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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 
 
 
FORM 8‑K
 
 
 
 
 
 
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
Date of report (Date of earliest event reported): August 31, 2017
 
 
 
 
Ciena Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
(State or Other Jurisdiction of Incorporation)
 
 
 
001-36250

 
23-2725311
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
7035 Ridge Road, Hanover, MD
 
21076
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
(410) 694-5700
(Registrant's Telephone Number, Including Area Code)
 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






ITEM 2.02 - RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On August 31, 2017, Ciena Corporation ("Ciena") issued a press release announcing its financial results for its third quarter ended July 31, 2017. The text of the press release is furnished as Exhibit 99.1 to this Report. The information in this Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended.
As discussed in the press release above, Ciena will be hosting an investor call to discuss its results of operations for its third quarter ended July 31, 2017. Ciena is making available on its corporate website at http://investor.ciena.com/financials.cfm an investor presentation to accompany this call. This presentation includes certain highlighted items from the third quarter ended July 31, 2017 to be discussed on the call and certain historical results.
Investors are encouraged to review the “Investors” page of our website at www.ciena.com because, as with the other disclosure channels that we use, from time to time we may post material information exclusively on that site.


ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS

(d)
The following exhibit is being filed herewith:
 
 
 
 
Exhibit Number
Description of Document
 
 
 
 
Exhibit 99.1
Text of Press Release dated August 31, 2017, issued by Ciena Corporation, reporting its results of operations for its third fiscal quarter ended July 31, 2017.





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: August 31, 2017
By:
/S/ David M. Rothenstein
 
 
David M. Rothenstein
 
 
Senior Vice President, General Counsel and Secretary



Exhibit
FOR IMMEDIATE RELEASE

Ciena Reports Fiscal Third Quarter 2017 Financial Results

Delivers 9% revenue growth year-over-year

HANOVER, Md. - August 31, 2017 - Ciena® Corporation (NYSE: CIEN), a network strategy and technology company, today announced unaudited financial results for its fiscal third quarter ended July 31, 2017.

For the fiscal third quarter 2017, Ciena reported revenue of $728.7 million as compared to $670.6 million for the fiscal third quarter 2016.

On the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal third quarter 2017 was $60.0 million, or $0.39 per diluted common share, which compares to a GAAP net income of $33.5 million, or $0.23 per diluted common share, for the fiscal third quarter 2016.

Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2017 was $81.0 million, or $0.51 per diluted common share, which compares to an adjusted (non-GAAP) net income of $67.6 million, or $0.42 per diluted common share, for the fiscal third quarter 2016.

“We delivered another solid quarter with strong revenue growth and profitability, and we took additional market share through our diversification and innovation leadership,” said Gary B. Smith, president and CEO, Ciena. “Our continued success, combined with strong fundamental demand drivers that are playing in our favor, is drawing a clear division between the winners and losers in the marketplace.”

Fiscal Third Quarter 2017 Performance Summary
The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarter and year-over-year changes. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is included in Appendix A.

 
 
GAAP Results
 
 
Q3

Q2

Q3

Period Change
 
 
FY 2017

FY 2017

FY 2016
 
Q-T-Q*
 
Y-T-Y*
Revenue
 
$
728.7


$
707.0

 
$
670.6


3.1
 %

8.7
 %
Gross margin
 
45.0
%
 
45.0
%
 
46.0
%
 
—
 %
 
(1.0
)%
Operating expense
 
$
246.1

 
$
260.4

 
$
251.5

 
(5.5
)%
 
(2.1
)%
Operating margin
 
11.3
%
 
8.2
%
 
8.5
%
 
3.1
 %
 
2.8
 %



 
 
Non-GAAP Results
 
 
Q3
 
Q2
 
Q3
 
Period Change
 
 
FY 2017
 
FY 2017
 
FY 2016
 
Q-T-Q*
 
Y-T-Y*
Revenue
 
$
728.7

 
$
707.0

 
$
670.6

 
3.1
 %
 
8.7
 %
Adj. gross margin
 
45.5
%
 
45.7
%
 
46.8
%
 
(0.2
)%
 
(1.3
)%
Adj. operating expense
 
$
229.3

 
$
234.6

 
$
223.4

 
(2.3
)%
 
2.6
 %
Adj. operating margin
 
14.1
%
 
12.5
%
 
13.5
%
 
1.6
 %
 
0.6
 %
* Denotes % change, or in the case of margin, absolute change
 
 
Revenue by Segment
 
 
Q3 FY 2017
 
Q2 FY 2017
 
Q3 FY 2016
 
 
Revenue
 
%**
 
Revenue
 
%**
 
Revenue
 
%**
Networking Platforms
 
 
 
 
 
 
 
 
 
 
 
 
Converged Packet Optical
 
$
506.5

 
69.5
 
$
502.1

 
71.0
 
$
467.6

 
69.7
Packet Networking
 
82.1

 
11.3
 
66.4

 
9.4
 
63.7

 
9.5
Optical Transport
 
3.7

 
0.5
 
3.0

 
0.4
 
9.6

 
1.4
Total Networking Platforms
 
592.3

 
81.3
 
571.5

 
80.8
 
540.9

 
80.6
 
 
 
 

 
 
 

 
 
 

Software and Software-Related Services
 
 
 

 
 
 

 
 
 

Software Platforms
 
18.4

 
2.5
 
13.1

 
1.9
 
12.6

 
1.9
Software-Related Services
 
23.9

 
3.3
 
24.6

 
3.5
 
19.0

 
2.8
Total Software and Software-Related Services
 
42.3

 
5.8
 
37.7

 
5.4
 
31.6

 
4.7
 
 
 
 

 
 
 

 
 
 

Global Services
 
 
 

 
 
 

 
 
 

Maintenance Support and Training
 
57.9

 
7.9
 
58.2

 
8.2
 
56.0

 
8.4
Installation and Deployment
 
27.4

 
3.8
 
28.7

 
4.1
 
31.2

 
4.7
Consulting and Network Design
 
8.8

 
1.2
 
10.9

 
1.5
 
10.9

 
1.6
Total Global Services
 
94.1

 
12.9
 
97.8

 
13.8
 
98.1

 
14.7
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
728.7

 
100.0
 
$
707.0

 
100.0
 
$
670.6

 
100.0

Additional Performance Metrics for Fiscal Third Quarter 2017
 
 
Revenue by Geographic Region
 
 
Q3 FY 2017
 
Q2 FY 2017
 
Q3 FY 2016
 
 
Revenue
 
% **
 
Revenue
 
% **
 
Revenue
 
% **
North America
 
$
465.2

 
63.8
 
$
424.4

 
60.0
 
$
438.0

 
65.3
Europe, Middle East and Africa
 
96.1

 
13.2
 
105.8

 
15.0
 
104.3

 
15.5
Caribbean and Latin America
 
51.7

 
7.1
 
33.9

 
4.8
 
46.6

 
7.0
Asia Pacific
 
115.7

 
15.9
 
142.9

 
20.2
 
81.7

 
12.2
Total
 
$
728.7

 
100.0
 
$
707.0

 
100.0
 
$
670.6

 
100.0
** Denotes % of total revenue
•
U.S. customers contributed 60.1% of total revenue
•
Two customers each accounted for greater than 10% of revenue and in aggregate represented 28% of total revenue
•
Cash and investments totaled $854.2 million



•
Cash flow from operations totaled $50.6 million
•
Average days' sales outstanding (DSOs) were 81
•
Accounts receivable balance was $653.2 million
•
Inventories totaled $276.4 million, including:
◦
Raw materials: $46.9 million
◦
Work in process: $16.2 million
◦
Finished goods: $179.4 million
◦
Deferred cost of sales: $90.1 million
◦
Reserve for excess and obsolescence: $(56.2) million
•
Product inventory turns were 4.9
•
Headcount totaled 5,780

Business Outlook for Fiscal Fourth Quarter 2017
Statements relating to business outlook are forward-looking in nature and actual results may differ materially. These statements should be read in the context of each of the "Forward-Looking Statements" and "Non-GAAP Presentation of Quarterly Results" found in the Notes to Investors below.

Ciena expects fiscal fourth quarter 2017 financial performance to include:
•
Revenue in the range of $720 to $750 million
•
Adjusted (non-GAAP) gross margin in the mid-40s percentage range
•
Adjusted (non-GAAP) operating expense of approximately $240 million
   
Live Web Broadcast of Unaudited Fiscal Third Quarter 2017 Results
Ciena will host a discussion of its unaudited fiscal third quarter 2017 results with investors and financial analysts today, Thursday, August 31, 2017 at 8:30 a.m. (Eastern). The live broadcast will be available at www.ciena.com, and an archived replay will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena's website at www.ciena.com/investors. Ciena will also post to the Investor Relations page a presentation that includes certain highlighted information discussed on the call and certain historical results of operations.




Notes to Investors

Forward-Looking Statements. You are encouraged to review the Investors section of our website, where we routinely post press releases, SEC filings, recent news, financial results, supplemental financial information, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use. This press release contains certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. Forward-looking statements in this release include: "We delivered another solid quarter with strong revenue growth and profitability, and we took additional market share through our diversification and innovation leadership"; "Our continued success, combined with strong fundamental demand drivers that are playing in our favor, is drawing a clear division between the winners and losers in the marketplace"; "Ciena expects fiscal fourth quarter 2017 financial performance to include: Revenue in the range of $720 to $750 million; Adjusted (non-GAAP) gross margin in the mid-40s percentage range; Adjusted (non-GAAP) operating expense of approximately $240 million."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due to a number of risks and uncertainties relating to Ciena's business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by large communication service providers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; and the other risk factors disclosed in Ciena's Report on Form 10-Q, which Ciena filed with the Securities and Exchange Commission on June 7, 2017. Ciena assumes no obligation to update any forward-looking information included in this press release.

Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income (loss) from operations, net income (loss) and net income (loss) per share. In evaluating the operating performance of Ciena's business, management excludes certain charges and credits that are required by GAAP. These items share one or more of the following characteristics: they are unusual and Ciena does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of Ciena's control. Management believes that the non-GAAP measures below provide management and investors useful information and meaningful insight to the operating performance of the business. The presentation of these non-GAAP financial measures should be considered in addition to Ciena's GAAP results and these measures are not intended to be a substitute for the financial information prepared and presented in accordance with GAAP. Ciena's non-GAAP measures and the related adjustments may differ from non-GAAP measures used by other companies and should only be used to evaluate Ciena's results of operations in conjunction with our corresponding GAAP results. To the extent not previously disclosed in a prior Ciena financial results press release, Appendix A to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

With respect to Ciena’s expectations under “Business Outlook for Fiscal Fourth Quarter 2017” above, Ciena is not able to provide a quantitative reconciliation of the adjusted (non-GAAP) gross margin and adjusted (non-GAAP) operating expense guidance measures to the corresponding gross profit and gross profit percentage, and operating expense GAAP measures without unreasonable efforts. Ciena cannot provide meaningful estimates of the non-recurring charges and credits excluded from these non-GAAP measures due to the forward-looking nature of these estimates and their inherent variability and uncertainty.  For the same reasons, Ciena is unable to address the probable significance of the unavailable information.




About Ciena
Ciena (NYSE: CIEN) is a network strategy and technology company. We translate best-in-class technology into value through a high-touch, consultative business model - with a relentless drive to create exceptional experiences measured by outcomes. For updates on Ciena, follow us on Twitter @Ciena, LinkedIn, the Ciena Insights blog, or visit www.ciena.com.



CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
Quarter Ended July 31,
 
Nine Months Ended July 31,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Products
$
610,742

 
$
553,450

 
$
1,702,365

 
$
1,535,017

Services
117,977

 
117,100

 
354,873

 
349,365

Total revenue
728,719

 
670,550

 
2,057,238

 
1,884,382

Cost of goods sold:
 
 
 
 
 
 
 
Products
341,197

 
299,381

 
955,303

 
851,641

Services
59,446

 
62,684

 
181,834

 
189,713

Total cost of goods sold
400,643

 
362,065

 
1,137,137

 
1,041,354

Gross profit
328,076

 
308,485

 
920,101

 
843,028

Operating expenses:
 
 
 
 
 
 
 
Research and development
117,729

 
116,697

 
356,221

 
339,346

Selling and marketing
86,739

 
83,732

 
260,292

 
252,878

General and administrative
35,569

 
34,336

 
106,423

 
100,681

Amortization of intangible assets
3,837

 
14,529

 
29,368

 
46,957

Acquisition and integration costs
—

 
1,029

 
—

 
4,613

Restructuring costs
2,203

 
1,138

 
8,874

 
2,057

Total operating expenses
246,077

 
251,461

 
761,178

 
746,532

Income from operations
81,999

 
57,024

 
158,923

 
96,496

Interest and other income (loss), net
(848
)
 
(3,647
)
 
(3,396
)
 
(11,456
)
Interest expense
(13,415
)
 
(15,967
)
 
(41,926
)
 
(41,285
)
Income before income taxes
67,736

 
37,410

 
113,601

 
43,755

Provision for income taxes
7,726

 
3,864

 
11,704

 
7,758

Net income
$
60,010

 
$
33,546

 
$
101,897

 
$
35,997

 
 
 
 
 
 
 
 
Net Income per Common Share
 
 
 
 
 
 
 
Basic net income per common share
$
0.42

 
$
0.24

 
$
0.72

 
$
0.26

Diluted net income per potential common share1
$
0.39

 
$
0.23

 
$
0.69

 
$
0.26

 
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
142,464

 
138,881

 
141,631

 
137,835

Weighted average dilutive potential common shares outstanding2
172,112

 
169,349

 
164,431

 
139,053

 
1.
The calculation of GAAP diluted net income per common share for the third quarter of fiscal 2017 requires adding back interest expense of approximately $0.2 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018, and approximately $3.3 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the GAAP net income in order to derive the numerator for the Adjusted earnings per common share calculation.
The calculation of GAAP diluted net income per common share for the first nine months of fiscal 2017 requires adding back interest expense of approximately $1.3 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, and approximately $10.8 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 to the GAAP net income in order to derive the numerator for the Adjusted earnings per common share calculation.



The calculation of GAAP diluted net income per common share for the third quarter of fiscal 2016 requires adding back interest expense of approximately $1.3 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, and approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation. 
2.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2017 includes 1.4 million shares underlying certain stock options and restricted stock units, 1.7 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018, and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2017 includes 1.4 million shares underlying certain stock options and restricted stock units, 4.0 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, and 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2016 includes 0.9 million shares underlying certain stock options and restricted stock units, 12.2 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017 and 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2016 includes 1.2 million shares underlying certain stock options and restricted stock units.




CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 
July 31,
2017
 
October 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
559,540

 
$
777,615

Short-term investments
234,743

 
275,248

Accounts receivable, net
653,242

 
576,235

Inventories
276,421

 
211,251

Prepaid expenses and other
199,189

 
172,843

Total current assets
1,923,135

 
2,013,192

Long-term investments
59,874

 
90,172

Equipment, building, furniture and fixtures, net
314,850

 
288,406

Goodwill
267,841

 
266,974

Other intangible assets, net
106,990

 
146,711

Other long-term assets
63,970

 
68,120

Total assets
$
2,736,660

 
$
2,873,575

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
258,358

 
$
235,942

Accrued liabilities and other short-term obligations
284,629

 
310,353

Deferred revenue
110,629

 
109,009

Current portion of long-term debt
4,000

 
236,241

Total current liabilities
657,616

 
891,545

Long-term deferred revenue
86,898

 
73,854

Other long-term obligations
116,534

 
124,394

Long-term debt, net
931,302

 
1,017,441

Total liabilities
$
1,792,350

 
$
2,107,234

Stockholders’ equity:
 
 
 
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding
—

 
—

Common stock – par value $0.01; 290,000,000 shares authorized; 142,672,784
and 139,767,627 shares issued and outstanding
1,427

 
1,398

Additional paid-in capital
6,772,687

 
6,715,478

Accumulated other comprehensive loss
(5,495
)
 
(24,329
)
Accumulated deficit
(5,824,309
)
 
(5,926,206
)
Total stockholders’ equity
944,310

 
766,341

Total liabilities and stockholders’ equity
$
2,736,660

 
$
2,873,575







CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended July 31,
 
2017
 
2016
Cash flows provided by operating activities:
 
 
 
Net income
$
101,897

 
$
35,997

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements
55,873

 
46,624

Share-based compensation costs
36,843

 
41,832

Amortization of intangible assets
39,721

 
59,428

Provision for inventory excess and obsolescence
28,727

 
26,663

Provision for warranty
5,188

 
13,114

Other
21,076

 
15,706

Changes in assets and liabilities:
 
 
 
Accounts receivable
(80,652
)
 
(37,768
)
Inventories
(93,896
)
 
(56,267
)
Prepaid expenses and other
(26,450
)
 
16,687

Accounts payable, accruals and other obligations
(5,960
)
 
(5,087
)
Deferred revenue
13,978

 
(4,120
)
Net cash provided by operating activities
96,345

 
152,809

Cash flows used in investing activities:
 
 
 
Payments for equipment, furniture, fixtures and intellectual property
(76,004
)
 
(81,161
)
Purchase of available for sale securities
(189,802
)
 
(340,168
)
Proceeds from maturities of available for sale securities
260,003

 
160,606

Settlement of foreign currency forward contracts, net
(1,619
)
 
(9,982
)
Acquisition of business, net of cash acquired
—

 
(32,000
)
Net cash used in investing activities
(7,422
)
 
(302,705
)
Cash flows provided by (used in) financing activities:
 
 
 
Proceeds from issuance of term loan, net
—

 
248,750

Payment of long term debt
(232,554
)
 
(45,990
)
Payment for modification of term loans
(93,625
)
 
—

Payment of debt issuance costs
—

 
(3,980
)
Payment of capital lease obligations
(2,650
)
 
(5,359
)
Proceeds from issuance of common stock
20,395

 
22,118

Net cash provided by (used in) financing activities
(308,434
)
 
215,539

Effect of exchange rate changes on cash and cash equivalents
1,436

 
(1,696
)
Net increase (decrease) in cash and cash equivalents
(218,075
)
 
63,947

Cash and cash equivalents at beginning of period
777,615

 
790,971

Cash and cash equivalents at end of period
$
559,540

 
$
854,918

Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
33,861

 
$
31,787

Cash paid during the period for income taxes, net
$
26,793

 
$
9,947

Non-cash investing activities
 
 
 
Purchase of equipment in accounts payable
$
6,012

 
$
10,204

Equipment acquired under capital lease
$
—

 
$
5,322

Building subject to capital lease
$
50,370

 
$
8,993

Construction in progress subject to build-to-suit lease
$
—

 
$
35,875





APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
 
 
 
 
 
 
 
 
 
Quarter Ended July 31,
 
 
2017
 
2016
Gross Profit Reconciliation
 
 
 
 
GAAP gross profit
 
$
328,076

 
$
308,485

Share-based compensation-products
 
709

 
645

Share-based compensation-services
 
619

 
637

Amortization of intangible assets
 
2,417

 
4,328

Total adjustments related to gross profit
 
3,745

 
5,610

Adjusted (non-GAAP) gross profit
 
$
331,821

 
$
314,095

Adjusted (non-GAAP) gross profit percentage
 
45.5
%
 
46.8
%
 
 
 
 
 
Operating Expense Reconciliation
 
 
 
 
GAAP operating expense
 
$
246,077

 
$
251,461

Share-based compensation-research and development
 
3,139

 
3,479

Share-based compensation-sales and marketing
 
3,242

 
3,590

Share-based compensation-general and administrative
 
4,321

 
4,284

Acquisition and integration costs, excluding share-based compensation
 
—

 
1,029

Amortization of intangible assets
 
3,837

 
14,529

Restructuring costs
 
2,203

 
1,138

Total adjustments related to operating expense
 
16,742

 
28,049

Adjusted (non-GAAP) operating expense
 
$
229,335

 
$
223,412

 
 
 
 
 
Income from Operations Reconciliation
 
 
 
 
GAAP income from operations
 
$
81,999

 
$
57,024

Total adjustments related to gross profit
 
3,745

 
5,610

Total adjustments related to operating expense
 
16,742

 
28,049

Adjusted (non-GAAP) income from operations
 
$
102,486

 
$
90,683

Adjusted (non-GAAP) operating margin percentage
 
14.1
%
 
13.5
%
 
 
 
 
 
Net Income Reconciliation
 
 
 
 
GAAP net income
 
$
60,010

 
$
33,546

Total adjustments related to gross profit
 
3,745

 
5,610

Total adjustments related to operating expense
 
16,742

 
28,049

Gain on extinguishment of debt
 
—

 
(44
)
Non-cash interest expense
 
535

 
480

Adjusted (non-GAAP) net income
 
$
81,032

 
$
67,641

 
 
 
 
 
Weighted average basic common shares outstanding
 
142,464

 
138,881

Weighted average dilutive potential common shares outstanding 1
 
172,112

 
178,547

 
 
 
 
 
Net Income per Common Share
 
 
 
 
GAAP diluted net income per common share
 
$
0.39

 
$
0.23

Adjusted (non-GAAP) diluted net income per common share 2
 
$
0.51

 
$
0.42




1.
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2017 includes 1.4 million shares underlying certain stock options and restricted stock units, 1.7 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018 and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2016 includes 0.9 million shares underlying certain stock options and restricted stock units, 12.2 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018 and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.
2.
The calculation of Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2017 requires adding back interest expense of approximately $0.2 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 and approximately $2.8 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.
The calculation of Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2016 requires adding back interest expense of approximately $1.3 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 and approximately $2.9 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.
* * *

The adjusted (non-GAAP) measures above and their reconciliation to Ciena's GAAP results for the periods presented reflect adjustments relating to the following items:
•
Share-based compensation - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
•
Acquisition and integration costs - consist of expenses for financial, legal and accounting advisors and severance and other employee related costs, associated with our acquisition of Cyan, Inc. on August 3, 2015 and our acquisition of certain high-speed photonic component assets from TeraXion, Inc. on February 1, 2016. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
•
Amortization of intangible assets - a non-cash expense arising from the acquisition of intangible assets, principally developed technologies and customer-related intangibles, that Ciena is required to amortize over its expected useful life.
•
Restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
•
Gain on extinguishment of debt - a gain related to certain private repurchases conducted with several holders of Ciena's 0.875% convertible senior notes, which were paid at maturity on June 15, 2017.
•
Non-cash interest expense - a non-cash debt discount expense amortized as interest expense during the term of Ciena's 4.0% senior convertible notes due December 15, 2020 relating to the required separate accounting of the equity component of these convertible notes.