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Form 8-K CIENA CORP For: Jun 04

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June 4, 2015 7:26 AM EDT






 
 
 

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): June 4, 2015
 
 
 
 
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 June 4, 2015, Ciena Corporation ("Ciena") issued a press release announcing its financial results for its second fiscal quarter ended April 30, 2015. 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 second quarter of fiscal 2015. 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 second quarter of fiscal 2015 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 June 4, 2015, issued by Ciena Corporation, reporting its results of operations for its second fiscal quarter ended April 30, 2015.






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: June 4, 2015
By:
/S/ David M. Rothenstein
 
 
David M. Rothenstein
 
 
Senior Vice President, General Counsel and Secretary



FOR IMMEDIATE RELEASE

Ciena Reports Fiscal Second Quarter 2015 Financial Results

Grows revenue 11% year-over-year and delivers 11% adjusted operating margin
HANOVER, Md. - June 4, 2015 - Ciena® Corporation (NYSE: CIEN), the network specialist, today announced unaudited financial results for its fiscal second quarter ended April 30, 2015.

For the fiscal second quarter 2015, Ciena reported revenue of $621.6 million as compared to $560.1 million for the fiscal second quarter 2014.

On the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal second quarter 2015 was $20.7 million, or $0.17 per diluted common share, which compares to a GAAP net loss of $(10.2) million, or $(0.10) per diluted common share, for the fiscal second quarter 2014.

Ciena's adjusted (non-GAAP) net income for the fiscal second quarter 2015 was $47.3 million, or $0.35 per diluted common share, which compares to an adjusted (non-GAAP) net income of $19.4 million, or $0.17 per diluted common share, for the fiscal second quarter 2014.

"We delivered outstanding second quarter results that, when combined with our strong financial performance during the past several quarters, demonstrate increased operating leverage and sustained momentum in our business," said Gary B. Smith, president and CEO, Ciena. “This performance also reflects our industry-leading ability to deliver open, on-demand, software-driven networks for an increasingly diverse set of customers across the globe.”

Fiscal Second Quarter 2015 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
 
 
Q2

Q1

Q2

Period Change
 
 
FY 2015

FY 2015

FY 2014
 
Q-T-Q*
 
Y-T-Y*
Revenue
 
$
621.6


$
529.2

 
$
560.1


17.5
%

11.0
 %
Gross margin
 
43.8
%
 
43.5
%
 
42.4
%
 
0.3
%
 
1.4
 %
Operating expense
 
$
230.0

 
$
226.1

 
$
230.5

 
1.7
%
 
(0.2
)%
Operating margin
 
6.8
%
 
0.8
%
 
1.3
%
 
6.0
%
 
5.5
 %



 
 
Non-GAAP Results
 
 
Q2
 
Q1
 
Q2
 
Period Change
 
 
FY 2015
 
FY 2015
 
FY 2014
 
Q-T-Q*
 
Y-T-Y*
Revenue
 
$
621.6

 
$
529.2

 
$
560.1

 
17.5
%
 
11.0
%
Adj. gross margin
 
44.4
%
 
44.1
%
 
43.1
%
 
0.3
%
 
1.3
%
Adj. operating expense
 
$
207.9

 
$
197.3

 
$
206.3

 
5.4
%
 
0.8
%
Adj. operating margin
 
10.9
%
 
6.8
%
 
6.2
%
 
4.1
%
 
4.7
%

 
 
Revenue by Segment
 
 
Q2 FY 2015
 
Q1 FY 2015
 
Q2 FY 2014
 
 
Revenue
 
%
 
Revenue
 
%
 
Revenue
 
%
Converged Packet Optical
 
$
432.9

 
69.6
 
$
336.6

 
63.6
 
$
356.8

 
63.7
Packet Networking
 
53.3

 
8.6
 
55.0

 
10.4
 
66.6

 
11.9
Optical Transport
 
16.5

 
2.7
 
22.3

 
4.2
 
29.6

 
5.3
Software and Services
 
118.9

 
19.1
 
115.3

 
21.8
 
107.1

 
19.1
Total
 
$
621.6

 
100.0
 
$
529.2

 
100.0
 
$
560.1

 
100.0
* Denotes % change, or in the case of margin, absolute change

Additional Performance Metrics for Fiscal Second Quarter 2015
 
 
Revenue by Geographic Region
 
 
Q2 FY 2015
 
Q1 FY 2015
 
Q2 FY 2014
 
 
Revenue
 
%
 
Revenue
 
%
 
Revenue
 
%
North America
 
$
397.2

 
63.9
 
331.5

 
62.6
 
377.8

 
67.4
Europe, Middle East and Africa
 
102.2

 
16.4
 
111.0

 
21.0
 
95.1

 
17.0
Caribbean and Latin America
 
47.9

 
7.7
 
42.8

 
8.1
 
40.2

 
7.2
Asia Pacific
 
74.3

 
12.0
 
43.9

 
8.3
 
47.0

 
8.4
Total
 
$
621.6

 
100.0
 
$
529.2

 
100.0
 
$
560.1

 
100.0

•
U.S. customers contributed 59.1% of total revenue
•
One customer accounted for greater than 10% of revenue and represented 19% of total revenue
•
Cash and investments totaled $816.7 million
•
Cash flow from operations totaled $37.8 million
•
Average days' sales outstanding (DSOs) were 80
•
Accounts receivable balance was $553.3 million
•
Inventories totaled $214.6 million, including:
◦
Raw materials: $57.3 million
◦
Work in process: $10.6 million
◦
Finished goods: $147.8 million
◦
Deferred cost of sales: $51.0 million
◦
Reserve for excess and obsolescence: $(52.1) million
•
Product inventory turns were 5.3
•
Headcount totaled 5,108

Business Outlook for Fiscal Third Quarter 2015
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 the Notes to Investors below.




Ciena expects fiscal third quarter 2015 financial performance to include:
•
Revenue in the range of $610 to $640 million
•
Adjusted (non-GAAP) gross margin of approximately 43 percent
•
Adjusted (non-GAAP) operating expense to be approximately $210 million
   
Live Web Broadcast of Unaudited Fiscal Second Quarter 2015 Results
Ciena will host a discussion of its unaudited fiscal second quarter 2015 results with investors and financial analysts today, Thursday, June 4, 2015 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. 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 outstanding second quarter results that, when combined with our strong financial performance during the past several quarters, demonstrate increased operating leverage and sustained momentum in our business"; "This performance also reflects our industry-leading ability to deliver open, on-demand, software-driven networks for an increasingly diverse set of customers across the globe”; "Ciena expects fiscal third quarter 2015 financial performance to include: Revenue in the range of $610 to $640 million; Adjusted (non-GAAP) gross margin of approximately 43 percent; Adjusted (non-GAAP) operating expense to be approximately $210 million."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due 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 March 12, 2015. 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.

About Ciena. Ciena (NYSE: CIEN) is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they perform and compete. Ciena leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with its OPn architecture for next-generation networks. We enable a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and provide open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment. For updates on Ciena news, follow us on Twitter @Ciena or on LinkedIn at http://www.linkedin.com/company/ciena. Investors are encouraged to review the Investors section of our website at www.ciena.com/investors, where we routinely post press releases, SEC filings, recent news, financial results, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use.



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

 
Quarter Ended April 30,
 
Six Months Ended April 30,
 
2014
 
2015
 
2014
 
2015
Revenue:
 
 
 
 
 
 
 
Products
$
460,821

 
$
511,880

 
$
893,762

 
$
934,195

Services
99,240

 
109,722

 
200,002

 
216,569

Total revenue
560,061

 
621,602

 
1,093,764

 
1,150,764

Cost of goods sold:
 
 
 
 
 
 
 
Products
257,632

 
286,898

 
502,848

 
523,446

Services
64,738

 
62,293

 
127,374

 
124,612

Total cost of goods sold
322,370

 
349,191

 
630,222

 
648,058

Gross profit
237,691

 
272,411

 
463,542

 
502,706

Operating expenses:
 
 
 
 
 
 
 
Research and development
103,492

 
105,202

 
204,989

 
205,963

Selling and marketing
83,662

 
82,471

 
162,010

 
159,183

General and administrative
31,882

 
30,302

 
61,979

 
59,855

Acquisition and integration costs
—

 
1,020

 
—

 
1,020

Amortization of intangible assets
11,493

 
11,019

 
23,932

 
22,038

Restructuring costs
—

 
(17
)
 
115

 
8,068

Total operating expenses
230,529

 
229,997

 
453,025

 
456,127

Income from operations
7,162

 
42,414

 
10,517

 
46,579

Interest and other income (loss), net
(1,905
)
 
(5,549
)
 
(7,903
)
 
(13,782
)
Interest expense
(11,020
)
 
(12,947
)
 
(22,048
)
 
(26,608
)
Income (loss) before income taxes
(5,763
)
 
23,918

 
(19,434
)
 
6,189

Provision for income taxes
4,395

 
3,265

 
6,660

 
4,315

Net income (loss)
$
(10,158
)
 
$
20,653

 
$
(26,094
)
 
$
1,874

 
 
 
 
 
 
 
 
Net Income (loss) per Common Share
 
 
 
 
 
 
 
Basic net income (loss) per common share
$
(0.10
)
 
$
0.18

 
$
(0.25
)
 
$
0.02

Diluted net income (loss) per potential common share1
$
(0.10
)
 
$
0.17

 
$
(0.25
)
 
$
0.02

 
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
105,451

 
113,555

 
104,977

 
110,578

Weighted average dilutive potential common shares outstanding2
105,451

 
128,017

 
104,977

 
111,762





1.
The calculation of GAAP diluted net income per common share for the second quarter of fiscal 2015 requires adding back interest expense of approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 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 second quarter of fiscal 2015 includes 1.4 million shares underlying certain stock options and restricted stock units and 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first six months of fiscal 2015 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)
 
October 31,
2014
 
April 30,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
586,720

 
$
586,338

Short-term investments
140,205

 
145,089

Accounts receivable, net
518,981

 
553,306

Inventories
254,660

 
214,593

Prepaid expenses and other
192,624

 
183,512

Total current assets
1,693,190

 
1,682,838

Long-term investments
50,057

 
85,233

Equipment, building, furniture and fixtures, net
126,632

 
139,064

Other intangible assets, net
128,677

 
102,238

Other long-term assets
74,076

 
82,191

Total assets
$
2,072,632

 
$
2,091,564

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
209,777

 
$
210,002

Accrued liabilities
276,608

 
253,871

Deferred revenue
104,688

 
109,120

Current portion of long-term debt
190,063

 
2,500

Total current liabilities
781,136

 
575,493

Long-term deferred revenue
40,930

 
49,845

Other long-term obligations
45,390

 
51,456

Long-term debt, net
1,274,791

 
1,276,107

Total liabilities
$2,142,247
 
$1,952,901
Commitments and contingencies
 
 
 
Stockholders’ equity (deficit):
 
 
 
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; 106,979,960 and 117,695,169 shares issued and outstanding
1,070

 
1,177

Additional paid-in capital
5,954,440

 
6,167,862

Accumulated other comprehensive loss
(14,668
)
 
(21,793
)
Accumulated deficit
(6,010,457
)
 
(6,008,583
)
Total stockholders’ equity (deficit)
(69,615
)
 
138,663

Total liabilities and stockholders’ equity (deficit)
$
2,072,632

 
$
2,091,564








CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six Months Ended April 30,
 
2014
 
2015
Cash flows provided by (used in) operating activities:
 
 
 
Net income (loss)
$
(26,094
)
 
$
1,874

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements
27,143

 
27,322

Share-based compensation costs
23,443

 
22,136

Amortization of intangible assets
30,712

 
26,439

Provision for inventory excess and obsolescence
12,972

 
10,834

Provision for warranty
12,424

 
7,658

Other
10,164

 
(94
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(27,548
)
 
(34,903
)
Inventories
(57,821
)
 
29,233

Prepaid expenses and other
(19,054
)
 
(4,129
)
Accounts payable, accruals and other obligations
(51,631
)
 
(39,775
)
Deferred revenue
30,123

 
13,347

Net cash provided by (used in) operating activities
(35,167
)
 
59,942

Cash flows provided by (used in) investing activities:
 
 
 
Payments for equipment, furniture, fixtures and intellectual property
(26,485
)
 
(21,899
)
Restricted cash
1,912

 
(44
)
Purchase of available for sale securities
(95,033
)
 
(130,239
)
Proceeds from maturities of available for sale securities
130,000

 
90,000

Settlement of foreign currency forward contracts, net
(4,029
)
 
10,364

Purchase of cost method investment
—

 
(2,000
)
Net cash provided by (used in) investing activities
6,365

 
(53,818
)
Cash flows provided by (used in) financing activities:
 
 
 
Payment of long term debt
—

 
(8,190
)
Payment for debt and equity issuance costs
—

 
(247
)
Payment of capital lease obligations
(1,520
)
 
(4,745
)
Proceeds from issuance of common stock
8,970

 
9,980

Net cash provided by (used in) financing activities
7,450

 
(3,202
)
Effect of exchange rate changes on cash and cash equivalents
(52
)
 
(3,304
)
Net increase (decrease) in cash and cash equivalents
(21,352
)
 
2,922

Cash and cash equivalents at beginning of period
346,487

 
586,720

Cash and cash equivalents at end of period
$
325,083

 
$
586,338

Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
17,047

 
$
21,882

Cash paid during the period for income taxes, net
$
7,221

 
$
5,811

Non-cash investing activities
 
 
 
Purchase of equipment in accounts payable
$
4,799

 
$
11,733

Building acquired under capital lease
$
—

 
$
10,032









APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
 
 
 
 
 
 
 
Quarter Ended
 
 
April 30,
 
 
2014
 
2015
Gross Profit Reconciliation
 
 
 
 
GAAP gross profit
 
$
237,691

 
$
272,411

Share-based compensation-products
 
741

 
653

Share-based compensation-services
 
568

 
574

Amortization of intangible assets
 
2,328

 
2,201

Total adjustments related to gross profit
 
3,637

 
3,428

Adjusted (non-GAAP) gross profit
 
$
241,328

 
$
275,839

Adjusted (non-GAAP) gross profit percentage
 
43.1
%
 
44.4
%
 
 
 
 
 
Operating Expense Reconciliation
 
 
 
 
GAAP operating expense
 
$
230,529

 
$
229,997

Share-based compensation-research and development
 
2,782

 
2,534

Share-based compensation-sales and marketing
 
4,246

 
3,841

Share-based compensation-general and administrative
 
3,661

 
3,723

Acquisition and integration costs
 
—

 
1,020

Amortization of intangible assets
 
11,493

 
11,019

Restructuring costs
 
—

 
(17
)
Settlement of patent litigation
 
2,000

 
—

Total adjustments related to operating expense
 
24,182

 
22,120

Adjusted (non-GAAP) operating expense
 
$
206,347

 
$
207,877

 
 
 
 
 
Income from Operations Reconciliation
 
 
 
 
GAAP income from operations
 
$
7,162

 
$
42,414

Total adjustments related to gross profit
 
3,637

 
3,428

Total adjustments related to operating expense
 
24,182

 
22,120

Adjusted (non-GAAP) income from operations
 
$
34,981

 
67,962

Adjusted (non-GAAP) operating margin percentage
 
6.2
%
 
10.9
%
 
 
 
 
 
Net Income (Loss) Reconciliation
 
 
 
 
GAAP net income (loss)
 
$
(10,158
)
 
$
20,653

Total adjustments related to gross profit
 
3,637

 
3,428

Total adjustments related to operating expense
 
24,182

 
22,120

Non-cash expense associated with the conversion of convertible notes
 
—

 
768

Non-cash interest expense
 
302

 
371

Change in fair value of embedded redemption feature
 
1,460

 
—

Adjusted (non-GAAP) net income
 
$
19,423

 
$
47,340

 
 
 
 
 
Weighted average basic common shares outstanding
 
105,451

 
113,555

Weighted average dilutive potential common shares outstanding 1
 
120,628

 
158,917

 
 
 
 
 
Net Income (Loss) per Common Share
 
 
 
 
GAAP diluted net income (loss) per common share
 
$
(0.10
)
 
$
0.17

Adjusted (non-GAAP) diluted net income per common share 2
 
$
0.17

 
$
0.35




1.
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2014 includes 2.1 million shares underlying certain stock options and restricted stock units, and 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017.
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2015 includes 1.4 million shares underlying certain stock options and restricted stock units, 4.3 million shares underlying Ciena's 4.0% convertible senior notes, due March 15, 2015, 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 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 fiscal second quarter of 2014 requires adding back interest expense of approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 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 second quarter of fiscal 2015 requires adding back interest expense of approximately $1.1 million associated with Ciena's 4.0% convertible senior notes, due March 15, 2015, approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 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 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 expense - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
•
Acquisition and integration costs - reflects non-recurring legal and accounting costs associated with the pending acquisition of Cyan. 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.
•
Settlement of patent litigation - included in general and administrative expense during the second quarter of fiscal 2014 is a $2.0 million patent litigation settlement.
•
Non-cash expense associated with the conversion of convertible notes - a non-cash expense related to certain private exchange offers conducted with several holders of Ciena's 4.0% senior convertible notes due March 15, 2015 prior to maturity of such notes.
•
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.
•
Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes due March 15, 2015.





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