optical
technology. While advances in optical technology have enabled carriers to expand
network capacity, they continue to face critical challenges including network
scalability, escalating capital and operational costs and network management
difficulties.
We provide a comprehensive portfolio of optical networking solutions that
address these challenges by optimizing bandwidth in critical areas of service
provider networks: long-distance and metropolitan optical transport, intelligent
optical core switching and network management. Our solutions provide our
customers with the following benefits:
- greater bandwidth capacity;
- simplified and more scalable networks;
- enhanced network manageability;
- lower capital and operational costs;
- ability to provision high-bandwidth services rapidly and flexibly; and
- ability to offer new revenue-generating services.
We have shipped products to over 35 customers, including 27 new customers
since the end of fiscal 1998. Our customers include:
- Bell South;
- Broadwing;
- Cable & Wireless (U.S. & U.K.);
- CrossWave Communications;
- Enron;
- GTS (now known as eBone);
- MobilCom AG;
- PSINet;
- Qwest;
- Sprint;
- Telecom Developpement;
- Telia AB;
- Verizon;
- WorldCom (U.S. & Europe); and
- XO Communications.
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Our strategy is to maintain and build upon our market leadership in the
development and deployment of intelligent optical networking systems and to
leverage our bandwidth-optimizing technologies to provide solutions for both
voice and data communications-based networks. Important elements of our strategy
are to:
- expand our base of customers using our intelligent optical networking
solutions;
- increase sales and marketing efforts;
- continue to emphasize technical support and customer service;
- maintain world class manufacturing capability; and
- leverage bandwidth-optimizing technology and know-how.
Our revenue and net income for the fiscal year ended October 31, 2000 were
$858.8 million and $81.4 million, respectively. Of our revenue for this period,
33.0% was derived from international sales. We recorded revenue for the fiscal
year ended October 31, 2000 from sales to 32 customers, including 12 new
customers.
We were incorporated in Delaware in 1992. Our principal executive offices
are located at 1201 Winterson Road, Linthicum, Maryland 21090. Our telephone
number is (410) 865-8500.
THE OFFERING
Common Stock offered by CIENA..................... 11,000,000 shares
Common Stock to be outstanding after this 299,060,207 shares
offering........................................
Use of Proceeds................................... For general corporate purposes, which may
include working capital, capital
expenditures and acquisitions
Nasdaq National Market Symbol..................... CIEN
The number of shares of our common stock to be outstanding immediately
after this offering is based on the number of shares outstanding as of January
31, 2001. It excludes, as of January 31, 2001, 30,294,778 shares of common stock
subject to options outstanding under our stock incentive plans with a weighted
average exercise price of $49.81 per share, 13,262,264 shares of common stock
available for future grant under these plans, and approximately 27 million
shares issuable in our pending acquisition of Cyras Systems, Inc.
Unless otherwise indicated, all information contained in this prospectus
assumes no exercise of the underwriters' option to purchase additional shares in
this offering. The share and per share numbers presented in this prospectus have
been retroactively restated to give effect to all stock splits.
CONCURRENT NOTES OFFERING
Concurrent with this offering of common stock, CIENA is conducting a
separate public offering of convertible notes with an aggregate principal amount
of $600 million. The common stock to be outstanding after this offering in the
table above excludes the shares of common stock issuable upon the conversion or
redemption of these notes. This offering of common stock is not conditioned on
the completion of the offering of our notes.
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RECENT DEVELOPMENTS
PROPOSED ACQUISITION OF CYRAS SYSTEMS, INC.
On December 19, 2000, we announced an agreement to acquire all of the
outstanding capital stock, options and warrants of Cyras Systems, Inc., a
privately held provider of next-generation optical networking systems based in
Fremont, California. As consideration in the acquisition, we agreed to issue a
total of approximately 27 million shares of our common stock and indirectly
assume $150 million principal amount of Cyras's convertible subordinated
indebtedness.
Cyras is designing and developing next-generation optical networking
solutions for telecommunications carriers. The Cyras K2 product, which is in the
development phase and is not yet ready for commercial manufacturing or
deployment, will enable carriers of metropolitan area networks to consolidate
multiple legacy network elements into a single transport and switching platform.
This consolidation results in the increased cost effectiveness, network
optimization and scalability that are demanded in today's increasingly
data-oriented carrier environment. We believe that the addition of the K2
product to our portfolio will increase our market opportunity by leveraging this
leading-edge product for the metropolitan network with our CoreDirector(TM) and
long-haul optical transport presence, extensive sales force and global services
and support infrastructure. These capabilities will enable us to offer carriers
seamless end-to-end service creation and management with unmatched scalability,
agility and efficiency using our LightWorks architecture for smart bandwidth
provisioning and network-wide service management.
We will account for the Cyras acquisition as a purchase. We expect to
complete the acquisition in the first calendar quarter of 2001. If and when we
complete the acquisition of Cyras, we will record a charge for acquired
in-process research and development, which we currently estimate will be
approximately $16.4 million, and will amortize goodwill and other intangibles of
approximately $1.6 billion over a three- to seven-year period and deferred stock
compensation of approximately $255 million over the relevant vesting periods. We
expect the Cyras acquisition to be dilutive to our fiscal 2001 earnings by $0.19
to $0.22 per share and, excluding one-time charges associated with the
acquisition and amortization of intangibles and deferred stock compensation,
accretive during the latter half of our fiscal 2002, assuming expected revenue
and cost synergies as well as anticipated product cost and pricing.
For the nine months ended September 30, 2000, Cyras recorded no revenues,
incurred operating expenses of $53.8 million and had a net loss of $54.4
million. Additional audited and unaudited financial information of Cyras, and
unaudited pro forma combined financial statements showing the pro forma effect
of the acquisition on our historical financial statements, are incorporated in
this prospectus by reference to our Form 8-K report filed on January 18, 2001.
The Cyras acquisition is subject to customary closing conditions, including
regulatory approvals. See "Risk Factors -- Risks Related to the Cyras
Acquisition".
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RISK FACTORS
Investing in our securities involves a high degree of risk. Before making
an investment decision, you should carefully consider the risk factors set forth
below as well as other information we include or incorporate by reference in
this prospectus and the additional information in the other reports we file with
the SEC. The risks and uncertainties we have described are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also affect us.
OUR RESULTS CAN BE UNPREDICTABLE
Our ability to recognize revenue during a quarter from a customer depends
upon our ability to ship product and satisfy other contractual obligations of a
customer sale in that quarter. In general, revenue and operating results in any
reporting period may fluctuate due to factors including:
- loss of a customer;
- the timing and size of orders from customers;
- changes in customers' requirements, including changes to orders from
customers;
- the introduction of new products by us or our competitors;
- changes in the price or availability of components for our products;
- readiness of customer sites for installation;
- satisfaction of contractual customer acceptance criteria and related
revenue recognition issues;
- manufacturing and shipment delays and deferrals;
- increased service, warranty or repair costs;
- the timing and amount of employer payroll tax to be paid on employee
gains on stock options exercised; and
- changes in general economic conditions as well as those specific to the
telecommunications and intelligent optical networking industries.
Our intelligent optical networking products require a relatively large
investment, and our target customers are highly demanding and technically
sophisticated. There are only a limited number of potential customers in each
geographic market, and each customer has unique needs. As a result, the sales
cycles for our products are long, often more than a year between our initial
contact with the customer and its commitment to purchase.
We budget expense levels on our expectations of long-term future revenue.
These budgets reflect our substantial investment in the financial, engineering,
manufacturing and logistics support resources we think we may need for large
potential customers, even though we do not know the volume, duration or timing
of any purchases from them. In addition, we make a substantial investment in
financial, manufacturing and engineering resources for the development of new
and enhanced products. As a result, we may continue to experience high inventory
levels, operating expenses and general overhead.
We have experienced rapid expansion in all areas of our operations,
particularly in the manufacturing of our products. Our future operating results
will depend on our ability to continue to expand our manufacturing facilities in
a timely manner so that we can satisfy our delivery commitments to our
customers. Our failure to expand these facilities in a timely manner and meet
our customer delivery commitments would harm our business, financial condition
and results of operations.
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Our product development efforts will require us to incur ongoing
development and operating expenses, and any delay in the contributions from new
products, such as the MultiWave CoreDirector product line, and enhancements to
our existing optical transport products could harm our business.
CHANGES IN TECHNOLOGY OR THE DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS COULD HURT
OUR NEAR-TERM PROSPECTS
The market for optical networking equipment is changing at a rapid pace.
The accelerated pace of deregulation and the adoption of new technology in the
telecommunications industry likely will intensify the competition for improved
optical networking products. Our ability to develop, introduce and manufacture
new and enhanced products will depend upon our ability to anticipate changes in
technology, industry standards and customer requirements. Our failure to
introduce new and enhanced products in a timely manner could harm our
competitive position and financial condition. Several of our new products,
including the MultiWave CoreDirector and the enhancements to the MultiWave
CoreStream products, are based on complex technology which could result in
unanticipated delays in the development, manufacture or deployment of these
products. In addition, our ability to recognize revenue from these products
could be adversely affected by the extensive testing required for these products
by our customers. The complexity of technology associated with support equipment
for these products could also result in unanticipated delays in their
deployment. These delays could harm our competitive and financial condition.
Competition from competitive products, the introduction of new products
embodying new technologies, a change in the requirements of our customers, or
the emergence of new industry standards could delay or hinder the purchase and
deployment of our products and could render our existing products obsolete,
unmarketable or uncompetitive from a pricing standpoint. The long certification
process for new telecommunications equipment used in the networks of the
regional Bell operating companies, referred to as RBOCs, has in the past
resulted in and may continue to result in unanticipated delays which may affect
the deployment of our products for the RBOC market.
WE FACE INTENSE COMPETITION WHICH COULD HURT OUR SALES AND PROFITABILITY
The market for optical networking equipment is extremely competitive.
Competition in the optical networking installation and test services market is
based on varying combinations of price, functionality, software functionality,
manufacturing capability, installation, services, scalability and the ability of
the system solution to meet customers' immediate and future network
requirements. A small number of very large companies, including Alcatel, Cisco
Systems, Fujitsu Group, Hitachi, Lucent Technologies, NEC Corporation, Nortel
Networks, Siemens AG and Telefon AB LM Ericsson, have historically dominated the
telecommunications equipment industry. These companies have substantial
financial, marketing, manufacturing and intellectual property resources. In
addition, these companies have substantially greater resources to develop or
acquire new technologies than we do and often have existing relationships with
our potential customers. We sell systems that compete directly with product
offerings of these companies and in some cases displace or replace equipment
they have traditionally supplied for telecommunications networks. As such, we
represent a specific threat to these companies. The continued expansion of our
product offerings with the MultiWave CoreDirector product line and enhancements
to our MultiWave CoreStream product line likely will increase this perceived
threat. We expect continued aggressive tactics from many of these competitors,
including:
- price discounting;
- early announcements of competing products and other marketing efforts;
- "one-stop shopping" options;
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- customer financing assistance;
- marketing and advertising assistance; and
- intellectual property disputes.
These tactics can be particularly effective in a highly concentrated
customer base such as ours. Our customers are under increasing competitive
pressure to deliver their services at the lowest possible cost. This pressure
may result in pricing for optical networking systems becoming a more important
factor in customer decisions, which may favor larger competitors that can spread
the effect of price discounts in their optical networking products across a
larger array of products and services and across a larger customer base than
ours. If we are unable to offset any reductions in the average sales price for
our products by a reduction in the cost of our products, our gross profit
margins will be adversely affected. Our inability to compete successfully
against our competitors and maintain our gross profit margins would harm our
business, financial condition and results of operations.
Many of our customers have indicated that they intend to establish a
relationship with at least two vendors for optical networking products. With
respect to customers for whom we are the only supplier, we do not know when or
if these customers will select a second vendor or what impact the selection
might have on purchases from us. If a second optical networking supplier is
chosen, these customers could reduce their purchases from us, which could in
turn have a material adverse effect on us.
New competitors are emerging to compete with our existing products as well
as our future products. We expect new competitors to continue to emerge as the
optical networking market continues to expand. These companies may achieve
commercial availability of their products more quickly due to the narrow and
exclusive focus of their efforts. Several of these competitors have raised
significantly more cash and they have in some cases offered stock in their
companies, positions on technical advisory boards, or have provided significant
vendor financing to attract new customers. In particular, a number of companies,
including several start-up companies and recently public companies that have
raised substantial equity capital, have announced products that compete with our
products. Our inability to compete successfully against these companies would
harm our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE COMMERCIAL
ACCEPTANCE OF NEW PRODUCTS
Our MultiWave CoreDirector CI product and some enhancements to the
MultiWave CoreDirector and MultiWave CoreStream product lines and LightWorks
Toolkit are in the development phase and are not yet ready for commercial
manufacturing or deployment. We expect to offer additional releases of the
MultiWave CoreDirector product over the life of the product and continue to
enhance features of our MultiWave CoreStream product, including the longer reach
and higher channel count functionality of our product line. The initial release
of MultiWave CoreDirector CI is expected in limited availability for customer
trials during the first calendar quarter of 2001. The maturing process from
laboratory prototype to customer trials, and subsequently to general
availability, involves a number of steps, including:
- completion of product development;
- the qualification and multiple sourcing of critical components, including
application-specific integrated circuits, referred to as ASICs;
- validation of manufacturing methods and processes;
- extensive quality assurance and reliability testing, and staffing of
testing infrastructure;
- validation of embedded software;
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- establishment of systems integration and systems test validation
requirements; and
- identification and qualification of component suppliers.
Each of these steps in turn presents serious risks of failure, rework or
delay, any one of which could decrease the speed and scope of product
introduction and marketplace acceptance of the product. Specialized ASICs and
intensive software testing and validation, in particular, are key to the timely
introduction of enhancements to the MultiWave CoreDirector product line, and
schedule delays are common in the final validation phase, as well as in the
manufacture of specialized ASICs. In addition, unexpected intellectual property
disputes, failure of critical design elements, and a host of other execution
risks may delay or even prevent the introduction of these products. If we do not
develop and successfully introduce these products in a timely manner, our
business, financial condition and results of operations would be harmed.
The markets for our MultiWave CoreDirector product line are relatively new.
We have not established commercial acceptance of these products, and we cannot
assure you that the substantial sales and marketing efforts necessary to achieve
commercial acceptance in traditionally long sales cycles will be successful. If
the markets for these products do not develop or the products are not accepted
by the market, our business, financial condition and results of operations would
suffer.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND FOR SOME ITEMS WE DO NOT HAVE A
SUBSTITUTE SUPPLIER
We depend on a limited number of suppliers for components of our products,
as well as for equipment used to manufacture and test our products. Our products
include several high-performance components for which reliable, high-volume
suppliers are particularly limited. Furthermore, some key optical and electronic
components we use in our optical transport systems are currently available only
from sole sources, and in some cases, that sole source is also a competitor. A
worldwide shortage of some electrical components has caused an increase in the
price of components. Any delay in component availability for any of our products
could result in delays in deployment of these products and in our ability to
recognize revenues. These delays could also harm our customer relationships.
Failures of components can affect customer confidence in our products and
could adversely affect our financial performance and the reliability and
performance of our products. On occasion, we have experienced delays in receipt
of components and have received components that do not perform according to
their specifications. Any future difficulty in obtaining sufficient and timely
delivery of components could result in delays or reductions in product shipments
which, in turn, could harm our business. A recent wave of consolidation among
suppliers of these components, such as the recent and pending purchases of E-TEK
and SDL, respectively, by JDS Uniphase, could adversely impact the availability
of components on which we depend. Delayed deliveries of key components from
these sources could adversely affect our business.
Any delays in component availability for any of our products or test
equipment could result in delays in deployment of these products and in our
ability to recognize revenue from them. These delays could also harm our
customer relationships and our results of operations.
WE RELY ON CONTRACT MANUFACTURERS FOR OUR PRODUCTS
We rely on a small number of contract manufacturers to manufacture our
CoreDirector product line and some of the components for our other products. The
qualification of these manufacturers is an expensive and time-consuming process,
and these contract manufacturers build modules for other companies, including
for our competitors. In addition, we do not have contracts in place with many of
these manufacturers. We may not be able to effectively manage our relationships
with our manufacturers and we cannot be certain that they will be able to fill
our
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orders in a timely manner. If we cannot effectively manage these manufacturers
or they fail to deliver components in a timely manner, it may have an adverse
effect on our business and results of operations.
SOME OF OUR SUPPLIERS ARE ALSO OUR COMPETITORS
Some of our component suppliers are both primary sources for components and
major competitors in the market for system equipment. For example, we buy
components from:
- Alcatel;
- Lucent Technologies;
- NEC Corporation;
- Nortel Networks; and
- Siemens AG.
Each of these companies offers optical communications systems and equipment
that are competitive with our products. Also, Lucent is the sole source of two
components and is one of two suppliers of two others. Recently, Lucent has
announced that it intends to spin off a portion of its components business. Our
supply of components from Lucent may be adversely affected by this
restructuring. Alcatel and Nortel are suppliers of lasers used in our products,
and NEC is a supplier of an important piece of testing equipment. A decline in
reliability or other adverse change in these supply relationships could harm our
business.
SALES TO EMERGING CARRIERS MAY INCREASE THE UNPREDICTABILITY OF OUR RESULTS
As we continue to address emerging carriers, timing and volume of
purchasing from these carriers can also be more unpredictable due to factors
such as their need to build a customer base, acquire rights of way and
interconnections necessary to sell network service, and build out new capacity,
all while working within their capital budget constraints. Sales to these
carriers may increase the unpredictability of our financial results because even
these emerging carriers purchase our products in multi-million dollar
increments.
Unanticipated changes in customer purchasing plans also create
unpredictability in our results. A portion of our anticipated revenue over the
next several quarters is comprised of orders of less than $25 million each from
several customers, some of which may involve extended payment terms or other
financing assistance. Our ability to recognize revenue from financed sales to
emerging carriers will depend on the relative financial condition of the
specific customer, among other factors. Further, we will need to evaluate the
collectibility of receivables from these customers if their financial conditions
deteriorate in the future. Purchasing delays and changes in the financial
condition or the amount of purchases by any of these customers could have a
material adverse effect on us. In the past we have had to make provisions for
the accounts receivables from customers that experienced financial difficulty.
If additional customers face similar financial difficulties, our receivables
from these customers may become uncollectible, and we would have to write off
the asset or decrease the value of the asset to the extent the receivable could
not be collected. These write-downs or write-offs would adversely affect our
financial performance.
OUR ABILITY TO COMPETE COULD BE HARMED IF WE ARE UNABLE TO PROTECT AND ENFORCE
OUR INTELLECTUAL PROPERTY RIGHTS OR IF WE INFRINGE ON INTELLECTUAL PROPERTY
RIGHTS OF OTHERS
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into non-disclosure and proprietary rights agreements with our
employees and consultants, and license agreements with our corporate partners,
and control access to and distribution of our products, documentation and other
proprietary information. Despite our efforts to protect our proprietary
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rights, unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States. If competitors
are able to use our technology, our ability to compete effectively could be
harmed. We are involved in an intellectual property dispute regarding the use of
our technology and may become involved with additional disputes in the future.
Such lawsuits can be costly and may significantly divert time and attention from
some members of our personnel.
We have received, and may receive in the future, notices from holders of
patents in the optical technology field that raise issues of possible
infringement by our products. Questions of infringement in the optical
networking equipment market often involve highly technical and subjective
analysis. We cannot assure you that any of these patent holders or others will
not in the future initiate legal proceedings against us, or that we will be
successful in defending against these actions. We are involved in an
intellectual property dispute regarding the possible infringement of our
products. In the past, we have been forced to take a license from the owner of
the infringed intellectual property, or to redesign or stop selling the product
that includes the challenged intellectual property. If we are sued for
infringement and are unsuccessful in defending the suit, we could be subject to
significant damages, and our business and customer relationships could be
adversely affected.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS
The production of new optical networking products and systems with high
technology content involves occasional problems as the technology and
manufacturing methods mature. If significant reliability, quality or network
monitoring problems develop, including those due to faulty components, a number
of negative effects on our business could result, including:
- costs associated with reworking our manufacturing processes;
- high service and warranty expenses;
- high inventory obsolescence expense:
- high levels of product returns;
- delays in collecting accounts receivable;
- reduced orders from existing customers; and
- declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs could
exceed these amounts. From time to time, there will be interruptions or delays
in the activation of our products at a customer's site. These interruptions or
delays may result from product performance problems or from aspects of the
installation and activation activities, some of which are outside our control.
If we experience significant interruptions or delays that we can not promptly
resolve, confidence in our products could be undermined, which could harm our
business.
OUR PROSPECTS DEPEND ON DEMAND WHICH WE CANNOT RELIABLY PREDICT OR CONTROL
We may not anticipate changes in direction or magnitude of demand for our
products. The product offerings of our competitors could adversely affect the
demand for our products. In addition, unanticipated reductions in demand for our
products could adversely affect us.
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Demand for our products depends on our customers' requirements. These
requirements may vary significantly from quarter to quarter due to factors such
as:
- the type and quantity of optical equipment needed by our customers;
- the timing of the deployment of optical equipment by our customers;
- the rate at which our current customers fund their network build-outs;
and
- the equipment configurations and network architectures our customers
want.
Customer determinations are subject to abrupt changes in response to their
own competitive pressures, capital requirements and financial performance
expectations. These changes could harm our business.
Recently we have experienced an increased level of sales activity that
could lead to an upsurge in demand that is reflected in the overall increase in
demand for optical networking and similar products in the telecommunications
industry. Our results may suffer if we are unable to address this demand
adequately by successfully scaling up our manufacturing capacity and hiring
additional qualified personnel. To date we have largely depended on our own
manufacturing and assembly facilities to meet customer expectations, but we
cannot be sure that we can satisfy our customers' expectations in all cases by
internal capabilities. In that case, we face the challenge of adequately
managing customer expectations and finding alternative means of meeting them. If
we fail to manage these expectations we could lose customers or receive smaller
orders from customers.
OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN KEY PERSONNEL
Our success has always depended in large part on our ability to attract and
retain highly-skilled technical, managerial, sales and marketing personnel,
particularly those skilled and experienced with optical communications
equipment. Our key founders and employees, together with the key founders and
employees of our acquired companies, have received a substantial number of our
shares and vested options that can be sold at substantial gains. In many cases,
these individuals could become financially independent through these sales
before our future products have matured into commercially deliverable products.
These circumstances may make it difficult to retain and motivate these key
personnel.
As we have grown and matured, competitors' efforts to hire our employees
have intensified, particularly among competitive start-up companies and other
early stage companies. We have agreements in place with most of our employees
that limit their ability to work for a competitor and prohibit them from
soliciting our other employees and our customers following termination of their
employment. Our employees and our competitors may not respect these agreements.
We have in the past been required to enforce, and are currently in the process
of enforcing, some of these agreements. We expect in the future to continue to
be required to resort to legal actions to enforce these agreements and could
incur substantial costs in doing so. We may not be successful in these legal
actions, and we may not be able to retain all of our key employees or attract
new personnel to add to or replace them. The loss of key personnel would likely
harm our business.
PART OF OUR STRATEGY INVOLVES PURSUING STRATEGIC ACQUISITIONS THAT MAY NOT BE
SUCCESSFUL
As part of our strategy for growth, we will consider acquiring businesses
that are intended to accelerate our product and service development processes
and add complementary products and services. We may issue equity or incur debt
to finance these acquisitions and may incur significant amortization expenses
related to goodwill and other intangible assets. Acquisitions involve a number
of operational risks, including risks that the acquired business will not be
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successfully integrated, may distract management attention and may involve
unforeseen costs and liabilities.
OUR STOCK PRICE MAY EXHIBIT VOLATILITY
Our common stock price has experienced substantial volatility in the past,
and is likely to remain volatile in the future. Volatility can arise as a result
of the activities of short sellers and risk arbitrageurs, and may have little
relationship to our financial results or prospects. Volatility can also result
from any divergence between our actual or anticipated financial results and
published expectations of analysts, and announcements that we, our competitors,
or our customers may make.
Divergence between our actual results and our anticipated results, analyst
estimates and public announcements by us, our competitors, or by customers will
likely occur from time to time in the future, with resulting stock price
volatility, irrespective of our overall year-to-year performance or long-term
prospects. As long as we continue to depend on a limited customer base, and
particularly when a substantial majority of their purchases consist of
newly-introduced products like the MultiWave CoreStream, MultiWave CoreDirector
and MultiWave Metro, there is substantial risk that our quarterly results will
vary widely.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS ITS MARKET PRICE
Sales of substantial amounts of common stock by our officers, directors and
other stockholders in the public market after this offering, or the awareness
that a large number of shares is available for sale, could adversely affect the
market price of our common stock. In addition to the adverse effect a price
decline would have on holders of our common stock, that decline would impede our
ability to raise capital through the issuance of additional shares of common
stock or other equity or convertible debt securities. Substantially all of the
shares of our common stock currently outstanding are eligible for resale in the
public market. Furthermore, we will issue approximately 27 million additional
shares of common stock if our acquisition of Cyras is consummated, almost all of
which will be freely tradeable.
Although some of our officers and directors have agreed that for 90 days
after the date of this prospectus they will not offer, sell, contract to sell or
otherwise dispose of any shares of our common stock, Goldman, Sachs & Co. may,
in its discretion, waive this lock-up at any time for any holder.
RISKS RELATED TO THE CYRAS ACQUISITION
THE ACQUISITION MAY NOT BE COMPLETED
We currently expect to complete the acquisition of Cyras Systems, Inc. in
the first calendar quarter of 2001, but because completion is subject to
regulatory approvals and a shareholder vote of Cyras, the acquisition may be
delayed or not completed at all.
WE MAY NOT BE ABLE TO ACHIEVE THE BENEFITS WE SEEK FROM THE ACQUISITION OR TO
INTEGRATE CYRAS SUCCESSFULLY INTO OUR OPERATIONS
Even if the acquisition of Cyras is completed, we cannot be certain that we
will achieve the benefits we envision from the acquisition. These benefits,
including the accretion to our earnings we expect to achieve in the second half
of fiscal 2002, depend on our ability to successfully complete the development
of the Cyras K2 product and integrate it into our product portfolio, achieve
market acceptance for the Cyras product, achieve our revenue expectations for
the Cyras product and the expected synergies, and successfully integrate and
retain Cyras personnel. Cyras's product is in the development phase and is not
yet ready for commercial
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manufacturing or deployment, and we cannot assure you that the substantial
efforts necessary to complete development of the product and achieve commercial
acceptance will be successful. We have only limited experience in significant
acquisitions and cannot assure you that this acquisition will be successful.
The integration of Cyras into our operations following our merger with
Cyras involves a number of risks, including:
- difficulty assimilating Cyras's operations and personnel;
- diversion of management attention;
- potential disruption of ongoing business;
- inability to retain key personnel;
- inability to maintain uniform standards, controls, procedures and
policies; and
- impairment of relationships with employees, customers or vendors.
Failure to overcome these risks or any other problems encountered in
connection with the merger could have a material adverse effect on our business,
results of operations and financial condition.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL REDUCE OUR EARNINGS IN
THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND DURING THE POST-MERGER
INTEGRATION PERIOD
If and when we complete the acquisition of Cyras, we will incur a charge
for in-process research and development, which we currently estimate will be
approximately $16.4 million. The actual charge we incur could be greater than
this estimate, which could have a material adverse effect on our results of
operations and financial condition. Also, in the future we will incur non-cash
charges in connection with the merger related to goodwill and other intangible
amortization and amortization of deferred stock compensation. Other
merger-related costs will be capitalized as part of the acquisition's purchase
price and amortized in future periods. We could also incur other additional
unanticipated merger costs relating to our acquisition of Cyras.
WE WILL INCUR SIGNIFICANT ADDITIONAL DEBT IN CONNECTION WITH THE MERGER
Cyras has $150 million of 4 1/2% convertible subordinated notes
outstanding. We will indirectly assume these notes at the effective date of the
merger. This additional indebtedness could adversely affect CIENA in a number of
ways, including:
- limiting our ability to obtain necessary financing in the future;
- limiting our flexibility to plan for, or react to, changes in our
business;
- requiring us to use a substantial portion of our cash flow from
operations or utilize a significant portion of cash on hand to repay the
debt when due in August 2005, or earlier if we are required to offer to
repurchase the notes, as described below, rather than for other purposes,
such as working capital or capital expenditures;
- making us more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage; and
- making us more vulnerable to a downturn in our business.
Additionally, in the event that the holders of the notes convert their
notes into our common stock, we would have to issue a significant number of
shares of additional common stock. For example, if our merger with Cyras had
closed on December 28, 2000, when the estimated exchange ratio would have been
approximately 0.13, we would have had to issue approximately
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1,000,000 shares of our common stock if holders of the entire $150 million of
convertible notes decided to convert their notes.
In the event that the holders of the notes do not elect to convert them
into our common stock before March 31, 2002, and if a "complying public equity
offering" has not occurred on or before that date, we will have to make an offer
to repurchase the notes at 118.942% of the principal balance of the notes on
April 30, 2002. A "complying public equity offering" is defined as a firm
commitment underwritten public offering of the common stock of Cyras, in which
Cyras raises at least $50 million in gross proceeds.
FOLLOWING THE COMPLETION OF OUR ACQUISITION OF CYRAS, A SIGNIFICANT NUMBER OF
ADDITIONAL SHARES WILL BE ADDED TO OUR PUBLIC FLOAT
We will issue approximately 27 million shares of our common stock as
consideration in the Cyras acquisition. These shares represent 9.4% of our
outstanding common stock as of January 31, 2001. Almost all of these shares will
be freely tradable immediately following the closing of the acquisition which is
currently expected to be in the first calendar quarter of 2001. Any sales of
substantial numbers of shares of our common stock in the public market following
the completion of the Cyras acquisition could adversely affect the market price
of our common stock.
FORWARD LOOKING STATEMENTS
Some of the statements contained, or incorporated by reference, in this
prospectus discuss future expectations, contain projections of results of
operations or financial condition or state other "forward-looking" information.
Those statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The "forward-looking" information is based on
various factors and was derived using numerous assumptions. In some cases, you
can identify these so-called "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 those statements only reflect our
predictions. Actual events or results may differ substantially. Important
factors that could cause our actual results to be materially different from the
forward-looking statements are disclosed throughout this prospectus.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 11,000,000 shares of
common stock that we are offering will be approximately $879.1 million, after
deducting the underwriting discount and estimated offering expenses. If the
underwriters' option to purchase additional shares in this offering is exercised
in full, we estimate that our net proceeds will be approximately $1,011.1
million.
Concurrent with this offering of common stock, CIENA is conducting a
separate offering of convertible notes with an aggregate principal amount of
$600 million. This offering of common stock is not conditioned on the completion
of the offering of our notes.
The principal purpose of this offering is to obtain additional capital. We
may use the net proceeds for working capital, capital expenditures, acquisitions
and other general corporate purposes.
We have not determined the amounts we plan to spend on any of the uses
described above or the timing of these expenditures. Pending our use of the net
proceeds, we intend to invest them in short-term, interest-bearing, investment
grade securities.
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PRICE RANGE OF COMMON STOCK
CIENA common stock is, and the shares of CIENA common stock offered hereby
are expected to be, quoted on the Nasdaq National Market and traded under the
symbol "CIEN." The following table sets forth the high and low sales price per
share of CIENA common stock as reported by the Nasdaq National Market for the
periods indicated, adjusted to reflect the two-for-one stock split of the common
stock of CIENA, which became effective on September 18, 2000.
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------- ------
Fiscal Year ending October 31, 1998
First Quarter............................................. $ 31.78 $23.72
Second Quarter............................................ $ 29.13 $18.63
Third Quarter............................................. $ 46.19 $23.44
Fourth Quarter............................................ $ 37.94 $ 4.06
Fiscal Year ending October 31, 1999
First Quarter............................................. $ 11.50 $ 6.22
Second Quarter............................................ $ 14.63 $ 8.31
Third Quarter............................................. $ 18.88 $11.35
Fourth Quarter............................................ $ 21.41 $14.53
Fiscal Year ending October 31, 2000
First Quarter............................................. $ 39.69 $16.75
Second Quarter............................................ $ 94.50 $30.03
Third Quarter............................................. $ 90.13 $44.94
Fourth Quarter............................................ $151.00 $64.19
Fiscal Year ending October 31, 2001
First Quarter............................................. $121.38 $59.56
Second Quarter (through February 5, 2001)................. $ 92.63 $80.25
On February 5, 2001, the last reported sale price of our common stock on
the Nasdaq National Market was $84.50 per share. As of January 31, 2001, there
were approximately 1,479 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." CIENA has a 52- or 53-week fiscal year which ends on
the Saturday nearest to the last day of October in each year. For purposes of
financial statement presentation, each fiscal year is described as having ended
on October 31. Fiscal 1997, 1998, 1999 and 2000 comprised 52 weeks and fiscal
1996 comprised 53 weeks.
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue................................ $88,463 $413,215 $508,087 $482,085 $858,750
Cost of goods sold..................... 47,315 166,472 256,014 299,769 477,393
------- -------- -------- -------- --------
Gross profit......................... 41,148 246,743 252,073 182,316 381,357
------- -------- -------- -------- --------
Operating expenses:
Research and development............. 8,922 23,773 73,756 104,641 129,069
Selling and marketing................ 5,641 22,627 47,343 61,603 90,922
General and administrative........... 6,346 11,476 18,468 22,736 34,000
Settlement of accrued contract
obligation........................ -- -- -- -- (8,538)
Purchased research and development... -- -- 9,503 -- --
Pirelli litigation................... -- 7,500 30,579 -- --
Merger-related costs................. -- -- 2,548 13,021 --
Provision for doubtful accounts...... 76 489 806 250 28,010
------- -------- -------- -------- --------
Total operating expenses..... 20,985 65,865 183,003 202,251 273,463
------- -------- -------- -------- --------
Income (loss) from operations.......... 20,163 180,878 69,070 (19,935) 107,894
Other income (expense), net............ 653 7,178 12,830 13,944 12,680
------- -------- -------- -------- --------
Income (loss) before income taxes...... 20,816 188,056 81,900 (5,991) 120,574
Provision (benefit) for income taxes... 3,553 72,488 36,200 (2,067) 39,187
------- -------- -------- -------- --------
Net income (loss)...................... $17,263 $115,568 $ 45,700 $ (3,924) $ 81,387
======= ======== ======== ======== ========
Basic net income (loss) per common
share................................ $ 0.62 $ 0.76 $ 0.19 $ (0.01) $ 0.29
======= ======== ======== ======== ========
Diluted net income (loss) per common
and dilutive potential common
share................................ $ 0.09 $ 0.55 $ 0.18 $ (0.01) $ 0.27
======= ======== ======== ======== ========
Weighted average basic common shares
outstanding.......................... 27,634 151,928 235,980 267,042 281,621
======= ======== ======== ======== ========
Weighted average basic common and
dilutive potential common shares
outstanding.......................... 184,814 209,686 255,788 267,042 299,662
======= ======== ======== ======== ========
OCTOBER 31,
-----------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............ $24,040 $273,286 $250,714 $143,440 $ 143,187
Working capital...................... 42,240 338,078 391,305 427,471 639,675
Total assets......................... 79,676 468,247 602,809 677,835 1,027,201
Long-term obligations, excluding
current portion.................... 3,465 1,900 3,029 4,881 4,882
Mandatorily redeemable preferred
stock.............................. 40,404 -- -- -- --
Stockholders' equity................. 10,783 377,278 501,036 530,473 809,835
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data."
OVERVIEW
CIENA is a leader in the rapidly growing intelligent optical networking
equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers optical transport and
intelligent optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers.
CIENA's intelligent optical networking products are designed to enable carriers
to deliver any time, any size, any priority bandwidth to their customers.
CIENA has increased the number of revenue-generating optical networking
equipment customers from a total of 27 customers during fiscal 1999 to 32
customers for fiscal 2000. During fiscal 2000, three customers each represented
more than 10% of CIENA's total revenues. We intend to preserve and enhance our
market leadership and eventually build on our installed base with new and
additional products. CIENA believes that its product and service quality,
manufacturing experience, and proven track record of delivery will enable it to
endure competitive pricing pressure while concentrating on efforts to reduce
product costs and maximize production efficiencies. See "Risk Factors" in the
prospectus.
As of October 31, 2000, CIENA and its subsidiaries employed approximately
2,775 persons, which was an increase of 847 persons over the approximate 1,928
employed on October 31, 1999.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED 2000, 1999 AND 1998
REVENUE. CIENA recognized $858.8 million, $482.1 million and $508.1
million in revenue for the fiscal years ended October 31, 2000, 1999 and 1998,
respectively. The approximate $376.7 million or 78.1% increase in revenue from
fiscal 1999 to fiscal 2000 was due primarily to an increase in product shipments
across all product lines. The approximate $26.0 million or 5.1% decrease in
revenue from fiscal 1998 to fiscal 1999 was largely the result of reduced
selling prices.
CIENA recognized revenues from a total of 32, 27, and 14 optical equipment
customers during fiscal 2000, 1999, and 1998, respectively. During fiscal year
2000, Sprint, Qwest Communications and GTS Network Ltd. each accounted for at
least 10% or more of CIENA's revenue and all three combined accounted for 60.9%
of CIENA's fiscal 2000 revenue. During fiscal year 1999 Sprint, WorldCom and GTS
Network Ltd. each accounted for at least 10% or more of CIENA's revenue and all
three combined accounted for 46.2% of CIENA's fiscal 1999 revenue. This compares
to fiscal 1998 in which Sprint was the only 10% customer and in total accounted
for 52.5% of CIENA's fiscal 1998 revenue. Revenue derived from foreign sales
accounted for approximately 33.0%, 44.3%, and 23.0% of CIENA's total revenues
during fiscal 2000, 1999, and 1998, respectively.
For fiscal 2000, CIENA's optical network equipment revenues were derived
from sales of the MultiWave Sentry 4000, MultiWave CoreStream configured for
both 2.5 gigabits per second ("Gbps") and 10.0 Gbps transmission rates,
MultiWave Sentry 1600, MultiWave Metro, MultiWave 1600, MultiWave CoreDirector,
MultiWave Firefly systems and MultiWave MetroOne. During fiscal 1999, CIENA
recognized revenues from sales of MultiWave Sentry 4000, MultiWave
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Sentry 1600, MultiWave 1600, MultiWave Metro, MultiWave Firefly, and MultiWave
CoreStream systems. During fiscal 1998, CIENA recognized revenues from sales of
MultiWave Sentry 1600, MultiWave 1600, MultiWave Firefly and MultiWave Sentry
4000 systems. The revenues for fiscal 2000 improved as compared to fiscal 1999
due to increased sales of MultiWave Sentry 4000, MultiWave CoreStream, MultiWave
Sentry 1600, MultiWave Metro, and MultiWave Firefly systems, and also from the
introduction of revenues from MultiWave CoreDirector and MultiWave MetroOne
systems. The amount of revenue recognized from MultiWave Sentry 1600 and
MultiWave 1600 declined in fiscal 1999 as compared to fiscal 1998. This decline
in MultiWave Sentry 1600 sales in fiscal 1999 was offset by the introduction of
new revenues from the MultiWave CoreStream and MultiWave Metro products in
fiscal 1999. Fiscal 1999 revenues from MultiWave Sentry 4000 and MultiWave
Firefly were comparable to the revenues recognized for these products in fiscal
1998. Revenues derived from engineering, furnishing and installation services as
a percentage of total revenue were 8.4%, 12.1%, and 9.2% for the fiscal years
2000, 1999, and 1998, respectively.
GROSS PROFIT. Cost of goods sold consists of component costs, direct
compensation costs, warranty and other contractual obligations, royalties,
license fees, inventory obsolescence costs and overhead related to CIENA's
manufacturing and engineering, furnishing and installation operations. Gross
profit was $381.4 million, $182.3 million, and $252.1 million for fiscal years
2000, 1999, and 1998, respectively. Gross margin was 44.4%, 37.8%, and 49.6% for
fiscal 2000, 1999, and 1998, respectively. The increase in gross profit from
fiscal 1999 to fiscal 2000 was due primarily to lower component costs and
improved production efficiencies. The decrease in gross profit from fiscal 1998
to fiscal 1999 was largely attributable to lower selling prices.
CIENA's gross margins may be affected by a number of factors, including
product mix, continued competitive market pricing, outsourcing of manufacturing,
manufacturing volumes and efficiencies, competition for skilled labor, and
fluctuations in component costs. Downward pressures on our gross margins may be
further impacted by an increased percentage of engineering, furnishing and
installation revenues from services or additional service requirements. CIENA
will continue to concentrate on efforts to reduce product costs and maximize
production efficiencies and, if successful in these efforts, may be able to
improve gross margins in the future. See "Risk Factors".
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$129.1 million, $104.6 million, and $73.8 million for fiscal 2000, 1999, and
1998, respectively. The approximate $24.4 million or 23.3% increase from fiscal
1999 to 2000 and the approximate $30.9 million or 41.9% increase from fiscal
1998 to 1999 in research and development expenses related to increased staffing
levels, purchases of materials used in development of new or enhanced product
prototypes, and outside consulting services in support of certain developments
and design efforts. During fiscal 2000, 1999, and 1998 research and development
expenses were 15.0%, 21.7%, and 14.5% of revenue, respectively. CIENA expects
that its research and development expenditures will continue to increase in
absolute dollars and perhaps as a percentage of revenue during fiscal 2001 to
support the continued development of CIENA's intelligent optical networking
products, the exploration of new or complementary technologies, and the pursuit
of various cost reduction strategies. CIENA has expensed research and
development costs as incurred.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $90.9
million, $61.6 million, and $47.3 million for fiscal 2000, 1999, and 1998,
respectively. The approximate $29.3 million or 47.6% increase from fiscal 1999
to 2000 and the approximate $14.3 million or 30.1% increase from fiscal 1998 to
1999 in selling and marketing expenses was primarily the result of increased
staffing levels in the areas of sales, technical assistance and field support,
and increases in commissions earned, trade show participation and promotional
costs. During fiscal 2000, 1999, and 1998 selling and marketing expenses were
10.6%, 12.8%, and 9.3% of revenue, respectively. CIENA anticipates that its
selling and marketing expenses may increase in
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absolute dollars and perhaps as a percentage of revenue during fiscal 2001 as
additional personnel are hired and additional offices are opened to allow CIENA
to pursue new customers and market opportunities. CIENA also expects the portion
of selling and marketing expenses attributable to technical assistance and field
support, specifically in Europe, Latin America, and Asia, will increase as
CIENA's installed base of operational MultiWave systems increases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $34.0 million, $22.7 million and $18.5 million for fiscal 2000, 1999, and
1998, respectively. The approximate $11.2 million or 49.5% increase from fiscal
year 1999 to 2000 and the approximate $4.3 million or 23.1% increase from fiscal
year 1998 to 1999 in general and administrative expenses was primarily the
result of increased staffing levels and outside consulting services. During
fiscal 2000, 1999, and 1998 general and administrative expenses were 4.0%, 4.7%,
and 3.6% of revenue, respectively. CIENA believes that its general and
administrative expenses will increase in absolute dollars and perhaps as a
percentage of revenue during fiscal 2001 as a result of the expansion of CIENA's
administrative staff required to support its expanding operations.
SETTLEMENT OF ACCRUED CONTRACT OBLIGATION. The $8.5 million gain from
settlement of accrued contract obligation relates to the July 2000 termination
of certain accrued contract obligations that CIENA received from iaxis Limited,
one of CIENA's European customers. In September 2000, CIENA was informed that an
administrative order had been issued by a London court against iaxis Limited. As
a result of this order, joint administrators were appointed to manage the
business of iaxis Limited while they marketed the business for sale and
formulated a reorganization. See "Provision for Doubtful Accounts" below.
PURCHASED RESEARCH AND DEVELOPMENT. Purchased research and development
costs were $9.5 million for the fiscal year 1998. These costs were for the
purchase of technology and related assets associated with the acquisition of
Terabit during the second quarter of fiscal 1998.
PIRELLI LITIGATION. The Pirelli litigation costs of $30.6 million in
fiscal 1998 were attributable to a $30.0 million payment made to Pirelli during
the third quarter of 1998 and to additional other legal and related costs
incurred in connection with the settlement of this litigation.
MERGER-RELATED COSTS. The merger costs for fiscal 1999 of approximately
$13.0 million were costs related to CIENA's acquisition of Omnia and Lightera.
These costs include an $8.1 million non-cash charge for the acceleration of
warrants based upon CIENA's common stock price on June 30, 1999 and $4.9 million
for fees, legal and accounting services and other costs. The warrants were
issued to one of Omnia's potential customers and became exercisable upon the
consummation of the merger between CIENA and Omnia. The merger-related costs for
fiscal 1998 were costs related to the contemplated merger between CIENA and
Tellabs. These costs include approximately $1.2 million in Securities and
Exchange Commission filing fees and approximately $1.3 million in legal,
accounting, and other related expenses.
PROVISION FOR DOUBTFUL ACCOUNTS. CIENA performs ongoing credit evaluations
of its customers and generally does not require collateral from its customers.
CIENA maintains an allowance for potential losses when identified. CIENA's
allowance for doubtful accounts as of October 31, 2000 was $29.6 million.
Approximately $27.8 million relates to provisions made for doubtful accounts
associated with iaxis Limited, one of CIENA's European customers. In September
2000, CIENA was informed that an administrative order had been issued by a
London court against iaxis Limited. As a result of this order, joint
administrators were appointed to manage the business of iaxis Limited while they
marketed the business for sale and formulated a reorganization. In November
2000, CIENA was notified that Dynegy Inc. and its subsidiaries had entered into
a proposed agreement to acquire the assets and stock of iaxis Limited from the
administrators. As a consequence of the terms of (a) the proposed agreement
between the administrators of iaxis Limited, Dynegy and its subsidiaries, and of
(b) a related sales agreement between CIENA and Dynegy, CIENA expects to realize
approximately $8.9 million of the gross
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outstanding accounts receivable balance due from iaxis Limited as of October 31,
2000. While the proposed purchase agreement between the administrators of iaxis
Limited and Dynegy is subject to certain administrative and judicial approvals,
CIENA believes that such approvals will be ultimately obtained and that CIENA
will be successful in collecting the net $8.9 million outstanding accounts
receivable balance from the customer. However, should such approvals not occur,
additional write-offs might be required.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of
interest income earned on CIENA's cash, cash equivalents and marketable debt
securities, net of interest expense associated with CIENA's debt obligations.
Other income (expense), net, was $12.7 million, $13.9 million, and $12.8 million
for fiscal 2000, 1999, and 1998, respectively. The decrease in other income
(expense) from fiscal 1999 to fiscal 2000 was due to lower balances of cash,
cash equivalents and marketable debt securities in fiscal 2000 as compared to
fiscal 1999. The increase in companies other income (expense) from fiscal 1998
to fiscal 1999 was primarily the result of the investment of the net proceeds of
CIENA's stock offerings and net earnings.
PROVISION (BENEFIT) FOR INCOME TAXES. CIENA's provision (benefit) for
income taxes was 32.5%, (34.5%), and 44.2% of pre-tax earnings (loss) for fiscal
2000, 1999 and 1998, respectively. The income tax provision for 2000 was lower
than the expected 35% primarily due to benefits from research and development
tax credits. The benefit for fiscal 1999 was less than the expected statutory
benefit of 35% due to non-deductible merger costs. The income tax provision for
1998 was higher than the expected statutory rate of 35%, due primarily to
charges for purchased research and development and state tax charges related to
the Alta acquisition. Purchased research and development charges are not
deductible for tax purposes. Exclusive of the effect of these charges, CIENA's
provision for income taxes was 38.6% of income before income taxes in fiscal
1998. As of October 31, 2000, CIENA's deferred tax asset was $143.0 million. The
realization of this asset could be adversely affected if future earnings are
lower than anticipated.
QUARTERLY RESULTS OF OPERATIONS
The tables below set forth the operating results and percentage of revenue
represented by certain items in CIENA's statements of operations for each of the
eight quarters in the period ended October 31, 2000. This information is
unaudited, but in the opinion of CIENA reflects all adjustments (consisting only
of normal recurring adjustments) that CIENA considers necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.
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QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue................ $100,417 $111,490 $128,826 $141,352 $152,213 $185,679 $233,268 $287,590
Cost of goods sold..... 65,778 71,238 79,361 83,392 87,003 104,205 128,172 158,013
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... 34,639 40,252 49,465 57,960 65,210 81,474 105,096 129,577
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and
development........ 22,218 24,094 28,402 29,927 29,742 29,965 32,697 36,665
Selling and
marketing.......... 13,608 13,092 16,839 18,064 18,122 20,331 24,375 28,094
General and
administrative..... 5,036 5,849 5,433 6,418 6,621 7,176 9,339 10,864
Settlement of accrued
contract
obligation......... -- -- -- -- -- -- (8,538) --
Merger-related
costs.............. -- 2,253 10,768 -- -- -- -- --
Provision for
doubtful
accounts........... -- -- -- 250 250 -- 8,538 19,222
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses..... 40,862 45,288 61,442 54,659 54,735 57,472 66,411 94,845
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations........... (6,223) (5,036) (11,977) 3,301 10,475 24,002 38,685 34,732
Other income (expense),
net.................. 3,301 3,583 3,492 3,568 2,950 3,268 3,026 3,436
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes......... (2,922) (1,453) (8,485) 6,869 13,425 27,270 41,711 38,168
Provision (benefit) for
income taxes......... (1,041) (468) (2,928) 2,370 4,363 8,863 13,556 12,405
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1,881) $ (985) $ (5,557) $ 4,499 $ 9,062 $ 18,407 $ 28,155 $ 25,763
======== ======== ======== ======== ======== ======== ======== ========
Basic net income (loss)
per common share
(1).................. $ (0.01) $ 0.00 $ (0.02) $ 0.02 $ 0.03 $ 0.07 $ 0.10 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Diluted net income
(loss) per common
share and dilutive
potential common
share (1)............ $ (0.01) $ 0.00 $ (0.02) $ 0.02 $ 0.03 $ 0.06 $ 0.09 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Weighted average basic
common share (1)..... 262,404 265,060 266,032 267,616 276,182 280,162 282,258 285,177
======== ======== ======== ======== ======== ======== ======== ========
Weighted average basic
common and dilutive
potential common
share (1)............ 262,404 265,060 266,032 290,604 295,806 299,126 299,790 301,582
======== ======== ======== ======== ======== ======== ======== ========
---------------
(1) All share and per share information has been retroactively restated to
reflect the two-for-one stock split effective September 18, 2000.
23
23
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF REVENUE)
Revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 65.5 63.9 61.6 59.0 57.2 56.1 54.9 54.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 34.5 36.1 38.4 41.0 42.8 43.9 45.1 45.1
Operating expenses:
Research and development.............. 22.1 21.6 22.0 21.2 19.5 16.1 14.0 12.7
Selling and marketing................. 13.6 11.7 13.1 12.8 11.9 10.9 10.4 9.8
General and administrative............ 5.0 5.2 4.2 4.5 4.3 3.9 4.0 3.8
Settlement of accrued contract
obligation.......................... -- -- -- -- -- -- (3.7) --
Merger-related costs.................. -- 2.0 8.4 -- -- -- -- --
Provision for doubtful accounts....... -- -- -- 0.2 0.2 -- 3.7 6.7
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses........ 40.7 40.5 47.7 38.7 35.9 30.9 28.4 33.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations........... (6.2) (4.4) (9.3) 2.3 6.9 13.0 16.7 12.1
Other income (expense), net............. 3.3 3.2 2.7 2.5 1.9 1.8 1.3 1.2
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes....... (2.9) (1.2) (6.6) 4.8 8.8 14.8 18.0 13.3
Provision (benefit) for income taxes.... (1.0) (0.4) (2.3) 1.7 2.9 4.8 5.8 4.3
----- ----- ----- ----- ----- ----- ----- -----
Net income(loss)........................ (1.9)% (0.8)% (4.3)% 3.1% 5.9% 10.0% 12.2% 9.0%
===== ===== ===== ===== ===== ===== ===== =====
CIENA's quarterly operating results have varied and are expected to vary in
the future. CIENA's detailed discussion of risk factors addresses the many
factors that have caused such variation in the past, and may cause similar
variations in the future. See "Risk Factors". CIENA's revenues have increased in
each of the last eight quarters due to strong demand across existing products
and introduction of new products such as MultiWave CoreStream configured for
both 2.5 Gbps and 10.0 Gbps transmission rates. CIENA's gross margin percentage
has improved from the first quarter fiscal 1999 to the fourth quarter fiscal
2000 as a result of component cost reductions, production efficiencies, and
relative stable sales pricing. CIENA's operating expenses have increased in each
of the last eight quarters due to continued investments in research and
development, selling and marketing, and infrastructure activities. Exclusive of
provisions for doubtful accounts and merger-related costs, the Company's
operating expenses as a percentage of revenue have generally decreased each of
the last eight quarters. During fiscal 2001, CIENA's operating expenses will
continue to increase in absolute dollars and may increase as percentage of
revenue. We expect to preserve and enhance our market leadership and build on
our installed base with new and additional products in conjunction with
increased investments in selling, marketing, and customer service activities.
See "Risk Factors".
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, CIENA's principal source of liquidity was its cash and
cash equivalents. CIENA had $143.2 million in cash and cash equivalents, and
$95.1 million in corporate debt securities and U.S. Government obligations.
CIENA's corporate debt securities and U.S. Government obligations have
contractual maturities of six months or less.
CIENA's operating activities provided cash of $59.0 million, $28.7 million,
and $48.8 million for fiscal 2000, 1999, and 1998, respectively. Cash provided
by operations in fiscal 2000 was primarily attributable to a net gain adjusted
for the non-cash charges of depreciation, amortization, tax benefit related to
exercise of stock options, provisions for doubtful accounts, inventory
obsolescence, and warranty, increases in accounts payable, and accrued expenses,
offset by increases in accounts receivable and inventories.
Cash used in investing activities in fiscal 2000, 1999, and 1998 was $103.2
million, $149.7 million, and $107.0 million, respectively. Included in
investment activities were additions to capital equipment and leasehold
improvements in fiscal 2000, 1999, and 1998 of $123.9 million, $46.8 million,
and $88.9 million, respectively. The capital equipment expenditures were
primarily for test, manufacturing and computer equipment. CIENA expects
additional combined capital
24
24
equipment and leasehold improvement expenditures of approximately $208 million
to be made during fiscal 2001 to support selling and marketing, manufacturing
and product development activities and the construction of leasehold
improvements for its facilities.
We generated $43.9 million, $13.8 million, and $35.6 million in cash from
financing activities in fiscal 2000, 1999, and 1998, respectively. During fiscal
2000, CIENA received $44.0 million from the exercise of stock options and the
sale of stock through our employee stock purchase plan. During fiscal 1999 CIENA
received $11.3 million from the exercise of stock options, the sale of stock
through our employee stock purchase plan, and from the additional capitalization
of Omnia and Lightera. During fiscal 1998, CIENA received approximately $34.3
million from the issuance of stock associated with the capitalization of Omnia
and Lightera, and from the exercise of stock options.
We believe that our existing cash balances and investments, together with
cash flow from operations, will be sufficient to meet our liquidity and capital
spending requirements at least through the end of fiscal 2001. However, possible
investments in or acquisitions of complementary businesses, products or
technologies may require additional financing prior to such time. There can be
no assurance that additional debt or equity financing will be available when
required or, if available, can be secured on terms satisfactory to us.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133, as amended by SFAS
No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date for SFAS No. 133", will be
effective for the Company's fiscal year ending October 31, 2000. The Company
believes the adoption of SFAS No. 133 and SFAS No. 137 will not have a material
effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB
101) which clarifies the Securities and Exchange Commission's view on revenue
recognition. Subsequently, the SEC released SAB 101B, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. CIENA is required to be in
conformity with the provisions of SAB 101, as amended, no later than January 31,
2001, with the impact of such adoption being treated on a cumulative basis as of
November 1, 2000. While management will continue to assess SAB 101, CIENA
presently believes its existing revenue recognition policies and procedures are
generally in compliance with SAB 101 and, therefore, SAB 101's adoption will
have no material impact on CIENA's financial condition, results of operations or
cash flows.
In July 2000, the FASB's Emerging Issues Task Force ("EITF") reached a
final consensus that the income tax benefit realized by a company upon the
exercise of a nonqualified stock option or the disqualifying disposition of an
incentive stock option should be classified in the operating section of the
statement of cash flows. The consensus is effective for the Company's quarters
ending after July 20, 2000. All comparative cash flow statements as presented
have been restated to comply with this consensus.
In September 2000, the FASB issued SFAS No. 140, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to the securitization transactions and collateral for
fiscal years ending after December 15, 2000. The Company believes the adoption
of SFAS No. 140 will not have a material effect on the consolidated financial
statements.
25
25
BUSINESS
OVERVIEW
CIENA is an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers intelligent optical
transport and optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers. We
have pursued a strategy to develop and leverage the power of our technologies to
change the fundamental economics of building carrier-class tele- and
data-communications networks, thereby providing our customers with a competitive
advantage. CIENA's intelligent optical networking products are designed to
enable carriers to deliver any time, any size, any priority bandwidth to their
customers.
Historically, the significant majority of CIENA's revenue has come from the
sale of long-distance optical transport equipment. CIENA believes it is one of
the worldwide market leaders in field deployment of open-architecture
long-distance optical transport equipment utilizing dense wavelength division
multiplexing, or DWDM, technology. The majority of CIENA's fiscal 2000 revenue
was derived from sales of its long-distance optical transport products,
including MultiWave CoreStream(TM) and MultiWave Sentry 4000(TM). During the
fiscal year 2000, CIENA also recognized revenue from the sale of seven optical
networking products including sales of its metropolitan optical transport
product, MultiWave(R) Metro and its intelligent optical core switch, MultiWave
CoreDirector(TM).
For the fiscal year ended October 31, 2000, CIENA recorded revenue from
sales of intelligent optical networking equipment to a total of 32 customers.
Our research and development efforts as well as potential future acquisition and
partnership activities are targeted at capitalizing on our installed base of
carrier customers and leveraging our position as a leader in the rapidly growing
optical networking market.
INDUSTRY BACKGROUND
The world's tele- and data-communications infrastructure is formed by
fiber-optic networks owned and operated by service providers. In recent years,
the combination of several factors, including global deregulation which fueled
competition among service providers and increased bandwidth demand resulting
from the proliferation of the Internet and the emergence of electronic commerce,
gave rise to the increased deployment of communications equipment utilizing
dense wavelength division multiplexing technology.
DWDM replaces the single beam of light that traverses fiber-optic cable in
legacy networks with multiple colors of light, each of which is capable of
carrying tens of thousands of voice conversations or data transmissions. Prior
to the emergence of DWDM, service providers could increase network capacity
either by adding new physical fibers to their network or by increasing the rate
of transmission through the fiber. In many cases DWDM has proven to be more cost
efficient than physically deploying new fibers, and it has enabled the delivery
of significantly more traffic by service providers.
The widespread adoption of DWDM enabled carriers to efficiently and
economically expand network capacity, or bandwidth, while reducing bandwidth
costs. CIENA believes that the application of products using DWDM has led to a
dramatic decline in service providers' capital cost per bit from 1995 to
present, thereby enabling pricing competition between carriers and significant
bandwidth price declines of up to 80% in some U.S. regions.
26
26
NETWORK SCALABILITY CHALLENGES
For the past several years DWDM has been implemented by carriers to
increase capacity between discrete points in their long-distance networks. To
construct a network using DWDM equipment as its backbone, a carrier must
interconnect the point-to-point high-capacity links and manage all traffic
flowing through them. For example, an important element enabling this
interconnection in traditional architectures has been the SONET/SDH add/drop
multiplexer, or ADM. In most network architectures, a SONET ADM is used to
transmit the information-carrying signal for each DWDM optical channel. A second
ADM then is used to receive the information-carrying signal from each DWDM
optical channel. As a result, every time an additional optical channel is
deployed, two additional SONET ADMs must be purchased, installed and
maintained -- one for each end of the traffic-carrying route. For example, in
order to transmit/receive the traffic from a DWDM optical transport system with
96 channels of DWDM, a service provider would require a total of 192 SONET ADMs.
Though DWDM gave carriers the ability to solve the bandwidth problem in the
core of their networks, the technology created operational and scalability
challenges for carriers. Historically this method has been the only way
available to service providers to scale their networks. Unfortunately, this
approach creates upwardly spiraling costs. In addition to the capital equipment
costs associated with the equipment, each SONET ADM uses valuable central office
space and power. Furthermore, as the number of DWDM channels and links
increases, the carrier's management of the network grows more complex, making
manual service provisioning and network operation more difficult and costly.
ESCALATING OPERATIONAL COSTS
In addition to the problems inherent in scaling traditional network
architectures, carriers are challenged to scale their operating staff as quickly
as they can grow their networks. According to information filed by carriers with
the United States Securities and Exchange Commission, many service providers are
spending more on operating, growing, and managing their networks than they are
on capital expenditures relating to their networks. In some cases, service
providers are spending two to four dollars on network operations and support
expenses for every dollar spent on network capital equipment. In addition, in
many cases, network operations and support expenses are increasing at a
significantly faster rate than revenues.
CIENA'S SOLUTIONS
CIENA's intelligent optical networking equipment was designed to enable
service providers to transition from inefficient, legacy, voice-centric networks
to more efficient data-optimized, intelligent optical networks. CIENA's systems
address both the network scalability challenges and the escalating operational
costs faced by service providers by:
- leveraging expertise in optics, software, systems and Application
Specific Integrated Circuits, or ASICs, to develop innovative products
designed to dramatically lower the cost of constructing service provider
networks;
- replacing multiple traditional network elements such as ADMs and digital
cross-connects with fewer, more intelligent network elements, thereby
simplifying the network and lowering carriers' capital and operational
costs;
- enhancing bandwidth availability to service providers, thereby allowing
them to increase network bandwidth with growing Internet demand;
- lowering ongoing network operating costs by enabling carriers to more
efficiently manage network traffic;
27
27
- enabling carriers to shorten the time it takes to provision services, in
some cases from months to minutes, thereby accelerating the generation of
revenue; and
- enabling new, revenue-generating and differentiated optical services.
Our optical networking product portfolio is targeted at the critical areas
of service provider networks: long-distance and metropolitan optical transport,
intelligent optical core switching and network management.
- OPTICAL TRANSPORT. CIENA's long-distance optical transport products,
MultiWave CoreStream(TM), MultiWave Sentry(TM) and MultiWave 1600, and
our short-distance products, MultiWave Metro(TM), Metro One(TM) and
MultiWave Firefly(TM), utilize DWDM technology and should enable carriers
to cost effectively add critical network bandwidth when and where they
need it. As a result, service providers should be better able to scale
their networks to meet demand.
- INTELLIGENT OPTICAL CORE SWITCHING. Our intelligent optical core
switches, MultiWave CoreDirector(TM) and MultiWave CoreDirector CI(TM),
which is currently under development, allow carriers to manage the
bandwidth created with optical transport products. CoreDirector and
CoreDirector CI help carriers solve both the issues of network
scalability and escalating operating costs by incorporating the
functionality of multiple network elements into single elements with
previously unavailable switching capabilities and management.
- NETWORK MANAGEMENT. ON-Center, CIENA's recently introduced fully
integrated family of software-based tools for comprehensive element,
network and service layer management, is designed to enable accelerated
deployment of new, differentiating optical services. ON-Center should
also reduce network operating and management costs.
CIENA calls the network architecture created by these products "CIENA
LightWorks". The components of CIENA's LightWorks can be sold together as a
complete network solution or separately as best-of-breed solutions. CIENA's
LightWorks architecture is designed to dramatically simplify a carrier's network
by reducing the number of network elements. We believe this network
simplification will enable service providers to lower capital equipment and
operating costs.
STRATEGY
CIENA's strategy is to maintain and build upon its market leadership in the
deployment of intelligent optical networking systems and to leverage its
technologies in order to provide solutions for both voice and data
communications-based network architectures. CIENA believes that the
technological, operational and cost benefits of its optical networking solutions
create competitive advantages for service providers worldwide. We believe our
solutions will become increasingly important as these service providers are
being pressed by their customers to deliver services to address the dramatic
growth in Internet and other data communications traffic. CIENA's strategy
includes the following initiatives:
- EXPAND OUR BASE OF CUSTOMERS USING OUR INTELLIGENT OPTICAL NETWORKING
SOLUTIONS. We believe that achieving early widespread operational
deployment of our systems in a particular carrier's network will provide
CIENA significant competitive advantages with respect to additional
optical networking deployments and will enhance our marketing to other
carriers as a field-proven supplier. While continuing to aggressively
serve our existing customers, we intend to actively pursue additional
optical networking deployment opportunities among fiber-optic carriers in
domestic and foreign long distance, interoffice and local exchange
markets.
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28
- INCREASE SALES AND MARKETING EFFORTS. The nature of the target customer
base for all our product lines requires a focused sales effort on a
customer-by-customer basis. We will continue to increase our sales and
marketing efforts aimed at the worldwide market of service providers.
CIENA increased the number of revenue-generating optical networking
customers from 27 during 1999 to 32 in 2000. In addition, CIENA has a
significant international presence, particularly in Europe. Revenues from
international customers represented 33.0% of CIENA's total revenues in
fiscal 2000. CIENA plans to continue to strengthen its marketing programs
and to increase its domestic and international presence through both
direct sales and distributor relationships.
- CONTINUE TO EMPHASIZE TECHNICAL SUPPORT AND CUSTOMER SERVICE. CIENA
markets technically advanced systems to sophisticated customers. The
nature of CIENA's systems and market require a high level of technical
support and customer service. We believe we have a good reputation for
our technical support and customer service, and we intend to emphasize
our global service and support excellence and capabilities as
differentiating factors in our efforts to maintain and enhance our market
position. CIENA offers complete engineering, furnishing and installation
services in addition to full-time customer support from strategic
locations worldwide.
- MAINTAIN WORLD CLASS MANUFACTURING CAPABILITY. CIENA's optical
networking systems play a critical role in our customers' networks.
Quality assurance and manufacturing excellence are necessary for CIENA to
achieve success. CIENA believes it has developed a world class optical
manufacturing capability, and this capability provides CIENA with a
significant competitive advantage. CIENA achieved ISO 9001 certification
in July 1997 in further support of this element of its strategy. CIENA
expects to continue to invest in both the capital and the human resources
necessary to maintain and leverage this advantage. In addition, CIENA
expects to utilize this expertise to leverage our manufacturing
capability with contract manufacturers.
- LEVERAGE CIENA'S BANDWIDTH-OPTIMIZING TECHNOLOGY AND KNOW-HOW. We
believe the overall growth in demand for bandwidth and the need for
intelligent bandwidth-optimizing services in telecommunications networks
will lead to transmission bottlenecks in other segments of the networks
where the application of optical technologies and other high bandwidth
enabling technologies may provide solutions, either within existing
network architectures, or as part of the design and development of
alternative data communications-based network architectures. CIENA
expects to leverage the core competencies it has developed in the design,
development and manufacturing of its optical transport and intelligent
optical switching product lines and key enabling components by pursuing
new product development efforts, and strategic alliances or acquisitions,
to address these expected opportunities. CIENA intends to move
aggressively to maintain leadership in the design and development of
intelligent optical networking equipment, components and software which
will both respond to customer needs and help customers move toward newer,
higher capacity, more cost-efficient network designs for the future.
PRODUCTS
Our optical networking product portfolio is targeted at the critical areas
of service provider networks: long-distance and metropolitan optical transport,
intelligent optical core switching and network management. CIENA's open
architecture design allows its products to operate with most carriers' existing
fiber-optic transmission systems and network elements, including connecting
directly to either traditional SONET equipment, ATM switches or IP routers.
29
29
LONG-DISTANCE OPTICAL TRANSPORT
PRODUCT FEATURES
------- --------
MULTIWAVE CORESTREAM - CIENA's fourth generation carrier-class
intelligent optical transport product.
- First commercially deployed 96-channel DWDM
system with commercial shipments beginning in
the third fiscal quarter of 1999.
- Utilizes DWDM technology to deliver up to 96
optical channels at 2.5Gbps (240 gigabits) or
up to 48 channels at 10Gbps (480 gigabits).
- Designed for in-service growth; scalable to
handle 2 terabits of traffic in the future.
- With its longer reach feature set, will
ultimately be capable of transporting signals
up to 5,000 kilometers without electrical
regeneration.
MULTIWAVE SENTRY 4000 - CIENA's third generation carrier-class
intelligent optical transport product.
- First commercially deployed 40-channel system
with commercial shipments beginning in the
second fiscal quarter of 1998.
- Utilizes DWDM technology to deliver up to 40
channels at 2.5Gbps (100 gigabits).
MULTIWAVE SENTRY 1600 - CIENA's second generation carrier-class
intelligent optical transport product.
- Utilizes DWDM technology to deliver up to 16
channels at 2.5Gbps (40 gigabits).
- Incorporated performance monitoring
capabilities, not previously available in
DWDM equipment beginning in the second half
of fiscal 1996.
MULTIWAVE 1600 - CIENA's first generation carrier-class
intelligent optical transport product.
- First commercially deployed 16-channel system
with commercial shipments beginning in the
first half of fiscal 1996.
- Utilizes DWDM technology to deliver 16
channels at 2.5Gbps (40 gigabits).
METROPOLITAN OPTICAL TRANSPORT
PRODUCT FEATURES
------- --------
MULTIWAVE METRO - A carrier-class optical transport product
designed specifically to address the
performance and economic requirements of
metropolitan markets.
30
30
- Provides up to 24 duplex channels over a
single fiber pair, enabling a service
provider to transport up to 60Gbps.
- Supports multiple network topologies, such as
rings, hubs, and stars.
- Offers a wide range of interfaces from 100
megabits per second up to 10Gbps.
MULTIWAVE METRO ONE - Offers the same carrier-class reliability and
functionality as MultiWave Metro, but for a
single channel in a reduced size and reduced
power consumption package.
MULTIWAVE FIREFLY - MultiWave Firefly was developed specifically
for use by carriers in short-distance,
point-to-point applications.
- Multiplexes up to 24 channels at 2.5Gbps,
over a single fiber pair, allowing a carrier
to transport up to 60Gbps.
INTELLIGENT OPTICAL CORE SWITCHING
PRODUCT FEATURES
------- --------
MULTIWAVE COREDIRECTOR - Provides traffic management and switching
capability beyond current network solutions
of up to 256 ports of OC-48 or up to 640Gbps
in a single 7 foot bay.
- Designed to reduce capital equipment costs by
displacing multiple traditional devices.
- CoreDirector's intelligence is designed to
simplify service provisioning, in some cases
reducing provisioning times from months to
seconds.
- CoreDirector offers the ability to switch at
the wavelength level or at levels of
granularity down to an STS-1.
- CoreDirector should enable new revenue
opportunities for service providers through
new optical layer capabilities and services.
COREDIRECTOR CI - When available, CoreDirector CI will provide
up to 64 ports of OC-48 or up to 160Gbps in a
half bay.
- CoreDirector CI will deliver CoreDirector
functionality in a smaller package and at a
lower entry cost that is ideal for lower
capacity networks or smaller switching sites.
NETWORK MANAGEMENT
PRODUCT FEATURES
------- --------
LIGHTWORKS ON-CENTER - A fully integrated family of software-based
tools for comprehensive element, network and
service layer management across service
provider networks.
- ON-Center is designed to enable accelerated
deployment of new, differentiating optical
services, reduced network
31
31
operating and management costs, and
innovative customer service solutions.
- Designed so that service providers can select
any or all components necessary to meet their
particular network's management needs,
LightWorks ON-Center is comprised of:
- an Optical Service Layer Management
System for cross-vendor end-to-end
service management;
- an Optical Network Management System for
integrated management across all of
CIENA's intelligent optical transport,
switching and access systems; and
- a Modeling and Planning System for
network design.
NEW OPTICAL SERVICES
In addition to allowing significant capital equipment and operational cost
savings, CIENA's intelligent optical networking equipment is designed to enable
its customers to offer new, revenue-generating optical layer services. CIENA's
LightWorks Toolkit(TM) is designed to allow carriers to offer dynamic
high-bandwidth services and handle real-time service provisioning and
prioritization. By mixing and matching CIENA's ToolKit options, carriers will be
able to offer customized services and further differentiate themselves from
their competition.
When development is completed, the breadth of options in the LightWorks
ToolKit will ultimately include:
SERVICE DESCRIPTION
------- -----------
OPTICAL PRIORITY PROVISIONING - Optical Priority Provisioning is designed to
allow carriers to turn-up optical services in
seconds, and to specify priority levels for
further differentiation of optical services.
For instance, a carrier may elect to offer
multiple levels of optical bandwidth, ranging
from "premium" to "best-effort" service, with
each level of service being priced and
delivered differently. Optical Priority
Provisioning is designed to help carriers
more easily meet service level agreements by
assigning and adjusting traffic priorities in
seconds, potentially allowing carriers to
unlock more revenue from data services.
- Optical Priority Provisioning should simplify
the delivery of differentiated optical
services by providing access to service
templates of predefined restoration
priorities, preemptability, and linear, ring
and mesh protection options. Using these
simplified templates, service provisioners
should be able to deliver optical services,
at any service level, in just a few clicks of
a mouse.
FLEXIBLE CONCATENATION - In legacy networks, bandwidth demand is
arbitrarily shoehorned into SONET/SDH-sized
transport containers where the size of the
container is fixed. For example, if a
customer requires OC-15 service, the customer
must purchase OC-48 service, even though only
a fraction of
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32
the 48 time slots in the transport container
will be filled with bits. In this scenario,
the customer is paying for bandwidth it is
not using and the carrier is losing valuable
network bandwidth. CIENA is using a
combination of silicon and software to
redefine how carriers access and deliver
bandwidth.
- When available, Flexible Concatenation will
allow carriers to access all time slots
within the SONET/SDH frame -- even when those
frames are fractionally filled. That means
carriers will be able to create true OC-"N"
services in which "N" can be any number
between 1 and 48 and in the future will be
192 and eventually 768 instead of the current
restrictions of SONET, which sets fixed sizes
on transport containers. Flexible
concatentation is designed to enable carriers
to maximize their network bandwidth and
deliver customer-specific service.
RATE ADAPTIVE GIGABIT ETHERNET - CIENA's Rate-Adaptive Gigabit Ethernet
technology uses software and ASICs to enable
service providers to sell Gigabit Ethernet
services in customizable increments of 50Mbps
(STS-1) up to 1.25Gbps.
- When available, service providers will be
able to use Rate Adaptive Gigabit Ethernet to
create a wide range of customized optical
service options for end-users and deliver
those services over more efficient access and
core networks that leverage the economies of
Gigabit Ethernet transmission.
VSR OPTICS - For increased profitability, carriers must
continually drop their cost per bit. However,
to stay competitive, carriers must continue
to increase the value of their services. VSR
(Very Short Reach) Optics are designed to
provide lower-cost, high-capacity connections
between Internet and optical networking
systems within a service provider's central
office. VSR Optics leverage Vertical Cavity
Surface Emitting Laser (VCSEL) technology and
Gigabit Ethernet standards to make
variable-rate optical services possible and
economical -- a valuable service for
unpredictable bandwidth demands. When
available, CIENA will apply this data
rate-scalable technology to 10Gbps network
connections.
TRANSPARENT SERVICE
MULTIPLEXING - As opposed to traditional SONET/SDH
multiplexing, CIENA's "transparent"
multiplexing is designed to enable optical
services to be delivered without compromising
the SONET/SDH overheads of individual
tributaries that make up the aggregate
signal. Enabling multiple signals to be
transparently multiplexed, transported and
demultiplexed means signals are delivered as
if they were connected directly to the
destination equipment by their own unique
wavelength, maintaining the customers'
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signal security and integrity. When
available, Transparent Service Multiplexing
(TSM) should be ideal for delivering IP
traffic, wavelength services and other new
optical services that CIENA's Toolkit
enables. With TSM, each end device appears to
communicate over its own unique wavelength
while actually being economically
consolidated with other signals.
WAVELENGTH BINDING - With unprecedented traffic growth and
changing traffic demands, Internet-centric
carriers are looking for ways to better match
the changes in IP router traffic demands with
the provisioned bandwidth capacities
available within their networks. To meet this
need, CIENA is developing Wavelength Binding.
- Wavelength Binding will leverage intellectual
property to enable a device of any speed to
be connected to a network operating at a
lower speed by building "virtual channels" of
multiple wavelengths bound together in a
single, very high-capacity bitstream. As a
result, when Wavelength Binding is available,
CIENA's customers will be able to deliver
40Gbps without changing their transport
infrastructure. Wavelength Binding will also
give carriers previously unavailable network
flexibility by enabling them to bundle and
unbundle wavelengths as network capacity
demands change.
PRODUCT DEVELOPMENT
We believe the overall growth in utilization of fiber-optic
telecommunications networks will lead to transmission bottlenecks in other
segments of the networks where the application of optical networking
technologies may provide solutions. We also believe there may be opportunities
for us to develop products and technologies complementary to existing optical
networking technologies which may broaden our ability to provide, facilitate
and/or interconnect with high-bandwidth solutions offered throughout fiber-optic
networks. CIENA intends to focus its product development efforts and possibly
pursue strategic alliances or acquisitions to address expected opportunities in
these areas, including our recently announced acquisition of Cyras Systems, Inc.
CUSTOMERS
CIENA has announced publicly relationships with the following customers:
DOMESTIC INTERNATIONAL
-------- -------------
Alltel Cable & Wireless, UK
Bell South CompleTel, France
Broadwing Crosswave Communications, Japan
Cable & Wireless Daini Deuden, Japan
Digital Teleport Dynegy, Austria
Enron ESAT Telecom, Ireland
Genuity Solutions Fibernet
Intermedia Communications Global Crossing, UK
PSINet GTS (now known as eBone), Belgium
Qwest HanseNet Telekommunikation, Germany
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DOMESTIC INTERNATIONAL
-------- -------------
RCN of Pennsylvania Interoute, UK
Sprint Japan Telecom, Japan
Verizon KDD/Teleway Japan, Japan
Williams Communications Korea Telecom, Korea
WorldCom MobilCom AG, Germany
XO Communications Operadora Protel, Mexico
Telecom Developpement, France
Telia AB, Sweden
WorldCom, Europe
In addition, CIENA has a number of unannounced customer relationships.
CUSTOMERS BY CATEGORY
INTEREXCHANGE CARRIERS (IXCS)
The initial deployments of CIENA's bandwidth enhancing optical transport
equipment occurred in the core of the U.S. long-distance network with the
interexchange carriers, or IXCs. IXCs provide connections between local
exchanges in different geographic areas. In recent years, incumbent IXCs such as
Sprint, WorldCom and AT&T have seen increased competition from emerging
long-distance carriers such as Qwest Communications, Global Crossing, Broadwing
Communications Services, Inc., and Level 3 Communications. We expect that
continued competition in long-distance call rates, as well as the carriers'
desire for market and service differentiation, will continue to drive demand for
the increased capacity and features offered by CIENA's optical networking
equipment.
INCUMBENT LOCAL EXCHANGE CARRIERS
Incumbent local exchange carriers, such as the RBOCs, are very active in
interoffice and local exchange markets and, under the Telecommunications Act of
1996, RBOCs are eligible to enter the long-distance market once they have met
certain requirements for opening their local markets to competition. CIENA
believes that over time the RBOCs will continue to gain approval to offer
long-distance services, although when and how they will offer these services is
unclear. For instance, the RBOCs' move to offering long-distance services could
occur through the establishment of owned network facilities, through the
purchase of long-distance capacity from other long-distance carriers, or through
some combination of the two. Regardless of the timing of any such move, CIENA
believes there are opportunities for in-region deployment of CIENA's
long-distance and metropolitan optical transport products at certain RBOCs.
INTERNATIONAL COMPETITIVE CARRIERS
New competitive carriers are emerging as a result of deregulation in the
international telecommunications markets. CIENA has concentrated its sales
efforts on these emerging carriers as opposed to the traditional carriers or
PTTs. During fiscal 2000, CIENA increased its announced international customer
base from fourteen to eighteen customers. In many cases, these new competitive
carriers do not have the installed fiber base of the larger carriers and
therefore are in need of the scalable bandwidth CIENA's optical transport
systems offer. In addition, because of the economies and flexibility afforded by
the application of DWDM technology, CIENA's equipment is being used on several
new projects where the service provider is physically constructing the network.
CIENA expects that in the near term, the majority of its international revenue
will come from these smaller, more aggressive competitive carriers, and CIENA
will continue to concentrate its sales efforts accordingly.
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COMPETITIVE LOCAL EXCHANGE CARRIERS (CLECS)
Deregulation has fueled the growth of U.S. competitive local exchange
carriers, or CLECs. CIENA believes that in the short term, CLECs could benefit
from the hesitancy of incumbent local exchange carriers, such as the Regional
Bell Operation Companies, or RBOCs, to open their local markets to competitors,
and that these CLECs are likely to move aggressively to capitalize on
opportunities in the local area. CIENA recognized revenues from CLEC customers
in fiscal 2000 and expects that tactical CLEC applications for its long-haul
products, as well as the short-distance products, will be well suited to CLEC
network applications.
NON-TRADITIONAL TELECOMMUNICATION SERVICE PROVIDERS
The growth of the Internet has produced traffic growth substantial enough
to attract new, non-traditional telecommunication service providers to compete
in this market as well. Both domestically and internationally, companies with
rights-of-way, such as utility companies, cable TV providers, and railroads are
capitalizing on their "network", whether a pipeline, a railroad, or a highway,
and in some cases, are laying optical fiber and constructing telecommunications
networks along those rights-of-way. The transmission capabilities of CIENA's
optical networking equipment enable these new carriers to provide competitive
services while purchasing and laying a minimal amount of fiber-optic cable.
MARKETING AND DISTRIBUTION
CIENA's intelligent optical networking systems require substantial
investment, and our target customers in the fiber-optic telecommunications
market -- where network capacity and reliability are critical -- are highly
demanding and technically sophisticated. There are only a small number of such
customers in any country or geographic market. Also, every network operator has
unique configuration requirements, which impact the integration of optical
networking systems with existing transmission equipment. The convergence of
these factors leads to a very long sales cycle for optical networking equipment,
often more than a year between initial introduction to CIENA and the customer's
commitment to purchase, and has further led CIENA to pursue sales efforts on a
focused, customer-by-customer basis. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and "Risk Factors".
CIENA has organized its resources for the separate but coordinated approach
to United States and international customers. In the United States market, a
sales team, comprised of an account manager, systems engineers and technical
support and training personnel, is assigned responsibility for each customer
account, and for the coordination and pursuit of sales contacts. In the
international market, CIENA pursues prospective customers through direct sales
efforts, as well as through distributors, independent marketing representatives
and independent sales consultants. Through its subsidiaries, CIENA has
established offices in the U.S., Europe and Latin America, including offices in
the U.K., Germany, France, Spain, Mexico and Brazil. CIENA has distributor or
marketing representative arrangements, including agreements with agents in
Italy, the Republic of Korea, Japan, Venezuela, Columbia and Chile.
In support of its worldwide selling efforts, CIENA conducts marketing
communications programs intended to position and promote its products within the
telecommunications industry. Marketing personnel also coordinate our
participation in trade shows and conduct media relations activities with trade
and general business publications.
MANUFACTURING
CIENA conducts most of the optical assembly, final assembly and final
component, module and system test functions for its optical transport products
at its manufacturing facilities in Maryland. We also manufacture the in-fiber
Bragg gratings used in our optical transport product lines. We expect the
majority of the manufacturing associated with our MultiWave CoreDirector
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and CoreDirector CI products will be performed by third-party manufacturers,
with only final system test and assembly performed by CIENA. We also rely on
third-party manufacturers to manufacture some of our components for our products
and continue to evaluate whether additional portions of our manufacturing can be
done on a reliable and cost-effective basis by third-party manufacturers.
CIENA believes that portions of its manufacturing technologies and
processes represent a key competitive advantage. Accordingly, we have invested
significantly in automated production capabilities and manufacturing process
improvements and expect to further enhance our manufacturing process with
additional production process control systems. Some critical manufacturing
functions require a highly skilled work force, and CIENA puts significant
efforts into training and maintaining the quality of its manufacturing personnel
and in maintaining its proprietary information in this area.
CIENA's optical transport product lines utilize hundreds of individual
parts, many of which are customized for CIENA. Component suppliers in the
specialized, high technology end of the optical communications industry are
generally not as plentiful or, in some cases, as reliable, as component
suppliers in more mature industries. CIENA works closely with its strategic
component suppliers to pursue new component technologies that could either
reduce cost or enhance the performance of our products.
COMPETITION
Competition in the telecommunications equipment industry is intense,
particularly in that portion of the industry focused on delivering higher
bandwidth and more cost effective services throughout the telecommunications
network. CIENA believes that its position as a leading supplier of open
architecture optical networking equipment and the field-tested design and
performance of its optical transport products give it a competitive advantage,
and CIENA expects to leverage that advantage in bringing its core switching
products to market. However, competition has been and will continue to be very
intense. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Risk Factors".
CIENA's competition is dominated by a small number of very large, usually
multinational, vertically integrated companies, each of which has substantially
greater financial, technical and marketing resources, and greater manufacturing
capacity as well as more established customer relationships with long distance
carriers than CIENA. Included among CIENA's competitors are Alcatel Alsthom
Group, Cisco, Fujitsu Group, Hitachi Ltd., Lucent Technologies Inc., NEC
Corporation, Nortel Networks Corporation, Siemens AG, Telefon AB LM Ericsson and
several new companies, such as ONI Systems, Sycamore Networks, Corvis Systems,
and Tellium, Inc. CIENA believes each of its major competitors is in various
stages of development, introduction or deployment of products directly
competitive with CIENA's optical transport, core switching and service delivery
systems.
In addition to optical networking equipment suppliers, traditional
TDM-based transmission equipment suppliers compete with CIENA in the market for
transmission capacity. Alcatel, Fujitsu, Hitachi, Lucent, NEC and Nortel are
already providers of a full complement of such transmission equipment. These and
other competitors have introduced or are expected to introduce equipment that
will offer 10 Gbps transmission capability.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
CIENA has licensed intellectual property from third parties, including key
enabling technologies with respect to the production of in-fiber Bragg gratings,
utilized publicly available technology associated with Erbium-doped fiber
amplifiers, and applied its design, engineering and manufacturing skills to
develop its optical transport systems. These licenses expire when the last of
the licensed patents expires or is abandoned. CIENA also licenses from third
parties some
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software components for its network management products. These licenses are
perpetual but will generally terminate after an uncured breach of the agreement
by CIENA. We have registered trademarks for CIENA, WaveWatcher, MODULE SCOPE,
CIENA Optical Communications, Multiwave and Multiwave Sentry. CIENA also relies
on contractual rights, trade secrets and copyrights to establish and protect its
proprietary rights in its products.
CIENA intends to enforce vigorously its intellectual property rights if
infringement or misappropriation occurs.
CIENA's practice is to require its employees and consultants to execute
non-disclosure and proprietary rights agreements upon commencement of employment
or consulting arrangements with CIENA. These agreements acknowledge CIENA's
exclusive ownership of all intellectual property developed by the individual
during the course of his or her work with CIENA, and require that all
proprietary information disclosed to the individual will remain confidential.
CIENA's employees generally also sign agreements not to compete with CIENA for a
period of twelve months following any termination of employment.
As of November 2000, CIENA had received fifty-eight United States patents,
and had one hundred sixteen pending U.S. patent applications. We also have a
number of foreign patents and patent applications. Of the United States patents
that have been issued to CIENA, the earliest any will expire is 2012. Pursuant
to an agreement between CIENA and General Instrument Corporation dated March 10,
1997, CIENA is a co-owner with General Instrument Corporation of a portfolio of
27 United States and foreign patents relating to optical communications,
primarily for video-on-demand applications. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk Factors".
EMPLOYEES
As of October 31, 2000, CIENA and its subsidiaries employed 2,775 persons,
of whom 527 were primarily engaged in research and development activities, 1,233
in manufacturing, 412 in installation services, 372 in sales, marketing,
customer support and related activities and 231 in administration. None of
CIENA's employees are currently represented by a labor union. CIENA considers
its relations with its employees to be good.
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UNDERWRITING
CIENA and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Morgan Stanley
& Co. Incorporated, Banc of America Securities LLC and Robertson Stephens, Inc.
are the representatives of the underwriters.
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
Goldman, Sachs & Co. ....................................... 3,619,000
Morgan Stanley & Co. Incorporated........................... 3,619,000
Banc of America Securities LLC.............................. 1,551,000
Robertson Stephens, Inc. ................................... 1,551,000
Dain Rauscher Incorporated ................................. 110,000
Lehman Brothers Inc. ....................................... 110,000
J.P. Morgan Securities Inc. ................................ 110,000
SG Cowen Securities Corporation ............................ 110,000
Wit Soundview Corporation .................................. 110,000
UBS Warburg LLC ............................................ 110,000
----------
Total.................................................. 11,000,000
==========
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,650,000 shares from CIENA to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by CIENA. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
NO EXERCISE FULL EXERCISE
----------- -------------
Per share................................................. $3.55 $3.55
Total..................................................... $39,050,000 $44,907,500
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $2.13 per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $0.10 per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
underwriters may change the offering price and the other selling terms.
CIENA and some of its officers and directors have agreed with the
underwriters not to dispose of or hedge any of our common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 90 days after the
date of this prospectus, except with the prior written consent of Goldman, Sachs
& Co. CIENA's agreement does not apply to any securities issued: (i) under
employee benefit plans or dividend reinvestment plans, (ii) upon exercise of
currently outstanding stock options, (iii) upon conversion or exchange of
currently outstanding convertible or exchangeable securities, (iv) in connection
with the acquisition of Cyras Systems, Inc. or (v) in connection with other
mergers, acquisitions or similar transactions so long as those parties agree to
be bound by the terms of the lock-up. This agreement does not restrict us from
filing a shelf registration statement which includes equity securities. CIENA
will issue approximately 27 million shares of common stock if the Cyras
acquisition is consummated, almost all of which shares will be freely tradeable.
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The common stock is quoted on the Nasdaq National Market under the symbol
"CIEN".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from the Company in the offering. The
underwriters may close out any covered short position by either exercising their
option to purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriter will consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which they may purchase
shares through the overallotment option. "Naked" short sales are sales in excess
of such option. The underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is more likely to
be created if the underwriters are concerned that there may be downward pressure
on the price of the common stock in the open market after pricing that could
adversely affect investors who purchase in the offering. Stabilizing
transactions consist of certain bids or purchases of common stock made by the
underwriters in the open market prior to the completion of the offering.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
common stock, and together with the imposition of the penalty bid, may
stabilize, maintain, or otherwise affect the market price of the common stock.
As a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time. These transactions may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
CIENA has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
CIENA estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$305,000.
Some of the underwriters have from time to time performed, and may in the
future perform, certain investment banking and advisory services for CIENA for
which they have received, and may in the future receive, customary fees and
expenses.
Lawton W. Fitt, a director of CIENA, is a Managing Director of Goldman,
Sachs & Co., one of the underwriters in this offering.
LEGAL MATTERS
Hogan & Hartson L.L.P., Baltimore, Maryland, will provide CIENA with an
opinion as to legal matters in connection with the common stock offered by this
prospectus. Certain legal matters in connection with this offering will be
passed on for the underwriters by Hale and Dorr LLP, Reston, Virginia.
EXPERTS
The consolidated financial statements of CIENA Corporation as of October
31, 2000 and 1999 and for each of the three years in the period ended October
31, 2000 incorporated in this prospectus by reference to CIENA's Annual Report
on Form 10-K for the year ended October 31, 2000, as amended January 18, 2001,
have been so incorporated in reliance on the report of
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PricewaterhouseCoopers LLP, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Cyras Systems, Inc. as of December 31, 1998 and
1999 and for the period from July 24, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, incorporated in this prospectus by
reference to the current report on Form 8-K of CIENA Corporation filed January
18, 2001, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated by reference in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC under the Securities Act a registration
statement on Form S-3. This prospectus does not contain all of the information
contained in the registration statement, certain portions of which have been
omitted under the rules of the SEC. We also file annual, quarterly and special
reports, proxy statements and other information with the SEC under the Exchange
Act. The Exchange Act file number for our SEC filings is 000-21969. You may read
and copy the registration statement and any other document we file at the
following SEC public reference rooms:
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Rm. 1024 Chicago, Illinois 60661 New York, New York 10048
Washington, D.C. 20549
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. We file information
electronically with the SEC. Our SEC filings are available from the SEC's
Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically. You may read and copy our SEC filings and other information at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents we file with
it, which means that we can disclose important information to you by referring
you to those documents instead of reproducing that information in this
prospectus. The information incorporated by reference is considered to be part
of this prospectus, and information in documents that we file later with the SEC
will automatically update and supersede information in this prospectus. We
incorporate by reference the documents listed below:
- Our Annual Report on Form 10-K for the fiscal year ended October 31,
2000, as amended on January 18, 2001;
- Our Form 8-K filed on January 18, 2001;
- All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this prospectus
and before the termination of the offering; and
- The description of common stock contained in our Form 8-A filed on
January 13, 1997, as amended.
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at: 1201 Winterson
Road, Linthicum, MD, (410) 865-8500, Attention: Director, Investor Relations.
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
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TABLE OF CONTENTS
Page
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Prospectus Summary................... 3
Risk Factors......................... 6
Forward Looking Statements........... 15
Use of Proceeds...................... 16
Price Range of Common Stock.......... 17
Dividend Policy...................... 17
Selected Consolidated
Financial Data..................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 26
Underwriting......................... 39
Legal Matters........................ 40
Experts.............................. 40
Where You Can Find
More Information................... 41
Incorporation by Reference........... 41
11,000,000 Shares
CIENA CORPORATION
Common Stock
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[Ciena logo]
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GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
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