SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 12, 2002
Date of Report (Date of earliest event reported)
CIENA Corporation
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation) |
0-21969 (Commission File No.) |
23-2725311 (IRS Employer Identification No.) |
1201 Winterson Road, Linthicum, Maryland 21090
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(410) 865-8500
Not applicable
(Former name or former address, if changed since last report)
Exhibit Index on Page 2
Item 5. Other Events.
On December 12, 2002, CIENA Corporation issued the press release attached hereto as Exhibit 99.1 concerning (1) its fourth quarter and fiscal year 2002 results and (2) the commencement of its tender offer for all of the outstanding 5% Convertible Subordinated Notes due October 15, 2005 which were originally issued by ONI Systems Corp. and assumed by CIENA pursuant to its acquisition of ONI Systems Corp. in June 2002. The press release attached hereto is incorporated herein by this reference.
Item 7. Financial Statements and Exhibits.
99.1 Press Release dated December 12, 2002.
-2-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CIENA CORPORATION
| Date:December 12, 2002 |
By: /s/ RUSSELL B. STEVENSON Russell B. Stevenson, Jr. Senior Vice President, General Counsel and Secretary |
-3-
 |
||||
| Investor Contacts: | Suzanne DuLong or Jessica Towns | |||
| CIENA Corporation | ||||
| (888) 243-6223 | ||||
| email: ir@ciena.com | ||||
| Press Contacts: | Denny Bilter or Glenn Jasper | |||
| CIENA Corporation | ||||
| (877) 857-7377 | ||||
| email: pr@ciena.com |
FOR IMMEDIATE RELEASE
CIENA Reports Fourth Quarter and Fiscal Year 2002 Results; Commences Tender
Offer to Repurchase Remaining Outstanding 5% ONI Notes
LINTHICUM, Md. – December 12, 2002 – CIENA® Corporation (NASDAQ: CIEN) today reported revenue of $61.9 million for its fourth fiscal quarter ended October 31, 2002. Under GAAP, CIENA’s reported net loss for the period was $754.8 million, or a net loss of $1.75 per share.
The quarter’s results include charges for a goodwill impairment of $557.3 million, restructuring charges of $78.7 million associated with workforce reductions, lease terminations, non-cancelable lease costs and the write-down of certain property, equipment and leasehold improvements, deferred stock compensation charges of $5.7 million, amortization of intangible assets of $3.0 million, a charge for settlement of litigation with Pirelli of $1.8 million, losses on equity investments of $9.9 million, and a $2.7 million loss related to the repurchase and early extinguishment of $97.1 million of the $300 million outstanding 5% convertible subordinated notes due in 2005 assumed in the purchase of ONI Systems. In addition, CIENA recorded a charge of $1.6 million related to excess inventory.
“Despite a challenging year, our ongoing operating results in our fiscal fourth quarter show the positive effects of the steps taken across our company over the last year to align our business with a changed environment,” said Gary Smith, CIENA’s president and CEO. “During the quarter we grew our revenue, improved gross margins and delivered lower-than-anticipated ongoing operating expenses.”
For its 2002 fiscal year, CIENA reported revenue of $361.2 million. Under GAAP, CIENA’s reported net loss for the period was $1,597.5 million, or a net loss of $4.37 per share.
The year’s results include charges for a goodwill impairment of $557.3 million, restructuring costs of $225.4 million associated with workforce reductions, lease terminations, non-cancelable lease costs and the write-down of certain property, equipment and leasehold improvements, deferred stock compensation charges of $20.3 million, a provision for doubtful accounts of $14.8 million, amortization of intangible
(more)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 2 of 8
assets of $9.0 million, a charge for settlement of litigation with Pirelli of $1.8 million, losses on equity investments of $15.7 million, and a $2.7 million loss related to the repurchase and early extinguishment of $97.1 million of the $300 million outstanding ONI 5% convertible subordinated notes due in 2005. In addition, CIENA recorded a charge of $286.5 million, primarily related to excess inventory associated with its long-haul transport products and non-cancelable purchase commitments with suppliers.
In evaluating the operating performance of its business, CIENA’s management excludes certain charges or credits that are required by GAAP. These items, which are identified in the table below, share one or more of the following characteristics: they are unusual and CIENA does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of the Company’s control.
| Quarter Ended | Fiscal Yr Ended | |||||||
| October 31, 2002 | October 31, 2002 | |||||||
| Item | (in thousands) | (in thousands) | ||||||
Payroll tax on stock options |
$ | — | $ | 38 | ||||
Deferred stock compensation costs |
5,740 | 20,324 | ||||||
Amortization of intangible assets |
3,003 | 8,972 | ||||||
Restructuring costs |
78,691 | 225,429 | ||||||
Goodwill impairment |
557,286 | 557,286 | ||||||
Pirelli litigation |
1,792 | 1,792 | ||||||
Provision for doubtful accounts |
— | 14,813 | ||||||
Loss on equity investments |
9,937 | 15,677 | ||||||
Loss on extinguishment of debt |
2,683 | 2,683 | ||||||
Income tax effect of excluding
items above |
32,493 | 334,661 | ||||||
| $ | 691,625 | $ | 1,181,675 | |||||
*Please see appendix A for additional information about this table.
These adjustments are not in accordance with GAAP and making such adjustments may not permit meaningful comparisons to other companies. As of the quarter ended October 31, 2002, CIENA’s weighted average shares outstanding were approximately 431,257,000. As of the fiscal year ended October 31, 2002, CIENA’s weighted average shares outstanding were approximately 365,202,000.
Debt Repurchase
During the fourth quarter of fiscal 2002, CIENA took steps to improve its already strong balance sheet. The Company saved $21.9 million in future principal payment by purchasing $97.1 million of the $300 million outstanding ONI 5% convertible subordinated notes due in 2005 for $75.2 million on the open market. At the time of purchase, these notes had an accreted book value of $72.5 million.
(more)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 3 of 8
In addition, CIENA today announced that it has commenced a tender offer for the outstanding 5% Convertible Subordinated Notes due October 15, 2005 originally issued by ONI Systems Corp. and assumed by CIENA in its acquisition of ONI in June 2002. CIENA’s purpose in seeking to repurchase the notes is to reduce its annual interest expense and eliminate the need to repay or refinance the debt at maturity in 2005. The tender offer is not contingent on any financing. The notes are currently convertible into CIENA common stock at a conversion rate of approximately 7.7525 shares per $1,000 principal amount held, subject to adjustment. The purchase price for the notes will be $860.00 in cash per $1,000 principal amount, plus accrued and unpaid interest up to, but not including, the date of payment.
Holders that desire to tender their notes pursuant to the offer must follow the procedures described in the Offer to Purchase and other related documents to be filed by CIENA with the Securities and Exchange Commission. These documents will be mailed to the registered holders of the notes. The tender offer will expire at 5:00 p.m., New York City time, on January 13, 2003, unless the offer is extended.
Goldman, Sachs & Co. will act as the dealer managers for the tender offer and State Street Bank and Trust Company of California, N.A. will act as depositary. Requests for copies of the Offer to Purchase and additional information concerning the terms of the tender offer or questions about the offer may be directed to Goldman, Sachs & Co., at 85 Broad Street, New York City, New York 10004, Attn: Prospectus Department, Telephone: (212) 902-1000 or to the information agent for the tender offer, Georgeson Shareholder, 17 State Street, 10th Floor, New York, New York 10004, Telephone: (866) 295-4322.
If the Company successfully purchases all of the $202.9 million outstanding ONI 5% notes at $860 per $1,000 principal amount, it will save approximately $28.4 million in future principal payment and will record a book loss of approximately $18.7 million related to the extinguishment of this debt due to the fact that the accreted book value of the notes will be less than the purchase price. The Company will use its cash and cash equivalents, and short-term investments to fund the note purchase.
Business Outlook
“We are encouraged by the order activity we have seen thus far in our fiscal first quarter and expect that revenue in the quarter could increase by as much as 10 percent from our fiscal 2002 fourth quarter,” said Smith. “In addition, we expect to make continued progress toward profitability through our ongoing efforts to improve gross margin and to lower ongoing operating expenses.”
(more)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 4 of 8
“The telecom equipment market has changed radically in just the last 12 months,” continued Smith. “While challenging, this change has created opportunity for those positioned to pursue it. CIENA’s financial strength and our commitment to continued investment in our business differentiates us from our competitors, many of whom are experiencing financial and directional uncertainty.”
“As a result, we believe CIENA has an opportunity to achieve growth in 2003 despite decreased carrier spending,” concluded Smith. “In addition to working toward increased market share, we are pursuing feature additions and product extensions, and developing new sales channels, to increase our addressable market.”
Live Web Broadcast of Q4 and Fiscal Year 2002 Results
CIENA will host a discussion of its fiscal fourth quarter and fiscal year 2002
results with investors and financial analysts on Thursday, December 12, 2002 at
8:30 a.m. (Eastern). The live broadcast of the discussion will be available via
CIENA’s homepage at www.CIENA.com. An archived version of the discussion will
be available shortly following the conclusion of the live broadcast on the
Investor Relations page of CIENA’s website at: www.CIENA.com/investors.
NOTE TO CIENA INVESTORS
This press release contains certain forward-looking statements based on current
expectations, forecasts and assumptions of CIENA (the Company) that involve
risks and uncertainties. Forward-looking statements in this release, including
if the Company successfully purchases all of the $202.9 million outstanding 5%
notes at $860 per $1,000 principal amount, it will save approximately $28.4
million in future principal payment and will record a book loss of
approximately $18.7 million related to the extinguishment of this debt due to
the fact that the accreted book value of the notes will be less than the
purchase price, the Company will use its cash and cash equivalents, and
short-term investments to fund the note purchase, we are encouraged by the
order activity we have seen thus far in our fiscal first quarter and expect
that revenue in the quarter could increase by as much as 10 percent from our
fiscal 2002 fourth quarter, in addition, we expect to make continued progress
toward profitability through our ongoing efforts to improve gross margin and to
lower ongoing operating expenses, the telecom equipment market has changed
radically in just the last 12 months, while challenging, this change has
created opportunity for those positioned to pursue it, CIENA’s financial
strength and our commitment to continued investment in our business
differentiates us from our competitors, many of whom are experiencing financial
and directional uncertainty, as a result, we believe CIENA has an opportunity
to achieve growth in 2003 despite decreased carrier spending, in addition to
working toward increased market share, we are pursuing feature additions and
product extensions, and developing new sales channels, to increase our
addressable market, are based on information available to the Company as of the
date hereof. The Company’s actual results could differ materially from those
stated or implied in such forward-looking statements, due to risks and
uncertainties associated with the Company’s business, which include the risk
factors disclosed in the Company’s Report on Form 10-K filed with the
Securities and Exchange Commission on December 12, 2002. Forward-looking
statements include statements regarding the Company’s expectations, beliefs,
intentions or strategies regarding the future and can be identified by
forward-looking words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “intend,” “may,” “should,” “will,” and “would” or similar words. The
Company assumes no obligation to update the information included in this press
release, whether as a result of new information, future events or otherwise.
(more)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 5 of 8
THIS PRESS RELEASE IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SECURITIES. CIENA PLANS TO FILE A SCHEDULE TO (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER TENDER OFFER DOCUMENTS) TODAY WITH THE SEC WITH REGARD TO ITS OFFER TO PURCHASE THE NOTES.
SECURITY HOLDERS ARE URGED TO READ THE OFFER TO PURCHASE, RELATED LETTER OF TRANSMITTAL AND THE OTHER TENDER OFFER DOCUMENTS TO BE FILED BY CIENA WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. THE OFFER TO PURCHASE, RELATED LETTER OF TRANSMITTAL AND THE OTHER TENDER OFFER DOCUMENTS FILED WITH THE SEC BY CIENA MAY BE OBTAINED WHEN THEY BECOME AVAILABLE FOR FREE AT THE SEC’S WEB SITE, WWW.SEC.GOV. REQUESTS FOR COPIES OF THE OFFER TO PURCHASE, THE RELATED LETTER OF TRANSMITTAL AND THE OTHER TENDER OFFER DOCUMENTS OR QUESTIONS ABOUT THE OFFER MAY BE DIRECTED TO THE DEALER MANAGERS FOR THE OFFER, GOLDMAN, SACHS & CO., AT 85 BROAD STREET, NEW YORK CITY, NEW YORK 10004, ATTN: PROSPECTUS DEPARTMENT, TELEPHONE: (212) 902-1000 OR THE INFORMATION AGENT FOR THE OFFER, GEORGESON SHAREHOLDER, 17 STATE STREET, 10TH FLOOR, NEW YORK, NEW YORK 10004, TELEPHONE: (866) 295-4322.
(Condensed Consolidated Balance Sheets and Consolidated Statements of Operations follow)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 6 of 8
CIENA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| October 31, | ||||||||||||
| 2001 | 2002 | |||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 397,890 | $ | 377,189 | ||||||||
Short-term investments |
902,594 | 1,130,414 | ||||||||||
Accounts receivable, net |
395,063 | 28,680 | ||||||||||
Inventories, net |
254,968 | 47,023 | ||||||||||
Deferred income taxes |
186,861 | — | ||||||||||
Prepaid expenses and other |
53,713 | 54,351 | ||||||||||
Total current assets |
2,191,089 | 1,637,657 | ||||||||||
Long-term investments |
494,657 | 570,861 | ||||||||||
Equipment, furniture and fixtures, net |
331,490 | 196,951 | ||||||||||
Goodwill |
178,891 | 212,500 | ||||||||||
Other intangible assets, net |
47,874 | 62,457 | ||||||||||
Other long-term assets |
73,300 | 70,596 | ||||||||||
Total assets |
$ | 3,317,301 | $ | 2,751,022 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 68,735 | $ | 39,841 | ||||||||
Accrued liabilities |
133,084 | 132,588 | ||||||||||
Restructuring liabilities |
15,439 | 27,423 | ||||||||||
Unfavorable lease commitments |
— | 7,630 | ||||||||||
Income taxes payable |
6,649 | — | ||||||||||
Deferred revenue |
29,480 | 15,388 | ||||||||||
Other current obligations |
995 | 948 | ||||||||||
Total current liabilities |
254,382 | 223,818 | ||||||||||
Deferred income taxes |
64,072 | — | ||||||||||
Long-term deferred revenue |
— | 15,444 | ||||||||||
Long-term restructuring liabilities |
— | 65,742 | ||||||||||
Long-term unfavorable lease commitments |
— | 70,124 | ||||||||||
Other long-term obligations |
5,982 | 5,009 | ||||||||||
Convertible notes payable |
863,883 | 843,616 | ||||||||||
Total liabilities |
1,188,319 | 1,223,753 | ||||||||||
Commitments and contingencies |
||||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares |
||||||||||||
issued and outstanding |
— | — | ||||||||||
Common stock – par value $0.01; 980,000,000 shares authorized; |
||||||||||||
328,022,264 and 432,842,481 shares issued and outstanding |
3,280 | 4,328 | ||||||||||
Additional paid-in capital |
3,667,512 | 4,658,882 | ||||||||||
Notes receivable from stockholders |
(3,236 | ) | (3,866 | ) | ||||||||
Accumulated other comprehensive income |
4,842 | 8,840 | ||||||||||
Accumulated deficit |
(1,543,416 | ) | (3,140,915 | ) | ||||||||
Total stockholder’s equity |
2,128,982 | 1,527,269 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 3,317,301 | $ | 2,751,022 | ||||||||
(more)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 7 of 8
CIENA CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except share and per share data)
(unaudited)
| Quarter Ended October 31, | Years Ended October 31, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
Revenue |
$ | 367,774 | $ | 61,918 | $ | 1,603,229 | $ | 361,155 | ||||||||||
Excess and obsolete inventory costs |
16,586 | 1,592 | 68,411 | 286,475 | ||||||||||||||
Cost of goods sold |
204,968 | 51,801 | 836,138 | 309,559 | ||||||||||||||
Gross profit (loss) |
146,220 | 8,525 | 698,680 | (234,879 | ) | |||||||||||||
Operating Expenses |
||||||||||||||||||
Research and development (1) |
73,195 | 61,355 | 235,831 | 239,619 | ||||||||||||||
Selling and marketing (2) |
38,909 | 32,012 | 146,949 | 130,276 | ||||||||||||||
General and administrative (3) |
15,143 | 13,091 | 57,865 | 50,820 | ||||||||||||||
Deferred stock compensation costs |
16,401 | 5,740 | 41,367 | 20,324 | ||||||||||||||
Amortization of goodwill |
75,873 | — | 177,786 | — | ||||||||||||||
Amortization of intangible assets |
1,922 | 3,003 | 4,413 | 8,972 | ||||||||||||||
In-process research and development |
— | — | 45,900 | — | ||||||||||||||
Restructuring costs |
15,439 | 78,691 | 15,439 | 225,429 | ||||||||||||||
Goodwill impairment |
1,719,426 | 557,286 | 1,719,426 | 557,286 | ||||||||||||||
Pirelli litigation |
— | 1,792 | — | 1,792 | ||||||||||||||
Provision for doubtful accounts |
— | — | (6,579 | ) | 14,813 | |||||||||||||
Total operating expenses |
1,956,308 | 752,970 | 2,438,397 | 1,249,331 | ||||||||||||||
Loss from operations |
(1,810,088 | ) | (744,445 | ) | (1,739,717 | ) | (1,484,210 | ) | ||||||||||
Interest and other income (expense), net |
18,756 | 16,370 | 63,579 | 61,145 | ||||||||||||||
Interest expense |
(12,098 | ) | (15,583 | ) | (30,591 | ) | (45,339 | ) | ||||||||||
Loss on equity investments, net |
— | (9,937 | ) | — | (15,677 | ) | ||||||||||||
Loss on extinguishment of debt |
— | (2,683 | ) | — | (2,683 | ) | ||||||||||||
Income (loss) before income taxes |
(1,803,430 | ) | (756,278 | ) | (1,706,729 | ) | (1,486,764 | ) | ||||||||||
Provision (benefit) for income taxes |
(1,148 | ) | (1,508 | ) | 87,333 | 110,735 | ||||||||||||
Net income (loss) |
$ | (1,802,282 | ) | $ | (754,770 | ) | $ | (1,794,062 | ) | $ | (1,597,499 | ) | ||||||
Basic net income (loss) per common share |
$ | (5.51 | ) | $ | (1.75 | ) | $ | (5.75 | ) | $ | (4.37 | ) | ||||||
Diluted net income (loss) per common and |
||||||||||||||||||
dilutive potential common share |
$ | (5.51 | ) | $ | (1.75 | ) | $ | (5.75 | ) | $ | (4.37 | ) | ||||||
Weighted average basic common shares |
||||||||||||||||||
outstanding |
326,834 | 431,257 | 311,815 | 365,202 | ||||||||||||||
Weighted average basic common and dilutive |
||||||||||||||||||
potential common shares outstanding |
326,834 | 431,257 | 311,815 | 365,202 | ||||||||||||||
| (1) | Exclusive of $9,647, $4,396, $17,783 and $15,672 deferred stock compensation costs for quarters ended Oct. 31, 2001, Oct. 31, 2002 and years ended Oct. 31, 2001 and Oct. 31 2002, respectively. | |
| (2) | Exclusive of $959, $911, $8,378 and $3,560 deferred stock compensation costs for quarters ended Oct. 31, 2001, Oct. 31, 2002 and years ended Oct. 31, 2001 and Oct. 31 2002, respectively. | |
| (3) | Exclusive of $5,795, $433, $15,206 and $1,092 deferred stock compensation costs for quarters ended Oct. 31, 2001, Oct. 31, 2002 and years ended Oct. 31, 2001 and Oct. 31 2002, respectively. |
(more)
CIENA Reports Q4 and Fiscal 2002 Results; Commences Tender Offer/December 12, 2002/Page 7 of 8
Appendix A
The adjustments management makes in analyzing CIENA’s fourth quarter and fiscal year GAAP results are as follows:
| • | Payroll tax on stock options – an uncontrollable expense, largely unrelated to normal operations, that fluctuates significantly depending largely on the price of our stock and the magnitude of option exercises in a given period. | ||
| • | Deferred stock compensation costs – a non-cash expense largely unrelated to normal operations, and which arises under GAAP accounting from the assumption of unvested stock options issued by any companies we acquire, including Cyras and ONI. | ||
| • | Amortization of intangible asset – a non-cash expense unrelated to normal operations arising from acquisitions of intangible assets, principally developed technology acquired in the Cyras and ONI acquisitions which CIENA is required to amortize over its expected useful life. | ||
| • | Restructuring costs – non-recurring charges, unrelated to normal operations, incurred as a result of reducing the size of the Company’s operations to align its resources with the reduced size of the telecommunications market. | ||
| • | Goodwill impairment – a non-cash expense unrelated to normal operations. | ||
| • | Pirelli litigation – a non-recurring expense, unrelated to normal operations. | ||
| • | Provision for doubtful accounts – non-recurring charges that are outside of the Company’s control that arise when our customers’ ability to pay is in doubt. In recent periods primarily related to the financial health of service provider customers. | ||
| • | Loss on equity investments – a decline in the fair market value of an equity investment that is determined to be other-than-temporary. | ||
| • | Loss on debt extinguishment – a non-recurring expense, unrelated to normal operations. | ||
| • | Income tax effect – the income tax charge or benefit on the adjusted net loss, which is a necessary adjustment for consistency. |
ABOUT CIENA
CIENA Corporation’s market-leading intelligent optical networking systems form
the core for the new era of networks and services worldwide. CIENA’s
LightWorks™ architecture enables next-generation optical services and changes
the fundamental economics of service-provider networks by simplifying the
network and reducing the cost to operate it. Additional information about CIENA
can be found at www.CIENA.com.
###