Ciena Annual Report 2011

FY2011 Annual Report · Ciena

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: the network specialist

engage. transform. evolve. annual report 2011

improved operating leverage
broadened customer relationships
accelerated growth strategy
enhanced product portfolio
expanded addressable markets and applications

Ciena is the network specialist. Ciena Corporation specializes in helping our customers transition their networks so they
can better serve their customers in a rapidly evolving industry landscape. We offer leading network infrastructure solutions,
intelligent software and a comprehensive services practice to help our customers use their networks to fundamentally
change the way they compete. With a global presence, Ciena leverages its heritage of practical innovation to deliver
maximum performance and economic value in communications networks worldwide.

Ciena’s portfolio of software-centric optical and Ethernet platforms combine network element programmability, network
automation and comprehensive network management to create a next-generation network on which new services and
applications can be delivered. Our solutions form the foundation of many of the largest, most reliable and sophisticated
service provider, enterprise, government, and research and education networks across the globe.

A letter from Gary B. Smith, President & Chief Executive Officer

Fiscal 2011 was a productive year for Ciena, during which we solidified a platform for

growing our business, extended our technology leadership, grew faster than the market,

and returned to as-adjusted profitability. As a result, we are in a strong position to

deliver greater operating leverage and profitability by taking our differentiated strategy

to the next level.

At a time when multiple demands and new applications

industry—and especially for Ciena—as we are in

are increasing their strain on legacy networks and business

the relatively early stages of a multi-year network

models, the market is rediscovering the importance of

modernization movement.

the network and the role it plays in providing a premium

experience to end users. Simply put, the network matters

As we reflect on our performance in fiscal 2011, there

again, and Ciena is leading the charge. As the network

were a number of key accomplishments that helped us

specialist, we place an emphasis on innovation that puts

achieve this position of strength. We met the last of our

unprecedented levels of intelligence in the network to

critical operational milestones for the integration of

enable fast, reliable, secure communications, and we

Nortel’s Metro Ethernet Networks (MEN) business by

are uniquely placed with leading technologies and

completing the transition of all back-office operations to

deep customer trust. This is a truly exciting time for the

Ciena systems in the first quarter. By mid-year, we had

successfully integrated our product portfolio by cross-

Revenue growth is critical to the continued improvement

pollinating key technologies and bringing our entire

we expect in our financial position. Despite remaining

solution set under unified management. Closing the

uncertainty about the overall global economy, Ciena’s

chapter on the integration phase of our transformation

revenue grew more than 10 percent in the second half of

then allowed us to turn our focus from combining

the year when comparing the respective periods of fiscal

operations to optimizing our systems and processes

2010 and 2011. This growth is attributable to a number

to gain additional efficiencies. And, we saw the initial

of factors. First, our team was successful in leveraging

results of those efforts reflected in the fourth quarter,

Ciena’s technology leadership to take market share from

including strong free cash flow, a second consecutive

players across the competitive spectrum. Second, our

quarter of as-adjusted operating profitability, and

ability to bring unique value to applications that are

$600 million in cash and investments.

increasingly vital to networked communications was hard

2011 Major Wins

Our momentum can be measured by the diverse wins we’ve seen during the year—wins that span products,
applications, and the globe.

Jan 25

Oct 24

Mobily Selects Ciena for Strategic Next-

Fibertech Networks Selects Ciena to

Generation Network in the Middle East

Deliver Mobile Backhaul Network

Feb 1

Oct 31

SEA-ME-WE 4 cable system to upgrade

with 40G/100G technologies, significantly

Southern Cross Cable Future Proofs
Network with Ciena Upgrade

increasing its overall capacity

Mar 9

Nov 30

Ciena and Internet2 Partner on New

AAPT Selects Ciena for Nationwide Business

National 100G Network

Ethernet Services Build

Jun 20

Dec 1

Comcast Deploys Ciena for Metro

BT Expands 21CN Using Ciena’s Next

Ethernet Services

Generation of High Bandwidth Optical

DWDM Technology

PAGE 2 ANNUAl REPORT 2011

Strong Product Mix*

Operating Profit*

Cash Position

3.5%

$592M

$537M

20%

65%

Transport 65%
Switching 9%

CES 6%
SW and Svcs 20%

*Product Mix is for FY Q4’11

-3.1%

4Q10

*As adjusted

4Q11

3Q11

4Q11

at work. Growth in data, video, mobility, and virtualization

Our customers have noticed our progress. The recent

continued to be healthy demand drivers for bandwidth

global survey by Infonetics, a research firm focused on

creation, automation and management in 2011, and we

our industry, shows that Ciena is considered by global

also are now seeing a ramp in machine-to-machine (M2M)

service providers to be the leader in multiple categories. Of

communications driven by smart consumer devices

and cloud computing applications, representing new

opportunities for Ciena.

note, Ciena is #1 in customer awareness; #1 in technology;

#1 in R&D and roadmap; #1 in overall transport and

switching; and #1 in packet optical transport.

These trends are intersecting at the right time for Ciena

as customers look to leverage new technologies and

modernize their networks. In 2011, we took advantage of

being the only supplier with a viable commercial solution

for 100G networking and began deploying in earnest.

As bandwidth grows rapidly, customers increasingly are

adopting OTN architectures as a means of automating

the provisioning and management of that bandwidth,

and only Ciena delivers an OTN switching solution that

delivers this capability with an intelligent control plane

that offers more than 10 years of development and market

validation. Ciena also provides the most automated on

and off ramps to these ultra high-bandwidth networks

This is great momentum. looking ahead to 2012, we

intend to translate momentum into greater operating

leverage and profitability by further developing our

highly differentiated market position as the network

specialist. This includes expanding Ciena’s go-to-market

approach, evolving our research and development focus,

and intensifying our efforts on operational efficiencies.

As the network specialist, Ciena has carved out a unique

role for ourselves in the networking marketplace. Our

customer engagement methodology is to develop high-

touch relationships that are focused first on understanding

each customer’s specific business objectives, and then

on creating solutions that tailor the right technologies

through our Carrier Ethernet solutions. And, as our

to enable the network to operate as a strategic business

customers look to their suppliers to deliver more, Ciena

asset. It is an approach based on mutual trust. In 2012,

offers unified management software to simplify the

we will apply this approach to more verticals, more

operations of these integrated networks.

applications, and more geographies. Our direct field

ANNUAl REPORT 2011 PAGE 3

Our specialist strategy is earning us the trust necessary to closely partner with customers,
delivering these technologies as we out-innovate our competition. This unique capability
gives us the platform to drive the next phase of growth and profitability.

organization will be complemented with strategic
partnerships that are structured to efficiently achieve our
growth objectives in specific markets. In addition, we are
enhancing our services organization with intensified focus
on design, development and delivery of new advanced
professional services—tapping the distinct insights
we have gained from years of running a collaborative
customer engagement model.

Particular focus will be given to Ciena’s supply chain,

where we intend to streamline the structure and reduce

costs. We also will focus on redesigning and automating

some of our business processes, systems, and resources.

We believe these efforts, along with revenue growth and

design-based cost reductions in our new products, will

result in more operating leverage in fiscal 2012.

Another distinguishing aspect of our network specialist
role is our focus on strategic, next-generation technologies.
In 2012, we will work to more tightly align our R&D
investment strategy to ensure that these technologies
are ideal not only for our traditional accounts, but also
for more growth applications and customer types beyond
our service provider base of customers, including large
enterprises and government agencies, cable and
multiservice operators, submarine networks, Internet
content providers and delivery networks, cloud-based
services, and business Ethernet services.

We believe that we have an opportunity in 2012 to begin
to deliver against another expectation as the network
specialist—world-class business operations and efficiency.
Our principal aim during the MEN integration was to
minimize disruptions to customers while combining the
companies and not add risk by attempting to re-engineer
operations at the same time. Thanks to the hard work
of our employees, the integration went exceedingly
well, and to the great satisfaction of our customers.
While deliberate in this approach to ensure a timely and

successful integration, we now have many opportunities

to fine-tune our operations.

PAGE 4 ANNUAl REPORT 2011

We are very proud of the progress we made in 2011, and we

expect 2012 to be another good year. We believe Ciena

is very well positioned to lead our customers through the

network modernization movement. This critical evolution

requires the convergence of key technologies over the next

several years, enabling customers to apply intelligence to

their networks and manage an increasing amount of diverse

traffic. Our specialist strategy is earning us the trust

necessary to closely partner with customers, delivering

these technologies as we out-innovate our competition.

This unique capability gives us the platform to drive the

next phase of growth and profitability. The early results

of our efforts are encouraging, and as we execute on our

2012 initiatives we intend to expand our market, technology

and thought leadership, setting our sights on emerging

opportunities. My thanks to our employees, customers,

partners and stakeholders as we continue to grow and

become an even more valuable player in our space.

Gary B. Smith
President and Chief Executive Officer

10-K

ciena corporation

UNITED STATES STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2011

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-21969

Ciena Corporation

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

Incorporation or organization)

1201 Winterson Road, Linthicum, MD

(Address of principal executive offices)

23-2725311

(I.R.S. Employer

Identification No.)

21090-2205

(Zip Code)

(410) 865-8500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $0.01 par value

Name of Each Exchange on Which Registered
The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4-5 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). YES

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was approximately $2.1 billion based on the
closing price of the Common Stock on the NASDAQ Global Select Market on April 29, 2011.

The number of shares of Registrant’s Common Stock outstanding as of December 15, 2011 was 97,442,608.

Part III of the Form 10-K incorporates by reference certain portions of the Registrant’s definitive proxy statement for its 2012 Annual Meeting of
Stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.

DOCUMENTS INCORPORATED BY REFERENCE

CIENA CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED OCTOBER 31, 2011

TABLE OF CONTENTS

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Removed and Reserved

PART I

PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. Selected Consolidated Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

PART III

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Signatures

PART IV

Page

PART I

The information in this annual report contains certain forward-looking statements, including statements related to our
business prospects and strategies, the markets for our products and services, and trends in our business and markets that
involve risks and uncertainties. Our actual results may differ materially from the results discussed in these forward-looking
statements. Factors that might cause such a difference include those discussed in “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this annual report.

Item 1. Business

Overview

We are a provider of equipment, software and service solutions that support the transport, switching, aggregation and
management of voice, video and data traffic on communications networks. Our Packet-Optical Transport, Packet-Optical
Switching and Carrier Ethernet Solutions products are deployed and used, individually or as part of an integrated solution, in
communications networks operated by communications service providers, cable operators, governments, enterprises and other
network operators around the globe.

We are a network specialist focused on the modernization and transition of disparate, legacy network infrastructures to
converged, next-generation architectures, optimized to handle a broader mix of high-bandwidth communications services. Our
product portfolio consists of our Packet-Optical Transport, Packet-Optical Switching and Carrier Ethernet Solutions products
that enable network operators to scale capacity and increase transmission speeds, transport and efficiently allocate network
traffic, and deliver communication services to business and consumer end users. Our network solutions also include our Ciena
One software suite for unified network management and network planning and design, as well as a broad offering of advanced
network consulting, design, implementation and support services.

Our customers face a challenging and rapidly changing environment that requires their networks be robust enough to
address increasing capacity needs and flexible enough to quickly adapt to emerging applications and evolving consumer and
business use of communications services. Our solutions seek to enable software-defined, automated, next-generation networks
that better address the business challenges, infrastructure requirements and service delivery needs of our customers. By
improving network productivity and automation, reducing network costs and enabling rapid deployment of differentiated
service offerings, our communications networking solutions create business and operational value for our customers.

Segment Data and Certain Financial Information

We currently organize our operations into four separate operating segments: “Packet-Optical Transport,” “Packet-Optical
Switching,” “Carrier Ethernet Solutions,” and “Software and Services.” The matters discussed in this “Business” section should
be read in conjunction with the Consolidated Financial Statements found under Item 8 of Part II of this annual report, which
include additional financial information about our operating segments, total assets, revenue, measures of profit and loss, and
financial information about geographic areas and customers representing greater than 10% of revenue.

On March 19, 2010, we completed our acquisition of substantially all of the optical networking and Carrier Ethernet assets

of Nortel's Metro Ethernet Networks business (the “MEN Business”). See Note 2 to the Consolidated Financial Statements
found under Item 8 of Part II of this annual report for additional information relating to this transaction (the “MEN
Acquisition”) and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of
Part II of this annual report, for additional information describing its effect on our business, results of operations and financial
position.

We generated revenue of $1.7 billion in fiscal 2011, as compared to $1.2 billion in fiscal 2010. Annual revenue growth in
fiscal 2011 reflects, in part, the inclusion of the operations of the MEN Business for a full fiscal year in 2011, as compared to
the period after March 19, 2010 in fiscal 2010. For more information regarding our results of operations, see “Management's
Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this annual report.

Corporate Information and Access to SEC Reports

We were incorporated in Delaware in November 1992 and completed our initial public offering on February 7, 1997. Our
principal executive offices are located at 1201 Winterson Road, Linthicum, Maryland 21090. Our telephone number is
(410) 865-8500, and our web site address is www.ciena.com. We make our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge on the "Investors" page of
our web site as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission (SEC).

We routinely post the reports above, recent news and announcements, financial results and other important information about
our business on our website at www.ciena.com. Information contained on our web site is not a part of this annual report.

Industry Background

The markets in which we sell our communications networking solutions have been subject to dynamic changes in recent

years, including significant growth in network traffic, expanded service offerings, and evolving technologies and end user
demands. These conditions have created market opportunities and business challenges and changed competitive landscapes.
Existing and emerging network operators are competing to distinguish their service offerings and add revenue generating
services while seeking to manage capital expenditures and operate their businesses profitably. We believe these market
dynamics will cause network operators to adopt communications infrastructures that are increasingly more automated, robust
and adaptable.

Network Traffic Growth Driving Increased Capacity Requirements Transmission Speeds

Optical networks, which carry voice, video and data traffic using multiple wavelengths of light across fiber optic cables,
have experienced a multi-year period of strong traffic growth, and continued growth is projected by industry analysts for the
foreseeable future. Increasing network traffic is being driven by growing use of and reliance upon a broad range of
communications services by consumer and business end users, as well as the expansion of bandwidth intensive, wireline and
wireless service offerings. Business customers seeking to improve automation, efficiency and productivity are increasingly
dependent upon bandwidth-intensive, enterprise-oriented communications services that facilitate global operations, employee
mobility and seamless access to critical business applications and data. At the same time, an increasing portion of network
traffic is being driven by growth of consumer-oriented applications and consumer adoption of broadband technologies. These
include peer-to-peer Internet applications, residential video services, online gaming, and music downloads and consumer-
oriented cloud-based services. Expanding mobile applications, including Internet, video and data services from the proliferation
of smartphones, tablets and other devices with wireless access, are further increasing network traffic. In addition, technology
trends such as IT virtualization, cloud computing and machine-to-machine connections are placing new capacity and service
requirements on networks. This traffic growth requires that network operators add capacity or transition to higher capacity
networks with increased transmission speeds.

Multiservice Traffic and Transition to Flexible Network Architectures

We expect that the broadening mix of high-bandwidth, data and video communications services, together with growing
mobility and expanding wireless applications, will require upgrades to existing network infrastructure, including mobile
backhaul and traditional wireline networks. This mix of high-bandwidth and latency-sensitive data traffic, and an increased
focus on controlling network costs, are driving a transition from multiple, disparate SONET/SDH-based networks to more
efficient, converged, multi-purpose optical transport network (OTN)/Ethernet packet-based network architectures. The industry
has seen network technology transitions like this in the past. These upgrade and investment cycles tend to happen over multi-
year periods. For instance, from the mid 1980s to the mid 1990s, service providers focused network upgrades on the transition
required to digitize voice traffic. From the mid 1990s to the mid 2000s, service providers focused network upgrades on the
transition to SONET/SDH networks designed to reliably handle substantially more network traffic. We believe that the industry
is currently in the early stages of network transition to flexible, multi-purpose OTN/Ethernet packet-based network
architectures that more efficiently handle a growing mix of high-bandwidth communications services and a greater
concentration of data traffic.

Emerging Drivers for Network Modernization

Enterprise and consumer end users used to perceive value simply in their network connectivity. Today, however, end users

are increasingly focused upon the value they receive from, and have increased expectations of, the specific services or
applications they utilize and the performance level delivered by the underlying network. As a result, network operators need to
create, market, and sell profitable services as opposed to simply selling connectivity. This shift fundamentally changes how
communications networks are designed and managed. Some of the areas that network operators are pursuing to better compete
and drive end user value include:

•

IT Virtualization. IT Virtualization moves a physical resource from a user's desktop into the network, thereby making
more efficient use of information technology resources. This approach has many appealing attributes such as lowering
barriers of entry into new markets, and adding flexibility to scale certain aspects of a business faster and with less
expense.

•

“Cloud” Services. Cloud services are characterized by the sharing of computing, storage and network resources to
improve economics through higher utilization efficiencies. IT and network service providers are centralizing these
resources in order to offer usage-based and metered services that are hosted remotely across a network. Smaller
enterprises and consumers can subscribe to an expanding range of cloud services to replace local computing and
storage requirements. Larger enterprises and data center operators may use private clouds to consolidate their own
resources and public clouds to accommodate peak demand situations, often in combination.

• Mobility. The emergence of smart mobile devices that deliver integrated voice, audio, photo, video, email and mobile
Internet capabilities, like Apple's iPhone™ and iPad™, and Android™-based smart phones and tablets, are rapidly
changing the service type and magnitude of data traffic carried by wireless networks. The increase in availability and
improved ease of use of web-based applications from mobile devices expands the reach of virtualized services beyond
a wireline connection. For instance, consumer-driven video and gaming are being virtualized, allowing broad access to
these applications, regardless of the device or the network used.

• Machine-to-Machine (M2M) Applications. In the past, communications services largely related to the connection of
people-to-people or people with content. Today, the number of networked connections between devices and servers
(machines) is growing rapidly. These connections allow the sharing of data that can be monitored and analyzed by
applications residing on those devices in order to provide value-added services to users. Because of the growing
number and types of devices that can access network connectivity -- especially via wireless connection -- this trend is
expanding from one-to-one M2M connection to entire networks of many-to-many M2M connections. We expect
service traffic relating to the interconnection of machines or devices to grow as Internet and cloud content delivery,
smartgrid applications, health care and safety monitoring, resource/inventory management, home entertainment,
consumer appliances and other mobile data applications become more widely adopted.

Market Conditions and Effect on Network Investment

The sustained period of macroeconomic weakness and volatility in the global economy and in capital markets in recent

years has resulted in heightened uncertainty and cautious customer behavior and capital expenditures in our industry and
markets. These dynamics have caused increased customer scrutiny, and more rigid prioritization, of network investment,
resulting in protracted sales cycles, lengthier network deployments, revenue recognition delays and extended collection cycles,
particularly for international network projects. Our customers seek to create and rapidly deliver new, robust service offerings
and dedicated communications operating at increasing speeds to differentiate from competitors and grow their business. At the
same time, they are increasingly seeking ways to optimize their network operating and capital costs. We believe that these
dynamics, together with multiservice capacity growth, are driving a shift in network priorities and spending toward high-
capacity, next-generation network architectures. By utilizing scalable, adaptable networks that offer greater flexibility for
delivery of new services, and are also less complex and expensive to operate, network operators can derive increased value
from their network investments.

Strategy

During the second half of fiscal 2010 and most of fiscal 2011, we were focused to a significant extent on the critical
integration activities relating to the MEN Acquisition and our combined operating milestones. Having successfully completed
these activities, we are now entering the next phase of our corporate strategy, centered around the targeted growth and
optimization of our business in order to achieve improved operating leverage and deliver the full value of the MEN
Acquisition.

The underpinning of this corporate strategy lies in our positioning and approach as the network specialist. This approach is
rooted in continued investment in our solutions and focused innovation in next-generation technologies that target high-growth
applications and markets and the network and business priorities of our customers. This approach also seeks to leverage the
insight we provide customers from our intimate and collaborative engagement model, based on outstanding people, trust and
network experience. Key components of this corporate strategy are set forth below.

Evolve Go-to-Market Model. We seek to evolve our go-to-market model, both from a coverage and an engagement

perspective.

Coverage. Our coverage model is focused on penetrating high-growth geographic markets, selling into emerging
customer segments and addressing additional network applications with our solutions. We seek to enhance our brand
internationally, expand our geographic reach and capture market share in international markets, including Brazil, the
Middle East, Russia, Japan and India. We intend to pursue opportunities to diversify our customer base and seek to grow
6

our sales to wireless providers, cable and multiservice operators, enterprises, government agencies, and research and
educational institutions. We are also targeting network operators emerging as a result of network modernization drivers and
the introduction and adoption of new communication services and applications. In particular, we seek to sell our solutions
to support additional network applications, including in submarine networks, Internet content providers, cloud-based
services, business Ethernet services and mobile backhaul. We intend to pursue sales initiatives and strategic channel
opportunities, including relationships with resellers, service providers, other vendors and integrators, to complement our
direct sales force and more deeply penetrate these geographic markets, customers and applications.

Engagement. Our strategy is to leverage our close relationship with customers in the design, development,

implementation and support of their networks and to promote a close alignment of our solutions with customer network
priorities. This engagement model is a key differentiator for our business and provides us with unique insight into the
business and network needs of our customers. We seek to offer an expanded portfolio of advanced professional services
that address the network modernization demands and business needs of our customers. We believe this services-oriented,
solutions offering shifts our value proposition beyond the sale of our next-generation communications networking products
and allows us to better participate in the evolution of our customers' networks. By understanding and addressing their
network infrastructure needs, the competitive landscape, and the evolving markets in which our customers compete, we
believe this customized solutions offering creates additional business and operational value for our customers, enabling
them to better compete in a challenging environment.

Alignment of Research and Development Investment with Growth Opportunities. We seek to ensure that our product
development initiatives and investments are closely aligned with current and future market growth opportunities. As end-user
needs evolve, opportunities are emerging that allow us to expand our role in our customers' networks. We intend to apply our
“intelligent infrastructure” approach -- a cost-optimized network platform that enables virtualization, mobility, and greater
scale, bandwidth management and automation -- to high-growth markets, applications and customer segments. These include
enterprise-oriented applications, optimized submarine cable solutions, Internet content delivery, cloud service infrastructure and
packet-based infrastructure solutions for next-generation, high-capacity networks. Through a combination of technology
innovation, as well as cross-selling and other sales initiatives, we seek to drive additional business from these growth
applications and customer segments.

Promote our network approach and vision. The services and applications running on communications networks are

requiring that more of the traffic on these networks be packet-oriented. The traditional approach to this problem has been to add
IP routing capability at various points in the network. As capacity needs grow, this approach becomes unnecessarily complex
and costly. We reduce the cost and complexity of growing these networks by bringing together the reliability and capacity of
optical networking with the flexibility and economics of Ethernet, unified by our integrated network management software --
something we call “converged optical Ethernet.” Converged optical Ethernet creates a network that is resilient, reconfigurable
and automated. We believe that these attributes are essential to supporting next-generation services and applications at the
performance level required by end users. We intend to promote the scalability, flexibility and cost effectiveness advantages of
our implementation of next-generation network architectures and see opportunities in providing a portfolio of carrier-class
solutions that facilitate the transition to converged optical Ethernet networks.

Business optimization to yield operating leverage. We seek to improve the operational efficiencies in our business, and

thereby gain additional operating leverage in order to achieve our target operating model goals. We are focused on the
transformation and operational redesign of certain business processes, systems, infrastructure and resources. These initiatives
include additional investments and further reengineering and automation of certain key business processes, including the
engagement of strategic partners or resources to assist with select business functions. In addition, we are focused on optimizing
our supply chain structure in order to reduce our costs and overhead. These initiatives include the rationalization and
consolidation of third party manufacturers, distribution sites and logistics providers, the pursuit of a direct order fulfillment
model for additional products, and the consideration of select vertical integration within our supply chain. We seek to leverage
these and other longer-term opportunities to promote and ensure the profitable growth of our business.

Customers and Markets

Our customer base, and the geographic markets and customer segments into which we sell our products and services, have

expanded in recent years. As a result of industry dynamics above, additional network operators supporting new
communications services and applications continue to emerge. The network infrastructure needs of our customers vary,
depending upon their size, location, the nature of their end users and the services that they deliver and support. We sell our
product and service solutions through our direct sales force and third party channel partners to end user network operators in
the following customer segments:

Communications Service Providers

Our service provider customers include regional, national and international wireline and wireless carriers, as well as
service provider consortia offering services over submarine networks. Our customers include AT&T, Bell Canada, BT, Cable &
Wireless, CenturyLink, France Telecom, Korea Telecom, Sprint, Tata Communications, Telefonica, Telmex, Telus, Verizon and
XO Communications. Communications service providers are our historical customer base and continue to represent a
significant majority of our revenue. We provide service providers with products from the network core to its edge where end
users gain access. Our service provider solutions address growing bandwidth demand from multiservice traffic growth and
support key service provider offerings, including carrier-managed services, wide area network (WAN) consolidation, inter-site
connectivity, storage extension, business continuity and Ethernet services.

Cable Operators

Our customers include leading cable and multiservice operators in the U.S. and internationally. These customers include
Cogeco, Comcast, Cox, RCN, Rogers and Time Warner. Our cable and multiservice operator customers rely upon us for carrier-
grade, converged optical Ethernet transport and switching products to support enterprise-oriented services. Our platforms allow
cable operators to integrate voice, video and data applications over a converged infrastructure and scale their networking
infrastructure to keep ahead of the bandwidth and application demands of their subscribers. Our products support key cable
applications including business Ethernet services, wireless backhaul, broadcast and digital video, voice over IP, and video on
demand.

Enterprise

Our enterprise customers include large, multi-site commercial organizations, including participants in the financial, health
care, transportation, utilities and retail industries. Our end users and customers include the Australian Stock Exchange, Bank of
America, Barclays, Gannett, Goldman Sachs, Hong Kong Stock Exchange, Iowa Health System, Korea Exchange, Nielsen
Media Research, NYSE Euronext, Saint Francis Hospital in Hartford, Swiss Broadcasting Corporation and UC Health in
Cincinnati. Our solutions enable enterprises to achieve operational improvements, increased automation and information
technology cost reductions. Our products enable inter-site connectivity between data centers, sales offices, manufacturing
plants, retail stores and research and development centers, using an owned or leased private fiber network or a carrier-managed
service. Our products facilitate key enterprise applications including IT virtualization, data, voice and video transport, business
Ethernet services, storage extension, business continuity, online collaboration, video conferencing, cloud computing, low
latency networking and WAN encryption. Our products also enable our enterprise customers to prevent unexpected network
downtime and ensure the safety, security and availability of their data.

Government, Research and Education

Our government customers include federal and state agencies in the U.S. as well as international government entities. Our

end users and customers include domestic and international research and education institutions, including California Institute of
Technology, CANARIE, Internet2, JANET, MAGPI, MIT, Northwestern University, RENATER, SURFnet, Swedish University
Network (SUNET) and VERNet. Our government and research and education customers seek to take advantage of technology
innovation, improve their information infrastructure, and facilitate increased collaboration. Our solutions feature ultra-high
capacity, reconfigurability and service flexibility to meet the requirements of supercomputing systems. Our solutions offering
enables these customers to improve network performance, capacity, security, reliability and flexibility. We collaborate with
leading institutions to provide government and research and education communities with optimized networks that minimize
cost and complexity, through initiatives that support intelligent control plane technologies, interoperability and scalability.

Products and Services

Our product portfolio consists of our Packet-Optical Transport, Packet-Optical Switching and Carrier Ethernet Solutions

products. Through these products, our unified network management software and our advanced and support services offerings,
we offer customers a comprehensive solution to address their communications network priorities.

Packet-Optical Transport

Our Packet-Optical Transport platforms include flexible, scalable wavelength division multiplexing (WDM) solutions that

add capacity to core, regional and metro networks and enable cost-effective and efficient transport of voice, video and data
traffic. We offer scalable Packet-Optical Transport platforms, including several chassis sizes and a comprehensive set of line
cards, that can be utilized from the customer premises, where space and power are critical, to the metropolitan/regional core,

where the need for high capacity and carrier-class performance are essential. By automating optical infrastructures, our Packet-
Optical Transport products support the efficient delivery of a wide variety of consumer-oriented network services, as well as
key managed service and enterprise applications. Our Packet-Optical Transport portfolio includes the following products:

6500 Packet-Optical Platform;
4200® Advanced Services Platform;
5100/5200 Advanced Services Platform;

•
•
•
• Corestream® Agility Optical Transport System;
• Common Photonic Layer (CPL); and
6100 Multiservice Optical Platform.
•

Our Packet-Optical Transport portfolio, including our 6500 Packet-Optical Platform and 4200 Advanced Services
Platform, features coherent, 40G and 100G optical transport technology and our WaveLogic Coherent Optical Processors.
These proprietary silicon chips facilitate deployment of our transport technology over existing customer fiber plant (terrestrial
and submarine), enable our optical transmission systems to scale capacity to 40G and 100G, and yield additional economic
benefits through the reduction or elimination of network equipment, such as amplifiers, regenerators and dispersion
compensating devices. Our Packet-Optical Transport solutions also include legacy SONET/SDH products and legacy data
networking products, as well as certain enterprise-oriented transport solutions that support storage and local area network
(LAN) extension, interconnection of data centers, and virtual private networks.

Packet-Optical Switching

Our Packet-Optical Switching family of products provides time division multiplexing (TDM) switching and packet

switching capability to allocate network capacity and enable service delivery. Our principal Packet-Optical Switching products
are our CoreDirector® Multiservice Optical Switch, our 5430 Reconfigurable Switching System and our OTN configuration
for the 5410 Reconfigurable Switching System. This product segment includes multiservice, multi-protocol switching systems
that consolidate the functionality of an add/drop multiplexer, digital cross-connect and packet switch into a single, high-
capacity intelligent switching system. These products address both core and metro segments of communications networks and
support key managed services, including Ethernet/TDM Private Line, Triple Play and IP services. Our Packet-Optical
Switching solutions include a family of multi-terabit reconfigurable switching systems that utilize intelligent mesh networking
to provide resiliency and feature an integrated optical control plane to automate the provisioning and bandwidth control of
high-capacity services. Our Packet-Optical Switching systems flexibly support a mix of Carrier Ethernet/MPLS, OTN, WDM,
and SONET/SDH switching to facilitate the transition to a service-enabling infrastructure.

Carrier Ethernet Solutions

Our Carrier Ethernet Solutions allow customers to utilize the automation and capacity created by our Packet-Optical

Transport products in core and metro networks and deliver new, revenue-generating services to consumers and enterprises.
These products have applications from the edge of metro and core networks, where they aggregate traffic, to the access tiers of
networks where they can be deployed to support wireless backhaul infrastructures and deliver business data services.
Employing sophisticated Carrier Ethernet switching technology, these products deliver quality of service capabilities, virtual
local area networking and switching functions, and carrier-grade operations, administration, and maintenance features.

Our Carrier Ethernet Solutions offering primarily consists of our 3000 family of service delivery switches and service
aggregation switches, our 5000 series of service aggregation switches, and our Carrier Ethernet configuration for the 5410
Service Aggregation Switch. Our service delivery and packet aggregation switches provide True Carrier Ethernet, a more
reliable and feature rich type of Ethernet that can support a wider variety of services. Service delivery products are often used
at customer premises locations while aggregation platforms are used to combine services to improve network resource
utilization. This segment also includes our legacy broadband products, including our CNX-5 Broadband DSL System (CNX-5),
that transitions legacy voice networks to support IP-based telephony, video services and DSL.

Unified Software and Service Management Tools

Our integrated software offering, the Ciena One software suite, includes OneControl, our network management software
that unifies our product portfolio and provides the automation and management features that enable efficient service delivery.
Our network management tools offer a comprehensive set of functions, from monitoring network health and provisioning the
network to full service level management across a variety of network layers and domains. Our Ciena One software suite is a
robust, service aware framework that improves network utilization and availability, while delivering enhanced performance
monitoring and reliability. By increasing network automation, minimizing network downtime and monitoring network

performance and service metrics, our software tools enable customers to improve cost effectiveness, while increasing the
performance and functionality of their network operations. This software suite also includes a number of planning tools,
including Ciena OnePlanner, which helps network operators better utilize their networks. In addition to Ciena One, our
software offering includes our ON-Center® Network & Service Management Suite, and the OMEA and Preside platforms from
the MEN Business.

Advanced and Support Services

To complement our product portfolio, we offer a broad range of advanced consulting and support services that help our
customers design, optimize, deploy, manage and maintain their communications networks. We believe that our broad set of
service offerings is an important component of our network specialist approach and a significant differentiator with customers.
We believe that our advanced services offering and our close collaborative engagement with customers provide us with valued
insight into network and business challenges faced by our customers. Our advanced and support services offering enables our
network specialist approach in the assessment, planning, deployment, and support of customer network architectures. We
believe that customers place significant value on the strategic, consultative engagements afforded by our advanced and support
services, and our ability to partner with them through services-oriented solutions that address their network and business needs.

Our services and support portfolio includes the following offerings:

• Network analysis, planning and design;
• Network optimization and tuning;
•
Project management, including staging, site preparation and installation activities;
• Deployment services, including turnkey installation and turn-up and test services; and
• Maintenance and support services, including:

•
•
•
•
•

helpdesk, technical assistance and training;
spares and logistics management;
engineering dispatch and on-site professional services;
equipment repair and replacement; and
software maintenance and updates.

We provide these services through our internal resources as well as through qualified, third party service partners.

Product Development

Our industry is subject to rapid technological developments, evolving service delivery requirements, standards and
protocols, and shifts in customer and end user network demand. To remain competitive, we must continually enhance existing
product platforms by adding new features and functionality and introducing new product platforms that address multiservice
traffic growth, enable new service offerings and facilitate the transition to converged optical Ethernet networking. Our research
and development strategy has been to pursue technology convergence, which allows us to consolidate multiple features and
functionalities found on different Ciena product platforms onto a single platform. We believe this approach creates more robust
and cost-effective network solutions for our customers. In addition, our current development investments are focused upon:

• Extending our Packet-Optical Transport leadership in 40G and 100G long-haul transport, and making metropolitan
network applications more cost effective for network operators, through continued development of our coherent
transmission technology to further improve network capacity, transmission speed, flexibility, performance, spectral
efficiency and reach;

• Enhancing our data-optimized, Packet-Optical Switching solutions to enable an end-to-end Optical Transport Network

(OTN) architecture that offers improved cost per bit, flexibility and reliability;

• Expanding our Carrier Ethernet Solutions portfolio, including high-capacity Ethernet metro aggregation switches for

•

mobile backhaul and business Ethernet services; and
Interoperability and enhancing our control plane and integrated network management software platform to enable
service level management across our solutions.

Our product development initiatives also include design and development work intended to address growing opportunities,
such as metropolitan network applications, enterprise networking, cloud infrastructure and packet-based infrastructure solutions
for next-generation, high-capacity networks. Our research and development efforts are also geared toward engineering changes
intended to drive cost reductions in the manufacture of our products.

To ensure that our product development investments and solutions offering are closely aligned with market demand, we
10

continually seek input from customers and promote collaboration among our product development, marketing and global field
organizations. In some cases, we work with third parties pursuant to technology licenses, original equipment manufacturer
(OEM) arrangements and other strategic technology relationships or investments, to develop new components or products,
modify existing platforms or offer complementary technology to our customers. In addition, we participate in industry and
standards organizations, where appropriate, and incorporate information from these affiliations throughout the product
development process.

We regularly review our existing product offerings and prospective development projects to determine their fit within our
portfolio and broader corporate strategy. We assess the market demand, technology evolution, prospective return on investment
and growth opportunities, as well as the costs and resources necessary to develop and support these products. In recent years,
our strategy has been to pursue technology and product convergence that allows us to consolidate multiple technologies and
functionalities on a single platform, or to control and manage multiple elements throughout the network from a uniform
management system, ultimately creating more robust, integrated and cost-effective network tools. We have also shifted our
strategic development approach from delivering point products to providing a focused combination of networking equipment,
software and service solutions that address the business and network needs of our customers.

Within our global products group, we maintain a team of skilled engineers with extensive experience in the areas of
photonics, packet and circuit switching, network system design, embedded operating system and network management
software. Our research and development expense was $190.3 million, $327.6 million and $379.9 million, for fiscal 2009, 2010
and 2011, respectively. The increased expense in fiscal 2010 and 2011 reflects the timing of the MEN Acquisition in the second
quarter of fiscal 2010, including the related additions to our product portfolio, expanded development initiatives and increased
engineering headcount and overhead. For more information regarding our research and development expense, see
“Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.

Sales and Marketing

We sell our communications networking solutions through our direct sales resources as well as through strategic channel
relationships. In addition to securing new customers in growth geographies and customer market segments, our sales strategy
has focused on building long-term, consultative relationships with existing customers. We believe this approach promotes our
network specialist approach and helps ensure the alignment of our expertise with the business and network requirements of our
customers. We believe this approach also provides opportunities to participate in future projects relating to the transition or
expansion of existing network infrastructures and to cross-sell solutions across our portfolio.

Within our global field operations, we maintain a direct sales presence that is organized geographically around the following
markets: (i) U.S. and Canada; (ii) Caribbean and Latin America; (iii) Europe, Middle East and Africa; and (iv) Asia-Pacific.
These regions include sales personnel that focus on one or more of the following customer segments: communications service
providers including wireless providers, cable and multiservice operators, enterprise customers and government, research and
education. Within each geographic area, we maintain regional, country and/or customer-specific teams, including sales
management, account salespersons, systems engineers and strategic marketing, services and commercial management
personnel, who ensure we operate closely with and provide a high level of support to our customers. We also maintain global
sales teams that focus on submarine network opportunities and emerging customer segments including Internet content and
cloud infrastructure providers.

We also maintain a global channel program that works with resellers, systems integrators, service providers, and other third
party distributors who market and sell our products and services. Our third party channel sales and other distribution
arrangements enable us to leverage our direct sales resources and reach additional geographic regions and customer segments.
We intend to pursue and foster a small number of strategic channel relationships in an effort to enable us to sell our products as
a complement to the broader offering of these vendors or integrators, including in particular, in support of enterprise-oriented
applications. We also see opportunities to leverage these strategic channel relationships to address additional customer
segments, emerging applications for our solutions and growth geographies. Our use of channel partners has been a key
component in our sales to government, research and education and enterprise customers. We believe this strategy and our use of
third party channels affords us expanded market opportunities and reduces the financial and operational risk of entering these
additional markets.

To support our sales efforts, we engage in marketing activities intended to position and promote both our brand and our
product, software and service offerings. Our marketing team supports sales efforts through direct customer interaction, industry
events, public relations, industry analysts, social media, tradeshows, our website and other marketing channels for our
customers and channel partners.

Operations and Supply Chain Management

Operations personnel within our global products group manage our relationships with our third party manufacturers and

manage our supply chain. In addition, this team also addresses component procurement and sourcing, product testing and
quality, and logistics relating to our sales, support and professional services, and distribution efforts.

We utilize a global sourcing strategy that emphasizes procurement of materials in lower cost regions. We rely upon third
party manufacturers, with facilities in Canada, China, Mexico, Thailand and the United States, to perform nearly all of the
manufacturing of our products. As a result, we are exposed to risks associated with the businesses of these third parties and the
locations where their manufacturing occurs. These activities can include design and prototype development, component
sourcing, full production, final assembly, testing and customer order fulfillment. We utilize a direct order fulfillment model for
certain products, which allows us to rely on our third party manufacturers to perform final system integration and testing prior
to shipment of products from their facilities directly to our customers. For certain products, we continue to perform a portion of
the module assembly, software application, final system integration and testing internally. We believe that our sourcing and
manufacturing strategy allows us to conserve capital, lower costs of product sales, adjust quickly to changes in market demand,
and operate without dedicating significant resources to manufacturing-related plant and equipment. As part of our effort to
optimize our operations, we continue to focus on driving cost reductions through sourcing and engineering efforts, rationalizing
our supply chain and consolidating third party contract manufacturers, distribution sites and service logistics partners.

Our manufacturers procure components necessary for assembly and manufacture of our products based on our

specifications, approved vendor lists, bill of materials and testing and quality standards. Our manufacturers' activity is based on
rolling forecasts that we provide to them to estimate demand for our products. This build-to-forecast purchase model exposes
us to the risk that our customers will not order those products for which we have forecast sales, or will purchase less than we
have forecast. As a result, we incur carrying charges or obsolete material charges for components purchased by our
manufacturers. We work closely with our manufacturers to manage material, quality, cost and delivery times, and we
continually evaluate their services to ensure performance on a reliable and cost-effective basis.

Shortages in product components have occurred in the past and remain possible. Our products include some components

that are proprietary in nature, only available from one or a small number of suppliers, or manufactured by sole or limited
sources responsible for production. Significant time would be required to establish relationships with alternate suppliers or
providers of critical components. We do not have long-term contracts with any supplier or manufacturer that guarantees supply
of components or manufacturing services. If component supplies become limited, production at a manufacturer is disrupted, or
if we experience difficulty in our relationship with a key supplier or manufacturer, we may encounter manufacturing delays that
could adversely affect our business.

Backlog

Generally, we make sales pursuant to purchase orders issued under framework agreements that govern the general
commercial terms and conditions of the sale of our products and services. These agreements do not obligate customers to
purchase any minimum or guaranteed order quantities. Our backlog includes orders for products that have not been shipped and
for services that have not yet been performed. In addition, backlog also includes orders relating to products that have been
delivered and services that have been performed, but are awaiting customer acceptance under the applicable purchase terms.
Generally, our customers may cancel or change their orders with limited advance notice, or they may decide not to accept these
products and services, although this is infrequent. Orders in backlog may be fulfilled several quarters following receipt or may
relate to multi-year support service obligations. As a result, backlog should not be viewed as an accurate indicator of future
revenue in any particular period.

Our backlog increased from $591.0 million as of October 31, 2010 to $714.1 million as of October 31, 2011. Backlog
includes product and service orders from commercial and government customers combined. Backlog at October 31, 2011
includes approximately $83.5 million primarily related to orders for maintenance and support services that we do not
reasonably expect to be filled within the next fiscal year. Our presentation of backlog may not be comparable with figures
presented by other companies in our industry.

Seasonality

Like other companies in our industry, we have experienced quarterly fluctuations in customer activity due to seasonal
considerations. We have experienced reductions in order volume for product sales toward the end of the calendar year, as the
procurement and deployment cycles of some of our customers slow, and again early in the calendar year, as annual capital
budgets of some of our customers are finalized. Given our October 31 fiscal year end, these seasonal influences have adversely
12

affected our order volume in our first fiscal quarter. Conversely, we have previously experienced increased services order flow
late in the calendar year as maintenance and support service terms are renewed. While we have limited operating history from
which to assess these seasonal effects since the completion of the MEN Acquisition, we believe that this seasonality in our
order flows could result in somewhat weaker revenue results in the first half of our fiscal year, as compared to our revenue for
the second half of our fiscal year. In addition, we have also experienced reductions in customer activity, particularly in Europe,
during the late summer months which has resulted in reduced order activity during our fiscal third quarter, which ends on July
31 of each year. These seasonal effects do not apply consistently and do not always correlate to our financial results.
Accordingly, they should not be considered a reliable indicator of our future revenue or results of operations.

Competition

Competition among communications network solution vendors remains intense. The markets in which we compete are

characterized by rapidly advancing and converging technologies, introduction of new network solutions and selling efforts to
displace incumbent vendors and secure market share. Successfully competing in these markets is based on any one or a
combination of the following factors:

product functionality, speed, capacity, scalability and performance;
price and total cost of ownership;
incumbency and existing business relationships;
product development plans and the ability to meet customers' immediate and future network requirements;
flexibility, including ease of integration, product interoperability and integrated management;

•
•
•
•
•
• manufacturing and lead-time capability; and
•

services and support capabilities.

In this competitive environment, securing new opportunities, particularly in international markets, often requires that we agree
to less favorable commercial terms or pricing, financial commitments requiring collateralized performance bonds or similar
instruments that place cash resources at risk, and other contractual commitments that place a disproportionate allocation of risk
upon the vendor. These terms can adversely affect our result of operations.

Competition for sales of communications networking solutions is dominated by a small number of very large, multi-

national companies. Our competitors have included Alcatel-Lucent, Cisco, Ericsson, Fujitsu, Huawei, Juniper Networks, Nokia
Siemens Networks, Tellabs and ZTE. Many of these competitors have substantially greater financial, operational and marketing
resources than Ciena, significantly broader product offerings or more extensive customer bases. In recent years, mergers among
some of our larger competitors have intensified these advantages. We expect the level of competition, particularly in North
America, to continue and potentially increase, as Chinese equipment vendors seek to gain entry into the U.S. market, and other
multinational competitors seek to retain incumbent positions and market share with large customers in the region.

We also compete with several smaller, but established, companies that offer one or more products that compete directly or
indirectly with our offerings or whose products address specific niches within the markets and customer segments we address.
These competitors include ADVA, BTI, Infinera and Transmode. In addition, there are a variety of earlier-stage companies with
products targeted at specific segments of the communications networking market. These competitors often employ aggressive
competitive and business tactics as they seek to gain entry to certain customers or markets. Due to these practices and the
narrower focus of their development efforts, these competitors may be able to develop and introduce products more quickly, or
offer commercial terms that are more attractive to customers.

Patents, Trademarks and Other Intellectual Property Rights

The success of our business and technology leadership are significantly dependent upon our proprietary and internally
developed technology. We rely upon patents, copyrights, trademarks, and trade secret laws to establish and maintain proprietary
rights in our technology. We maintain a patent incentive program that seeks to reward innovation and regularly file applications
for patents and have a significant number of patents in the United States and other countries where we do business. As of
December 1, 2011, we had received 1,302 U.S. patents and had pending 266 U.S. patent applications. We also have over 415
non-U.S. patents.

We also rely on non-disclosure agreements and other contracts and policies regarding confidentiality with employees,
contractors and customers, to establish proprietary rights and protect trade secrets and confidential information. Our practice is
to require employees and relevant consultants to execute non-disclosure and proprietary rights agreements upon
commencement of employment or consulting arrangements with us. These agreements acknowledge our ownership of
intellectual property developed by the individual during the course of his or her work with us. The agreements also require that
13

these persons maintain the confidentiality of all proprietary information disclosed to them.

Enforcing proprietary rights, especially patents, can be costly and uncertain. Moreover, monitoring unauthorized use of our

technology is difficult, and we cannot be certain that the steps that we are taking will detect or prevent unauthorized use. In
recent years, we have filed suit to enforce our intellectual property rights. We have also been subject to several claims related to
patent infringement, including by competitors and non-practicing entities or "patent trolls," and have been requested to honor
contractual indemnity obligations relating to infringement claims made against our customers by third parties. Intellectual
property infringement assertions could cause us to incur substantial costs, including legal fees in the defense of these actions. If
we are not successful in defending these claims, our business would be adversely affected if we are required to enter into a
license agreement requiring ongoing royalty payments, required to redesign our products, or prohibited from selling any
infringing technology.

Our operating system, element and network management software and other products incorporate software and

components under licenses from third parties. We may be required to license additional technology from third parties in order
to develop new products or product enhancements. Failure to obtain or maintain such licenses or other rights could affect our
development efforts, require us to re-engineer our products or obtain alternate technologies, which could harm our business,
financial condition and operating results.

Among the patent and other third party intellectual property licenses to which we are a party, in connection with the MEN
Acquisition, we obtained a non-exclusive license to use patents and other intellectual property controlled or exclusively owned
by Nortel in connection with our manufacture, sale and support of a broad range of optical networking and Carrier Ethernet
products and services and natural evolutions of such products and services. This license also provides us with an exclusive
license to use a narrower set of patents and other intellectual property owned by Nortel in connection with Ciena's manufacture,
sale and support of optical networking and Carrier Ethernet products and services within a narrower field of use and subject to
certain limitations. As part of this license, we granted Nortel a non-exclusive license to use the patents and other intellectual
property (except trademarks) that we acquired as part of the MEN Business in connection with the manufacture and sale of
products and services in the fields of Nortel's other businesses (including those businesses sold and to be sold to other parties)
and natural evolutions of such fields.

Environmental Matters

Our business and operations are subject to environmental laws in various jurisdictions around the world, including the
Waste Electrical and Electronic Equipment (WEEE) and Restriction of the Use of Certain Hazardous Substances in Electrical
and Electronic Equipment (RoHS) regulations adopted by the European Union. We seek to operate our business in compliance
with such laws relating to the materials and content of our products and product takeback and recycling. Environmental
regulation is increasing, particularly outside of the United States, and we expect that our domestic and international operations
may be subject to additional environmental compliance requirements, which could expose us to additional costs. To date, our
compliance costs relating to environmental regulations have not resulted in a material cost or effect on our business, results of
operations or financial condition.

Employees

As of October 31, 2011, we had 4,339 employees. We have not experienced any work stoppages and we consider the
relationships with our employees to be good. Competition to attract and retain highly skilled technical, engineering and other
personnel with experience in our industry is intense. We believe that our future success depends in critical part on our continued
ability to recruit, motivate and retain such qualified personnel. None of our employees is bound by an employment agreement.

Directors and Executive Officers

The table below sets forth certain information concerning our directors and executive officers:

Name
Patrick H. Nettles, Ph.D.

Gary B. Smith

Stephen B. Alexander

Rick Dodd

James A. Frodsham

François Locoh-Donou
Philippe Morin

James E. Moylan, Jr.

David R. Nachbar

Andrew C. Petrik

David M. Rothenstein
Stephen P. Bradley, Ph.D. (2)(3)

Harvey B. Cash (1)(3)

Bruce L. Claflin (1)(2)

Lawton W. Fitt (2)

Judith M. O’Brien (1)(3)

Michael J. Rowny (2)

Patrick T. Gallagher (2)

Age

43
70

Position
Executive Chairman of the Board of Directors

President, Chief Executive Officer and Director

Senior Vice President, Chief Technology Officer

Senior Vice President, Global Marketing

Senior Vice President, Chief Strategy Officer

Senior Vice President, Global Products Group

Senior Vice President, Global Field Operations

Senior Vice President, Finance and Chief Financial Officer

Senior Vice President and Chief Human Resources Officer

Vice President and Controller

Senior Vice President, General Counsel and Secretary
Director

Director

_________________________________

(1)

(2)

(3)

Member of the Compensation Committee

Member of the Audit Committee

Member of the Governance and Nominations Committee

Our Directors hold staggered terms of office, expiring as follows: Messrs. Bradley, Claflin and Gallagher in 2012;

Ms. Fitt, Dr. Nettles and Mr. Rowny in 2013; and Ms. O’Brien and Messrs. Cash and Smith in 2014.

Patrick H. Nettles, Ph.D. has served as a Director of Ciena since April 1994 and as Executive Chairman of the Board of
Directors since May 2001. From October 2000 to May 2001, Dr. Nettles was Chairman of the Board and Chief Executive
Officer of Ciena, and he was President and Chief Executive Officer from April 1994 to October 2000. Dr. Nettles serves as a
Trustee for the California Institute of Technology and serves on the board of directors of Axcelis Technologies, Inc. and The
Progressive Corporation. Dr. Nettles also serves on the board of directors of Optiwind Corp, a privately held company, and has
previously served on the board of directors of Apptrigger, Inc., formerly known as Carrius Technologies, Inc.

Gary B. Smith joined Ciena in 1997 and has served as President and Chief Executive Officer since May 2001. Mr. Smith
has served on Ciena’s Board of Directors since October 2000. Prior to his current role, his positions with Ciena included Chief
Operating Officer, and Senior Vice President, Worldwide Sales. Mr. Smith previously served as Vice President of Sales and
Marketing for INTELSAT and Cray Communications, Inc. Mr. Smith also serves on the board of directors for Avaya Inc. and
CommVault Systems, Inc. Mr. Smith is a member of the President’s National Security Telecommunications Advisory
Committee, the Global Information Infrastructure Commission and the Center for Corporate Innovation (CCI).

Stephen B. Alexander joined Ciena in 1994 and has served as Chief Technology Officer since September 1998 and as a
Senior Vice President since January 2000. Mr. Alexander has previously served as General Manager of Products & Technology
and General Manager of Transport and Switching and Data Networking.

Rick Dodd has served as Ciena's Senior Vice President, Global Marketing since December 2010 and is responsible for
Ciena's product, solutions and corporate marketing organizations and provides strategic support to Ciena’s global field
operations and global products groups. Mr. Dodd previously worked at Infinera Corporation from September 2003 to
December 2010 and served in roles including Vice President of Product Marketing and Vice President of Corporate Marketing.
Mr. Dodd previously served as Associate Partner at venture capital firm Kleiner, Perkins, Caufield and Byers and as Ciena's

Director, Strategic Marketing.

James Frodsham joined Ciena in May 2004 and has served as Senior Vice President and Chief Strategy Officer since
March 2010 with responsibility for our strategic planning and corporate development activities. In August 2010, Mr. Frodsham
also assumed responsibility for the integration of the MEN Business, which was substantially completed in fiscal 2011.
Mr. Frodsham previously served as Senior Vice President, General Manager of Ciena’s former Broadband Access Group from
October 2004 to October 2005 and Metro and Enterprise Solutions Group from May 2004 to October 2004. From August 2000
to January 2003, Mr. Frodsham served as chief operating officer of Innovance Networks, an optical networking company. On
December 23, 2003, Innovance filed a Notice of Intent to make a proposal pursuant to Part III of the Bankruptcy and
Insolvency Act (Canada). Prior to that, Mr. Frodsham was employed for more than ten years in senior level positions with
Nortel Networks in product development and marketing strategy, lastly as Vice President, Product Line Marketing, Optical
Networking Group, from December 1998 to June 2000. Mr. Frodsham serves on the board of directors of Innovance Networks.

François Locoh-Donou has served as Ciena's Senior Vice President, Global Products Group since August 2011. In this
capacity, Mr. Locoh-Donou leads Ciena’s engineering, supply chain, product line management, quality/customer advocacy and
product marketing and solutions organizations on a global basis. Mr. Locoh-Donou joined Ciena in August 2002 and served as
Ciena’s Vice President and General Manager, EMEA from June 2005 to August 2011.

Philippe Morin joined Ciena in March 2010 in connection with Ciena’s acquisition of Nortel’s MEN Business and has
served as Senior Vice President, Global Field Operations since August 2011, where he is responsible for leading Ciena’s global
sales and services organizations. From March 2010 to August 2011, Mr. Morin served as Ciena's Senior Vice President, Global
Products Group. Mr. Morin previously served as President of Nortel’s MEN Business from May 2006 until Ciena’s completion
of the MEN Acquisition in March 2010. In January 2009, Nortel Networks Corporation and certain of its subsidiaries filed
voluntary petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code. From January 2003 to May 2006,
Mr. Morin held the position of Nortel’s General Manager of Optical Networks. Mr. Morin previously held other positions at
Nortel in manufacturing, marketing, sales and product management both in North America and Europe.

James E. Moylan, Jr. has served as Senior Vice President, Finance and Chief Financial Officer since December 2007. From
June 2006 to December 2007, Mr. Moylan served as Executive Vice President and Chief Financial Officer of Swett &
Crawford, a wholesale insurance broker. From March 2004 to February 2006, Mr. Moylan served as Executive Vice President
and Chief Financial Officer of PRG-Shultz International, Inc., a publicly held recovery audit and business services firm. From
June 2002 to April 2003, Mr. Moylan served as Executive Vice President in charge of Composite Panels Distribution and
Administration for Georgia-Pacific Corporation’s building products business. From November 1999 to May 2002, Mr. Moylan
served as Senior Vice President and Chief Financial Officer of SCI Systems, Inc., an electronics contract manufacturing
company.

David R. Nachbar has served as Senior Vice President, Chief Human Resources Officer since March 2011. From 2002 to
2008, Mr. Nachbar served as Senior Vice President, Chief Human Resources Officer at Bausch & Lomb. From 1996 to 2002,
Mr. Nachbar served as Senior Vice President, Human Resources at The St. Paul Companies, Inc. Prior to 1996, Mr. Nachbar
held senior Human Resources roles at Citigroup and PepsiCo.

Andrew C. Petrik joined Ciena in 1996 and has served as Vice President, Controller since August 1997 and served as
Treasurer from August 1997 to October 2008.

David M. Rothenstein joined Ciena in January 2001 and has served as Senior Vice President, General Counsel and
Secretary since November 2008. Mr. Rothenstein served as Vice President and Associate General Counsel from July 2004 to
October 2008 and previously as Assistant General Counsel.

Stephen P. Bradley, Ph.D. has served as a Director of Ciena since April 1998. Professor Bradley is the William Ziegler
Professor of Business Administration Emeritus at the Harvard Business School. A member of the Harvard faculty since 1968,
Professor Bradley is also Chairman of Harvard’s Executive Programs. Professor Bradley currently serves on the board of
directors of Transatlantic Reinsurance Holdings and the Risk Management Foundation of the Harvard Medical Institutions, and
previously served on the boards of directors of i2 Technologies, Inc., Roadmaster Industries, Inc. and XcelleNet, Inc.

Harvey B. Cash has served as a Director of Ciena since April 1994. Mr. Cash is a general partner of InterWest Partners, a
venture capital firm in Menlo Park, California, which he joined in 1985. Mr. Cash serves on the board of directors of First
Acceptance Corp., Silicon Laboratories, Inc. and Argonaut Group, Inc. and has previously served on the boards of directors of
i2 Technologies, Inc., Voyence, Inc. and Staktek Holdings, Inc.

Bruce L. Claflin has served as a Director of Ciena since August 2006. Mr. Claflin served as President and Chief Executive
Officer of 3Com Corporation from January 2001 until his retirement in February 2006. Mr. Claflin joined 3Com as President
and Chief Operating Officer in August 1998. Prior to 3Com, Mr. Claflin served as Senior Vice President and General Manager,
Sales and Marketing, for Digital Equipment Corporation. Mr. Claflin also worked for 22 years at IBM, where he held various
sales, marketing and management positions, including general manager of IBM PC Company’s worldwide research and

development, product and brand management, as well as president of IBM PC Company Americas. Mr. Claflin also serves on
the board of directors of Advanced Micro Devices (AMD) where he is currently Chairman of the Board.

Lawton W. Fitt has served as a Director of Ciena since November 2000. From October 2002 to March 2005, Ms. Fitt served
as Director of the Royal Academy of Arts in London. From 1979 to October 2002, Ms. Fitt was an investment banker with
Goldman Sachs & Co., where she was a partner from 1994 to October 2002, and a managing director from 1996 to
October 2002. In addition to her service as a director of non-profit organizations, Ms. Fitt currently serves on the board of
directors of Thomson Reuters and The Progressive Corporation, and has previously served on the board of directors of
Overture Acquisition Corporation and Frontier Communications Company.

Judith M. O’Brien has served as a Director of Ciena since July 2000. Since November 2006, Ms. O’Brien has served as
Executive Vice President and General Counsel of Obopay, Inc., a provider of mobile payment services. From February 2001
until October 2006, Ms. O’Brien served as a Managing Director at Incubic Venture Fund, a venture capital firm. Ms. O’Brien
was a lawyer with Wilson Sonsini Goodrich & Rosati, where, from February 1984 to February 2001, she was a partner
specializing in corporate finance, mergers and acquisitions and general corporate matters. Ms. O'Brien has previously served on
the board of directors of Adaptec, Inc.

Michael J. Rowny has served as a Director of Ciena since August 2004. Mr. Rowny has been Chairman of Rowny Capital, a
private equity firm, since 1999. From 1994 to 1999, and previously from 1983 to 1986, Mr. Rowny was with MCI
Communications in positions including President and Chief Executive Officer of MCI’s International Ventures, Alliances and
Correspondent group, acting Chief Financial Officer, Senior Vice President of Finance, and Treasurer. Mr. Rowny’s career in
business and government has also included positions as Chairman and Chief Executive Officer of the Ransohoff Company,
Chief Executive Officer of Hermitage Holding Company, Executive Vice President and Chief Financial Officer of ICF Kaiser
International, Inc., Vice President of the Bendix Corporation, and Deputy Staff Director of the White House. Mr. Rowny also
serves on the board of directors of Neustar, Inc. and Pixspan, Inc. and has previously served on the boards of directors of
Llamagraphics, Inc. and Step 9 Software Corporation.

Patrick T. Gallagher has served as a Director of Ciena since May 2009. Mr. Gallagher currently serves as Chairman of
Ubiquisys Ltd., a leading developer and supplier of femtocells for the global 3G mobile wireless market. From January 2008
until February 2009, Mr. Gallagher was Chairman of Macro 4 plc, a global software solutions company, and from May 2006
until March 2008, served as Vice Chairman of Golden Telecom Inc., a leading facilities-based provider of integrated
communications in Russia and the CIS. From 2003 until 2006, Mr. Gallagher was Executive Vice Chairman and served as
Chief Executive Officer of FLAG Telecom Group and, prior to that role, held various senior management positions at British
Telecom. Mr. Gallagher also serves on the board of directors of Harmonic Inc. and Sollers JSC.

Item 1A. Risk Factors

Investing in our securities involves a high degree of risk. In addition to the other information contained in this report, you

should consider the following risk factors before investing in our securities.

Our revenue and operating results can fluctuate significantly and unpredictably from quarter to quarter.

Our revenue and results of operations can fluctuate significantly and unpredictably from quarter to quarter. Our budgeted
expense levels depend in part on our expectations of long-term, future revenue and gross margin, and substantial reductions in
expense are difficult and can take time to implement. Uncertainty or lack of visibility into customer spending, and changes in
economic or market conditions that affect customer spending, can make it difficult to forecast future revenue and corresponding
expense levels. Consequently, our level of operating expense or inventory may be high relative to revenue, which could harm our
profitability and cash flow. Increases in the percentage of quarterly revenue relating to orders placed in that quarter, along with
significant order volume late in the quarter, could further result in variability and less predictability in our quarterly results.

Additional factors that contribute to fluctuations in our revenue and operating results include:

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broader macroeconomic conditions, including weakness and volatility in global markets, affecting our customers and
their consumer and enterprise end users;
changes in capital spending by large communications service providers;
seasonal effects in our business, including the timing and size of customer orders;
the amount of backlog orders we have and our ability to recognize revenue relating to these sales;
the mix of revenue by product segment, geography and customer in any particular quarter;
the level of pricing pressure we encounter, particularly for our Packet-Optical Transport products which comprise a
significant concentration of our revenue;
the transition of product sales to new, next-generation technology platforms across our segments; and

•

changes in material and labor costs, including our ability to optimize our resources, improve manufacturing efficiencies
and achieve cost reductions in our supply chain.

Many factors affecting our results of operations are beyond our control, particularly in the case of large service provider
orders and multi-vendor or multi-technology network infrastructure builds, where the achievement of certain thresholds for
acceptance is subject to the readiness and performance of the customer or other providers, and changes in customer requirements
or installation plans. The factors above may cause our revenue and operating results to fluctuate unpredictably from quarter to
quarter. These fluctuations may cause our operating results to be below the expectations of securities analysts or investors, which
may cause our stock price to decline.

We face intense competition that could hurt our sales and results of operations.

We face an extremely competitive market for sales of communications networking equipment, software and services and
increased competition could result in pricing pressure, reduced demand, lower gross margins and the loss of market share that
could harm our business and results of operations. Competition is particularly intense as we and our competitors more
aggressively seek to displace incumbent equipment vendors at large carrier customers and secure new customers and additional
market share for new, next-generation products. In an effort to secure customer opportunities and capture market share, we have
in the past, and may in the future, agree to onerous commercial terms or pricing that result in low or negative gross margins on a
particular order or group of orders. We expect this level of competition to continue and potentially increase, particularly in the
U.S., as larger Chinese equipment vendors such as Huawei seek to gain market entry and other global competitors seek to retain
incumbent positions with customers in the region.

Competition in our markets, generally, is based on any one or a combination of the following factors: price; product
features; functionality and performance; service offering; manufacturing capability and lead-times; incumbency and existing
business relationships; scalability; and the flexibility of products to meet the immediate and future network and service
requirements of customers. A small number of very large companies have dominated our industry, many of which have
substantially greater financial and marketing resources, greater manufacturing capacity, broader product offerings and more
established relationships with service providers and other customer segments than we do. In addition, a number of these vendors
are putting forth competing visions for how next-generation network architectures should be designed. Because of their scale
and resources, they may be perceived to be a better fit for the procurement, or network operating and management, strategies of
large service providers. We also compete with a number of smaller companies that provide significant competition for a specific
product, application, customer segment or geographic market. Due to the narrower focus of their efforts, these competitors may
achieve commercial availability of their products more quickly or may be more attractive to customers.

Increased competition in our markets has resulted in aggressive business tactics, including:

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significant price competition, particularly for our Packet-Optical Transport platforms;
early announcement of product development initiatives and new platform offerings;
customer financing assistance provided by other vendors or their sponsors;
assumption of onerous or atypical commercial terms that involve a greater assumption of liability or allocation of risk
upon the vendor;
offers to repurchase our equipment from existing customers; and
intellectual property assertions and disputes.

The tactics described above can be particularly effective in an increasingly concentrated base of potential customers such as

communications service providers. If competitive pressures increase or we fail to compete successfully in our markets, our
business and results of operations would suffer.

Our business and operating results could be adversely affected by unfavorable changes in macroeconomic and market
conditions and reductions in the level of capital expenditure by customers in response to these conditions.

Global markets have experienced a recent period of significant volatility that has resulted in heightened uncertainty and
cautious customer behavior. Broad macroeconomic weakness and market volatility have previously resulted in sustained periods
of decreased demand for our products and services that have adversely affected our operating results. Continuation of or an
increase in these challenging market conditions and macroeconomic weakness could result in:

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reductions in customer capital spending and delay or deferral of network initiatives;
difficulty forecasting, budgeting and planning;
increased competition for fewer network projects and sales opportunities;

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increased pricing pressure that may adversely affect revenue and gross margin;
higher overhead costs as a percentage of revenue;
tightening of credit markets to fund capital expenditures by our customers and us;
customer financial difficulty, including longer collection cycles and other difficulties collecting accounts receivable;
and
increased risk of charges relating to excess and obsolete inventories and the write-off of other intangible assets.

Our business and operating results could be materially adversely affected by reduced customer spending in response to
unfavorable or uncertain macroeconomic and market conditions, globally or specific to a particular region where we operate.

Our reliance upon third party manufacturers exposes us to risks that could negatively affect our business and operations.

We rely upon third party contract manufacturers to perform substantially all of the manufacturing of our products and a
significant portion of our component sourcing. We do not have contracts in place with some of our manufacturers, do not have
guaranteed supply of components or access to manufacturing capacity, and in some cases are utilizing temporary or transitional
commercial arrangements. Our reliance upon third party manufacturers could expose us to increased risks related to lead times,
continuity of supply, on-time delivery, quality assurance, and compliance with environmental standards and other regulations.
Reliance upon third party manufacturers exposes us to significant risks related to their operations, financial position, business
continuity, sourcing relationships and labor relationships, that may affect their servicing of Ciena including their continued
viability. Our operations may also be affected by geopolitical events, natural disasters, military actions or health pandemics in
the countries where our products or critical components are manufactured. Our product manufacturing principally takes place in
Mexico, Canada, China and Thailand. Significant disruptions in these countries including natural disasters, epidemics, acts of
war or terrorism, social or political unrest or work stoppages, affecting the cost or availability or allocation of supply and
manufacturing capacity, would negatively affect our business and results of operations.

In an effort to drive cost reductions and further optimize Ciena's operations, we are working to rationalize our supply chain
and consolidate third party contract manufacturers and distribution facilities. We also intend to pursue additional opportunities
for direct fulfillment of products from our manufacturers to our customers. There can be no assurance that these efforts,
including any reallocation of the third party manufacturing and sourcing or changes in fulfillment involving our manufacturers,
will not ultimately result in additional costs, changes in quality or disruptions in our operations and business.

Our reliance upon third party component suppliers, including sole and limited source suppliers, exposes our business to
additional risk and could limit our sales capability, increase our costs and harm our customer relationships.

We maintain a global sourcing strategy and depend on third party suppliers for our product components and subsystems, as

well as for equipment used to manufacture and test our products. Our products include key optical and electronic components for
which reliable, high-volume supply is often available only from sole or limited sources. Increases in market demand or scarcity
of resources or manufacturing capability have previously resulted in shortages in availability of important components for our
solutions, allocation challenges and increased lead times. Conversely, periods of economic weakness or difficulties in the
business of our component suppliers can result in increased costs or discontinuation of components. Our business is also exposed
to risk associated with the international locations from which we source our components, including natural disasters, political
and social instability. In recent months, several regions of Thailand have experienced severe flooding that has affected the
operations of certain component providers in our supply chain, or their suppliers of optical components based in Thailand. There
can be no assurance that we will not encounter shortages, extended lead times or other disruptions in the availability or
allocation of necessary optical components which could affect our business over the next several fiscal quarters. We are also
exposed to risk relating to unfavorable economic conditions or other similar challenges affecting the businesses of our
component providers that can affect their liquidity levels, ability to continue to invest in their business, and manufacturing
capability.

The difficulties above could result in lost revenue, additional product costs and deployment delays that could harm our
business and customer relationships. We do not have any guarantee of supply from these third parties, and in certain cases are
relying upon temporary or transitional commercial arrangements. As a result, there is no assurance that we will be able to secure
the components or subsystems that we require in sufficient quantity and quality on reasonable terms. The loss of a source of
supply, or lack of sufficient availability of key components, could require that we locate an alternate source or redesign our
products, each of which could increase our costs and negatively affect our product gross margin and results of operations. Our
business and results of operations would be negatively affected if we were to experience any significant disruption or difficulties
with key suppliers affecting the price, quality, availability or timely delivery of required components.

A small number of large communications service providers account for a significant portion of our revenue and the loss
of any of these customers, or a significant reduction in their spending, would have a material adverse effect on our
business and results of operations.

A significant portion of our revenue is concentrated among a few, large global communications service providers. By way of

example, AT&T accounted for approximately 15.5% of fiscal 2011 revenue and our largest ten customers contributed 55.9% of
fiscal 2011 revenue. Consequently, our financial results are closely correlated with the spending of a relatively small number of
service provider customers and can be significantly affected by market or industry changes that affect the businesses of service
providers. These factors can include consumer and enterprise spending on communication services, macroeconomic volatility,
the adoption of new communications products and services, the emergence of competing network operators and changing
demands of end user customers. Because the terms of our frame contracts generally do not include any minimum purchase
commitment and spending by these service providers can be unpredictable and sporadic, our revenue and operating results can
fluctuate on a quarterly basis. Reliance upon a relatively small number of service providers increases our exposure to changes in
the network and purchasing strategies. Some of our customers are pursuing efforts to outsource the management and operation
of their networks, or have indicated a procurement strategy to reduce the number of vendors from which they purchase
equipment, which may benefit our larger competitors. Our concentration in revenue has increased in the past as a result of
consolidation among a number of our largest customers. Consolidation may increase the likelihood of temporary or indefinite
reductions in customer spending or changes in network strategy that could harm our business and operating results. The loss of
one or more of our large service provider customers, a significant reduction in their spending, or market or industry factors
adversely affecting service providers generally, would have a material adverse effect on our business, financial condition and
results of operations.

Investment of research and development resources in technologies for which there is not a matching market opportunity,
or failure to sufficiently or timely invest in technologies for which there is market demand, would adversely affect our
revenue and profitability.

The market for communications networking equipment is characterized by rapidly evolving technologies and changes in

market demand. We continually invest in research and development to sustain or enhance our existing products and develop or
acquire new product technologies. Our current development efforts are focused upon the platform evolution of our CoreDirector
Multiservice Optical Switch family to our 5430 Reconfigurable Switching System, expansion of our service delivery and
aggregation switches, and extension of our 40G and 100G coherent technologies and capabilities for our Packet-Optical
Transport platforms. There is often a lengthy period between commencing these development initiatives and bringing a new or
improved product to market. During this time, technology preferences, customer demand and the market for our products, or
those introduced by our competitors, may move in directions we had not anticipated. There is no guarantee that our new products
or enhancements will achieve market acceptance or that the timing of market adoption will be as predicted. There is a significant
possibility, therefore, that some of our development decisions, including significant expenditures on acquisitions, research and
development costs, or investments in technologies, will not turn out as anticipated, and that our investment in some projects will
be unprofitable. There is also a possibility that we may miss a market opportunity because we failed to invest, or invested too
late, in a technology, product or enhancement sought by our customers, or addressing growth markets or emerging customer
segments or applications beyond our traditional customer base. Changes in market demand or investment priorities may also
cause us to discontinue existing or planned development for new products or features, which can have a disruptive effect on our
relationships with customers. If we fail to make the right investments or fail to make them at the right time, our competitive
position may suffer and our revenue and profitability could be harmed.

We may experience delays in the development of our products that may negatively affect our competitive position and
business.

Our products are based on complex technology, and we can experience unanticipated delays in developing and

manufacturing these solutions. Delays in product development may affect our reputation with customers, affect our ability to
seize market opportunities and impact the timing and level of demand for our products. Each step in the development life cycle
of our products presents serious risks of failure, rework or delay, any one of which could adversely affect the cost-effective and
timely development of our products. We may encounter delays relating to engineering development activities and software,
design, sourcing and manufacture of critical components, and the development of prototypes. In addition, intellectual property
disputes, failure of critical design elements, and other execution risks may delay or even prevent the release of these products. If
we do not successfully develop products in a timely manner, our competitive position may suffer and our business, financial
condition and results of operations would be harmed.

Product performance problems and undetected errors affecting the performance, reliability or security of our products
could damage our business reputation and negatively affect our results of operations.

The development and production of sophisticated hardware and software for communications network equipment is
complicated. Some of our products can be fully tested only when deployed in communications networks or when carrying
traffic with other equipment. As a result, undetected defects or errors, and product quality, interoperability, reliability and
performance problems are often more acute for initial deployments of new products and product enhancements. We are in the
process of launching a number of new platforms across our product segments. Unanticipated product performance problems,
including any unforeseen defects or vulnerabilities, can relate to the design, manufacturing and installation of our products, as
well as defects in components, software or manufacturing, installation or maintenance services supplied by third parties. These
product performance, reliability, security and quality problems can negatively affect our business, including:

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increased costs to remediate software or hardware defects or replace products;
payment of liquidated damages, contractual or similar penalties, or other claims for performance failures or delays;
increased inventory obsolescence;
increased warranty expense or estimates resulting from higher failure rates, additional field service obligations or other
rework costs related to defects;
costs and claims that may not be covered by liability insurance coverage or recoverable from third parties;
delays in recognizing revenue or collecting accounts receivable; and
damage to our reputation, declining sales and order cancellations.

These consequences of product defects or problems relating to quality, reliability and security of our products, including any
significant costs to remediate, could negatively affect our business and results of operations.

Network equipment sales to large communications service providers often involve lengthy sales cycles and protracted
contract negotiations and may require us to assume commercial terms or conditions that negatively affect pricing, risk
allocation, payment and the timing of revenue recognition.

Our future success will depend in large part on our ability to maintain and expand our sales to large communications service
providers. These sales typically involve lengthy sales cycles, extensive product testing, and demonstration laboratory or network
certification, including network-specific or region-specific product certification or homologation processes. These sales also
often involve protracted and sometimes difficult contract negotiations in which we may deem it necessary to agree to
unfavorable contract terms or conditions that adversely affect pricing, expose us to penalties for delays or non-performance,
allocate to us a disproportionate amount of risk, and extend the timing of payment and revenue recognition. We may also be
requested to provide deferred payment terms, vendor or third-party financing, or offer other alternative purchase structures.
These terms may negatively affect our revenue and results of operations and increase our risk and susceptibility to quarterly
fluctuations in our results. Service providers may ultimately insist upon terms and conditions that we deem too onerous or not in
our best interest. Moreover, our purchase agreements generally do not include minimum purchase commitments and customers
often have the right to modify, delay, reduce or cancel previous orders. As a result, we may incur substantial expense and devote
time and resources to potential sales opportunities that never materialize or result in lower than anticipated sales.

Efforts by us or our strategic third party channel partners to sell our solutions into targeted geographic markets and
customer segments may be unsuccessful.

We continue to take steps, including sales initiatives and strategic channel relationships, to sell our products into new
markets, growth geographies and diverse customer segments beyond our traditional service provider customer base. Specifically,
we are targeting opportunities in Brazil, the Middle East, Russia, Japan and India. We are also targeting sales opportunties with
enterprises, wireless operators, cable operators, submarine network operators, Internet content providers, cloud infrastructure
providers, research and education institutions, and federal, state and local governments. We believe sales to these customer
segments, as well as emerging network operators supporting new communications services and applications, will be an
important component of our growth strategy. In many cases, we have less experience in these markets and customer segments
and they may have less familiarity with our company. To succeed in some of these geographic markets and customer segments
we intend to leverage strategic sales channels and distribution arrangements. We expect these relationships to be an important
part of our business internationally as well as for sales in support of network applications including cloud-based enterprise
opportunities. Difficulties selling into these markets and customer segments, whether through internal resources or strategic,

third party channels, could limit our growth and results of operations.

The international scale of our operations could expose us to additional risks and expense and adversely affect our results
of operations.

We market, sell and service our products globally and rely upon a global supply chain for sourcing of important components
and manufacturing of our products. International operations are subject to inherent risks, including:

effects of changes in currency exchange rates;

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greater difficulty in collecting accounts receivable and longer collection periods;
difficulties and costs of staffing and managing foreign operations;
the impact of economic conditions in countries outside the United States;
less protection for intellectual property rights in some countries;
adverse tax and customs consequences, particularly as related to transfer-pricing issues;
social, political and economic instability;
higher incidence of corruption or unethical business practices that could expose us to liability or damage our reputation;
trade protection measures, export compliance, domestic preference procurement requirements, qualification to transact
business and additional regulatory requirements; and
natural disasters, epidemics and acts of war or terrorism.

•

Moreover, while we have seen early progress and sales opportunities with new customers in the Middle East, there can be no
assurance that recent instability and unrest in the region will not adversely affect our business, operations and financial results
relating to these and other opportunities. We expect that we may enter new markets and withdraw from or reduce operations in
others. In some countries, our success will depend in part on our ability to form relationships with local sales, service or
fulfillment partners. Our inability to identify appropriate partners or reach mutually satisfactory arrangements could adversely
affect our business and operations. Our global operations may result in increased risk and expense to our business and could give
rise to unanticipated liabilities or difficulties that could adversely affect our operations and financial results.

We may be required to write off significant amounts of inventory as a result of our inventory purchase practices, the
convergence of product lines or unfavorable market conditions.

To avoid delays and meet customer demand for shorter delivery terms, we place orders with our contract manufacturers and

suppliers to manufacture components and complete assemblies based in part on forecasts of customer demand. As a result, our
inventory purchases expose us to the risk that our customers either will not order the products we have forecast, or will purchase
fewer products than forecast. Market uncertainty can limit our visibility into customer spending plans and compound the
difficulty of forecasting inventory at appropriate levels. Moreover, our customer purchase agreements generally do not include
any minimum purchase commitment, and customers often have the right to modify, reduce or cancel purchase quantities. As a
result, we may purchase inventory in anticipation of sales that ultimately do not occur. Historically, our inventory write-offs have
resulted from the circumstances above. As features and functionalities converge across our product lines, and we introduce new
products with overlapping feature sets, however, we face an additional risk that customers may forego purchases of one product
we have inventoried in favor of another product with similar functionality. If we are required to write off or write down a
significant amount of inventory, our results of operations for the period would be materially adversely affected.

Our intellectual property rights may be difficult and costly to enforce.

We generally rely on a combination of patents, copyrights, trademarks and trade secret laws to establish and maintain
proprietary rights in our products and technology. Although we have been issued numerous patents and other patent applications
are currently pending, there can be no assurance that any of these patents or other proprietary rights will not be challenged,
invalidated or circumvented or that our rights will provide us with any competitive advantage. In addition, there can be no
assurance that patents will be issued from pending applications or that claims allowed on any patents will be sufficiently broad to
protect our technology. Further, the laws of some foreign countries may not protect our proprietary rights to the same extent as
do the laws of the United States.

We are subject to the risk that third parties may attempt to use our intellectual property without authorization. Protecting
against the unauthorized use of our products, technology and other proprietary rights is difficult, time-consuming and expensive,

and we cannot be certain that the steps that we are taking will prevent or minimize the risks of such unauthorized use. Litigation
may be necessary to enforce or defend our intellectual property rights or to determine the validity or scope of the proprietary
rights of others. Such litigation could result in substantial cost and diversion of management time and resources, and there can be
no assurance that we will obtain a successful result. Any inability to protect and enforce our intellectual property rights, despite
our efforts, could harm our ability to compete effectively.

We may incur significant costs in response to claims by others that we infringe their intellectual property rights.

From time to time third parties may assert claims or initiate litigation or other proceedings related to patent, copyright,

trademark and other intellectual property rights to technologies and related standards that are relevant to our business. These
assertions have increased over time due to our growth, the increased number of products and competitors in the communications
network equipment industry and the corresponding overlaps, and the general increase in the rate of patent claims assertions both
by operating entities and third party non-practicing entities (sometimes referred to as “patent trolls”), particularly in the United
States and Canada. Asserted claims, litigation or other proceedings can include claims against us or our manufacturers, suppliers
or customers, alleging infringement of third party proprietary rights with respect to our existing or future products and
technology or components of those products. Regardless of the merit of these claims, they can be time-consuming, divert the
time and attention of our technical and management personnel, and result in costly litigation. These claims, if successful, can
require us to:

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pay substantial damages or royalties;
comply with an injunction or other court order that could prevent us from offering certain of our products;
seek a license for the use of certain intellectual property, which may not be available on commercially reasonable terms
or at all;
develop non-infringing technology, which could require significant effort and expense and ultimately may not be
successful; and
indemnify our customers pursuant to contractual obligations and pay damages on their behalf.

Any of these events could adversely affect our business, results of operations and financial condition. Our exposure to risks
associated with the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility
into the development process with respect to such technology or the steps taken to safeguard against the risks of infringing the
rights of third parties.

Our failure to manage effectively our relationships with third party service partners could adversely impact our financial
results and relationship with customers.

We rely on a number of third party service partners, both domestic and international, to complement our global service and
support resources. We rely upon these partners for certain installation, maintenance and support functions. In order to ensure the
proper installation and maintenance of our products, we must identify, train and certify qualified service partners. Certification
can be costly and time-consuming, and our partners often provide similar services for other companies, including our
competitors. We may not be able to manage effectively our relationships with our service partners and cannot be certain that they
will be able to deliver services in the manner or time required. We may also be exposed to liability relating to the performance of
our service partners. If our service partners are unsuccessful in delivering services:

• we may suffer delays in recognizing revenue;
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our services revenue and gross margin may be adversely affected; and
our relationship with customers could suffer.

If we do not manage effectively our relationships with third party service partners, or they fail to perform these services in the
manner or time required, our financial results and relationship with customers could be adversely affected.

We may be exposed to unanticipated risks and additional obligations in connection with our resale of complementary
products or technology of other companies.

We have entered into agreements with strategic partners that permit us to distribute their products or technology. We may
rely upon these relationships to add complementary products or technologies, diversify our product portfolio, or address a
particular customer or geographic market. We may enter into additional original equipment manufacturer (OEM), resale or
similar strategic arrangements in the future, including in support of our selection as a domain supply partner with AT&T. We
may incur unanticipated costs or difficulties relating to our resale of third party products. Our third party relationships could

expose us to risks associated with the business and viability of such partners, as well as delays in their development,
manufacturing or delivery of products or technology. We may also be required by customers to assume warranty, indemnity,
service and other commercial obligations, including potential liability to customers, greater than the commitments, if any, made
to us by our technology partners. Some of our strategic partners are relatively small companies with limited financial resources.
If they are unable to satisfy their obligations to us or our customers, we may have to expend our own resources to satisfy these
obligations. Exposure to these risks could harm our reputation with key customers and negatively affect our business and our
results of operations.

Our exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and could
adversely affect our revenue and operating results.

In the course of our sales to customers, we may have difficulty collecting receivables and could be exposed to risks

associated with uncollectible accounts. We may be exposed to similar risks relating to third party resellers and other sales
channel partners. Lack of liquidity in the capital markets, macroeconomic weakness and market volatility may increase our
exposure to credit risks. Our attempts to monitor these situations carefully and take appropriate measures to protect ourselves
may not be sufficient, and it is possible that we may have to write down or write off doubtful accounts. Such write-downs or
write-offs could negatively affect our operating results for the period in which they occur, and, if large, could have a material
adverse effect on our revenue and operating results.

Our business is dependent upon the proper functioning of our internal business processes and information systems and
modification or interruption of such systems may disrupt our business, processes and internal controls.

The proper functioning of our internal business processes and information systems is critical to the efficient operation and
management of our business. If these information technology systems fail or are interrupted, our operations may be adversely
affected and operating results could be harmed. Our business processes and information systems need to be sufficiently scalable
to support the future growth of our business and may require modifications or upgrades that expose us to a number of
operational risks. We are currently pursuing initiatives to transform and optimize our business operations through the
reengineering of certain processes, investment in automation and engagement of strategic partners or resources to assist with
select business functions.These changes may be costly and disruptive to our operations, and could impose substantial demands
on management time. These changes may also require changes in system design, the modification of internal control procedures
and significant training of employees or third party resources. Our information technology systems, and those of third party
providers, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include
catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware,
physical or electronic break-ins, unauthorized access and cyber attacks. Any material disruption, malfunction or similar
challenges with our business processes or information systems, or disruptions or challenges relating to the transition to new
processes, systems or providers, could have a material adverse effect on the operation of our business and our results of
operations.

Outstanding indebtedness under our convertible notes may adversely affect our liquidity and results of operations and
could limit our business.

At October 31, 2011, indebtedness on our outstanding convertible notes totaled approximately $1.4 billion in aggregate

principal. Our indebtedness could have important negative consequences, including:

•
•

•

increasing our vulnerability to adverse economic and industry conditions;
limiting our ability to obtain additional financing, particularly in light of unfavorable conditions in the capital and credit
markets;
debt service and repayment obligations that reduce the availability of cash resources for other purposes, including
capital expenditures;
limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete;
and
placing us at a possible competitive disadvantage to competitors that have better access to capital resources.

We may also add additional indebtedness such as equipment loans, working capital lines of credit and other long-term debt.

Significant volatility and uncertainty in the capital markets may limit our access to funding.

We have accessed the capital markets in the past and successfully raised funds, through the issuance of equity or convertible

debt, to increase our cash position, support our operations and undertake strategic growth initiatives, including the MEN
Acquisition. We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund our long-term
operating plans and may consider raising additional capital in the future. Global capital markets have undergone a sustained
period of significant volatility and uncertainty and there can be no assurance that such financing alternatives would be available
to us, should we determine it necessary or advisable to seek additional cash resources.

Facilities transitions could be disruptive to our operations and result in unanticipated expense.

During fiscal 2011, we received notice of early termination from Nortel shortening the lease of our “Lab 10” building on
the Carling Campus in Ottawa, Canada from ten to five years, with the lease termination set to occur in fiscal 2015. This is our
largest facility, which includes a sophisticated research and development lab and key engineering personnel. We are currently
considering facilities alternatives arising as a result of the early termination of this lease, however locating appropriate
alternative space for our engineering operations in Ottawa may be costly and there can be no assurance that the transition of key
engineering functions to a successor facility will not be disruptive or adversely affect productivity. Additionally, in November
2011, we entered into a lease for our new corporate headquarters and anticipate transitioning affected employees and operations,
including key management and administration resources, to this new facility commencing in fiscal 2012. These facilities
transitions could be disruptive to our operations and could result in unanticipated expense that adversely affects our financial
results.

Restructuring activities could disrupt our business and affect our results of operations.

We have previously taken steps, including reductions in force, office closures, and internal reorganizations to reduce the size
and cost of our operations and to better match our resources with market opportunities. We may take similar steps in the future as
we seek to realize operating synergies, optimize our operations and achieve our desired target operating model and profitability.
These changes could be disruptive to our business and may result in significant expense including accounting charges for
inventory and technology-related write-offs, workforce reduction costs and charges relating to consolidation of excess facilities.
Substantial expense or charges resulting from restructuring activities could adversely affect our results of operations in the
period in which we take such a charge.

If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively.

Competition to attract and retain highly skilled technical, engineering and other personnel with experience in our industry is

intense and our employees have been the subject of targeted hiring by our competitors. We may experience difficulty retaining
and motivating existing employees and attracting qualified personnel to fill key positions. Because we rely upon equity awards
as a significant component of compensation, particularly for our executive team, a lack of positive performance in our stock
price, reduced grant levels, or changes to our compensation program may adversely affect our ability to attract and retain key
employees. It may be difficult to replace members of our management team or other key personnel, and the loss of such
individuals could be disruptive to our business. In addition, none of our executive officers is bound by an employment
agreement for any specific term. If we are unable to attract and retain qualified personnel, we may be unable to manage our
business effectively and our operations and results of operations could suffer.

We may be adversely affected by fluctuations in currency exchange rates.

As a global concern, we face exposure to adverse movements in foreign currency exchange rates. Historically, our sales
were primarily denominated in U.S. dollars. As a result of our increased global presence, a larger percentage of our revenue and
operating expense are now non-U.S. dollar denominated and therefore subject to foreign currency fluctuation. We face exposure
to currency exchange rates as a result of the growth in our non-U.S. dollar denominated operating expense in Canada, Europe,
Asia and Latin America. From time to time, we may hedge against currency exposure associated with anticipated foreign
currency cash flows. There can be no assurance that any hedging instruments will be effective and losses associated with these
instruments and the adverse effect of foreign currency exchange rate fluctuation may negatively affect our results of operations.

Our products incorporate software and other technology under license from third parties and our business would be
adversely affected if this technology was no longer available to us on commercially reasonable terms.

We integrate third-party software and other technology into our embedded operating system, network management system

tools and other products. Licenses for this technology may not be available or continue to be available to us on commercially
reasonable terms. Third party licensors may insist on unreasonable financial or other terms in connection with our use of such
technology. Difficulties with third party technology licensors could result in termination of such licenses, which may result in
significant costs and require us to obtain or develop a substitute technology. Difficulty obtaining and maintaining third-party

technology licenses may disrupt development of our products and increase our costs, which could harm our business.

Strategic acquisitions and investments may expose us to increased costs and unexpected liabilities.

We may acquire or make investments in other technology companies, or enter into other strategic relationships, to expand
the markets we address, diversify our customer base or acquire or accelerate the development of technology or products. To do
so, we may use cash, issue equity that would dilute our current stockholders' ownership, or incur debt or assume indebtedness.
These transactions involve numerous risks, including:

•
•
•
•
•
•
•
•
•

significant integration costs;
disruption due to the integration and rationalization of operations, products, technologies and personnel;
diversion of management's attention;
difficulty completing projects of the acquired company and costs related to in-process projects;
the loss of key employees;
ineffective internal controls over financial reporting;
dependence on unfamiliar suppliers or manufacturers;
exposure to unanticipated liabilities, including intellectual property infringement claims; and
adverse tax or accounting effects including amortization expense related to intangible assets and charges associated
with impairment of goodwill.

As a result of these and other risks, our acquisitions, investments or strategic transactions may not reap the intended benefits and
may ultimately have a negative impact on our business, results of operation and financial condition.

Changes in government regulation affecting the communications industry and the businesses of our customers could
harm our prospects and operating results.

The Federal Communications Commission, or FCC, has jurisdiction over the U.S. communications industry and similar
agencies have jurisdiction over the communication industries in other countries. Many of our largest customers are subject to the
rules and regulations of these agencies. Changes in regulatory requirements applicable to wireline or wireless communications
and the Internet in the United States or other countries could inhibit service providers from investing in their communications
network infrastructures or introducing new services. These changes could adversely affect the sale of our products and services.
Changes in regulatory tariff requirements or other regulations relating to pricing or terms of carriage on communications
networks could slow the development or expansion of network infrastructures and adversely affect our business, operating
results, and financial condition.

Governmental regulations affecting the use, import or export of products could negatively affect our revenue.

The United States and various foreign governments have imposed controls, license requirements and other restrictions on
the usage, import or export of some of the technologies that we sell. Governmental regulation of usage, import or export of our
products, technology within our products, or our failure to obtain required approvals for our products, could harm our
international and domestic sales and adversely affect our revenue and costs of sales. Failure to comply with such regulations
could result in enforcement actions, fines or penalties and restrictions on export privileges. In addition, costly tariffs on our
equipment, restrictions on importation, trade protection measures and domestic preference requirements of certain countries
could limit our access to these markets and harm our sales. For example, India's government has recently implemented and is
considering additional security regulations applicable to network equipment vendors, and has imposed significant tariffs that
may inhibit sales of certain communications equipment; including equipment manufactured in China, where certain of our
products are assembled. These and other regulations could adversely affect the sale or use of our products, substantially increase
our cost of sales and could adversely affect our business and revenue.

Governmental regulations related to the environment and potential climate change, could adversely affect our business
and operating results.

Our operations are regulated under various federal, state, local and international laws relating to the environment and
potential climate change. We could incur fines, costs related to damage to property or personal injury, and costs related to
investigation or remediation activities, if we were to violate or become liable under these laws or regulations. Our product design
efforts, and the manufacturing of our products, are also subject to evolving requirements relating to the presence of certain
materials or substances in our equipment, including regulations that make producers for such products financially responsible for
the collection, treatment and recycling of certain products. For example, our operations and financial results may be negatively
affected by environmental regulations, such as the Waste Electrical and Electronic Equipment (WEEE) and Restriction of the
Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS) that have been adopted by the European

Union. Compliance with these and similar environmental regulations may increase our cost of designing, manufacturing, selling
and removing our products. These regulations may also make it difficult to obtain supply of compliant components or require us
to write off non-compliant inventory, which could have an adverse effect our business and operating results.

We may be required to write down long-lived assets and these impairment charges would adversely affect our operating
results.

As of October 31, 2011, our balance sheet includes $504.6 million in long-lived assets, which includes $331.6 million

million of intangible assets. Valuation of our long-lived assets requires us to make assumptions about future sales prices and
sales volumes for our products. These assumptions are used to forecast future, undiscounted cash flows. Given the significant
uncertainty and instability of macroeconomic conditions in recent periods, forecasting future business is difficult and subject to
modification. If actual market conditions differ or our forecasts change, we may be required to reassess long-lived assets and
could record an impairment charge. Any impairment charge relating to long-lived assets would have the effect of decreasing our
earnings or increasing our losses in such period. If we are required to take a substantial impairment charge, our operating results
could be materially adversely affected in such period.

Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business,
operating results and stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing

management's assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and
a statement as to whether or not such internal controls are effective. Compliance with these requirements has resulted in, and is
likely to continue to result in, significant costs and the commitment of time and operational resources. Changes in our business,
including certain initiatives to transform business processes, invest in information systems or transition certain functions to third
party resources or providers, will necessitate modifications to our internal control systems, processes and information systems as
we optimize our business and operations. Our increased global operations and expansion into new regions could pose additional
challenges to our internal control systems. We cannot be certain that our current design for internal control over financial
reporting, or any additional changes to be made, will be sufficient to enable management to determine that our internal controls
are effective for any period, or on an ongoing basis. If we are unable to assert that our internal controls over financial reporting
are effective, our business may be harmed. Market perception of our financial condition and the trading price of our stock may
be adversely affected, and customer perception of our business may suffer.

Our stock price is volatile.

Our common stock price has experienced substantial volatility in the past and may remain volatile in the future. Volatility in

our stock price can arise as a result of a number of the factors discussed in this “Risk Factors” section. During fiscal 2011, our
closing stock price ranged from a high of $28.81 per share to a low of $10.28 per share. The stock market has experienced
extreme price and volume fluctuations that have affected the market price of many technology companies, with such volatility
often unrelated to the operating performance of these companies. Divergence between our actual or anticipated financial results
and published expectations of analysts can cause significant swings in our stock price. Our stock price can also be affected by
announcements that we, our competitors, or our customers may make, particularly announcements related to acquisitions or
other significant transactions. Our common stock is included in a number of market indices and any change in the composition
of these indices to exclude our company would adversely affect our stock price. These factors, as well as conditions affecting the
general economy or financial markets, may materially adversely affect the market price of our common stock in the future.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Overview. As of October 31, 2011, all of our properties are leased and we do not own any real property. We lease facilities
globally related to the ongoing operations of our four business segments and related functions. Our principal executive offices
are located in Linthicum, Maryland, where we currently occupy six buildings at various sites, including an engineering facility,
two supply chain and logistics facilities, and three administrative and sales facilities. Due to the expiration of certain of these
leases, commencing in fiscal 2012, in November 2011, we entered into a new lease for our corporate headquarters described
below.

Our largest facility is our research and development center located at “Lab 10” on the former Nortel Carling Campus in

Ottawa, Canada. See below for information regarding the lease associated with this engineering facility. We also have
engineering and/or service facilities located in San Jose, California; Alpharetta, Georgia; Spokane, Washington; Kanata,

Canada; and Gurgaon, India. In addition, we lease various smaller offices in the United States, Mexico, South America,
Europe, the Middle East and Asia-Pacific to support our sales and services operations. We believe the facilities we are now
using are adequate and suitable for our business requirements.

Linthicum, MD Headquarters Lease. On November 3, 2011, Ciena Corporation entered into a Lease Agreement (Lease)
with W2007 RDG Realty, L.L.C. (Landlord), relating to office space for a new corporate headquarters in the building located at
7035 Ridge Road, Hanover, Maryland (Building 1) and a building to be built at 7031 Ridge Road, Hanover, Maryland
(Building 2), consisting of an aggregate agreed-upon rentable area of approximately 154,100 square feet.

The Building 1 lease commencement date will be the earlier of the date of our occupancy or substantial completion of the

improvements to the premises in accordance with the terms of the Lease, but in either case no earlier than June 1, 2012. The
Building 1 rent commencement date will be the later of September 1, 2013 or substantial completion of improvements to the
premises in accordance with the terms of the Lease. The Building 2 lease commencement date and rent commencement date
will be upon Landlord’s delivery of the premises following substantial completion of the construction of Building 2 and
improvements to the premises in accordance with the terms of the Lease (expected to be no later than November 15, 2012).
Subject to adjustment and earlier termination as provided in the Lease, the Lease (which relates to both Building 1 and Building
2) will expire 14 years and eight months from the Building 1 lease commencement date. We have the option to renew the Lease
for two additional periods of five years each. We also have a right of first offer relating to additional space in the complex of
buildings that includes Building 1 and Building 2.

If the Building 2 rent commencement date coincided with the Building 1 rent commencement date, the initial annual basic

rent would be approximately $3.8 million, exclusive of certain customary operating expenses. The annual basic rent rate will
escalate at a rate of two percent (2.0 %) each year, and, beginning in calendar year 2014, we will be responsible for increases in
certain operating expenses and real estate taxes over the amounts incurred in calendar year 2013. The Lease also provides that
Landlord will contribute towards costs incurred for certain tenant improvements to our premises in Building 1 and Building 2
and will bear all costs for the construction of Building 2.

We have the right to terminate the Lease if certain milestones with respect to the construction of Building 2 are not
achieved in a timely manner. We also have the one-time right to terminate the Lease with respect to all or a portion of the leased
premises at any time after the tenth (10th) year, provided that we have not exercised our renewal option, pay a termination fee
to Landlord, and comply with certain requirements as set forth in the Lease. Landlord has the right to terminate the Lease upon
an event of default, which includes our failure to pay rent, failure to provide an estoppel certificate, failure to maintain
insurance, failure to release mechanic’s liens, uncured breach of our other obligations under the Lease, or insolvency.

Carling, Ottawa Lease. Upon the completion of the MEN Acquisition, Ciena Canada Inc., a subsidiary of Ciena, entered

into a lease agreement with Nortel Networks Technology Corp. (“Landlord”) relating to the “Lab 10” building on Nortel’s
Carling Campus in Ottawa, Canada (the “Carling lease”). This facility consists of a rentable area of 265,000 square feet for
which we incur lease expense of approximately $7.2 million CAD per year, consisting of both base rent and fixed additional
operating expense, the latter of which increases at 2% per year. The Carling lease initially had a ten-year term, subject to an
early termination feature that allowed Nortel to reduce the term of the lease in exchange for its payment of an early termination
fee of up to $33.5 million. During the first quarter of fiscal 2011, Ciena received both notice of early termination from Nortel
shortening the Carling lease to five years and the corresponding $33.5 million early termination payment.

Restructuring. We lease properties that we no longer occupy. As part of our restructuring costs, we provide for the
estimated cost of the future net lease expense for these facilities. The cost is based on the fair value of future minimum lease
payments under contractual obligations offset by the fair value of the estimated future sublease payments that we may receive.
As of October 31, 2011, our accrued restructuring liability related to these properties was $3.3 million. If actual market
conditions relating to the use of these facilities are less favorable than those projected by management, additional restructuring
costs associated with these facilities may be required. For additional information regarding our lease obligations, see Note 22 to
the Consolidated Financial Statements in Item 8 of Part II of this annual report.

Item 3. Legal Proceedings

On July 29, 2011, Cheetah Omni LLC filed a complaint in the United States District Court for the Eastern District of Texas

against Ciena and several other defendants, alleging, among other things, that certain of the parties' products infringe upon
multiple U.S. Patents relating to certain reconfigurable optical add-drop multiplexer (ROADM) technologies. The complaint
seeks injunctive relief and damages. On November 8, 2011, Ciena filed an answer and counterclaims to Cheetah Omni's
amended complaint. Ciena believes that it has valid defenses to the lawsuit and intends to defend it vigorously.

On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the Northern District of Georgia

against Ciena and four other defendants, alleging, among other things, that certain of the parties' products infringe U.S. Patent

6,542,673 (the “'673 Patent”), relating to an identifier system and components for optical assemblies. The complaint seeks
injunctive relief and damages. Ciena filed an answer to the complaint and counterclaims against Graywire on April 17, 2009.
On April 27, 2009, Ciena and certain other defendants filed an application for inter partes reexamination of the '673 Patent with
the U.S. Patent and Trademark Office (the “PTO”). On the same date, Ciena and the other defendants filed a motion to stay the
case pending reexamination of all of the patents-in-suit. On July 17, 2009, the district court granted the defendants' motion to
stay the case. On July 23, 2009, the PTO granted the defendants' application for reexamination with respect to certain claims of
the '673 Patent and, on December 17, 2010, the PTO confirmed the validity of some claims and rejected the validity of other
claims. On February 28, 2011, Ciena and the other defendants filed an appeal with respect to certain aspects of the PTO's
determination. Separately, on March 17, 2011, the PTO granted a third party application for ex parte reexamination with respect
to certain claims of the '673 Patent and, on September 2, 2011, the PTO issued a non-final rejection of those claims. Ciena
believes that it has valid defenses to the lawsuit and intends to defend it vigorously in the event the stay of the case is lifted.

As a result of its June 2002 acquisition of ONI Systems Corp., Ciena became a defendant in a securities class action lawsuit

filed in the United States District Court for the Southern District of New York in August 2001. The complaint named ONI,
certain former ONI officers, and certain underwriters of ONI’s initial public offering (IPO) as defendants, and alleges, among
other things, that the underwriter defendants violated the securities laws by failing to disclose alleged compensation
arrangements (such as undisclosed commissions or stock stabilization practices) in ONI’s registration statement and by
engaging in manipulative practices to artificially inflate ONI’s stock price after the IPO. The complaint also alleges that ONI
and the named former officers violated the securities laws by failing to disclose the underwriters’ alleged compensation
arrangements and manipulative practices. No specific amount of damages has been claimed. Similar complaints have been filed
against more than 300 other issuers that have had initial public offerings since 1998, and all of these actions have been included
in a single coordinated proceeding. The former ONI officers have been dismissed from the action without prejudice. In July
2004, following mediated settlement negotiations, the plaintiffs, the issuer defendants (including Ciena), and their insurers
entered into a settlement agreement. The settlement agreement did not require Ciena to pay any amount toward the settlement
or to make any other payments. While the partial settlement was pending approval, the plaintiffs continued to litigate their cases
against the underwriter defendants. In October 2004, the district court certified a class with respect to the Section 10(b) claims
in six “focus cases” selected out of all of the consolidated cases, which cases did not include Ciena, and which decision was
appealed by the underwriter defendants to the U.S. Court of Appeals for the Second Circuit. On February 15, 2005, the district
court granted the motion for preliminary approval of the settlement agreement, subject to certain modifications, and on
August 31, 2005, the district court issued a preliminary order approving the revised stipulated settlement agreement. On
December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the district court’s grant of class certification in
the six focus cases. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing. In light of the Second
Circuit’s decision, the parties agreed that the settlement could not be approved. On June 25, 2007, the district court approved a
stipulation filed by the plaintiffs and the issuer defendants terminating the proposed settlement. On August 14, 2007, the
plaintiffs filed second amended complaints against the defendants in the six focus cases. On September 27, 2007, the plaintiffs
filed a motion for class certification based on their amended complaints and allegations. On March 26, 2008, the district court
denied motions to dismiss the second amended complaints filed by the defendants in the six focus cases, except as to Section 11
claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who
purchased outside the previously certified class period. Briefing on the plaintiffs’ motion for class certification in the focus
cases was completed in May 2008. That motion was withdrawn without prejudice on October 10, 2008. On April 2, 2009, a
stipulation and agreement of settlement between the plaintiffs, issuer defendants and underwriter defendants was submitted to
the Court for preliminary approval. The Court granted the plaintiffs’ motion for preliminary approval and preliminarily certified
the settlement classes on June 10, 2009. The settlement fairness hearing was held on September 10, 2009. On October 6, 2009,
the Court entered an opinion granting final approval to a settlement among the plaintiffs, issuer defendants and underwriter
defendants, and directing that the Clerk of the Court close these actions. All appeals of the opinion granting final approval have
been either resolved or dismissed, except one. On August 25, 2011, on remand from the Second Circuit, the District Court
determined that the last remaining appellant did not have standing to assert his appeal. Due to the inherent uncertainties of
litigation and because the settlement remains subject to appeal, the ultimate outcome of the matter is uncertain.

In addition to the matters described above, we are subject to various legal proceedings, claims and litigation arising in the
ordinary course of business. We do not expect that the ultimate costs to resolve these matters will have a material effect on our
results of operations, financial position or cash flows.

Item 4. Removed and Reserved

PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Our common stock is traded on the NASDAQ Global Select Market under the symbol “CIEN.” The following table sets

forth the high and low sales prices of our common stock, as reported on the NASDAQ Global Select Market, for the fiscal
periods indicated.

Fiscal Year 2010

First Quarter ended January 31

Second Quarter ended April 30

Third Quarter ended July 31

Fourth Quarter ended October 31

Fiscal Year 2011

First Quarter ended January 31

Second Quarter ended April 30

Third Quarter ended July 31

Fourth Quarter ended October 31

High

Low

14.02

18.59

19.24

15.69

25.49

28.81

27.91

14.82

10.67

12.76

12.29

12.02

13.55

22.03

15.46

10.28

As of December 15, 2011, there were approximately 884 holders of record of our common stock and 97,442,608 shares of
common stock outstanding. We have never paid cash dividends on our capital stock. We intend to retain earnings for use in our
business and we do not anticipate paying any cash dividends in the foreseeable future.

The following graph shows a comparison of cumulative total returns for an investment in our common stock, the NASDAQ

Telecommunications Index and the NASDAQ Composite Index from October 31, 2006 to October 31, 2011. The NASDAQ
Composite Index measures all domestic and international based common stocks listed on The Nasdaq Stock Market. The
NASDAQ Telecommunications Index contains securities of NASDAQ-listed companies classified according to the Industry
Classification Benchmark as Telecommunications and Telecommunications Equipment. They include providers of fixed-line
and mobile telephone services, and makers and distributors of high-technology communication products. This graph is not
deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and the
graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of
1933 or the Exchange Act.

Assumes $100 invested in Ciena Corporation, the NASDAQ Telecommunications Index and the NASDAQ Composite

Index on October 31, 2006 with all dividends reinvested at month-end.

(b) Not applicable.

Item 6. Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion

and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes
thereto included in Item 8, “Financial Statements and Supplementary Data.” We have 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 2008, 2009, 2010 and 2011 consisted of 52 weeks and fiscal 2007
consisted of 53 weeks.

Cash and cash equivalents

Short-term investments
Long-term investments

Total assets

Short-term convertible notes payable

Long-term convertible notes payable

Total liabilities

Stockholders’ equity

Year Ended October 31,
(in thousands)

2007

892,061

822,185
33,946

$
$

2008

550,669

366,336
156,171

$
$

2009

485,705

563,183
8,031

$
$

2010

688,687

—
—

2011

541,896

—
50,264

$
$

$ 2,416,273

$ 2,024,594

$ 1,504,383

$ 2,118,093

$ 1,951,418

542,262

800,000

—

798,000

—

798,000

$ 1,442,705

$ 1,442,364

$ 1,566,119

$ 1,025,645

$ 1,048,545

$ 1,958,800

$ 1,937,545

850,154

998,949

455,838

159,293

13,873

Statement of Operations Data:

Revenue

Cost of goods sold

Gross profit

Operating expenses:

Research and development

Selling and marketing

General and administrative

Acquisition and integration costs

Amortization of intangible assets

Restructuring (recoveries) costs

Goodwill impairment

Gain on lease settlement

Change in fair value of contingent consideration

Total operating expenses

Income (loss) from operations

Interest and other income, net

Interest expense

Realized loss due to impairment of marketable debt
investments

Gain (loss) on cost method investments

Gain on extinguishment of debt

Gain on equity investments, net

Income (loss) before income taxes

Provision (benefit) for income taxes

Net income (loss)

Basic net income (loss) per common share

Diluted net income (loss) per potential common
share

Weighted average basic common shares outstanding

Weighted average dilutive potential common shares
outstanding

Year Ended October 31,
(in thousands, except per share data)

2007

2008

2009

2010

2011

779,769

902,448

652,629

$ 1,236,636

$ 1,741,970

417,500

362,269

127,296

118,015

50,248

—

25,350
(2,435)
—
(4,871)
—

313,603

48,666

76,483
(26,996)

(13,013)
—

—

592

85,732

2,944

82,788

0.97

0.87

85,525

451,521

450,927

175,023

152,018

68,639

—

32,264

1,110

—

429,054

21,873

36,762
(12,927)

(5,101)
—

932

—

41,539

2,645

38,894

0.44

367,799

284,830

190,319

134,527

47,509

—

24,826

11,207

455,673

—

864,061
(579,231)
9,487
(7,406)

—
(5,328)
—

739,135

497,501

1,032,824

709,146

327,626

193,515

102,692

101,379

99,401

8,514

—

—
(13,807)
819,320
(321,819)
3,917
(18,619)

—

4,948

379,862

251,990

126,242

42,088

69,665

5,781

—

—
(3,289)
872,339
(163,193)
6,022
(37,926)

—

7,249

—

—
(582,478)
(1,324)
$ (581,154)
(6.37)
$

—
(331,573)
1,941
$ (333,514)
(3.58)
$

—
(187,848)
7,673
$ (195,521)
(2.04)
$

0.42

89,146

(6.37)
91,167

(3.58)
93,103

(2.04)
95,854

99,604

110,605

91,167

93,103

95,854

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This report contains statements that discuss future events or expectations, projections of results of operations or financial
condition, changes in the markets for our products and services, or other “forward-looking” information. Our “forward-looking”
information is based on various factors and was derived using numerous assumptions. In some cases, you can identify these
“forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of those words and other comparable words. You
should be aware that these statements only reflect our current predictions and beliefs. These statements are subject to known and
unknown risks, uncertainties and other factors, and actual events or results may differ materially. Important factors that could
cause our actual results to be materially different from the forward-looking statements are disclosed throughout this report,
particularly under the heading “Risk Factors” in Item 1A of Part I of this annual report. You should review these risk factors for
a more complete understanding of the risks associated with an investment in our securities. We undertake no obligation to revise
or update any forward-looking statements. The following discussion and analysis should be read in conjunction with our “Selected
Consolidated Financial Data” and consolidated financial statements and notes thereto included elsewhere in this annual report.

Overview

We are a provider of equipment, software and service solutions that support the transport, switching, aggregation and
management of voice, video and data traffic on communications networks. Our Packet-Optical Transport, Packet-Optical
Switching and Carrier Ethernet Solutions products are deployed and used, individually or as part of an integrated solution, in
communications networks operated by service providers, cable operators, governments, enterprises and other network operators
around the globe.

We are a network specialist focused on the modernization and transition of disparate, legacy network infrastructures to
converged, next-generation architectures, optimized to handle a broader mix of high-bandwidth communications services. Our
product portfolio consists of our Packet-Optical Transport, Packet-Optical Switching and Carrier Ethernet Solutions products
that enable network operators to scale capacity and increase transmission speeds, transport and efficiently allocate network
traffic, and deliver services to business and consumer end users. Our network solutions also include our Ciena One software
suite for unified network management and network planning and design, as well as a broad offering of advanced network
consulting, design, implementation and support services.

Our customers face a challenging and rapidly changing environment that requires their networks to be robust enough to
address increasing capacity needs and flexible enough to quickly adapt to emerging applications and evolving consumer and
business use of communications services. Our solutions seek to enable software-defined, automated, next-generation networks
that better address the business challenges, infrastructure requirements and service delivery needs of our customers. By
improving network productivity and automation, reducing network costs and enabling rapid deployment of differentiated
service offerings, our communications networking solutions create business and operational value for our customers.

Our quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K filed with the SEC are
available through the SEC's website at www.sec.gov or free of charge on our website as soon as reasonably practicable after we
file these documents. We routinely post the reports above, recent news and announcements, financial results and other
important information about Ciena on the "Investors" page of our website at www.ciena.com.

Global Market Conditions and Competitive Landscape

The sustained period of macroeconomic weakness and volatility in the global economy and in capital markets has resulted
in heightened uncertainty and cautious customer behavior in our industry and markets. These dynamics have caused increased
customer scrutiny with respect to network investment, which has resulted in protracted sales cycles, lengthier network
deployments, revenue recognition delays and extended collection cycles, particularly for international network projects. Broad

macroeconomic weakness has previously resulted in periods of decreased demand for our products and services that have
adversely affected our results of operations. We remain uncertain as to how long current macroeconomic and industry
conditions will persist, the pace of any recovery, and the magnitude of the effect of these conditions on the growth of our
markets and business, as well as our results of operations.

We continue to encounter a highly competitive marketplace for sales of our networking solutions offering, particularly
within our Packet-Optical Transport segment. Competition has intensified as we and our competitors have introduced new,
high-capacity, high-speed network solutions and more aggressively sought to capture market share and displace incumbent
vendors at large carrier customers. We have also encountered increased competition as we have expanded our business in
emerging geographies and new markets or applications for our communications networking products. For example, we have
made early progress in the sale of our products for application in submarine networks and with sales to customers in the Middle
East. In this competitive environment, securing new opportunities, particularly in international markets, often requires that we
agree to less favorable commercial terms or pricing, financial commitments requiring collateralized performance bonds or
similar instruments that place cash resources at risk, and other contractual commitments that place a disproportionate allocation
of risk upon the vendor. These terms can adversely affect our result of operations. We expect the level of competition,
particularly in North America, to continue and potentially increase, as Chinese equipment vendors seek to gain entry into the
U.S. market, and other multinational competitors seek to retain incumbent positions with large customers in the region.

Potential Supply Chain Disruption

In recent months, several regions of Thailand have experienced severe flooding, causing significant damage to

infrastructure and factories. Flooding has affected the operations of certain component providers in our supply chain, or, in
turn, their suppliers of components based in Thailand. We are actively monitoring and evaluating stabilization efforts of these
suppliers following the flooding and are currently working with existing suppliers and qualifying new sources of supply in
order to minimize the effect on our customers and our business. Given the severity of the situation and our dependency upon
the recovery efforts of these suppliers, however, there can be no assurance that we will not encounter shortages, extended lead
times, additional costs or other disruptions in the availability or allocation of components that could affect our business over the
next several fiscal quarters.

Market Opportunity and Strategy

Despite recent macroeconomic and competitive dynamics, we believe that a number of important underlying drivers
represent significant long-term opportunities and growing demand for converged optical Ethernet networking solutions in our
target markets. We believe that market trends, including the proliferation of smartphones, tablets and similar devices running
mobile web applications, the prevalence of video applications, and the shift of enterprise and consumer applications to cloud-
based or virtualized network environments are emblematic of increased use and dependence by consumers and enterprises upon
a growing variety of broadband applications and services. We expect that these services will continue to add significant
multiservice network traffic, requiring our customers to invest in next-generation, high-capacity network infrastructures that are
more efficient, robust and dynamic.

To capitalize on the market dynamics above, we invested heavily in our business during fiscal 2011 and are in the process

of introducing, or transitioning to new solutions offerings in each of our product segments. Simultaneously, we have been
investing in market entry into multiple new geographies and customer segments, as well as the expansion of footprint and
market share within our traditional customer base across our segments. We have also been making investments in an effort to
optimize and gain leverage from our business processes, systems, infrastructure and resources in order to achieve our desired
operating model and profitability goals. These investments are a critical element of our effort to address customer business
challenges and evolving network requirements and position us to seize market opportunities. We believe these investments,
together with the successful completion of significant integration activities relating to the MEN Business during fiscal 2011, lay
a strong foundation for long-term growth of our business.

Additional components of our overall corporate strategy can be found in Item 1, “Business” above.

Acquisition of Nortel Metro Ethernet Networks Business and Effect on Results of Operations and Financial Condition

On March 19, 2010, we completed our acquisition (the "MEN Acquisition") of substantially all of the optical networking

and Carrier Ethernet assets of Nortel's Metro Ethernet Networks business (the “MEN Business”) for a purchase price of
$676.8 million. See Note 2 to the Consolidated Financial Statements in Item 8 of Part II of this annual report for more
information.

The MEN Acquisition represented a transformative opportunity for Ciena, strengthening our position as a leader in next-
34

generation, converged optical Ethernet networking and accelerating the execution of our corporate and research and
development strategies. Due to the relative scale of its operations, however, the MEN Acquisition materially affected our
operations, financial results and liquidity during the periods covered in this report and may make period to period comparisons
difficult. These effects include:

•

In fiscal 2010, we paid the $676.8 million purchase price for the MEN Acquisition in cash and issued $375.0
million in aggregate principal amount of 4.0% convertible senior notes due March 15, 2015, in part to fund the
purchase price;

• Our revenue increased materially as compared to periods prior to the MEN Acquisition, which closed during our

second quarter of fiscal 2010;

• Our concentration of Packet-Optical Transport revenue and revenue from outside of the United States increased,

each of which has contributed to somewhat lower gross margins since the MEN Acquisition;

• Gross margin was adversely affected by the valuation, required under accounting rules, of the acquired finished
goods inventory of the MEN Business to fair value upon closing. This valuation increased marketable inventory
carrying value by $62.3 million, of which $48.0 million and $14.3 million were recognized in cost of goods sold
during fiscal 2010 and 2011, respectively. See “Critical Accounting Policies and Estimates- Long-lived Assets”
and Note 2 of the Consolidated Financial Statements found under Item 8 of Part II of this annual report;

• Our operating expense increased materially compared to periods prior to the MEN Acquisition, reflecting:

the addition of approximately 2,000 employees, nearly doubling our headcount;

increased operating costs associated with a significantly expanded, global business;

increased amortization costs relating to the acquisition of $492.4 million in intangible assets;

transition service expense for services performed by a Nortel affiliate through the second quarter of fiscal
2011, relating to finance and accounting functions, supply chain and logistics management, maintenance
and product support, order management and fulfillment, trade compliance, and information technology;

integration-related costs, including transaction, consulting and third party service fees, severance and
purchases of capitalized information technology equipment of $122.3 million and $59.6 million for fiscal
2010 and 2011, respectively; and

restructuring costs during fiscal 2010 and fiscal 2011of approximately $8.5 million and $6.6 million,
respectively, largely related to our efforts to better align our workforce and operating costs with the
market opportunities, product development initiatives and business strategies for the combined
operations.

•

Increased use of cash from operations primarily driven by greater working capital requirements in fiscal 2010 and
2011.

In reviewing our financial results, investors should consider these and other factors included to highlight challenges to period to
period comparisons.

Financial Results

Revenue for the fourth quarter of fiscal 2011 was $455.5 million, representing a sequential increase of 4.6% from $435.3
million in the third quarter of fiscal 2011. Revenue-related details reflecting sequential changes from the third quarter of fiscal
2011 include:

•

Product revenue for the fourth quarter of fiscal 2011 increased by $18.0 million, primarily reflecting an increase of
$29.6 million in Packet-Optical Transport and a decrease of $11.6 million in sales of Carrier-Ethernet Solutions.

Service revenue for the fourth quarter of fiscal 2011 increased by $2.1 million.

• Revenue from the United States for the fourth quarter of fiscal 2011 was $252.2 million, an increase from $227.5

million in the third quarter of fiscal 2011.

•

International revenue for the fourth quarter of fiscal 2011 was $203.3 million, a decrease from $207.8 million in the
third quarter of fiscal 2011.

• As a percentage of revenue, international revenue was 44.6% during the fourth quarter of fiscal 2011, a decrease from

47.7% during the third quarter of fiscal 2011.

•

For the fourth quarter of fiscal 2011, one customer accounted for greater than 10% of revenue, representing 14.9% of

total revenue. This compares to one customer that accounted for 17.2% of total revenue in the third quarter of fiscal
2011.

Gross margin for the fourth quarter of fiscal 2011 was 41.7%, a decrease from 42.5% in the third quarter of fiscal 2011.
Gross margin for the fourth quarter of fiscal 2011 was adversely affected by lower services margin. Gross margin has been, and
may continue to be, affected by increased competitive pressures across our segments and our strategy to gain new customers,
enter new markets and capture additional market share, particularly for 40G and 100G coherent optical transport solutions
within our 6500 Packet-Optical Platform.

Operating expense was $206.2 million for the fourth quarter of fiscal 2011, an increase from $202.3 million in the third

quarter of fiscal 2011. Fourth quarter operating expense primarily reflects a $9.3 million increase in selling and marketing
expense due to increased variable compensation, travel expense and product demonstration costs. This increase was partially
offset by decreases of $2.5 million in acquisition and integration costs and $2.0 million in research and development expense.

As a result of our increase in revenue as described above, our loss from operations for the fourth quarter of fiscal 2011 was

$16.3 million, an improvement from a $17.4 million loss from operations during the third quarter of fiscal 2011. Our net loss
for the fourth quarter of fiscal 2011 was $22.3 million, or $0.23 per share. This compares to a net loss of $31.5 million or $0.33
per share, for the third quarter of fiscal 2011.

We generated $42.0 million in cash from operations during the fourth quarter of fiscal 2011, consisting of $32.9 million
provided by net losses adjusted for non-cash charges and $9.1 million in changes in working capital. This compares with the
use of $17.0 million in cash from operations during the third quarter of fiscal 2011, consisting of $44.3 million in cash used for
changes in working capital and $27.3 million from net losses adjusted for non-cash charges.

As of October 31, 2011, we had $541.9 million in cash and cash equivalents and $50.3 million of long-term investments in
U.S. treasury securities. This compares to $486.3 million and $688.7 million in cash and cash equivalents at July 31, 2011 and
October 31, 2010, respectively, and $50.2 million of long-term investments in U.S. treasury securities at July 31, 2011.

As of October 31, 2011 and July 31, 2011, headcount was 4,339, an increase from 4,201 and 2,163 at October 31, 2010 and

2009, respectively.

Consolidated Results of Operations

Our results of operations for the periods in fiscal 2010 reflect the operations of the MEN Business beginning on the March

19, 2010 acquisition date. We reorganized our internal organizational structure and the management of our business upon the
MEN Acquisition and, as described in Note 19 of the Consolidated Financial Statements found under Item 8 of Part II of this
report, present our results of operations based upon the following operating segments:

• Packet-Optical Transport - includes optical transport solutions that increase network capacity and enable more rapid
delivery of a broader mix of high-bandwidth services. These products are used by network operators to facilitate the
cost effective and efficient transport of voice, video and data traffic in core networks, regional, metro and access
networks. Our Packet-Optical Transport products support the efficient delivery of a wide variety of consumer-oriented
network services, as well as key managed service and enterprise applications. Our principal products in this segment
include the 6500 Packet-Optical Platform, 4200 Advanced Services Platform; Corestream® Agility Optical Transport
System, 5100/5200 Advanced Services Platform, Common Photonic Layer (CPL), and 6100 Multiservice Optical
Platform. This segment also includes sales from legacy SONET/SDH, transport and data networking products, as well
as certain enterprise-oriented transport solutions that support storage and LAN extension, interconnection of data
centers, and virtual private networks. This segment also includes operating system software and enhanced software
features embedded in each of these products. Revenue from this segment is included in product revenue on the
Consolidated Statement of Operations.

• Packet-Optical Switching - includes optical switching platforms that enable automated optical infrastructures for the
delivery of a wide variety of enterprise and consumer-oriented network services. Our principal products in this
segment include our family of CoreDirector® Multiservice Optical Switches, our 5430 Reconfigurable Switching
System and our OTN configuration for the 5410 Reconfigurable Switching System. These products include
multiservice, multi-protocol switching systems that consolidate the functionality of an add/drop multiplexer, digital
cross-connect and packet switch into a single, high-capacity intelligent switching system. These products address both
the core and metro segments of communications networks and support key managed service services, Ethernet/TDM
Private Line, Triple Play and IP services. This segment also includes sales of operating system software and enhanced

software features embedded in each of these products. Revenue from this segment is included in product revenue on
the Consolidated Statement of Operations.

• Carrier-Ethernet Solutions - includes our 3000 family of service delivery switches and service aggregation switches,
the 5000 series of service aggregation switches, and our Carrier Ethernet packet configuration for the 5410 Service
Aggregation Switch. These products support the access and aggregation tiers of communications networks and have
principally been deployed to support wireless backhaul infrastructures and business data services. Employing
sophisticated Carrier Ethernet switching technology, these products deliver quality of service capabilities, virtual local
area networking and switching functions, and carrier-grade operations, administration, and maintenance features. This
segment includes the legacy metro Ethernet routing switch (MERS) product line from the MEN Business, and our
legacy broadband products, including our CNX-5 Broadband DSL System (CNX-5), that transitions legacy voice
networks to support Internet-based (IP) telephony, video services and DSL. This segment also includes sales of
operating system software and enhanced software features embedded in each of these products. Revenue from this
segment is included in product revenue on the Consolidated Statement of Operations.

•

Software and Services - includes the Ciena One software suite, including OneControl, our integrated network and
service management software designed to automate and simplify network management,operation and service delivery.
These software solutions can track individual services across multiple product suites, facilitating planned network
maintenance, outage detection and identification of customers or services affected by network troubles. In addition to
Ciena One, this segment includes our ON-Center® Network & Service Management Suite, and the OMEA and
Preside platforms from the MEN Business. This segment also includes a broad range of consulting and support
services, including installation and deployment, maintenance support, consulting, network design and training
activities. Except for revenue from the software portion of this segment, which is included in product revenue, revenue
from this segment is included in services revenue on the Consolidated Statement of Operations.

Fiscal 2010 compared to Fiscal 2011

Revenue

The table below (in thousands, except percentage data) sets forth the changes in our operating segment revenue for the

periods indicated:

Revenue:

Packet-Optical Transport

Packet-Optical Switching

Carrier-Ethernet Solutions

Software and Services

Consolidated revenue

Fiscal Year

2010

2011

Increase
(decrease)

%**

705,551

57.0

$ 1,121,811

64.5

416,260

112,058

179,083

239,944

9.1

14.5

19.4

148,395

127,868

343,896

8.5

7.3

19.7

36,337
(51,215)
103,952

$ 1,236,636

100.0

$ 1,741,970

100.0

505,334

59.0

32.4
(28.6)
43.3

40.9

_________________________________

Denotes % of total revenue

Denotes % change from 2010 to 2011

• Packet-Optical Transport revenue increased reflecting a $377.8 million increase in sales of our 6500 Packet-

Optical Platform, largely driven by service provider demand for high-capacity, optical transport, including coherent
40G and 100G network infrastructures. Packet-Optical Transport revenue also benefited from sales increases of $23.4
million in 4200 Advanced Services Platform, $19.9 million in 6100 Multiservice Optical Platform, $15.9 million in
5100/5200 Advanced Services Platform, and $10.2 million in CPL. These increases were partially offset by decreases
of $25.6 million in Corestream® Agility Optical Transport System and $5.1 million in legacy transport products.

• Packet-Optical Switching revenue increased reflecting a $21.3 million increase in sales of our 5430 Reconfigurable
Switching System and a $14.1 million increase in sales of our CoreDirector® Multiservice Optical Switches. Packet-
Optical Switching revenue has historically reflected sales of our CoreDirector platform, which has a concentrated

customer base. Our Packet-Optical Switching segment is in the midst of a platform transition to our next-generation
5430 Reconfigurable Switching System. As a result of these factors, revenue for this segment can fluctuate
considerably depending upon individual customer purchasing decisions and the level of initial deployments with
customers.

• Carrier-Ethernet Solutions revenue decreased reflecting a $51.6 million decrease in sales of our 3000 and 5000
families of service delivery switches and service aggregation switches and an $8.7 million decrease in sales of our
legacy metro Ethernet and broadband products. Carrier Ethernet Service Delivery revenue benefited from $9.1
million in initial revenue from the introduction of the 5410 Service Aggregation Switch to support wireless backhaul,
Ethernet business services and residential broadband applications. Revenue for this segment remains subject to
fluctuation due to customer concentration and the timing of customer purchasing and deployment cycles. We expect
segment results to be dependent upon further adoption of these products to support business Ethernet service
applications and the level of customer adoption of our high-capacity, Carrier Ethernet configuration for our 5410
Service Aggregation Switch to support wireless backhaul, Ethernet business services and residential broadband
applications.

•

Software and Services revenue increased reflecting a $66.1 million increase in maintenance support revenue and a
$42.0 million increase in installation, deployment and consulting services.

Revenue from sales to customers outside of the United States is reflected as International in the geographic distribution of

revenue below. The table below (in thousands, except percentage data) sets forth the changes in geographic distribution of
revenue for the periods indicated:

United States

International

Total

Fiscal Year

2010

2011

Increase
(decrease)

%**

744,232

492,404

60.2

39.8

930,880

811,090

$ 1,236,636

100.0

$ 1,741,970

53.4

46.6

100.0

186,648

318,686

505,334

25.1

64.7

40.9

_________________________________

Denotes % of total revenue

Denotes % change from 2010 to 2011

• United States revenue increased primarily due to a $185.2 million increase in sales of Packet-Optical Transport

products, a $38.3 million increase in Software and Services revenue and a $17.4 million increase in Packet-Optical
Switching products. These increases were partially offset by a $54.2 million decrease in Carrier Ethernet Solutions
sales.

•

International revenue increased primarily due to a $231.1 million increase in Packet-Optical Transport revenue, a
$65.7 million increase in Software and Services revenue and an $18.9 million increase in sales of Packet-Optical
Switching products.

A sizable portion of our revenue continues to come from sales to a small number of service providers, particularly within

our Packet-Optical Switching and Carrier-Ethernet Solutions businesses where four customers accounted for greater than
approximately 65.8% of our revenue in fiscal 2011. As a result, our financial results are significantly affected by spending
levels and the business opportunities and challenges encountered by our service provider customers. Moreover, our contracts do
not have terms that obligate these customers to purchase any minimum or specific amounts of equipment or services. Our
concentration of revenue has been adversely affected in prior periods by consolidation activity among our customers. In
addition, some of our customers are pursuing efforts to outsource the management and operation of their networks, or have
indicated a procurement strategy to reduce the number of vendors from which they purchase equipment, which could further
affect our concentration of revenue where we participate in these efforts. Sales to AT&T were $267.4 million, or 21.6% of our
revenue, in fiscal 2010 and $269.9 million, or 15.5% of our revenue, in fiscal 2011. We did not have any other customers
accounting for greater than 10% of revenue in fiscal 2010 or 2011.

Cost of Goods Sold and Gross Profit

Product cost of goods sold consists primarily of amounts paid to third-party contract manufacturers, component costs,
employee-related costs and overhead, shipping and logistics costs associated with manufacturing-related operations, warranty

and other contractual obligations, royalties, license fees, amortization of intangible assets, cost of excess and obsolete inventory
and, when applicable, estimated losses on committed customer contracts.

Services cost of goods sold consists primarily of direct and third-party costs, including employee-related costs, associated
with our provision of services including installation, deployment, maintenance support, consulting and training activities, and,
when applicable, estimated losses on committed customer contracts.

Our gross profit as a percentage of revenue, or “gross margin,” continues to be susceptible to quarterly fluctuation due to a

number of factors. Gross margin can vary significantly depending upon the mix and concentration of revenue by segment or
product line, the concentration of lower margin common equipment sales within a segment or product line, geographic mix and
the mix of customers and services in a given fiscal quarter. Gross margin can also be affected by our introduction of new
products, charges for excess and obsolete inventory, changes in warranty costs and sales volume. We expect that gross margins
will be subject to fluctuation based on our level of success in driving cost reductions, rationalizing our supply chain and
consolidating third party contract manufacturers and distribution sites as part of our effort to optimize our operations. Gross
margin can also be adversely affected by the competitive environment and level of pricing pressure we encounter. The
combination of the recent period of uncertain market conditions, constraints on customer capital expenditures and increased
competition has resulted in a heightened customer focus on pricing and return on network investment, as customers address
network traffic growth and strive to increase revenue and profit. While competition is intense across our segments, our
exposure to pricing pressure has been most severe in metro and core applications for our Packet-Optical Transport platforms,
particularly in international markets. As a result, in an effort to retain or secure customers, enter new markets or capture market
share, in the past we have and in the future we may agree to pricing or other unfavorable commercial terms that result in lower
or negative gross margins on a particular order or group of orders. Because Packet-Optical Transport and international revenue
comprise a greater percentage of our overall revenue than in prior periods, these market dynamics may adversely affect our
gross margins and results of operations in certain periods.

Service gross margin can be affected by the mix of customers and services, particularly the mix between deployment and

maintenance services, geographic mix and the timing and extent of any investments in internal resources to support this
business.

The tables below (in thousands, except percentage data) set forth the changes in revenue, cost of goods sold and gross profit

for the periods indicated:

Total revenue

Total cost of goods sold

Gross profit

Fiscal Year

2010

2011

Increase
(decrease)

%**

$ 1,236,636

100.0

$ 1,741,970

739,135

497,501

59.8

40.2

1,032,824

709,146

100.0

59.3

40.7

505,334

293,689

211,645

40.9

39.7

42.5

_________________________________

Denotes % of total revenue

Denotes % change from 2010 to 2011

Fiscal Year

2010

2011

Increase
(decrease)

%**

Product revenue

Product cost of goods sold

Product gross profit

$ 1,009,239

100.0

$ 1,406,532

596,704

412,535

59.1

40.9

825,969

580,563

100.0

58.7

41.3

397,293

229,265

168,028

39.4

38.4

40.7

_________________________________

Denotes % of product revenue

Denotes % change from 2010 to 2011

Service revenue

Service cost of goods sold

Service gross profit

2010

227,397

142,431

84,966

Fiscal Year

100.0

62.6

37.4

2011

335,438

206,855

128,583

Increase
(decrease)

%**

100.0

61.7

38.3

108,041

64,424

43,617

47.5

45.2

51.3

_________________________________

Denotes % of service revenue

Denotes % change from 2010 to 2011

• Gross profit as a percentage of revenue increased as a result of the factors described below.

• Gross profit on products as a percentage of product revenue increased, despite less favorable product mix in fiscal
2011, largely as a result of the adverse effect, in fiscal 2010, of a number of items relating to the MEN Acquisition that
increased costs of goods sold in that period. These items included $48.0 million related to the revaluation of inventory
and $6.6 million in excess purchase commitment losses on Ciena's pre-acquisition inventory relating to product
rationalization decisions. Fiscal 2011 cost of goods sold included $14.3 million related to the revaluation of inventory
and an $8.8 million increase in amortization of intangible assets.

• Gross profit on services as a percentage of services revenue increased due to higher concentration of professional

services as a percentage of revenue, and improved operational efficiencies.

Operating Expense

Research and development expense primarily consists of salaries and related employee expense (including share-based
compensation expense), prototype costs relating to design, development, and testing of our products, depreciation expense and
third-party consulting costs.

Sales and marketing expense primarily consists of salaries, commissions and related employee expense (including share-

based compensation expense), and sales and marketing support expense, including travel, demonstration units, trade show
expense and third-party consulting costs.

General and administrative expense primarily consists of salaries and related employee expense (including share-based

compensation expense), and costs for third-party consulting and other services.

Amortization of intangible assets primarily reflects purchased technology and customer relationships from our

acquisitions.

The table below (in thousands, except percentage data) sets forth the changes in operating expense for the periods indicated:

Fiscal Year

2010

2011

Increase
(decrease)

%**

Research and development

327,626

Selling and marketing

General and administrative

Acquisition and integration costs

Amortization of intangible assets

Restructuring costs

Change in fair value of contingent
consideration

Total operating expenses

193,515

102,692

101,379

99,401

8,514

26.5

15.6

8.3

8.2

8.0

0.7

379,862

251,990

126,242

42,088

69,665

5,781

21.8

14.5

7.2

2.4

4.0

0.3

52,236

58,475

23,550
(59,291)
(29,736)
(2,733)

(13,807)

819,320

(1.1)
66.2

(3,289)
872,339

(0.2)
50.0

10,518

53,019

15.9

30.2

22.9
(58.5)
(29.9)
(32.1)

(76.2)
6.5

_________________________________

Denotes % of total revenue

Denotes % change from 2010 to 2011

• Research and development expense was adversely affected by $12.2 million as a result of foreign exchange rates,
primarily due to the weakening of the U.S. dollar in relation to the Canadian dollar. The $52.2 million increase
primarily reflects increases of $47.4 million in employee compensation and related costs, $13.6 million in facilities
and information systems, $4.8 million in depreciation expense and $2.5 million in professional services and fees.
These increases were partially offset by decreases of $9.6 million in prototype expense and a $5.5 million benefit
related to a conditional grant from the Province of Ontario. Under this strategic jobs investment fund grant, we can
receive up to an aggregate of $25.0 million Canadian dollars in funding for eligible costs relating to certain next-
generation, coherent optical transport development initiatives over the period from fiscal 2011 to fiscal 2015. We
anticipate receiving future disbursements, approximating CAD$5.0 million per fiscal year over the period above.
Amounts received under the grant are subject to recoupment in the event that we fail to achieve certain minimum
investment, employment and project milestones.

•

Selling and marketing expense was adversely affected by $2.5 million due to foreign exchange rates, primarily due
to the weakening of the U.S. dollar in relation to the Euro and the Canadian dollar. The $58.5 million increase
primarily reflects increases of $37.9 million in employee compensation and related costs, $6.0 million in facilities and
information systems, $5.2 million in travel-related expenditures, $4.8 million in marketing program costs, $2.7 million
in prototype expense and $2.0 million in professional services and fees.

• General and administrative expense increased by $21.5 million in employee compensation and related costs.

• Acquisition and integration costs principally consist of transaction, consulting and third party service fees related to
the acquisition and integration of the MEN Business into the combined operations. This integration activity was
substantially completed in the first half of fiscal 2011.

• Amortization of intangible assets decreased due to certain intangible assets from the MEN Acquisition reaching the
end of their economic lives during fiscal 2011. See Note 2 to our Consolidated Financial Statements in Item 8 of Part
II of this report.

• Restructuring costs primarily reflect the headcount reductions and restructuring activities described in the “Overview

— Acquisition of Nortel Metro Ethernet Networks Business and Effect on Results of Operations and Financial
Condition ” above.

• Change in fair value of contingent consideration is related to the contingent refund right we received as part of the
MEN Acquisition relating to the early termination of the Carling lease. See Note 2 to our Consolidated Financial
Statements in Item 8 of Part II for additional information.

Other items

The table below (in thousands, except percentage data) sets forth the changes in other items for the periods indicated:

Fiscal Year

2010

2011

Interest and other income (loss), net

Interest expense

Gain on cost method investment

Gain on extinguishment of debt

Provision for income taxes

3,917

18,619

—

4,948

1,941

_________________________________

0.3

1.5

0.0

0.4

0.2

6,022

37,926

7,249

—

7,673

Increase
(decrease)

%**

0.3

2.2

0.4

0.0

0.4

2,105

19,307

7,249
(4,948)
5,732

53.7

103.7

100.0
(100.0)
295.3

•

Denotes % of total revenue

Denotes % change from 2010 to 2011

Interest and other income (loss), net increased due to a $2.8 million positive effect of foreign exchange rates on
assets and liabilities denominated in a currency other than the relevant functional currency. Fiscal 2010 reflects a $2.0
million charge relating to the termination of an indemnification asset upon the expiration of the statute of limitations
applicable to one of the uncertain tax contingencies acquired as part of the MEN Acquisitions.

•

Interest expense increased due to our issuance during fiscal 2010 of $375.0 million in aggregate principal amount of
4.0% convertible senior notes due March 15, 2015 and $350.0 million in aggregate principal amount of 3.75%
convertible senior notes due October 15, 2018. See Note 14 to the Consolidated Financial Statements found under
Item 8 of Part II of this report.

• Gain on cost method investment for fiscal 2011 was the result of the sale of a privately held technology company in

which we held a minority equity investment.

• Gain on extinguishment of debt for fiscal 2010 resulted from our repurchase of $81.8 million in aggregate principal
amount of our outstanding 0.25% convertible notes in privately negotiated transactions for $76.1 million. We recorded
a gain on the extinguishment of debt in the amount of $4.9 million, which consists of the $5.7 million gain from the
repurchase of the notes, less $0.8 million of associated debt issuance costs.

• Provision for income taxes increased primarily due to increased foreign taxes.

Fiscal 2009 compared to Fiscal 2010

Revenue

The table below (in thousands, except percentage data) sets forth the changes in our operating segment revenue for the

periods indicated:

Revenue:

Packet-Optical Transport

Packet-Optical Switching

Carrier-Ethernet Solutions

Software and Services

Consolidated revenue

Fiscal Year

2009

2010

Increase
(decrease)

%**

299,088

165,705

75,125

112,711

45.8

25.4

11.5

17.3

705,551

57.0

112,058

179,083

239,944

9.1

14.5

19.4

406,463
(53,647)
103,958

127,233

652,629

100.0

$ 1,236,636

100.1

584,007

135.9
(32.4)
138.4

112.9

89.5

_________________________________

Denotes % of total revenue

Denotes % change from 2009 to 2010

• Packet-Optical Transport revenue for fiscal 2010 reflects the addition of $409.6 million in revenue from the MEN
Business. The addition of MEN Business revenue reflects $208.0 million of sales relating to our 6500 Packet-Optical
Platform. Packet-Optical Transport revenue also benefited from the addition of sales from the MEN Business of
$115.8 million of 5100/5200 Advanced Services Platform, $39.1 million of CPL, $31.7 million of legacy and other
transport products and $15.0 million of 6100 Multiservice Optical Platform revenue. Packet-Optical Transport revenue
benefited from a $13.2 million increase in 4200 Advanced Services Platform revenue during fiscal 2010, largely
driven by metro network builds and latency sensitive applications. These increases were offset by an $11.5 million
decrease in Corestream® Agility Optical Transport System sales and a $4.8 million decrease in sales of legacy and
other Packet-Optical Transport products.

• Packet-Optical Switching revenue decreased reflecting a $53.6 million decline in CoreDirector revenue. Packet-

Optical Switching revenue principally reflects our CoreDirector platform, which has a concentrated customer base. As
a result, revenue can fluctuate considerably depending upon individual customer purchasing decisions. We believe
Packet-Optical Switching product revenue was also adversely affected in fiscal 2010 by deferred customer purchasing
decisions and the effect of carrier sales cycles as we effected a platform transition from CoreDirector to our 5430 next-
generation, high-capacity switching systems.

• Carrier-Ethernet Solutions revenue increased significantly, reflecting an $86.5 million increase in sales of our 3000
and 5000 families of service-delivery switches and service aggregation switches in support of wireless backhaul
deployments. Quarterly revenue for these products remains subject to fluctuation due to customer concentration and
customer buying cycles. Carrier Ethernet Solutions revenue also benefited from the addition of $9.6 million in sales of
our MERS product from the MEN Business and an $8.2 million increase in CNX-5 sales in support of residential
DSL.

•

Software and Services revenue increased primarily due to the addition of $86.6 million in maintenance support

revenue and $20.8 million in installation and deployment services from the MEN Business. Segment revenue also
benefited from a $14.9 million increase in maintenance support revenue from Ciena’s pre-acquisition portfolio and a
$4.9 million increase in software revenue.

Revenue from sales to customers outside of the United States is reflected as International in the geographic distribution of

revenue below. The table below (in thousands, except percentage data) sets forth the changes in geographic distribution of
revenue for the periods indicated:

United States

International

Total

Fiscal Year

2009

419,405

233,224

652,629

2010

Increase
(decrease)

64.3

35.7

744,232

492,404

100.0

$ 1,236,636

60.2

39.8

100.0

324,827

259,180

584,007

%**

77.4

111.1

89.5

_________________________________

Denotes % of total revenue

Denotes % change from 2009 to 2010

• United States revenue increased primarily due to a $189.8 million increase in sales of Packet-Optical Transport

products, principally as a result of the MEN Acquisition, a $94.1 million increase in sales of Carrier Ethernet Solutions
products, and a $72.5 million increase in services revenue. These increases offset a $34.3 million decrease in Packet-
Optical Switching revenue.

•

International revenue increased primarily due to a $216.7 million increase in Packet-Optical Transport revenue,
principally as a result of the MEN Acquisition, a $49.8 million increase in services revenue and a $9.9 million increase
in sales of Carrier Ethernet Solutions products. These increases offset a $19.4 million decrease in Packet-Optical
Switching revenue.

Cost of Goods Sold and Gross Profit

The tables below (in thousands, except percentage data) set forth the changes in revenue, cost of goods sold and gross profit

for the periods indicated:

Total revenue

Total cost of goods sold

Gross profit

Fiscal Year

2009

652,629

367,799

284,830

2010

Increase
(decrease)

100.0

$ 1,236,636

56.4

43.6

739,135

497,501

100.0

59.8

40.2

584,007

371,336

212,671

%**

89.5

101.0

74.7

_________________________________

*
**

Denotes % of total revenue
Denotes % change from 2009 to 2010

Product revenue

Product cost of goods sold

Product gross profit

Fiscal Year

2009

547,522

296,170

251,352

2010

Increase
(decrease)

100.0

$ 1,009,239

54.1

45.9

596,704

412,535

100.0

59.1

40.9

461,717

300,534

161,183

%**

84.3

101.5

64.1

_________________________________

*
**

Denotes % of product revenue
Denotes % change from 2009 to 2010

Service revenue

Service cost of goods sold

Service gross profit

2009

105,107

71,629

33,478

Fiscal Year

100.0

68.1

31.9

2010

227,397

142,431

84,966

Increase
(decrease)

100.0

62.6

37.4

122,290

70,802

51,488

%**

116.3

98.8

153.8

_________________________________

Denotes % of service revenue

Denotes % change from 2009 to 2010

• Gross profit as a percentage of revenue decreased due to lower product gross margins described below, partially

offset by improved service gross margin.

• Gross profit on products as a percentage of product revenue decreased due to a number of items relating to the

MEN Acquisition that increased costs of goods sold during fiscal 2010. These items include $48.0 million related to
the revaluation of inventory and $6.6 million in excess purchase commitment losses on Ciena's pre-acquisition
inventory relating to product rationalization decisions and increased amortization of intangible assets. Fiscal 2010
gross profit was also adversely affected by a lower concentration of Packet-Optical Switching revenue. These
additional costs were offset by lower warranty and excess and obsolete inventory charges as compared to fiscal 2009.
Gross margin for fiscal 2009 was negatively affected by a $5.8 million charge related to two committed customer sales
contracts that resulted in a negative gross margin on the initial phases of the customers' deployment.

• Gross profit on services as a percentage of services revenue increased due to higher concentration of maintenance

support and professional services as a percentage of revenue, and improved operational efficiencies.

Operating expense

Excluding the effect of the goodwill impairment charges in fiscal 2009, increased operating expense for fiscal 2010

principally reflects the increased scale of our business resulting from the MEN Acquisition on March 19, 2010. The table below
(in thousands, except percentage data) sets forth the changes in operating expense for the periods indicated:

Research and development

190,319

327,626

Fiscal Year

2009

2010

Selling and marketing

General and administrative

Acquisition and integration costs

Amortization of intangible assets

Restructuring costs

Goodwill Impairment
Change in fair value of contingent
consideration
Total operating expenses

134,527

47,509

—

24,826

11,207

455,673

—

29.2

20.6

7.3

0.0

3.8

1.7

69.8

0.0

193,515

102,692

101,379

99,401

8,514

—

(13,807)
819,320

Increase
(decrease)

137,307

58,988

55,183

101,379

74,575
(2,693)
(455,673)

26.5

15.6

8.3

8.2

8.0

0.7

0.0

(1.1)
66.2

(13,807)
(44,741)

%**

72.1

43.8

116.2

100.0

300.4
(24.0)
(100.0)

100.0
(5.2)

864,061

132.4

_________________________________

Denotes % of total revenue

Denotes % change from 2009 to 2010

• Research and development expense was adversely affected by $13.9 million as a result of foreign exchange rates,
primarily due to the weakening of the U.S. dollar in relation to the Canadian dollar. The $137.3 million increase
primarily reflects increases of $65.6 million in employee compensation and related costs, $34.6 million in professional
services and fees, $17.4 million in facilities and information systems, $12.2 million in depreciation expense and $4.9
million in prototype expense related to the development initiatives described above.

•

Selling and marketing expense benefited from $1.6 million as a result of favorable foreign exchange rates primarily

due to the comparative strength of the U.S. dollar in relation to the previous year. The resulting $59.0 million net
change reflects increases of $41.8 million in employee compensation and related costs, $6.4 million in travel-related
expenditures, $4.3 million in facilities and information systems and $2.8 million in professional services and fees.

• General and administrative expense increased by $21.9 million in consulting service expense, $17.7 million in

facilities and information systems expense and $11.7 million in employee compensation and related costs.

• Acquisition and integration costs principally consist of transaction, consulting and third party service fees related to

the integration of the MEN Business into the combined operations.

• Amortization of intangible assets increased due to the acquisition of additional intangible assets as a result of the

MEN Acquisition. See Note 2 to our Consolidated Financial Statements in Item 8 of Part II of this report.

• Restructuring costs primarily reflect the headcount reductions and restructuring activities described in the “Overview

- Acquisition of Nortel Metro Ethernet Networks Business and Effect on Results of Operations and Financial
Condition ” above.

• Goodwill impairment costs reflect the impairment of goodwill and resulting charge incurred in fiscal 2009 as

described in Note 4 to our Consolidated Financial Statements in Item 8 of Part II of this report.

Other items

The table below (in thousands, except percentage data) sets forth the changes in other items for the periods indicated:

Fiscal Year

2009

2010

Interest and other income (loss), net

Interest expense

Loss on cost method investments

Gain on extinguishment of debt

Provision (benefit) for income taxes

9,487

7,406

5,328

—

(1,324)

1.5

1.1

0.8

0.0
(0.2)

3,917

18,619

—

4,948

1,941

_________________________________

Denotes % of total revenue

Denotes % change from 2009 to 2010

Increase
(decrease)

%**

0.3

1.5

0.0

0.4

0.2

(5,570)
11,213
(5,328)
4,948

3,265

(58.7)
151.4
(100.0)
100.0
(246.6)

•

Interest and other income (loss), net decreased as a result of a $9.5 million decrease in interest income due to lower
interest rates and lower invested balances. Decreased interest and other income, net also reflects a $2.0 million charge
relating to the termination of an indemnification asset upon the expiration of the statute of limitations applicable to one
of the uncertain tax contingencies acquired as part of the MEN Acquisition. These items were partially offset by a $3.8
million gain due to the positive effect of foreign exchange rates on assets and liabilities denominated in a currency
other than the relevant functional currency, and a $2.5 million non-cash gain related to the change in fair value of the
redemption feature associated with our 4.0% convertible senior notes due March 15, 2015. See Notes 6 and 14 to the
Consolidated Financial Statements found under Item 8 of Part II of this report for more information regarding the
issuance of these convertible notes and the fair value of the redemption feature contained therein.

• Loss on cost method investments during fiscal 2009 was due to the decline in value of our investments in two

privately held technology companies that were determined to be other-than-temporary.

• Gain on extinguishment of debt resulted from our repurchase of $81.8 million in aggregate principal amount of our
outstanding 0.25% convertible notes in privately negotiated transactions for $76.1 million. We recorded a gain on the

extinguishment of debt in the amount of $4.9 million, which consists of the $5.7 million gain from the repurchase of
the notes, less $0.8 million of associated debt issuance costs.

• Provision (benefit) for income taxes increased primarily due to a decrease in refundable federal tax credits.

Segment Profit (Loss)

The table below (in thousands, except percentage data) sets forth the changes in our segment profit (loss) for the respective

periods:

Segment profit (loss):

Packet-Optical Transport

Packet-Optical Switching

Carrier-Ethernet Solutions

Software and Services

_________________________________

Denotes % change from 2010 to 2011

Fiscal Year

2010

2011

Increase
(decrease)

69,319

15,662

28,742

56,152

191,727

49,286

10,849

77,422

122,408

33,624
(17,893)
21,270

176.6

214.7
(62.3)
37.9

• Packet-Optical Transport segment profit increased primarily due to higher sales volume. Segment profit during

fiscal 2010 was adversely affected by the revaluation of the acquired finished goods inventory of the MEN Business to
fair value upon closing and the excess purchase commitment losses on Ciena's pre-acquisition inventory relating to
product rationalization decisions described above.

• Packet-Optical Switching segment profit increased due to higher sales volume and decreased research and

development costs, partially offset by lower product gross margin.

• Carrier-Ethernet Solutions segment profit decreased due to lower sales volume, partially offset by higher gross

margin and decreased research and development costs.

•

Software and Services segment profit was significantly affected by the MEN Acquisition. Segment profit increased
due to increased sales volume, partially offset by increased research and development costs.

The table below (in thousands, except percentage data) sets forth the changes in our segment profit (loss) for the respective

periods:

Segment profit (loss):

Packet-Optical Transport

Packet-Optical Switching

Carrier-Ethernet Solutions

Software and Services

_________________________________

Denotes % change from 2009 to 2010

Fiscal Year

2009

2010

Increase
(decrease)

21,535

60,302
(9,575)
22,249

69,319

15,662

28,742

56,152

47,784
(44,640)
38,317

33,903

221.9
(74.0)
(400.2)
152.4

• Packet-Optical Transport segment profit for fiscal 2010 reflects increased sales volume resulting in additional
product gross profit, partially offset by increased research and development costs due to the MEN Acquisition.

• Packet-Optical Switching segment profit declined due to decreased sales volume resulting in reduced product gross

profit, and increased research and development costs.

• Carrier-Ethernet Solutions segment profit improved significantly due to increased sales volume resulting in

additional gross profit, partially offset by increased research and development costs.

•

Software and Services segment profit improved due to increased sales volume and improved gross margin, both of
which resulted in additional gross profit, partially offset by increased research and development costs.

Liquidity and Capital Resources

At October 31, 2011, our principal sources of liquidity were cash and cash equivalents and long-term investments in
marketable debt securities, representing U.S. treasuries. The following table summarizes our cash and cash equivalents and
long-term investments (in thousands):

Cash and cash equivalents

Long-term investments in marketable debt securities

Total cash and cash equivalents and investments in marketable debt
securities

October 31,

2010

2011

688,687

541,896

—

50,264

Increase

(decrease)

(146,791)
50,264

688,687

592,160

(96,527)

During fiscal 2011, we received $33.5 million related to the early termination of the Carling lease, of which $17.1 million

reduced cash used by operations and $16.4 million reduced cash used by investing activities. See Note 2 to our Consolidated
Financial Statements in Item 8 of Part II for additional information relating to the valuation of this contingent refund right at the
closing of the MEN Acquisition and the early termination of the Carling lease.

The decrease in total cash and cash equivalents and investments in marketable debt securities during fiscal 2011,
notwithstanding the effect of the receipt of the early termination payment above, was primarily related to the following:

•

$90.5 million cash used from operations, consisting of $120.3 million for changes in working capital and $29.8
million from net losses (adjusted for non-cash charges). Use of cash reflects cash payments of $63.8 million of
acquisition and integration-related expense and restructuring costs, of which $48.7 million was reflected in net losses
(adjusted for non-cash charges) and $15.1 million was reflected in changes in working capital; and

•

$52.4 million for purchases of equipment, furniture, fixtures and intellectual property.

These decreases were partially offset by:

•

$13.2 million from stock issuances upon sales under our employee stock purchase plan and the exercise of stock
options;

$10.8 million transferred from restricted cash related to reduced collateral requirements for our standby letters of
credit described below; and

$6.5 million in proceeds from the sale of a privately held technology company in which we had a minority equity
investment.

As expected, our investment in working capital for fiscal 2011 reflects the increased scale of our operations resulting from

the MEN Acquisition. We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund our
operating plans and may consider capital raising and other market opportunities that may be available to us. Based on past
performance and current expectations, we believe that our cash, cash equivalents and investments will satisfy our working
capital needs, capital expenditures, and other liquidity requirements associated with our existing operations through at least the
next 12 months.

The following sections set forth the components of our $90.5 million of cash used by operating activities for fiscal 2011:

Net loss (adjusted for non-cash charges)

The following tables set forth (in thousands) our net loss (adjusted for non-cash charges) during the period:

Net loss

Adjustments for non-cash charges:

Amortization of premium on marketable debt securities

Gain on cost method investments

Change in fair value of embedded redemption feature

Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements

Share-based compensation costs

Amortization of intangible assets

Deferred tax provision

Provision for inventory excess and obsolescence

Provision for warranty

Other

Net losses adjusted for non-cash charges

Working Capital

Accounts Receivable, Net

Year ended

October 31, 2011

(195,521)

(38)
(7,249)
(2,800)
60,154

37,930

95,927

183

17,334

18,451

5,396

29,767

Cash used by accounts receivable during fiscal 2011, net of $1.7 million in provision for doubtful accounts, was $75.6
million primarily due to increased sales volume. Our days sales outstanding (DSOs) decreased from 100 days for fiscal 2010 to
86 days for fiscal 2011. Our DSOs level for fiscal 2010 largely reflects the timing of the MEN Acquisition and the effect on this
calculation of having only a partial year of revenue from the MEN Business.

Utilizing annualized fourth quarter revenue for purposes of this calculation would have resulted in DSOs of 74 days for

fiscal 2010 and 83 days for fiscal 2011. Our DSOs increased due to growth in international sales, which generally involve
longer payment cycles.

The following table sets forth (in thousands) changes to our accounts receivable, net of allowance for doubtful accounts,

from the end of fiscal 2010 through the end of fiscal 2011:

Accounts receivable, net

Inventory

October 31,

2010

2011

Increase

(decrease)

343,582

417,509

73,927

Cash generated by inventory during fiscal 2011 was $14.2 million. Our inventory turns increased from 2.3 turns during
fiscal 2010 to 3.6 turns during fiscal 2011. During fiscal 2011, changes in inventory reflect a $17.3 million reduction related to
a non-cash provision for excess and obsolescence. The following table sets forth (in thousands) changes to the components of
our inventory from the end of fiscal 2010 through the end fiscal 2011:

Raw materials

Work-in-process

Finished goods

Deferred cost of goods sold

Gross inventory

Provision for inventory excess and obsolescence

Inventory

Prepaid expense and other

October 31,

2010

2011

Increase

(decrease)

30,569

45,333

6,993

177,994

76,830

292,386
(30,767)
261,619

13,851

134,998

67,665

261,847
(31,771)
230,076

14,764

6,858
(42,996)
(9,165)
(30,539)
(1,004)
(31,543)

Cash used by prepaid expense and other during fiscal 2011 was $18.3 million. This usage was primarily related to
increases in product demonstration units and deferred deployment expense, partially offset by the receipt of the contingent
refund receivable related to the Carling Lease termination.

Accounts payable, accruals and other obligations

Cash used by accounts payable, accruals and other obligations during fiscal 2011 was $59.3 million. Between the end of
fiscal 2010 and fiscal 2011, the change in unpaid equipment purchases was $1.2 million. Changes in accrued liabilities reflect
non-cash provisions of $18.5 million related to warranties. The following table sets forth (in thousands) changes in our
accounts payable, accruals and other obligations from the end of fiscal 2010 through the end of fiscal 2011:

Accounts payable

Accrued liabilities

Other long-term obligations

Accounts payable, accruals and other obligations

Interest Paid on Convertible Notes

October 31,

2010

2011

Increase

(decrease)

200,617

157,116

193,994

16,435

197,004

17,263

411,046

371,383

(43,501)
3,010

828
(39,663)

Interest on our outstanding 0.25% convertible senior notes, due May 1, 2013, is payable on May 1 and November 1 of each

year. We paid $0.5 million in interest on these convertible notes during fiscal 2011.

Interest on our outstanding 4.0% convertible senior notes, due March 15, 2015, is payable on March 15 and September 15

of each year. We paid $15.0 million in interest on these convertible notes during fiscal 2011.

Interest on our outstanding 0.875% convertible senior notes, due June 15, 2017, is payable on June 15 and December 15 of

each year. We paid $4.4 million in interest on these convertible notes during fiscal 2011.

Interest on our outstanding 3.75% convertible senior notes, due October 15, 2018, is payable on April 15 and October 15 of

each year. We paid $13.0 million in interest on these convertible notes during fiscal 2011.

For additional information about our convertible notes, see Note 14 to our Consolidated Financial Statements included in

Item 8 of Part II of this report.

Deferred revenue

Deferred revenue increased by $18.7 million during fiscal 2011. Product deferred revenue represents payments received in
advance of shipment and payments received in advance of our ability to recognize revenue. Services deferred revenue is related
to payment for service contracts that will be recognized over the contract term. The following table reflects (in thousands) the
balance of deferred revenue and the change in this balance from the end of fiscal 2010 through the end of fiscal 2011:

Products

Services

Total deferred revenue

Contractual Obligations

October 31,

2010

2011

Increase

(decrease)

31,187

73,862

105,049

42,915

80,883

123,798

11,728

7,021

18,749

During fiscal 2011, we received notice from Nortel of the exercise of its early termination rights under the Carling lease,
shortening our lease term from ten years to five years. This had the effect of materially reducing our longer term operating lease
commitments in the table below as compared to fiscal 2010. We expect such longer term operating lease commitments to
increase at such time that a lease for alternative space is identified. The following is a summary of our future minimum
payments under contractual obligations as of October 31, 2011 (in thousands):

Interest due on convertible notes

171,707

33,041

65,541

42,500

30,625

Total

Less than one
year

One to three
years

Three to five
years

Thereafter

Principal due at maturity on convertible notes

Operating leases (1)

Purchase obligations (2)

Total (3) (4)

_________________________________

1,441,210

99,970

235,542

—

30,117

235,542

216,210

48,585

—

375,000

16,008

—

850,000

5,260

—

$ 1,948,429

298,700

330,336

433,508

885,885

(1)

(2)

(3)

(4)

The amount for operating leases above does not include insurance, taxes, maintenance and other costs required by the
applicable operating lease. These costs are variable and are not expected to have a material impact.

Purchase obligations relate to purchase order commitments to our contract manufacturers and component suppliers for
inventory. In certain instances, we are permitted to cancel, reschedule or adjust these orders. Consequently, only a
portion of the amount reported above relates to firm, non-cancelable and unconditional obligations.

As of October 31, 2011, we also had approximately $8.8 million of other long-term obligations in our Consolidated
Balance Sheet for unrecognized tax positions that are not included in this table because the timing or amount of any
cash settlement with the respective tax authority cannot be reasonably estimated.

This table does not reflect the costs associated with our new headquarters lease entered into subsequent to October 31,
2011. See Item 2 of Part I of this annual report for more information.

Some of our commercial commitments, including some of the future minimum payments in operating leases set forth

above and certain commitments to customers, are secured by standby letters of credit collateralized by restricted cash.
Restricted cash balances are included in other current assets or other long-term assets depending upon the duration of the
underlying letter of credit obligation. The following is a summary of our commercial commitments secured by standby letters
of credit by commitment expiration date as of October 31, 2011 (in thousands):

Standby letters of credit

53,543

24,623

6,048

22,872

Total

Less than one
year

One to
three years

Three to
five years

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing arrangements. In particular, we do not have any equity interests in so-

called limited purpose entities, which include special purpose entities (SPEs) and structured finance entities.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. By their
nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we reevaluate our

estimates, including those related to bad debts, inventories, intangible assets, income taxes, warranty obligations, restructuring,
derivatives and hedging, and contingencies and litigation. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. Among other things, these estimates form the basis for
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. To the extent that there are material differences between
our estimates and actual results, our consolidated financial statements will be affected.

We believe that the following critical accounting policies reflect those areas where significant judgments and estimates are

used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery

has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectibility is reasonably
assured. Customer purchase agreements and customer purchase orders are generally used to determine the existence of an
arrangement. Shipping documents and evidence of customer acceptance, when applicable, are used to verify delivery or
services rendered. We assess whether the price is fixed or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based primarily on the
creditworthiness of the customer as determined by credit checks and analysis, as well as the customer's payment history.
Revenue for maintenance services is generally deferred and recognized ratably over the period during which the services are to
be performed.

We apply the percentage of completion method to long-term arrangements where we are required to undertake significant

production, customizations or modification engineering, and reasonable and reliable estimates of revenue and cost are
available. Utilizing the percentage of completion method, we recognize revenue based on the ratio of actual costs incurred to
date to total estimated costs expected to be incurred. In instances that do not meet the percentage of completion method criteria,
recognition of revenue is deferred until there are no uncertainties regarding customer acceptance.

Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed

or determinable, and collectibility is probable. In instances where final acceptance criteria of the software is specified by the
customer, revenue is deferred until there are no uncertainties regarding customer acceptance.

We limit the amount of revenue recognition for delivered elements to the amount that is not contingent on the future
delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.

Accounting for multiple element arrangements entered into prior to fiscal 2011

Arrangements with customers may include multiple deliverables, including any combination of equipment, services and
software. If multiple element arrangements include software or software-related elements that are essential to the equipment,
we allocate the arrangement fee among separate units of accounting. Multiple element arrangements that include software are
separated into more than one unit of accounting if the functionality of the delivered element(s) is not dependent on the
undelivered element(s), there is vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered element(s),
and general revenue recognition criteria related to the delivered element(s) have been met. The amount of product and services
revenue recognized is affected by our judgment as to whether an arrangement includes multiple elements and, if so, whether
VSOE of fair value exists. VSOE is established based on our standard pricing and discounting practices for the specific product
or service when sold separately. In determining VSOE, we require that a substantial majority of the selling prices for a product
or service fall within a reasonably narrow pricing range. Changes to the elements in an arrangement and our ability to establish
VSOE for those elements could affect the timing of revenue recognition. For all other multiple element arrangements, we
separate the elements into more than one unit of accounting if the delivered element(s) have value to the customer on a stand-
alone basis, objective and reliable evidence of fair value exists for the undelivered element(s), and delivery of the undelivered
element(s) is probable and substantially in our control. Revenue is allocated to each unit of accounting based on the relative fair
value of each accounting unit or using the residual method if objective evidence of fair value does not exist for the delivered
element(s). The revenue recognition criteria described above are applied to each separate unit of accounting. If these criteria are
not met, revenue is deferred until the criteria are met or the last element has been delivered.

Accounting for multiple element arrangements entered into or materially modified in fiscal 2011

In October 2009, the Financial Accounting Standards Board, (“FASB”) amended the accounting standard for revenue
recognition with multiple deliverables which provided guidance on how the arrangement fee should be allocated. The amended
51

guidance allows the use of management's best estimate of selling price (“BESP”) for individual elements of an arrangement
when VSOE or third-party evidence (“TPE”) is unavailable. Additionally, it eliminates the residual method of revenue
recognition in accounting for multiple deliverable arrangements. The FASB also amended the accounting guidance for revenue
arrangements with software elements to exclude from the scope of the software revenue recognition guidance, tangible
products that contain both software and non-software components that function together to deliver the product's essential
functionality.

We adopted the new accounting guidance on a prospective basis for arrangements entered into or materially modified on or

after November 1, 2010. Under the new guidance, we separate elements into more than one unit of accounting if the delivered
element(s) have value to the customer on a stand-alone basis, and delivery of the undelivered element(s) is probable and
substantially in our control. Therefore, the new guidance allows for deliverables, for which revenue was previously deferred
due to an absence of fair value, to be separated and recognized as revenue as delivered. Also, because the residual method has
been eliminated, discounts offered by us are allocated to all deliverables, rather than to the delivered element(s). Our adoption
of the new guidance for revenue arrangements changed the accounting for certain products that consist of hardware and
software components, in which these components together provided the product's essential functionality. For transactions
involving these products entered into prior to fiscal 2011, we recognized revenue based on software revenue recognition
guidance.

Revenue for multiple element arrangements is allocated to each unit of accounting based on the relative selling price of
each element, with revenue recognized when the revenue recognition criteria are met for each delivered element. We determine
the selling price for each deliverable based upon the selling price hierarchy for multiple-deliverable arrangements. Under this
hierarchy, we use VSOE of selling price, if it exists, or TPE of selling price if VSOE does not exist. If neither VSOE nor TPE
of selling price exists for a deliverable, we use our BESP for that deliverable.

VSOE is established based on our standard pricing and discounting practices for the specific product or service when sold
separately. In determining VSOE, which exists across certain of our service offerings, we require that a substantial majority of
the selling prices for a product or service fall within a reasonably narrow pricing range. We have generally been unable to
establish TPE of selling price because our go-to-market strategy differs from that of others in our markets, and the extent of
customization and differentiated features and functions varies among comparable products or services from our peers. We
determine BESP based upon management-approved pricing guidelines, which consider multiple factors including the type of
product or service, gross margin objectives, competitive and market conditions, and the go-to-market strategy; all of which can
affect pricing practices.

Historically, for arrangements with multiple elements, we were typically able to establish fair value for undelivered
elements and so we applied the residual method. As a result, assuming the adoption of the accounting guidance above on a
prospective basis for arrangements entered into or materially modified on or after November 1, 2009, the effect on revenue
recognized for fiscal 2010 would have been an increase of approximately $33.0 million.

We expect that this new accounting guidance will facilitate our efforts to optimize our offerings due to the better alignment
between the economics of an arrangement and the accounting. This may lead to engaging in new go-to-market practices in the
future. In particular, we expect that the new accounting standards will enable us to better integrate products and services
without VSOE into existing offerings and solutions. As these go-to-market strategies evolve, we may modify our pricing
practices in the future, which could result in changes in selling prices, including both VSOE and BESP. As a result, our future
revenue recognition for multiple-element arrangements could differ materially from the results in the current period. We are
currently unable to determine the impact that the newly adopted accounting guidance could have on our revenue as these go-to-
market strategies evolve.

Our total deferred revenue for products was $31.2 million and $42.9 million as of October 31, 2010 and October 31, 2011,

respectively. Our services revenue is deferred and recognized ratably over the period during which the services are to be
performed. Our total deferred revenue for services was $73.9 million and $80.9 million as of October 31, 2010 and October 31,
2011, respectively.

Business Combinations

We record acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual

contingencies and contingent consideration are recognized at their fair value as of the acquisition date. The excess of the
purchase price over the estimated fair values of the net tangible and net intangible assets acquired is recorded as goodwill. The
application of the purchase method of accounting for business combinations requires management to make significant estimates
and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate

purchase price consideration between assets that are depreciated and amortized from goodwill. These assumptions and
estimates include a market participant's use of the asset and the appropriate discount rates for a market participant. Our
estimates are based on historical experience, information obtained from the management of the acquired companies and, when
appropriate, includes assistance from independent third-party appraisal firms. Our significant assumptions and estimates can
include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-
average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently
uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or
validity of such estimates. During fiscal 2010, we completed the MEN Acquisition for a purchase price of $676.8 million. As a
result of the purchase price allocation to the assets acquired and liabilities assumed, as well as contingent consideration, there
was no value assigned to goodwill. See Note 2 to the Consolidated Financial Statements included in Item 8 of Part II of this
report.

Share-Based Compensation

We estimate the fair value of our restricted stock unit awards based on the fair value of our common stock on the date of
grant. Our outstanding restricted stock unit awards are subject to service-based vesting conditions and/or performance-based
vesting conditions. We recognize the estimated fair value of service-based awards, net of estimated forfeitures, as share-based
expense ratably over the vesting period on a straight-line basis. Awards with performance-based vesting conditions require the
achievement of certain financial or other performance criteria or targets as a condition to the vesting, or acceleration of vesting.
We recognize the estimated fair value of performance-based awards, net of estimated forfeitures, as share-based expense over
the performance period, using graded vesting, which considers each performance period or tranche separately, based upon our
determination of whether it is probable that the performance targets will be achieved. At each reporting period, we reassess the
probability of achieving the performance targets and the performance period required to meet those targets. Determining
whether the performance targets will be achieved involves judgment, and the estimate of expense may be revised periodically
based on changes in the probability of achieving the performance targets. Revisions are reflected in the period in which the
estimate is changed. If any performance goals are not met, no compensation cost is ultimately recognized against that goal, and,
to the extent previously recognized, compensation cost is reversed.

Because share-based compensation expense is based on awards that are ultimately expected to vest, the amount of expense

takes into account estimated forfeitures. We estimate forfeitures at the time of grant and revise, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Changes in these estimates and assumptions can materially affect the
measure of estimated fair value of our share-based compensation. See Note 18 to our Consolidated Financial Statements in
Item 8 of Part II of this report for information regarding our assumptions related to share-based compensation and the amount
of share-based compensation expense we incurred for the periods covered in this report. As of October 31, 2011, total
unrecognized compensation expense was $59.4 million: (i) $1.0 million, which relates to unvested stock options and is
expected to be recognized over a weighted-average period of 0.6 year; and (ii) $58.4 million, which relates to unvested
restricted stock units and is expected to be recognized over a weighted-average period of 1.6 years.

We recognize windfall tax benefits associated with the exercise of stock options or release of restricted stock units directly

to stockholders' equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by us upon an
employee's disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that we had
recorded. When assessing whether a tax benefit relating to share-based compensation has been realized, we follow the tax law
“with-and-without” method. Under the with-and-without method, the windfall is considered realized and recognized for
financial statement purposes only when an incremental benefit is provided after considering all other tax benefits including our
net operating losses. The with-and-without method results in the windfall from share-based compensation awards always being
effectively the last tax benefit to be considered. Consequently, the windfall attributable to share-based compensation will not be
considered realized in instances where our net operating loss carryover (that is unrelated to windfalls) is sufficient to offset the
current year's taxable income before considering the effects of current-year windfalls.

Reserve for Inventory Obsolescence

We make estimates about future customer demand for our products when establishing the appropriate reserve for excess

and obsolete inventory. We write down inventory that has become obsolete or unmarketable by an amount equal to the
difference between the cost of inventory and the estimated market value based on assumptions about future demand and market
conditions. Inventory write downs are a component of our product cost of goods sold. Upon recognition of the write down, a
new lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the
restoration or increase in that newly established cost basis. We recorded charges for excess and obsolete inventory of $13.7
million and $17.3 million in fiscal 2010 and 2011, respectively. These charges were primarily related to excess inventory due to
a change in forecasted sales across our product line. In an effort to limit our exposure to delivery delays and to satisfy customer
53

needs we purchase inventory based on forecasted sales across our product lines. In addition, part of our research and
development strategy is to promote the convergence of similar features and functionalities across our product lines. Each of
these practices exposes us to the risk that our customers will not order products for which we have forecasted sales, or will
purchase less than we have forecasted. Historically, we have experienced write downs due to changes in strategic direction,
discontinuance of a product and declines in market conditions. If actual market conditions worsen or differ from those we have
assumed, if there is a sudden and significant decrease in demand for our products, or if there is a higher incidence of inventory
obsolescence due to a rapid change in technology, we may be required to take additional inventory write-downs, and our gross
margin could be adversely affected. Our inventory net of allowance for excess and obsolescence was $261.6 million and $230.1
million as of October 31, 2010 and October 31, 2011, respectively.

Allowance for Doubtful Accounts Receivable

Our allowance for doubtful accounts receivable is based on management's assessment, on a specific identification basis, of

the collectibility of customer accounts. We perform ongoing credit evaluations of our customers and generally have not
required collateral or other forms of security from customers. In determining the appropriate balance for our allowance for
doubtful accounts receivable, management considers each individual customer account receivable in order to determine
collectibility. In doing so, we consider creditworthiness, payment history, account activity and communication with such
customer. If a customer's financial condition changes, or if actual defaults are higher than our historical experience, we may be
required to take a charge for an allowance for doubtful accounts receivable which could have an adverse impact on our results
of operations. Our accounts receivable, net of allowance for doubtful accounts, was $343.6 million and $417.5 million as of
October 31, 2010 and October 31, 2011, respectively. Our allowance for doubtful accounts was $0.1 million and $0.7 million as
of October 31, 2010 and October 31, 2011, respectively.

Long-lived Assets

Our long-lived assets include: equipment, furniture and fixtures; finite-lived intangible assets; and maintenance spares. As

of October 31, 2010 and October 31, 2011 these assets totaled $600.4 million and $504.6 million, net, respectively. We test
long-lived assets for impairment whenever events or changes in circumstances indicate that the assets' carrying amount is not
recoverable from its undiscounted cash flows. Our long-lived assets are assigned to asset groups which represents the lowest
level for which we identify cash flows.

Deferred Tax Valuation Allowance

As of October 31, 2011, we have recorded a valuation allowance offsetting nearly all our net deferred tax assets of $1.5

billion. When measuring the need for a valuation allowance, we assess both positive and negative evidence regarding the
realizability of these deferred tax assets. We record a valuation allowance to reduce our deferred tax assets to the amount that is
more likely than not to be realized. In determining net deferred tax assets and valuation allowances, management is required to
make judgments and estimates related to projections of profitability, the timing and extent of the utilization of net operating
loss carryforwards, applicable tax rates, transfer pricing methodologies and tax planning strategies. The valuation allowance is
reviewed quarterly and is maintained until sufficient positive evidence exists to support a reversal. Because evidence such as
our operating results during the most recent three-year period is afforded more weight than forecasted results for future periods,
our cumulative loss during this three-year period represents sufficient negative evidence regarding the need for nearly a full
valuation allowance. We will release this valuation allowance when management determines that it is more likely than not that
our deferred tax assets will be realized. Any future release of valuation allowance may be recorded as a tax benefit increasing
net income or as an adjustment to paid-in capital, based on tax ordering requirements.

Warranty

Our liability for product warranties, included in other accrued liabilities, was $54.4 million and $47.3 million as of
October 31, 2010 and October 31, 2011, respectively. Our products are generally covered by a warranty for periods ranging
from one to five years. We accrue for warranty costs as part of our cost of goods sold based on associated material costs,
technical support labor costs and associated overhead. Material cost is estimated based primarily upon historical trends in the
volume of product returns within the warranty period and the cost to repair or replace the equipment. Technical support labor
cost is estimated based primarily upon historical trends and the cost to support the customer cases within the warranty period.
The provision for product warranties was $15.4 million and $18.5 million for fiscal 2010 and 2011, respectively. As a result of
the substantial completion of integration activities related to the MEN Acquisition, we consolidated certain support operations
and processes during the first quarter of fiscal 2011, resulting in a reduction in costs to service future warranty obligations. Due
to this consolidation and resulting efficiencies, we expect to realize lower failure rate costs and accordingly reversed a $6.9
million non-cash loss contingency included in our warranty liability. The provision for warranty claims may fluctuate on a

quarterly basis depending upon the mix of products and customers in that period. If actual product failure rates, material
replacement costs, service or labor costs differ from our estimates, revisions to the estimated warranty provision would be
required. An increase in warranty claims or the related costs associated with satisfying these warranty obligations could
increase our cost of sales and negatively affect our gross margin.

Effects of Recent Accounting Pronouncements

See Note 1 to our Consolidated Financial Statements in Item 8 of Part II of this report for information relating to our

discussion of the effects of recent accounting pronouncements.

Unaudited Quarterly Results of Operations

The tables below (in thousands, except per share data) set forth the operating results in our consolidated statements of
operations for each of the eight quarters in the period ended October 31, 2011 and reflect the impact of our March 19, 2010
acquisition of the MEN Business. This information is unaudited, but in our opinion reflects all adjustments (consisting only of
normal recurring adjustments) that we consider necessary for a fair statement of such information in accordance with generally
accepted accounting principles. There were no material, retroactive measurement period adjustments related to the MEN
Acquisition. The results for any quarter are not necessarily indicative of results for any future period.

Revenue:

Products

Services

Jan. 31,

Apr. 30,

Jul. 31,

Oct. 31,

Jan. 31,

Apr. 30,

Jul. 31,

Oct. 31,

2010

2011

$ 149,054

$ 206,420

$ 312,378

$ 341,387

$ 352,427

$ 336,026

$ 350,030

$ 368,049

26,822

47,051

77,297

76,227

80,881

81,868

85,283

87,406

Total Revenue

175,876

253,471

389,675

417,614

433,308

417,894

435,313

455,455

Cost of goods sold:

Products

Services

Total costs of goods sold

Gross profit

Operating expenses:

Research and
development

Selling and marketing
General and
administrative

Acquisition and
integration costs

Amortization of
intangible assets

Restructuring costs

Change in fair value of
contingent consideration

76,669

19,047

95,716

80,160

118,221

30,308

148,529

104,942

201,559

200,255

214,401

202,665

198,217

210,686

44,107

245,666

144,009

48,969

249,224

168,390

50,401

264,802

168,506

49,396

252,061

165,833

52,199

250,416

184,897

54,859

265,545

189,910

50,033

71,142

100,869

105,582

95,790

99,624

93,216

91,232

34,237

45,328

52,127

61,823

57,092

61,768

61,895

71,235

12,763

21,503

32,649

35,777

38,314

32,480

28,172

27,276

27,031

39,221

17,033

18,094

24,185

10,741

4,822

2,340

5,981

(21)

17,121

1,849

38,727

2,157

37,572

4,529

28,784

1,522

13,674

3,164

13,673

13,534

504

—

591

—

221,451
(55,618)

202,282
(17,385)

206,208
(16,298)

Total operating expenses

130,024

196,164

Loss from operations

(49,864)

(91,222)

—

243,562
(99,553)

(13,807)
249,570
(81,180)

(3,289)
242,398
(73,892)

Interest and other income
(loss), net

Interest expense

Gain on cost method
investment

Gain on extinguishment
of debt

(773)

3,748

(2,668)

3,610

6,265

4,229

(3,160)

(1,312)

(1,828)

(4,113)

(5,990)

(6,688)

(9,550)

(9,406)

(9,470)

(9,500)

—

4,948

—

7,249

—

Loss before income taxes

(52,465)

(91,587)

(108,211)

(79,310)

(77,177)

(60,795)

(30,015)

(19,861)

Provision (benefit) for
income tax

Net loss
Basic net loss per
common share
Diluted net loss per
potential common share

Weighted average basic
common shares
outstanding

Weighted average dilutive
potential common shares
outstanding

868

(1,578)

1,644

1,007

1,879

1,891

1,435

2,468

$ (53,333)

$ (90,009)

$ (109,855)

$ (80,317)

$ (79,056)

$ (62,686)

$ (31,450)

$ (22,329)

(0.58)

(0.97)

(1.18)

(0.86)

(0.84)

(0.66)

(0.33)

(0.23)

(0.58)

(0.97)

(1.18)

(0.86)

(0.84)

(0.66)

(0.33)

(0.23)

92,321

92,614

92,906

93,197

94,496

95,360

96,313

97,197

92,321

92,614

92,906

93,197

94,496

95,360

96,313

97,197

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates.

Interest Rate Sensitivity. We currently hold an investment in a U.S. Government obligation that matures in January 2013.

See Notes 5 and 6 to our Consolidated Financial Statements for information relating to investments and fair value. This
investment is sensitive to interest rate movements and its fair value will decline as interest rates rise and increase as interest
rates decline. The estimated impact on this investment of a 100 basis point (1.0%) increase in interest rates across the yield
curve from rates in effect as of the balance sheet date would be a $0.6 million decline in value.

Foreign Currency Exchange Risk. As a global concern, our business and results of operations are exposed to movements in

foreign currency exchange rates. Historically, our sales have primarily been denominated in U.S. dollars and the impact of
foreign currency fluctuations on revenue had not been material. As a result of our increased global presence, in large part
resulting from the MEN Acquisition, a larger percentage of our revenue is non-U.S. dollar denominated with Canadian Dollars
and Euros being our most significant foreign currency revenue streams. If the U.S. dollar strengthens against these currencies,
our revenues reported in U.S. dollars would decline. For our U.S. dollar denominated sales, an increase in the value of the U.S.
dollar would increase the real cost to our customers of our products in markets outside the United States which could impact
our competitive position.

With regard to operating expense, our primary exposure to foreign currency exchange risk relates to operating expense

incurred in Canadian Dollars, British Pounds, Euros and Indian Rupees. During fiscal 2011, approximately 54.0% of our
operating expense was non-U.S. dollar denominated. If these currencies strengthen, costs reported in U.S. dollars will increase,
which would increase our expenses. During fiscal 2011, research and development expense was adversely affected by
approximately $12.2 million, net of hedging, due to the weakening of the U.S. dollar in relation to the Canadian Dollar in
comparison to fiscal 2010.

From time to time, we use foreign currency forward contracts to reduce part of the variability in certain forecasted non-
U.S. dollar denominated cash flows. Generally, these derivatives are for maturities of 12 months or less and are designated as
cash flow hedges. We consider several factors when evaluating hedges of our forecasted foreign currency exposures, such as
significance of the exposure, offsetting economic exposures, potential costs of hedging, and the potential for hedge
ineffectiveness. We do not enter into derivative transactions for purposes other than hedging economic exposures. During fiscal
2011, we entered into forward contracts to reduce the variability in our Canadian Dollar and Indian Rupee denominated
operating expenses which principally relate to our research and development activities.

Convertible Debt Outstanding. The fair market value of each of our outstanding issues of convertible notes is subject to

interest rate and market price risk due to the convertible feature of the notes and other factors. Generally the fair market value
of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair market value of the notes
may also increase as the market price of our stock rises and decrease as the market price of the stock falls. Interest rate and
market value changes affect the fair market value of the notes, and may affect the prices at which we would be able to
repurchase such notes were we to do so. These changes do not impact our financial position, cash flows or results of operations.
For additional information on the fair value of our outstanding notes, see Note 14 to our Consolidated Financial Statements
included in Item 8 of Part II of this report.

Item 8. Financial Statements and Supplementary Data

The following is an index to the consolidated financial statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Page

Number

To the Board of Directors and Shareholders of Ciena Corporation

Report of Independent Registered Public Accounting Firm

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects,

the financial position of Ciena Corporation and its subsidiaries (the “Company”) at October 31, 2011 and 2010, and the results
of their operations and their cash flows for each of the three years in the period ended October 31, 2011 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of October 31, 2011, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
Report of Management on Internal Control Over Financial Reporting under Item 9A. Our responsibility is to express opinions
on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for

business combinations in fiscal 2010 and revenue in fiscal 2011.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
December 22, 2011

CIENA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

ASSETS

Current assets:

Cash and cash equivalents

Accounts receivable, net

Inventories

Prepaid expenses and other

Total current assets

Long-term investments

Equipment, furniture and fixtures, net

Intangible assets, net

Other long-term assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued liabilities

Deferred revenue

Total current liabilities

Long-term deferred revenue

Other long-term obligations

Convertible notes payable

Total liabilities

Commitments and contingencies

Stockholders’ equity:

Preferred stock — par value $0.01; 20,000,000 shares authorized; zero shares issued and
outstanding

Common stock — par value $0.01; 290,000,000 shares authorized; 94,060,300 and
97,440,436 shares issued and outstanding

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

October 31,

2010

2011

688,687

343,582

261,619

147,680

541,896

417,509

230,076

143,357

1,441,568

1,332,838

—

120,294

426,412

129,819

50,264

122,558

331,635

114,123

2,118,093

1,951,418

200,617

193,994

75,334

469,945

29,715

16,435

1,442,705

1,958,800

157,116

197,004

99,373

453,493

24,425

17,263

1,442,364

1,937,545

—

941

—

974

5,702,137

5,753,236

1,062
(5,544,847)
159,293

31
(5,740,368)
13,873

2,118,093

1,951,418

The accompanying notes are an integral part of these consolidated financial statements.

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

Revenue:

Products

Services

Total revenue

Cost of goods sold:

Products

Services

Total cost of goods sold

Gross profit

Operating expenses:

Research and development

Selling and marketing

General and administrative

Acquisition and integration costs

Amortization of intangible assets

Restructuring costs

Goodwill impairment

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Interest and other income (loss), net

Interest expense

Gain (loss) on cost method investments

Gain on extinguishment of debt

Loss before income taxes

Provision (benefit) for income taxes

Net loss

Basic net loss per common share

Diluted net loss per potential common share

Weighted average basic common shares outstanding

Weighted average dilutive potential common shares outstanding

Year Ended October 31,

2009

2010

2011

547,522

1,009,239

1,406,532

105,107

652,629

296,170

71,629

367,799

284,830

190,319

134,527

47,509

—

24,826

11,207

455,673

—

864,061
(579,231)
9,487
(7,406)
(5,328)
—
(582,478)
(1,324)
(581,154)
(6.37)
(6.37)
91,167

91,167

227,397

1,236,636

335,438

1,741,970

596,704

142,431

739,135

497,501

327,626

193,515

102,692

101,379

99,401

8,514

—
(13,807)
819,320
(321,819)
3,917
(18,619)
—

4,948
(331,573)
1,941
(333,514)
(3.58)
(3.58)
93,103

93,103

825,969

206,855

1,032,824

709,146

379,862

251,990

126,242

42,088

69,665

5,781

—
(3,289)
872,339
(163,193)
6,022
(37,926)
7,249

—
(187,848)
7,673
(195,521)
(2.04)
(2.04)
95,854

95,854

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Cash flows from operating activities:

Net loss

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Gain on extinguishment of debt

Amortization of premium (discount) on marketable debt securities

Loss (gain) on cost method investments

Change in fair value of embedded redemption feature

Change in fair value of contingent consideration

Depreciation of equipment, furniture and fixtures, and amortization of leasehold
improvements

Impairment of goodwill

Share-based compensation costs

Amortization of intangible assets

Deferred tax provision

Provision for inventory excess and obsolescence

Provision for warranty

Other

Changes in assets and liabilities, net of effect of acquisition:

Accounts receivable

Inventories

Prepaid expenses and other

Accounts payable, accruals and other obligations

Deferred revenue

Net cash provided by (used in) operating activities

Cash flows used in investing activities:

Payments for equipment, furniture, fixtures and intellectual property

Restricted cash

Purchase of available for sale securities

Proceeds from maturities of available for sale securities

Proceeds from sales of available for sale securities

Proceeds from sale of cost method investment

Acquisition of business, net of cash acquired

Receipt of contingent consideration related to business acquisition

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of senior convertible notes payable

Repayment of senior convertible notes payable

Debt issuance costs

Proceeds from issuance of common stock and warrants

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information

Cash paid during the period for interest

Cash paid during the period for income taxes, net

Non-cash investing and financing activities

Purchase of equipment in accounts payable

Debt issuance costs in accrued liabilities

Fixed assets purchased under capital leases

Year Ended October 31,

2009

2010

2011

(581,154)

(333,514)

(195,521)

—

(907)

5,328

—

21,933

455,673

34,438

31,429

(883)

15,719

19,286

2,044

20,097

(10,353)

(9,678)

2,943

1,506

7,421

(24,114)

(4,116)

(1,214,218)

645,119

523,137

—

(4,948)

574

—

(2,510)

(13,807)

42,789

—

35,560

127,018

700

13,696

15,353

2,296

(218,196)

(40,957)

(34,908)

180,814

1,030

(229,010)

(51,207)

(24,521)

(63,591)

454,141

179,531

—

(693,247)

—

(74,192)

(198,894)

—

1,107

700

(64,964)

550,669

485,705

4,748

584

1,481

—

725,000

(76,065)

(20,301)

1,570

630,204

682

202,982

485,705

688,687

12,248

1,705

5,259

206

—

—
(38)
(7,249)
(2,800)
—

60,154

—

37,930

95,927

183

17,334

18,451

5,396

(75,623)
14,209
(18,302)
(59,285)
18,749
(90,485)

(52,367)
10,751
(49,892)
—

—

6,544

—

16,394
(68,570)

—

13,202

13,202
(938)
(146,791)
688,687

541,896

32,931

3,204

6,431

—

1,106

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) CIENA CORPORATION AND SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

Description of Business

Ciena Corporation (“Ciena” or the “Company”) is a provider of communications networking equipment, software and
services that support the transport, switching, aggregation and management of voice, video and data traffic. Ciena’s Packet-
Optical Transport, Packet-Optical Switching and Carrier-Ethernet Solutions products are used, individually or as part of an
integrated solution, in networks operated by communications service providers, cable operators, governments and enterprises
around the globe. Ciena is a network specialist targeting the transition of disparate, legacy communications networks to
converged, next-generation architectures, better able to handle increased traffic and deliver more efficiently a broader mix of
high-bandwidth communications services. Ciena’s products, along with its embedded, network element software and unified
service and transport management, enable service providers to efficiently and cost-effectively deliver critical enterprise and
consumer-oriented communication services. Ciena’s principal executive offices are located at 1201Winterson Road, Linthicum,
Maryland 21090.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Ciena and its wholly owned subsidiaries. All

material inter-company accounts and transactions have been eliminated in consolidation.

Acquisition of MEN Business (“MEN Acquisition”)

On March 19, 2010, Ciena completed its acquisition of substantially all of the optical and carrier Ethernet assets of Nortel’s

Metro Ethernet Networks Business (the “MEN Business”). Additional details regarding this transaction are set forth in Note 2
below.

Business Combinations

During fiscal 2010, Ciena adopted the new FASB guidance on business combinations, which requires the total purchase
price to be allocated to the assets acquired and liabilities assumed based on their estimated fair values. The fair values assigned
to the assets acquired and liabilities assumed are based on valuations using management’s best estimates and assumptions. The
allocation of the purchase price as reflected in the consolidated financial statements is based on the best information available
to management at the time the consolidated financial statements are issued.

Fiscal Year

Ciena 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, 2009, October 30, 2010 and October 29, 2011 for the periods reported). For purposes of financial statement
presentation, each fiscal year is described as having ended on October 31.

Use of Estimates

The preparation of the financial statements and related disclosures in conformity with accounting principles generally
accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the
consolidated financial statements and accompanying notes. Estimates are used for purchase accounting, bad debts, valuation of
inventories and investments, recoverability of intangible assets, other long-lived assets and goodwill, income taxes, warranty
obligations, restructuring liabilities, derivatives, contingencies and litigation. Ciena bases its estimates on historical experience
and assumptions that it believes are reasonable. Actual results may differ materially from management’s estimates.

Cash and Cash Equivalents

Ciena considers all highly liquid investments purchased with original maturities of three months or less to be cash
equivalents. Restricted cash collateralizing letters of credit is included in other current assets and other long-term assets
depending upon the duration of the restriction.

Investments

Ciena's investments are classified as available-for-sale and are reported at fair value, with unrealized gains and losses
recorded in accumulated other comprehensive income. Ciena recognizes losses when it determines that declines in the fair
value of its investments, below their cost basis, are other-than-temporary. In determining whether a decline in fair value is

other-than-temporary, Ciena considers various factors including market price (when available), investment ratings, the financial
condition and near-term prospects of the investee, the length of time and the extent to which the fair value has been less than
Ciena's cost basis, and its intent and ability to hold the investment until maturity or for a period of time sufficient to allow for
any anticipated recovery in market value. Ciena considers all marketable debt securities that it expects to convert to cash within
one year or less to be short-term investments. All others are considered long-term investments.

Ciena had a minority equity investment in a privately held technology company. This investment was carried at cost
because Ciena did not have the ability to exercise significant influence over the company. During fiscal 2011, as a result of the
sale of this privately held technology company, Ciena recorded a gain of $7.2 million of which $1.0 million remained in escrow
at October 31, 2011.

Inventories

Inventories are stated at the lower of cost or market, with cost computed using standard cost, which approximates actual

cost, on a first-in, first-out basis. Ciena records a provision for excess and obsolete inventory when an impairment has been
identified.

Goodwill

Goodwill is the excess of the purchase price over the fair values assigned to the net assets acquired in a business

combination. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the combination.
Ciena has determined that its operating segments and reporting units for goodwill assignment are the same. This determination
is based on the fact that components below Ciena’s operating segment level, such as individual product or service offerings, do
not constitute a reporting unit because they do not constitute a business for which discrete financial information is available.

Ciena tests each reporting unit’s goodwill for impairment on an annual basis, which Ciena has determined to be the last
business day of its fiscal September each year. Testing is required between annual tests if events occur or circumstances change
that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.

Segment Reporting

Ciena's chief operating decision maker, its chief executive officer, evaluates performance and allocates resources based on
multiple factors, including segment profit (loss) information for the following product categories: (i) Packet-Optical Transport;
(ii) Packet-Optical Switching; (iii) Carrier-Ethernet Solutions; and (iv) Software and Services. Operating segments are defined
as components of an enterprise: that engage in business activities which may earn revenue and incur expense; for which
discrete financial information is available; and for which such information is evaluated regularly by the chief operating decision
maker for purposes of allocating resources and assessing performance. Ciena considers the four product categories above to be
its operating segments for reporting purposes. See Note 19.

Long-lived Assets

Long-lived assets include: equipment, furniture and fixtures; intangible assets; and maintenance spares. Ciena tests long-

lived assets for impairment whenever triggering events or changes in circumstances indicate that the assets' carrying amount is
not recoverable from its undiscounted cash flows. An impairment loss is measured as the amount by which the carrying amount
of the asset or asset group exceeds its fair value. Ciena's long-lived assets are assigned to asset groups which represent the
lowest level for which cash flows can be 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 two years to five years for equipment, furniture and fixtures and the shorter of useful life or lease
term for leasehold improvements.

Qualifying internal use software and website development costs incurred during the application development stage that

consist primarily of outside services and purchased software license costs, are capitalized and amortized straight-line over the
estimated useful lives of two years to five years.

Intangible Assets

Ciena has recorded finite-lived intangible assets as a result of several acquisitions. Finite-lived intangible assets are carried

at cost less accumulated amortization. Amortization is computed using the straight-line method over the expected economic
lives of the respective assets, from nine months to seven years, which approximates the use of intangible assets.

Maintenance Spares

Maintenance spares are recorded at cost. Spares usage cost is expensed ratably over four years.

Concentrations

Substantially all of Ciena's cash and cash equivalents are maintained at a small number of major U.S. financial institutions.

The majority of Ciena's cash equivalents consist of money market funds. Deposits held with banks may exceed the amount of
insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management
believes that they bear minimal risk.

Historically, a significant percentage of Ciena's revenue has been concentrated among sales to a small number of large
communications service providers. Consolidation among Ciena's customers has increased this concentration. Consequently,
Ciena's accounts receivable are concentrated among these customers. See Note 19 below.

Additionally, Ciena's access to certain materials or components is dependent upon sole or limited source suppliers. The
inability of any of these suppliers to fulfill Ciena's supply requirements, or significant changes in their cost, could affect future
results. Ciena relies on a small number of contract manufacturers to perform the majority of the manufacturing for its products.
If Ciena cannot effectively manage these manufacturers and forecast future demand, or if they fail to deliver products or
components on time, Ciena's business and results of operations may suffer.

Revenue Recognition

Ciena recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery

has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectibility is reasonably
assured. Customer purchase agreements and customer purchase orders are generally used to determine the existence of an
arrangement. Shipping documents and evidence of customer acceptance, when applicable, are used to verify delivery or
services rendered. Ciena assesses whether the price is fixed or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or adjustment. Ciena assesses collectibility based primarily on the
creditworthiness of the customer as determined by credit checks and analysis, as well as the customer's payment history.
Revenue for maintenance services is generally deferred and recognized ratably over the period during which the services are to
be performed.

Ciena applies the percentage of completion method to long-term arrangements where it is required to undertake significant

production, customizations or modification engineering, and reasonable and reliable estimates of revenue and cost are
available. Utilizing the percentage of completion method, Ciena recognizes revenue based on the ratio of actual costs incurred
to date to total estimated costs expected to be incurred. In instances that do not meet the percentage of completion method
criteria, recognition of revenue is deferred until there are no uncertainties regarding customer acceptance.

Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed

Ciena limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future
delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.

Accounting for multiple element arrangements entered into prior to fiscal 2011

specific product or service when sold separately. In determining VSOE, Ciena requires that a substantial majority of the selling
prices for a product or service fall within a reasonably narrow pricing range. Changes to the elements in an arrangement and
Ciena's ability to establish VSOE for those elements could affect the timing of revenue recognition. For all other multiple
element arrangements, Ciena separates the elements into more than one unit of accounting if the delivered element(s) have
value to the customer on a stand-alone basis, objective and reliable evidence of fair value exists for the undelivered element(s),
and delivery of the undelivered element(s) is probable and substantially in Ciena's control. Revenue is allocated to each unit of
accounting based on the relative fair value of each accounting unit or using the residual method if objective evidence of fair
value does not exist for the delivered element(s). The revenue recognition criteria described above are applied to each separate
unit of accounting. If these criteria are not met, revenue is deferred until the criteria are met or the last element has been
delivered.

Accounting for multiple element arrangements entered into or materially modified in fiscal 2011

In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standard for revenue
recognition with multiple deliverables which provided guidance on how the arrangement fee should be allocated and allows the
use of management's best estimate of selling price (“BESP”) for individual elements of an arrangement when VSOE or third-
party evidence (“TPE”) is unavailable. Additionally, it eliminates the residual method of revenue recognition in accounting for
multiple deliverable arrangements. The FASB also amended the accounting guidance for revenue arrangements with software
elements to exclude from the scope of the software revenue recognition guidance, tangible products that contain both software
and non-software components that function together to deliver the product's essential functionality.

Ciena adopted the new accounting guidance on a prospective basis for arrangements entered into or materially modified on

or after November 1, 2010. Under the new guidance, Ciena separates elements into more than one unit of accounting if the
delivered element(s) have value to the customer on a stand-alone basis, and delivery of the undelivered element(s) is probable
and substantially in Ciena's control. Therefore, the new guidance allows for deliverables, for which revenue was previously
deferred due to an absence of fair value, to be separated and recognized as revenue as delivered. Also, because the residual
method has been eliminated, discounts offered by Ciena are allocated to all deliverables, rather than to the delivered element(s).
Ciena's adoption of the new guidance for revenue arrangements changed the accounting for certain Ciena products that consist
of hardware and software components, in which these components together provided the product's essential functionality. For
arrangements involving these products entered into prior to fiscal 2011, Ciena recognized revenue based on software revenue
recognition guidance.

Revenue for multiple element arrangements is allocated to each unit of accounting based on the relative selling price of
each delivered element, with revenue recognized when the revenue recognition criteria are met for each delivered element.
Ciena determines the selling price for each deliverable based upon the selling price hierarchy for multiple-deliverable
arrangements. Under this hierarchy, Ciena uses VSOE of selling price, if it exists, or TPE of selling price if VSOE does not
exist. If neither VSOE nor TPE of selling price exists for a deliverable, Ciena uses its BESP for that deliverable.

VSOE is established based on Ciena's standard pricing and discounting practices for the specific product or service when

sold separately. In determining VSOE, which exists across certain of Ciena's service offerings, Ciena requires that a substantial
majority of the selling prices for a product or service fall within a reasonably narrow pricing range. Ciena has been unable to
establish TPE of selling price because its go-to-market strategy differs from that of others in its markets, and the extent of
customization and differentiated features and functions varies among comparable products or services from its peers. Ciena
determines BESP based upon management-approved pricing guidelines, which consider multiple factors including the type of
product or service, gross margin objectives, competitive and market conditions, and the go-to-market strategy; all of which can
affect pricing practices.

Historically, for arrangements with multiple elements, Ciena was typically able to establish fair value for undelivered
elements and so Ciena applied the residual method. As a result, assuming the adoption of the accounting guidance above on a
prospective basis for arrangements entered into or materially modified on or after November 1, 2009, the effect on revenue
recognized for fiscal 2010 would have been an increase of approximately $33.0 million.

Warranty Accruals

Ciena provides for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue.

Estimated warranty costs include estimates for material costs, technical support labor costs and associated overhead. The
warranty liability is included in cost of goods sold and determined based upon actual warranty cost experience, estimates of
component failure rates and management's industry experience. Ciena's sales contracts do not permit the right of return of
product by the customer after the product has been accepted.

Accounts Receivable, Net

Ciena's allowance for doubtful accounts is based on its assessment, on a specific identification basis, of the collectibility of

customer accounts. Ciena performs ongoing credit evaluations of its customers and generally has not required collateral or
other forms of security from its customers. In determining the appropriate balance for Ciena's allowance for doubtful accounts,
management considers each individual customer account receivable in order to determine collectibility. In doing so,
management considers creditworthiness, payment history, account activity and communication with such customer. If a
customer's financial condition changes, Ciena may be required to record an allowance for doubtful accounts, which would
negatively affect its results of operations.

Research and Development

Ciena charges all research and development costs to expense as incurred. Types of expense incurred in research and
development include employee compensation, prototype, consulting, depreciation, facility costs and information technologies.

Government Grants

Ciena accounts for proceeds from government grants as a reduction of expense when there is reasonable assurance that

Ciena has complied with the conditions attached to the grant and that the grant proceeds will be received. Grant benefits are
recorded to the line item in the Consolidated Statement of Operations to which the grant activity relates. See Note 21 below.

Advertising Costs

Ciena expenses all advertising costs as incurred.

Legal Costs

Ciena expenses legal costs associated with litigation defense as incurred.

Share-Based Compensation Expense

Ciena measures and recognizes compensation expense for share-based awards based on estimated fair values on the date of

grant. Ciena estimates the fair value of each option-based award on the date of grant using the Black-Scholes option-pricing
model. This model is affected by Ciena's stock price as well as estimates regarding a number of variables including expected
stock price volatility over the expected term of the award and projected employee stock option exercise behaviors. Ciena
estimates the fair value of each share-based award based on the fair value of the underlying common stock on the date of grant.
In each case, Ciena only recognizes expense to its consolidated statement of operations for those options or shares that are
expected ultimately to vest. Ciena uses two attribution methods to record expense, the straight-line method for grants with only
service-based vesting and the graded-vesting method, which considers each performance period or tranche separately, for all
other awards. See Note 18 below.

Income Taxes

Ciena accounts for income taxes using an asset and liability approach that recognizes 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, Ciena considers all expected future events other than the enactment of changes in tax laws or rates.
Valuation allowances are provided, if, based upon the weight of the available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.

In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. In addition, tax
authorities periodically audit Ciena's income tax returns. These audits examine significant tax filing positions, including the
timing and amounts of deductions and the allocation of income tax expenses among tax jurisdictions. Ciena is currently under
audit in India for 2007 and 2008, Mexico for 2007 and the United Kingdom for 2009. Management does not expect the
outcome of these audits to have a material adverse effect on the Company's consolidated financial position, results of
operations or cash flows. Ciena's major tax jurisdictions and the earliest open tax years are as follows: United States (2008),
United Kingdom (2005), Canada (2005) and India (2007). However, limited adjustments can be made to Federal tax returns in
earlier years in order to reduce net operating loss carryforwards. Ciena classifies interest and penalties related to uncertain tax
positions as a component of income tax expense. All of the uncertain tax positions, if recognized, would decrease the effective
income tax rate.

Ciena has not provided for U.S. deferred income taxes on the cumulative unremitted earnings of its non-U.S. affiliates as it
plans to permanently reinvest cumulative unremitted foreign earnings outside the U.S. and it is not practicable to determine the
68

unrecognized deferred income taxes. These cumulative unremitted foreign earnings relate to ongoing operations in foreign
jurisdictions and are required to fund foreign operations, capital expenditures and any expansion requirements.

Ciena recognizes windfall tax benefits associated with the exercise of stock options or release of restricted stock units
directly to stockholders' equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by Ciena
upon an employee's disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that
Ciena had recorded. When assessing whether a tax benefit relating to share-based compensation has been realized, Ciena
follows the tax law “with-and-without” method. Under the with-and-without method, the windfall is considered realized and
recognized for financial statement purposes only when an incremental benefit is provided after considering all other tax
benefits including Ciena's net operating losses. The with-and-without method results in the windfall from share-based
compensation awards always being effectively the last tax benefit to be considered. Consequently, the windfall attributable to
share-based compensation will not be considered realized in instances where Ciena's net operating loss carryover (that is
unrelated to windfalls) is sufficient to offset the current year's taxable income before considering the effects of current-year
windfalls.

Loss Contingencies

Ciena is subject to the possibility of various losses arising in the ordinary course of business. These may relate to disputes,
litigation and other legal actions. Ciena considers the likelihood of loss or the incurrence of a liability, as well as Ciena's ability
to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Ciena regularly evaluates
current information available to it in order to determine whether any accruals should be adjusted and whether new accruals are
required.

Fair Value of Financial Instruments

The carrying value of Ciena's cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities,
approximates fair market value due to the relatively short period of time to maturity. For information related to the fair value of
Ciena's convertible notes, see Note 14 below.

Fair value for the measurement of financial assets and liabilities is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair
value is a market-based measurement that should be determined based on assumptions that market participants would use in
pricing an asset or liability. Ciena utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement. This
hierarchy prioritizes the inputs into three broad levels as follows:

• Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 inputs are quoted prices for identical or similar assets or liabilities in less active markets or model-derived

valuations in which significant inputs are observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial instrument;

• Level 3 inputs are unobservable inputs based on Ciena's assumptions used to measure assets and liabilities at fair

value.

By distinguishing between inputs that are observable in the marketplace, and therefore more objective, and those that are

unobservable and therefore more subjective, the hierarchy is designed to indicate the relative reliability of the fair value
measurements. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input
that is significant to the fair value measurement.

Restructuring

From time to time, Ciena takes actions to better align its workforce, facilities and operating costs with perceived market
opportunities, business strategies and changes in market and business conditions. Ciena implements these restructuring plans
and incurs the associated liability concurrently. Generally accepted accounting principles require that a liability for the cost
associated with an exit or disposal activity be recognized in the period in which the liability is incurred, except for one-time
employee termination benefits related to a service period of more than 60 days, which are accrued over the service period. See
Note 3 below.

Foreign Currency

Some of Ciena's foreign branch offices and subsidiaries use the U.S. dollar as their functional currency because Ciena, as

the U.S. parent entity, exclusively funds the operations of these branch offices and subsidiaries. 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, and the statement of operations is translated at a monthly average rate. Resulting translation adjustments are recorded
directly to a separate component of stockholders' equity. Where the monetary assets and liabilities are transacted in a currency
other than the entity's functional currency, re-measurement adjustments are recorded in other income. The net gain (loss) on
foreign currency re-measurement and exchange rate changes is immaterial for separate financial statement presentation.

Derivatives

Ciena's 4.0% convertible senior notes include a redemption feature that is accounted for as a separate embedded derivative.

The embedded redemption feature is recorded at fair value on a recurring basis and these changes are included in interest and
other income, net on the Consolidated Statement of Operations.

From time to time, Ciena uses foreign currency forward contracts to reduce variability in certain forecasted non U.S.-dollar

denominated cash flows. Generally, these derivatives have maturities of twelve months or less and are designated as cash flow
hedges. At the inception of the cash flow hedge, and on an ongoing basis, Ciena assesses whether the forward contract has been
effective in offsetting changes in cash flows attributable to the hedged risk during the hedging period. The effective portion of
the derivative's net gain or loss is initially reported as a component of accumulated other comprehensive income (loss), and,
upon the occurrence of the forecasted transaction, is subsequently reclassified to the line item in the Consolidated Statement of
Operations to which the hedged transaction relates. Any net gain or loss associated with the ineffectiveness of the hedging
instrument is reported in interest and other income, net. See Note 13 below.

Computation of Net Income (Loss) per Share

Ciena calculates basic earnings per share (EPS) by dividing earnings attributable to common stock by the weighted-
average number of common shares outstanding for the period. Diluted EPS includes other potential dilutive shares that would
be outstanding if securities or other contracts to issue common stock were exercised or converted into common stock. Ciena
uses a dual presentation of basic and diluted EPS on the face of its income statement. A reconciliation of the numerator and
denominator used for the basic and diluted EPS computations is set forth in Note 15.

Software Development Costs

Ciena develops software for sale to its customers. Generally accepted accounting principles require the capitalization of

certain software development costs that are 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 straight-line over the estimated life of
the product. Ciena defines technological feasibility as being attained at the time a working model is completed. To date, the
period between Ciena achieving technological feasibility and the general availability of such software has been short, and
software development costs qualifying for capitalization have been insignificant. Accordingly, Ciena has not capitalized any
software development costs.

Newly Issued Accounting Standards

In June 2011, the FASB issued an accounting standards update that requires an entity to present total comprehensive
income, the components of net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in stockholders' equity. This guidance is
effective for fiscal years and interim periods beginning after December 15, 2011. Early adoption is permitted. Ciena does not
expect this new guidance to have any impact on its financial condition, results of operations and cash flows.

In May 2011, the FASB issued an accounting standards update that amends current fair value measurement and disclosure
guidance to converge with International Financial Reporting Standards (IFRS). This update provides improved comparability
of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS.
This guidance is effective for fiscal years and interim periods, beginning after December 15, 2011. Early application by public
companies is not permitted. Ciena does not expect this new guidance to have any impact on its financial condition, results of
operations and cash flows.

(2) BUSINESS COMBINATIONS

Acquisition of MEN Business

On March 19, 2010, Ciena completed its acquisition of the MEN Business. Ciena acquired the MEN Business in an effort

to strengthen its technology leadership position in next-generation, converged optical Ethernet networking, accelerate the
execution of its corporate and research and development strategies and enable Ciena to better compete with larger equipment
vendors. The acquisition expanded Ciena's geographic reach, customer relationships, and portfolio of network solutions.

In accordance with the agreements for the acquisition, the $773.8 million aggregate purchase price was subsequently
adjusted downward by $80.6 million based upon the amount of net working capital transferred to Ciena at closing. As a result,
Ciena paid $693.2 million in cash for the purchase of the MEN Business.

In connection with the acquisition, Ciena entered into an agreement with Nortel to lease the “Lab 10” building on Nortel’s
Carling Campus in Ottawa, Canada (the “Carling lease”) for a term of ten years. The lease agreement contained a provision that
allowed Nortel to reduce the term of the lease, and in exchange, Ciena could receive a payment of up to $33.5 million. This
amount was placed into escrow by Nortel in accordance with the acquisition agreements. The $16.4 million fair value of this
contingent refund right was recorded as a reduction to the consideration paid, resulting in a purchase price of $676.8 million.

On October 19, 2010, Nortel issued a public announcement that it had entered into a sale agreement of its Carling campus
with Publics Works and Government Services Canada (PWGSC) and had been directed to exercise its early termination rights
under the Carling lease, shortening the lease term from ten years to five years. As a result, and based on this change in
circumstances and expected outcome probability, during the fourth quarter of fiscal 2010 Ciena recorded an unrealized gain of
$13.8 million resulting in a fair value of $30.2 million for the contingent consideration right. During the first quarter of fiscal
2011, Ciena received notice of early termination from Nortel and the corresponding $33.5 million payment described above,
resulting in a gain of $3.3 million.

During fiscal 2010, Ciena incurred $101.4 million in transaction, consulting and third party service fees, $8.5 million in

restructuring expense, and an additional $12.4 million in costs primarily related to purchases of capitalized information
technology equipment. During fiscal 2011, Ciena incurred $42.1 million in transaction, consulting and third party service fees,
$6.6 million in restructuring expense, and an additional $10.9 million in costs primarily related to purchases of capitalized
information technology equipment.

The following table summarizes the final purchase price allocation related to the MEN Business, based on the estimated

fair value of the acquired assets and assumed liabilities (in thousands):

Unbilled receivables

Inventories

Prepaid expenses and other

Other long-term assets

Equipment, furniture and fixtures

Developed technology

In-process research and development

Customer relationships, outstanding purchase orders and contracts

Trade name

Deferred revenue

Accrued liabilities

Other long-term obligations

Total purchase price allocation

Final

Allocation

7,136

146,272

32,517

21,924

41,213

218,774

11,000

260,592

2,000
(28,086)
(33,845)
(2,644)
676,853

Unbilled receivables represent unbilled claims for which Ciena will invoice customers upon its completion of the acquired

projects.

Under the acquisition method of accounting, Ciena recorded the acquired finished goods inventory at fair value, which was

determined to be most appropriately recognized as the estimated selling price less the sum of (a) costs of disposal, and (b) a
reasonable profit allowance for Ciena's selling effort.

Prepaid expenses and other include product demonstration units used to support research and development projects and
indemnification assets related to uncertain tax contingencies acquired and recorded as part of other long-term obligations. Other
long-term assets represent spares used to support customer maintenance commitments.

Developed technology represents purchased technology that had reached technological feasibility and for which

development had been completed as of the date of the acquisition. Developed technology will be amortized on a straight line
basis over its estimated useful lives of two to seven years.

In-process research and development represents development projects that had not reached technological feasibility at the

time of the acquisition. This in-process research and development was completed during the fourth quarter of fiscal 2010 and is
being amortized over a period of seven years. Expenditures to complete the in-process research and development were
expensed as incurred.

Customer relationships, outstanding purchase orders and contracts represent agreements with existing customers of the
MEN Business. These intangible assets are expected to have estimated useful lives of nine months to seven years, with the
exception of $14.6 million related to a contract asset for acquired in-process projects, to be billed by Ciena and recognized as a
reduction in revenue. As of October 31, 2011, Ciena has billed $13.8 million of these contract assets. The remaining $0.8
million will be billed during the first half of fiscal 2012. Trade name represents acquired product trade names that are expected
to have a useful life of nine months.

Deferred revenue represents obligations assumed by Ciena to provide maintenance support services for which payment for

such services was already made to Nortel.

Accrued liabilities represent assumed warranty obligations, other customer contract obligations, and certain employee

benefit plans. Other long-term obligations represent uncertain tax contingencies.

The following unaudited pro forma financial information summarizes the results of operations for the period indicated as if

Ciena's acquisition of the MEN Business had been completed as of the beginning of the period presented. These pro forma
amounts (in thousands) do not purport to be indicative of the results that would have actually been obtained if the acquisition
occurred as of the beginning of the periods presented or that may be obtained in the future.

Pro forma revenue

Pro forma net loss

(3) RESTRUCTURING COSTS

Fiscal Year

2009

2010

$ 1,704,037
$ (1,008,894)

$ 1,592,911
(536,253)

Since the acquisition of the MEN Business, Ciena has undertaken a number of restructuring activities intended to reduce

operating expense and better align its workforce and operating costs with market opportunities, product development and
business strategies for the combined operations.

The following table displays the activity and balances of the historical restructuring liability accounts for the fiscal years

indicated (in thousands):

Balance at October 31, 2008

Additional liability recorded

Adjustment to previous estimates

Cash payments

Balance at October 31, 2009

Additional liability recorded

Adjustment to previous estimates

Cash payments

Balance at October 31, 2010

Additional liability recorded

Adjustment to previous estimates

Cash payments

Balance at October 31, 2011

Current restructuring liabilities
Non-current restructuring liabilities

Workforce
reduction

Consolidation
of excess
facilities

Total

982

4,117

(a)

—
(4,929)
170

9,256

(b)

—
(7,850)
1,576

6,627

(c)

—
(8,043)
160

160
—

$
$

(a)

(b)

(c)

3,243

3,419

3,670
(897)
9,435

—
(742)
(2,301)
6,392

—
(846)
(2,253)
3,293

504
2,789

$
$

4,225

7,536

3,670
(5,826)
9,605

9,256
(742)
(10,151)
7,968

6,627
(846)
(10,296)
3,453

664
2,789

_________________________________

(a)

(b)

(c)

During fiscal 2009, Ciena recorded a charge of $4.1 million of severance and other employee-related costs associated
with a workforce reduction of 200 employees, $3.4 million related to the Acton, MA facility closure and $3.7 million
related to previously restructured facilities.

During fiscal 2010, Ciena recorded a charge of $2.1 million related to a workforce reduction of approximately 70
employees, principally affecting Ciena’s global product group and global field organization outside of the EMEA
region and $7.1 million related to a workforce reduction of 82 employees associated with the restructuring activities in
the EMEA region described above and an adjustment of $0.7 million associated with previously restructured facilities.

During fiscal 2011, Ciena recorded a charge of $6.6 million of severance and other employee-related costs associated
with a workforce reduction of approximately 150 employees related to a number of restructuring activities intended to
reduce operating expense and better align its workforce with market opportunities. Ciena also recorded an adjustment
of $0.8 million related to its previously restructured Acton, MA facility.

(4) GOODWILL AND LONG-LIVED ASSET IMPAIRMENTS

Goodwill

As of October 31, 2010 and 2011, Ciena did not have any goodwill on its Consolidated Balance Sheets.

Prior to the acquisition of the MEN Business, Ciena assessed its goodwill based upon a single reporting unit and tested its

single reporting unit’s goodwill for impairment annually on the last business day of fiscal September each year. Testing is
required between annual tests if events occur or circumstances change that would, more likely than not, reduce the fair value of
the reporting unit below its carrying value. Based on a combination of factors, including macroeconomic conditions and a
sustained decline in Ciena’s common stock price and market capitalization below net book value, Ciena conducted an interim
impairment assessment of goodwill during the second quarter of fiscal 2009. Ciena performed the step one fair value
comparison, and its market capitalization was $721.8 million and its carrying value, including goodwill, was $949.0 million.
Ciena applied a 25% control premium to its market capitalization to determine a fair value of $902.2 million. Because step one
indicated that Ciena’s fair value was less than its carrying value, Ciena performed the step two analysis. Under the step two
analysis, the implied fair value of goodwill requires valuation of a reporting unit’s tangible and intangible assets and liabilities
in a manner similar to the allocation of purchase price in a business combination. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to the extent of the difference. The
implied fair value of the reporting unit’s goodwill was determined to be $0, and, as a result, Ciena recorded a goodwill
impairment of $455.7 million, representing the full carrying value of the goodwill.

Long-Lived Assets

Due to effects of difficult macroeconomic conditions on Ciena’s business, including lengthening sales cycles and slowing

deployments resulting in lower demand, Ciena performed an impairment analysis of its long-lived assets during the second
quarter of fiscal 2009. Based on Ciena’s estimate of future undiscounted cash flows by asset group, as of April 30, 2009, no
impairment was required.

Due to the reorganization as a result of the MEN Acquisition, Ciena performed an impairment analysis of its long-lived
assets during the second quarter of fiscal 2010. Based on Ciena’s estimate of future undiscounted cash flows by asset group, no
impairment was required. Due to the lack of a triggering event, no impairment analysis was performed in fiscal 2011.

(5) MARKETABLE DEBT SECURITIES

As of October 31, 2010, Ciena had no investments in marketable debt securities. As of October 31, 2011, long-term

investments in marketable debt securities are comprised of the following (in thousands):

US government obligations

October 31, 2011

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

49,933

331

—

50,264

Gross unrealized losses related to marketable debt investments, included in short-term investments at October 31, 2009,

were immaterial.

The following table summarizes final legal maturities of debt investments at October 31, 2011 (in thousands):

Less than one year

Due in 1-2 years

Amortized
Cost

Estimated
Fair Value

—

49,933
49,933

—

50,264
50,264

(6) FAIR VALUE MEASUREMENTS

As of the date indicated, the following table summarizes the fair value of assets that are recorded at fair value on a

recurring basis (in thousands):

Assets:

Embedded redemption feature

Contingent consideration

Total assets measured at fair value

Level 1

Level 2

Level 3

Total

October 31, 2010

—

4,220

30,195

34,415

4,220

30,195

34,415

Assets:

U.S. government obligations

Embedded redemption feature

Total assets measured at fair value

Level 1

Level 2

Level 3

Total

October 31, 2011

50,264

—

50,264

—

7,020

50,264

7,020

57,284

As of the dates indicated, the assets above were presented on Ciena’s Consolidated Balance Sheet as follows (in thousands):

Assets:

Prepaid expenses and other

Other long-term assets

Total assets measured at fair value

Assets:

Long-term investments

Other long-term assets

Total assets measured at fair value

Level 1

Level 2

Level 3

Total

October 31, 2010

—

30,195

4,220

34,415

30,195

4,220

34,415

Level 1

Level 2

Level 3

Total

October 31, 2011

50,264

—

50,264

—

7,020

50,264

7,020

57,284

Ciena’s Level 3 assets included in prepaid expenses and other at October 31, 2010 reflect its contingent right to receive a

refund of up to $33.5 million in aggregate purchase price paid in the MEN Acquisition. The fair value was based on the
weighted average probabilities of expected cash flows discounted to its present value. Ciena's Level 3 assets included in other
long-term assets reflect an embedded redemption feature contained within Ciena's 4.0% convertible senior notes. See Note 14
below. The embedded redemption feature is bifurcated from Ciena's 4.0% convertible senior notes using the "with-and-
without" approach. As such, the total value of the embedded redemption feature is calculated as the difference between the
value of the 4.0% convertible senior notes (the "Hybrid Instrument") and the value of an identical instrument without the
embedded redemption feature (the “Host Instrument"). Both the Host Instrument and the Hybrid Instrument are valued using a
modified binomial model. The modified binomial model utilizes a risk free interest rate, an implied volatility of Ciena's stock,
the recovery rates of bonds and the implied default intensity of the 4.0% convertible senior notes.

As of the dates indicated, the following table sets forth, in thousands, the reconciliation of changes in Level 3 assets

recorded at fair value:

Balance at October 31, 2010

Issuances

Settlements

Changes in unrealized gain

Transfers into Level 3

Transfers out of Level 3

Balance at October 31, 2011

Level 3

34,415

—
(30,195)
2,800

—

7,020

During fiscal 2009, a private technology company in which Ciena held a minority equity investment completed a round of
equity financing and merged with another private technology company. These events required Ciena to perform an impairment
analysis and measure the investment at fair value. In determining fair value, Ciena utilized Level 3 inputs including the
recapitalization resulting from both the completion of the merger and the equity financing. Also, during fiscal 2009, a separate

private technology company in which Ciena held a minority equity investment was acquired by a publicly-traded company.
This event required Ciena to perform an impairment analysis and measure the investment at fair value. In determining fair
value, Ciena utilized Level 2 inputs including the relevant exchange ratio for the acquisition transaction and the market price of
the acquirer's common stock. Based on Ciena's ownership interest and the value of its investment following these events, Ciena
recorded a non-cash loss on cost method investments of $5.3 million.

(7) ACCOUNTS RECEIVABLE

Ciena has not historically experienced a significant amount of bad debt expense. The following table summarizes the

activity in Ciena’s allowance for doubtful accounts for the fiscal years indicated (in thousands):

Year ended

October 31,
2009

2010

2011

(8) INVENTORIES

Balance at beginning

of period

Provisions

Net

Deductions

Balance at end of

period

124

116

117

1,696

101

—

1,112

116

117

701

As of the dates indicated, inventories are comprised of the following (in thousands):

Raw materials

Work-in-process

Finished goods

Deferred cost of goods sold

Provision for excess and obsolescence

October 31,

2010

2011

30,569

6,993

177,994

76,830

292,386
(30,767)
261,619

45,333

13,851

134,998

67,665

261,847
(31,771)
230,076

Ciena writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the

cost of inventory and the estimated market value based on assumptions about future demand and market conditions. During
fiscal 2009, fiscal 2010 and fiscal 2011, recorded provisions for inventory reserves were primarily related to changes in
forecasted sales for certain products. Deductions from the reserve for excess and obsolete inventory relate to disposal activities.

The following table summarizes the activity in Ciena’s reserve for excess and obsolete inventory for the fiscal years

indicated (in thousands):

Year ended

October 31,
2009

2010

2011

Balance at

beginning of

period

Provisions

Disposals

Balance at

end of period

23,257

24,002

30,767

15,719

13,696

17,334

14,974

6,931

16,330

24,002

30,767

31,771

(9) PREPAID EXPENSES AND OTHER

As of the dates indicated, prepaid expenses and other are comprised of the following (in thousands):

Prepaid VAT and other taxes

Deferred deployment expense

Product demonstration equipment, net

Prepaid expenses

Restricted cash

Contingent consideration

Other non-trade receivables

October 31,

2010

2011

46,352

6,918

29,449

15,087

12,994

30,195

6,685

44,969

17,839

46,996

14,769

12,533

—

6,251

147,680

143,357

Depreciation of product demonstration equipment was $4.2 million and $9.7 million for fiscal 2010 and 2011, respectively.

(10) EQUIPMENT, FURNITURE AND FIXTURES

As of the dates indicated, equipment, furniture and fixtures are comprised of the following (in thousands):

Equipment, furniture and fixtures

Leasehold improvements

Accumulated depreciation and amortization

October 31,

2010

2011

360,908

396,310

49,595

410,503
(290,209)
120,294

50,380

446,690
(324,132)
122,558

During fiscal 2009, fiscal 2010 and fiscal 2011, Ciena recorded depreciation of equipment, furniture and fixtures, and

amortization of leasehold improvements of $21.9 million, $38.5 million and $50.5 million, respectively.

(11) INTANGIBLE ASSETS

As of the dates indicated, intangible assets are comprised of the following (in thousands):

October 31,

2010

2011

Gross
Intangible

Accumulated
Amortization

Net
Intangible

Gross
Intangible

Accumulated
Amortization

Net
Intangible

Developed technology

Patents and licenses

417,833

45,388

$ (186,129)
(45,167)

231,704

417,833

221

46,538

$ (234,393)
(45,320)

183,440

1,218

Customer relationships, covenants not
to compete, outstanding purchase
orders and contracts

Total intangible assets

323,573

786,794

(129,086)
$ (360,382)

194,487

323,573

426,412

787,944

(176,596)
$ (456,309)

146,977

331,635

The aggregate amortization expense of intangible assets was $31.4 million, $127.0 million and $95.9 million for fiscal
2009, fiscal 2010 and fiscal 2011, respectively. Expected future amortization of intangible assets for the fiscal years indicated is
as follows (in thousands):

Year Ended October 31,

2012

2013

2014

2015

2016

Thereafter

(12) OTHER BALANCE SHEET DETAILS

As of the dates indicated, other long-term assets are comprised of the following (in thousands):

74,497

71,309

57,151

52,879

22,920

331,635

Maintenance spares inventory, net

Deferred debt issuance costs, net
Embedded redemption feature

Restricted cash

Other

October 31,

2010

2011

53,654

28,853
4,220

37,796

5,296

50,442

23,481
7,020

27,507

5,673

129,819

114,123

Deferred debt issuance costs are amortized using the straight line method which approximates the effect of the effective
interest rate method through the maturity of the related debt. Amortization of debt issuance costs, which is included in interest
expense, was $2.3 million, $3.8 million and $5.3 million for fiscal 2009, fiscal 2010 and fiscal 2011, respectively.

As of the dates indicated, accrued liabilities are comprised of the following (in thousands):

Warranty

Compensation, payroll related tax and benefits

Vacation

Current restructuring liabilities

Interest payable

Other

October 31,

2010

2011

54,372

39,391

20,412

2,784

4,345

72,690

47,282

51,808

27,808

664

4,248

65,194

193,994

197,004

The following table summarizes the activity in Ciena’s accrued warranty for the fiscal years indicated (in thousands):

Year ended

October 31,
2009

2010

2011

Beginning

Balance

Acquired

Provisions

Settlements

Balance at end

of period

37,258

40,196

54,372

—

24,041

—

19,286

15,353

18,451

16,348

25,218

25,541

40,196

54,372

47,282

As a result of the substantial completion of integration activities related to the MEN Business, Ciena consolidated certain
support operations and processes during fiscal 2011, resulting in a reduction in costs to service future warranty obligations. As
a result of the lower expected costs, Ciena reduced its warranty liability by $6.9 million, which had the effect of reducing the

provisions in the table above.

As of the dates indicated, deferred revenue is comprised of the following (in thousands):

Products

Services

Less current portion

Long-term deferred revenue

October 31,

2010

2011

31,187

73,862

105,049
(75,334)
29,715

42,915

80,883

123,798
(99,373)
24,425

(13) FOREIGN CURRENCY FORWARD CONTRACTS

From time to time, Ciena uses foreign currency forward contracts to reduce variability in certain forecasted non-U.S. dollar

denominated cash flows. Generally, these derivatives have maturities of 12 months or less and are designated as cash flow
hedges. Ciena considers several factors when evaluating hedges of its forecasted foreign currency exposures, such as
significance of the exposure, offsetting economic exposures, potential costs of hedging and the potential for hedge
ineffectiveness. During fiscal 2011, Ciena entered into foreign currency forward contracts to hedge certain forecasted CAD
and INR denominated cash flows which were designated as cash flow hedges. No portion of the hedging instruments was
considered ineffective. Gains and losses from these forward contracts were immaterial during fiscal 2011. Ciena does not enter
into derivative transactions for purposes other than hedging economic exposures. As of October 31, 2010 and 2011, there were
no foreign currency forward contracts outstanding.

(14) CONVERTIBLE NOTES PAYABLE

Outstanding Convertible Notes Payable

Ciena has four issuances of convertible notes payable outstanding. The notes are senior unsecured obligations of Ciena and

rank equally with all of Ciena’s other existing and future senior unsecured debt. The indentures governing Ciena’s notes
provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among
others, the following: nonpayment of principal or interest; breach of covenants or other agreements in the indenture; defaults in
or failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default
occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the notes may declare the
principal of, accrued interest on, and premium, if any, on all the notes immediately due and payable. Under the indentures, if
Ciena undergoes a “fundamental change” (as that term is defined in the indenture governing the notes to include certain change
in control transactions), holders of notes will have the right, subject to certain exemptions, to require Ciena to purchase for cash
any or all of their notes at a price equal to the principal amount, plus accrued and unpaid interest. If the holder elects to convert
his or her notes in connection with a specified fundamental change, in certain circumstances, Ciena will be required to increase
the applicable conversion rate, depending on the price paid per share for Ciena common stock and the effective date of the
fundamental change transaction.

0.25% Convertible Senior Notes due May 1, 2013

On April 10, 2006, Ciena completed a public offering of 0.25% convertible senior notes due May 1, 2013, in aggregate

principal amount of $300.0 million. Interest is payable on May 1 and November 1 of each year.

During the fourth quarter of fiscal 2010, Ciena repurchased $81.8 million in aggregate principal amount of its outstanding
0.25% convertible senior notes in privately negotiated transactions, which resulted in a gain of approximately $4.9 million. As
of October 31, 2011, the outstanding principal on these notes was $216.2 million.

At the election of the holder, notes may be converted prior to maturity into shares of Ciena common stock at the initial
conversion rate of 25.3001 shares per $1,000 in principal amount, which is equivalent to an initial conversion price of $39.5255
per share. The notes may be redeemed by Ciena if the closing sale price of Ciena’s common stock for at least 20 trading days in
any 30 consecutive trading day period ending on the date one day prior to the date of the notice of redemption exceeds 130% of
the conversion price. Ciena may redeem the notes in whole or in part, at a redemption price in cash equal to the principal
amount to be redeemed, plus accrued and unpaid interest.

Ciena used approximately $28.5 million of the net proceeds of this offering to purchase a call spread option on its common

stock that is intended to limit exposure to potential dilution from the conversion of the notes. See Note 16 below for a

description of this call spread option.

4.0% Convertible Senior Notes, due March 15, 2015

On March 15, 2010, Ciena completed a private placement of 4.0% convertible senior notes due March 15, 2015, in
aggregate principal amount of $375.0 million. Interest is payable on the notes on March 15 and September 15 of each year,
beginning on September 15, 2010.

At the election of the holder, the notes may be converted prior to maturity into shares of Ciena common stock at the initial

conversion rate of 49.0557 shares per $1,000 in principal amount, which is equivalent to an initial conversion price of
approximately $20.38 per share. The notes may be redeemed by Ciena on or after March 15, 2013 if the closing sale price of
Ciena’s common stock for at least 20 trading days in any 30 consecutive trading day period ending on the date one day prior to
the date of the notice of redemption exceeds 150% of the conversion price. Ciena may redeem the notes in whole or in part, at a
redemption price in cash equal to the principal amount to be redeemed, plus accrued and unpaid interest, including any
additional interest to, but excluding, the redemption date, plus a make-whole premium payment. The “make whole premium”
payment will be made in cash and equal the present value of the remaining interest payments, to maturity, computed using a
discount rate equal to 2.75%. The make-whole premium is paid to holders whether or not they convert the notes following
Ciena’s issuance of a redemption notice. For accounting purposes, this redemption feature is an embedded derivative that is not
clearly and closely related to the notes. Consequently, it was initially bifurcated from the indenture and separately recorded at
its fair value as an asset with subsequent changes in fair value recorded through earnings. As of October 31, 2011, the fair value
of the embedded redemption feature was $7.0 million and is included in other long-term assets on the Consolidated Balance
Sheet. Changes in fair value of the embedded redemption feature in the amount of $2.8 million are reflected as interest and
other income (loss), net in the Consolidated Statement of Operations during fiscal 2011.

The net proceeds from the offering of the notes were $364.3 million after deducting the placement agents’ fees and other
fees and expenses. Ciena used $243.8 million of this amount to fund its payment election to replace its contractual obligation to
issue convertible notes to Nortel as part of the aggregate purchase price for the acquisition of the MEN Business. The
remaining proceeds were used to reduce the cash on hand required to fund the aggregate purchase price of the MEN Business.
See Note 2 above.

0.875% Convertible Senior Notes due June 15, 2017

On June 11, 2007, Ciena completed a public offering of 0.875% convertible senior notes due June 15, 2017, in aggregate
principal amount of $500.0 million. Interest is payable on June 15 and December 15 of each year, beginning on December 15,
2007.

At the election of the holder, notes may be converted prior to maturity into shares of Ciena common stock at the initial

conversion rate of 26.2154 shares per $1,000 in principal amount, which is equivalent to an initial conversion price of
approximately $38.15 per share. The notes are not redeemable by Ciena prior to maturity.

Ciena used approximately $42.5 million of the net proceeds of this offering to purchase a call spread option on its common
stock that is intended to limit exposure to potential dilution from conversion of the notes. See Note 16 below for a description
of this call spread option.

3.75% Convertible Senior Notes, due October 15, 2018

On October 18, 2010, Ciena completed a private placement of 3.75% convertible senior notes due October 15, 2018, in

aggregate principal amount of $350.0 million. Interest is payable on the notes on April 15 and October 15 of each year,
beginning on April 15, 2011.

At the election of the holder, the notes may be converted prior to maturity into shares of Ciena common stock at the initial

conversion rate of 49.5872 shares per $1,000 in principal amount, which is equivalent to an initial conversion price of
approximately $20.17 per share.

The net proceeds from the offering were approximately $340.4 million after deducting the placement agents’ fees and other

fees and expenses. Ciena used $76.1 million of the net proceeds to effect the repurchase of its 0.25% convertible senior notes
due 2013 described above.

The following table sets forth, in thousands, the carrying value and the estimated current fair value of Ciena’s outstanding

convertible notes:

Description

0.25% Convertible Senior Notes due May 1, 2013
4.0% Convertible Senior Notes, due March 15, 2015 (1)
0.875% Convertible Senior Notes due June 15, 2017

3.75% Convertible Senior Notes, due October 15, 2018

October 31, 2011

Carrying Value

Fair Value

216,210

376,154

500,000

350,000

215,399

388,125

376,875

347,375

1,442,364

1,327,774

_________________________________

(1)

Includes unamortized bond premium related to embedded redemption feature

The fair value reported above is based on the quoted market price for the notes on the date above.

(15) EARNINGS (LOSS) PER SHARE CALCULATION

The following table (in thousands except per share amounts) is a reconciliation of the numerator and denominator of the

basic net income (loss) per common share (“Basic EPS”) and the diluted net income (loss) per 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 (i) common shares outstanding, (ii) shares issuable upon vesting of restricted
stock units, (iii) shares issuable under Ciena's employee stock purchase plan and upon exercise of outstanding stock options,
using the treasury stock method; and (iv) shares underlying Ciena's outstanding convertible notes.

Numerator

Net loss

Denominator

Basic weighted average shares outstanding

Dilutive weighted average shares outstanding

EPS

Basic EPS

Diluted EPS

Year Ended October 31,

2009

2010

2011

(581,154)

(333,514)

(195,521)

Year Ended October 31,

2009

2010

2011

91,167

93,103

95,854

Year Ended October 31,

2009

2010

2011

(6.37)
(6.37)

(3.58)
(3.58)

(2.04)
(2.04)

The following table summarizes the weighted average shares excluded from the calculation of the denominator for Basic

and Diluted EPS due to their anti-dilutive effect for the fiscal years indicated (in thousands):

Shares underlying stock options, restricted stock units and warrants

0.25% Convertible Senior Notes due May 1, 2013

4.00% Convertible Senior Notes due March 15, 2015

0.875% Convertible Senior Notes due June 15, 2017

3.75% Convertible Senior Notes due October 15, 2018

Total excluded due to anti-dilutive effect

(16) STOCKHOLDERS’ EQUITY

Call Spread Options

Year Ended October 31,

2009

2010

2011

8,302

7,539

—

13,108

—

28,949

7,397

7,454

11,605

13,108

717

40,281

6,141

5,470

18,395

13,108

17,356

60,470

Ciena holds two call spread options on its common stock relating to the shares issuable upon conversion of two issues of
convertible notes. These call spread options are designed to mitigate exposure to potential dilution from the conversion of these
notes. Ciena purchased a call spread option relating to the 0.25% convertible senior notes due May 1, 2013 for $28.5 million
during the second quarter of fiscal 2006. Ciena purchased a call spread option relating to the 0.875% convertible senior notes
due June 15, 2017 for $42.5 million during the third quarter of fiscal 2007. In each case, the call spread options were purchased
at the time of the notes offering from an affiliate of the underwriter. The cost of each call spread option was recorded as a
reduction in paid-in capital.

Each call spread option is exercisable, upon maturity of the relevant issue of convertible notes, for such number of shares of

Ciena common stock issuable upon conversion of that series of notes in full. Each call spread option has a “lower strike price”
equal to the conversion price for the notes and a “higher strike price” that serves to cap the amount of dilution protection
provided. At its election, Ciena can exercise the call spread options on a net cash basis or a net share basis. The value of the
consideration of a net share settlement will be equal to the value upon a net cash settlement and can range from $0, if the
market price per share of Ciena common stock upon exercise is equal to or below the lower strike price, to approximately $45.7
million (in the case of the April 2006 call spread option) or approximately $76.1 million (in the case of the June 2007 call
spread option), if the market price per share of Ciena common stock upon exercise is at or above the higher strike price. If the
market price on the date of exercise is between the lower strike price and the higher strike price, in lieu of a net settlement,
Ciena may elect to receive the full number of shares underlying the call spread option by paying the aggregate option exercise
price, which is equal to the original principal outstanding on that series of notes. Should there be an early unwind of the call
spread option, the amount of cash or shares to be received by Ciena will depend upon the existing overall market conditions,
and on Ciena’s stock price, the volatility of Ciena’s stock and the remaining term of the call spread option. The number of
shares subject to the call spread options, and the lower and higher strike prices, are subject to customary adjustments.

(17) INCOME TAXES

For the periods indicated, the provision (benefit) for income taxes consists of the following (in thousands):

Provision (benefit) for income taxes:

Current:

Federal

State

Foreign

Total current

Deferred:

Federal

State

Foreign

Total deferred

Provision (benefit) for income taxes

2009

October 31,

2010

2011

(3,488)
122

2,925
(441)

(860)
(23)
—
(883)
(1,324)

(918)
223

1,936

1,241

700

—

700

1,941

(194)
(518)
8,202

7,490

160

—

183

7,673

For the periods indicated, income (loss) before provision (benefit) for income taxes consists of the following (in thousands):

United States

Foreign

Total

2009

(591,637)
9,159
(582,478)

October 31,

2010

(317,899)
(13,674)
(331,573)

2011

(240,244)
52,396
(187,848)

For the periods indicated, the tax provision (benefit) reconciles to the amount computed by multiplying income or loss

before income taxes by the U.S. federal statutory rate of 35% as follows:

Provision at statutory rate

State taxes
Foreign taxes

Research and development credit

Goodwill impairment

Non-deductible compensation and other

Valuation allowance

Effective income tax rate

2009

35.00 %

(0.02)%
0.05 %

0.60 %

(27.38)%

(1.42)%

(6.60)%

0.23 %

October 31,

2010

35.00 %

(0.07)%
(4.56)%

2.54 %

— %

(1.43)%

(32.07)%

(0.59)%

2011

35.00 %

0.27 %
2.32 %

11.03 %

— %

(3.96)%

(48.74)%

(4.08)%

The significant components of deferred tax assets and liabilities are as follows (in thousands):

Deferred tax assets:

Reserves and accrued liabilities

Depreciation and amortization

NOL and credit carry forward

Other

Gross deferred tax assets

Valuation allowance

Net deferred tax asset

October 31,

2010

2011

30,889

186,716

1,107,059

38,829

30,637

259,899

1,154,571

22,304

1,363,493
(1,363,493)
—

1,467,411
(1,467,411)
—

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as

follows (in thousands):

Unrecognized tax benefits at October 31, 2008

Increase related to positions taken in prior period

Increase related to positions taken in current period

Reductions related to expiration of statute of limitations

Unrecognized tax benefits at October 31, 2009

Increase related to positions taken in prior period

Increase related to positions taken in current period

Reductions related to expiration of statute of limitations

Unrecognized tax benefits at October 31, 2010

Increase related to positions taken in prior period

Increase related to positions taken in current period

Reductions related to expiration of statute of limitations

Unrecognized tax benefits at October 31, 2011

4,436

106

1,947
(300)
6,189

3,383
(2,156)
7,442
(450)
1,847
(249)
8,590

As of October 31, 2010 and 2011, Ciena had accrued $1.4 million and $1.1 million, respectively, of interest and some minor
penalties related to unrecognized tax benefits within other long-term liabilities in the Consolidated Balance Sheets. A charge of
$0.2 million and a benefit of $0.3 million of interest was recorded to the provision for income taxes during fiscal 2010 and
2011, respectively. If recognized, the entire balance of unrecognized tax benefits would impact the effective tax rate. Over the
next 12 months, Ciena does not estimate any material changes in the unrecognized income tax benefits.

During fiscal 2002, Ciena established a valuation allowance against its deferred tax assets. Ciena intends to maintain a
valuation allowance until sufficient positive evidence exists to support a reversal. Any future release of valuation allowance
may be recorded as a tax benefit increasing net income or as an adjustment to paid-in capital, based on tax ordering
requirements. The following table summarizes the activity in Ciena’s valuation allowance against its gross deferred tax assets
(in thousands):

Year ended

October 31,
2009

2010

2011

Balance at beginning

of period

Additions

Deductions

1,164,384

1,198,067

1,363,493

33,683

165,426

103,918

Balance at end

of period

—

1,198,067

1,363,493

1,467,411

As of October 31, 2011, Ciena had a $2.7 billion net operating loss carry forward and a $0.1 billion income tax credit carry
forward which begin to expire in fiscal year 2018 and 2013, respectively. Ciena’s ability to use net operating losses and credit
carry forwards is subject to limitations pursuant to the ownership change rules of the Internal Revenue Code Section 382.

The income tax provision does not reflect the tax savings resulting from deductions associated with Ciena’s equity
compensation and the call spread option associated with Ciena’s convertible debt. The cumulative tax benefit through
October 31, 2011 of approximately $79.0 million will be credited to additional paid-in capital when realized. For deductions
associated with Ciena’s equity compensation, credits to paid-in capital will be recorded when those tax benefits are used to
reduce taxes payable.

(18) SHARE-BASED COMPENSATION EXPENSE

Ciena grants equity awards under its 2008 Omnibus Incentive Plan and 2003 Employee Stock Purchase Plan (“ESPP”). In
connection with its acquisition of the MEN Business, Ciena also adopted the 2010 Inducement Equity Award Plan, pursuant to
which it has made awards to eligible persons as described below.

2008 Plan

The 2008 Omnibus Incentive Plan (the “2008 Plan”) was approved by Ciena’s Board of Directors on December 12, 2007
and became effective upon the approval of Ciena’s stockholders on March 26, 2008. The 2008 Plan has a ten year term. The
2008 Plan reserves eight million shares of common stock for issuance, subject to increase from time to time by the number of

shares: (i) subject to outstanding awards granted under Ciena’s prior equity compensation plans that terminate without delivery
of any stock (to the extent such shares would have been available for issuance under such prior plan), and (ii) subject to awards
assumed or substituted in connection with the acquisition of another company.

The 2008 Plan authorizes the issuance of awards including stock options, restricted stock units (RSUs), restricted stock,
unrestricted stock, stock appreciation rights (SARs) and other equity and/or cash performance incentive awards to employees,
directors, and consultants of Ciena. Subject to certain restrictions, the Compensation Committee of the Board of Directors has
broad discretion to establish the terms and conditions for awards under the 2008 Plan, including the number of shares, vesting
conditions and the required service or performance criteria. Options and SARs have a maximum term of ten years, and their
exercise price may not be less than 100% of fair market value on the date of grant. Repricing of stock options and SARs is
prohibited without stockholder approval. Certain change in control transactions may cause awards granted under the 2008 Plan
to vest, unless the awards are continued or substituted for in connection with the transaction.

Pursuant to Board and stockholder approval, effective April 14, 2010, Ciena amended its 2008 Plan to (i) increase the
number of shares available for issuance by five million shares; and (ii) reduce from 1.6 to 1.31 the fungible share ratio used
for counting full value awards, such as restricted stock units, against the shares remaining available under the 2008 Plan. As of
October 31, 2011, there were approximately 4.0 million shares authorized and remaining available for issuance under the 2008
Plan.

2010 Inducement Equity Award Plan

On December 8, 2009, the Compensation Committee of the Board of Directors approved the 2010 Inducement Equity
Award Plan (the “2010 Plan”). The 2010 Plan is intended to enhance Ciena's ability to attract and retain certain key employees
transferred to Ciena in connection with its acquisition of the MEN Business. The 2010 Plan authorizes the issuance of restricted
stock or restricted stock units representing up to 2.25 million shares of Ciena common stock. Upon the March 19, 2011
termination of the 2010 Plan, any shares then remaining available ceased to be available for issuance under the 2010 Plan or
any other existing Ciena equity incentive plan.

Stock Options

Outstanding stock option awards to employees are generally subject to service-based vesting restrictions and vest

incrementally over a four-year period. The following table is a summary of Ciena's stock option activity for the periods
indicated (shares in thousands):

Balance as of October 31, 2008

Granted

Exercised

Canceled

Balance as of October 31, 2009

Granted

Exercised

Canceled

Balance as of October 31, 2010

Granted

Exercised

Canceled

Balance as of October 31, 2011

Shares
Underlying
Options
Outstanding

Weighted
Average
Exercise Price

6,399

234
(107)
(988)
5,538

86
(103)
(519)
5,002

—
(411)
(901)
3,690

48.84

8.63

2.33

61.40

45.80

12.42

5.21

95.00

40.96

—

14.88

97.64

30.01

The total intrinsic value of options exercised during fiscal 2009, fiscal 2010 and fiscal 2011 was $0.7 million, $0.9 million
and $3.4 million, respectively. The weighted average fair value of each stock option granted by Ciena during fiscal 2009 and
fiscal 2010 was $4.94 and $6.94, respectively. There were no stock options granted by Ciena during fiscal 2011.

The following table summarizes information with respect to stock options outstanding at October 31, 2011, based on

Ciena’s closing stock price on the last trading day of Ciena’s fiscal 2011 (shares and intrinsic value in thousands):

Options Outstanding at

October 31, 2011

Vested Options at

October 31, 2011

Weighted
Average
Remaining

Number

Weighted

Number

Weighted
Average
Remaining

Contractual

Average

Aggregate

Contractual

Underlying

Life

Exercise

Intrinsic

Underlying

Life

(Years)

Price

Value

(Years)

380

404

555

422

284

524

350

511

257

3,690

6.03

3.76

3.63

5.01

3.85

1.34

5.54

2.95

0.57

0.75

3.61

8.20

2,161

16.69

20.49

26.98

29.78

31.72

35.17

44.72

66.85

267.52

—

277

393

545

414

276

521

337

508

257

30.01

2,161

3,531

5.43

3.67

3.57

4.99

3.77

1.31

5.51

2.93

0.57

0.75

3.45

Weighted

Average

Exercise

Price

Aggregate

Intrinsic

Value

7.48

1,780

16.67

20.49

26.98

29.76

31.72

35.19

44.72

66.85

267.52

—

30.64

1,780

Range of

Exercise

0.94

16.52

17.43

24.69

28.61

31.71

33.00

37.31

47.53

$ 267.52

0.94

Price
—

—

16.31

17.29

24.50

28.28

31.43

32.55

37.10

47.32

$ 167.09

$ 267.52

Assumptions for Option-Based Awards

Ciena recognizes the fair value of service-based options as share-based compensation expense on a straight-line basis over
the requisite service period. During fiscal 2009 and fiscal 2010, Ciena estimated the fair value of each option award on the date
of grant using the Black-Scholes option-pricing model, with the weighted average assumptions in the table below. Ciena did
not grant any option-based awards during fiscal 2011.

Expected volatility

Risk-free interest rate

Expected term (years)

Expected dividend yield

Year Ended October 31,

2009
65.0%

2010
61.9%

1.7%-3.1%

2.0%-3.0%

5.2-5.3

0.0%

5.3-5.5

0.0%

Ciena considered the implied volatility and historical volatility of its stock price in determining its expected volatility, and,

finding both to be equally reliable, determined that a combination of both would result in the best estimate of expected
volatility.

The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of Ciena's

employee stock options.

The expected life of employee stock options represents the weighted-average period the stock options are expected to
remain outstanding. Ciena uses historical information about specific exercise behavior of its grantees to determine the expected
term.

The dividend yield assumption is based on Ciena's history and expectation of dividend payouts.

Because share-based compensation expense is recognized only for those awards that are ultimately expected to vest, the

amount of share-based compensation expense recognized reflects a reduction for estimated forfeitures. Ciena estimates
forfeitures at the time of grant and revises those estimates in subsequent periods based upon new or changed information. Ciena

relies upon historical experience in establishing forfeiture rates. If actual forfeitures differ from current estimates, total
unrecognized share-based compensation expense will be adjusted for future changes in estimated forfeitures.

Restricted Stock Units

A restricted stock unit is a stock award that entitles the holder to receive shares of Ciena common stock as the unit vests.

Ciena's outstanding restricted stock unit awards are subject to service-based vesting conditions and/or performance-based
vesting conditions. Awards subject to service-based conditions typically vest in increments over a three or four-year period.
Awards with performance-based vesting conditions require the achievement of certain operational, financial or other
performance criteria or targets as a condition of vesting, or the acceleration of vesting, of such awards. Ciena recognizes the
estimated fair value of performance-based awards, net of estimated forfeitures, as share-based compensation expense over the
performance period, using graded vesting, which considers each performance period or tranche separately, based upon Ciena's
determination of whether it is probable that the performance targets will be achieved. At each reporting period, Ciena reassesses
the probability of achieving the performance targets and the performance period required to meet those targets.

The following table is a summary of Ciena's restricted stock unit activity for the period indicated, with the aggregate fair
value of the balance outstanding at the end of each period, based on Ciena's closing stock price on the last trading day of the
relevant period (shares and aggregate fair value in thousands):

Balance as of October 31, 2008

1,849

30.85

17,773

Restricted
Stock Units
Outstanding

Weighted
Average
Grant Date
Fair Value
Per Share

Aggregate Fair
Value

Granted

Vested

Canceled or forfeited

Balance as of October 31, 2009

Granted

Vested

Canceled or forfeited

Balance as of October 31, 2010

Granted

Vested

Canceled or forfeited

Balance as of October 31, 2011

3,364
(1,358)
(139)
3,716

3,643
(1,846)
(322)
5,191

2,064
(2,466)
(491)
4,298

14.67

43,591

13.81

71,681

16.28

59,399

The total fair value of restricted stock units that vested and were converted into common stock during fiscal 2009, fiscal
2010 and fiscal 2011 was $14.7 million, $25.7 million and $45.3 million, respectively. The weighted average fair value of each
restricted stock unit granted by Ciena during fiscal 2009, fiscal 2010 and fiscal 2011 was $7.02, $13.43 and $19.73,
respectively.

Assumptions for Restricted Stock Unit Awards

The fair value of each restricted stock unit award is based on the closing price on the date of grant. Share-based expense
for service-based restricted stock unit awards is recognized, net of estimated forfeitures, ratably over the vesting period on a
straight-line basis.

Share-based expense for performance-based restricted stock unit awards, net of estimated forfeitures, is recognized ratably

over the performance period based upon Ciena's determination of whether it is probable that the performance targets will be
achieved. At each reporting period, Ciena reassesses the probability of achieving the performance targets and the performance
period required to meet those targets. The estimation of whether the performance targets will be achieved involves judgment,
and the estimate of expense is revised periodically based on the probability of achieving the performance targets. Revisions are
reflected in the period in which the estimate is changed. If any performance goals are not met, no compensation cost is
ultimately recognized against that goal and, to the extent previously recognized, compensation cost is reversed.

2003 Employee Stock Purchase Plan

In March 2003, Ciena stockholders approved the 2003 Employee Stock Purchase Plan (the “ESPP”), which has a ten-year

term. Ciena stockholders subsequently approved an amendment increasing the number of shares available to 3.6 million and
adopting an “evergreen” provision. On December 31 of each year, the number of shares available under the ESPP will increase
by up to 0.6 million shares, provided that the total number of shares available at that time shall not exceed 3.6 million. Pursuant
to the evergreen provision, the maximum number of shares that may be added to the ESPP during the remainder of its ten-year
term is 2.2 million.

Under the ESPP, eligible employees may enroll in a six-month offer period during certain open enrollment periods. Prior to

October 1, 2010, new offer periods began March 16 and September 16 of each year and the purchase price reflected a 5%
discount off of the lower of the fair market value of Ciena common stock on the day preceding the offer period or the last day
of the offer period. Prior to October 1, 2010, the ESPP was non-compensatory for purposes of share-based compensation
expense.

Beginning on October 1, 2010, the six-month offer periods begin on December 21 and June 21 of each year with an initial
stub period running from October 1, 2010 through December 20, 2010. The purchase price reflects a 15% discount off of the
lower of the fair market value of Ciena common stock on the day preceding the offer period or the last day of the offer period.
The current ESPP is considered compensatory for purposes of share-based compensation expense.

During fiscal 2009, fiscal 2010 and fiscal 2011, Ciena issued 0.1 million, 0.1 million and 0.5 million shares under the
ESPP, respectively. At October 31, 2009, 2010 and 2011, 3.5 million, 3.5 million and 3.2 million shares remained available for
issuance under the ESPP, respectively.

Share-Based Compensation Expense for Periods Reported

The following table summarizes share-based compensation expense for the periods indicated (in thousands):

Year Ended October 31,

2009

2010

2011

2,116

2,140

Product costs

Service costs

Share-based compensation expense included in cost of goods sold

Research and development

Sales and marketing

General and administrative

Acquisition and integration costs

1,599

3,715

10,006

10,861

10,380

—

31,247
(524)
34,438

1,717

3,857

9,310

10,950

9,959

1,342

31,561

142

2,269

1,881

4,150

10,149

12,182

11,140

308

33,779

Share-based compensation expense included in operating expense

Share-based compensation expense capitalized in inventory, net

Total share-based compensation

35,560

37,930

As of October 31, 2011, total unrecognized compensation expense was $59.4 million: (i) $1.0 million, which relates to
unvested stock options and is expected to be recognized over a weighted-average period of 0.6 year; and (ii) $58.4 million,
which relates to unvested restricted stock units and is expected to be recognized over a weighted-average period of 1.6 years.

(19) SEGMENT AND ENTITY WIDE DISCLOSURES

Segment Reporting

Effective upon the March 19, 2010 completion of Ciena’s acquisition of the MEN Business, Ciena reorganized its internal
organizational structure and the management of its business. Ciena’s chief operating decision maker, its chief executive officer,
evaluates performance and allocates resources based on multiple factors, including segment profit (loss) information for the
following product categories:

• Packet-Optical Transport — includes optical transport solutions that increase network capacity and enable more rapid
delivery of a broader mix of high-bandwidth services. These products are used by network operators to facilitate the
cost effective and efficient transport of voice, video and data traffic in core networks, regional, metro and access
networks. Ciena's Packet-Optical Transport products support the efficient delivery of a wide variety of consumer-
oriented network services, as well as key managed service and enterprise applications.Ciena's principal products in
this segment include the 6500 Packet-Optical Platform, 4200 Advanced Services Platform; Corestream® Agility
Optical Transport System, 5100/5200 Advanced Services Platform, Common Photonic Layer (CPL), and 6100

Multiservice Optical Platform. This segment also includes sales from legacy SONET/SDH, transport and data
networking products, as well as certain enterprise-oriented transport solutions that support storage and LAN extension,
interconnection of data centers, and virtual private networks. This segment also includes operating system software
and enhanced software features embedded in each of these products. Revenue from this segment is included in product
revenue on the Consolidated Statement of Operations.

• Packet-Optical Switching — includes optical switching platforms that enable automated optical infrastructures for the
delivery of a wide variety of enterprise and consumer-oriented network services. Ciena's principal products in this
segment include its family of CoreDirector® Multiservice Optical Switches, its 5430 Reconfigurable Switching
System and its OTN configuration for the 5410 Reconfigurable Switching System. These products include
multiservice, multi-protocol switching systems that consolidate the functionality of an add/drop multiplexer, digital
cross-connect and packet switch into a single, high-capacity intelligent switching system. These products address both
the core and metro segments of communications networks and support key managed service services, Ethernet/TDM
Private Line, Triple Play and IP services. This segment also includes sales of operating system software and enhanced
software features embedded in each of these products. Revenue from this segment is included in product revenue on
the Consolidated Statement of Operations.

• Carrier-Ethernet Solutions - principally includes Ciena's 3000 family of service delivery switches and service

aggregation switches, the 5000 series of service aggregation switches, and its Carrier Ethernet packet configuration for
the 5410 Service Aggregation Switch. These products support the access and aggregation tiers of communications
networks and have principally been deployed to support wireless backhaul infrastructures and business data services.
Employing sophisticated Carrier Ethernet switching technology, these products deliver quality of service capabilities,
virtual local area networking and switching functions, and carrier-grade operations, administration, and maintenance
features. This segment also includes legacy broadband products, including the CNX-5 Broadband DSL System
(CNX-5), that transitions legacy voice networks to support Internet-based (IP) telephony, video services and DSL.
This segment also includes sales of operating system software and enhanced software features embedded in each of
these products. Revenue from this segment is included in product revenue on the Consolidated Statement of
Operations.

•

Reportable segment asset information is not disclosed because it is not reviewed by the chief operating decision maker for
purposes of evaluating performance and allocating resources.

The table below (in thousands, except percentage data) sets forth Ciena’s segment revenue for the respective periods:

Revenues:

Packet-Optical Transport

Packet-Optical Switching

Carrier Ethernet Solutions

Software and Services

Consolidated revenue

Segment Profit (Loss)

Fiscal Year

2009

2010

2011

299,088

705,551

$ 1,121,811

165,705

75,125

112,711

112,058

179,083

239,944

148,395

127,868

343,896

652,629

$ 1,236,636

$ 1,741,970

Segment profit (loss) is determined based on internal performance measures used by the chief executive officer to assess
the performance of each operating segment in a given period. In connection with that assessment, the chief executive officer
excludes the following non-performance items: selling and marketing costs; general and administrative costs; acquisition and
integration costs; amortization of intangible assets; restructuring costs; goodwill impairment; change in fair value of contingent
89

consideration; interest and other financial charges (net); interest expense; gains (losses) on cost method investments, gain on
extinguishment of debt, and provisions (benefit) for income taxes.

The table below (in thousands) sets forth Ciena's segment profit (loss) and the reconciliation to consolidated net income

(loss) during the respective periods:

Segment profit:

Packet-Optical Transport

Packet-Optical Switching

Carrier-Ethernet Solutions

Software and Services

Total segment profit

Less: non-performance operating expenses

Selling and marketing

General and administrative
Acquisition and integration costs

Amortization of intangible assets

Restructuring costs

Goodwill impairment

Change in fair value of contingent consideration

Add: other non-performance financial items

Interest expense and other income (loss), net

Gain (loss) on cost method investments

Gain on extinguishment of debt

Less: Provision (benefit) for income taxes

Consolidated net loss

Entity Wide Reporting

2009

Fiscal Year

2010

2011

21,535

69,319

191,727

60,302
(9,575)
22,249

94,511

134,527

47,509
—

24,826

11,207

455,673

—

2,081
(5,328)
—
(1,324)
(581,154)

15,662

28,742

56,152

169,875

193,515

102,692
101,379

99,401

8,514

—
(13,807)

(14,702)
—

4,948

1,941
(333,514)

49,286

10,849

77,422

329,284

251,990

126,242
42,088

69,665

5,781

—
(3,289)

(31,904)
7,249

—

7,673
(195,521)

The following table reflects Ciena’s geographic distribution of revenue based on the location of the purchaser, with any
country accounting for a significant percentage of total revenue in the period specifically identified. For fiscal 2010 and 2011,
revenue attributable to geographic regions outside of the United States is reflected as “Other International” revenue. For the
periods below, Ciena’s geographic distribution of revenue was as follows (in thousands, except percentage data):

United States

United Kingdom

Other International

Total.

Fiscal Year

2009

2010

2011

419,405

744,232

930,880

81,784

151,440

n/a

492,404

811,090

652,629

$ 1,236,636

$ 1,741,970

_________________________________

n/a Denotes revenue representing less than 10% of total revenue for the period

The following table reflects Ciena's geographic distribution of equipment, furniture and fixtures, with any country
accounting for a significant percentage of total equipment, furniture and fixtures specifically identified. Equipment, furniture
and fixtures attributable to geographic regions outside of the United States and Canada are reflected as “Other International.”

For the periods below, Ciena's geographic distribution of equipment, furniture and fixtures was as follows (in thousands, except
percentage data):

United States

Canada

Other International

Total

_________________________________

October 31,

2009

2010

2011

$ 47,875

63,675

60,848

n/a

13,993

45,103

11,516

47,424

14,286

$ 61,868

120,294

$ 122,558

n/a Denotes equipment, furniture and fixtures representing less than 10% of total equipment, furniture and fixtures

For the periods below, customers accounting for at least 10% of Ciena’s revenue were as follows (in thousands, except
percentage data):

AT&T

(20) OTHER EMPLOYEE BENEFIT PLANS

Fiscal Year

2009

2010

2011

128,233

267,422

269,858

Effective March 1, 2010, Ciena has a Defined Contribution Pension Plan that covers all of its Canada-based employees who

are not part of an excluded group. Total contributions (employee and employer) cannot exceed the lesser of 18% of participant
earnings and an annual dollar limit ($22,970 CAD for 2011). This plan includes a required employer contribution of 1% for all
participants and a 50% matching of participant contributions up to a total annual maximum of $3,000 CAD per employee.
During fiscal 2010 and 2011, Ciena made matching contributions of approximately $2.5 million CAD and $4.3 million CAD,
respectively.

Ciena has a 401(k) defined contribution profit sharing plan. The plan covers all U.S. based employees who are not part of

an excluded group. Participants may contribute up to 60% of pre-tax compensation, subject to certain limitations. The plan
includes an employer matching contribution equal to 50% of the first 6% an employee contributes each pay period. Ciena may
also make discretionary annual profit contributions up to the IRS regulated limit. Ciena has made no profit sharing
contributions to date. During fiscal 2009, 2010 and 2011, Ciena made matching contributions of approximately $3.2 million,
$3.4 million and $3.9 million, respectively.

(21) COMMITMENTS AND CONTINGENCIES

Ontario Grant

Ciena was awarded a conditional grant from the Province of Ontario in June 2011. Under this strategic jobs investment

fund grant, Ciena can receive up to an aggregate of CAD$25.0 million in funding for eligible costs relating to certain next-
generation, coherent optical transport development initiatives over the period from November 1, 2010 to October 31, 2015.
Ciena anticipates receiving disbursements, approximating CAD$5.0 million per fiscal year over the period above. Amounts
received under the grant are subject to recoupment in the event that Ciena fails to achieve certain minimum investment,
employment and project milestones. During fiscal 2011, Ciena recorded a CAD$5.3 million benefit as a reduction in research
and development expenses because it believes it has complied with the grant conditions entitling it to this amount, of which
CAD$5.0 million was received in fiscal 2011.

Foreign Tax Contingencies

Ciena has received assessment notices from the Mexican tax authorities asserting deficiencies in payments between 2001

and 2005 related primarily to income taxes and import taxes and duties. Ciena has filed judicial petitions appealing these
assessments. As of October 31, 2010 and 2011, Ciena had accrued liabilities of $1.4 million related to these contingencies,
which are reported as a component of other current accrued liabilities. As of October 31, 2011, Ciena estimates that it could be
exposed to possible losses of up to $5.8 million, for which it has not accrued liabilities. Ciena has not accrued the additional
income tax liabilities because it does not believe that such losses are probable. Ciena has not accrued the additional import

taxes and duties because it does not believe the incurrence of such losses are probable. Ciena continues to evaluate the
likelihood of probable and reasonably possible losses, if any, related to these assessments. As a result, future increases or
decreases to accrued liabilities may be necessary and will be recorded in the period when such amounts are estimable and more
likely than not (for income taxes) or probable (for non-income taxes).

In addition to the matters described above, Ciena is subject to various tax liabilities arising in the ordinary course of
business. Ciena does not expect that the ultimate settlement of these liabilities will have a material effect on our results of
operations, financial position or cash flows.

Litigation

On July 29, 2011, Cheetah Omni LLC filed a complaint in the United States District Court for the Eastern District of Texas

On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the Northern District of Georgia

against Ciena and four other defendants, alleging, among other things, that certain of the parties' products infringe U.S. Patent
6,542,673 (the “'673 Patent”), relating to an identifier system and components for optical assemblies. The complaint seeks
injunctive relief and damages. Ciena filed an answer to the complaint and counterclaims against Graywire on April 17, 2009.
On April 27, 2009, Ciena and certain other defendants filed an application for inter partes reexamination of the '673 Patent with
the U.S. Patent and Trademark Office (the “PTO”). On the same date, Ciena and the other defendants filed a motion to stay the
case pending reexamination of all of the patents-in-suit. On July 17, 2009, the district court granted the defendants' motion to
stay the case. On July 23, 2009, the PTO granted the defendants' application for reexamination with respect to certain claims of
the '673 Patent and, on December 17, 2010, the PTO confirmed the validity of some claims and rejected the validity of other
claims. On February 28, 2011, Ciena and the other defendants filed an appeal with respect to certain aspects of the PTO's
determination. Separately, on March 17, 2011, the PTO granted a third party application for ex parte reexamination with respect
to certain claims of the '673 Patent and, on September 2, 2011, the PTO issued a non-final rejection of the validity of those
claims. Ciena believes that it has valid defenses to the lawsuit and intends to defend it vigorously in the event the stay of the
case is lifted.

As a result of its June 2002 merger with ONI Systems Corp., Ciena became a defendant in a securities class action lawsuit

filed in the United States District Court for the Southern District of New York in August 2001. The complaint named ONI,
certain former ONI officers, and certain underwriters of ONI's initial public offering (IPO) as defendants, and alleges, among
other things, that the underwriter defendants violated the securities laws by failing to disclose alleged compensation
arrangements (such as undisclosed commissions or stock stabilization practices) in ONI's registration statement and by
engaging in manipulative practices to artificially inflate ONI's stock price after the IPO. The complaint also alleges that ONI
and the named former officers violated the securities laws by failing to disclose the underwriters' alleged compensation
arrangements and manipulative practices. No specific amount of damages has been claimed. Similar complaints have been filed
against more than 300 other issuers that have had initial public offerings since 1998, and all of these actions have been included
in a single coordinated proceeding. The former ONI officers have been dismissed from the action without prejudice. In July
2004, following mediated settlement negotiations, the plaintiffs, the issuer defendants (including Ciena), and their insurers
entered into a settlement agreement. The settlement agreement did not require Ciena to pay any amount toward the settlement
or to make any other payments. While the partial settlement was pending approval, the plaintiffs continued to litigate their cases
against the underwriter defendants. In October 2004, the district court certified a class with respect to the Section 10(b) claims
in six “focus cases” selected out of all of the consolidated cases, which cases did not include Ciena, and which decision was
appealed by the underwriter defendants to the U.S. Court of Appeals for the Second Circuit. On February 15, 2005, the district
court granted the motion for preliminary approval of the settlement agreement, subject to certain modifications, and on
August 31, 2005, the district court issued a preliminary order approving the revised stipulated settlement agreement. On
December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the district court's grant of class certification in the
six focus cases. On April 6, 2007, the Second Circuit denied plaintiffs' petition for rehearing. In light of the Second Circuit's
decision, the parties agreed that the settlement could not be approved. On June 25, 2007, the district court approved a
stipulation filed by the plaintiffs and the issuer defendants terminating the proposed settlement. On August 14, 2007, the
plaintiffs filed second amended complaints against the defendants in the six focus cases. On September 27, 2007, the plaintiffs
filed a motion for class certification based on their amended complaints and allegations. On March 26, 2008, the district court
denied motions to dismiss the second amended complaints filed by the defendants in the six focus cases, except as to Section 11
claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who
purchased outside the previously certified class period. Briefing on the plaintiffs' motion for class certification in the focus

cases was completed in May 2008. That motion was withdrawn without prejudice on October 10, 2008. On April 2, 2009, a
stipulation and agreement of settlement between the plaintiffs, issuer defendants and underwriter defendants was submitted to
the Court for preliminary approval. The Court granted the plaintiffs' motion for preliminary approval and preliminarily certified
the settlement classes on June 10, 2009. The settlement fairness hearing was held on September 10, 2009. On October 6, 2009,
the Court entered an opinion granting final approval to a settlement among the plaintiffs, issuer defendants and underwriter
defendants, and directing that the Clerk of the Court close these actions. All appeals of the opinion granting final approval have
been either resolved or dismissed, except one. On August 25, 2011, on remand from the Second Circuit, the District Court
determined that the last remaining appellant did not have standing to assert his appeal. Due to the inherent uncertainties of
litigation and because the settlement remains subject to appeal, the ultimate outcome of the matter is uncertain.

In addition to the matters described above, Ciena is subject to various legal proceedings, claims and litigation arising in the
ordinary course of business. Ciena does not expect that the ultimate costs to resolve these matters will have a material effect on
its results of operations, financial position or cash flows.

Operating Lease Commitments

Ciena has certain minimum obligations under non-cancelable operating leases expiring on various dates through 2021 for

equipment and facilities. Future annual minimum rental commitments under non-cancelable operating leases at October 31,
2011 are as follows (in thousands):

Year ended October 31,

2012

2013

2014

2015

2016

Thereafter

Total

29,884

26,683

21,757

10,969

4,924

5,260

99,477

Rental expense for fiscal 2009, fiscal 2010 and fiscal 2011 was approximately $14.7 million, $22.2 million and $25.5
million, respectively. In addition, Ciena paid approximately $2.2 million, $2.2 million and $2.4 million during fiscal 2009,
fiscal 2010 and fiscal 2011, respectively, related to rent costs for restructured facilities and unfavorable lease commitments,
which were offset against Ciena’s restructuring liabilities and unfavorable lease obligations. The amount for operating lease
commitments above does not include insurance, taxes, maintenance and other costs required by the applicable operating lease.
These costs are variable and are not expected to have a material impact on Ciena's financial condition, results of operations or
cash flows.

Purchase Commitments with Contract Manufacturers and Suppliers

As of October 31, 2011, Ciena has purchase commitments of $235.5 million. Purchase commitments relate to purchase
order obligations to contract manufacturers and component suppliers for inventory. In certain instances, Ciena is permitted to
cancel, reschedule or adjust these orders. Consequently, only a portion of the amount reported as purchase commitments relates
to firm, non-cancelable and unconditional obligations.

(22) SUBSEQUENT EVENTS

Ciena performed an evaluation of events that have occurred subsequent to the end of its fiscal year through the date that the

consolidated financial statements were issued. Except as described below, there have been no subsequent events that occurred
that would require disclosure in the consolidated financial statements.

New Linthicum Headquarters Lease

Ciena has entered into a Lease Agreement (the Lease) dated November 3, 2011, with W2007 RDG Realty, L.L.C.
(Landlord), relating to office space for its new corporate headquarters in the building located at 7035 Ridge Road, Hanover,
Maryland (Building 1) and a building to be built at 7031 Ridge Road, Hanover, Maryland (Building 2), consisting of an
aggregate agreed-upon rentable area of approximately 154,100 square feet.

The Building 1 lease commencement date will be the earlier of the date of Ciena’s occupancy or substantial completion of
the improvements to the premises in accordance with the terms of the Lease, but in either case no earlier than June 1, 2012. The

Building 1 rent commencement date will be the later of September 1, 2013 or substantial completion of improvements to the
premises in accordance with the terms of the Lease. The Building 2 lease commencement date and rent commencement date
will be upon Landlord’s delivery of the premises following substantial completion of the construction of Building 2 and
improvements to the premises in accordance with the terms of the Lease (expected to be no later than November 15, 2012).
Subject to adjustment and earlier termination as provided in the Lease, the Lease (which relates to both Building 1 and Building
2) will expire 14 years and eight months from the Building 1 lease commencement date. Ciena has the option to renew the
Lease for two additional periods of five years each. Ciena also has a right of first offer relating to additional space in the
complex of buildings that includes Building 1 and Building 2.

If the Building 2 rent commencement date coincided with the Building 1 rent commencement date, the initial annual basic

rent would be approximately $3.8 million, exclusive of certain customary operating expenses. The annual basic rent rate will
escalate at a rate of two percent (2.0%) each year, and beginning in calendar year 2014 Ciena will be responsible for increases
in certain operating expenses and real estate taxes over the amounts incurred in calendar year 2013. The Lease also provides
that Landlord will contribute towards costs incurred for certain tenant improvements to Ciena’s premises in Building 1 and
Building 2 and will bear all costs for the construction of Building 2.

Ciena has the right to terminate the Lease if certain milestones with respect to the construction of Building 2 are not

achieved in a timely manner. Ciena also has the one-time right to terminate the Lease with respect to all or a portion of the
leased premises at any time after the tenth (10th) year, provided that Ciena has not exercised its renewal option, pays a
termination fee to Landlord, and complies with certain requirements as set forth in the Lease. Landlord has the right to
terminate the Lease upon an event of default, which includes Ciena’s failure to pay rent, failure to provide an estoppel
certificate, failure to maintain insurance, failure to release mechanic’s liens, uncured breach of its other obligations under the
Lease, or insolvency.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the

participation of management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

As described elsewhere in this report, we acquired the MEN Business on March 19, 2010 and worked to integrate the MEN

Business into our operations during fiscal 2010 and 2011. While the process of integrating the MEN Business resulted in
changes to our internal control over financial reporting, there was no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the most recently
completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. The MEN Business was part of our evaluation of the effectiveness of internal control over financial
reporting in our "Report of Management on Internal Control Over Financial Reporting" below as of October 31, 2011.

Report of Management on Internal Control Over Financial Reporting

The management of Ciena Corporation is responsible for establishing and maintaining adequate internal control over

financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

The internal control over financial reporting at Ciena Corporation was designed to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America. Internal control over financial reporting includes
those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Ciena Corporation;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America;

•

provide reasonable assurance that receipts and expenditures of Ciena Corporation are being made only in accordance
with authorization of management and directors of Ciena Corporation; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management of Ciena Corporation assessed the effectiveness of the company’s internal control over financial reporting as

of October 31, 2011. Management based this assessment on criteria for effective internal control over financial reporting
described in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management determined that, as of October 31, 2011, Ciena Corporation
maintained effective internal control over financial reporting. Management reviewed the results of its assessment with the Audit
Committee of our Board of Directors.

PricewaterhouseCoopers LLP, independent registered public accounting firm, who audited and reported on the

consolidated financial statements of Ciena Corporation included in this annual report, has also audited the effectiveness of
Ciena Corporation’s internal control over financial reporting as of October 31, 2011, as stated in its report appearing under
Item 8 of Part II of this annual report.

/s/ Gary B. Smith

Gary B. Smith
President and Chief Executive Officer

December 22, 2011

/s/ James E. Moylan, Jr.

James E. Moylan, Jr.
Senior Vice President and Chief Financial Officer

December 22, 2011

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

PART III

Information relating to Ciena’s directors and executive officers is set forth in Part I of this annual report under the caption

Item 1. “Business—Directors and Executive Officers.”

Additional information concerning our Audit Committee and regarding compliance with Section 16(a) of the Exchange Act

responsive to this item is incorporated herein by reference to Ciena’s definitive proxy statement with respect to our 2012
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Form
10-K.

As part of our system of corporate governance, our board of directors has adopted a code of ethics that is specifically

applicable to our chief executive officer and senior financial officers. This Code of Ethics for Senior Financial Officers, as well
as our Code of Business Conduct and Ethics, applicable to all directors, officers and employees, are available on the corporate
governance page of our web site at http://www.ciena.com. We intend to satisfy any disclosure requirement under Item 5.05 of
Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics for Senior Financial Officers, by
posting such information on our web site at the address above.

Item 11. Executive Compensation

Information responsive to this item is incorporated herein by reference to Ciena’s definitive proxy statement with respect to

our 2012 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by
this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information responsive to this item is incorporated herein by reference to Ciena’s definitive proxy statement with respect to

our 2012 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by
this Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information responsive to this item is incorporated herein by reference to Ciena’s definitive proxy statement with respect to

our 2012 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by
this Form 10-K.

Item 14. Principal Accountant Fees and Services

Information responsive to this item is incorporated herein by reference to Ciena’s definitive proxy statement with respect to

our 2012 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by
this Form 10-K.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

1. The information required by this item is included in Item 8 of Part II of this annual report.

The information required by this item is included in Item 8 of Part II of this annual report.

Exhibits: See Index to Exhibits, which is incorporated by reference in this Item. The Exhibits listed in the
accompanying Index to Exhibits are filed or incorporated by reference as part of this annual report.

(b)

Exhibits. See Index to Exhibits, which is incorporated by reference in this Item. The Exhibits listed in the
accompanying Index to Exhibits are filed or incorporated by reference as part of this annual report.

(c)

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) 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 on the 22nd day of December 2011.

SIGNATURES

Ciena Corporation

By:

/s/ Gary B. Smith

Gary B. Smith

President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the Registrant and in the capacities and on the date indicated.

Signatures

Title

Date

/s/ Patrick H. Nettles, Ph.D.

Executive Chairman of the Board of Directors

December 22, 2011

Patrick H. Nettles, Ph.D.

/s/ Gary B. Smith

President, Chief Executive Officer and Director

December 22, 2011

Gary B. Smith
(Principal Executive Officer)

/s/ James E. Moylan, Jr.

James E. Moylan, Jr.
(Principal Financial Officer)

Sr. Vice President, Finance and Chief Financial
Officer

December 22, 2011

/s/ Andrew C. Petrik

Vice President, Controller

December 22, 2011

Andrew C. Petrik
(Principal Accounting Officer)

/s/ Stephen P. Bradley, Ph.D.

Director

December 22, 2011

Stephen P. Bradley, Ph.D.

/s/ Harvey B. Cash

Director

December 22, 2011

Harvey B. Cash

/s/ Bruce L. Claflin

Director

December 22, 2011

Bruce L. Claflin

/s/ Lawton W. Fitt

Director

December 22, 2011

Lawton W. Fitt

/s/ Patrick T. Gallagher

Director

December 22, 2011

Patrick T. Gallagher

/s/ Judith M. O’Brien

Director

December 22, 2011

Judith M. O’Brien

/s/ Michael J. Rowny

Director

December 22, 2011

Michael J. Rowny

corporate information

outside
board members

Stephen P. Bradley, Ph.D.
William Ziegler Professor of Business
Administration Emeritus
Harvard Business School

Harvey B. Cash
General Partner
InterWest Partners

Bruce L. Claflin
Chairman
AMD Corporation

Lawton W. Fitt
Retired Partner
Goldman Sachs

Patrick T. Gallagher
Chairman
Ubiquisys ltd.

Judith M. O’Brien
Business Advisor

Michael J. Rowny
Chairman
Rowny Capital

operating
executive officers

Patrick H. Nettles, Ph.D.
Executive Chairman of the
Board of Directors

Gary B. Smith
President, Chief Executive Officer
and Director

James E. Moylan, Jr.
Chief Financial Officer, Senior Vice
President, Finance

Stephen B. Alexander
Chief Technology Officer, Senior Vice
President, Products and Technology

Rick Dodd
Senior Vice President,
Global Marketing

James Frodsham
Senior Vice President,
Chief Strategy Officer

François Locoh-Donou
Senior Vice President,
Global Products Group

Philippe Morin
Senior Vice President, Global Field
Operations

Andrew Petrik
Vice President and Controller

David M. Rothenstein
Senior Vice President,
General Counsel and Secretary

corporate
headquarters

Ciena Corporation
1201 Winterson Road
linthicum, MD 21090-2205
Telephone: (800) 921-1144
or (410) 865-8500
www.Ciena.com

annual meeting
Ciena’s annual meeting of shareholders
will be held at 3:00 PM (Eastern) on
Wednesday, March 21, 2012 at The
Westin Baltimore Washington Airport,
1110 Old Elkridge landing Road,
Baltimore, MD

independent registered
public accounting firm
PricewaterhouseCoopers llP
Baltimore, MD

outside counsel
Hogan lovells US llP
Baltimore, MD

transfer agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Stockholder Inquiries: (781) 575-2879
www.Computershare.com

common stock market data
Since its initial public offering on
February 7, 1997, Ciena’s Common
Stock has traded on the Nasdaq Stock
Market under the symbol “CIEN”.

investor relations
For additional copies of this report or
other financial information, contact:
Investor Relations
Ciena Corporation
1201 Winterson Road
linthicum, MD 21090-2205
Telephone: (888) 243-6223
or (410) 694-5700

Additional information is available on
Ciena’s website at www.Ciena.com.

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1201 Winterson Road, linthicum, Maryland 21090-2205 (410) 865-8500 (800) 921-1144 ciena.com

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