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UNITED STATES
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
MARCH 31, 1999
Date of Report (Date of earliest event reported)
CIENA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-21969 23-2725311
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File No.) Identification No.)
1201 WINTERSON ROAD, LINTHICUM, MD 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 33
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ITEM 5. OTHER EVENTS
This current report on Form 8-K provides supplemental financial
information pertaining to the retroactive effect of the March 31, 1999 business
combination of CIENA Corporation and Lightera Networks, Inc., which was
accounted for under the pooling of interest method of accounting.
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following selected supplemental consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the supplemental consolidated financial
statements and the notes thereto included in "Supplemental Financial Statements
and Supplementary Data".
YEAR ENDED OCTOBER 31,(1)
1994 1995 1996 1997 1998
----------------- ------------- --------------- ----------------- ----------------
(in thousands except share and per share data)
STATEMENT OF OPERATIONS DATA:
Revenue ................................. $ 20,890 $ 21,691 $ 88,463 $ 413,215 $ 508,087
Cost of goods sold....................... 15,638 16,185 47,315 166,472 256,014
---------------- -------------- ---------------- ----------------- ----------------
Gross profit .......................... 5,252 5,506 41,148 246,743 252,073
Operating expenses:
Research and development............... 1,287 6,361 8,922 23,308 67,090
Selling and marketing.................. 1,339 1,907 5,641 22,627 46,220
General and administrative............. 2,352 3,034 6,422 11,823 18,515
Purchased research and development... - - - - 9,503
Pirelli litigation..................... - - - 7,500 30,579
Costs of proposed merger............... - - - - 2,548
---------------- -------------- ---------------- ----------------- ----------------
Total operating expenses................. 4,978 11,302 20,985 65,258 174,455
---------------- -------------- ---------------- ----------------- ----------------
Income (loss) from operations............ 274 (5,796) 20,163 181,485 77,618
Other income (expense), net.............. (180) 172 653 7,185 12,610
---------------- -------------- ---------------- ----------------- ----------------
Income (loss) before income taxes........ 94 (5,624) 20,816 188,670 90,228
Provision for income taxes............... 942 824 3,553 72,703 39,115
---------------- -------------- ---------------- ----------------- ----------------
Net income (loss)........................ $ (848) $ (6,448) $ 17,263 $ 115,967 $ 51,113
================ ============== ================ ================= ================
Basic net income (loss) per common share $ (0.12) $ (0.51) $ 1.25 $ 1.53 $ 0.46
================ ============== ================ ================= ================
Diluted net income (loss) per common share
and dilutive potential common share.. $ (0.12) $ (0.51) $ 0.19 $ 1.11 $ 0.44
================ ============== ================ ================= ================
Weighted average basic common shares
outstanding......................... 7,317 12,717 13,817 75,802 110,593
================ ============== ================ ================= ================
Weighted average basic common and
dilutive potential common shares
outstanding......................... 7,317 12,717 92,407 104,664 117,150
================ ============== ================ ================= ================
OCTOBER 31, (1)
1994 1995 1996 1997 1998
----------------- ---------------- ---------------- --------------- -------------
BALANCE SHEET DATA: (in thousands)
Cash and cash equivalents............ $ 4,440 $ 8,261 $ 24,040 $ 268,588 $ 239,780
Working capital........................ 5,485 7,221 42,240 333,452 379,257
Total assets.............................. 12,076 17,706 79,676 463,279 587,566
Long-term obligations, excluding
current portion........................ 1,901 2,074 3,465 1,885 2,257
Mandatorily redeemable preferred stock 3,492 14,454 40,404 - -
Stockholders' equity (deficit)......... (300) (6,662) 10,783 372,414 488,785
(1) The Company 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 1994, 1995, 1997, and 1998 comprised
52 weeks and fiscal 1996 comprised 53 weeks.
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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 Supplemental Consolidated Financial Data" and the Company's
supplemental consolidated financial statements and notes thereto included
elsewhere in this report on Form 8-K. The information in this Form 8-K contains
certain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, risk factors disclosed in the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1998 and risk factors contained
in the Company's quarterly reports on Form 10-Q and current reports on Form 8-K
files thereafter. The information presented in this report is presented as of
October 31, 1998 and has not been updated or changed to reflect any events
subsequent to that date, other than the acquisition of Lightera Networks, Inc.
OVERVIEW
This management discussion and analysis of financial condition and results
of operations has been restated to give retroactive effect to the Company's
March 1999 acquisition of Lightera Networks, Inc., ("Lightera"), a U.S. company
headquartered in Cupertino, California, in a transaction valued at approximately
$463.5 million. Lightera is a developer of carrier class optical core switches.
Under the terms of the agreement, the Company acquired all of the outstanding
shares and stock options of Lightera in exchange for approximately 17.5 million
shares of CIENA common stock and 3.1 million stock options of CIENA. The
transaction constituted a tax-free reorganization and has been accounted for as
a pooling of interest under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Lightera as though it had been a part of CIENA.
CIENA Corporation designs, manufactures and sells open architecture, DWDM
systems for fiberoptic communications networks, including long-distance and
local exchange carriers. CIENA also provides a range of engineering, furnishing
and installation services for telecommunications service providers.
Fiscal 1998 was a year of dramatic events affecting the Company. Soon
after the close of the first fiscal quarter, MCIWorldCom, the Company's largest
customer of fiscal 1997, surprised the Company with an announcement of a major
change in purchasing practices - a change that meant materially reduced revenue
for the Company. This adverse event was followed in the second quarter by the
Company's successful, large scale commercial introduction of the Company's
industry leading 40-channel MultiWave Sentry 4000. The third quarter included
resolution of the Company's longstanding Pirelli SpA ("Pirelli") litigation,
which was followed on June 3, 1998 with the announcement of a planned merger
with Tellabs, Inc. In the fourth quarter, just prior to consummation of the
merger, AT&T advised the Company that it would no longer consider CIENA's long
distance DWDM products for deployment in AT&T's network. The planned merger with
Tellabs was later terminated on September 14, 1998.
The Company's final results for fiscal 1998, its second full year in the
DWDM marketplace, show total revenues in excess of $500 million. The Company
believes this represents a considerable achievement, particularly given the
substantial portion of revenues derived from the sale of its now
third-generation DWDM product, the MultiWave Sentry 4000. Nevertheless, the
termination of the Tellabs merger represented a setback for the Company.
The outlook for fiscal 1999 is challenging. The price discounting offered
by competitors striving to catch up to the Company and acquire market share has
placed pressure on gross margins and operating profitability. But market demand
for high-bandwidth solutions still appears robust, and the Company believes that
its product and service quality, manufacturing experience, and proven track
record of delivery will enable it to endure the gross margin pressure while it
concentrates on efforts to reduce product costs and maximize production
efficiencies. The Company intends to continue this strategy in order to preserve
and enhance market leadership and eventually build on its installed base with
new and additional products. Pursuit of this strategy, in conjunction with
increased investments in selling, marketing, and customer service activities,
will likely limit the Company's operating profitability over at least the first
half of fiscal 1999, and may result in near term operating losses.
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HIGHLIGHTS OF THE FISCAL YEAR 1998
The Company recognizes product revenue in accordance with the shipping
terms specified. For transactions where the Company has yet to obtain customer
acceptance, revenue is deferred until the terms of acceptance are satisfied.
Revenue for installation services is recognized as the services are performed
unless the terms of the supply contract combine product acceptance with
installation, in which case revenues for installation services are recognized
when the terms of acceptance are satisfied and installation is completed.
Revenues from installation service fixed price contracts are recognized on the
percentage of costs incurred to date compared to estimated total costs for each
contract. Amounts received in excess of revenue recognized are recorded as
deferred revenue. For distributor sales where risks of ownership have not
transferred, the Company recognizes revenue when the product is shipped to the
end user.
For the fiscal year ended October 31, 1998, the Company recorded $508.1
million in revenue of which $266.9 million was from sales to Sprint. The Company
increased the total number of customers for DWDM systems from five customers in
fiscal 1997 to fourteen customers in fiscal 1998. Revenue from sales to WorldCom
declined from approximately $184.5 million in fiscal 1997 to an amount less than
10% of the Company's total fiscal 1998 revenue. Substantially all of the revenue
recognized from the sales to WorldCom occurred in the Company's first quarter
ended January 31, 1998. In addition to Sprint and WorldCom, during the fiscal
year ended October 31, 1998 the Company recognized revenue from Cable and
Wireless; Hermes; Enron; Racal; Telia of Sweden; TD of France; DTI; GST; and,
through the Company's distributor, NISSHO Electronics Corporation ("NISSHO"),
sales to Teleway, Japan Telecom and to DDI. The Company also recognized an
immaterial amount of revenue from one undisclosed customer.
During December 1997 the Company acquired Astracom, an early stage
telecommunications company located in Atlanta, Georgia. The employees of
Astracom were immediately deployed to assist with the Company's development
efforts from its MultiWave Metro product. The purchase price was approximately
$13.1 million and consisted of the issuance of 169,754 shares of CIENA common
stock, the payment of $2.4 million in cash, and the assumption of certain stock
options. The transaction was recorded using the purchase accounting method with
the purchase price representing approximately $11.4 million in goodwill and
other intangibles, and approximately $1.7 million in net assets assumed. The
amortization period for the intangibles, based on management's estimate of the
useful life of the acquired technology, is five years.
In February 1998 the Company acquired Alta, a Canadian corporation
headquartered near Atlanta, Georgia, in a transaction valued at approximately
$52.5 million. Alta provides a range of engineering, furnishing and installation
services for telecommunications service providers in the areas of transport,
switching and wireless communications. Under the terms of the agreement, the
Company acquired all of the outstanding shares of Alta in exchange for 1,000,000
shares of CIENA common stock. The transaction constituted a tax-free
reorganization and has been accounted for as a pooling of interest under
Accounting Principles Board Opinion No. 16. Accordingly, all prior period
consolidated financial statements presented have been restated to include the
combined results of operations, financial position and cash flows of Alta as
though it had always been a part of CIENA.
In March 1998 the Company announced an agreement to supply Bell Atlantic
with DWDM optical transmission systems. The supply agreement has no minimum
purchase commitments and includes the Company's MultiWave 1600, Sentry and
Firefly systems. Deployment and revenue recognition is expected in the first
half of calendar 1999, subject to successful completion of ongoing testing. The
Bell Atlantic DWDM deployment is expected to mark the first time a RBOC has
committed to deployment of DWDM equipment.
During April 1998 the Company acquired Terabit, a developer of optical
components known as photodetectors or optical receivers. The Company believes
the technology currently under development at Terabit may give it a strategic
advantage over its competitors. Terabit is located in Santa Barbara, California.
The purchase price was approximately $11.5 million and consisted of the issuance
of 134,390 shares of CIENA common stock, the payment of $1.1 million in cash,
and the assumption of certain stock options. The transaction was recorded using
the purchase accounting method with the purchase price representing
approximately $9.5 million in purchased research and development, $1.8 million
in goodwill and other intangibles, and approximately $0.2 million in net assets
assumed. The amortization period for the intangibles, based on management's
estimate of the useful life of the acquired technology, is five years.
From December 1996 until June 1998, the Company was involved in litigation
with Pirelli. On June 1, 1998, the Company announced the resolution of all
pending litigation with Pirelli. The terms of the settlement involved the
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dismissal of Pirelli's three lawsuits against the Company that were pending in
Delaware, dismissal of the Company's legal proceedings against Pirelli in the
United States International Trade Commission, payment to Pirelli of $30.0
million and certain running royalties, a worldwide, non-exclusive cross-license
to each party's patent portfolios, and a 5-year moratorium on future litigation
between the parties. The Company recorded a charge of approximately $30.6
million for the year ended October 31, 1998, relating to legal fees and the
ultimate settlement to Pirelli. The payment of future royalties due to Pirelli
is based upon future revenues derived from the licensed technology. The Company
does not expect the future royalty payments to have a material impact on the
Company's business, financial condition or results of operations.
On June 3, 1998 the Company announced an agreement to merge with Tellabs,
Inc. ("Tellabs"), a Delaware corporation headquartered in Lisle, Illinois.
Tellabs designs, manufactures, markets and services voice and data transport
network access systems. Under the terms of the original agreement, all
outstanding shares of CIENA stock were to have been exchanged at the ratio of
one share of Tellabs common stock for each share of CIENA common stock. On
August 21, 1998 the Company was informed by AT&T that AT&T had decided not to
pursue further evaluation of CIENA's DWDM systems. Following the impact of the
AT&T announcement on the market prices of the common stock of the respective
companies, the Company and Tellabs management renegotiated the terms of the
merger agreement, and on August 28, 1998 announced an amendment to the original
merger agreement which was approved by the respective companys' boards of
directors. Under the terms of the agreement as amended, all outstanding shares
of CIENA stock were to have been exchanged at the ratio of 0.8 share of Tellabs
common stock for each share of CIENA common stock. Subsequent to August 28,
1998, further adverse investor reaction raised serious questions about the
ultimate ability to obtain shareholder approval for the merger. An agreement to
terminate the merger was announced on September 14, 1998.
In June 1998 at the SUPERCOMM trade show in Atlanta, Georgia, the Company
demonstrated its MultiWave Metro(TM) ("Metro") DWDM system for metropolitan and
local access applications. Metro enables carriers to offer multi-protocol
high-bandwidth services economically using their existing network
infrastructure. The Metro product is expected to be commercially available by
the first quarter of calendar 1999. The Company also demonstrated at the
SUPERCOM trade show a 96 channel DWDM system. The 96 channel DWDM system is
expected to be commercially available during the first half of calendar 1999.
The Company had previously announced that AT&T was evaluating a customized
version of its MultiWave 1600 Sentry system. In July 1998 AT&T indicated to the
Company that capacity requirements of its network had grown to such extent that
the delays in final certification and approval for deployment of the Company's
customized 16 channel system would make actual deployment of that system
inadvisable, and that AT&T would accordingly shift to an accelerated evaluation
of commercially available, higher channel count systems. The Company believed
AT&T would evaluate the Company's MultiWave(R) 4000 system positively in this
context, particularly because the Company believes it is the only manufacturer
in the world with operational 40 channel systems ready for prompt delivery on an
"off-the -shelf" basis in substantial manufacturing volumes. However, on August
21, 1998 the Company was informed by AT&T that AT&T had decided not to pursue
further evaluation of CIENA's DWDM systems.
During the first quarter of 1998 the Company continued its effort to
expand its manufacturing capabilities by leasing an additional facility of
approximately 35,000 square feet located in the Linthicum, Maryland area. This
facility is used for manufacturing and customer service activities. In April
1998 the Company leased an additional manufacturing facility in the Linthicum
area of approximately 57,000 square feet. With the addition of this new facility
the Company has a total of four facilities with approximately 210,000 square
feet that can be used for manufacturing operations. In April 1998 the Company
completed the transfer of its principal executive, sales, and marketing
functions located in Linthicum in a portion of its 96,000 square foot facility
to an approximately 68,000 square foot facility also located in Linthicum.
During the third quarter of 1998, the Company completed the process of
renovating the vacated portions of the 96,000 square foot facility for the
purpose of accommodating expanding research and development functions.
As of October 31, 1998 the Company and its subsidiaries employed
approximately 1,432 persons, which was an increase of 591 persons over the
approximate 841 employed on October 31, 1997.
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RESULTS OF OPERATIONS
FISCAL YEARS ENDED 1996, 1997 AND 1998
REVENUE. The Company recognized $508.1 million, $413.2 million and $88.5
million in revenue for the years ended October 31, 1998, 1997 and 1996,
respectively. Sales to Sprint accounted for $266.9 million (52.5%), $179.4
million (43.4%) and $54.8 million (62.0%), of the Company's revenue during
fiscal 1998, 1997 and 1996, respectively. While WorldCom accounted for $184.5
million (44.7%) of the Company's revenue during fiscal 1997, it was not a
significant contributor to fiscal 1998 revenues. There were no other customers
who accounted for 10% or more of the Company's revenues during fiscal 1998, 1997
and 1996. Revenue derived from foreign sales accounted for approximately 23.0%,
2.8%. and 4.0% of the Company's revenues during fiscal 1998, 1997 and 1996,
respectively.
The Company expects Sprint's purchases in fiscal 1999 to be focused
primarily on filling out installed systems with additional channel cards and
therefore substantially below the purchasing volume in either of the last two
years. The Company also expects the percentage of fiscal 1999 revenue derived
from foreign sales to increase relative to fiscal 1998. Based on overall new bid
activity as well as expected deployment plans of existing customers, the Company
believes revenue growth in fiscal 1999 over fiscal 1998 is possible, but will be
highly dependent on winning new bids for shipments from new and existing
customers during the year. Competition of new bids is intense, and there is no
assurance the Company will be successful in winning enough new bids and new
customers to achieve year over year sequential growth.
The Company began shipping MultiWave 1600 systems for field testing in May
1996 with customer acceptance by Sprint occurring in July 1996. For fiscal years
1996 and 1997 all of the Company's DWDM system revenues were derived form the
MultiWave 1600 product. During fiscal 1998 the Company began shipments of and
recognized revenues from sales of MultiWave Sentry 1600, MultiWave Firefly, and
MultiWave Sentry 4000 systems. The amount of revenue recognized from MultiWave
1600 sales declined in fiscal 1998 as compared to fiscal 1997. This decline in
MultiWave 1600 sales in fiscal 1998 was offset by revenue recognized from sales
of MultiWave Sentry 1600, MultiWave Firefly, and MultiWave Sentry 4000 systems.
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 the Company's
manufacturing and engineering, furnishing and installation operations. Gross
profit was $252.1 million, $246.7 million and $41.1 million for fiscal years
1998, 1997, and 1996, respectively. Gross margin was 49.6%, 59.7%, and 46.5% for
fiscal 1998, 1997, and 1996, respectively. The increase in gross profit from
fiscal 1997 to fiscal 1998 was attributable to increased revenues. The decrease
in gross margin percentage from fiscal 1997 to fiscal 1998 was largely
attributable to lower selling prices. The increase in gross margin percentage
from fiscal 1996 to fiscal 1997 was primarily the result of a change in product
mix from revenues largely derived from lower margin engineering, furnishing and
installation sales to higher margin MultiWave product sales. This year to year
increase was also attributable to fixed overhead costs being allocated over a
larger revenue base, an improvement in manufacturing efficiencies, and
reductions in component costs.
The Company's gross margins may be affected by a number of factors,
including continued competitive market pricing, lower manufacturing volumes and
efficiencies and fluctuations in component costs. During fiscal 1999, the
Company expects to face continued pressure on gross margins, primarily as a
result of substantial price discounting by competitors seeking to acquire market
share.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$67.1 million, $23.3 million, and $8.9 million for fiscal 1998, 1997, and 1996,
respectively. The approximate $43.8 million or 188% increase from fiscal 1997 to
1998 and the approximate $14.4 million or 161% increase from fiscal 1996 to
fiscal 1997 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 1998, 1997, and 1996 research and development
expenses were 13.2%, 5.6%, and 10.1% of revenue, respectively. The Company
expects that its research and development expenditures will continue to increase
moderately in absolute dollars and perhaps as a percentage of revenue during
fiscal 1999 to support the continued development of the various DWDM products,
the exploration of new or complementary technologies, and the pursuit of various
cost reduction strategies. The Company has expensed research and development
costs as incurred.
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SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $46.2
million, $22.6 million, and $5.6 million for fiscal 1998, 1997, and 1996,
respectively. The approximate $23.6 million or 104% increase from fiscal 1997 to
1998 and the approximate $17.0 million or 301% increase from fiscal 1996 to
fiscal 1997 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 1998, 1997, and 1996 selling and marketing
expenses were 9.1%, 5.5%, and 6.4% of revenue, respectively. The Company
anticipates that its selling and marketing expenses may increase in absolute
dollars and perhaps as a percentage of revenue during fiscal 1999 as additional
personnel are hired and additional offices are opened to allow the Company to
pursue new customers and market opportunities. The Company also expects the
portion of selling and marketing expenses attributable to technical assistance
and field support, specifically in Europe and Asia, will increase as the
Company's installed base of operational MultiWave systems increases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $18.5 million, $11.8 million, and $6.4 million for fiscal 1998, 1997, and
1996, respectively. The approximate $6.7 million or 56.6% increase from fiscal
1997 to 1998 and the approximate $5.4 million or 84.1% increase from fiscal 1996
to fiscal 1997 in general and administrative expenses was primarily the result
of increased staffing levels and outside consulting services. During fiscal
1998, 1997 and 1996, general and administrative expenses were 3.6%, 2.9%, and
7.3% of revenue, respectively. The Company believes that its general and
administrative expenses will moderately increase in absolute dollars and perhaps
as a percentage of revenue during fiscal 1999 as a result of the expansion of
the Company's administrative staff required to support its expanding operations.
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. The Pirelli
litigation expense in fiscal 1997 was primarily the result of a $7.5 million
charge for actual and estimated legal and related costs associated with the
litigation.
COSTS OF PROPOSED MERGER. The costs of the proposed merger for fiscal 1998
were costs related to the contemplated merger between the Company 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.
OPERATING PROFIT. The Company's operating profit for fiscal 1998, 1997 and
1996 was $77.6 million or 15.3% of revenue, $181.5 million or 43.9% and $20.2
million or 22.8%, respectively. Excluding charges for purchased research and
development, Pirelli litigation and costs from the proposed Tellabs merger
fiscal 1998 operating profit was $120.2 million or 23.7% of revenue and
excluding Pirelli litigation costs in fiscal 1997 operating profit was $189.0
million or 45.7%. The decrease in operating profit and operating margin from
fiscal 1997 to fiscal 1998 was due to increased competitive pricing pressures
causing a reduction in gross profit margin and increased operating expenses from
investments in operating infrastructure. The year to year increases in operating
profits from fiscal 1996 to fiscal 1997 was primarily due to the comparable
increases in revenues and gross profits derived from the Company's MultiWave
systems. If the Company is unable to convert fiscal 1998 investments in
operating infrastructure into significant revenue generating relationships, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of
interest income earned on the Company's cash, cash equivalents and marketable
debt securities, net of interest expense associated with the Company's debt
obligations. Other income (expense), net, was $12.6 million, $7.2 million, and
$0.7 million for fiscal 1998, 1997, and 1996, respectively. The year to year
increase in other income (expense), net, was primarily the result of the
investment of the net proceeds of the Company's stock offerings and net
earnings.
PROVISION FOR INCOME TAXES. During fiscal 1996, the Company received
product acceptance from its initial customer and commenced profitable
operations, at which time the Company reversed its previously established
deferred tax valuation allowance. The provision for income taxes for fiscal 1996
of $3.6 million is net of a tax benefit of approximately $4.6 million related to
the reversal of the deferred tax valuation allowance. The Company's provision
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for income taxes was 38.5% of pre-tax earnings, or $72.7 million for fiscal 1997
and was 43.4% of pre-tax earnings, or $39.1 million for fiscal 1998. The
increase in the tax rate from fiscal 1997 to fiscal 1998 was primarily the
result of charges for purchased research and development expenses recorded in
fiscal 1998 and an adjustment to the estimated prior year state income tax
liability associated with Alta operations. Purchase research and development
charges are not deductible for tax purposes. Exclusive of the effect of these
charges, the Company's provision for income taxes was 38.4% of income before
income taxes in fiscal 1998. The decrease in tax rate, exclusive of the above
charges, for fiscal 1998 compared to fiscal 1997 was the result of a lower
combined effective state income tax expense, a larger benefit from the Company's
Foreign Sales Corporation and an increase in expected credits derived from
research and development activities offset by an increase in non-deductible
goodwill amortization expense.
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Quarterly Results of Operations
The tables below set forth the operating results and percentage of revenue
represented by certain items in the Company's statements of operations for each
of the eight quarters in the period ended October 31, 1998. This information is
unaudited, but in the opinion of the Company reflects all adjustments
(consisting only of normal recurring adjustments) that the Company 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.
Jan. 31, April 30, Jul. 31, Oct. 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
Revenue............................................ $ 63,673 $ 97,603 $121,845 $130,094
Cost of goods sold................................. 28,253 40,400 47,569 50,250
------------ ------------ ------------ ------------
Gross profit................................. 35,420 57,203 74,276 79,844
------------ ------------ ------------ ------------
Operating expenses:
Research and development...................... 3,050 4,699 7,245 8,314
Selling and marketing......................... 3,070 4,946 6,722 7,889
General and administrative.................... 2,003 2,797 3,241 3,782
Purchased research & development.............. - - - -
Pirelli litigation............................ 5,000 - - 2,500
Cost of proposed merger....................... - - - -
------------ ------------ ------------ ------------
Total operating expenses .......................... 13,123 12,442 17,208 22,485
------------ ------------ ------------ ------------
Income (loss) from operations...................... 22,297 44,761 57,068 57,359
Other income (expense), net........................ 302 1,846 1,426 3,611
------------ ------------ ------------ ------------
Income (loss) before income taxes.................. 22,599 46,607 58,494 60,970
Provision (benefit) for income taxes............... 8,744 18,127 22,770 23,062
------------ ------------ ------------ ------------
Net income (loss).................................. $ 13,855 $ 28,480 $ 35,724 $ 37,908
============ ============ ============ ============
Basic net income (loss) per common share $ 0.97 $ 0.31 $ 0.36 $ 0.38
============ ============ ============ ============
Diluted net income (loss) per common
share and dilutive potential common share $ 0.14 $ 0.27 $ 0.34 $ 0.35
============ ============ ============ ============
Weighted average basic common share (1) 14,216 92,644 98,021 99,786
============ ============ ============ ============
Weighted average basic common and
dilutive potential common share (1) ... 100,425 105,456 106,296 107,308
============ ============ ============ ============
Jan. 31, April 30, Jul. 31, Oct. 31,
1998 1998 1998 1998
------------ ------------ ------------ ---------------
Revenue............................................ $145,092 $142,718 $129,116 $91,161
Cost of goods sold................................. 58,980 63,915 70,431 62,688
------------ ------------ ------------ ---------------
Gross profit................................. 86,112 78,803 58,685 28,473
------------ ------------ ------------ ---------------
Operating expenses:
Research and development...................... 10,203 16,706 19,963 20,218
Selling and marketing......................... 9,968 11,063 12,620 12,569
General and administrative.................... 3,792 4,519 4,145 6,059
Purchased research & development.............. - 9,503 - -
Pirelli litigation............................ - 10,000 20,579 -
Cost of proposed merger....................... - - 2,017 531
------------ ------------ ------------ ---------------
Total operating expenses .......................... 23,963 51,791 59,324 39,377
------------ ------------ ------------ ---------------
Income (loss) from operations...................... 62,149 27,012 (639) (10,904)
Other income (expense), net........................ 3,691 3,352 2,679 2,888
------------ ------------ ------------ ---------------
Income (loss) before income taxes.................. 65,840 30,364 2,040 (8,016)
Provision (benefit) for income taxes............... 26,142 15,154 815 (2,996)
------------ ------------ ------------ ---------------
Net income (loss).................................. $ 39,698 $ 15,210 $ 1,225 $ (5,020)
============ ============ ============ ===============
Basic net income (loss) per common share $ 0.39 $ 0.14 $ 0.01 $ (0.04)
============ ============ ============ ===============
Diluted net income (loss) per common
share and dilutive potential common share $ 0.37 $ 0.14 $ 0.01 $ (0.04)
============ ============ ============ ===============
Weighted average basic common share (1) 100,641 106,245 115,343 119,486
============ ============ ============ ===============
Weighted average basic common and
dilutive potential common share (1) ... 107,552 112,455 121,960 119,486
============ ============ ============ ===============
Jan. 31, Apr. 30, Jul. 31, Oct. 31,
1997 1997 1997 1997
--------------- -------------- -------------- -------------
Revenue......................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold.............................. 44.4 41.4 39.0 38.6
--------------- -------------- -------------- -------------
Gross profit.............................. 55.6 58.6 61.0 61.4
Operating expenses:
Research and development.................. 4.8 4.8 5.9 6.4
Selling and marketing..................... 4.8 5.1 5.5 6.1
General and administrative................ 3.1 2.9 2.7 2.9
Purchased research & development.......... - - - -
Pirelli litigation........................ 7.9 - - 1.9
Cost of proposed merger................... - - - -
--------------- -------------- -------------- -------------
Total operating expenses........................ 20.6 12.8 14.1 17.3
--------------- -------------- -------------- -------------
Income (loss) from operations................... 35.0 45.8 46.9 44.1
Other income (expense), net..................... 0.5 1.9 1.2 2.8
--------------- -------------- -------------- -------------
Income (loss) before income taxes............... 35.5 47.7 48.1 46.9
Provision (benefit) for income taxes............ 13.7 18.6 18.7 17.7
--------------- -------------- -------------- -------------
Net income (loss)............................... 21.8 % 29.1 % 29.4 % 29.2 %
=============== ============== ============== =============
Jan. 31, Apr. 30, Jul. 31, Oct. 31,
1998 1998 1998 1998
------------- ------------ ------------ -------------
Revenue......................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold.............................. 40.7 44.8 54.5 68.8
------------- ------------ ------------ -------------
Gross profit.............................. 59.3 55.2 45.5 31.2
Operating expenses:
Research and development.................. 7.0 11.7 15.5 22.2
Selling and marketing..................... 6.9 7.8 9.8 13.8
General and administrative................ 2.6 3.2 3.2 6.6
Purchased research & development.......... - 6.7 - -
Pirelli litigation........................ - 7.0 15.9 -
Cost of proposed merger................... - - 1.6 0.6
------------- ------------ ------------ -------------
Total operating expenses......................... 16.5 36.4 46.0 43.2
------------- ------------ ------------ -------------
Income (loss) from operations................... 42.8 18.8 (0.5) (12.0)
Other income (expense), net..................... 2.6 2.3 2.1 3.2
------------- ------------ ------------ -------------
Income (loss) before income taxes.............. 45.4 21.1 1.6 (8.8)
Provision (benefit) for income taxes........... 18.0 10.6 0.6 (3.3)
------------- ------------ ------------ -------------
Net income (loss).............................. 27.4 % 10.5 % 1.0 % (5.5) %
============= ============ ============ =============
(1) The sum of the quarterly earnings per share for fiscal
1997 does not equal the reported annual earnings per
share for fiscal 1997 due to the effect of the Company's
stock issuances during the year.
8
10
The Company's quarterly operating results have varied and are expected to
vary significantly in the future. The Company'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". In addition
to those factors, in fiscal 1998, the distraction attendant to the aborted
Tellabs merger had a significant, though difficult to quantify impact on the
Company's operations in the third and fourth quarter. But apart from the
distraction factor, the Company believes the single most significant trend
affecting the Company's financial performance is the material effect of very
aggressive price discounting by competitors seeking to acquire market share in
the increasingly important market for high-capacity solutions. The Company chose
in the face of this pressure to continue to build market share in fiscal 1998 at
the cost of declining margins. The Company intends to continue this strategy in
order to preserve and enhance its market leadership and eventually build on its
installed base with new and additional products. Pursuit of this strategy, in
conjunction with increased investments in selling, marketing, and customer
service activities, will likely limit the Company's operating profitability over
at least the first half of fiscal 1999, and may result in near term operating
losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations and capital expenditures from
inception through fiscal 1996 principally through the sale of Convertible
Preferred Stock for proceeds totaling $40.7 million and capital lease financing
totaling $4.1 million. The Company completed its initial public offering of
Common Stock in February 1997 and realized net proceeds of approximately $121.8
million with an additional $0.6 million received from the exercise of certain
outstanding warrants. In July 1997, the Company completed a public offering of
Common Stock and realized net proceeds of approximately $52.2 million. During
fiscal 1997 and fiscal 1998 the Company also realized approximately $53.1
million and $22.6 million in tax benefits from the exercise of stock options and
certain stock warrants, respectively. During fiscal 1998 the Company received
approximately $15.5 million from the issuance of stock associated with the
initial capitalization of Lightera. As of October 31, 1998, the Company had
$239.8 million in cash and cash equivalents and $16.0 million in corporate debt
securities with contractual maturities of six months or less.
The Company's operating activities used cash of $1.2 million in fiscal
1996 , and provided cash of $85.0 million and $32.7 million for fiscal 1997 and
1998, respectively. The cash used in operations in fiscal 1996 was accounted for
primarily by the Company's research and development activities relating to its
early development of the MultiWave system. Cash provided by operations in fiscal
1997 and 1998 was principally attributable to net income adjusted for the
non-cash charges of depreciation, amortization, provisions for inventory
obsolescence and warranty, increases in accounts payable, accrued expenses and
income tax payable; offset by increases in accounts receivable and inventories
due to increased revenue and to the general increase in business activity.
Cash used in investing activities in fiscal 1996, 1997 and 1998 was $11.6
million, $66.8 million and $105.9 million, respectively. Included in investment
activities were capital equipment expenditures in fiscal 1996, 1997 and 1998 of
$9.9 million, $51.9 million and $76.7 million, respectively. These capital
equipment expenditures were primarily for test, manufacturing and computer
equipment. The Company expects additional capital equipment expenditures of
approximately $50.0 million to be made during fiscal 1999 to support selling and
marketing, manufacturing and product development activities. In addition, since
its inception the Company's investing activities have included the use of $28.3
million for the construction of leasehold improvements and the Company expects
to use an additional $3.0 million of capital during fiscal 1999 in the
construction of leasehold improvements for its facilities.
The Company believes that its existing cash balance and cash flows
expected from future operations will be sufficient to meet the Company's capital
requirements for at least the next 18 to 24 months.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Comprehensive Income".
SFAS No. 130 becomes effective for the Company's fiscal year 1999 and requires
reclassification of earlier financial statements for comparative purposes. SFAS
No. 130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS No. 130 does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total
9
11
comprehensive income be reported in that statement. The Company believes the
adoption of SFAS No. 130 will not have a material effect on the consolidated
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about
Segments of an Enterprise and Related Information". This Statement will change
the way public companies report information about segments of their business in
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to stockholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. The Statement is effective for the Company's fiscal year 1999. The
Company believes the adoption of SFAS No. 131 will not have a material effect on
the consolidated financial statements.
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 will be effective
for the Company's fiscal year ending October 31, 2000. The Company believes the
adoption of SFAS No. 133 will not have a material effect on the consolidated
financial statements.
YEAR 2000 READINESS
Many computer systems were not designed to handle any dates beyond the
year 1999; accordingly, affected hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company's operations
make use of a variety of computer equipment and software. If the computer
equipment and software used in the operation of the Company do not correctly
recognize data information when the year changes to 2000, there could be an
adverse impact on the Company's operations.
The Company has taken actions to understand the nature and extent of work
required, if any, to make its systems, products and infrastructure Year 2000
compliant. Based on internal testing performed to date and completed by the
Company, the Company currently believes and warrants to its customers that its
products are Year 2000 compliant. However, since all customer situations cannot
be anticipated, particularly those involving interaction of the Company's
products with third party products, the Company may see an increase in warranty
and other claims as a result of the Year 2000 transition. The impact of customer
claims, if broader than anticipated, could have a material adverse impact on the
Company's results of operations or financial condition.
The Company is currently in the process of conducting a comprehensive
inventory and evaluation of both information technology ("IT") or software
systems and non-IT systems used to run its systems. Non-IT systems typically
include embedded technology such as microcontrollers. Examples of the Company's
Non-IT systems include certain equipment used for production, research, testing
and measurement processes and calibration. As of December 1998 the Company had
assessed approximately 80% of the IT and non-IT systems used in its operations
with an insignificant amount of those systems having been identified as Year
2000 non-compliant. The Company has begun the process of upgrading or replacing
those identified non-compliant systems with completion expected during fiscal
1999. For the Year 2000 non-compliance systems identified to date, the cost of
remediation is not considered to be material to the Company's financial
condition or operating results. However, if implementation of replacement
systems is delayed, or if significant new noncompliance issues are identified,
the Company's results of operations or financial condition may be materially
adversely affected.
The Company changed its main financial, manufacturing and information
system to a company-wide Year 2000 compliant enterprise resource planning
("ERP") computer-based system during the fourth quarter of fiscal 1998. The
Company estimates that it has spent approximately $4.0 million on its ERP
implementation and estimates that it will likely spend $50,000 to $100,000 to
address identified Year 2000 issues. The Company expects that it will use cash
from operations for Year 2000 remediation and replacement costs. Approximately
less than 2% of the information technology budget is expected to be used for
remediation. No other information technology projects have been deferred due to
the Year 2000 efforts. To date, the Company has not yet employed an independent
verification and validation process to assure the reliability of its risk and
cost estimates.
10
12
The Company is also in the process of contacting its critical suppliers to
determine that suppliers' operations and the products and services they provide
are Year 2000 compliant. To date, the Company's optical suppliers have
represented that they are year 2000 compliant or are in the process of becoming
compliant by December 31, 1999. If these suppliers fail to adequately address
the Year 2000 issue for the products they provide to the Company, this could
have a material adverse impact on the Company's operations and financial
results.
Contingency plans will be developed if it appears the Company or its key
suppliers will not be Year 2000 compliant, and such noncompliance is expected to
have a material adverse impact on the Company's operations.
11
13
AUDITED SUPPLEMENTAL FINANCIAL STATMENTS
The following is an index to the audited supplemental consolidated
financial statements and supplementary data :
PAGE
NUMBER
------
Report of Independent Accountants...................................................13
Supplemental Consolidated Balance Sheets............................................14
Supplemental Consolidated Statements of Operations..................................15
Supplemental Consolidated Statements of Changes in Stockholders' Equity (Deficit)...16
Supplemental Consolidated Statements of Cash Flows..................................17
Notes to Supplemental Consolidated Financial Statements.............................18
12
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of CIENA Corporation
In our opinion, the accompanying supplemental consolidated balance sheets and
the related supplemental consolidated statements of operations, of cash flows
and of changes in stockholders' equity (deficit) present fairly, in all material
respects, the financial position of CIENA Corporation and subsidiaries at
October 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described in Note 2, in March 1999 CIENA Corporation merged with Lightera
Networks, Inc. in a transaction accounted for as a pooling of interests. The
accompanying supplemental consolidated financial statements give retroactive
effect to the merger of CIENA Corporation with Lightera Networks, Inc.
PricewaterhouseCoopers LLP
McLean, VA
November 25, 1998, except as to Note 2 "Lightera", which is as of March 31, 1999
13
15
CIENA CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
October 31,
-----------------------------------
1997 1998
----------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 268,588 $ 239,780
Marketable debt securities........................................................ - 15,993
Accounts receivable (net of allowance of $722 and $1,528)......................... 72,336 85,472
Inventories, net.................................................................. 41,109 70,908
Deferred income taxes............................................................. 9,139 16,421
Prepaid income taxes.............................................................. - 8,558
Prepaid expenses and other........................................................ 3,093 4,524
----------------- ----------------
Total current assets........................................................... 394,265 441,656
Equipment, furniture and fixtures, net................................................ 67,618 124,792
Goodwill and other intangible assets, net............................................. 5 16,270
Other assets.......................................................................... 1,391 4,848
----------------- ----------------
Total assets...................................................................... $ 463,279 $ 587,566
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 24,760 $ 25,925
Accrued liabilities............................................................... 32,022 34,437
Income taxes payable.............................................................. 261 -
Deferred revenue.................................................................. 2,591 1,084
Other current obligations......................................................... 1,179 953
----------------- ----------------
Total current liabilities...................................................... 60,813 62,399
Deferred income taxes............................................................. 28,167 34,125
Other long-term obligations....................................................... 1,885 2,257
----------------- ----------------
Total liabilities.............................................................. 90,865 98,781
Commitments and contingencies......................................................... - -
----------------- ----------------
Stockholders' equity:
Preferred stock - par value $.01; 20,000,000 shares authorized; zero shares
issued and outstanding.......................................................... - -
Common stock - par value $.01; 360,000,000 shares authorized;
100,287,653 and 119,817,209 shares issued and outstanding....................... 1,003 1,198
Additional paid-in capital........................................................ 245,219 310,888
Notes receivable from stockholders................................................ (64) (568)
Cumulative translation adjustment................................................. (5) (107)
Retained earnings................................................................. 126,261 177,374
---------------- ----------------
Total stockholders' equity..................................................... 372,414 488,785
================= ================
Total liabilities and stockholders' equity........................................ $ 463,279 $ 587,566
================= ================
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
14
16
CIENA CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended October 31,
1996 1997 1998
------------------ ---------------- ----------------
Revenue.................................................. $ 88,463 $ 413,215 $ 508,087
Cost of goods sold....................................... 47,315 166,472 256,014
------------------ ---------------- ----------------
Gross profit...................................... 41,148 246,743 252,073
Operating expenses:
Research and development.......................... 8,922 23,308 67,090
Selling and marketing............................. 5,641 22,627 46,220
General and administrative........................ 6,422 11,823 18,515
Purchased research and development................ - - 9,503
Pirelli litigation ............................... - 7,500 30,579
Cost of proposed merger........................... - - 2,548
------------------ ---------------- ----------------
Total operating expenses................... 20,985 65,258 174,455
------------------ ---------------- ----------------
Income from operations................................... 20,163 181,485 77,618
Interest and other income (expense), net................. 1,096 7,593 12,886
Interest expense......................................... (443) (408) (276)
------------------ ---------------- ----------------
Income before income taxes............................... 20,816 188,670 90,228
Provision for income taxes............................... 3,553 72,703 39,115
------------------ ---------------- ----------------
Net income .............................................. $ 17,263 $ 115,967 $ 51,113
================== ================ ================
Basic net income per common share...................... $ 1.25 $ 1.53 $ 0.46
================== ================ ================
Diluted net income per common share and
dilutive potential common share................... $ 0.19 $ 1.11 $ 0.44
================== ================ ================
Weighted average basic common shares outstanding... 13,817 75,802 110,593
================== ================ ================
Weighted average basic common and dilutive
potential common shares outstanding............... 92,407 104,664 117,150
================== ================ ================
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
- --------------------------------------------------------------------------------
15
17
CIENA CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT)
(DOLLARS IN THOUSANDS)
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
------------------------------------- PAID-IN- FROM
SHARES AMOUNT CAPITAL STOCKHOLDERS
------------------ ------------------ ------------------ -----------------
BALANCE AT OCTOBER 31, 1995........... 12,935,415 129 178 -
Exercise of warrants.................. 676,425 7 -
Exercise of stock options............. 579,745 6 71 (60)
Compensation cost of stock
options............................. - - 2 -
Issuance of warrant for
settlement of certain equity
rights.............................. - - 156 -
Net income............................ - - - -
------------------ ------------------ ------------------ -----------------
BALANCE OF OCTOBER 31, 1996........... 14,191,585 142 407 (60)
Issuance of common stock,
net of issuance costs............... 7,002,060 70 173,947 -
Conversion of Preferred
Stock............................... 74,815,740 748 40,256 -
Exercise of warrants.................. 666,086 7 - -
Exercise of stock options............. 3,612,182 36 859 (73)
Tax benefit from the exercise of
stock options....................... - - 29,709 -
Repayment of receivables
from stockholders................... - - - 69
Translation adjustment................ - - - -
Compensation cost of stock
options............................. - - 41 -
Net income............................ - - - -
------------------ ------------------ ------------------ -----------------
BALANCE AT OCTOBER 31, 1997........... 100,287,653 1,003 245,219 (64)
Purchase acquisitions, net of
transaction costs................... 304,144 3 20,817 -
Issuance of common stock, net of
issuance costs...................... 16,577,505 166 15,727 (211)
Exercise of stock options............. 2,647,907 26 6,215 (392)
Tax benefit from the exercise of
stock options....................... - - 22,634 -
Repayment of receivables from
stockholders........................ - - - 99
Translation adjustment................ - - - -
Issuance of warrants for technology
rights.............................. - - 235 -
Compensation cost of stock
options............................... - - 41 -
Net income............................ - - - -
------------------ ------------------ ------------------ ------------------
BALANCE AT OCTOBER 31, 1998........... 119,817,209 $ 1,198 $ 310,888 $ (568)
================== ================== ================== ==================
TOTAL
CUMULATIVE RETAINED STOCKHOLDERS'
TRANSLATION EARNINGS EQUITY
ADJUSTMENT (DEFICIT) (DEFICIT)
------------------ ---------------- ------------------
BALANCE AT OCTOBER 31, 1995........... - (6,969) (6,662)
Exercise of warrants.................. - - 7
Exercise of stock options............. - - 17
Compensation cost of stock
options............................. - - 2
Issuance of warrant for
settlement of certain equity
rights.............................. - - 156
Net income............................ - 17,263 17,263
------------------ ---------------- ------------------
BALANCE OF OCTOBER 31, 1996........... - 10,294 10,783
Issuance of common stock,
net of issuance costs............... - - 174,017
Conversion of Preferred
Stock............................... - - 41,004
Exercise of warrants.................. - - 7
Exercise of stock options............. - - 822
Tax benefit from the exercise of
stock options....................... - - 29,709
Repayment of receivables
from stockholders................... - - 69
Translation adjustment................ (5) - (5)
Compensation cost of stock
options............................. - - 41
Net income............................ - 115,967 115,967
------------------ ---------------- ------------------
BALANCE AT OCTOBER 31, 1997........... (5) 126,261 372,414
Purchase acquisitions, net of
transaction costs................... - - 20,820
Issuance of common stock, net of
issuance costs...................... - - 15,682
Exercise of stock options............. - - 5,849
Tax benefit from the exercise of
stock options....................... - - 22,634
Repayment of receivables from
stockholders........................ - - 99
Translation adjustment................ (102) - (102)
Issuance of warrants for technology
rights.............................. - - 235
Compensation cost of stock
options............................... - - 41
Net income............................ - 51,113 51,113
------------------ ---------------- ------------------
BALANCE AT OCTOBER 31, 1998........... $ (107) $ 177,374 $ 488,785
================== ================ ==================
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
16
18
CIENA CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1996 1997 1998
----------------- ---------------- ----------------
Cash flows from operating activities:
Net income ................................................................ $ 17,263 $ 115,967 $ 51,113
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Non-cash charges from equity transactions.............................. 158 41 276
Amortization of premiums on marketable debt securities - - 464
Effect of translation adjustment - (5) (102)
Purchased research and development - - 9,503
Write down of leasehold improvements and equipment..................... 883 923 1,605
Depreciation and amortization.......................................... 1,082 10,251 33,344
Provision for doubtful accounts........................................ 76 489 806
Provision for inventory excess and obsolescence........................ 1,937 7,585 9,617
Provision for warranty and other contractual obligations............... 1,584 11,866 10,523
Changes in assets and liabilities:
Increase in accounts receivable...................................... (20,601) (46,309) (13,707)
Increase in inventories.............................................. (15,165) (35,466) (39,416)
Increase in deferred income tax assets............................... (1,834) (7,305) (7,282)
Increase in prepaid income taxes - - (8,558)
Increase in prepaid expenses and other assets........................ (1,009) (2,403) (11,708)
Increase (decrease) in accounts payable and accrued expenses......... 7,259 30,311 (7,959)
Increase (decrease) in income taxes payable.......................... 3,801 (3,701) (261)
Increase in deferred income tax liabilities.......................... - 4,793 5,958
Increase (decrease) in deferred revenue and other obligations 3,386 (2,007) (1,507)
----------------- ---------------- ----------------
Net cash (used in) provided by operating activities.................. (1,180) 85,030 32,709
----------------- ---------------- ----------------
Cash flows from investing activities:
Additions to equipment, furniture and fixtures........................... (11,558) (66,820) (87,864)
Purchase of marketable debt securities................................... - - (93,869)
Maturities of marketable debt securities ................................ - - 77,876
Net cash paid for business combinations.................................. - - (2,070)
----------------- ---------------- ----------------
Net cash used in investing activities................................ (11,558) (66,820) (105,927)
----------------- ---------------- ----------------
Cash flows from financing activities:
Net proceeds from (repayment of) other obligations....................... 2,543 (2,260) 146
Net proceeds from issuance of or subscription to
mandatorily redeemable preferred stock............................... 25,950 - -
Net proceeds from issuance of common stock .............................. 24 175,446 21,531
Tax benefit related to exercise of stock options and warrants............ - 53,083 22,634
Repayment of notes receivable from stockholders.......................... - 69 99
----------------- ---------------- ----------------
Net cash provided by financing activities............................ 28,517 226,338 44,410
----------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents................. 15,779 244,548 (28,808)
Cash and cash equivalents at beginning of period............................. 8,261 24,040 268,588
================= ================ ================
Cash and cash equivalents at end of period................................... $ 24,040 $ 268,588 $ 239,780
================= ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................................. $ 419 $ 405 $ 265
================= ================ ================
Income taxes.......................................................... $ 1,830 $ 26,999 $ 30,203
================= ================ ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for notes receivable from stockholders........... $ 60 $ 73 624
================= ================ ================
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
17
19
CIENA CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CIENA Corporation (the "Company" or "CIENA") designs, manufactures and
sells open architecture, dense wavelength division multiplexing ("DWDM") systems
for fiberoptic communications networks, including long-distance and local
exchange carriers. CIENA also provides a range of engineering, furnishing and
installation services for telecommunications service providers.
Principles of Consolidation
During March 1999 the Company completed a merger with Lightera Networks,
Inc. ("Lightera") a U.S. company headquartered in Cupertino, California. The
transaction constituted a tax-free reorganization and has been accounted for as
a pooling of interest under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Lightera as though it had been a part of CIENA.
The Company has ten wholly owned U.S. and international subsidiaries
which have been consolidated in the accompanying financial statements. During
the fiscal year ended October 31, 1998, the Company completed a merger with ATI
Telecom International Ltd., ("Alta"). The merger constituted a tax-free
reorganization and has been accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16. Accordingly, all prior period
consolidated financial statements presented have been restated to include the
combined results of operations, financial position and cash flows of Alta as
though it had been a part of CIENA. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation. See Note 2.
Fiscal Year
The Company has a 52 or 53 week fiscal year which ends on the Saturday
nearest to the last day of October in each year (October 31, 1998; November 1,
1997; and November 2, 1996). For purposes of financial statement presentation,
each fiscal year is described as having ended on October 31. Fiscal 1998 and
1997 comprised 52 weeks and fiscal 1996 comprised 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates,
judgements and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, together with amounts disclosed in the
related notes to the financial statements. Actual results could differ from the
recorded estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Marketable Debt Securities
The Company has classified its investments in marketable debt securities
as held-to-maturity securities as defined by Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Such investments are recorded at their amortized cost in the
accompanying consolidated balance sheets. All of the marketable debt securities
are corporate debt securities with contractual maturities of six months or less
and have $60,000 and $9,000 of unrealized gain and unrealized loss,
respectively, as of October 31, 1998.
18
20
Inventories
Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out basis. The Company records a provision for
excess and obsolete inventory whenever such an impairment has been identified.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. Depreciation and
amortization are computed using the straight-line method over useful lives of
2-5 years for equipment, furniture and fixtures and of 6-10 years for leasehold
improvements.
Goodwill
The Company has recorded goodwill from two purchase transactions. See Note
2. It is the Company's policy to continually assess the carrying amount of its
goodwill to determine if there has been an impairment to its carrying value. The
Company would record any such impairment when identified.
Concentrations
Substantially all of the Company's cash and cash equivalents are custodied
at four major U.S. financial institutions. The majority of the Company's cash
equivalents include U.S. Government Federal Agency Securities, short term
marketable securities, and overnight repurchase agreements. Deposits held with
banks may exceed the amount of insurance provided on such deposits. Generally
these deposits may be redeemed upon demand and, therefore, bear minimal risk.
Historically, the Company has relied on a limited number of customers for
a substantial portion of its revenue. In terms of total revenue, the Company's
largest two customers have been Sprint and WorldCom. While there were no
revenues derived from WorldCom in fiscal 1996, Sprint accounted for 62% of the
Company's fiscal 1996 revenues and both Sprint and WorldCom combined accounted
for greater than 88% of the Company's 1997 fiscal revenues. WorldCom accounted
for less than 10% and Sprint accounted for approximately 53% of the Company's
fiscal 1998 revenues. The Company expects that a significant portion of its
future revenue will continue to be generated by a limited number of customers.
The loss of any one of these customers or any substantial reduction in orders by
any one of these customers could materially adversely affect the Company's
financial condition or operating results. Additionally, the Company's access to
certain raw materials is dependent upon single and sole source suppliers. The
inability of any supplier to fulfill supply requirements of the Company could
impact future results.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral from its customers. The Company maintains
an allowance for potential losses when identified and has not incurred any
significant losses to date. As of October 31, 1997, Sprint and WorldCom
accounted for 84% of the trade accounts receivable. Sprint and three other
customers comprise of 10%, 11%, 25% and 26% of the trade accounts receivable
respectively as of October 31, 1998.
Revenue Recognition
The Company recognizes product revenue in accordance with the shipping
terms specified. For transactions where the Company has yet to obtain customer
acceptance, revenue is deferred until the terms of acceptance are satisfied.
Revenue for installation services is recognized as the services are performed
unless the terms of the supply contract combine product acceptance with
installation, in which case revenues for installation services are recognized
when the terms of acceptance are satisfied and installation is completed.
Revenues from installation service fixed price contracts are recognized on the
percentage of costs incurred to date compared to estimated total costs for each
contract. Amounts received in excess of revenue recognized are recorded as
deferred revenue. For distributor sales where risks of ownership have not
transferred, the Company recognizes revenue when the product is shipped through
to the end user.
Revenue-Related Accruals
The Company provides for the estimated costs to fulfill customer warranty
and other contractual obligations upon the recognition of the related revenue.
Such reserves are determined based upon actual warranty cost experience,
19
21
estimates of component failure rates, and management's industry experience. The
Company's contractual sales arrangements generally do not permit the right of
return of product by the customer after the product has been accepted.
Research and Development
The Company charges all research and development costs to expense as
incurred.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their respective tax bases,
and for operating loss and tax credit carryforwards. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than the enactment of changes in tax laws or rates. Tax savings resulting from
deductions associated with stock options and certain stock warrants are credited
directly to additional paid in capital when realization of such benefit is fully
assured and to deferred tax liabilities prior to such point. See Note 8.
Foreign Currency Translation
The majority of the Company's foreign branches and subsidiaries use the
U.S. dollar as their functional currency as the U.S. parent exclusively funds
the branches and subsidiaries' operations with U.S. dollars. For those
subsidiaries using the local currency as their functional currency, assets and
liabilities are translated at exchange rates in effect at the balance sheet
date. Resulting translation adjustments are recorded directly to a separate
component of shareholders' equity. Where the U.S. dollar is the functional
currency, translation adjustments are recorded in other income. The net gain
(loss) on foreign currency remeasurement and exchange rate changes for fiscal
1996, 1997, and 1998 was immaterial for separate financial statement
presentation .
Computation of Basic Net Income per Common Share and Diluted Net Income per
Common and Dilutive Potential
Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
No. 128). SFAS No. 128 simplifies the earnings per share (EPS) computation and
replaces the presentation of primary EPS with a presentation of basic EPS. This
statement also requires dual presentation of basic and diluted EPS on the face
of the income statement for entities with a complex capital structure and
requires a reconciliation of the numerator and denominator used for the basic
and diluted EPS computations. The Company has implemented SFAS No. 128 in fiscal
1998, as required. Accordingly, all prior period EPS data has been restated. See
Note 6.
Software Development Costs
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", requires
the capitalization of certain software development costs incurred subsequent to
the date technological feasibility is established and prior to the date the
product is generally available for sale. The capitalized cost is then amortized
over the estimated product life. The Company defines technological feasibility
as being attained at the time a working model is completed. To date, the period
between achieving technological feasibility and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
Accounting for Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation", which is effective for the Company's consolidated
financial statements for fiscal years 1996, 1997, and 1998. SFAS No. 123 allows
companies to either account for stock-based compensation under the new
provisions of SFAS No. 123 or using the intrinsic value method provided by
Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock
Issued to Employees",
20
22
but requires pro forma disclosure in the footnotes to the financial statements
as if the measurement provisions of SFAS No. 123 had been adopted. The Company
has elected to continue to account for its stock based compensation in
accordance with the provisions of APB No. 25 and present the pro forma
disclosures required by SFAS No. 123. See Note 7.
Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Comprehensive Income".
SFAS No. 130 becomes effective for the Company's fiscal year 1999 and requires
reclassification of earlier financial statements for comparative purposes. SFAS
No. 130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS No. 130 does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income be
reported in that statement. The Company believes the adoption of SFAS No. 130
will not have a material effect on the consolidated financial statements.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures
about Segments of an Enterprise and Related Information". This Statement will
change the way public companies report information about segments of their
business in annual financial statements and requires them to report selected
segment information in their quarterly reports issued to stockholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. The Statement is effective for the Company's fiscal
year 1999. The Company believes the adoption of SFAS No. 131 will not have a
material effect on the consolidated financial statements.
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 133 will be effective for
the Company's fiscal year ending October 31, 2000. The Company believes the
adoption of SFAS No. 133 will not have a material effect on the consolidated
financial statements.
Reclassification
Certain prior year amounts have been reclassified to conform to current
year consolidated financial statement presentation.
(2) BUSINESS COMBINATIONS
Lightera
During March 1999 the Company completed a merger with Lightera, a U.S.
company headquartered in Cupertino, California, in a transaction valued at
approximately $463.5 million. Lightera is a developer of carrier class optical
core switches for fiberoptic communications networks. Under the terms of the
agreement, the Company acquired all of the outstanding shares and stock options
of Lightera in exchange for approximately 17.5 million shares of CIENA common
stock and 3.1 million of CIENA stock options. The transaction constituted a
tax-free reorganization and has been accounted for as a pooling of interest
under Accounting Principles Board Opinion No. 16. Accordingly, all prior period
consolidated financial statements presented have been restated to include the
combined results of operations, financial position and cash flows of Lightera as
though it had been a part of CIENA.
21
23
The following table shows the separate historical results of CIENA and
Lightera for the periods prior to the consummation of the merger of the two
entities. No financial information has been presented for the fiscal years ended
1997 and 1996 as Lightera did not commence operations until April 1998.
(in thousands)
Year Ended
October 31, 1998
-----------------------
Revenues:
CIENA $ 508,087
Lightera -
Intercompany eliminations -
-----------------------
Consolidated revenues $ 508,087
=======================
Net Income (loss):
CIENA $ 53,194
Lightera (2,081)
-----------------------
Consolidated net income $ 51,113
=======================
Astracom
During December 1997 the Company completed an Agreement and Plan of Merger
with Astracom, Inc. ("Astracom"), an early stage telecommunications company
located in Atlanta, Georgia. The purchase price was approximately $13.1 million
and consisted of the issuance of 169,754 shares of CIENA common stock, the
payment of $2.4 million in cash, and the assumption of certain stock options.
The transaction was recorded using the purchase accounting method with the
purchase price representing approximately $11.4 million in goodwill and other
intangibles, and approximately $1.7 million in net assets assumed. The
amortization period for the intangibles, based on management's estimate of the
useful life of the acquired technology, is five years. The operations of
Astracom are not material to the consolidated financial statements of the
Company and, accordingly, separate pro forma financial information has not been
presented.
Alta
On February 19, 1998 the Company completed a merger with ATI Telecom
International Ltd., ("Alta"), a Canadian corporation headquartered near Atlanta,
Georgia, in a transaction valued at approximately $52.5 million. Alta provides a
range of engineering, furnishing and installation services for
telecommunications service providers in the areas of transport, switching and
wireless communications. Under the terms of the agreement the Company exchanged
1,000,000 shares of its common stock for all the common stock of Alta. The
merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Alta as though it had been a part of CIENA.
Prior to the merger, Alta's year ended on December 31. In recording the
business combination, Alta's prior period financial statements have been
restated to conform to CIENA's fiscal year end.
All intercompany transactions between CIENA and Alta have been eliminated
in consolidation. Certain reclassifications were made to Alta financial
statements to conform to CIENA's presentation. No material adjustments were made
to conform to CIENA's accounting policies.
22
24
The following table shows the separate historical results of CIENA and
Alta for the periods prior to the consummation of the merger of the two
entities:
(in thousands)
Year Ended October 31,
-------------------------------------------
1996 1997
--------------------- --------------------
Revenues:
CIENA $ 54,838 $ 373,827
Alta 33,625 39,531
Intercompany eliminations - (143)
--------------------- --------------------
Consolidated revenues $ 88,463 $ 413,215
===================== ====================
Net Income (loss):
CIENA $ 14,718 $ 112,945
Alta 2,545 3,022
--------------------- --------------------
Consolidated net income $ 17,263 $ 115,967
===================== ====================
Terabit
During April 1998 the Company completed an Agreement and Plan of
Reorganization with Terabit Technology, Inc. ("Terabit"), a developer of optical
components known as photodetectors or optical receivers. Terabit is located in
Santa Barbara, California. The purchase price was approximately $11.5 million
and consisted of the issuance of 134,390 shares of CIENA common stock, the
payment of $1.1 million in cash, and the assumption of certain stock options.
The transaction was recorded using the purchase accounting method with the
purchase price representing approximately $9.5 million in purchased research and
development, $1.8 million in goodwill and other intangibles, and approximately
$0.2 million in net assets assumed. The amortization period for the intangibles,
based on management's estimate of the useful life of the acquired technology, is
five years. The operations of Terabit are not material to the consolidated
financial statements of the Company and, accordingly, separate pro forma
financial information has not been presented.
In connection with the Terabit acquisition, the Company recorded a $9.5
million charge in the year ended October 31, 1998 for purchased research and
development. This generally represents the estimated value of purchased
in-process technology related to Terabit's avalanche photodiodes (APD) that have
not yet reached technological feasibility and have no alternative future use.
The amount of purchase price allocated to in-process research and
development was determined using the discounted cash flow method. This method
consisted of estimating future net cash flows attributable in-process APD
technology for a discrete projection period and discounting the net cash flows
back to their present value. The discount rate includes a factor that takes into
account the uncertainty surrounding the successful development of the purchased
in-process technology. The estimated revenue associated with the APD technology
future net cash flows assumed a five year compound annual growth rate of between
5% to 43%. The revenue growth rates were developed considering, among other
things, the current and expected industry trends and acceptance of the
technologies in historical growth rates for similar industry products.
Management's estimates or projections were based upon an estimated period of ten
years with revenues reaching a peak in 2002 and declining through 2008. The
estimated net cash flows were discounted to present value at a rate of return
which considers the relative risk of achieving the net cash flows and the time
value of money. A 30% was used to effect the risk associated with Terabits APD
technology. This rate is higher than the Company's normal discount rate due to
inherent uncertainties surrounding the successful development of purchase
in-process technology, the useful life of the technology, and the profitability
levels of such technology.
The resulting net cash flows from the APD project was based on
management's estimates of revenues, cost of sales, research and development
costs, selling general and administrative costs, and income taxes associated
with the project.
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(3) INVENTORIES
Inventories are comprised of the following (in thousands):
October 31,
----------------------------------------
1997 1998
---------------- ------------------
Raw materials................................... $ 27,716 $ 43,268
Work-in-process................................. 5,679 8,592
Finished goods.................................. 15,180 30,202
---------------- ------------------
48,575 82,062
Reserve for excess and obsolescence.......... (7,466) (11,154)
---------------- ------------------
$ 41,109 $ 70,908
================ ==================
The following is a table depicting the activity in the Company's reserve for
excess and obsolescence (in thousands):
October 31,
----------------------------------------
1997 1998
------------------- -----------------
Beginning balance............................... $ 1,937 $ 7,466
Provision charged to operations................. 7,585 9,617
Amounts written off to reserve.................. (2,056) (5,929)
------------------- -----------------
Ending balance.................................. $ 7,466 $ 11,154
=================== =================
(4) EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are comprised of the following (in thousands):
October 31,
-----------------------------------------
1997 1998
------------------- ------------------
Equipment, furniture and fixtures.................. $ 65,444 $ 140,586
Leasehold improvements............................. 13,953 24,076
------------------- ------------------
79,397 164,662
Accumulated depreciation and amortization........ (12,279) (41,222)
Construction-in-progress........................... 500 1,352
------------------- ------------------
$ 67,618 $ 124,792
=================== ==================
(5) ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
October 31,
-----------------------------------------
1997 1998
------------------- -------------------
Warranty and other contractual obligations......... $ 12,205 $ 17,256
Accrued compensation............................... 8,284 9,229
Legal and related costs............................ 4,577 542
Consulting and outside services.................... 3,219 2,837
Unbilled construction-in-process and leasehold
improvements.................................. 1,427 -
Other.............................................. 2,310 4,573
------------------- -------------------
$ 32,022 $ 34,437
=================== ===================
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(6) EARNINGS PER SHARE CALCULATION
The following is a reconciliation of the numerators and denominators of
the basic net income per common share ("basic EPS") and diluted net income per
common and dilutive potential common share ("diluted EPS"). Basic EPS is
computed using the weighted average number of common shares outstanding. Diluted
EPS is computed using the weighted average number of common shares outstanding,
stock options and warrants using the treasury stock method and shares issued
upon conversion of all outstanding shares of Mandatorily Redeemable Preferred
Stock (in thousands except per share amounts).
October 31,
----------------------------------------------------------------
1996 1997 1998
------------------ ------------------ ------------------
Net Income.................................. $ 17,263 $ 115,967 $ 51,113
================== ================== ==================
Weighted average shares-basic............ 13,817 75,802 110,593
------------------ ------------------ ------------------
Effect of dilutive securities:
Employee stock options and warrants. 8,533 8,774 6,557
Conversion of preferred stock.......... 70,057 20,088 -
------------------ ------------------ ------------------
Weighted average shares-diluted.......... 92,407 104,664 117,150
================== ================== ==================
Basic EPS................................... $ 1.25 $ 1.53 $ 0.46
================== ================== ==================
Diluted EPS................................. $ 0.19 $ 1.11 $ 0.44
================== ================== ==================
(7) STOCKHOLDERS' EQUITY
Stockholder Rights Plan
In December 1997, the Company's Board of Directors adopted a Stockholder
Rights Plan. This plan is designed to deter any potential coercive or unfair
takeover tactics in the event of an unsolicited takeover attempt. It is not
intended to prevent a takeover of the Company on terms that are favorable and
fair to all shareholders and will not interfere with a merger approved by the
Board of Directors. Each right entitles shareholders to buy a "unit" equal to
one one-thousandth of a share of Preferred Stock of the Company. The rights will
be exercisable only if a person or a group acquires or announces a tender or
exchange offer to acquire 15% or more of the Company's common stock or if the
Company enters into certain other business combination transactions not approved
by the Board of Directors.
In the event the rights become exercisable, the rights plan allows for
CIENA shareholders to acquire stock of the surviving corporation, whether or not
CIENA is the surviving corporation, having a value twice that of the exercise
price of the Rights. The Rights were distributed to shareholders of record in
January 1998. The Rights will expire December 2007 and are redeemable for $.001
per right at the approval of the Company's Board of Directors.
Public Offerings
In February 1997, the Company successfully completed its initial public
offering of Common Stock. The Company sold 5,750,000 shares, inclusive of
750,000 shares from the exercise of the underwriters over-allotment option, at a
price of $23 per share. Net proceeds from the offering were approximately
$121,800,000 with an additional $600,000 received from the exercise of 300,000
shares of outstanding Convertible Preferred Stock warrants.
In July 1997 the Company completed a public offering of 10,477,216 shares
of Common Stock of which 1,252,060 shares were sold by the Company inclusive of
252,060 shares from the exercise of the underwriters over-allotment option, at a
price of $44 per share. Net proceeds to the Company from the public offering
were approximately $52,200,000.
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Other Offerings
In March 1998, Lightera issued a total of 5,000,768 shares of stock to the
founders of Lightera in exchange for certain technology rights and notes
receivables totaling $211,000. In March 1998, Lightera also sold 7,104,086
shares of stock in exchange for net proceeds of approximately $9,356,000. In
July 1998, Lightera sold 3,489,079 shares of stock in exchange for net proceeds
of approximately $6,074,000.
Stock Incentive Plans
The Company has an Amended and Restated 1994 Stock Option Plan (the "1994
Plan"). Under the 1994 Plan, 20,050,000 shares of the Company's authorized but
unissued Common Stock are reserved for options issuable to employees. Certain of
these options are immediately exercisable upon grant, and both the options and
the shares issuable upon exercise of the options generally vest to the employee
over a four year period. The Company has the right to repurchase any exercised
and non-vested shares at the original purchase price from the employees upon
termination of employment. In June 1996 the Company approved the 1996 Outside
Directors Stock Option Plan (the "1996 Plan"). Under the 1996 Plan, 750,000
shares of the Company's authorized but unissued Common Stock are reserved for
options issuable to outside members of the Company's Board of Directors. These
options vest to the director over periods from one to three years, depending on
the type of option granted, and are exercisable once vested. Under the 1994 Plan
and the 1996 Plan, options may be incentive stock options or non-qualified
options, and the exercise price for each option shall be established by the
Board of Directors provided, however, that the exercise price per share shall
not be not less than the fair market value for incentive stock options and not
less than 85% of fair market value for non-qualified stock options.
As a result of the Company's merger with Lightera, the Company assumed the
Lightera 1998 Stock Option Plan ("the 1998 Plan"). The 1998 Plan provides for
the granting of stock options to employees and consultants of the Company.
Options granted under the 1998 Plan may be either incentive stock options or
nonstatutory stock options. Incentive stock options, ("ISO"), may be granted
only to Company employees (including officers and directors who are also
employees). Nonstatutory stock options ("NSO") may be granted to Company
employees and consultants. The Company has reserved 2,933,923 shares of Common
Stock for issuance under the 1998 Plan.
Options under the 1998 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however, that
(I) the exercise price of an ISO and NSO shall not be less than 100% and 85% of
the estimated fair value of the shares on the date of grant, respectively, and
(II) the exercise price of an ISO and NSO granted to a 10% shareholder shall not
be less than 110% of the estimated fair value of the shares on the date of
grant, respectively. Options exercised are immediately subject to a repurchase
right held by the Company which lapse over a maximum period of five years at
such times and under such conditions as determined by the Board of Directors.
To date, options granted generally vest over four years.
Following is a summary of the Company's stock option activity:
Shares Weighted Average
(in thousands) Exercise Price
--------------------------------------------------
Balance at October 31, 1995.......................... 6,941 $ 0.03
Granted.............................................. 5,901 1.85
Exercised............................................ (579) 0.14
Canceled............................................. (1,180) 0.18
--------------------
Balance at October 31, 1996.......................... 11,083 0.97
Granted.............................................. 1,737 32.81
Exercised............................................ (3,612) 0.27
Canceled............................................. (98) 0.52
--------------------
Balance at October 31, 1997.......................... 9,110 7.33
Granted.............................................. 6,377 19.10
Exercised............................................ (2,648) 2.40
Canceled............................................. (3,340) 40.12
--------------------
Balance at October 31, 1998.......................... 9,499 4.84
====================
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During September 1998, the Company cancelled and re-issued outstanding
employee stock options with exercise prices in excess of the fair market value,
except those options held by outside directors and officers of the Company. A
total of 2,905,116 options with an average exercise price of $42.87 were
cancelled and reissued at $12.38 per share. At October 31, 1998 approximately
292,000 shares of Common Stock subject to repurchase by the Company had been
issued upon the exercise of options and approximately 2.2 million of the total
outstanding options were vested and not subject to repurchase by the Company
upon exercise.
The following table summarizes information with respect to stock options
outstanding at October 31, 1998:
Options Not Subject to
Options Outstanding Repurchase Upon Exercise
------------------------------------------------------------ ----------------------------------
Weighted
Average
Number Remaining Weighted Weighted
Range of Outstanding Contractual Average Number Average
Exercise at Oct. 31, Life Exercise at Oct. 31, Exercise
Price 1998 (Years) Price 1998 Price
- ------------------------ ----------------- --------------------- ----------------- --------------- -----------------
$ 0.02 - $ 0.03 1,048,678 6.23 $ 0.03 878,524 $ 0.03
$ 0.06 - $ 1.66 2,765,437 8.82 $ 0.41 375,006 $ 0.78
$ 2.25 - $ 4.34 2,648,482 7.66 $ 2.48 450,455 $ 2.54
$ 4.40 - $ 11.56 189,216 8.56 $ 6.55 47,818 $ 6.15
$ 12.38 - $ 12.38 2,761,977 8.93 $ 12.38 419,150 $ 12.38
$ 12.56 - $ 43.25 85,675 9.57 $ 32.40 - $ -
----------------- ---------------
$ 0.02 - $ 43.25 9,499,465 8.24 $ 5.83 2,170,953 $ 3.19
================= ===============
Pro forma Stock-Based Compensation
The Company has elected to continue to follow the provisions of APB No. 25
for financial reporting purposes and has adopted the disclosure-only provisions
of SFAS No. 123. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in fiscal years
1996, 1997, and 1998 consistent with the provisions of SFAS No. 123, the
Company's net income and net income per share for fiscal years 1996, 1997, and
1998 would have been decreased to the pro forma amounts indicated below (in
thousands, except per share amounts):
October 31,
---------------------------------------------------------------
1996 1997 1998
------------------- ------------------ -------------------
Net income applicable to common stockholders -
as reported................................. $ 17,263 $ 115,967 $ 51,113
=================== ================== ===================
Net income applicable to common stockholders -
pro forma................................... $ 16,770 $ 110,404 $ 26,230
=================== ================== ===================
Basic net income per share - as reported......... $ 1.25 $ 1.53 $ 0.46
=================== ================== ===================
Basic net income per share - pro forma........... $ 1.21 $ 1.46 $ 0.24
=================== ================== ===================
Diluted net income per share - as reported....... $ 0.19 $ 1.11 $ 0.44
=================== ================== ===================
Diluted net income per share - pro forma......... $ 0.18 $ 1.05 $ 0.22
=================== ================== ===================
The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years.
The aggregate fair value and weighted average fair value of each option
granted in fiscal years 1996, 1997 and 1998 were approximately $6.7 million,
$33.6 million, $73.2 million and $1.14, $19.33, and $15.17 respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option Pricing Model with the following weighted average
assumptions for fiscal years 1996, 1997, and 1998:
October 31,
--------------------------------------------------------
1996 1997 1998
----------------- ----------------- ----------------
Expected volatility 60% 60% 109%
Risk-free interest rate 6.1% 5.8% 4.4%
Expected life 3 yrs. 3 yrs. 3yrs.
Expected dividend yield 0% 0% 0%
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(8) INCOME TAXES
Income before income taxes and the provision for income taxes consists of the
following (in thousands):
October 31,
-------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- ----------------
Income before income taxes......................... $ 20,816 $ 188,670 90,228
==================== ==================== ================
Provision for income taxes:
Current:
Federal............................................... $ 4,483 $ 67,744 39,780
State................................................. 694 7,373 4,444
Foreign............................................... 210 98 40
-------------------- -------------------- ----------------
Total current.................................. 5,387 75,215 44,264
-------------------- -------------------- ----------------
Deferred:
Federal............................................... (1,690) (2,015) (4,496)
State................................................. (144) (497) (653)
Foreign............................................... - - -
-------------------- -------------------- ----------------
Total deferred................................. (1,834) (2,512) (5,149)
-------------------- -------------------- ----------------
Provision for income taxes........................... $ 3,553 $ 72,703 39,115
==================== ==================== ================
The tax provision reconciles to the amount computed by multiplying income before
income taxes by the U.S. federal statutory rate of 35% as follows:
October 31,
--------------------------------------------------------------
1996 1997 1998
----------------- ----------------- ------------------
Provision at statutory rate........................ 35.0 % 35.0 % 35.0 %
Reversal of valuation allowance.................... (20.0) - -
Non-deductible purchased research and development - - 3.9
State taxes, net of federal benefit................ 2.7 2.6 3.9
Research and development credit.................... - - (3.7)
Other.............................................. (0.6) 0.9 4.2
----------------- ----------------- ------------------
17.1 % 38.5 % 43.3 %
================= ================= ==================
The significant components of deferred tax assets and liabilities were as
follows (in thousands):
October 31,
-----------------------------------------------
1997 1998
---------------------- --------------------
Deferred tax assets:
Reserves and accrued liabilities..................... $ 9,281 $ 14,611
Other................................................ - 690
Net operating loss and credit carry forward........ 1,555 2,682
---------------------- --------------------
Gross deferred tax assets........................... 10,836 17,983
Valuation allowance................................. (1,697) (1,562)
---------------------- --------------------
Net current deferred tax asset.................. $ 9,139 $ 16,421
====================== ====================
Deferred tax liabilities:
Equipment leases..................................... $ 3,985 $ 7,978
Services............................................. 19,389 21,594
Depreciation and other............................... 4,793 4,553
---------------------- --------------------
Deferred long term tax liabilities............... $ 28,167 $ 34,125
====================== ====================
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30
As of October 31, 1998 the Company assumed net operating loss carry
forwards of approximately $7.6 million through its acquisitions of Lightera and
Alta. The net operating loss carry forwards begin expiring in fiscal 2002.
The income tax provisions do not reflect the tax savings resulting from
deductions associated with the Company's stock option plans or the exercise of
certain stock warrants. Tax benefits of approximately $29.7 million and $23.4
million in fiscal 1997, and $22.6 million and $3.6 million in fiscal 1998, from
exercises of stock options and certain stock warrants were credited directly to
additional paid-in-capital and to long-term deferred income taxes, respectively.
(9) EMPLOYEE BENEFIT PLANS
Employee 401(k) Plan
In January 1995, the Company adopted a 401(k) defined contribution profit
sharing plan. The plan covers all full-time employees who are at least 21 years
of age, have completed three months of service and are not covered by a
collective bargaining agreement where retirement benefits are subject to good
faith bargaining. Participants may contribute up to 15% of pre-tax compensation,
subject to certain limitations. The Company may make discretionary annual profit
sharing contributions of up to the lesser of $30,000 or 25% of each
participant's compensation. In fiscal 1997 the Company revised the plan to
include an employer matching contribution equal to 100% of the first 3% of
participating employee contributions, with a five year vesting plan applicable
to the Company's contribution. The Company has made no profit sharing
contributions to date. During fiscal 1997 and 1998 the Company made matching
contributions of approximately $0.3 million and $1.1 million, respectively.
Employee Stock Purchase Plan
In March 1998, the shareholders approved the Corporation's 1998 Stock
Purchase Plan ("the Purchase Plan") under which 2.5 million shares of common
stock have been reserved for issuance. Eligible employees may purchase a limited
number of shares of the Company's stock at 85% of the market value at certain
plan-defined dates, the first of which occurs in March 1999. As of October 31,
1998 no shares had been issued from the Purchase Plan.
(10) COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company has certain minimum obligations under noncancelable operating
leases expiring on various dates through 2006 for equipment and facilities.
Future annual minimum rental commitments under noncancelable operating leases at
October 31, 1998 are as follows (in thousands):
Fiscal year ending October 31,
------------------------------
1999...................................................... $ 6,208
2000...................................................... 6,003
2001...................................................... 5,577
2002...................................................... 4,411
2003...................................................... 3,050
Thereafter................................................ 10,358
------------------
$ 35,607
==================
Rental expense for fiscal 1996, 1997 and 1998 was approximately $717,000,
$2,652,000 and $5,820,000, respectively.
Litigation
Class Action Litigation. A class action complaint was filed on August 26,
1998 in U.S. District Court for the District of Maryland entitled Witkin et.al
v. CIENA Corporation et. al (Case No. Y-98-2946). Several other complaints,
substantially similar in content, have been filed. These cases were consolidated
by court order on November 30, 1998. The complaint alleges that CIENA and
certain officers and directors violated certain provisions of the federal
securities laws, including Section 10(b) and Rule 10b-5 under the Securities
Exchange Act of 1934, by
29
31
making false statements, failing to disclose material information and taking
other actions intending to artificially inflate and maintain the market price of
CIENA's common stock during the Class Period of May 21, 1998 to September 14,
1998, inclusive. The plaintiffs seek designation of the suit as a class action
on behalf of all persons who purchased shares of CIENA's common stock during the
Class Period and the awarding of compensatory damages in an amount to be
determined at trial and attorneys' fees. The proceedings are at an early stage.
No discovery has been taken, and no prediction can be made as to its outcome.
The Company believes the suit is without merit and intends to defend itself
vigorously.
Kimberlin Litigation. On September 9, 1998 the U.S. District Court for the
Southern District of New York granted summary judgment with respect to federal
securities law claims brought against the Company and certain of its individual
directors by investor Kevin Kimberlin and related parties, finding "no
violations" of federal securities laws in the Company's or directors' conduct.
The Court also dismissed all related state law claims without prejudice,
declining to exercise jurisdiction over these claims. The remaining state law
claims, as well as the Company's counterclaim against the Kimberlin-related
parties, were fully and finally resolved in October 1998 by agreement of the
parties.
Pirelli Litigation. On June 1, 1998 the Company resolved the long-standing
litigation with Pirelli S.p.A. The terms of the settlement involve dismissal of
Pirelli's three lawsuits against CIENA previously pending in Delaware, dismissal
of CIENA's legal proceedings against Pirelli in the United States International
Trade Commission, a worldwide, non-exclusive cross-license to each party's
patent portfolios, a five-year moratorium on future litigation between the
parties. As a result of the settlement, CIENA recorded a charge for the fiscal
year ended October 31, 1998 of $30.6 million relating to the Pirelli settlement
and associated legal fees.
(11) FOREIGN SALES
The Company has sales and marketing operations outside the United States
in Canada, The United Kingdom, Belgium, France, Japan, China and the
Philippines. The Company has distributor or marketing representative
arrangements covering Austria, Germany, Italy and Switzerland in Europe, and the
Republic of Korea and Japan in Asia. The Company also has representatives in
Mexico and Brazil. Included in revenues are export sales of approximately $3.5
million, $11.7 million, and $117.1 million in fiscal years 1996, 1997 and 1998,
respectively.
(12) SUBSEQUENT EVENTS (UNAUDITED)
On March 15, 1999 the Company signed an Agreement and Plan of Merger with
Omnia Communications Inc. ("Omnia"),a U.S. company located in Marlborough,
Massachusetts, in a transaction valued at approximately $429 million. Omnia is a
developer of carrier class optical access solutions for fiberoptic
communications networks. Under the terms of the agreement, the Company will
acquire all of the outstanding shares of Omnia in exchange for approximately 16
million shares of CIENA common stock. The transaction is intended to constitute
a tax-free reorganization and will be accounted for as a pooling of interest
under Accounting Principles Board Opinion No. 16. Accordingly, all prior period
consolidated financial statements presented will be restated to include the
combined results of operations, financial position and cash flows of Omnia as
though it had been a part of CIENA.The operations of Omnia are not material to
the consolidated financial statements of the of the Company, and accordingly,
separate pro forma financial information has not been presented.
30
32
(13) ADDITIONAL SUPPLEMENTAL DATA (UNAUDITED)
The historical consolidated financial results of CIENA for prior periods
have been restated to include the financial position and results of operations
of Lightera. In the opinion of management, financial statements included in this
report reflect all normal recurring adjustments which the Company considers
necessary for the Fair Presentations of the results of operations for the
interim period covered and of the financial position of the Company at the date
of the interim balance sheet. The following unaudited consolidated balance sheet
and consolidated statement of operations shows the historical results of the
combined CIENA and Lightera for the period ending January 31, 1999 which was
prior to the consummation of the merger of the two entities:
CIENA CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Quarter ended
January 31,
----------------------
1999
----------------------
Revenue........................................................... $ 100,417
Cost of goods sold................................................ 65,778
----------------------
Gross profit.................................................... 34,639
----------------------
Operating expenses:
Research and development........................................ 19,783
Selling and marketing........................................... 12,874
General and administrative...................................... 4,762
----------------------
Total operating expenses.................................... 37,419
----------------------
Loss from operations.............................................. (2,780)
Interest and other income (expense), net........................ 3,262
Interest expense.................................................. (74)
----------------------
Income before income taxes........................................ 408
Provision for income taxes........................................ 125
----------------------
Net income........................................................ $ 283
======================
Basic net income per common share.............................. $ -
======================
Diluted net income per common share and dilutive potential common
share......................................................... $ -
======================
Weighted average basic common shares outstanding........ 120,176
======================
Weighted average basic common and dilutive potential
common shares outstanding....................................... 126,580
======================
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33
CIENA CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
January 31,
1999
----------------
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 205,990
Marketable debt securities.................................................... 89,702
Accounts receivable, net...................................................... 80,257
Inventories, net.............................................................. 58,571
Deferred income taxes......................................................... 12,645
Prepaid income taxes.......................................................... -
Prepaid expenses and other.................................................... 9,822
----------------
Total current assets....................................................... 456,987
Equipment, furniture and fixtures, net........................................... 126,516
Goodwill and other intangible assets, net........................................ 15,361
Other assets..................................................................... 4,785
----------------
Total assets.................................................................. $ 603,649
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 31,669
Accrued liabilities........................................................... 37,583
Income taxes payable.......................................................... 2,079
Deferred revenue.............................................................. 785
Other current obligations..................................................... 1,389
----------------
Total current liabilities.................................................. 73,505
Deferred income taxes......................................................... 34,314
Other long-term obligations................................................... 3,546
----------------
Total liabilities.......................................................... 111,365
Commitments and contingencies.................................................. -
----------------
Stockholders' equity:
Preferred stock - par value $.01; 20,000,000 shares authorized; zero shares
issued and outstanding................................................ -
Common stock - par value $.01; 360,000,000 shares authorized;
120,889,814 shares issued and outstanding..... 1,209
Additional paid-in capital.................................................... 314,234
Notes receivable from stockholders............................................ (708)
Cumulative translation adjustment............................................. (108)
Retained earnings............................................................. 177,657
----------------
Total stockholders' equity................................................. 492,284
================
Total liabilities and stockholders' equity.................................... $ 603,649
================
32
34
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
Exhibit Description
------- -----------------------------------------------------
23.3 Consent of Independent Accountants
27.1 Restated Financial Data Schedule (files only electronically
with the SEC)
33
35
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: April 1, 1999
By:/s/Joseph R. Chinnici
---------------------
Joseph R. Chinnici
Sr. Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
34
1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-217, No. 333-52467) of CIENA Corporation of our
report dated November 25, 1998, except as to Note 2 "Lightera" which is as of
March 31, 1999 appearing on page 14 of this current report on Form 8-K.
PricewaterhouseCoopers LLP
McLean, VA
March 31, 1999
5
1,000
12-MOS 3-MOS 3-MOS 3-MOS
OCT-31-1998 OCT-31-1998 OCT-31-1998 OCT-31-1999
NOV-01-1997 FEB-01-1998 MAY-01-1998 NOV-01-1998
OCT-31-1998 APR-30-1998 JUL-31-1998 JAN-31-1999
239,780 183,633 207,325 205,990
15,993 51,765 28,132 89,702
87,000 132,558 109,210 80,257
1,528 568 730 1,528
70,908 68,955 76,343 58,571
441,656 454,387 459,338 456,987
166,014 139,222 159,098 143,872
41,222 24,797 33,406 17,356
587,566 584,666 606,239 603,649
73,505 86,830 77,405 73,505
0 0 0 0
0 0 0 0
0 0 0 0
1,198 1,141 1,191 1,209
487,587 464,792 494,705 491,075
587,566 584,666 606,239 603,649
508,087 142,718 129,116 100,417
508,087 142,718 129,116 100,417
256,014 63,915 70,431 65,778
256,014 63,915 70,431 65,778
174,455 51,791 59,324 37,419
0 0 0 0
276 81 58 74
90,228 30,264 2,040 408
39,115 15,154 815 125
51,113 15,210 1,225 283
0 0 0 0
0 0 0 0
0 0 0 0
51,113 15,210 1,225 283
.46 .14 0.01 0.00
.44 .14 0.01 0.00
