Ciena Annual Report 2014

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FY2014 Annual Report · Ciena

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ANNUAL REPORT 2014

Differentiated performance

Normalized
Revenue

Normalized Non-GAAP
Gross Profit

Normalized Non-GAAP
Operating Profit

1.4

1.2

0.8

1.5

1.3

1.1

0.9

0.7

2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14

Ciena

Industry Average*

Ciena’s positioning has led to strong outperformance.

*Industry Average includes Alcatel-Lucent, Cisco, Ericsson, Juniper, Adtran, ADVA and Infinera based on indexed relative
performance representing the rate of change for each measure.

Source: Publicly available financial reports for companies included in the industry average.

Note: Ciena completed the acquisition of substantially all of the optical networking and Carrier Ethernet assets of Nortel’s+
Metro Ethernet Networks business on March 19, 2010.

A Letter from Gary B. Smith
President and Chief Executive Officer

Fiscal 2014 was another record year in
which we continued to generate differen-
tiated financial performance while deliv-
ering steady progress toward our longer
term strategic objectives and financial
targets. In particular, we strengthened
our platform for growth and increased
profitability by further diversifying our
business across network providers of
every type and in additional geographies.
And, our efforts continue to be rewarded
with increased market share and more
recognition of our technology leadership
by the industry. We believe that we have
the momentum to address the strategic
needs of the market for years to come.

Driving the Market Evolution

For the last several years, we have been designing our
business based on our expectations that the industry
would evolve toward cloud and on-demand networking.
The market is now clearly heading in this direction. In
fact, the cloud has hastened the shift toward on-demand
networking to the point where it is the principal driver in
the network architecture evolution, which is causing
traditional network domains to be viewed differently.

More specifically, domains that have historically been
referred to as core and metro are evolving to a simpler
topology that reflects more cloud-centric usage—
connecting users to their data, which we refer to
as Content-to-User, and connecting data centers
together, which we refer to as Content-to-Content. Our
OPn network architecture that we announced three
years ago not only aligns well with this shift, it also is
serving to facilitate this evolution for our customers.

Expanding Our Opportunities

Diversification is a key pillar to our growth and leverage
going forward, and we are addressing a comprehensive
set of opportunities. During the past few years we have
steadily increased our revenue from non-telecommuni-
cations customers, including cable operators (Multi-
Service Operators), Web-scale providers and others,
who drove a combined 30+ percent revenue contribu-
tion in the fourth quarter of fiscal 2014.

This diversification strategy, combined with our histori-
cal strength in the service provider market, allows us to
address both Content-to-Content and Content-to-User
opportunities. The primary owners of the Content-to-
User domain are service providers, which have invested
billions of dollars to build and manage networks that
deliver content to their customers—whether they are
enterprise, mobile or residential. Web-scale providers,
including providers of search, social networking

ANNUAL REPORT 2014

Next-gen networking market share

Next-Gen Networking1
North America

Next-Gen Networking1
Global

35%

30%

25%

20%

15%

10%

30%

25%

20%

15%

10%

1H12

2H12

1H13

2H13

1H14

1H12

2H12

1H13

2H13

1H14

CIENA

FUJITSU

ALU

CORIANT
(TELLABS)

INFINERA

CISCO

ZTE

HUAWEI

Our focused innovation has resulted in strong share gains.

Source: Dell’Oro Group, 2Q14 Optical Report.
1. Long-haul WDM + metro WDM + optical switching.

ANNUAL REPORT 2014

Over the years we have taken deliberate steps to invest
strategically in the business, enhance our positioning
and extend our leadership. From evolving our go-to-
market strategies to product advancements, these
investments continue and our resulting progress is clear.

and web services, as well as other emerging
network operators such as data center and Ethernet
exchange operators, are also critical players in this
evolving ecosystem as they assume a lead role in
connecting content across data centers (the Content-
to-Content domain).

Ciena is uniquely positioned to serve both of these
network domains, and our position in each area is
market leading. In November 2014, Infonetics released
its global 2014 Service Provider Vendor report in which
Ciena was again named the overall #1 optical supplier,
taking the leading spots for Packet-Optical Systems,
Optical Transport and Switching, and Transport SDN
and Control Plane. And, in January 2015, in what we
believe is the first survey covering the Web-scale
market, Ovum identified Ciena as the market leader in
the Data Center Interconnect market in North America.
It is important to note that in addition to our direct
sales to this customer segment, Web-scale providers
buy enormous amounts of network capacity from
Ciena’s traditional top tier service provider and
submarine customers, making our total Web-scale
position even more market leading.

Clearly, Web-scale is not just a market; it’s a demand
driver. And as the cloud ecosystem develops, the roles
of service providers and the Web-scale community are
increasingly interdependent and dynamic. To build the
global, on-demand environment that the cloud
requires, you must be working closely with both global
Tier 1 service providers and the major Web-scale
players. Ciena’s leading position with both sets of

buyers gives us a unique competitive advantage in
building out global, on-demand networks for the
cloud in 2015, and over the long term.

Our Investments Continue to Yield Results

Over the years we have taken deliberate steps to invest
strategically in the business, enhance our positioning and
extend our leadership. From evolving our go-to-market
strategies to product advancements, these investments
continue and our resulting progress is clear.

In 2014 we established a number of new relationships.
We entered into a strategic global partnership with
Ericsson that includes the distribution of our packet-
optical solutions—as well as other initiatives. We also
developed new relationships with a number of key
international customers, such as TeliaSonera and a Tier 1
operator in Brazil. And we expanded our relationships
with Vodafone and Liberty Global, the largest Multi-
Service Operator outside of North America. An out-
come of these efforts as well as many others was a 12
percent increase in absolute dollars of our international
revenue in fiscal 2014, which demonstrates our success
in growing our business globally.

We also made great strides with our portfolio, includ-
ing the launch of a completely new Ethernet platform
as well as a new set of software solutions, both of
which expand our addressable markets and, we
believe, bolster our leadership position.

Three months after announcing our 8700 Packetwave
Platform, the product received top honors in Broadband

ANNUAL REPORT 2014

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Strong momentum in performance and growth

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2,500

2,000

1,500

1,000

500

FY2010*

FY2011

FY2012

FY2013

FY2014

Revenue
Adjusted operating margin

-1

-2

-3

Technology Report’s 2014 Diamond Innovation
Awards. As of January 2015, we already had eleven
customers for the platform, which is squarely aimed
at addressing the growth in metro and data center
networking opportunities.

The newest addition to our portfolio, Agility Matrix,
demonstrates our commitment to approaches and
architectures that are more flexible and software-
enabled. We have established Agility, a new division,
to underpin this strategic technology focus that drives
both our innovation and go-to-market strategy in this
area. At its core, we believe Agility Matrix is game-
changing with a set of solutions that includes a Virtual
Network Functions (VNF) online marketplace as well
as network-level applications. Working with several
major software partners, Ciena is championing the
open ecosystem for the cloud—transforming raw
capacity into capability that delivers on-demand
network-based services. All of these steps allow our
customers to offer a broader array of on-demand
services to their end customers.

A Strong Finish

As we look back on fiscal 2014, it is clear that our unique
strategy and leadership continued to translate into
strong financial results. We gained market share and
grew the top line by 10 percent. Moreover, we delivered
profitable growth. Our adjusted operating margin was
6.5 percent, reflecting a 28 percent increase in our
adjusted operating profit.

This progress could not have been achieved without
the support of our ecosystem. As always, many
thanks go to our customers, partners, employees and
stakeholders. We look forward to another prosperous
year together.

Gary B. Smith
President and Chief Executive Officer

* Ciena completed the acquisition of substantially all of the optical networking and Carrier Ethernet assets of Nortel’s+ Metro Ethernet Networks busi-
ness on March 19, 2010.

ANNUAL REPORT 2014

10-K
Ciena Corporation

UNITED 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, 2014

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)

7035 Ridge Road, Hanover, MD

(Address of principal executive offices)

23-2725311

(I.R.S. Employer

Identification No.)

21076

(Zip Code)

(410) 694-5700
(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

New York Stock Exchange

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 $2.0 billion based on the
closing price of the Common Stock on the New York Stock Exchange on May 2, 2014.

The number of shares of Registrant’s Common Stock outstanding as of December 12, 2014 was 106,985,271.

Part III of the Form 10-K incorporates by reference certain portions of the Registrant’s definitive proxy statement for its 2015 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, 2014

TABLE OF CONTENTS

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

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

Index to Exhibits

PART IV

Page

100

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 “Business,” “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this annual report.

Item 1. Business

Overview

We are a network specialist focused on communications networking solutions that enable converged, next-generation
architectures, optimized to create and deliver the broad array of high-bandwidth services relied upon by business and consumer
end users. We provide equipment, software and services that support the transport, switching, aggregation, service delivery and
management of voice, video and data traffic on communications networks. These solutions enable network operators to adopt
software-programmable network infrastructures that offer the on-demand experience required by end users of services and
applications. At the same time, these solutions yield business and operational value for network operators.

Our Converged Packet Optical, Packet Networking, Optical Transport and Software products are used, individually or as
part of an integrated solution, in networks operated by communications service providers, cable operators, Web-scale providers,
governments, enterprises, research and education institutions and other network operators across the globe. Our products allow
network operators to scale capacity, increase transmission speeds, allocate network traffic and adapt to changing end-user
demands through rapid service creation and delivery. Our solutions also include network management and control software and
network-level software applications that facilitate automation and efficient service delivery. To complement our hardware and
software solutions, we offer a broad range of network transformation solutions and related support services that help our
customers design, optimize, deploy, manage and maintain their networks.

The rapid proliferation of communications services and devices, together with increased mobility and growth in cloud-
based services, have fundamentally affected the demands placed upon communications networks and how they are designed.
Network operators also face a rapidly changing business environment that includes a shifting competitive landscape and
challenges to existing business models. Our OPn Architecture, and the increased network scalability, flexibility and
programmability that it enables, is designed to meet these challenges. Our OPn network approach allows for network-level
software applications to control and configure the network dynamically, while flexible interfaces integrate computing, storage
and network resources. This approach enables highly configurable infrastructures that can meet the "on-demand" requirements
of end-users and the changing services they rely upon. By enhancing software programmability and control, enabling network
functions virtually, and reducing required network elements, our OPn approach optimizes network infrastructures to connect
content data centers, and users to such content. At the same time, our approach creates business and operational value for our
customers by increasing scale at reduced cost and facilitating rapid introduction of new, revenue-generating service offerings.
Our OPn Architecture, which underpins our solutions offering and guides our research and development strategy, is described
more fully in “Strategy” below.

Certain Financial Information and Segment Data

We generated revenue of $2.3 billion in fiscal 2014, as compared to $2.1 billion in fiscal 2013. 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. We organize our operations into four separate operating segments:
“Converged Packet Optical,” “Packet Networking,” “Optical Transport,” and “Software and Services.” See Note 20 to the
Consolidated Financial Statements found in Item 8 of Part II of this annual report.

The matters discussed in this “Business” section should be read in conjunction with the Consolidated Financial Statements

found in 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.

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 7035 Ridge Road, Hanover, Maryland 21076. Our telephone number is (410)
694-5700, and our website address is www.ciena.com. We make our annual reports on Form 10-K, quarterly reports on Form
3

10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge in the "Investors" section of our
website as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission (the "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 website is not a part of this annual report.

Industry Background

The markets in which we sell our communications networking solutions have been subject to significant changes in recent
years, including rapid growth in network traffic, technology convergence, increased mobility, and evolving cloud-based service
offerings and end-user demands. These conditions have created market opportunities and challenges that have impacted how
networks are designed, as well as the competitive landscapes of network operators and the vendors that support them. Existing
and emerging network operators are competing to distinguish their service offerings and rapidly introduce differentiated,
revenue-generating services. At the same time, network operators continue to seek to manage the costs of their network and to
ensure a profitable business model. These dynamics are driving technology convergence of network features, functions and
layers, virtualization of certain network functions, and the adoption of software-based network control and programmability.
We believe that these dynamics, and the need to adapt to changing business conditions, are creating an environment that will
cause network operators to adopt infrastructures that are more open, programmable and automated. We also believe that these
conditions will require vendors and network operators to leverage an open ecosystem of virtualized resources provided by a
variety of third parties and will drive increased openness and interoperability of network infrastructures.

Network Traffic Growth Driving Increased Capacity Requirements and 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. Increasing network traffic is being driven by growing use of, and
reliance upon, a broad range of bandwidth-intensive communications services by consumer and business end users. Mobile
applications, including applications related to Internet, video and data services that have expanded along with the proliferation
of smartphones, tablets and other wireless devices are further increasing network traffic. Business customers are increasingly
dependent upon enterprise services and data center connectivity that facilitate global operations, employee mobility and access
to critical business applications and data, including by way of cloud-hosted services. At the same time, network traffic growth
is being driven by consumer-oriented applications and adoption of mobile and broadband technologies. These include peer-to-
peer Internet applications, video services, multimedia downloads and cloud-based consumer services. We believe that this
traffic growth will require network operators to adopt higher capacity networks with increased transmission speeds, particularly
in metro service aggregation and switching applications.

Transition to Software-Defined Programmable Network Architectures

We expect that end-user reliance upon a broadening mix of data and video communications services, together with their

expectation of an on-demand network experience, will require upgrades to existing wireline and wireless network
infrastructures. These factors, together with network operators' increased focus on controlling the cost of the networks, are
driving a transition from static, purpose-built networks to programmable network infrastructures controlled by software. By
leveraging software programmability, network operators can adapt more quickly to changing end-user demands, provide
network functions on demand through virtual platforms, and enable more efficient service delivery. This transition in how
networks are designed and implemented can also enable network operators to improve the economics of their networks by
accelerating service creation and delivery, reducing reliance upon function-specific hardware elements and addressing power
and space considerations.

Changes Impacting our Network Operator Customers

We believe the following are illustrative of the shift toward on-demand networking requirements and the changes

impacting the design and adoption of next-generation network infrastructures.

•

“Cloud” Services. Cloud services are characterized by the sharing of remotely hosted computing, storage and network
resources across a network to improve economics through higher utilization of networked elements. Prevalent cloud-
based services include Platform as a Service (PaaS), Software as a Service (SaaS) and Infrastructure as a Service
(IaaS). Through cloud-based arrangements, smaller enterprises and consumers can subscribe to an expanding range of
services to replace local computing and storage requirements. Larger enterprises and data center operators can use
private clouds to consolidate their own resources and public clouds to accommodate peak demand situations,
sometimes in combination. Today, infrastructures exist to dynamically allocate centralized storage and computing

resources from the cloud to end users. As a result, network architectures must be capable of adapting in real time to
changing capacity requirements and locations.

• Mobility. Smart mobile devices and tablets that deliver integrated voice, audio, photo, video, email and mobile Internet
capabilities are rapidly changing the services and data traffic carried by wireless networks. Because most wireless
traffic ultimately travels over a wireline network in order to reach its destination, growth in mobile communications
continues to place demands upon wireline networks. As a result, network architectures must be able to scale capacity
cost effectively and to adapt to address a changing mix of end user services.

•

Network Virtualization. Virtualization is the decoupling of physical IT or communications assets from the services or
capabilities they can provide. These virtualization principles, previously applied to computing and storage resources,
now are being applied to communications networks. Network operators are seeking to virtualize costly, single-function
or dedicated network appliances, such as firewalls and wide area network (WAN) accelerators, by deploying their
functionality virtually over centralized, generic servers. This is sometimes called "network function virtualization" or
"NFV." We believe that virtualization of network elements can reduce cost, add network flexibility and put a greater
emphasis on the value of network connectivity.

Over-the-Top (OTT) Content. Over-the-Top (OTT) content refers to video, television and other services delivered
directly from the content provider to the viewer or end user. These services are delivered and Internet connection
provided by a network operator different from the content provider. OTT content is imposing significant demands
upon the infrastructures of communications service providers and multi-service operators as bandwidth-intensive
traffic associated with this content continues to grow. At the same time, providers of OTT content are challenging the
business models of such network operators as some end-users perceive significant value in the OTT content or service,
whereas in the past, such end users were more focused on the value of the connectivity.

• Machine-to-Machine (M2M) Applications. As the number of networked connections between devices and servers
grows, M2M-related traffic is expected to represent an increasing portion of Internet traffic. Today, we are seeing
growth in device-to-device connection requirements. In addition to increasing network capacity requirements, this
trend also dramatically increases the complexity of connectivity and the number of connections the network must
accommodate and manage. These connections provide value-added services and allow users to share data that can be
monitored and analyzed by applications residing on various devices. 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.

Strategy

Our corporate strategy to capitalize on these market dynamics, promote operating efficiency and leverage, and drive the

profitable growth of our business includes the following initiatives:

Promotion of Our OPn Architecture. Our OPn Architecture enables a programmable infrastructure that brings together the

reliability and capacity of optical networking with the flexibility and economics of packet networking technologies. Our OPn
Architecture leverages this convergence to enable network operators to scale their networks efficiently and cost effectively,
while applying advanced software-based network control and network-level software applications for enhanced
programmability. The software-driven aspects of this architecture become increasingly important as network operators
increasingly seek to leverage an open ecosystem of virtualized resources to enable the real-time analytics and network agility
required for on-demand, next-generation network architectures. We see opportunities in offering a portfolio of OPn Architecture
solutions that facilitate the transition to these next-generation networks and that are optimized to create new services rapidly
and meet end-user demands.

Research and Development Investment to Expand the Role and Application of Our Solutions. Our product development
initiatives are focused on opportunities that enable Ciena to expand its role in customer networks and to address a more diverse
set of network applications. We are investing in our OPn Architecture with current development efforts focused on expanding
high-capacity service delivery capabilities in our Packet Networking and Converged Packet Optical products for metro
networks, data center interconnectivity and wide area network applications. Our research and development efforts also seek to
extend our existing technologies, including our WaveLogic coherent optical processor for 200G and 400G optical transport, and
to introduce one Terabit and greater transmission speeds. In the packet area, we are increasing the scale, density and capability
of our packet offerings, and improving power and space considerations, for applications in metro networks, user aggregation
and data center connectivity. In the software area, we are focusing on Agility Matrix, our network function virtualization (NFV)

solution, in order to provide virtual network functions in managed service applications. We are also focused on increasing
programmability and software control of networks. These efforts include our joint initiative with Ericsson to develop an
expanded software-defined networking (SDN) multilayer WAN controller that spans network layers, as well as Ciena's direct
efforts to develop software-based networking control platforms and network-level software applications.

Go-to-Market Model to Expand Our Role and Reach. Our go-to-market model is focused on driving sales growth from the
diversification of our business and further penetrating additional customer verticals and international markets. We are focused
on further penetrating Internet content providers, data center operators and other emerging network operators that form the
"Web-scale" marketplace, and who are changing the ways in which information and services are accessed and provided. To
expand the geographic reach of our direct sales resources, we have pursued strategic channel opportunities that enable sales
through third parties, including service providers, systems integrators and value-added resellers. Through the packet-optical
resale element of our strategic relationship with Ericsson, we are seeking to expand our geographic reach, as well as the
application of our products in customer networks. We also remain focused on expanding the application of our products by
existing customers, including communications service provider customers and cable and multiservice operators. These sales
efforts seek opportunities for our our solutions in applications including metro aggregation, data center interconnectivity,
managed services offerings, cloud-based services, business Ethernet services and mobile backhaul.

Business optimization to yield operating leverage. We are actively pursuing initiatives to improve our gross margin,
constrain operating expense and redesign certain business processes, systems, and resources. These initiatives include portfolio
optimization and engineering efforts to drive improved efficiencies in the design and development of our solutions and
procurement initiatives to consolidate vendors and ensure that our cost model remains ahead of market-based price erosion. We
are also focused on transforming our supply chain, including efforts to reduce our material and overhead costs, reduce customer
lead times and improve inventory management and logistics. Our initiatives also include significant investments in the re-
engineering of company-wide enterprise resource planning platforms, improved automation of key business processes and
systems, and the off-shoring of certain business functions. We seek to leverage these initiatives to promote the profitable
growth of our business and to drive additional operating leverage.

Customers and Markets

We sell our product and service solutions, through direct and indirect sales channels, to 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. 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 wireline 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, WAN
consolidation, data center and inter-site connectivity, wireless backhaul and business Ethernet services.

Cable & Multiservice Operators (MSO)

Our customers include leading cable and multiservice operators in the United States and internationally. Our cable and
multiservice operator customers rely upon us for carrier-grade, Ethernet transport and switching products and high-capacity
coherent optical transport. Our platforms allow cable operators to integrate voice, video and data applications over a converged
infrastructure and to 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.

Web-scale Providers

Our customers include a diverse range of Internet content providers focused on applications such as search, social media,
video, real-time communications and cloud-based offerings to consumers and enterprises. Customers within this segment also
include data center operators and other emerging network operators that are often focused on virtualized infrastructure and
Ethernet exchanges. These customers are sometimes collectively included in a customer segment referred to as "Web-scale"
providers. These customers often require massive scale, low latency, reliability and performance to interconnect critical data
centers and connect end users to network resources and content.

Enterprise

Our enterprise customers include large, multi-site commercial organizations, including participants in the financial, health

care, transportation, utilities and retail industries. 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, cloud computing,
business Ethernet services, business continuity, online collaboration, video conferencing, 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 (R&E)

Our government customers include federal and state agencies in the United States as well as international government

entities. Our R&E customers include research and education institutions in the United States and abroad, as well as
communities or consortia including leaders in research, academia, industry and government. Customers in this segment seek to
take advantage of technology innovation, improve their information infrastructure and facilitate increased collaboration. Our
solutions feature ultra-high capacity required to meet the requirements of supercomputing systems, as well as network
assurance and security features required by customers in this segment.

Products and Services

Our product portfolio consists of our Converged Packet Optical, Packet Networking and Optical Transport products. Our
product offering also includes a suite of software solutions that unify our product portfolio and provide automation, software-
defined management and control features, and NFV to enable efficient service delivery. These products, together with our
network transformation solutions and support services offerings, allow us to offer customers comprehensive solutions to
address their communications network priorities.

Converged Packet Optical

Our Converged Packet Optical portfolio includes networking solutions optimized for the convergence of coherent optical

transport, OTN switching and packet switching.

Utilizing our coherent optical transport technology, our 6500 Packet-Optical Platform provides a flexible, scalable dense

wavelength division multiplexing (DWDM) solution that adds capacity to core, regional and metro networks and enables
efficient transport at high transmission speeds. Our 6500 Packet-Optical Platform features our WaveLogic coherent optical
processors. We now have the third generation of our custom silicon chipset in the market. WaveLogic facilitates deployment
over existing fiber plant (terrestrial and submarine), scales capacity to 40G, 100G and greater transmission speeds, and
minimizes the need for certain network equipment, such as amplifiers, regenerators and dispersion compensating devices. Our
6500 Packet-Optical Platform also includes certain integrated switching elements, addressing market demand for converged
network features, functions and layers to drive more robust and cost-effective network infrastructures. This platform, which
includes several chassis sizes and a comprehensive set of line cards, can be utilized from the customer premises to the
metropolitan/regional core, where the need for high capacity and carrier-class performance is essential.

Our Converged Packet Optical portfolio also includes products that provide packet switching capability to allocate network

capacity efficiently and enable rapid service delivery. Our 5430 Reconfigurable Switching System includes 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. These platforms flexibly
support a mix of Carrier Ethernet/MPLS, OTN, WDM, and SONET/SDH switching to facilitate the transition to a service-
enabling infrastructure. Our CoreDirector® Multiservice Optical Switch and 5430 Reconfigurable Switching System offer
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 and IP
services.

Packet Networking

Our Packet Networking products allow customers to deliver new, revenue-generating services to consumer and enterprise

end users. 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 to deliver business data

services. As a key element of our OPn Architecture, our Packet Networking products facilitate network simplicity and cost
effectiveness, including reduced costs associated with power and space, as compared to traditional IP routing network designs.
Our Packet Networking products also enable a flexible and open architecture that reduces the complexity of growing networks
and enables network infrastructures to adapt to new service demands of end users.

During fiscal 2014, we introduced our 8700 Packetwave platform, a multi-terabit packet switching platform for high-
density metro networks and inter-data center wide area networks. The 8700 combines high-capacity Ethernet switching and
optical transport technologies from both data center networks and metro networks, to help network operators rapidly deliver
cloud-based services, streaming video, and Internet content distribution, efficiently aggregate users, and provide express
connections to data centers. By increasing the density of traffic carried, while reducing power and space requirements, the 8700
also enables network operators to reduce capital and operating expense associated with their networks and to simplify service
management and enablement.

To date, revenue relating to our Packet Networking segment has been primarily related to our 3000 family of service
delivery switches and service aggregation switches, and our 5000 family of service aggregation switches. Our 3000 and 5000
families support the access and aggregation tiers of communications networks and have principally been deployed to support
business data services and wireless backhaul infrastructures. Employing sophisticated, carrier-grade 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.

Optical Transport

Our Optical Transport products include stand-alone WDM and SONET/SDH-based optical transport solutions that add
capacity to core, regional and metro networks and enable cost-effective and efficient transport of voice, video and data traffic at
high transmission speeds. The products in this segment principally include the 4200 Advanced Services Platform, Corestream®
Agility Optical Transport System, 5100/5200 Advanced Services Platform, Common Photonic Layer (CPL) and 6100
Multiservice Optical Platform. Our Optical Transport portfolio includes our traditional 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.

Software and Services

Agility Software Portfolio

During fiscal 2014, we launched our Agility software portfolio and established a team of dedicated resources focused on
the development of network control platforms and network-level software application technologies that enable an on-demand
user experience. This portfolio includes the recently introduced Agility Matrix, our network functions virtualization (NFV)
solution for the acquisition and distribution of virtualized network functions (VNF) in managed service applications. This
portfolio also includes an expanded SDN multilayer WAN controller, being jointly developed with Ericsson, that spans network
layers, our Navigate multilayer path computation engine and network-level software applications that enable WAN services
over an open network ecosystem. Our V-WAN application provides service providers the tools to offer enterprise, content
provider, and cloud services to end users in a more automated and self-service oriented manner. Our other Agility network-level
software applications, including Protect and Optimize, enable network operators to improve reliability, to allow for more rapid
network restoration, and to better monetize cloud-based services. Certain solutions relating to this portfolio are in early stage
development, or have only recently been announced, and therefore no revenue relating to this portfolio was recognized in fiscal
2014.

Network Management and Planning Software

Our integrated software offering includes network management and control solutions and planning tools. Our OneControl

Unified Management System is an integrated network and service management offering that unifies our product portfolio,
provides automated management features and enables efficient service delivery. Our network management tools offer a
comprehensive set of functions, from monitoring network performance and provisioning the network, to full service-level
management across a variety of network layers and domains. These software solutions track individual services across multiple
product suites and facilitate network maintenance and outage detection. This robust, service-aware framework improves
network utilization and availability, while delivering enhanced performance monitoring and network reliability. Our software
suite also includes Ciena OnePlanner, a suite of planning tools that helps network operators utilize their networks more
efficiently, and our ON-Center® Network & Service Management Suite, Ethernet Services Manager, Optical Suite Release and
network level applications.

Ciena Specialist Services

To complement our product portfolio, we offer a broad range of 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 from our competitors.
We believe that our services offering and our close collaborative engagement with customers provide us with valued insight
into network and business challenges faced by our customers, enabling them to modernize and gain value from their network
infrastructures. Our services offerings enable us to work closely with our customers in the assessment, planning, deployment,
and transformation of their networks. We believe that our customers place significant value on the strategic, consultative
engagements afforded by our services offering and on our ability to partner with them through services-oriented solutions that
address their network and business needs on an individualized basis.

Our services and support portfolio includes the following offerings:

•

Network transformation solutions, including:

Network analysis, planning and design; and
Network optimization, migration, modernization, monetization and assurance services.

• Maintenance and support services, including:

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

•
•
•
•

Deployment services, including turnkey installation and turn-up and test services;
SDN and NFV-related services including network audit and solution integration and migration support;
Network management and operations center services; and
Project management services, including staging, site preparation and installation support activities.

We provide these services using a combination of Ciena resources and qualified third party service partners.

Product Development

Our industry is subject to rapid technological developments, emerging service delivery requirements and shifts in customer

and end-user network demand. To remain competitive, we must continually enhance our product platforms and add new
features and functionality to ensure alignment with these changing dynamics. Our research and development strategy has been
to enable scalable, software-configurable network infrastructures that can dynamically enable service delivery and provide an
on-demand end-user experience. Our OPn Architecture, which underpins our solutions offering and guides our research and
development strategy, leverages the convergence of optical and packet technologies to increase network scale cost effectively,
while emphasizing software-enabled programmability, automation and open interfaces. Our product development initiatives
include design and development work intended to address growing opportunities for the application of our solutions, such as
metropolitan networks, data center interconnectivity, enterprise networking, and packet-based infrastructure solutions for high-
capacity cloud-based service delivery. To address these opportunities and promote our OPn Architecture network vision, our
current development efforts are focused upon:

•

Developing products that increase software-based network control, including:

SDN multi-layer WAN controller;
network level applications that automate various network functions, support new service introduction and
monetize network assets; and
platforms that enable virtualization of network features or functions traditionally supported by hardware
elements.

•

Enhancing and extending our Packet-Optical and Packet Networking solutions, including:

Extending our leadership in coherent transport platforms, at 40G, 100G, and 400G;
Continued development of our WaveLogic coherent optical processor to improve network capacity,
transmission speed, spectral efficiency and reach; and
Expanding packet networking capabilities and features for our high-capacity Ethernet aggregation switches,
for metro and service aggregation applications, mobile backhaul and business Ethernet services;

•

Designing products that enable network operators to achieve improved cost and efficiency, including with respect to
power, space and cost per bit.

Our research and development efforts are also geared toward portfolio optimization and engineering changes intended to drive
cost reductions across our platforms.

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

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, and embedded operating system and network management
software. Our research and development expense was $364.2 million, $383.4 million and $401.2 million, for fiscal 2012, 2013
and 2014, respectively. 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

Within our global field organization, we maintain a direct sales presence that is organized geographically around the
following markets: (i) United States and Canada; (ii) Caribbean and Latin America; (iii) Europe, Middle East and Africa; and
(iv) Asia-Pacific. Within each geographic area, we may maintain specific teams or personnel that focus on a particular region,
country, customer or market vertical. These teams include sales management, account salespersons, and systems engineers, as
well as services and commercial management personnel, who ensure we operate closely with and provide a high level of
support to our customers.

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 include the packet-optical resale
element of our strategic relationship with Ericsson. We intend to pursue and foster targeted 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 and cloud-based services. We see opportunities to leverage our
strategic channel relationships to address additional customer segments, additional applications for our solutions and growth
geographies. We believe this strategy and our use of third party channels afford us expanded market opportunities and reduce
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 our brand as well as 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, elements of our global products group team also address component sourcing, product
testing and quality, fulfillment and logistics relating to our sales, support and professional services, and distribution efforts.

We utilize a global sourcing strategy that emphasizes procurement of materials and product manufacturing in lower cost

regions. We rely upon third party contract manufacturers, with facilities in Canada, Mexico, Thailand and the United States, to
perform the manufacturing of our products. We also rely upon these contract manufacturers and other third parties to perform
design and prototype development, component procurement, full production, final assembly, testing and customer order
fulfillment. Our manufacturers procure components necessary for assembly and manufacture of our products based on our
specifications, approved vendor lists, bills 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 may incur carrying charges or obsolete material charges for components purchased by
our manufacturers that are not ultimately used. 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.

We are currently utilizing a direct order fulfillment model for the sale of certain products, and are engaged in initiatives to

expand this model to a broader set of products. This model allows us to rely on our third party contract 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 system 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, design
and engineering efforts, rationalizing our supply chain and consolidating distribution sites and service logistics partners. These
efforts also include process optimization and initiatives, such as vendor-managed inventory models, to drive improved
efficiencies in our sourcing, logistics and fulfillment.

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 our
products and services, although both cancellation and non-acceptance are 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 decreased from $1.0 billion as of October 31, 2013 to $824 million as of October 31, 2014. Reduced backlog
levels as of the end of fiscal 2014 are not unexpected and reflect, in part, the continued diversification of our customer base to
include Web-scale providers and other network operators requiring shorter lead times to support the on-demand requirements of
their end users, and the impact of an increasing portion of quarterly revenue related to orders placed and converted to revenue
during the same quarter. Backlog includes product and service orders from commercial and government customers combined.
Backlog at October 31, 2014 includes approximately $180 million primarily related to orders for maintenance and support
services, that are not expected to be filled within fiscal 2015. Backlog at October 31, 2013 included approximately $167
million primarily related to orders for maintenance and support services, that were not expected to be filled within fiscal 2014.
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 typically experience reductions in order volume toward the end of the calendar year, as the procurement
cycles of some of our customers slow and network deployment activity by service providers is curtailed. This seasonality in our
order flows can result in somewhat weaker revenue results in the first quarter of our fiscal 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 technologies, introduction of new networking solutions and intense selling efforts to
displace incumbent vendors and to capture 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 of our solutions;
incumbency and existing business relationships;

•

ability to offer comprehensive networking solutions, consisting of equipment, software and network consulting
services;
product development plans and the ability to meet customers' immediate and future network requirements;
flexibility and openness of platforms, including ease of integration, interoperability and integrated management;

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

services and support capabilities.

In this intense and fragmented competitive environment, securing new opportunities often requires that we agree to unfavorable
commercial terms or pricing and other onerous contractual commitments that place a disproportionate allocation of risk upon us
as the vendor. These terms can adversely affect our results of operations.

Competition for sales of communications networking solutions is dominated by a small number of very large, multi-
national companies. Our competitors include Alcatel-Lucent, Cisco, Fujitsu, Huawei, Juniper Networks, 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. We expect our competitive landscape to broaden and competition to
increase as network technologies, features and layers continue to converge and networks come under unified software
management and control. As these changes occur, and requirements for software programmability and network function
virtualization increase, we expect to compete with a broader group of vendors offering their own network architectural
approaches. We expect that we may increasingly compete with IP router vendors, system integrators and information
technology and software vendors, as well as suppliers of networking technology traditionally geared toward different network
users, layers or functions.

We also continue to 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, Cyan, Coriant, ECI, Infinera, RAD 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 is significantly dependent upon our proprietary and internally
developed technology. We rely upon the intellectual property protections afforded by patents, copyrights, trademarks, and trade
secret laws to establish, maintain and enforce rights in our proprietary technologies and product branding. We maintain an
invention incentive program that seeks to reward innovation and an invention review board that selects appropriate protection
mechanisms for our technology. We 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, 2014, we had 1,466 issued U.S. patents, 209
pending U.S. patent applications and over 459 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 their 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
these persons maintain the confidentiality of all proprietary information disclosed to them.

Enforcing proprietary rights, especially patents, can be costly and we cannot be certain that the steps that we are taking will

detect or prevent all unauthorized use. The industry in which we compete is characterized by rapidly changing technology, a
large number of patents, and frequent claims and related litigation regarding patent and other intellectual property rights. We
have been subject to several claims related to patent infringement, including by competitors and by non-practicing entities or
"patent trolls," and we have been requested to indemnify customers pursuant to contractual indemnity obligations relating to
infringement claims made by third parties. Intellectual property infringement assertions could cause us to incur substantial
costs, including settlement costs and legal fees in the defense of related actions. If we are not successful in defending these
claims, our business could be adversely affected. For example, we may be required to enter into a license agreement requiring
us to make ongoing royalty payments, we may be required to redesign our products or we may be prohibited from selling any
infringing technology in certain jurisdictions.

Our operating system, element and network management and control software and other solutions incorporate software and

components under licenses from third parties, including software subject to various open source software licenses. As network
requirements for increased software programmability increase, and we continue to advance our OPn Architecture through the
development and sale of network level applications, we may be required to incorporate open source software or license
additional technology from third parties in order to develop new products or product enhancements. Failure to obtain or
maintain such licenses or other third party intellectual property rights could affect our development efforts, or could require us
to re-engineer our products or to obtain alternate technologies. Moreover, there is a risk that open source licenses could be
construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products.

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 are also subject to disclosure and related
requirements that apply to the presence of "conflict minerals" in our products or supply chain. 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, 2014, we had a global workforce consisting of 5,161 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.

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

James A. Frodsham

François Locoh-Donou
Philippe Morin

James E. Moylan, Jr.

Andrew C. Petrik

David M. Rothenstein

Harvey B. Cash (1)(3)

Bruce L. Claflin (1)(2)

Lawton W. Fitt (2)

T. Michael Nevens (2)

Judith M. O’Brien (1)(3)

Michael J. Rowny (2)

Patrick T. Gallagher (1)(3)

Age

Position

71 Executive Chairman of the Board of Directors

54 President, Chief Executive Officer and Director

55 Senior Vice President and Chief Technology Officer

48 Senior Vice President and Chief Strategy Officer

43 Senior Vice President, Global Products Group

49 Senior Vice President, Global Field Organization

63 Senior Vice President, Finance and Chief Financial Officer

51 Vice President and Controller

46 Senior Vice President, General Counsel and Secretary

76 Director

63 Director

61 Director

64 Director

59 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. Claflin, Nevens and Gallagher in 2015; Ms. Fitt,

Dr. Nettles and Mr. Rowny in 2016; and Ms. O’Brien and Messrs. Cash and Smith in 2017; .

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 of Directors 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 has previously served on the board of directors of Apptrigger, Inc., formerly
known as Carrius Technologies, Inc., and on the board of directors of Optiwind Corp, a privately held company

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 boards 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 & Data Networking.

James A. 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
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. 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, including 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 Organization 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.

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.

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 boards 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 and Chairman of its
Nominating and Governance Committee.

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 boards of
directors of The Carlyle Group LP and The Progressive Corporation, and she has previously served on the boards of directors
of Thomson Reuters, Overture Acquisition Corporation and Frontier Communications Company.

T. Michael Nevens has served as a Director of Ciena since February 2014. Since 2006, Mr. Nevens has served as senior
adviser to Permira Advisers, LLC, an international private equity fund. From 1980 to 2002, Mr. Nevens held various leadership
positions at McKinsey & Co., most recently as a director (senior partner) and as managing partner of the firm’s Global
Technology Practice. He also served on the board of the McKinsey Global Institute, which conducts research on economic and
policy issues. Mr. Nevens is a member of the Advisory Council of the Mendoza College of Business at the University of Notre
Dame, where he has been an adjunct professor of Corporate Governance and Strategy. Mr. Nevens also serves on the boards of
directors of NetApp, Inc., Altera Corporation, and Active Video Networks, Inc., a privately held company.

Judith M. O’Brien has served as a Director of Ciena since July 2000. Since November 2012, Ms. O'Brien has served as a
partner and head of the Emerging Company Practice Group at the law firm of King & Spalding. Ms. O’Brien served as
Executive Vice President and General Counsel of Obopay, Inc., a provider of mobile payment services, from November 2006
through December 2010. From February 2001 until October 2006, Ms. O’Brien served as a Managing Director at Incubic
Venture Fund, a venture capital firm. From August 1980 until February 2001, 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 serves on the board of directors of Theatro Labs, Inc, a privately-
held company, and 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.

Patrick T. Gallagher has served as a Director of Ciena since May 2009. Mr. Gallagher currently serves as Chairman of
Harmonic Inc, a public company and global provider of high-performance video solutions to the broadcast, cable,
telecommunications and managed service provider sectors. From March 2008 until April 2012, Mr. Gallagher was 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 is also Chairman of Intercloud SAS, a Paris-headquartered provider of global private cloud
connectivity services. Mr. Gallagher also serves on the board of directors of 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 are based on our visibility into customer spending plans and our projections of future revenue and gross margin.
Substantial reductions in our expense levels to react to deviations from our projections can take time to implement. Uncertain
economic or market conditions, and changes in customer spending levels, can make it difficult to forecast future revenue and
margins. Some of our large existing communications service provider customers have announced their intent to constrain capital
spending, including in future periods. Other such customers are pursuing purchasing strategies or adopting procurement
approaches intended to drive reductions in spending or to consolidate the number of their direct suppliers of networking
technology. By way of example, the impact of these initiatives contributed to quarterly fluctuation in our results in the fourth
quarter of fiscal 2014. 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, that affect our customers;
changes in capital spending by large communications service providers;
order volume, cancellations and timing;
backlog levels and the percentage of a given quarter's revenue generated from orders placed during that quarter;
the level of competition and pricing pressure we encounter;
the impact of commercial concessions or unfavorable commercial terms required to maintain incumbency or secure
new opportunities with key customers;
the level of start-up costs we incur to support initial deployments, gain new customers or enter new markets;
the timing of revenue recognition on sales, particularly relating to large orders;
the mix of revenue by product segment, geography and customer in any particular quarter;

installation service availability and readiness of customer sites;
seasonal effects in our business; and
our level of success in improving manufacturing efficiencies and achieving cost reductions in our supply chain.

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In recent periods, the percentage of a given quarter's revenue that we generate from orders placed during that quarter has
increased, which may make it more difficult to predict accurately our quarterly results of operations and may increase the
likelihood of fluctuations in our results. The factors above could cause our level of operating expense or inventory to be high
relative to revenue, which could harm our profitability and cash flow. Quarterly fluctuations from these and other factors may
also cause our results of operations to fall short of or significantly exceed the expectations of securities analysts or investors,
which may cause volatility in our stock price.

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.

While our customer base has diversified in recent years to include a number of network operators and customer verticals, 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 18.5% of fiscal 2014 revenue, and our largest ten customers contributed 56.4% of
fiscal 2014 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, industry or competitive dynamics affecting their
businesses. Our reliance upon a relatively small number of service provider customers also increases our exposure to changes in
their network priorities and purchasing strategies. Our service provider customers have previously undertaken, and may
undertake in the future, procurement initiatives to support their network strategy, which initiatives may include reductions in
capital expenditure, commercial concessions from suppliers and reductions in the number of direct suppliers of networking
technology. By way of example, in September 2014, we announced that Ciena had been selected by AT&T as a participating
vendor in its Domain 2.0 supplier program. The Domain 2.0 initiative is the next generation of AT&T's Supplier Domain
Program, intended to enable AT&T to quickly transition to next-generation, cloud-based architectures that embrace NFV and
SDN, and accelerate AT&T's time to market with new products and services. Our commercial arrangement relating to this
opportunity adversely impacted our revenue and gross margin in the fourth quarter of fiscal 2014, and is expected to have a
proportionately lesser impact on our results in first quarter of fiscal 2015 and future quarterly periods. Because the terms of our

framework contracts, including with respect to our Domain 2.0 opportunity, do not obligate customers to purchase any minimum
or guaranteed order quantities, spending by service provider customers can be unpredictable. A significant change in network
priorities, a reduction in spending by our key customers, the loss of one or more of our large service provider customers, or
market or industry factors adversely affecting service providers generally, could have a material adverse effect on our business,
financial condition and results of operations.

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

We face a competitive market for sales of communications networking equipment, software and services, and this level of
competition could result in pricing pressure, reduced demand, lower gross margins and loss of market share that could harm our
business and results of operations. Competition is particularly intense, both in the U.S. and abroad, as we and our competitors
aggressively seek to displace incumbent equipment vendors at large service providers and secure new customers. In an effort to
maintain our incumbency and secure additional customer opportunities, we have in the past, and may in the future, agree to
aggressive pricing, commercial concessions and other unfavorable terms that reduce our revenue and result in low or negative
gross margins on a particular order or group of orders. We expect this level of competition to continue or potentially increase, as
multinational equipment vendors seek to promote adoption of competing architectural approaches for next-generation networks
and retain incumbent positions with large customers globally. We also expect our competitive landscape to broaden. As network
technologies, features and layers converge, and demands for software programmability, management and control increase, we
expect that our business will overlap more directly with additional networking solution suppliers, including IP router vendors,
system integrators, software vendors and other information technology vendors.

Competition in our markets, generally, is based on any one or a combination of the following factors:

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product functionality, speed, capacity, scalability and performance;
price and total cost of ownership of our solutions;
incumbency and existing business relationships;
ability to offer comprehensive networking solutions, consisting of equipment, software and network consulting
services;
product development plans and the ability to meet customers' immediate and future network requirements;
flexibility and openness of platforms, including ease of integration, interoperability and integrated management;

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services and support capabilities.

A small number of very large companies have historically dominated our industry, many of which have substantially greater
financial and marketing resources, broader product offerings and more established relationships with service providers and other
customer segments than we do. 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 in a particular product niche. If competitive pressures increase or we fail to
compete successfully in our markets, our business and results of operations could suffer.

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

Our business and operating results, which depend significantly on general economic conditions and demand for our

products and services, could be materially adversely affected by unfavorable or uncertain macroeconomic, and market
conditions, globally or with respect to a particular region where we operate. 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. Macroeconomic and market conditions could be adversely affected by a variety of political,
economic or other factors in the United States and elsewhere that could adversely affect spending levels of our customers and
their end users, and create volatility or deteriorating conditions in the markets in which we operate. Macroeconomic uncertainty
or weakness could result in:

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reductions in customer spending and delay, deferral or cancellation of network infrastructure initiatives;
increased competition for fewer network projects and sales opportunities;
increased pricing pressure that may adversely affect revenue, gross margin and profitability;
difficulty forecasting operating results and making decisions about budgeting, planning and future investments;
higher overhead and production costs as a percentage of revenue;

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tightening of credit markets needed to fund capital expenditures by our customers and us;
customer financial difficulty, including longer collection cycles and difficulties collecting accounts receivable or write-
offs of receivables; and
increased risk of charges relating to excess and obsolete inventories and the write-off of other intangible assets.

Reductions in customer spending in response to unfavorable or uncertain macroeconomic and market conditions, globally or
with respect to a particular region where we operate, would adversely affect our business, results of operations and financial
condition.

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

We maintain a global sourcing strategy and depend on third party suppliers for support in our product design and
development, and in the sourcing of key product components and subsystems. Our products include 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. We are exposed to risks relating to unfavorable
economic conditions or other similar challenges affecting the businesses and results of operations of our component providers
that can affect their liquidity levels, ability to continue investing in their businesses, and manufacturing capability. These and
other challenges affecting our suppliers could expose our business to increased costs, loss or lack of supply, or discontinuation of
components that can result in lost revenue, additional product costs, increased lead times and deployment delays that could harm
our business and customer relationships. We do not have any guarantees 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, either of which could result in business interruption, increase 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.

Investment of research and development resources in communications networking 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 hardware and software
solutions and to develop or acquire new technologies. There is often a lengthy period between commencing these development
initiatives and bringing new or improved solutions to market. During this time, technology preferences, customer demand and
the markets for our solutions, 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. 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.

Network equipment sales to communications service providers, Web-scale providers and other large customers 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 sales initiatives, particularly with communications service providers, Web-scale providers and other large customers,

often involve lengthy sales cycles. These selling efforts often involve a significant commitment of time and resources by us and
our customers that may include extensive product testing, laboratory or network certification, network or region-specific product
certification and homologation requirements for deployment in networks. Even after a customer awards its business or decides to
purchase our solutions, the length of deployment time can vary depending upon the customer's or site's readiness, the size of the
network deployment, the degree of configuration required and other factors. Additionally, these sales also often involve

protracted and sometimes difficult contract negotiations in which we may deem it necessary to agree to unfavorable contractual
or commercial terms that adversely affect pricing, expose us to penalties for delays or non-performance, and require us to
assume a disproportionate amount of risk. We may also be requested to provide deferred payment terms, vendor or third-party
financing or other alternative purchase structures that extend the timing of payment and revenue recognition. To maintain
incumbency with key customers for existing and future business opportunities, we may be required to offer discounted pricing or
offer less favorable commercial terms as compared to our historical business arrangements with these customers. By way of
example, our commercial arrangement with AT&T relating to its Domain 2.0 vendor program adversely impacted our revenue
and gross margin in the fourth quarter of fiscal 2014, and is expected to have a proportionately lesser impact on our results in
first quarter of fiscal 2015 and future quarterly periods. Our purchase agreements generally do not include minimum purchase
commitments, and customers often have the right to modify, delay, reduce or cancel previous orders. These terms may negatively
affect our revenue and results of operations and increase our susceptibility to quarterly fluctuations in our financial results.
Alternatively, customers may insist upon terms and conditions that we deem too onerous or not in our best interest, and we may
be unable to reach a commercial agreement. 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.

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 these and other product development efforts may affect our reputation with customers,
affect our ability to seize market opportunities and impact the timing and level of demand for our products. The development of
new technologies may increase the complexity of supply chain management or require the acquisition, licensing or inter-working
with the technology of third parties. As a result, each step in the development 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 could 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 highly

complex. Some of our products can be fully tested only when deployed in communications networks or when carrying traffic
with other equipment, and software products may contain bugs that can interfere with expected operations. 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 have recently launched, and are in the process of launching,
a number of new hardware and software platforms. Unanticipated product performance problems can relate to the design,
manufacturing, installation, operation and interoperability of our products. Undetected errors can also arise as a result of defects
in components, software or manufacturing, installation or maintenance services supplied by third parties, and technology
acquired from or licensed by third parties. From time to time we have had to replace certain components, provide software
remedies or other remediation in response to defects or bugs. There can be no assurance that such remediation would not have a
material impact on our business. In addition, unanticipated security vulnerabilities relating to our products or the activities of our
supply chain, including any actual or perceived exposure of our solutions to malicious software or cyber-attacks, would
adversely affect our business and reputation. Product performance, reliability, security and quality problems can negatively
affect our business, and may result in some or all of the following effects:

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

These and other consequences relating to undetected errors affecting the quality, reliability and security of our products could
negatively affect our business and results of operations.

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

In order to sell our products into new geographic markets, diversify our customer base beyond our traditional customers
and broaden the application for our solutions in communications networks, we continue to promote sales initiatives and foster
strategic channel sales relationships, including the packet-optical resale element of our strategic relationship with Ericsson.
Specifically, we are targeting sales opportunities with Web-scale providers, cloud infrastructure providers, enterprises, wireless
operators, cable operators, submarine network operators, research and education institutions, and federal, state and local
governments. We also seek to expand our geographic reach and increase market share in international markets, including Brazil,
the Middle East and India. To succeed in some of these geographic markets and customer segments we believe that we need to
leverage strategic sales channels and distribution arrangements successfully, and we expect these relationships to be an important
part of our business. There can be no assurance we will realize the expected benefits of these third party sales partners. In some
cases we compete in certain business areas with our third party channel partners or may have divergent interests. Our efforts to
manage and drive the intended benefits of such sales relationships may ultimately be unsuccessful, and difficulties selling
through our third party channels could limit our growth and could harm our results of operations.

The international scale of our sales and operations exposes us to additional risk and expense that could adversely affect
our results of operations.

We market, sell and service our products globally, maintain personnel in numerous countries and rely upon a global supply
chain for sourcing important components and manufacturing our products. Our international sales and operations are subject to
inherent risks, including:

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the impact of economic conditions in countries outside the United States;
effects of changes in currency exchange rates;
greater difficulty in collecting accounts receivable and longer collection periods;
difficulty and cost of staffing and managing foreign operations;
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;
compliance with certain testing, homologation or customization of products to conform to local standards;
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.

Our international operations are also subject to complex foreign and U.S. laws and regulations, including anti-corruption laws,
antitrust or competition laws, and data privacy laws, among others. Violations of these laws and regulations could result in fines
and penalties, criminal sanctions against us or our employees, prohibitions on the conduct of our business and on our ability to
offer our products and services in certain geographies, and significant harm to our business reputation. There can be no
assurance that any individual employee, contractor, agent or other business partner will not violate these legal requirements or
our policies to mitigate these risks. Additionally, the costs of complying with these laws (including the costs of investigations,
auditing and monitoring) could also adversely affect our current or future business.

We expect that we may enter new international markets and withdraw from or reduce operations in others. The success of our
international sales and operations will depend, in large part, on our ability to anticipate and effectively manage these risks. Our
failure to manage any of these risks could harm our international operations, reduce our international sales, and could give rise to
liabilities, costs or other business 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
obsolescence 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

component suppliers based on forecasts of customer demand. During fiscal 2014, we increased inventory levels for our 6500
Packet Optical Platform in order to reduce customer lead times and meet forecasted volumes. Our practice of buying inventory
based on forecasted demand exposes us to the risk that our customers ultimately may not order the products we have forecast, or
will purchase fewer products than forecast. As a result, we may purchase inventory in anticipation of sales that ultimately do not
occur. Market uncertainty can also 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 features and functionalities
converge across our product lines, and we introduce new products with overlapping feature sets, it is increasingly possible that
customers may forgo purchases of certain products we have inventoried in favor of next-generation products with similar or
increased functionality. We may also be exposed to the risk of inventory write offs as a result of certain supply chain initiatives,
including consolidation and transfer of key manufacturing activities. If we are required to write off or write down a significant
amount of inventory, our results of operations for the applicable 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 access, divert or 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, 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. The rate
of infringement assertions by patent assertion entities is increasing, particularly in the United States. Generally, these patent
owners neither manufacture nor use the patented invention directly, and they simply seek to derive value from their ownership
through royalties from patent licensing programs.

We could be adversely affected by litigation, other proceedings or claims against us, as well as claims against our

manufacturers, suppliers or customers, alleging infringement of third party proprietary rights by our products and technology, or
components thereof. 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, could 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 or other third parties pursuant to contractual obligations to hold them harmless or pay
expenses or 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 and the steps taken to safeguard against the risks of infringing the
rights of third parties.

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

We integrate third party software and other technology into our operating system, network management and control
platforms and other products. As networks adopt open software control and virtualized network functions, we believe that we
will be increasingly required to work with third party technology providers. As a result, we may be required to license certain
software or technology from third parties, including competitors. Licenses for software or other technology may not be available
or may not 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. Our failure to comply with the terms of any license may

result in our inability to continue to use such license, which may result in significant costs, harm our market opportunities and
require us to obtain or develop a substitute technology.

As networks become more open and software programmable, we also expect that we and other communications networking

solutions vendors will increasingly contribute to and use technology or open source software developed by standards settings
bodies or other industry forums that seek to promote the integration of network layers and functions. The terms of such licenses
could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our
products. This may increase our risks associated with our use of such software and may require us to seek licenses from third
parties, to re-engineer our products or to discontinue the sale of such solutions. Difficulty obtaining and maintaining technology
licenses with third parties may disrupt development of our products, increase our costs and adversely affect our business.

If our contract manufacturers do not perform as we expect, our business and results of operations may be adversely
affected.

We rely on third-party contract manufacturers to perform the manufacturing of our products, and our future success will
depend on our ability to manage these manufacturing resources and ensure sufficient volumes and quality of our products. There
are a number of risks associated with our dependence on contract manufacturers, including:

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reduced control over delivery schedules and planning;
reliance on the quality assurance procedures of third parties;
potential uncertainty regarding manufacturing yields and costs;
availability of manufacturing capability and capacity, particularly during periods of high demand;
risks and uncertainties relating to the locations and geographies of our international contract manufacturing sites;
limited warranties provided to us;
potential misappropriation of our intellectual property; and
potential manufacturing disruptions, including disruptions caused by geopolitical events or environmental factors
affecting the locations and geographies of our international contract manufacturing sites.

These and other risks could impair our ability to fulfill orders, harm our sales and impact our reputation with customers. If our
contract manufacturers are unable or unwilling to continue manufacturing our products or components of our products, or if our
contract manufacturers discontinue operations, we would be required to identify and qualify alternative manufacturers, which
could cause us to be unable to meet our supply requirements to our customers and result in the breach of our customer
agreements. Qualifying a new contract manufacturer and commencing volume production are expensive and time-consuming,
and if we are required to change or qualify a new contract manufacturer, we would likely lose sales revenue and damage our
existing customer relationships.

Data security breaches and cyber-attacks could compromise our intellectual property or other sensitive information and
cause significant damage to our business and reputation.

In the ordinary course of our business, we maintain on our network systems certain information that is confidential,

proprietary or otherwise sensitive in nature. This information includes intellectual property, financial information and
confidential business information relating to Ciena and our customers, suppliers and other business partners. We also produce
networking equipment solutions and software used by network operators to ensure security and reliability in their management
and transmission of data. Our customers, particularly those in regulated industries, are increasingly focused on the security
features of our technology solutions, and maintaining the security of information sensitive to Ciena and our business partners is
critical to our business and reputation. Companies in the technology industry have been increasingly subject to a wide variety of
security incidents, cyber-attacks and other attempts to gain unauthorized access to networks or sensitive information. Our
network systems and storage applications, and the technology solutions that we offer to end customers, may be subject to
unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions. In some cases, it is
difficult to anticipate or to immediately detect such incidents and the damage caused thereby. If an actual or perceived breach of
network security occurs in our network or in the network of a business partner, the market perception of our products could be
harmed. While we continually work to safeguard our products and internal network systems to mitigate these potential risks,
there is no assurance that such actions will be sufficient to prevent cyber attacks or security breaches. Security incidents
involving access or improper use our systems, networks or products could compromise confidential or otherwise protected
information, destroy or corrupt data, or otherwise disrupt our operations. These security events could also negatively impact our
reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business,
potential liability and increased remediation costs, any of which could have a material adverse effect on our financial condition
and results of operations.

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 addition, as
network operators seek to increasingly rely on vendors to perform additional services relating to the design, construction and
operation of their networks, the scope of work performed by our support partners is likely to increase and may include areas
where we have less experience providing or managing such services. We must successfully identify, assess, train and certify
qualified service partners in order to ensure the proper installation, deployment and maintenance of our products, as well as the
skillful performance of other services associated with expanded solutions offerings, including site assessment and construction-
related services. Vetting and certification of these partners can be costly and time-consuming, and certain partners may not have
the same operational history, financial resource and scale as Ciena. Moreover, certain service partners may provide similar
services for other companies, including our competitors. We may not be able to manage effectively our relationships with our
service partners, and we cannot be certain that they will be able to deliver services in the manner or time required or that we will
be able to maintain the continuity of their services. We may also be exposed to a number of risks or challenges relating to the
performance of our service partners, including:

•
•

we may suffer delays in recognizing revenue;
we may be exposed to liability for injuries to persons, damage to property or other claims relating to the actions or
omissions of our service partners;
our services revenue and gross margin may be adversely affected; and
our relationships with customers could suffer.

If we do not manage effectively our relationships with third party service partners, or if they fail to perform these services in the
manner or time required, our financial results and relationships 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 supply 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. 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, financial condition, intellectual
property rights and supply chain continuity 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 supply 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 could 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 and resale channel partners, we may have difficulty collecting receivables, and our

business and results of operations could be exposed to risks associated with uncollectible accounts. Lack of liquidity in the
capital markets, macroeconomic weakness and market volatility may increase our exposure to these credit risks. Our attempts to
monitor customer payment capability and to take appropriate measures to protect ourselves may not be sufficient, and it is
possible that we may have to write down or write off accounts receivable. 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 or external factors may disrupt our business, processes and internal
controls.

We rely upon a number of internal business processes and information systems to support key business functions, and the
efficient operation of these processes and systems is critical to managing our business. Our business processes and information

systems must be sufficiently scalable to support the growth of our business and may require modifications or upgrades that
expose us to a number of operational risks. We have commenced a significant reengineering of our company-wide enterprise
resource planning platform that will impact multiple locations, functions and processes. We are also currently pursuing
initiatives to transform and optimize our business operations through the reengineering of certain other processes, investment in
automation, and engagement of strategic partners or resources to assist with certain business functions. These changes will
require a significant investment of capital and human resources and may be costly and disruptive to our operations, and could
impose substantial demands on management time. These changes may also require changes in our information systems,
modification of internal control procedures and significant training of employees or third party resources. There can be no
assurance that our business and operations will not experience disruption in connection with this transition. Even if we do not
encounter these adverse effects or disruption in our business, the design and implementation of these new systems may be more
costly than anticipated.

Our information technology systems, and those of third party information technology providers or business partners, may
also be vulnerable to damage or disruption caused by circumstances beyond our control, including catastrophic events, power
anomalies or outages, natural disasters, viruses or malware, and computer system or network failures. We may also be exposed
to cyber-security related incidents, including unauthorized access of information systems and disclosure or diversion of
intellectual property or confidential data. There can be no assurance that our business systems or those of our third party
business partners would not be subject to similar incidents, exposing us to significant cost, reputational harm and disruption or
damage to our business.

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

At October 31, 2014, indebtedness on our outstanding convertible notes totaled approximately $1.2 billion in aggregate

principal, including the accretion of principal at maturity on our 4.0% convertible senior notes due in 2020 ("2020 Notes"). In
the event that some or all of these notes are converted into common stock, the ownership interests of our existing stockholders
will be diluted, and any sales of such shares in the public market following conversion may adversely affect the market price for
our common stock. We are also a party to credit agreements relating to a $200 million senior secured asset-based revolving
credit facility and a $250 million senior secured term loan. The agreements governing these credit facilities contain certain
covenants that limit our ability to, among other things, incur additional debt, create liens and encumbrances, pay cash dividends,
redeem or repurchase stock, enter into certain acquisition transactions or transactions with affiliates, repay certain indebtedness,
make investments or dispose of assets. The agreements also include customary remedies, including the right of the lenders to
take action with respect to the collateral securing the loans, that would apply should we default or otherwise be unable to satisfy
our debt obligations.

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 unfavorable capital and credit market conditions;
debt service and repayment obligations that may adversely impact our results of operations and reduce the availability
of cash resources for other business purposes;
limiting our flexibility in planning for, or reacting to, changes in our business and the markets; and
placing us at a possible competitive disadvantage to competitors that have better access to capital resources.

We may also enter into additional transactions or credit facilities, including equipment loans, working capital lines of credit and
other long-term debt, which may increase our indebtedness and result in additional restrictions upon our business. In addition,
major debt rating agencies regularly evaluate our debt based on a number of factors. There can be no assurance that we will be
able to maintain our existing debt ratings and failure to do so could adversely affect our cost of funds, liquidity and access to
capital markets.

Significant volatility and uncertainty in the capital markets may limit our access to funding on favorable terms or at all.

The operation of our business requires significant capital. We have accessed the capital markets in the past and has

successfully raised funds, including through the issuance of equity, convertible notes and other indebtedness, to increase our cash
position, support our operations and undertake strategic growth initiatives. We regularly evaluate our liquidity position, debt
obligations, and anticipated cash needs to fund our long-term operating plans and may consider it necessary or advisable to raise
additional capital or incur additional indebtedness in the future. If we raise additional funds through further issuance of equity or
securities convertible into equity, or undertake certain transactions intended to address our existing indebtedness, our existing
stockholders could suffer dilution in their percentage ownership of our company and our leverage and outstanding indebtedness

could increase. Global capital markets have undergone periods of significant volatility and uncertainty in recent years, and there
can be no assurance that such financing alternatives would be available to us on favorable terms or at all, should we determine it
necessary or advisable to seek additional cash resources.

Facilities transitions could be disruptive to our operations and may result in unanticipated expense and adverse effects to
our cash position and cash flows.

We have recently undertaken and expect to undertake in the future a number of significant facilities transitions affecting a
number of our largest employee populations. The lease term for our “Lab 10” building on the Carling Campus in Ottawa,
Canada will expire in fiscal 2018, and the lease term for our development facility in Gurgaon, India will expire in fiscal 2017.
Both locations house sophisticated research and development lab equipment and significant headcount including key
engineering personnel. We will be transitioning our operations in Ottawa to new facilities in contemplation of the expiration of
the Lab 10 lease. Relocating our engineering operations 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. Significant facilities
transitions could be disruptive to our operations and may result in unanticipated expense and adverse effects on our cash position
and cash flows.

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, improve efficiencies, or realign our organization and staffing to better match our market opportunities
and our technology development initiatives. We may take similar steps in the future as we seek to realize operating synergies,
optimize our operations to achieve our target operating model and profitability objectives, or better reflect changes in the
strategic direction of our business. These changes could be disruptive to our business, including our research and development
efforts, and could 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 and use of cash in those periods in which we undertake
such actions.

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. Competition is particularly intense in
certain jurisdictions where we have research and development centers, including the Silicon Valley area of Northern California,
and 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. In addition, none of our executive officers is bound by an employment
agreement for any specific term. The loss of members of our management team or other key personnel could be disruptive to our
business, and, were it necessary, it could be difficult to replace members of our management team or other key personnel. 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. Due to our increased
global presence, a larger percentage of our revenue, operating expense and assets and liabilities are 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 or assets and liabilities denominated in
foreign currency. Such attempts to offset the impact of currency fluctuations are costly and no amount of hedging can be
effective against all circumstances. Losses associated with these hedging instruments and the adverse effect of foreign currency
exchange rate fluctuation may negatively affect our results of operations.

Strategic acquisitions and investments could disrupt our operations and 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
26

so, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. These
transactions involve numerous risks, including:

•
•
•
•
•
•
•
•
•
•

significant acquisition and integration costs;
disruption due to the integration and rationalization of operations, products, technologies and personnel;
diversion of management attention;
difficulty completing projects of the acquired company and costs related to in-process projects;
difficulty managing customer transitions or entering into new markets;
loss of key employees;
ineffective internal controls over financial reporting;
dependence on unfamiliar suppliers or manufacturers;
assumption of or 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, including
service providers and multiservice network operators, are subject to the rules and regulations of these agencies. The FCC is
currently considering its "net neutrality" rulemaking and the application of its regulatory authority over broadband Internet
services. These and other changes in regulatory requirements covering access to or carriage of traffic on the Internet in the
United States or other countries could serve as a disincentive to certain wireline or wireless network operators, including certain
of our customers, to invest in their network infrastructures or introduce new services. These changes could adversely affect the
sale of our products and services. Similarly, 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.

Government regulations affecting the use, import or export of products could adversely affect our operations, negatively
affect our revenue and increase our costs.

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. Government regulation of usage, import or export of our
products, or our 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, penalties or 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 implemented security
regulations applicable to network equipment vendors, and has previously imposed significant tariffs on certain communications
equipment. These and other regulations could adversely affect the sale or use of our products, substantially increase our cost of
sales and adversely affect our business and revenue.

Government regulations related to the environment, potential climate change and other social initiatives 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. If we were to violate or become liable under these laws or regulations, we could incur fines, costs
related to damage to property or personal injury, and costs related to investigation or remediation activities. 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. The SEC has adopted disclosure requirements regarding the use of “conflict minerals” mined from
27

the Democratic Republic of Congo and adjoining countries (“DRC”) and procedures regarding a manufacturer's efforts to
prevent the sourcing of such minerals from the DRC. Certain of these minerals are present in our products. SEC rules
implementing these requirements may have the effect of reducing the pool of suppliers who can supply DRC “conflict free”
components and parts, and we may not be able to obtain conflict free products or supplies in sufficient quantities for our
operations. Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and
other stakeholders if we are unable to sufficiently verify the origins for the "conflict minerals” used in our products and cannot
assert that our products are "conflict free". Environmental or similar social initiatives may also make it difficult to obtain supply
of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on 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, 2014, our balance sheet includes $309.4 million in long-lived assets, which includes $128.7 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 upon which our estimates are based.
Periods of significant uncertainty or instability of macroeconomic conditions can make forecasting future business difficult. 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 would 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. Certain ongoing
initiatives, including a significant update of our company-wide enterprise resource planning platform that is underway, will
necessitate modifications to our internal control systems, processes and related information systems. Similarly, other efforts to
transform business processes, including our supply chain operations, or to transition certain functions to third party resources or
providers, will require further changes to our control environment as we as we optimize our business and operations. Our
expansion into new regions could pose further 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, 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 2014, our
closing stock price ranged from a high of $26.20 per share to a low of $14.16 per share. The stock market has experienced
significant price and volume fluctuation that has 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, or the expectations of the market generally, can cause significant swings in our stock
price. Our stock price can also be affected by market conditions in our industry as well as announcements that we, our
competitors, vendors or our customers may make. These may include announcements of financial results or changes in estimated
financial results, technological innovations, the gain or loss of customers or key opportunities. Our common stock is also
included in certain market indices, and any change in the composition of these indices to exclude our company would adversely
affect our stock price. These and other factors affecting macroeconomic conditions 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, 2014, 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 two buildings in Hanover, Maryland. In addition, we currently occupy two supply chain and logistics facilities in
Linthicum, Maryland.

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 and our planned future
relocation from this 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 the Asia-Pacific region to support our sales and services
operations. We believe the facilities we are now using are adequate and suitable for our business requirements.

Hanover, Maryland Headquarters Lease. Ciena entered into an agreement dated November 3, 2011, with W2007 RDG
Realty, L.L.C. relating to a 15-year lease of office space for its corporate headquarters in Hanover, Maryland, consisting of an
agreed-upon rentable area of approximately 154,100 square feet.

Ottawa Lease and Planned Relocation. Ciena Canada, Inc., a subsidiary of Ciena, and Public Works and Government

Services Canada (PWGSC) are parties to a lease agreement relating to Ciena’s lease of the “Lab 10” building on the former
Nortel Carling Campus in Ottawa, Canada. This facility consists of a rentable area of 265,000 square feet. This lease will
terminate on December 31, 2017. In contemplation of the lease termination, on October 23, 2014, Ciena Canada, Inc. entered
into a Lease Agreement (the “Lease”) with Innovation Blvd. II Limited (“Landlord”), to lease the office building located at
5050 Innovation Drive, Ottawa, Canada (the “Premises”), consisting of an agreed-upon rentable area of 170,582 square feet.
The Premises is expected to be part of a future campus that will replace the “Lab 10” building as Ciena's Ottawa research and
development center. The commencement date for the Lease will be the earlier of January 1, 2015, or such date on which Ciena
occupies any material portion of the Premises and begins conducting business therein. Subject to any earlier termination under
the terms and conditions of the Lease, the term of the Lease shall continue for a period of 18 years from the commencement
date. Ciena has the option to renew the Lease for an additional ten-year period thereafter. Ciena also has the right to terminate
the Lease at the end of the thirteenth year without penalty upon 18 months prior written notice. In addition to leasing the
Premises, Ciena is currently in negotiations with the Landlord for the development and lease of two additional buildings that
will be built adjacent to the Premises, which are expected to consist of an aggregate agreed-upon rentable area of
approximately 250,000 square feet. The Lease also provides Ciena a right of first offer to lease additional space in the building
adjacent to the Premises located at 4000 Innovation Drive, for so long as Landlord owns the building and subject to any
existing rights of the current tenant. Our Lab 10 facility houses sophisticated research and development lab equipment and
significant headcount including key engineering personnel. The development of our new facilities and the transition of our
operations in Ottawa will require significant effort, time and cost in advance of the expiration of the Lab 10 lease.

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 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. In July 2009, upon request of Ciena and certain other defendants, the U.S. Patent and Trademark
Office (“PTO”) granted the defendants' inter partes application for reexamination with respect to certain claims of the '673
Patent, and the district court granted the defendants' motion to stay the case pending reexamination of all of the patents-in-suit.
In December 2010, the PTO confirmed the validity of some claims and rejected the validity of other claims of the '673 Patent,
to which Ciena and other defendants filed an appeal. On March 16, 2012, the PTO on appeal rejected multiple claims of the
'673 Patent, including the two claims on which Ciena is alleged to infringe. Subsequently, the plaintiff requested a reopening of
the prosecution of the '673 Patent, which request was denied by the PTO on April 29, 2013. Thereafter, on May 28, 2013, the
plaintiff filed an amendment with the PTO in which it canceled the claims of the '673 Patent on which Ciena is alleged to
infringe. The case currently remains stayed, and there can be no assurance as to whether or when the stay will be lifted.

In addition to the matter described above, we are subject to various legal proceedings and claims arising in the ordinary
course of business, including claims against third parties that may involve contractual indemnification obligations on the part of
Ciena. 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. Mine Safety Disclosures

Not applicable.

PART II

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

(a) During fiscal 2013, our common stock was traded on the NASDAQ Global Select Market. On December 23, 2013, we
transferred the listing of our common stock from the NASDAQ Global Select Market to the New York Stock Exchange. Ciena
common stock trades under the stock 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 or the New York Stock Exchange, as applicable, for the fiscal periods indicated.

Fiscal Year 2013

First Quarter ended January 31

Second Quarter ended April 30

Third Quarter ended July 31

Fourth Quarter ended October 31

Fiscal Year 2014

First Quarter ended January 31

Second Quarter ended April 30

Third Quarter ended July 31
Fourth Quarter ended October 31

High

Low

$
$

16.48

17.53

22.96

27.67

24.37

27.16

22.94
20.98

$
$

13.16

14.32

14.91

19.92

20.93

18.88

18.00
13.77

As of December 12, 2014, there were approximately 760 holders of record of our common stock and 106,985,271 shares of
common stock outstanding. We have never paid cash dividends on our capital stock. We currently 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 S&P
Telecom Select Index and the S&P Global SmallCap Index from October 31, 2009 to October 31, 2014. The S&P Telecom
Select Industry Index comprises stocks in the S&P Total Market Index that are classified in the Global Industry Classification
Standard as alternative carriers, communications equipment, integrated telecom services, and wireless telecom services sub-
industries. The S&P Global SmallCap Index comprises the stocks representing the lowest 15% of float-adjusted market cap in
each developed and emerging country. 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, as amended (the "Exchange Act"), 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, as amended, or the
Exchange Act.

Assumes $100 invested in Ciena Corporation, the S&P Telecom Select Index and the S&P Global SmallCap Index,

respectively, on October 31, 2009 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 2010, 2011, 2013 and 2014 consisted of 52 weeks, and fiscal 2012
consisted of 53 weeks.

Cash and cash equivalents

Short-term investments

Long-term investments

Total assets

Short-term debt

Long-term debt

Total liabilities
Stockholders’ equity (deficit)

Year Ended October 31,
(in thousands)

2010

2011

2012

2013

688,687

541,896

642,444

— $

50,057

346,487

124,979

50,264

— $

15,031

— $

2014

586,720

140,205

50,057

$ 2,118,093

$ 1,951,418

$ 1,881,143

$ 1,802,770

$ 2,072,632

— $

216,210

— $

190,063

$ 1,442,705

$ 1,442,364

$ 1,225,806

$ 1,212,019

$ 1,274,791

$ 1,970,115
$

(88,972) $

$ 1,885,447

$ 2,142,247
(69,615)

(82,677) $

$ 1,958,800
159,293
$

$ 1,937,545
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 costs

Change in fair value of contingent consideration

Total operating expenses

Gain (loss) from operations

Interest and other income (loss), net

Interest expense

Gain on cost method investments

Gain (loss) on extinguishment of debt

Loss before income taxes

Provision for income taxes

Net loss

Basic net loss per common share

Diluted net loss per potential common share

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

2010

2011

2012

2013

2014

$ 1,236,636

$ 1,741,970

$ 1,833,923

$ 2,082,546

$ 2,288,289

1,032,824

1,109,699

1,217,371

1,339,937

709,146

724,224

865,175

948,352

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

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

364,179

266,338

114,002

—

51,697

7,854

—

804,070
(79,846)
(15,200)
(39,653)
—

—
(134,699)
9,322

$ (333,514) $ (195,521) $ (144,021) $
(1.45) $
$
(1.45) $

(2.04) $
(2.04) $

(3.58) $
(3.58) $

383,408

304,170

122,432

—

49,771

7,169

—

866,950
(1,775)
(5,744)
(44,042)
—
(28,630)
(80,191)
5,240
(85,431) $
(0.83) $
(0.83) $

401,180

328,325

126,824

—

45,970

349

—

902,648

45,704
(25,262)
(47,115)
—

—
(26,673)
13,964
(40,637)
(0.38)
(0.38)
105,783

Weighted average basic common shares outstanding

93,103

95,854

99,341

102,350

Weighted average dilutive potential common shares
outstanding

93,103

95,854

99,341

102,350

105,783

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

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
information about Ciena that is important to investors in the "Investors" section of our website at www.ciena.com. Investors are
encouraged to review the “Investors” section of our website because, as with the other disclosure channels that we use, from
time to time we may post material information on that site that is not otherwise disseminated by us.

Market Opportunity

offerings and end-user demands. These conditions have created market opportunities and challenges that have impacted how
networks are designed, as well as the competitive landscapes of network operators and the vendors that support them. Existing
and emerging network operators are competing to distinguish their service offerings and rapidly introduce differentiated,
revenue-generating services. At the same time, network operators continue to seek to manage the costs of their network and to
ensure a profitable business model. These dynamics are driving technology convergence of network features, functions and
layers, virtualization of certain network functions, and the adoption of software-based network control and programmability.
We believe that these dynamics, and the need to adapt to changing business conditions, are creating an environment that will
cause network operators to adopt infrastructures that are more open, programmable and automated. We also believe that these
conditions will require vendors and network operators to leverage an open ecosystem of virtualized resources provided by a
variety of third parties and will drive increased openness and interoperability of network infrastructures.

During fiscal 2014, we saw certain service provider customers increase efforts to constrain capital expenditure budgets,
which adversely impacted certain segments of our market, including in the U.S. Notwithstanding these market dynamics, our
strategy of focusing on certain higher growth segments of the network infrastructure market, combined with our efforts to
diversify our customer base to include additional customer segments, such as Web-scale providers, and additional service
providers in geographies including Brazil and India, enabled us to continue to grow revenue in fiscal 2014. Our corporate
strategy to capitalize on these market dynamics, promote operational efficiency and drive profitable growth of our business
includes the initiatives set forth in the "Strategy" section of the description of our business in Item 1 of Part 1 of this annual
report.

Competitive Landscape

We continue to encounter a highly competitive and and fragmented marketplace. Our sales of Converged Packet Optical
solutions face an intense competitive environment as we and our competitors introduce new, high-capacity, high-speed network
solutions and seek adoption of these solutions and our network architectural approach. Our sales of Packet Networking
solutions, including our 8700 Packetwave Platform, also face a highly competitive marketplace with additional competitors,
including traditional IP router vendors. We expect the current competitive landscape to remain challenging and dynamic. As
networking technologies become more software-driven, and network features and layers continue to converge, our competitive
landscape continues to broaden beyond traditional competitors. As a result, we are competing with, and expect to compete
increasingly with, additional vendors focused on IP routing, information technology and software.

Within these competitive dynamics, maintaining incumbency with key customers domestically and abroad, and securing
new opportunities with network operators often requires that we agree to aggressive pricing, significant commercial
concessions or other unfavorable commercial terms. These terms have previously and may in the future adversely affect our
quarterly results of operations and contribute to fluctuations in our results. These terms can also elongate our revenue
recognition or cash collection cycles, add start-up costs to initial sales or deployment of our solutions, require financial
commitments or performance bonds, and include onerous contractual commitments that place a disproportionate allocation of
risk upon us.

Term Loan and Asset-Based Credit Facilities

During fiscal 2014, we entered into a credit agreement that provides for senior secured term loans in an aggregate principal
amount of $250 million (the "Term Loan"). We expect to use the approximately $246 million in net proceeds to repay, in whole
or part, the outstanding principal amount owing under our 4.00% senior convertible notes due March 15, 2015 ("2015 Notes")
in the event the holders thereof do not elect to convert such notes into common stock prior to maturity. In the event the holders
of such notes elect to convert their notes into common stock upon or prior to maturity, we may elect to repay the Term Loan, in
whole or in part, or may utilize the net proceeds for other general corporate purposes, including the repayment or refinancing of
other existing indebtedness. See Note 14 to our Consolidated Financial Statements included in Item 8 of Part II of this report
for a summary of the material terms and conditions of the Term Loan and the related security documents.

During fiscal 2014, we also amended the terms of our existing senior secured asset-based revolving credit facility to,
among other things, increase the total commitment under our ABL Credit Facility from $150 million to $200 million and to
extend the maturity date from August 13, 2015 to December 31, 2016. See Note 15 to our Consolidated Financial Statements
included in Item 8 of Part II of this report for a summary of the material terms and conditions of the amendment to this credit
facility and the related security documents.

Financial Results for Fourth Quarter of Fiscal 2014

Revenue for the fourth quarter of fiscal 2014 was $591.0 million, representing a sequential decrease of 2.1% from $603.6
million in the third quarter of fiscal 2014. Revenue-related details reflecting sequential changes from the third quarter of fiscal
2014 include the following:

•

Product revenue for the fourth quarter of fiscal 2014 decreased by $19.7 million, primarily reflecting decreases of
$13.0 million in Packet Networking, $4.5 million in Optical Transport and $3.3 million in software in Software and
Services. These decreases were partially offset by an increase of $1.2 million in Converged Packet Optical. Product
revenue for Converged Packet Optical and Packet Networking were adversely impacted by a commercial arrangement
with AT&T entered into in the fourth quarter of fiscal 2014 relating to our participation in AT&T's Domain 2.0
supplier program. The Domain 2.0 initiative is the next generation of AT&T's Supplier Domain Program, intended to
enable AT&T to transition more quickly to next-generation, cloud-based architectures that embrace NFV and SDN,
and accelerate their time to market with new products and services.

Service revenue for the fourth quarter of fiscal 2014 increased by $7.1 million.

Revenue from the United States for the fourth quarter of fiscal 2014 was $308.5 million, a decrease from $368.1
million in the third quarter of fiscal 2014.

International revenue for the fourth quarter of fiscal 2014 was $282.5 million, an increase from $235.5 million in the
third quarter of fiscal 2014.

As a percentage of revenue, international revenue was 47.8% during the fourth quarter of fiscal 2014, an increase from
39.0% during the third quarter of fiscal 2014.
For the fourth quarter of fiscal 2014, one customer accounted for 12.2% of total revenue. This compared to one
customer that accounted for 21.6% of total revenue in the third quarter of fiscal 2014.

Gross margin for the fourth quarter of fiscal 2014 was 37.4%, a decrease from 43.7% in the third quarter of fiscal 2014.

Gross margin for the fourth quarter of fiscal 2014 was adversely impacted by our commercial arrangement with AT&T, as
described above, and revenue from multiple large international projects that are in the early stage of network deployment with
higher related start-up costs that include a large concentration of lower margin "common" equipment and lower margin
installation services.

Operating expense was $222.7 million for the fourth quarter of fiscal 2014, a decrease from $227.0 million in the third

quarter of fiscal 2014. Fourth quarter operating expense reflects a decrease of $7.7 million in general and administrative
expense. This decrease was partially offset by increases of $2.5 million in selling and marketing expense and $0.8 million in
research and development expense.

Our lower revenue and gross margin resulted in a loss from operations of $1.8 million for the fourth quarter of fiscal 2014,
as compared to $37.0 million of income from operations during the third quarter of fiscal 2014. Due primarily to the fluctuation
in foreign currency exchange rates, net of hedging, we incurred losses in interest and other income, net of $10.7 million and
$5.8 million during the fourth quarter of fiscal 2014 and the third quarter of fiscal 2014, respectively. Our net loss for the fourth
quarter of fiscal 2014 was $30.7 million, or $0.29 per diluted common share. This compares to a net income of $16.2 million or
$0.15 per diluted common share, for the third quarter of fiscal 2014.

We generated $73.8 million of cash from operations during the fourth quarter of fiscal 2014, consisting of $23.5 million
provided by net losses adjusted for non-cash charges and $50.3 million provided by changes in working capital. This compares
with $51.1 million in cash generated from operations during the third quarter of fiscal 2014, consisting of $80.9 million
provided by net income adjusted for non-cash charges, offset by a $29.8 million use of cash related to changes in working
capital.

As of October 31, 2014, we had $586.7 million in cash and cash equivalents, $140.2 million of short-term investments in

U.S. treasury securities and commercial paper and $50.1 million of long-term investments in U.S. treasury securities. This
compares to $532.9 million in cash and cash equivalents, $120.3 million of short-term investments in U.S. treasury securities
and commercial paper, and $65.0 million of long-term investments in U.S. treasury securities at July 31, 2014 and $346.5
million in cash and cash equivalents, $125.0 million of short-term investments in U.S. treasury securities and commercial
paper, and $15.0 million of long-term investments in U.S. treasury securities at October 31, 2013.

As of October 31, 2014, we had 5,161 employees, an increase from 5,136 as of July 31, 2014 and an increase from 4,754

and 4,481 at October 31, 2013 and 2012, respectively.

Consolidated Results of Operations

Operating Segments

Ciena’s internal organizational structure and the management of its business are grouped into the following operating
segments each of which is more fully described in the "Products and Services" section of the description of our business in Item
1 of Part 1 of this annual report:

•

Converged Packet Optical —includes the 6500 Packet-Optical Platform and the 5430 Reconfigurable Switching
System, which feature Ciena's WaveLogic coherent optical processors. Products also include Ciena's family of
CoreDirector® Multiservice Optical Switches and the OTN configuration for the 5410 Reconfigurable Switching
System. 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.

Packet Networking — includes Ciena's 3000 family of service delivery switches and service aggregation switches and
the 5000 family of service aggregation switches. This segment also includes Ciena’s 8700 Packetwave Platform and
Ciena's Ethernet packet configuration for the 5410 Service Aggregation Switch. 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.

Optical Transport — includes the 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 includes sales from 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.

Software and Services — includes Ciena's Agility software portfolio, which includes a SDN multilayer WAN
controller, NFV platform, and network level software applications for enabling on-demand, high-bandwidth WAN
services delivered in an open network ecosystem. This segment also includes the OneControl Unified Management
System, ON-Center® Network & Service Management Suite, Ethernet Services Manager and Optical Suite Release.
This segment includes a broad range of services for consulting and network design, installation and deployment,
maintenance support 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 2013 compared to Fiscal 2014

Revenue

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

periods indicated:

Fiscal Year

2013

2014

Increase
(decrease)

%**

Revenue:

Converged Packet Optical

$ 1,187,231

Packet Networking

Optical Transport
Software and Services

222,898

233,821
438,596

57.0

10.7

11.2
21.1

$ 1,455,501

244,116

127,215
461,457

63.6

10.7

5.6
20.1

268,270

21,218
(106,606)
22,861

Consolidated revenue

$ 2,082,546

100.0

$ 2,288,289

100.0

205,743

_________________________________

22.6

9.5
(45.6)
5.2

9.9

Denotes % of total revenue

** Denotes % change from 2013 to 2014

•

Converged Packet Optical revenue increased significantly, reflecting a $258.2 million increase in sales of our 6500
Packet-Optical Platform, largely driven by service provider and Web-scale provider demand for high-capacity, optical
transport for coherent 40G and 100G network infrastructures. In addition, sales of our 5430 reconfigurable switching
system and the OTN configuration for the 5410 Reconfigurable Switching System increased by $25.6 million and
$6.0 million respectively. These increases were partially offset by a $21.5 million decrease in sales of our
CoreDirector® Multiservice Optical Switches. The strong performance of this segment, particularly as compared to
the expected declines in Optical Transport segment revenue, reflects the preference of network operators to adopt
next-generation architectures that enable the convergence of high-capacity, coherent optical transport with integrated
OTN switching and control plane functionality.

Packet Networking revenue increased, reflecting a $30.4 million increase in sales of our 3000 and 5000 families of
service delivery and aggregation switches. This increase was largely driven by the expansion of Ethernet business
services by AT&T, our largest service provider customer. Segment revenue also benefited from $1.7 million in initial
sales of our 8700 Packetwave Platform. These increases were partially offset by decreases of $5.3 million in sales of
our 5410 Service Aggregation Switch and $5.1 million in sales of our older, stand-alone broadband products.

• Optical Transport revenue decreased, reflecting sales decreases of $46.6 million in other stand-alone transport

products, $36.2 million of 5100/5200 Advanced Services Platform and $23.8 million in our 4200 Advanced Services
Platform. Revenue for our Optical Transport segment, which currently consists principally of stand-alone WDM and
SONET/SDH-based transport platforms, has experienced meaningful declines in annual revenue in recent years,
reflecting network operators' transition toward next-generation converged network architectures as described above.

•

Software and Services revenue increased, reflecting increases of $10.4 million in maintenance and support services
revenue, $8.4 million in installation and deployment services revenue, $2.8 million in software sales and $1.2 million
in networking transformation consulting 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

2013

2014

Increase
(decrease)

%**

$ 1,217,462

865,084

58.5

41.5

$ 1,317,981

970,308

$ 2,082,546

100.0

$ 2,288,289

57.6

42.4

100.0

100,519

105,224

205,743

8.3

12.2

9.9

_________________________________

Denotes % of total revenue

** Denotes % change from 2013 to 2014

•

United States revenue reflects increases of $123.8 million in Converged Packet Optical sales, $20.3 million in Packet
Networking sales and $20.7 million in Services and Software sales. In particular, during fiscal 2014, we benefited
from the diversification of our customer base, including increased sales of our Converged Packet Optical products to
Web-scale providers and data center operators, as these customers added capacity and adopted next-generation
network architectures better able to handle multi-service traffic growth. We also increased sales of our Packet
Networking and Converged Packet Optical products to AT&T in support of its Ethernet business services and
increased demand for high-capacity, optical transport. These increases were partially offset by a $64.3 million
decrease in Optical Transport sales as network operators' transition toward next-generation converged network
architectures as described above.

International revenue reflects increases of $144.5 million in Converged Packet Optical sales and $2.2 million in
Software and Services revenue. We benefited from the diversification of our customer base including increased sales
of our Converged Packet Optical products to service provider customers, submarine consortia and cable and

multiservice operators. These increases were partially offset by decreases of $42.3 million in Optical Transport sales
as network operators' transition toward next-generation converged network architectures as described above.

While we have benefited from the diversification of our business and customer base, our largest ten customers contributed
59.4% of fiscal 2013 revenue and 56.4% of fiscal 2014 revenue. A sizable portion of our revenue continues to come from sales
to service provider customers. As a result, our financial results are significantly affected by and can fluctuate depending upon
spending levels of our service provider customers, their end-user demand and the business opportunities and challenges they
encounter. Sales to AT&T were $373.6 million, or 17.9% of total revenue, in fiscal 2013 and $423.5 million, or 18.5% of total
revenue, in fiscal 2014. We did not have any other customers accounting for greater than 10% of our revenue in fiscal 2013 or
fiscal 2014.

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,” is susceptible to fluctuations due to a number of factors. In

any given period, gross margin can vary significantly depending upon the mix and concentration of revenue by segment,
product line within a particular segment, geography and customers. Gross margin can also be affected by our concentration of
lower margin "common" equipment sales and higher margin channel cards, the mix of lower margin installation services within
our service revenue, our introduction of new products, and changes in expense for excess and obsolete inventory and warranty
obligations. Gross margin can also be adversely affected by the level of pricing pressure and competition that we encounter in
the market. We expect that gross margins will be subject to fluctuation based on our level of success in driving product cost
reductions relative to the market-based price erosion we encounter. In an effort to retain or secure customers, enter new markets
or capture market share, 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. Gross margin can also be affected as a result of our degree of success in
rationalizing our supply chain and consolidating third party contract manufacturers and distribution sites as part of our effort to
optimize our operations. These market dynamics and factors may adversely affect our gross margin 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

2013

2014

Increase
(decrease)

%**

$ 2,082,546

1,217,371

865,175

100.0

$ 2,288,289

58.5

41.5

1,339,937

948,352

100.0

58.6

41.4

205,743

122,566

83,177

9.9

10.1

9.6

_________________________________

Denotes % of total revenue

** Denotes % change from 2013 to 2014

Table of Contents

Fiscal Year

2013

2014

Increase
(decrease)

%**

Product revenue

Product cost of goods sold

Product gross profit

$ 1,680,125

100.0

$ 1,865,826

967,510

712,615

57.6

42.4

1,083,022

782,804

100.0

58.0

42.0

185,701

115,512

70,189

11.1

11.9

9.8

_________________________________

Denotes % of product revenue

** Denotes % change from 2013 to 2014

Service revenue

Service cost of goods sold

Service gross profit

Fiscal Year

2013

402,421

249,861

152,560

100.0

62.1

37.9

2014

422,463

256,915

165,548

Increase
(decrease)

%**

100.0

60.8

39.2

20,042

7,054

12,988

5.0

2.8

8.5

_________________________________

Denotes % of service revenue

** Denotes % change from 2013 to 2014

• Gross profit as a percentage of revenue remained relatively unchanged.

• Gross profit on products as a percentage of product revenue decreased slightly, due to lower margins on Packet

Networking and Optical Transport products. The decline was largely offset by improved mix of higher-margin packet
platforms with software content within our Converged Packet Optical segment, and greater leverage from efforts to
streamline and optimize our supply chain activities.

• Gross profit on services as a percentage of services revenue increased primarily due to increased maintenance and

consulting services revenues and increased margin due to improved efficiencies for managed spares projects.

Operating Expense

We expect operating expense to increase slightly in fiscal 2015 from the level reported for fiscal 2014 to support the

growth of our business, to fund our research and development initiatives and to provide for investments in the re-engineering of
company-wide enterprise resource planning platforms. Operating expense consists of the component elements described below.

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.

Selling 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 the amortization of purchased technology and the value of

customer relationships derived from our past acquisitions.

Restructuring costs primarily reflect actions Ciena has taken to better align its workforce, facilities and operating costs

with perceived market opportunities, business strategies and changes in market and business conditions.

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

indicated:

Fiscal Year

2013

2014

Increase
(decrease)

%**

Research and development

383,408

Selling and marketing

General and administrative

Amortization of intangible assets

Restructuring costs

304,170

122,432

49,771

7,169

18.4

14.6

5.9

2.4

0.3

401,180

328,325

126,824

45,970

349

17.5

14.3

5.5

2.0

—

Total operating expenses

866,950

41.6

902,648

39.3

17,772

24,155

4,392
(3,801)
(6,820)
35,698

4.6

7.9

3.6
(7.6)
(95.1)
4.1

_________________________________

Denotes % of total revenue

** Denotes % change from 2013 to 2014

•

Research and development expense benefited by $15.4 million as a result of foreign exchange rates, primarily due to
strengthening of the U.S. dollar in relation to the Canadian Dollar. The $17.8 million increase primarily reflects
increases of $8.1 million in professional services expense, $6.9 million in employee compensation and related costs,
$5.3 million in prototype expense, partially offset by a decrease of $2.6 million in technology and related costs.

Selling and marketing expense benefited by $1.9 million as a result of foreign exchange rates, primarily due to
strengthening of the U.S. dollar in relation to the Canadian Dollar. The $24.2 million increase primarily reflects
increases of $20.6 million in employee compensation and related costs, $3.3 million of travel and related costs and
$1.2 million in facilities and information technology costs. These increases were partially offset by a decrease of $1.4
million in customer demonstration equipment.

• General and administrative expense increased by $4.4 million, primarily reflecting an increase in legal fees and

settlements and consulting services.

•

Amortization of intangible assets decreased due to certain intangible assets having reached the end of their economic
lives.

Restructuring costs primarily reflect certain severance and related expense associated with headcount reductions and
restructuring activities to align our workforce and resources with market opportunities and research and development
initiatives. Restructuring costs for fiscal 2013 also include the consolidation of certain facilities located within
Maryland associated with the transition of our headquarters facility.

Other items

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

Fiscal Year

2013

2014

Increase
(decrease)

%**

Interest and other income (loss), net

Interest expense

Loss on debt extinguishment

Provision for income taxes

(5,744)

44,042

(28,630)

5,240

(0.3) $
2.1
$
(1.4) $
$
0.3

(25,262)
47,115

—

13,964

(1.1) $
$
2.1

(19,518)
3,073

— $

28,630

0.6

8,724

(339.8)
7.0
(100.0)
166.5

_________________________________

Denotes % of total revenue

** Denotes % change from 2013 to 2014

•

Interest and other income (loss), net reflects a $5.7 million non-cash loss related to the change in fair value of the
embedded redemption feature associated with our 2015 Notes and a $13.5 million increase in losses related to foreign

•

exchange rates on assets and liabilities denominated in a currency other than the relevant functional currency, net of
hedging activity.

Interest expense increased primarily due to the Term Loan that was entered into in fiscal 2014, as described in
"Overview" above.

Loss on extinguishment of debt for fiscal 2013 reflects a non-cash loss of $28.6 million relating to the exchange
transactions during the first quarter of fiscal 2013. Upon issuance, the 4.0% convertible senior notes due December 15,
2020 (the "2020 Notes") were recorded at a fair value of $213.6 million. The exchange transactions resulted in the
retirement of outstanding 2015 Notes with a carrying value of $187.9 million and the write-off of unamortized debt
issuance costs of $2.3 million and $0.6 million relating to the redemption feature on the 2015 Notes, which was
accounted for as a separate embedded derivative.

•

Provision for income taxes increased primarily due to foreign and state tax expenses.

Fiscal 2012 compared to Fiscal 2013

Revenue

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

periods indicated:

Revenue:

Fiscal Year

2012

2013

Increase
(decrease)

%**

Converged Packet Optical

951,245

51.9

$ 1,187,231

57.0

10.7

11.2

21.1

235,986

93,916
(119,799)
38,520

24.8

72.8
(33.9)
9.6

13.6

Packet Networking

Optical Transport

Software and Services

Consolidated revenue

128,982

353,620

400,076

7.0

19.3

21.8

222,898

233,821

438,596

$ 1,833,923

100.0

$ 2,082,546

100.0

248,623

_________________________________

Denotes % of total revenue

** Denotes % change from 2012 to 2013

•

Converged Packet Optical revenue increased significantly, reflecting a $176.7 million increase in sales of our 6500
Packet-Optical Platform, largely driven by service provider demand for high-capacity, optical transport for coherent
40G and 100G network infrastructures. In addition, sales of our 5430 reconfigurable switching system and the OTN
configuration for the 5410 Reconfigurable Switching System increased by $71.0 million and $10.3 million
respectively. These increases were partially offset by a $22.0 million decrease in sales of our CoreDirector®
Multiservice Optical Switches. The strong performance of this segment, particularly as compared to the expected
annual revenue declines in Optical Transport segment revenue, reflects the preference of network operators to adopt
next-generation architectures that enable the convergence of high-capacity, coherent optical transport with integrated
OTN switching and control plane functionality.

Packet Networking revenue increased, reflecting a $101.0 million increase in sales of our 3000 and 5000 families of
service delivery and aggregation switches. This increase was slightly offset by a $4.9 million decrease in sales of our
5410 Service Aggregation Switch and a $2.7 million decrease in sales of our older stand-alone broadband products.
Segment revenue benefited from the expansion of Ethernet business services by our North American service provider
customers and sales of service delivery and aggregation products in support of their related network initiatives.

• Optical Transport revenue decreased, reflecting sales decreases of $55.0 million in our 4200 Advanced Services

Platform, $42.6 million in other stand-alone transport products and $22.1 million in our 5100/5200 Advanced Services
Platform. Revenue for our Optical Transport segment, which currently consists principally of stand-alone WDM and
SONET/SDH-based transport platforms, has experienced meaningful declines in annual revenue in recent years,
reflecting network operators' transition toward next-generation network architectures as described above.

•

Software and Services revenue increased, reflecting sales increases of $15.0 million in software, $14.2 million in
installation and deployment, $7.6 million in maintenance and support services and $1.7 million in network
transformation 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

2012

2013

Increase
(decrease)

%**

972,576

861,347

53.0

47.0

$ 1,217,462

865,084

$ 1,833,923

100.0

$ 2,082,546

58.5

41.5

100.0

244,886

3,737

248,623

25.2

0.4

13.6

_________________________________

Denotes % of total revenue

** Denotes % change from 2012 to 2013

•

United States revenue reflects increases of $152.0 million in Converged Packet Optical sales, $95.5 million in Packet
Networking sales, and $28.2 million in Software and Services revenue. These increases were partially offset by a
$30.9 million decrease in Optical Transport sales. Increased revenues reflect early adoption by network operators in
the United States of converged network architectures that align well with our OPn Architecture and solutions offering.

International revenue reflects increases of $84.0 million in Converged Packet Optical sales and $10.3 million
increase in Software and Services revenue. These increases were partially offset by decreases of $88.9 million in
Optical Transport sales and $1.6 million in Packet Networking sales.

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

2012

2013

Increase
(decrease)

%**

$ 1,833,923

1,109,699

724,224

100.0

$ 2,082,546

60.5

39.5

1,217,371

865,175

100.0

58.5

41.5

248,623

107,672

140,951

13.6

9.7

19.5

_________________________________

Denotes % of total revenue

*
** Denotes % change from 2012 to 2013

Fiscal Year

2012

2013

Increase
(decrease)

%**

Product revenue

Product cost of goods sold

Product gross profit

$ 1,454,991

100.0

$ 1,680,125

868,805

586,186

59.7

40.3

967,510

712,615

100.0

57.6

42.4

225,134

98,705

126,429

15.5

11.4

21.6

_________________________________

Denotes % of product revenue

** Denotes % change from 2012 to 2013

Service revenue

Service cost of goods sold

Service gross profit

Fiscal Year

2012

378,932

240,894

138,038

100.0

63.6

36.4

2013

402,421

249,861

152,560

Increase
(decrease)

%**

100.0

62.1

37.9

23,489

8,967

14,522

6.2

3.7

10.5

_________________________________

Denotes % of service revenue

** Denotes % change from 2012 to 2013

• 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 primarily due to improved mix of higher-
margin packet platforms with software content, including within our Packet Networking and Converged Packet
Optical segments, higher sales of integrated network service management software, lower warranty costs, and greater
leverage from efforts to streamline and optimize our supply chain activities.

• Gross profit on services as a percentage of services revenue increased primarily due to improved margins on
installation and deployment services due to improved operational efficiencies, and increased consulting service
revenue from our Network Transformation Solutions offering.

Operating expense

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

indicated:

Fiscal Year

2012

2013

Increase
(decrease)

%**

Research and development

364,179

Selling and marketing

General and administrative

Amortization of intangible assets

Restructuring costs

266,338

114,002

51,697

7,854

19.9

14.5

6.2

2.8

0.4

383,408

304,170

122,432

49,771

7,169

18.4

14.6

5.9

2.4

0.3

Total operating expenses

804,070

43.8

866,950

41.6

19,229

37,832

8,430
(1,926)
(685)
62,880

5.3

14.2

7.4
(3.7)
(8.7)
7.8

_________________________________

Denotes % of total revenue

** Denotes % change from 2012 to 2013

•

Research and development expense benefited from $4.0 million as a result of foreign exchange rates, primarily due
to the strengthening of the U.S. dollar in relation to the Canadian dollar and the Indian Rupee. The $19.2
million increase primarily reflects increases of $15.9 million in employee compensation and related costs, $7.5 million
in prototype expense, $5.2 million in facilities and information systems expense and $2.1 million in technology-
related purchases. The increase in employee compensation is primarily related to incentive-based compensation. These
increases were partially offset by a $12.5 million decrease in professional services.

Selling and marketing expense increased by $37.8 million, primarily reflecting increases of $26.5 million in
employee compensation and related costs, $6.8 million in facilities and information systems expense, $4.5 million of
travel and related costs, $2.0 million in trade show and related expense and $1.1 million in professional services. A
significant portion of our increased employee compensation and related costs reflect commissions-based compensation
associated with strong order flows achieved during fiscal 2013. These increases were partially offset by decreases of
$1.9 million of freight and logistic costs and $1.3 million for customer demonstration equipment.

• General and administrative expense increased by $8.4 million primarily reflecting an increase of $10.8 million in
employee compensation and related costs, partially offset by a $2.7 million decrease in facilities and information
systems expense. The increase in employee compensation is primarily related to incentive-based compensation.

•

Amortization of intangible assets decreased due to certain intangible assets having reached the end of their economic
lives.

Restructuring costs for fiscal 2012 and 2013 primarily reflect certain severance and related expense associated with
headcount reductions and restructuring activities to align our workforce and resources with market opportunities and
research and development initiatives. In addition, restructuring costs for fiscal 2012 and 2013 include the
consolidation of certain facilities located within Maryland associated with the transition of our headquarters facility.

Other items

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

Fiscal Year

2012

2013

Increase
(decrease)

%**

Interest and other income (loss), net

Interest expense

Loss on extinguishment of debt

Provision for income taxes

(15,200)

39,653

—

9,322

(0.8) $
$
2.2

0.0

0.5

(5,744)
44,042
(28,630)
5,240

(0.3) $
2.1
$
(1.4) $
$
0.3

9,456

4,389
(28,630)
(4,082)

62.2

11.1
(100.0)
(43.8)

_________________________________

Denotes % of total revenue

** Denotes % change from 2012 to 2013

•

Interest and other income (loss), net in fiscal 2013, reflects a $3.0 million non-cash gain related to the change in fair
value of the embedded redemption feature associated with our 2015 Notes. In fiscal 2012, interest and other income
(loss), net reflected a $6.6 million non-cash loss related to the change in fair value of the embedded redemption
feature.

Interest expense increased, reflecting increases of $3.0 million relating to our convertible note exchange transactions
during the first quarter of fiscal 2013, and $2.1 million in expense relating to our asset-backed loan facility entered
into during fiscal 2012. These increases were partially offset by a decrease of interest expense in fiscal 2013 of $0.6
million, principally due to the repayment of our 0.25% convertible senior notes at maturity in the second quarter of
fiscal 2013.

Loss on extinguishment of debt reflects a non-cash loss of $28.6 million relating to the exchange transactions during
the first quarter of fiscal 2013. Upon issuance, the 2020 Notes were recorded at a fair value of $213.6 million. The
exchange transactions resulted in the retirement of outstanding 2015 Notes with a carrying value of $187.9 million and
the write-off of unamortized debt issuance costs of $2.3 million and $0.6 million relating to the redemption feature on
the 2015 Notes accounted for as a separate embedded derivative.

Provision for income taxes for fiscal 2012 and fiscal 2013 are primarily related to foreign tax expense. The decrease
in fiscal 2013 is largely attributable to the recognition of prior uncertain tax benefits.

Segment Profit

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

periods:

Segment profit:

Converged Packet Optical

Packet Networking

Optical Transport

Software and Services

_________________________________

Denotes % change from 2013 to 2014

Fiscal Year

2013

2014

Increase
(decrease)

242,335

22,740

89,754

126,938

353,942

19,467

38,974

134,789

111,607
(3,273)
(50,780)
7,851

46.1
(14.4)
(56.6)
6.2

•

Converged Packet Optical segment profit increased primarily due to increased sales volume and improved gross
margin. The increased sales volume is largely driven by service provider and Web-scale provider demand for high-
capacity, coherent 40G and 100G network infrastructures with integrated OTN switching and control plane
functionality. The improved gross margin is primarily due to sales reflecting a greater mix of higher-margin packet
platforms with software content within the segment. These increases were partially offset by increased research and
development expense.

Packet Networking segment profit decreased due to lower margins on our 3000 and 5000 families of service
delivery and aggregation switches, reflecting increased pricing pressure and competitive dynamics, and increased
research and development expense. Decreased segment profit was partially offset by increased sales volume.

• Optical Transport segment profit decreased primarily due to reduced sales volume and lower gross margin, partially
offset by lower research and development expense. The decrease in gross margin is primarily due to an increase in
obsolete and excess inventory expense for the discontinuance of certain parts and components used in the manufacture
of our Optical Transport products, including our Corestream® Agility Optical Transport platform. Revenue for our
Optical Transport segment, which currently consists principally of stand-alone WDM and SONET/SDH-based
transport platforms, has experienced meaningful declines in annual revenue in recent years, reflecting network
operators' transition toward next-generation network architectures as described above.

•

Software and Services segment profit increased slightly due to higher sales for software and consulting services and
improved efficiencies for managed spares projects. These increases were partially offset by higher software research
and development expense.

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

periods:

Segment profit:

Converged Packet Optical

Packet Networking

Optical Transport

Software and Services

_________________________________

Denotes % change from 2012 to 2013

Fiscal Year

2012

2013

Increase
(decrease)

148,244

1,713

116,736

93,352

242,335

22,740

89,754

126,938

94,091

21,027
(26,982)
33,586

63.5

1,227.5
(23.1)
36.0

•

Converged Packet Optical segment profit increased primarily due to increased sales volume and improved gross
margin, partially offset by increased research and development expense. The increased sales volume is largely driven
by service provider demand for high-capacity, optical transport for coherent 40G and 100G network infrastructures
and improved gross margin due to a greater mix of higher-margin packet platforms with software content within the
segment.

Packet Networking segment profit increased primarily due to increased sales volume and improved gross margin,
partially offset by increased research and development expense. Packet Networking revenue benefited from the
expansion of Ethernet business services by our North American service provider customers and sales of service
47

delivery and aggregation products in support of their related network initiatives. Gross margin improved due to a
greater mix of higher-margin packet platforms with software content within the segment.

• Optical Transport segment profit decreased primarily due to reduced sales volume, partially offset by improved
gross margin and lower research and development expense. Revenue for our Optical Transport segment, which
currently consists principally of stand-alone WDM and SONET/SDH-based transport platforms, has experienced
meaningful declines in annual revenue in recent years, reflecting network operators' transition toward next-generation
network architectures as described above.

•

Software and Services segment profit increased primarily due to increased sales volume and improved gross margin.
The increased sales volume is primarily due to higher sales for our software products and installation services. The
improved margins are primarily installation and deployment services margins due to improved operational
efficiencies.

Liquidity and Capital Resources

At October 31, 2014, our principal sources of liquidity were cash and cash equivalents and investments in marketable debt

securities, representing U.S. treasuries and commercial paper, and our ABL Credit Facility. The following table sets forth
changes in our cash and cash equivalents and investments in marketable debt securities (in thousands):

Cash and cash equivalents

Short-term investments in marketable debt securities

Long-term investments in marketable debt securities

October 31,

2013

2014

Increase

(decrease)

346,487

586,720

240,233

124,979

15,031

140,205

50,057

15,226

35,026

Total cash and cash equivalents and investments in marketable debt
securities

486,497

776,982

290,485

The change in total cash and cash equivalents and investments in marketable debt securities during fiscal 2014 was
primarily related to the $246.0 million in net proceeds from our Term Loan as described in "Overview" above and the
following:

•

$89.8 million cash provided by operations, consisting of $195.2 million provided by net losses adjusted for non-cash
charges offset by $105.4 million used in working capital;

$48.2 million used for purchases of equipment, furniture, fixtures and intellectual property;

$10.0 million used in settlement of foreign currency forward contracts, net;

$3.0 million used to pay capital lease obligations; and

$17.7 million from proceeds of stock issuances under our employee stock purchase plan and the exercise of stock
options.

As of October 31, 2014, letters of credit totaling $71.4 million were collateralized by our ABL Credit Facility. There were

no borrowings outstanding under the ABL Credit Facility as of October 31, 2014. See "ABL Credit Facility" below for
additional information.

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, investments and other sources of liquidity, including our ABL Credit
Facility, will satisfy our working capital needs, capital expenditures, the repayment of our outstanding 4.0% convertible senior
notes due March 15, 2015 and other liquidity requirements associated with our operations through at least the next 12 months.

The following sections set forth the components of our $89.8 million of cash provided by operating activities for fiscal

2014:

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:

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

Share-based compensation costs

Amortization of intangible assets

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, 2014

(40,637)

55,616

42,930

57,151

32,332

22,129

25,668

195,189

Cash used in increases in accounts receivable during fiscal 2014, net of $2.8 million in provision for doubtful accounts,
was $33.2 million. This reflects an increase in our revenue, partially offset by a decrease in days sales outstanding. Our days
sales outstanding (DSOs) decreased from 84 days for fiscal 2013 to 82 days for fiscal 2014. The decrease in DSOs primarily
reflects shorter customer payment terms.

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

from the end of fiscal 2013 through the end of fiscal 2014:

Accounts receivable, net

Inventory

October 31,

2013

2014

Increase

(decrease)

488,578

518,981

30,403

Cash used in increases in inventory during fiscal 2014 was $37.9 million. The increase in inventory reflects our decision to

carry more finished goods inventory for our Converged Packet Optical products to reduce our lead times for shipments to
customers. Our inventory turns increased from 3.9 turns during fiscal 2013 to 4.3 turns during fiscal 2014. Our inventory
balance, as reported on our Consolidated Balance Sheet, increased by $5.6 million during fiscal 2014. This change reflects our
$37.9 million cash usage for inventory, partially offset by a $32.3 million non-cash provision for excess and obsolescence. The
following table sets forth changes (in thousands) to the components of our inventory from the end of fiscal 2013 through the
end of fiscal 2014:

Raw materials

Work-in-process

Finished goods

Deferred cost of goods sold

Gross inventory

Provision for inventory excess and obsolescence

Inventory

Prepaid expenses and other

October 31,

2013

2014

Increase

(decrease)

53,274

64,853

11,579

7,773

153,855

75,764

290,666
(41,563)
249,103

8,371

165,799

75,763

314,786
(60,126)
254,660

598

11,944
(1)
24,120
(18,563)
5,557

Cash used in prepaid expense and other during fiscal 2014 was $7.9 million and primarily related to higher product

demonstration equipment and deferred deployment expense.

Accounts payable, accruals and other obligations

Utilization of cash resources for accounts payable, accruals and other obligations during fiscal 2014 was $59.8 million.
This amount reflects a $29.5 million decrease in our accounts payable, accruals and other obligations plus additional liabilities
recorded for the following items: $22.1 million relating to warranties; $7.3 million for financing activities relating to unpaid
capital leases; and $2.1 million related to our interest rate swap derivative. These items were partially offset by a decrease of
$1.2 million for investing activities related to equipment purchases.

The following table sets forth (in thousands) changes in our accounts payable, accruals and other obligations from the end

of fiscal 2013 through the end of fiscal 2014:

Accounts payable

Accrued liabilities and other short-term obligations

Other long-term obligations

Accounts payable, accruals and other obligations

October 31,

2013

2014

Increase

(decrease)

254,849

209,777

271,656

34,753

276,608

45,390

561,258

531,775

(45,072)
4,952

10,637
(29,483)

Interest Paid on Convertible Notes, ABL Credit Facility and Term Loan

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 $7.5 million in interest on these convertible notes during fiscal 2014.

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 2014.

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 $13.1 million in interest on these convertible notes during fiscal 2014.

Interest on our outstanding 4.0% convertible senior notes, due December 15, 2020, is payable on June 15 and December 15

of each year. We paid $7.5 million in interest on these convertible notes during fiscal 2014.

Interest on our outstanding Term Loan, due July 15, 2019, is payable periodically based on the underlying market index

rate selected for borrowing. We paid $2.6 million in interest on this term loan during fiscal 2014.

During fiscal 2014, we utilized the ABL Credit Facility to collateralize certain standby letters of credit. We paid $1.2
million in commitment fees, interest expense and other administrative charges relating to our ABL Credit Facility during fiscal
2014.

For additional information about our convertible notes and Term Loan, see Note 14 to our Consolidated Financial

Statements included in in Item 8 of Part II of this report. For additional information about our ABL Credit Facility, see Note 15
to our Consolidated Financial Statements included in Item 8 of Part II of this report and "ABL Credit Facility" below.

Deferred revenue

Deferred revenue increased by $33.4 million during fiscal 2014. Product deferred revenue represents either payments
received in advance of shipment or payments received after shipment but before revenue recognition. Services deferred revenue
is related to payment for service contracts for which revenue 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 2013 through the
end of fiscal 2014:

Products

Services

Total deferred revenue

ABL Credit Facility

October 31,

2013

2014

Increase

(decrease)

36,671

75,499

112,170

50,457

95,161

145,618

13,786

19,662

33,448

During fiscal 2014, we amended our ABL Credit Facility to, among other things:

•

increase the total committed amount from $150 million to $200 million;

extend the maturity date from August 13, 2015 to December 31, 2016 (and eliminate a December 15, 2014 maturity
date acceleration feature);

reduce from $200 million to $150 million the minimum aggregate amount of unrestricted cash and cash equivalents
that we are required to maintain at all times;

reduce the interest rate on borrowings from LIBOR plus an applicable margin ranging from 200 basis points to 250
basis points, to an applicable margin ranging from 150 basis points to 200 basis points, with the actual margin
determined based on our utilization of the credit facility; and

amend the borrowing base to include, among other items, up to $50 million in eligible cash.

We principally use the liquidity available under the ABL Credit Facility to support the issuance of letters of credit that arise
in the ordinary course of our business and thereby to reduce our use of cash required to collateralize these instruments.

Contractual Obligations

During fiscal 2014, we entered into a Term Loan Credit Agreement that provides for senior secured term loans in an
aggregate principal amount of $250 million as described in "Overview" above. During the fourth quarter of fiscal 2014, we
entered into a lease relating to office space for its new research and development center in Ottawa, Canada, consisting of a
rentable area of approximately 170,582 square feet.The future minimum rental commitments to be paid over the 18-year lease
term are approximately $49.1 million. The following is a summary of our future minimum payments under contractual
obligations as of October 31, 2014 (in thousands):

Total

Less than one
year

One to three
years

Three to five
years

Thereafter

Principal due at maturity on convertible notes (1)

1,254,627

187,500

500,000

Principal due on term loan

Interest due on convertible notes

Interest due on term loan (2)

Operating leases (3)

Purchase obligations (4)

Capital lease

Other obligations

Total (5)

_________________________________

249,375

118,125

44,045

204,898

197,753

13,020

7,002

2,500

28,750

9,449

33,527

197,753

8,312

3,814

5,000

50,000

18,640

59,837

4,708

3,188

350,000

241,875

28,125

15,956

28,343

—

217,127

—

11,250

—

83,191

—

$ 2,088,845

471,605

641,373

664,299

311,568

(1)

(2)

(3)

Includes the accretion of the principal amount on the 2020 Notes payable at maturity at a rate of 1.85% per year
compounded semi-annually, commencing December 27, 2012.

Interest on the term loan is variable and was calculated using the rate in effect on the balance sheet date.

Does not include variable insurance, taxes, maintenance and other costs that may be required by the applicable
operating lease. These costs are not expected to have a material future impact.

(4)

(5)

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, 2014, we also had approximately $14.4 million of other long-term obligations on 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.

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 under our ABL Credit
Facility or 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, 2014 (in thousands):

Standby letters of credit

71,449

34,409

21,883

3,711 $

11,446

Total

Less than one
year

One to
three years

Three to
five years

Thereafter

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 share-based compensation, bad debts, inventories, intangible and other long-lived 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 deferred and recognized ratably over the period during which the services are to be
performed. Shipping and handling fees billed to customers are included in revenue, with the associated expenses included in
product cost of goods sold.

We apply the percentage-of-completion method to long-term arrangements where it is required to undertake significant
production, customization 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. Unbilled percentage- of-completion
revenues recognized are included in accounts receivable, net. Billings in excess of revenues recognized on these contracts are

recorded within deferred revenue. The percentage of revenue recognized using the percentage-of-completion method for the
fiscal years ended October 31, 2012, October 31, 2013 and October 31, 2014 were 1.0%, 4.5% and 4.0%, respectively.

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 are 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.

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 for each delivered element when the revenue recognition criteria are met. We
determine the selling price for each deliverable based upon the selling price hierarchy for multiple-deliverable arrangements.
Under this hierarchy, we use vendor-specific objective evidence ("VSOE") of selling price, if it exists, or third party evidence
("TPE") of selling price if VSOE does not exist. If neither VSOE nor TPE of selling price exists for a deliverable, we use our
best estimate of selling price ("BESP") for that deliverable. For multiple element software arrangements where VSOE of
undelivered maintenance does not exist, revenue for the entire arrangement is recognized over the maintenance term.

VSOE, when determinable, is established based on our pricing and discounting practices for the specific product or service

when sold separately. In determining whether VSOE exists, 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.

Our total deferred revenue for products was $36.7 million and $50.5 million as of October 31, 2013 and October 31, 2014,

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 $75.5 million and $95.2 million as of October 31, 2013 and October 31,
2014, respectively.

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 and the expense is
adjusted accordingly. 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 these estimates, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. Changes in these estimates and assumptions can materially
affect the measurement of estimated fair value of our share-based compensation. See Note 19 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,
2014, total unrecognized compensation expense was $57.2 million, which relates to unvested restricted stock units and is
expected to be recognized over a weighted-average period of 1.4 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 “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. In an effort to limit our exposure to delivery delays and to satisfy
customer 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 our strategic direction,
discontinuance of a product and declines in market conditions. We recorded charges for excess and obsolete inventory of $19.9
million and $32.3 million in fiscal 2013 and 2014, respectively. The charges in fiscal 2013 and fiscal 2014 primarily related to
engineering design changes and the discontinuance of certain parts and components used in the manufacture of our Optical
Transport, including our Corestream® Agility Optical Transport platform, and Converged Packet Optical products. Our
inventory net of allowance for excess and obsolescence was $249.1 million and $254.7 million as of October 31, 2013 and
October 31, 2014, 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 $488.6 million and $519.0 million as of
October 31, 2013 and October 31, 2014, respectively. Our allowance for doubtful accounts was $2.0 million and $2.1 million as
of October 31, 2013 and October 31, 2014, respectively.

Long-lived Assets

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

of October 31, 2013 and October 31, 2014 these assets totaled $366.9 million and $309.4 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 represent the lowest
level for which we identify cash flows.We measure impairment loss as the amount by which the carrying amount of the asset or
asset group exceeds its fair value.

Deferred Tax Valuation Allowance

As of October 31, 2014, we have recorded a valuation allowance offsetting 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,
54

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 $56.3 million and $56.0 million as of
October 31, 2013 and October 31, 2014, 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 $24.6 million and $22.1 million for fiscal 2013 and 2014, respectively. See Note 11 to
the Consolidated Financial Statements included in Item 8 of Part II of this report. 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 our 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, 2014. 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. The results for any quarter are not necessarily
indicative of results for any future period.

Revenue:

Products

Services

Total Revenue

Cost of goods sold:

Products

Services

Total costs of goods sold

Gross profit

Operating expenses:

Research and
development

Selling and marketing

General and
administrative

Amortization of
intangible assets

Restructuring costs

Jan. 31,

Apr. 30,

Jul. 31,

Oct. 31,

Jan. 31,

Apr. 30,

Jul. 31,

Oct. 31,

2013

2014

$ 353,057

$ 413,217

$ 437,442

$ 476,409

$ 432,941

$ 460,821

$ 495,889

$ 476,175

100,036

453,093

94,495

507,712

100,914

538,356

106,976

583,385

100,762

533,703

99,240

560,061

107,673

603,562

114,788

590,963

196,521

239,441

247,768

283,780

245,216

257,632

275,003

305,171

60,777

257,298

195,795

58,758

298,199

209,513

62,367

310,135

228,221

67,959

351,739

231,646

62,636

307,852

225,851

64,738

322,370

237,691

64,586

339,589

263,973

64,955

370,126

220,837

89,125

66,588

100,787

74,475

93,069

75,613

100,427

101,497

103,492

87,494

78,348

83,662

97,685

81,919

98,506

84,396

28,208

30,883

32,066

31,275

30,097

31,882

36,285

28,560

12,453

5,030

12,439

1,509

12,440

12,439

11,493

11,019

202

428

115

—

171

Total operating expenses

201,404

220,093

213,390

232,063

222,496

230,529

226,971

222,652

(5,609)

(10,580)

14,831

(417)

3,355

7,162

37,002

(1,815)

(137)

(2,716)

(10,732)

(11,392)

(3,167)
(10,972)

276
(10,946)

(5,998)
(11,028)

(1,905)
(11,020)

(6,328)
(11,508)

(11,031)
(13,559)

(28,630)

—

(45,108)

(24,688)

692

(11,087)

(13,671)

(5,763)

19,166

(26,405)

Net income (loss)

$ (47,324) $ (27,079) $

2,216

2,391

3,006
2,265
1,923
(1,231) $ (9,797) $ (15,936) $ (10,158) $ 16,160

(1,290)

4,395

(0.47) $

(0.27) $

(0.01) $

(0.09) $

(0.15) $

(0.10) $

0.15

(0.47) $

(0.27) $

(0.01) $

(0.09) $

(0.15) $

(0.10) $

0.15

4,298
$ (30,703)

(0.29)

Income (loss) from
operations

Interest and other income
(loss), net

Interest expense

Loss on extinguishment
of debt

Income (loss) before
income taxes

Provision (benefit from)
for income tax

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

101,204

101,913

102,713

103,523

104,501

105,451

106,236

106,931

101,204

101,913

102,713

103,523

104,501

105,451

120,809

106,931

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk disclosures includes forward-looking statements. Actual results could differ

materially from those projected in these 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 investments in U.S. Government obligations and commercial paper with
varying maturities. See Notes 4 and 5 to our Consolidated Financial Statements included in Item 8 of Part II of this report for
information relating to investments and fair value. These investments are sensitive to interest rate movements and their fair
value will decline as interest rates rise and increase as interest rates decline. The estimated impact on these investments 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
$1.2 million decline in value.

Our earnings and cash flows from operations may be exposed to changes in interest rates because of the floating rate of
interest in our Term Loan. See Note 14 to our Consolidated Financial Statements for information relating to the Term Loan. The
Term Loan bears interest at LIBOR plus a spread of 300 basis points subject to a minimum LIBOR rate of 0.75%. As of
October 31, 2014, the interest rate in effect on our Term Loan was 3.75%. During fiscal 2014, Ciena entered into interest rate
cap arrangements to limit the interest rate under the Term Loan to a maximum LIBOR rate of 0.75% plus a spread of 300 basis
points through July 2015. Also in fiscal 2014, Ciena entered into interest rate swap arrangements ("interest rate swap") that fix
the total interest rate under the Term Loan at 5.004%, for the period commencing on July 20, 2015 through July 19, 2018. As
such, a 100 basis point increase in the LIBOR rate as of our most recent LIBOR rate setting would have an immaterial impact
in annualized interest expense on our Term Loan as recognized in our Consolidated Financial Statements.

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

in foreign currency exchange rates. Due to our global presence, some 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 2014, approximately 48.1% of our
operating expense was non-U.S. dollar denominated. If these currencies strengthen, costs reported in U.S. dollars will increase.
During fiscal 2014, research and development expense benefited by approximately $15.4 million, net of hedging losses of $1.4
million, primarily due to the strengthening of the U.S. dollar in relation to the Canadian Dollar in comparison to fiscal 2013.
Also in fiscal 2014, sales and marketing expense benefited by approximately $1.9 million due to the strengthening of the U.S.
dollar in relation to the Canadian Dollar in comparison to fiscal 2013.

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. 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 (loss), net.

Ciena Corporation, as the U.S. parent entity, uses the U.S. dollar as its functional currency, however some of Ciena's
foreign branch offices and subsidiaries use the local currency as their functional currency. During fiscal 2014, Ciena recorded
$15.7 million in foreign currency exchange losses, as a result of monetary assets and liabilities that were transacted in a
currency other than the entity's functional currency, and the re-measurement adjustments were recorded in interest and other
income (loss), net on the Consolidated Statement of Operations. From time to time, Ciena uses foreign currency forwards to
hedge these balance sheet exposures. These forwards are not designated as hedges for accounting purposes and any net gain or
loss associated with these derivatives is reported in interest and other income (loss), net. See Note 1, Note 3 and Note 12 to our
Consolidated Financial Statements included in Item 8 of Part II of this report.

Convertible Notes 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
57

may also increase as the market price of our stock rises and decrease as the market price of our 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 Comprehensive Income (Loss)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Page

Number

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Ciena Corporation:

In our opinion, the accompanying 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, 2014 and
2013, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2014 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, 2014, based on criteria
established in Internal Control - Integrated Framework (1992) 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 accompanying 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.

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 19, 2014

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

ASSETS

Current assets:

Cash and cash equivalents

Short-term investments

Accounts receivable, net

Inventories

Prepaid expenses and other

Total current assets

Long-term investments

Equipment, furniture and fixtures, net

Other intangible assets, net
Other long-term assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Accounts payable

Accrued liabilities and other short-term obligations

Deferred revenue

Current portion of long-term debt

Total current liabilities

Long-term deferred revenue

Other long-term obligations

Long-term debt, net

Total liabilities

Commitments and contingencies (Note 22)

Stockholders’ equity (deficit):

Preferred stock — par value $0.01; 20,000,000 shares authorized; zero shares issued and
outstanding
Common stock — par value $0.01; 290,000,000 shares authorized; 103,705,709 and
106,979,960 shares issued and outstanding

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

October 31,

2013

2014

346,487

124,979

488,578

249,103

186,655

586,720

140,205

518,981

254,660

192,624

1,395,802

1,693,190

15,031

119,729

185,828
86,380

50,057

126,632

128,677
74,076

1,802,770

2,072,632

254,849

271,656

88,550

—

615,055

23,620

34,753

209,777

276,608

104,688

190,063

781,136

40,930

45,390

1,212,019

1,885,447

1,274,791

2,142,247

—

1,037

—

1,070

5,893,880
(7,774)
(5,969,820)
(82,677)
1,802,770

5,954,440
(14,668)
(6,010,457)
(69,615)
2,072,632

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

Amortization of intangible assets

Restructuring costs

Total operating expenses

Income (loss) from operations

Interest and other income (loss), net

Interest expense

Loss on extinguishment of debt

Loss before income taxes

Provision 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,

2012

2013

2014

1,454,991

1,680,125

1,865,826

378,932

1,833,923

402,421

2,082,546

422,463

2,288,289

868,805

240,894

1,109,699

724,224

364,179
266,338

114,002

51,697

7,854

804,070
(79,846)
(15,200)
(39,653)
—
(134,699)
9,322
(144,021) $
(1.45) $
(1.45) $

99,341

967,510

249,861

1,217,371

865,175

1,083,022

256,915

1,339,937

948,352

383,408
304,170

122,432

49,771

7,169

866,950
(1,775)
(5,744)
(44,042)
(28,630)
(80,191)
5,240
(85,431) $
(0.83) $
(0.83) $

102,350

401,180
328,325

126,824

45,970

349

902,648

45,704
(25,262)
(47,115)
—
(26,673)
13,964
(40,637)
(0.38)
(0.38)
105,783

105,783

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

CIENA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

Net loss

Change in unrealized gain (loss) on available-for-sale securities, net of tax

Change in unrealized gain (loss) on foreign currency forward contracts, net of tax

Change in unrealized gain (loss) on interest rate hedging contracts, net of tax

Change in accumulated translation adjustments

Other comprehensive loss

Total comprehensive loss

Year ended October 31,

2012

$ (144,021) $

(166)
49

—
(3,268)
(3,385)
$ (147,406) $

2013
(85,431) $
(14)
(310)
—
(4,096)
(4,420)
(89,851) $

2014
(40,637)
41

114
(2,109)
(4,940)
(6,894)
(47,531)

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

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CIENA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Cash flows from operating activities:

Net loss

Adjustments to reconcile net loss to net cash provided by operating activities:

Loss on extinguishment of debt
Depreciation of equipment, furniture and fixtures, and amortization of
leasehold improvements
Share-based compensation costs
Amortization of intangible assets
Provision for inventory excess and obsolescence
Provision for warranty
Other
Changes in assets and liabilities:

Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable, accruals and other obligations
Deferred revenue

Net cash provided by 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 sale of cost method investment
Settlement of foreign currency forward contracts, net

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of long-term debt, net
Payment of long-term debt
Payment of debt and equity issuance costs
Payment of capital lease obligations
Proceeds from issuance of common stock

Net cash provided by (used in) 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 fiscal year
Cash and cash equivalents at end of fiscal year
Supplemental disclosure of cash flow information
Cash paid during the fiscal year for interest
Cash paid during the fiscal year for income taxes, net

Non-cash investing and financing activities

Purchase of equipment in accounts payable
Fixed assets acquired under capital leases

Year Ended October 31,
2013

2014

2012

(144,021) $

(85,431) $

(40,637)

—

59,099
32,394
74,497
23,438
33,418
13,722

70,366
(53,460)
1,748
12,610
(16,722)
107,089

(48,098)
35,597
—
—
524
—
(11,977)

—
—
(2,332)
(1,895)
12,167
7,940
(2,504)
100,548
541,896
642,444

33,511
9,603

5,202
6,736

$
$

28,630

55,699
37,720
71,308
19,938
24,558
9,023

(145,421)
(8,943)
(82,809)
115,312
5,094
44,678

(43,814)
2,338
(184,864)
95,000
—
479
(130,861)

—
(216,210)
(3,692)
(3,335)
15,898
(207,339)
(2,435)
(295,957)
642,444
346,487

32,397
10,679

6,191
2,538

$
$

—

55,616
42,930
57,151
32,332
22,129
25,668

(33,164)
(37,889)
(7,931)
(59,837)
33,448
89,816

(48,216)
2,060
(245,196)
195,000
—
(10,041)
(106,393)

248,750
(625)
(4,227)
(3,034)
17,663
258,527
(1,717)
240,233
346,487
586,720

36,276
11,396

4,961
10,424

$
$

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

CIENA CORPORATION
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 network specialist focused on networking solutions that enable
converged, next-generation architectures, optimized to handle the broad array of high-bandwidth communications services
relied upon by business and consumer end users. Ciena provides equipment, software and services that support the transport,
switching, aggregation, service delivery and management of voice, video and data traffic on communications networks.

Ciena’s Converged Packet Optical, Packet Networking, Optical Transport and Software products are used, individually or

as part of an integrated, programmable solution, in networks operated by communications service providers, cable operators,
Web-scale providers, governments, enterprises, research and education institutions, and other network operators across the
globe. Ciena's products allow network operators to scale capacity, increase transmission speeds, allocate network traffic and
deliver services to end users. Ciena's solutions also include network management and control software and network-level
software applications that facilitate automation, software-defined programmability and efficient service delivery. To
complement its hardware and software solutions, Ciena offers a broad range of network transformation solutions and related
support services that help customers design, optimize, deploy, manage and maintain their network. Ciena’s principal executive
offices are located at 7035 Ridge Road, Hanover, Maryland 21076.

Principles of Consolidation

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

intercompany accounts and transactions have been eliminated in consolidation.

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

(November 3, 2012, November 2, 2013 and November 1, 2014 for the periods reported). Fiscal 2013 and fiscal 2014 each
consisted of a 52-week fiscal year and fiscal 2012 consisted of a 53-week fiscal year. 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 selling prices for multiple element
arrangements, shared-based compensation, convertible notes payable valuations, bad debts, valuation of inventories and
investments, recoverability of intangible assets, other long-lived assets, 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. Any 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 (loss). Ciena recognizes losses in the income statement 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 Ciena's 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, with all others considered to be
long-term investments.

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.

Segment Reporting

Ciena's chief operating decision maker, its chief executive officer, evaluates the company's performance and allocates
resources based on multiple factors, including measures of segment profit(loss). Operating segments are defined as components
of an enterprise that engage in business activities that 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 following to be its operating segments for
reporting purposes: (i) Converged Packet Optical, (ii) Packet Networking, (iii) Optical Transport, and (iv) Software and
Services. See Note 20 below.

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 asset's 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 that represent the lowest
level for which cash flows can be identified.

Equipment, Furniture and Fixtures and Internal Use Software

Equipment, furniture and fixtures are recorded at cost. Depreciation and amortization are computed using the straight-line

method over useful lives of two 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, which
consist primarily of outside services and purchased software license costs, are capitalized and amortized straight-line over the
estimated useful lives of two 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, up 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. Because these deposits generally may be redeemed upon demand, 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 20 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 supply 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 these manufacturers 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 deferred and recognized ratably over the period during which the services are performed.
Shipping and handling fees billed to customers are included in revenue, with the associated expenses included in product cost
of goods sold.

Ciena applies the percentage-of-completion method to long-term arrangements where it is required to undertake significant
production, customization 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. Unbilled percentage- of-
completion revenues recognized are included in accounts receivable, net. Billings in excess of revenues recognized on these
contracts are recorded within deferred revenue. The percentage of revenue recognized using the percentage-of-completion
method for the fiscal years ended October 31, 2012, October 31, 2013 and October 31, 2014 were 1.0%, 4.5% and 4.0%,
respectively.

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.

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 for each delivered element when the revenue recognition criteria are met.
Ciena determines the selling price for each deliverable based upon the selling price hierarchy for multiple-deliverable
arrangements. Under this hierarchy, Ciena uses vendor-specific objective evidence ("VSOE") of selling price, if it exists, or
third party evidence ("TPE") of selling price if VSOE does not exist. If neither VSOE nor TPE of selling price exists for a
deliverable, Ciena uses its best estimate of selling price ("BESP") for that deliverable. For multiple element software
arrangements where VSOE of undelivered maintenance does not exist, revenue for the entire arrangement is recognized over
the maintenance term.

VSOE, when determinable, is established based on Ciena's pricing and discounting practices for the specific product or
service when sold separately. In determining whether VSOE exists, 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.

Warranty Accruals

Ciena provides for the estimated costs to fulfill customer warranty obligations upon recognition of the related revenue.
Estimated warranty costs include estimates for material costs, technical support labor costs and associated overhead. Warranty
is included in cost of goods sold and is 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 the 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 the customer. If a
customer's financial condition changes, Ciena may be required to record an allowance for doubtful accounts for that customer,
which could 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, cost of prototype equipment, consulting and third party services, depreciation,
facility costs and information technology.

Government Grants

Ciena accounts for proceeds from government grants as a reduction of operating 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
22 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 restricted stock unit award based on the fair value of the underlying common stock on the date
of grant. In each case, Ciena only recognizes expense in its Consolidated Statement of Operations for those stock options or
restricted stock units that are expected ultimately to vest. Ciena recognizes 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 its 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 and the expense is adjusted accordingly. Ciena uses the
straight-line method to record expense for shared-based awards with only service-based vesting. See Note 19 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 2008 through 2013 and in Canada for 2010 through 2012. Management does not expect the outcome of these
69

audits to have a material adverse effect on Ciena'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 (2011), United Kingdom (2012), Canada
(2009) and India (2008). Limited adjustments can be made to Federal U.S. 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.

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 indefinitely reinvest cumulative unremitted foreign earnings outside the U.S., and it is not practicable to determine
the 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 “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 and term loan, 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; and

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's 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 recognizes a liability for the cost
associated with an exit or disposal activity 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 2
below.

Foreign Currency

Certain 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 interest and other income (loss), net on
the Consolidated Statement of Operations. See Note 3 below.

Derivatives

Ciena's 4.0% convertible senior notes due March 15, 2015 (the "2015 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 (loss), net on the Consolidated Statement of Operations. See
Note 3 below.

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. During fiscal 2014, Ciena also
entered into interest rate hedge arrangements to reduce variability in certain forecasted interest expense associated with its Term
Loan. All of these derivatives are designated as cash flow hedges. At the inception of the cash flow hedge, and on an ongoing
basis, Ciena assesses whether the derivative 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 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 (loss), net. To date, no
ineffectiveness has occurred.

From time to time, Ciena uses foreign currency forward contracts to hedge certain balance sheet exposures. These forward

contracts are not designated as hedges for accounting purposes, and any net gain or loss associated with these derivatives is
reported in interest and other income (loss), net on the Consolidated Statement of Operations.

Ciena records derivative instruments in the Consolidated Statements of Cash Flows within operating, investing, or

financing activities consistent with the cash flows of the hedged items.

See Notes 5 and 12 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 16 below.

Software Development Costs

Ciena develops software for sale to its customers. GAAP requires 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 -Effective

In February 2013, the Financial Accounting Standards Board ("FASB") issued an accounting standard update to require
reclassification adjustments from other comprehensive income to be presented either in the financial statements or in the notes
to the financial statements. This accounting standard update was effective for Ciena beginning in the first quarter of fiscal 2014.
As a result of the application of this accounting standard update, Ciena has provided additional disclosures in Note 13 below.

Newly Issued Accounting Standards - Not Yet Effective

In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers
(Topic 606), which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with
customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede
the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also
supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type
Contracts. The standard will be effective for Ciena beginning in the first quarter of fiscal 2018. Ciena is currently evaluating the
impact of the adoption of this accounting standard update on its Consolidated Financial Statements.

In August 2014, FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a
Going Concern. ASU 2014-15 requires management to evaluate, at each annual or interim reporting period, whether there are
conditions or events that exists that raise substantial doubt about an entity's ability to continue as a going concern within one
year after the date the financial statements are issued and provide related disclosures. The standard will be effective for Ciena
beginning in the first quarter of fiscal 2018. The adoption of this accounting standard update is not expected to have a material
effect on the Ciena's Consolidated Financial Statements or disclosures.

(2) RESTRUCTURING COSTS

Ciena has undertaken a number of restructuring activities intended to reduce expense and better align its workforce and
costs with market opportunities, product development and business strategies. The following table sets forth the restructuring
activity and balance of the restructuring liability accounts for the fiscal years indicated (in thousands):

Balance at October 31, 2011

Additional liability recorded

Cash payments

Balance at October 31, 2012

Additional liability recorded

Non-cash disposal

Cash payments

Balance at October 31, 2013

Additional liability recorded

Adjustment to previous estimates

Cash payments

Balance at October 31, 2014

Current restructuring liabilities
Non-current restructuring liabilities

_________________________________

Workforce
reduction

Consolidation
of excess
facilities

Total

160

3,293

5,484 (a)
(4,195)
1,449

5,041 (b)

—
(6,410)
80

685 (c)

—
(584)
181

181
—

$
$

2,370 (a)
(2,063)
3,600

2,128 (b)
(747)
(3,045)
1,936

9
(345)
(466)
1,134

498
636

$
$

3,453

7,854
(6,258)
5,049

7,169
(747)
(9,455)
2,016

694
(345)
(1,050)
1,315

679
636

(a)

During fiscal 2012, Ciena recorded a charge of $5.5 million of severance and other employee-related costs associated
with a workforce reduction of approximately 135 employees. Ciena also recorded charges of $2.4 million related to its
consolidation of several facilities in the Linthicum, Maryland area.

(b)

(c)

During fiscal 2013, Ciena recorded a charge of $5.0 million of severance and other employee-related costs associated
with a workforce reduction of approximately 100 employees. Ciena also recorded charges of $2.1 million related to its
consolidation of several facilities primarily in the Linthicum, Maryland area.

During fiscal 2014, Ciena recorded a charge of $0.7 million of severance and other employee-related costs associated
with a workforce reduction of approximately 25 employees.

(3) INTEREST AND OTHER INCOME (LOSS), NET

The components of interest and other income (loss), net, were as follow (in thousands):

Interest income

Change in fair value of embedded derivative
Gain (loss) on non-hedge designated foreign currency forward
contracts
Foreign currency exchange losses

Other

Interest and other income (loss), net

2012

776
(6,600)

—
(7,758)
(1,618)
(15,200)

October 31,

2013

2014

550

2,950

296
(8,168)
(1,372)
(5,744)

407
(2,740)

(5,757)
(15,663)
(1,509)
(25,262)

Ciena Corporation, as the U.S. parent entity, uses the U.S. dollar as its functional currency; however, some of its foreign
branch offices and subsidiaries use the local currency as their functional currency. During fiscal 2012, fiscal 2013 and fiscal
2014, Ciena recorded $7.8 million, $8.2 million and $15.7 million in foreign currency exchange losses, respectively, as a result
of monetary assets and liabilities that were transacted in a currency other than the entity's functional currency, and the re-
measurement adjustments were recorded in interest and other income (loss), net on the Consolidated Statement of Operations.
From time to time, Ciena uses foreign currency forwards to hedge these balance sheet exposures. These forwards are not
designated as hedges for accounting purposes and any net gain or loss associated with these derivatives is reported in interest
and other income (loss), net. During fiscal 2014, Ciena recorded losses of $5.8 million from non-hedge designated foreign
currency forward contracts.

(4) SHORT-TERM AND LONG-TERM INVESTMENTS

As of October 31, 2013, investments are comprised of the following (in thousands):

U.S. government obligations:

Included in short-term investments

Included in long-term investments

Commercial paper:

Included in short-term investments

October 31, 2013

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

99,974

14,996
114,970

24,994

35
46

— $

—
— $

99,985

15,031
115,016

— $

24,994

As of October 31, 2014, investments are comprised of the following (in thousands):

U.S. government obligations:

Included in short-term investments

Included in long-term investments

Commercial paper:

Included in short-term investments

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

October 31, 2014

110,182

50,016

160,198

29,994

— $

110,211

—

50,057

— $

160,268

— $

29,994

The following table summarizes the legal maturities of debt investments at October 31, 2014:

Less than one year

Due in 1-2 years

October 31, 2014

Amortized Cost

Estimated Fair
Value

140,176

50,016

190,192

140,205

50,057

190,262

(5) FAIR VALUE MEASUREMENTS

As of the date indicated, the following tables summarizes the fair value of assets and liabilities that were recorded at fair

value on a recurring basis (in thousands):

Assets:

Money market funds

U.S. government obligations

Commercial paper

Embedded redemption feature

Total assets measured at fair value

Liabilities:

Foreign currency forward contracts

Total liabilities measured at fair value

Level 1

Level 2

Level 3

Total

October 31, 2013

254,330

— $

—

115,016

44,991

—

2,740

254,330

115,016

44,991

2,740

254,330

160,007

2,740

417,077

— $

442

— $

442

Assets:

Money market funds

U.S. government obligations

Commercial paper

Foreign currency forward contracts

Total assets measured at fair value

Liabilities:

Foreign currency forward contracts

Forward interest rate swap contract

Total liabilities measured at fair value

Level 1

Level 2

Level 3

Total

October 31, 2014

440,013

— $

—

— $

160,268

89,989

1,561

440,013

251,818

— $

—

— $

200

2,083

2,283

—

— $

—

— $

440,013

160,268

89,989

1,561

691,831

200

2,083

2,283

As of the dates indicated, the assets and liabilities above were presented on Ciena’s Consolidated Balance Sheet as follows

(in thousands):

Assets:

Cash equivalents

Short-term investments

Prepaid expenses and other

Long-term investments

Other long-term assets

Total assets measured at fair value

Liabilities:

Accrued liabilities

Total liabilities measured at fair value

Assets:

Cash equivalents

Short-term investments

Prepaid expenses and other

Long-term investments

Total assets measured at fair value

Liabilities:

Accrued liabilities

Other long-term obligations
Total liabilities measured at fair value

Level 1

Level 2

Level 3

Total

October 31, 2013

252,241

19,997

— $

—

2,037

124,979

—

15,031

—

2,740

272,238

124,979

15,031

4,777

254,330

160,007

2,740

417,077

— $

442

—

— $

442

Level 1

Level 2

Level 3

Total

October 31, 2014

440,013

59,995

— $

—

140,205

1,561

50,057

—

500,008

140,205

1,561

50,057

440,013

251,818

— $

691,831

— $

—
— $

200

2,083
2,283

— $

—
— $

200

2,083
2,283

Ciena’s Level 3 assets that were included in other long-term assets reflect an embedded redemption feature contained
within the 2015 Notes. The embedded redemption feature is bifurcated from the 2015 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

2015 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 2015 Notes. The value of this feature was immaterial at October 31, 2014.

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, 2013

Issuances

Settlements

Changes in unrealized loss

Transfers into Level 3

Transfers out of Level 3

Balance at October 31, 2014

(6) ACCOUNTS RECEIVABLE

Level 3

2,740

—

—
(2,740)
—

—

As of October 31, 2013, two customers each accounted for greater than 10% of net accounts receivable, and in the

aggregate accounted for 22.5% of net accounts receivable. As of October 31, 2014, there were no customers that accounted for
greater than 10% of net 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,
2012

2013

2014

Balance at beginning

of fiscal year

Provisions

Net

Deductions

Balance at end of

fiscal year

701

1,500

1,955

1,647

2,339

2,761

848

1,884

2,633

1,500

1,955

2,083

(7) INVENTORIES

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,

2013

2014

53,274

7,773

153,855

75,764

290,666
(41,563)
249,103

64,853

8,371

165,799

75,763

314,786
(60,126)
254,660

Ciena writes down its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference

between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market
conditions. During fiscal 2013 and fiscal 2014, recorded provisions for inventory reserves were primarily related to engineering
design changes and the discontinuance of certain parts and components used in the manufacture of our Optical Transport

products, including our Corestream® Agility Optical Transport platform, and Converged Packet Optical products. Deductions
from the provision 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,
2012

2013

2014

Balance at

beginning of

fiscal year

Provisions

Disposals

Balance at

end of fiscal year

31,771

40,010

41,563

23,438

19,938

32,332

15,199

18,385

13,769

40,010

41,563

60,126

(8) 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

Other non-trade receivables

Derivative assets

October 31,

2013

2014

101,072

23,190

33,382

16,963

12,048

—

86,464

27,991

42,385

23,539

10,683

1,562

186,655

192,624

Depreciation of product demonstration equipment was $7.8 million, $7.4 million and $9.0 million for fiscal 2012, 2013 and

2014, respectively.

(9) 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,

2013

2014

364,574

383,059

46,247

410,821
(291,092)
119,729

46,354

429,413
(302,781)
126,632

During fiscal 2012, fiscal 2013 and fiscal 2014, Ciena recorded depreciation of equipment, furniture and fixtures, and

amortization of leasehold improvements of $51.3 million, $48.3 million and $46.6 million, respectively.

(10) INTANGIBLE ASSETS

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

Developed technology

Patents and licenses

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

Total intangible assets

October 31,

2013

2014

Gross
Intangible

417,833

46,538

Accumulated
Amortization
$ (321,645) $
(45,744)

Net
Intangible

Gross
Intangible

96,188

417,833

794

46,538

Accumulated
Amortization
$ (351,929) $
(45,908)

Net
Intangible

65,904

630

323,573

787,944

(234,727)
$ (602,116) $

88,846

323,573

185,828

787,944

(261,430)
$ (659,267) $

62,143

128,677

The aggregate amortization expense of intangible assets was $74.5 million, $71.3 million and $57.2 million for fiscal 2012,

fiscal 2013 and fiscal 2014, respectively. Expected future amortization of intangible assets for the fiscal years indicated is as
follows (in thousands):

Year Ended October 31,

2015

2016
2017

2018

2019

52,879

52,879
22,783

136

—

128,677

(11) OTHER BALANCE SHEET DETAILS

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

Maintenance spares inventory, net

Deferred debt issuance costs, net

Restricted cash

Embedded redemption feature

Other

October 31,

2013

2014

61,305

15,677

2,053

2,740

4,605

86,380

54,101

15,160

—

4,770

74,076

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 related to our convertible
notes payable, term loan (described in Note 14 below) and our ABL Credit Facility (described in Note 15 below), which is
included in interest expense, was $5.3 million, $5.4 million and $4.8 million for fiscal 2012, fiscal 2013 and fiscal 2014,
respectively.

As of the dates indicated, accrued liabilities and other short-term obligations are comprised of the following (in thousands):

Compensation, payroll related tax and benefits

Warranty

Vacation

Capital lease obligations

Interest payable

Other

October 31,

2013

2014

98,770

56,303

32,118

3,079

6,186

75,200

82,207

55,997

35,126

7,788

6,409

89,081

271,656

276,608

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

Beginning

Balance

Year ended

October 31,
2012

2013

2014

Provisions

Settlements

47,282

55,132

56,303

33,418

24,558

22,129

25,568

23,387

22,435

Ending

Balance

55,132

56,303

55,997

The increase in fiscal 2012 warranty provision was driven primarily by sales that included longer-term support obligations

and technical support requirements from additional geographies. The decreases in both fiscal 2013 and fiscal 2014 warranty
provisions were primarily due to lower failure rates and reduced costs due to efficiencies.

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,

2013

2014

36,671

75,499

112,170
(88,550)
23,620

50,457

95,161

145,618
(104,688)
40,930

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

October 31,

2013

2014

9,083

11,775

4,127

1,983

—

7,785

14,342

10,839

5,174

4,589

2,083

8,363

34,753

45,390

Income tax liability

Deferred tenant allowance

Straight-line rent

Capital lease obligations

Interest rate swap derivative

Other

(12) DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives

As of October 31, 2014 and 2013, Ciena had forward contracts to reduce the variability in its Canadian Dollar and Indian

Rupee denominated expense, which principally relates to research and development activities. The notional amount of these
contracts was approximately $51.5 million and $22.4 million as of October 31, 2014 and October 31, 2013, respectively. These
foreign exchange contracts have maturities of 12 months or less. These derivative contracts have been designated as cash flow
hedges.

During fiscal 2014 and fiscal 2013, in order to hedge certain balance sheet exposures, Ciena entered into forward contracts

to sell Brazilian Real and buy an equivalent U.S. Dollar amount. During fiscal 2014, in order to hedge certain balance sheet
exposures, Ciena entered into forward contracts to sell U.S. Dollars and buy an equivalent amount of Canadian Dollars. The
notional principal of these contracts was approximately $194.5 million and $29.5 million as of October 31, 2014 and October
31, 2013. These foreign exchange contracts have maturities of 12 months or less. These derivative contracts have not been
designated as hedges.

Interest Rate Derivatives

During fiscal 2014, Ciena entered into interest rate cap arrangements to limit interest paid under the Term Loan to a
maximum of 0.75% plus a spread of 300 basis points through July 2015. The total notional amount of interest rate caps
currently outstanding as of October 31, 2014 is $249.4 million.

Also in fiscal 2014, Ciena entered into floating interest rate to fixed interest rate swap arrangements ("interest rate swap")
that fix the interest rate under the Term Loan at 5.004%, for the period commencing on July 20, 2015 through July 19, 2018.
The total notional amount of these derivatives as of October 31, 2014 is $247.5 million.

Ciena expects the variable rate payments to be received under the terms of the interest rate cap and the interest rate swap to

exactly offset the forecasted variable rate payments on the equivalent notional amounts of the Term Loan. These derivative
contracts have been designated as cash flow hedges.

Other information regarding Ciena's derivatives is immaterial for separate financial statement presentation. See Note 3 and

Note 5 above.

(13) ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated balances of other comprehensive income (loss):

Balance at October 31, 2011

Other comprehensive income(loss) before reclassifications

Amounts reclassified from AOCI

Balance at October 31, 2012

Other comprehensive income(loss) before reclassifications

Amounts reclassified from AOCI

Balance at October 31, 2013

Other comprehensive income(loss) before reclassifications

Amounts reclassified from AOCI

Balance at October 31, 2014

Unrealized

Gain/(Loss) on

Marketable
Securities

Derivative
Instruments

Cumulative
Foreign

Currency
Translation

Adjustment

Total

210

(166)

—

(14)

—

812

(763)
49

(1,431)

1,121
(261)

(3,348)

1,353
(2,256)

(179)

(3,268)

—
(3,447)

(4,096)

—
(7,543)

(4,940)

(2,622)

(763)
(3,354)

(5,541)

1,121
(7,774)

(8,247)

—
(12,483)

1,353
(14,668)

All amounts reclassified from accumulated other comprehensive income were related to settlement (gains)/losses on foreign

currency forward contracts designated as cash flow hedges. These reclassifications impacted "research and development" on
the Consolidated Statements of Operations.

(14) SHORT-TERM AND LONG-TERM DEBT

Term Loan

On July 15, 2014, Ciena entered into a Credit Agreement (the “Term Loan Credit Agreement”) which provides for senior

secured term loans in an aggregate principal amount of $250 million (the “Term Loan”). Ciena received proceeds from the
Term Loan, net of original issue discount and debt issuance costs, of approximately $246 million.

The Term Loan bears interest at a rate equal to LIBOR (subject to a floor of 0.75%) plus an applicable margin of 3.00%

and matures on July 15, 2019. The Term Loan Credit Agreement requires Ciena to make quarterly installment payments in
aggregate amounts equal to 0.25% of the original principal amount of the Term Loan, with the balance of the Term Loan
payable at maturity. The Term Loan Credit Agreement requires mandatory prepayments on the occurrence of certain customary
events and, when the total secured net leverage ratio (as defined in the Term Loan Credit Agreement) is in excess of 2.50 to
1.00, the Term Loan Credit Agreement requires a mandatory prepayment of 50% of excess annual cash flow (as defined in the
Term Loan Credit Agreement).

The Term Loan Credit Agreement contains customary covenants that limit, absent lender approval, the ability of Ciena to,

among other things, incur additional debt, create liens and encumbrances, pay cash dividends, enter into certain acquisition
transactions or transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of Ciena’s business,
make investments or dispose of assets.

The Term Loan Credit Agreement contains customary events of default including, among other things, failure to pay
obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of
control, incurrence of certain material judgments, violation of affirmative and negative covenants, and breaches of
representations and warranties set forth in the Term Loan Credit Agreement. Upon an event of default, the administrative agent
may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on
collateral.

In connection with Ciena entering into the Term Loan Credit Agreement, Ciena and certain of its subsidiaries entered into a

guaranty, a security agreement and a pledge agreement, each on customary terms. The Term Loan is secured by (i) second-
priority security interests in the ABL Priority Collateral (as defined in Note 15 below), and (ii) first-priority security interests in
substantially all other tangible and intangible assets including equipment, intercompany notes, intellectual property and
material owned real property (the "Term Loan Priority Collateral").

The principal balance, unamortized discount and net carrying amount of the Term Loan was as follows as of October 31,

2014:

Term Loan Payable due July 15, 2019

Principal
Balance

Unamortized
Discount

Net Carrying
Amount

249,375

(1,173) $
(1,173) $

248,202

The following table sets forth, in thousands, the carrying value and the estimated fair value of the Term Loan:

Term Loan Payable due July 15, 2019(1)

October 31, 2014

Carrying Value

Fair Value(2)

248,202

247,193

(1)
(2)

Includes unamortized bond discount.
The term loan was categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its term loan
using a market approach based upon observable inputs, such as current market transactions involving this security.

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 interest. If the holder elects to convert his or her
notes in connection with a specified fundamental change Ciena will be required, in certain circumstances, 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.

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.

On December 27, 2012, Ciena issued $187.5 million in aggregate principal amount of 4.0% Convertible Senior Notes due
2020 (the “2020 Notes”) in separate private offerings in exchange for $187.5 million in aggregate principal amount of the then
outstanding 2015 Notes (the “Exchange Transactions”). The Exchange Transactions resulted in the retirement of outstanding
2015 Notes with a carrying value of $187.9 million, the write-off of unamortized debt issuance costs of $2.3 million, and
settlement of $0.6 million relating to the redemption feature on the 2015 Notes accounted for as a separate embedded
derivative. The 2020 Notes offered in the Exchange Transactions had a fair value of $213.6 million, which resulted in a loss on
extinguishment of debt of $28.6 million in the first quarter of fiscal 2013. Ciena does not expect the Exchange Transactions to
affect its taxes from continuing operations, as Ciena continues to provide a valuation allowance against its deferred tax assets.

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, 2014, the fair value
of the embedded redemption feature was $0.0 million. A reduction in the fair value of the embedded redemption feature in the
amount of $2.7 million is reflected as interest and other income (loss), net in the Consolidated Statement of Operations during
fiscal 2014.

The net proceeds from the original 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.

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, the 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 17 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, which matured during fiscal 2013.

4.0% Convertible Senior Notes due December 15, 2020

As described above, on December 27, 2012, Ciena issued $187.5 million in aggregate principal amount of 4.0%
Convertible Senior Notes due December 15, 2020 (the “2020 Notes”) in separate private offerings in exchange for $187.5
million in aggregate principal amount of 2015 Notes above.

The 2020 Notes are senior unsecured obligations and rank equally with all of Ciena's other existing and future senior
unsecured debt. The 2020 Notes pay interest from the date of issuance at a rate of 4.0% per year. The interest is payable semi-
annually on June 15 and December 15, commencing on June 15, 2013. The principal amount of the 2020 Notes will also
accrete at a rate of 1.85% per year commencing December 27, 2012, compounding on a semi-annual basis. The accreted
portion of the principal payable at maturity does not bear interest and is not convertible into shares of Ciena's common stock.
The 2020 Notes will mature on December 15, 2020. Consequently, in the event the 2020 Notes are converted, the accreted
liability will extinguish without payment.

The 2020 Notes may be converted prior to maturity, at the option of the holder, into shares of Ciena's common stock at an
initial conversion rate of 49.0557 shares of common stock per $1,000 in original principal amount, which is equal to an initial
conversion price of $20.39 per share. In addition, Ciena may elect to convert the 2020 Notes, in whole or in part, at any time on
or prior to December 15, 2020, if the daily volume weighted average price of the common stock equals or exceeds 130% of the
conversion price then in effect for at least 20 trading days in any 30 consecutive trading day period. If Ciena elects to convert
the 2020 Notes on or before maturity, the conversion rate will be adjusted to include an amount of additional shares, determined
by reference to a make-whole table, payable in Ciena common stock, or its cash equivalent, at Ciena's election. An aggregate of
9,197,944 shares of Ciena common stock issuable upon conversion of the 2020 Notes has been reserved for issuance.

Upon certain fundamental changes, holders of the 2020 Notes have the option to require Ciena to purchase the 2020 Notes
at a price equal to the accreted principal amount of the notes delivered for repurchase plus any accrued and unpaid interest on
the original principal amount. Upon a holder's election to convert the 2020 Notes in connection with certain fundamental
changes, the conversion rate will be adjusted to include an amount of additional shares, determined by reference to a make-
whole table, payable in Ciena common stock, or its cash equivalent, at Ciena's election.

Accounting guidance issued by the FASB requires the issuer of convertible debt instruments with cash settlement features,

including partial cash settlement, to account separately for the liability and equity components of the instrument. Under this
guidance, the debt is recognized at the present value of its cash flows discounted using the issuer's nonconvertible debt
borrowing rate at the time of issuance and the equity component is recognized as the difference between the proceeds from the
issuance of the note and the fair value of the liability. The reduced carrying value on the convertible debt results in a debt
discount that is accreted back to the convertible debt's principal amount through the recognition of non-cash interest expense
over the expected life of the debt, which results in recognizing the interest expense on these borrowings at effective rates
approximating what Ciena would have incurred had nonconvertible debt with otherwise similar terms been issued.

Because the additional make-whole shares can be settled in cash or common stock at Ciena's option, the debt and equity
components were accounted for separately. Ciena measured the fair value of the debt component of the 2020 Notes using an
effective interest rate of 7.0%. As a result, Ciena attributed $170.4 million of the fair value of the 2020 Notes to the debt
component. The debt component was netted against the face value of the 2020 Notes to determine the debt discount. The debt
discount will be accreted over the period from the date of issuance to the contractual maturity date, resulting in the recognition
of non-cash interest expense. In addition, Ciena recorded $43.1 million within additional paid-in capital representing the equity
component of the 2020 Notes. There was no net tax expense recorded due to Ciena’s full valuation allowance against its
deferred tax assets.

The 2020 Notes were issued pursuant to an Indenture entered into as of December 27, 2012 (the “Indenture”) with The
Bank of New York Mellon Trust Company, N.A., as trustee. The Indenture provides for customary events of default which
include (subject in certain cases to customary grace and cure periods), among others, the following: nonpayment of principal
(including accreted portion) or interest; breach of covenants or other agreements in the Indenture; defaults in failure to pay
certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is
continuing under the Indenture, the trustee or the holders of at least 25% in aggregate original principal amount of the 2020
Notes then outstanding may declare the principal (including accreted portion), premium, if any, and accrued interest on all the
2020 Notes immediately due and payable.

The principal balance, unamortized discount and net carrying value of the liability and equity components of our 2020 notes

were as follows as of October 31, 2014

4.0% Convertible Senior Notes due December 15, 2020

193,987

(14,898) $

179,089

43,131

Liability Component

Principal
Balance

Unamortized
Discount

Net Carrying
Amount

Equity
Component

Net Carrying
Amount

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

convertible notes:

Description

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
4.0% Convertible Senior Notes, due December 15, 2020(3)

_________________________________

October 31, 2014

Carrying Value

Fair Value(2)

187,562

500,000

350,000

179,089

193,359

487,500

403,813

223,828

1,216,651

1,308,500

(1)

(2)

Includes unamortized bond premium related to embedded redemption feature.

The convertible notes were categorized as Level 2 in the fair value hierarchy. Ciena estimates the fair value of its
outstanding convertible notes using a market approach based on observable inputs, such as current market transactions
involving comparable securities.

(3)

Includes unamortized discount and accretion of principal.

(15) ABL CREDIT FACILITY

During fiscal 2012, Ciena and certain of its subsidiaries entered into a senior secured asset-based revolving credit facility

(the “ABL Credit Facility”). On July 15, 2014, Ciena amended the ABL Credit Facility to, among other things:

•

increase the total committed amount from $150 million to $200 million;

extend the maturity date from August 13, 2015 to December 31, 2016, and eliminate the maturity date acceleration to
December 15, 2014 in the event that any of Ciena’s 4.00% senior convertible notes due March 15, 2015 are then
outstanding;

reduce the minimum aggregate amount of unrestricted cash and cash equivalents that Ciena is required to maintain at
all times from $200 million to $150 million;

reduce the interest rate on borrowings from LIBOR plus an applicable margin ranging from 200 basis points to 250
basis points, to an applicable margin ranging from 150 basis points to 200 basis points, with the actual margin based
upon Ciena's utilization of the ABL Credit Facility; and

amend the borrowing base to include, among other items, up to $50 million in eligible cash.

Ciena also amended the terms of the existing security and pledge agreements to provide the lenders with second-priority
security interests in the Term Loan Priority Collateral, in addition to its existing first-priority security interests in current assets,
consisting principally of accounts receivable, inventory, cash, and deposit and securities accounts (the "ABL Priority

Collateral"). Except as amended, the remaining terms of the ABL Credit Facility, and related security and pledge agreements,
remain in full force and effect.

Ciena principally uses the ABL Credit Facility to support the issuance of letters of credit that arise in the ordinary course of

its business and thereby to reduce its use of cash required to collateralize these instruments. As of October 31, 2014, letters of
credit totaling $71.4 million were collateralized by the ABL Credit Facility. There were no borrowings outstanding under the
ABL Credit Facility as of October 31, 2014.

(16) 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”). Since the numerator reflects net losses for the fiscal years indicated, both Basic EPS and Diluted EPS are
computed using the weighted average number of common shares outstanding. If the numerator reflected net income, Diluted
EPS would also include, to the extent the effect is not anti-dilutive, the following: (i) shares issuable upon vesting of restricted
stock units, (ii) shares issuable under Ciena's employee stock purchase plan and upon exercise of outstanding stock options,
using the treasury stock method; and (iii) 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,

2012
(144,021) $

2013

2014

(85,431) $

(40,637)

Year Ended October 31,

2012

2013

2014

99,341

102,350

105,783

Year Ended October 31,

2012

2013

2014

(1.45) $
(1.45) $

(0.83) $
(0.83) $

(0.38)
(0.38)

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

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

Year Ended October 31,

2012

2013

2014

5,726

5,470

18,395

13,108

17,355

—

60,054

3,890

2,682

10,541

13,108

17,355

7,855

55,431

3,176

—

9,198

13,108

17,355

9,198

52,035

Shares underlying stock options and restricted stock units

0.25% Convertible Senior Notes due May 1, 2013

4.0% 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

4.0% Convertible Senior Notes due December 15, 2020

Total excluded due to anti-dilutive effect

(17) STOCKHOLDERS’ EQUITY

Call Spread Options

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. The call spread option is designed to mitigate exposure to potential dilution from the
conversion of the notes. The call spread option was purchased at the time of the notes offering from an affiliate of the
underwriter. The cost of the call spread option was recorded as a reduction in paid-in capital.

The call spread option is exercisable, upon maturity of the relevant issue of convertible note, for such number of shares of
Ciena common stock issuable upon conversion of that series of notes in full. The 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 option 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, or approximately $76.1
million, 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 option, and the lower and higher strike prices, are subject to customary adjustments.

(18) INCOME TAXES

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

Provision for income taxes:

Current:

Federal

State

Foreign

Total current

Deferred:

Federal

State

Foreign

Total deferred

Provision for income taxes

2012

October 31,

2013

2014

— $

857

8,465

9,322

—

906

4,334

5,240

—

1,831

12,133

13,964

—

9,322

5,240

13,964

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

United States

Foreign

Total

2012
(151,958) $
17,259
(134,699) $

October 31,

2013

(59,594) $
(20,597)
(80,191) $

2014

(42,742)
16,069
(26,673)

For the periods indicated, the tax provision 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

Non-deductible loss on debt extinguishment

Non-deductible compensation and other

Valuation allowance

Effective income tax rate

2012

35.00 %

(0.64)%

(5.09)%

10.21 %

— %

(4.92)%

(41.48)%

(6.92)%

October 31,

2013

35.00 %

(1.13)%

(12.70)%

17.39 %

(11.21)%

(8.78)%

(25.10)%

(6.53)%

2014

35.00 %

(6.87)%

(70.25)%

32.07 %

— %

(29.59)%

(12.71)%

(52.35)%

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,

2013

2014

44,515

274,468

1,159,494

8,822

1,487,299
(1,487,299)

— $

59,707

268,783

1,155,389

12,956

1,496,835
(1,496,835)
—

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, 2011

Decrease 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, 2012

Decrease 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, 2013

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, 2014

8,590
(12)
2,866
(392)
11,052
(3,925)
2,146
(994)
8,279

2,479

5,241
(899)
15,100

As of October 31, 2013 and 2014, Ciena had accrued $1.4 million and $3.4 million of interest and penalties, respectively,
related to unrecognized tax benefits within other long-term liabilities in the Consolidated Balance Sheets. Interest and penalties
of $0.3 million and $2.0 million were recorded to the provision for income taxes during fiscal 2012 and fiscal 2014
respectively, and no such charges or benefits were recorded for fiscal 2013. 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
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 the 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,
2012

2013

2014

Balance at beginning

of fiscal year

Additions

Deductions

1,467,411

1,488,994

1,487,299

21,583

— $

9,536

Balance at end

of fiscal year

— $

1,695

— $

1,488,994

1,487,299

1,496,835

As of October 31, 2014, Ciena had a $2.8 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 2019, 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, 2014 of approximately $81.0 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.

(19) SHARE-BASED COMPENSATION EXPENSE

Ciena grants equity awards under its 2008 Omnibus Incentive Plan and the Amended and Restated Employee Stock

Purchase Plan (“ESPP”).

2008 Plan

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 10, 2014, Ciena amended its 2008 Plan to increase the number of shares available for issuance by 6.6
million shares. As of October 31, 2014, the total number of shares authorized for issuance under the 2008 Plan is 25.1 million
and approximately 9.3 million shares remained available for issuance thereunder.

Stock Options

Outstanding stock option awards to employees are generally subject to service-based vesting restrictions and vest
incrementally over a four-year period. As of October 31, 2014, all outstanding options have completed their service-based
vesting conditions and are fully vested. The following table is a summary of Ciena's stock option activity for the periods
indicated (shares in thousands):

Balance as of October 31, 2011

Granted

Exercised

Canceled

Balance as of October 31, 2012

Granted

Exercised

Canceled

Balance as of October 31, 2013

Granted

Exercised

Canceled

Balance as of October 31, 2014

Shares
Underlying
Options
Outstanding

Weighted
Average
Exercise Price

3,690

—
(56)
(427)
3,207

—
(246)
(859)
2,102

—
(162)
(652)
1,288

30.01

—

6.72

51.28

27.58

—

13.81

31.83

27.46

—

16.99

34.08

25.43

The total intrinsic value of options exercised during fiscal 2012, fiscal 2013 and fiscal 2014 was $0.5 million, $2.0 million

and $1.0 million, respectively. There were no stock options granted by Ciena during fiscal 2012, fiscal 2013 or fiscal 2014.

The following table summarizes information with respect to stock options outstanding at October 31, 2014, based on

Ciena’s closing stock price on the last trading day of Ciena’s fiscal 2014 (shares and intrinsic value in thousands):

Vested Options at

October 31, 2014

Number

Underlying

Weighted
Average
Remaining

Contractual

Life

(Years)

154

184

195

284

109
248

114

Weighted

Average

Exercise

Price

Aggregate

Intrinsic

Value

3.28 $

8.03

1,347

0.95

1.19

2.34

2.68
3.05

2.78

16.55

18.71

27.31

29.96
35.24

44.33

—

—
—

—

1,288

2.29 $

25.43

1,389

Range of

Exercise

Price

0.94 — $
16.52 — $
17.43 — $
24.69 — $
28.61 — $
33.00 — $
37.31 — $
0.94 — $

$
$

16.31

17.29

24.50

28.28

32.55
37.10

47.32

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. Ciena did not grant any option-based awards during fiscal 2012, fiscal 2013, or fiscal 2014.

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, 2011

4,298

16.28

59,399

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, 2012

Granted
Vested

Canceled or forfeited

Balance as of October 31, 2013

Granted

Vested

Canceled or forfeited

Balance as of October 31, 2014

2,433
(1,912)
(416)
4,403

2,508
(1,920)
(572)
4,419

1,912
(2,165)
(154)
4,012

14.16

56,267

15.33

102,745

18.02

67,241

The total fair value of restricted stock units that vested and were converted into common stock during fiscal 2012, fiscal
2013 and fiscal 2014 was $27.0 million, $37.3 million and $48.1 million, respectively. The weighted average fair value of each
restricted stock unit granted by Ciena during fiscal 2012, fiscal 2013 and fiscal 2014 was $11.28, $16.30 and $21.82,
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 expense is reversed.

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.

Amended and Restated Employee Stock Purchase Plan (ESPP)

Under the ESPP, eligible employees may enroll in a twelve-month offer period that begins in December and June of each
year. Each offer period includes two six-month purchase periods. Employees may purchase a limited number of shares of Ciena

common stock at 85% of the fair market value on either the day immediately preceding the offer date or the purchase date,
whichever is lower. The ESPP is considered compensatory for purposes of share-based compensation expense. Pursuant to the
ESPP's “evergreen” provision, on December 31 of each year, the number of shares available under the ESPP increases by up to
0.6 million shares, provided that the total number of shares available at that time shall not exceed 8.2 million. Unless earlier
terminated, the ESPP will terminate on January 24, 2023.

During fiscal 2012, fiscal 2013 and fiscal 2014, Ciena issued 1.2 million, 0.9 million and 0.9 million shares under the ESPP,

respectively. At October 31, 2014, 6.8 million shares remained available for issuance under the ESPP.

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,

2012

2013

2014

Product costs

Service costs

Share-based compensation expense included in cost of goods sold

Research and development

Sales and marketing
General and administrative

Share-based compensation expense included in operating expense

Share-based compensation expense capitalized in inventory, net

Total share-based compensation

2,156

2,522

1,462

3,618

8,567

11,558
8,698

28,823
(47)
32,394

1,771

4,293

8,214

13,290
12,055

33,559
(132)
37,720

2,531

2,216

4,747

9,682

14,958
13,568

38,208
(25)
42,930

As of October 31, 2014, total unrecognized compensation expense was $57.2 million, which relates to unvested restricted

stock units and is expected to be recognized over a weighted-average period of 1.4 years.

(20) SEGMENT AND ENTITY WIDE DISCLOSURES

Segment Reporting

Ciena’s internal organizational structure and the management of its business are grouped into the following operating segments:

•

services delivered in an open network ecosystem. This segment also includes the OneControl Unified Management
System, ON-Center® Network & Service Management Suite, Ethernet Services Manager and Optical Suite Release.
This segment includes a broad range of services for consulting and network design, installation and deployment,
maintenance support 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.

Ciena's long-lived assets, including equipment, furniture and fixtures, finite-lived intangible assets and maintenance spares,

are not reviewed by the chief operating decision maker for purposes of evaluating performance and allocating resources. As of
October 31, 2014, equipment, furniture and fixtures totaling $126.6 million primarily supports asset groups within Ciena's
Converged Packet Optical segment, Packet Networking segment, Software and Services segment and Ciena's unallocated
selling and general and administrative activities. As of October 31, 2014, all of Ciena's finite-lived intangible assets totaling
$128.7 million were assigned to asset groups within Ciena's Converged Packet Optical segment. As of October 31, 2014, all of
the maintenance spares totaling $54.1 million were assigned to asset groups within Ciena's Software and Services segment.

Segment Revenue

The table below (in thousands, except percentage data) sets forth Ciena’s segment revenue for the respective periods:

Revenue:

Converged Packet Optical

Packet Networking

Optical Transport

Software and Services

Consolidated revenue

Segment Profit

Fiscal Year

2012

2013

2014

951,245

$ 1,187,231

$ 1,455,501

128,982

353,620

400,076

222,898

233,821

438,596

244,116

127,215

461,457

$ 1,833,923

$ 2,082,546

$ 2,288,289

Segment profit 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 items: selling and marketing costs; general and administrative costs; amortization of intangible assets;
restructuring costs; interest and other income (loss), net; interest expense; loss on extinguishment of debt and provisions for
income taxes.

The table below (in thousands) sets forth Ciena’s segment profit and the reconciliation to consolidated net loss during the

respective periods:

Segment profit:

Converged Packet Optical

Packet Networking

Optical Transport

Software and Services

Total segment profit

Less: non-performance operating expenses

Selling and marketing

General and administrative

Amortization of intangible assets

Restructuring costs

Add: other non-performance financial items

Interest expense and other income (loss), net

Loss on extinguishment of debt

Less: Provision for income taxes

Consolidated net loss

Entity Wide Reporting

2012

Fiscal Year

2013

2014

148,244

242,335

353,942

1,713

116,736

93,352

360,045

266,338

114,002

51,697

7,854

(54,853)
—

9,322
(144,021) $

22,740

89,754

126,938

481,767

304,170

122,432

49,771

7,169

(49,786)
(28,630)
5,240
(85,431) $

19,467

38,974

134,789

547,172

328,325

126,824

45,970

349

(72,377)
—

13,964
(40,637)

The following table reflects Ciena’s geographic distribution of revenue based on the location of the purchaser, with any
country accounting for at least 10% of total revenue in the period specifically identified. Revenue attributable to geographic
regions outside of the United States is reflected as International revenue. For the periods below, Ciena’s geographic distribution
of revenue was as follows (in thousands):

United States

International

Total

Fiscal Year

2012

2013

2014

972,576

$ 1,217,462

$ 1,317,981

861,347

865,084

970,308

$ 1,833,923

$ 2,082,546

$ 2,288,289

The following table reflects Ciena's geographic distribution of equipment, furniture and fixtures, net, with any country
accounting for at least 10% of total equipment, furniture and fixtures, net, specifically identified. Equipment, furniture and
fixtures, net, 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, net, was as follows (in thousands):

United States

Canada

Other International

Total

October 31,

2012

2013

2014

$ 64,653

64,132

73,420

48,376

10,551

43,772

11,825

42,015

11,197

$ 123,580

119,729

$ 126,632

For the periods below, customers accounting for at least 10% of Ciena’s revenue were as follows (in thousands):

AT&T

Fiscal Year

2012

2013

2014

248,123

373,617

423,498

The customer identified above purchased products and services from each of Ciena's operating segments.

(21) OTHER EMPLOYEE BENEFIT PLANS

Ciena has a Defined Contribution Pension Plan that covers a majority of its Canada-based employees. The plan covers all
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 (CAD$24,930 for 2014). 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 CAD$3,000 per employee. During fiscal 2012, 2013 and 2014, Ciena made matching contributions of approximately CAD
$4.0 million, CAD$3.9 million and CAD$4.1 million, respectively.

Ciena has a 401(k) defined contribution profit sharing plan. 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 2012, 2013 and 2014, Ciena made matching contributions of
approximately $4.1 million, $4.0 million and $4.5 million, respectively.

(22) 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.
Amounts received under the grant are subject to recoupment in the event that Ciena fails to achieve certain minimum
investment, employment and project milestones. As of October 31, 2014, Ciena has recorded a CAD$23.1 million benefit to
date, as a reduction in research and development expenses. As of October 31, 2014, the amount receivable from this grant was
CAD$3.1 million.

Foreign Tax Contingencies

As of October 31, 2013 and October 31, 2014, Ciena had accrued liabilities of $0.4 million and $0.5 million, respectively,

related to a preliminary assessment notice from the India tax authorities asserting deficiencies in payments for the tax year 2009
related to income taxes. This contingency has been reported as a component of other long-term liabilities. During February
2014, Ciena received a final audit assessment notice from the India tax authorities with respect to this matter. Ciena has filed an
appeal citing deficiencies in this assessment. Although Ciena estimates that it could be exposed to possible losses of up to $1.5
million, it has not accrued a liability of such amount as of October 31, 2014. Ciena has not accrued the additional income tax
liability because it does not believe that such a loss is more likely than not. Ciena continues to evaluate the likelihood of a
probable and reasonably possible loss, if any, related to this assessment. 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 to
occur.

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 its results of operations, financial position or cash flows.

Litigation

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

In December 2010, the PTO confirmed the validity of some claims and rejected the validity of other claims of the '673 Patent,
to which Ciena and other defendants filed an appeal. On March 16, 2012, the PTO on appeal rejected multiple claims of the
'673 Patent, including the two claims on which Ciena is alleged to infringe. Subsequently, the plaintiff requested a reopening of
the prosecution of the '673 Patent, which request was denied by the PTO on April 29, 2013. Thereafter, on May 28, 2013, the
plaintiff filed an amendment with the PTO in which it canceled the claims of the '673 Patent on which Ciena is alleged to
infringe. The case currently remains stayed, and there can be no assurance as to whether or when the stay will be lifted.

In addition to the matter described above, Ciena is subject to various legal proceedings and claims arising in the ordinary
course of business, including claims against third parties that may involve contractual indemnification obligations on the part of
Ciena. 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 2032 for
equipment and facilities. During the fourth quarter of fiscal 2014, the Company entered into a lease relating to office space for
its new research and development center in Ottawa, Canada, consisting of a rentable area of approximately 170,582 square feet.
The future minimum rental commitments to be paid over the 18-year lease term are approximately $49.1 million. Future annual
minimum operating lease commitments under non-cancelable operating leases at October 31, 2014 are as follows (in
thousands):

Year ended October 31,

2015

2016

2017

2018

2019

Thereafter

Total

33,527

31,605

28,232

15,675

12,668

83,191

204,898

Rental expense for fiscal 2012, fiscal 2013 and fiscal 2014 was approximately $21.7 million, $26.0 million and $22.9
million, respectively. In addition, Ciena paid approximately $1.4 million, $1.6 million and $0.5 million during fiscal 2012,
fiscal 2013 and fiscal 2014, 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 variable expenses relating to insurance, taxes, maintenance and other costs required by
the applicable operating lease. These costs are not expected to have a material impact on Ciena's financial condition, results of
operations or cash flows.

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

There was no change in Ciena’s 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, Ciena’s internal control over financial reporting.

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, 2014. 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, 2014, 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, 2014, as stated in its report appearing in Item 8
of Part II of this annual report.

/s/ Gary B. Smith

Gary B. Smith
President and Chief Executive Officer

December 19, 2014

/s/ James E. Moylan, Jr.

James E. Moylan, Jr.
Senior Vice President and Chief Financial Officer

December 19, 2014

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 responsive to this item concerning our Audit Committee and regarding compliance with Section 16

(a) of the Exchange Act is incorporated herein by reference from Ciena’s definitive proxy statement with respect to our 2015
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 website 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 website at the address above.

Item 11. Executive Compensation

Information responsive to this item is incorporated herein by reference from Ciena’s definitive proxy statement with respect

to our 2015 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 from Ciena’s definitive proxy statement with respect

to our 2015 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 from Ciena’s definitive proxy statement with respect

to our 2015 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 from Ciena’s definitive proxy statement with respect

to our 2015 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)

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 herewith 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 herewith 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 19th day of December 2014.

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 19, 2014

Patrick H. Nettles, Ph.D.

/s/ Gary B. Smith

President, Chief Executive Officer and Director

December 19, 2014

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 19, 2014

/s/ Andrew C. Petrik

Vice President, Controller

December 19, 2014

Andrew C. Petrik
(Principal Accounting Officer)

/s/ Harvey B. Cash

Harvey B. Cash

/s/ Bruce L. Claflin

Bruce L. Claflin

/s/ Lawton W. Fitt

Lawton W. Fitt

Director

/s/ Patrick T. Gallagher

Director

December 19, 2014

Patrick T. Gallagher

/s/ T. Michael Nevens
T. Michael Nevens

Director

December 19, 2014

/s/ Judith M. O’Brien

Director

Judith M. O’Brien

/s/ Michael J. Rowny

Director

Michael J. Rowny

December 19, 2014

INDEX TO EXHIBITS

Exhibit

Number
2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

2.10

2.11

2.12

3.1

3.2

4.1

4.2

Exhibit Description
Amended & Restated Asset Sale Agreement by and among
Nortel Networks Corporation, Nortel Networks Limited,
Nortel Networks, Inc. and certain other entities identified
therein as sellers and Ciena Corporation, dated as of
November 24, 2009 (“Nortel ASA”)+

Amendment No. 1 to Nortel ASA dated as of December 3,
2009+

Amendment No. 2 to Nortel ASA dated as of December 23,
2009+

Amendment No. 3 to Nortel ASA dated as of March 15, 2010

Amendment No. 4 to Nortel ASA dated as of March 15,
2010+

Amendment No. 5 to Nortel ASA dated as of March 19,
2010+
Asset Sale Agreement (relating to the sale and purchase of
certain Nortel assets in Europe, the Middle East and Africa)
by and among the Nortel affiliates, Joint Administrators and
Joint Israeli Administrators named therein and Ciena
Corporation, dated as of October 7, 2009 (“Nortel EMEA
ASA”)+

Deed of Amendment (Amendment No. 1) dated October 20,
2009, relating to the Nortel EMEA ASA+

Amendment Agreement (Amendment No. 2) dated
November 24, 2009 relating to the Nortel EMEA ASA+

Deed of Amendment (Amendment No. 3) dated
December 16, 2009 relating to the Nortel EMEA ASA+

Amendment Agreement (Amendment No. 4) dated
January 13, 2010 relating to Nortel EMEA ASA+

Deed of Amendment (Amendment No. 5) dated March 19,
2010 relating to Nortel EMEA ASA+

Amended and Restated Certificate of Incorporation of Ciena
Corporation

Amended and Restated Bylaws of Ciena Corporation

Specimen Stock Certificate

Indenture dated June 11, 2007 between Ciena Corporation
and The Bank of New York, as trustee, for 0.875%
Convertible Senior Notes due 2017, including the Form of
Global Note attached as Exhibit A thereto

Incorporated by Reference

Form and

Registration or

Commission No.
10-K
(000-21969)

Filed

Here-

with (X)

Exhibit
2.1

Filing Date
12/22/2009

10-K
(000-21969)

10-Q
(000-21969)

10-Q
(000-21969)
10-K
(000-21969)

10-K
(000-21969)

10-Q
(000-21969)

8-K
(000-21969)

10-K
(000-21969)

8-K
(000-21969)

2.2

2.1

2.2

2.3

2.4

2.5

2.6

2.2

2.4

3.1

4.1

4.7

12/22/2009

3/5/2010

6/10/2010

12/22/2009

3/5/2010

6/10/2010

3/27/2008

8/28/2008

12/27/2007

6/12/2007

100

Exhibit

Number
4.3

4.4

4.5

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

Exhibit Description
Indenture dated March 15, 2010 between Ciena Corporation
and The Bank of New York Mellon, as trustee, for 4.0%
Convertible Senior Notes due 2015, including the Form of
Global Note attached as Exhibit A thereto

Indenture dated October 18, 2010 between Ciena Corporation
and The Bank of New York Mellon Trust Company, N.A., as
trustee, for 3.75% Convertible Senior Notes due 2018,
including the Form of Global Note attached as Exhibit A
thereto

Indenture dated December 27, 2012 between Ciena
Corporation and The Bank of New York Mellon Trust
Company, N.A., as trustee, for 4.0% Convertible Senior
Notes due 2020, including the Form of Global Note attached
as Exhibit A thereto

1999 Non-Officer Stock Option Plan and Form of Stock
Option Agreement*

Amendment No. 1 to 1999 Non-Officer Stock Option Plan*

Catena Networks, Inc. 1998 Equity Incentive Plan, as
amended*

Internet Photonics, Inc. Amended and Restated 2000
Corporate Stock Option Plan*

Ciena Corporation 2000 Equity Incentive Plan (Amended and
Restated ONI Systems Corp. 2000 Equity Incentive Plan)*

Form of Stock Option Award Agreement for executive
officers under Ciena Corporation 2000 Equity Incentive
Plan*

Form of Restricted Stock Unit Agreement for executive
officers under Ciena Corporation 2000 Equity Incentive
Plan*

Form of Performance Stock Unit Award Agreement for
executive officers under Ciena Corporation 2000 Equity
Incentive Plan*

Incorporated by Reference

Form and

Registration or

Commission No.
8-K
(000-21969)

Filed

Here-

with (X)

Exhibit
4.1

Filing Date
3/19/2010

8-K
(000-21969)

4.1

10/21/2010

8-K
(000-21969)

4.1

12/31/2012

10-K
(000-21969)

10-Q
(000-21969)

10-K
(000-21969)

8-K
(000-21969)

10.22

12/10/1999

10.25

12/13/2001

10.38

5/20/2004

10.39

5/20/2004

10.37

12/11/2003

10.1

11/4/2005

10.2

11/4/2005

10.3

11/4/2005

10.9

10.10

Form of Stock Option Award Agreement for directors under
Ciena Corporation 2000 Equity Incentive Plan*

8-K
(000-21969)

10.4

11/4/2005

Form of Restricted Stock Unit Award Agreement for directors
under Ciena Corporation 2000 Equity Incentive Plan*

8-K
(000-21969)

10.5

11/4/2005

10.11

Amended and Restated 2003 Employee Stock Purchase Plan*

10.12

Employee Stock Purchase Plan Enrollment Agreement*

10.13

1996 Outside Directors Stock Option Plan*

10.14

Forms of 1996 Outside Directors Stock Option Agreement*

8-K
(000-21969)

10-K
(000-21969)

S-1
(333-17729)

10.2

3/23/2012

10.33

12/22/2011

10.4

12/12/1996

10.5

12/12/1996

101

Filed

Here-

with (X)

Exhibit

Number
10.15

10.16

Exhibit Description
Third Amended and Restated 1994 Stock Option Plan*

Amended and Restated 1994 Stock Option Plan Forms of
Employee Stock Option Agreement*

10.17

2008 Omnibus Incentive Plan*

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

Amendment (No. 1) to Ciena Corporation 2008 Omnibus
Incentive Plan dated April 14, 2010*

Amendment (No. 2) to Ciena Corporation 2008 Omnibus
Incentive Plan dated March 21, 2012*
Amendment (No. 3) to Ciena Corporation 2008 Omnibus
Incentive Plan dated April 10, 2014*

Form of 2008 Omnibus Incentive Plan Restricted Stock Unit
Agreement (Employee)*
Form of 2008 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement (Employee)*

Form of 2008 Omnibus Incentive Plan Restricted Stock Unit
Agreement (Director)*

Form of Indemnification Agreement with Directors and
Executive Officers*

Amended and Restated Change in Control Severance
Agreement dated November 1, 2013, between Ciena
Corporation and Gary B. Smith*
Form of Amended and Restated Change in Control Severance
Agreement between Ciena Corporation and Executive
Officers*

10.27

Ciena Corporation Directors Restricted Stock Deferral Plan*

10.28

Ciena Corporation Amended and Restated Incentive Bonus
Plan, as amended December 15, 2011*

10.29

Ciena Corporation 2010 Inducement Equity Award Plan*

10.30

Form of 2010 Inducement Equity Award Plan Restricted
Stock Unit Agreement*

10.31

U.S. Executive Severance Benefit Plan*

10.32

10.33

10.34

10.35

Lease Agreement dated as of March 19, 2010 between Ciena
Canada, Inc. and Nortel Networks Technology Corp.#

Lab 10 Lease Amending Agreement dated February 13, 2012
between Her Majesty the Queen in Right of Canada, as
Represented by the Minister of Public Works and
Government Services, and Ciena Canada, Inc.

Second Lease Amending Agreement dated August 29, 2013
by and between Her Majesty the Queen in Right of Canada,
as Represented by the Minister of Public Works and
Government Services, as landlord, and Ciena Canada, Inc., as
tenant
Third Lease Amending Agreement dated July 11, 2014 by
and between Her Majesty the Queen in Right of Canada, as
Represented by the Minister of Public Works and
Government Services, as landlord, and Ciena Canada, Inc., as
tenant

102

Incorporated by Reference

Form and

Registration or

Commission No.
S-1
(333-17729)

S-1
(333-17729)

8-K
(000-21969)

10-Q
(001-36250)

10-K
(000-21969)
10-Q
(000-21969)

10-Q
(000-21969)

8-K
(000-21969)

10-Q
(000-21969)

10-K
(000-21969)

8-K
(000-21969)

10-Q
(000-21969)

8-K
(000-21969)

Exhibit
10.2

Filing Date
12/12/1996

10.3

12/12/1996

10.1

3/27/2008

10.1

4/15/2010

10.1

3/23/2012

10.1

6/11/2014

10.18

12/22/2011

10.2

10.3

10.1

6/4/2009

3/3/2006

10.1

11/01/2013

10.2

11/01/2013

10.1

8/31/2007

10.26

12/22/2011

10.35

12/22/2009

10.2

3/25/2010

10.1

6/9/2011

10.1

6/10/2010

1.1

2/15/2012

8-K
(000-21969)

10.1

8/3/2013

8-K
(001-36250)

10.1

7/11/2014

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

10.47

Lease Agreement by and between Ciena Canada, Inc. and
Innovation Blvd. II Limited dated as of October 23, 2014+

—

Intellectual Property License Agreement dated as of
March 19, 2010 between Ciena Luxembourg S.a.r.l. and
Nortel Networks Limited#

10-Q
(000-21969)

10.3

6/10/2010

Lease Agreement dated November 3, 2011 between Ciena
Corporation and W2007 RDG Realty, L.L.C. ++

10-K
(000-21969)

10.34

12/22/2011

ABL Credit Agreement, dated August 13, 2012, by and
among Ciena Corporation, Ciena Communications, Inc. and
Ciena Canada, Inc., as the borrowers, the lenders party
thereto, Deutsche Bank AG New York Branch, as
administrative agent and collateral agent, Bank of America,
N.A., as syndication agent, and Morgan Stanley Senior
Funding, Inc. and Wells Fargo Bank, National Association, as
co-documentation agents ++

Amendment to ABL Credit Agreement, dated August 24,
2012, by and among Ciena Corporation, Ciena
Communications, Inc. and Ciena Canada, Inc., as the
borrowers, and Deutsche Bank AG New York Branch, as
administrative agent ++

Omnibus Second Amendment to ABL Credit Agreement and
First Amendment to U.S. Security Agreement, Canadian
Security Agreement, U.S. Pledge Agreement, U.S. Guaranty
and Canadian Guaranty, entered into as of March 5, 2013, by
and among Ciena Corporation, Ciena Communications, Inc.,
Ciena Canada, Inc., and Deutsche Bank AG New York
Branch
Third Amendment to ABL Credit Agreement dated July 15,
2014 by and among Ciena Corporation, Ciena
Communications, Inc., Ciena Government Solutions, Inc.
Ciena Canada, Inc., Deutsche Bank AG New York Branch, as
administrative agent and collateral agent, and the lenders
party thereto.

Joinder Agreement under ABL Credit Agreement and Related
Agreements as of March 15, 2013 by and between Ciena
Government Solutions, Inc. and Deutsche Bank AG New
York Branch, as Administrative Agent and as Collateral
Agent, for the benefit of the Secured Creditors++

Amended and Restated Security Agreement, dated August 13,
2012, amended and restated as of July 15, 2014, by and
among Ciena Corporation, Ciena Communications, Inc.,
Ciena Government Solutions, Inc., and Deutsche Bank AG
New York Branch, as Collateral Agent++

Amended and Restated Pledge Agreement, dated August 13,
2012, amended and restated as of July 15, 2014, by and
among Ciena Corporation, Ciena Communications, Inc.,
Ciena Government Solutions, Inc., and Deutsche Bank AG
New York Branch, as Pledgee++

U.S. Guaranty, dated August 13, 2012, by and among Ciena
Corporation and Ciena Communications, Inc., as guarantors,
and Deutsche Bank AG New York Branch, as administrative
agent ++

10-Q
(000-21969)

10.1

9/5/2012

10-Q
(000-21969)

10.2

9/5/2012

10-Q
(000-21969)

10.2

3/13/2013

10-Q
(001-36250)

10.1

9/9/2014

10-Q
(000-21969)

10.2

6/12/2013

10-Q
(001-36250)

10.2

9/9/2014

10-Q
(001-36250)

10.3

9/9/2014

10-Q
(000-21969)

10.5

9/5/2012

Canadian Guaranty, dated August 13, 2012, by and between
Ciena Canada, Inc., as guarantor, and Deutsche Bank AG
New York Branch, as administrative agent ++

10-Q
(000-21969)

10.7

9/5/2012

103

10.48

10.49

10.50

10.51

10.52

12.1

21.1

23.1

31.1

31.2

32.1

32.2

Amended and Restated Canadian Security Agreement, dated
August 13, 2012, amended and restated as of July 15, 2014,
by and among Ciena Canada, Inc., each other assignor from
time to time party thereto, and Deutsche Bank AG New York
Branch, as Collateral Agent.++

10-Q
(001-36250)

10.4

9/9/2014

Credit Agreement, dated July 15, 2014, by and among Ciena
Corporation, the lenders party thereto, and Bank of America,
N.A., as Administrative Agent++

10-Q
(001-36250)

10.5

9/9/2014

Guaranty, dated July 15, 2014, by and among Ciena
Communications, Inc., Ciena Government Solutions, Inc. and
Bank of America, N.A., as Administrative Agent.

10-Q
(001-36250)

10.6

9/9/2014

Term Loan Security Agreement, dated July 15, 2014, by and
among Ciena Corporation, Ciena Communications, Inc.,
Ciena Government Solutions, Inc., and Bank of America,
N.A., as Collateral Agent.

Term Loan Pledge Agreement, dated July 15, 2014, by and
among Ciena Corporation, Ciena Communications, Inc.,
Ciena Government Solutions, Inc., and Bank of America,
N.A., as Pledgee.

10-Q
(001-36250)

10.7

9/9/2014

10-Q
(001-36250)

10.8

9/9/2014

Computation of Earnings to Fixed Charges

Subsidiaries of registrant

Consent of Independent Registered Public Accounting Firm

Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934 as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934 as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase
Document

104

—

________________________________

Represents management contract or compensatory plan or arrangement

Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and exhibits referenced in the table of contents have
been omitted. Ciena hereby agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC
upon request. In addition, representations and warranties included in these agreements, as amended, were made by
the parties to one another in connection with a negotiated transaction. These representations and warranties were
made as of specific dates, only for purposes of these agreements and for the benefit of the parties thereto. These
representations and warranties were subject to important exceptions and limitations agreed upon by the parties,
including being qualified by confidential disclosures, made for the purposes of allocating contractual risk between
the parties rather than establishing these matters as facts. These agreements are filed with this report only to provide
investors with information regarding its terms and conditions, and not to provide any other factual information
regarding Ciena or any other party thereto. Accordingly, investors should not rely on the representations and
warranties contained in these agreements or any description thereof as characterizations of the actual state of facts or
condition of any party, its subsidiaries or affiliates. The information in these agreements should be considered
together with Ciena’s public reports filed with the SEC.

Representations and warranties included in these agreements, as amended, were made by the parties to one another
in connection with a negotiated transaction. These representations and warranties were made as of specific dates,
only for purposes of these agreements and for the benefit of the parties thereto. These representations and warranties
were subject to important exceptions and limitations agreed upon by the parties, including being qualified by
confidential disclosures, made for the purposes of allocating contractual risk between the parties rather than
establishing these matters as facts. These agreements are filed with this report only to provide investors with
information regarding its terms and conditions, and not to provide any other factual information regarding Ciena or
any other party thereto. Accordingly, investors should not rely on the representations and warranties contained in
these agreements or any description thereof as characterizations of the actual state of facts or condition of any party,
its subsidiaries or affiliates. The information in these agreements should be considered together with Ciena’s public
reports filed with the SEC.

Certain portions of these documents have been omitted based on a request for confidential treatment submitted to the
SEC. The non-public information that has been omitted from these documents has been separately filed with the
SEC. Each redacted portion of these documents is indicated by a “[*]” and is subject to the request for confidential
treatment submitted to the SEC. The redacted information is confidential information of the Registrant.

105

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Corporate information

Corporate Headquarters
Ciena Corporation
7035 Ridge Road
Hanover, MD 21076
Telephone: (800) 921-1144
or (410) 694-5700
www.Ciena.com

Operating Executive Officers
Patrick H. Nettles, Ph.D.
Executive Chairman of the
Board of Directors

Outside Board Members
Harvey B. Cash
Retired General Partner
InterWest Partners

Gary B. Smith
President, Chief Executive Officer
and Director

Bruce L. Claflin
Chairman
AMD Corporation

Virtual Annual Meeting
Ciena’s annual meeting of sharehold-
ers will be held at 3:00 PM (Eastern) on
Thursday, March 26, 2015. Please visit
www.shareholdermeeting.com/ciena at
least 10 minutes prior to the start time.

Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP

Outside Counsel
Hogan Lovells US LLP

Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Stockholder Inquiries: (781) 575-2879
www.Computershare.com

James E. Moylan, Jr.
Chief Financial Officer,
Senior Vice President, Finance

Stephen B. Alexander
Chief Technology Officer,
Senior Vice President, Products
and Technology

James Frodsham
Senior Vice President,
Chief Strategy Officer

François Locoh-Donou
Senior Vice President,
Global Products Group

Philippe Morin
Senior Vice President,
Global Sales and Field Operations

Common Stock Market Data
Ciena’s Common Stock began trading
on the New York Exchange Stock
Exchange on December 23, 2013 under
the stock symbol “CIEN”.

Andrew Petrik
Vice President and Controller

David M. Rothenstein
Senior Vice President,
General Counsel and Secretary

Lawton W. Fitt
Retired Partner
Goldman Sachs

Patrick T. Gallagher
Chairman
Harmonic, Inc.

Judith M. O’Brien
Partner
King & Spalding LLP

Michael J. Rowny
Chairman
Rowny Capital

T. Michael Nevens
Senior Adviser
Permira Advisers, LLC

Investor Relations
For additional copies of this report or
other financial information, contact:
Investor Relations
Ciena Corporation
7035 Ridge Road
Hanover, MD 21076
Telephone: (877) 243-6273
or (410) 694-5700
Additional information is available on
Ciena’s website at www.Ciena.com.

Notes to Investors This Annual Report contains certain forward-looking statements regarding future events or results that involve
risks and uncertainties. These statements are based on current expectations, estimates, forecasts, assumptions and other informa-
tion available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena’s projections,
expectations, beliefs, intentions or strategies and can be identified by words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “intend,” “may,” “should,” “will,” and “would” or similar words. Ciena’s actual results or performance may differ materi-
ally from these forward-looking statements, including due to certain risks and uncertainties relating to Ciena’s business more fully
disclosed in Ciena’s Annual Report on Form 10-K contained herein. Ciena assumes no obligation to revise or update any forward-
looking information included in this Annual Report.

This document includes certain adjusted or non-GAAP measures of Ciena’s results of operations. Detailed reconciliations of these
non-GAAP measures to our GAAP results are included in the press release for the relevant period available on Ciena.com.

FSC® C109855

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7035 Ridge Road, Hanover, Maryland 21076 (410) 694-5700 (800) 921-1144 ciena.com