Ciena Annual Report 2020

FY2020 Annual Report · Ciena

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2020 Annual Report

In an uncertain world, foresight
is not enough. It takes agility,
strength and perseverance to
shape the future. We built Ciena
to be resilient to our core and
created our Adaptive Network™
to give each customer the
means to thrive.

We are relentless in our pursuits. We lead.
It’s all we know. Show us an obstacle and we
will overcome. Tell us we can’t do something
and we will defy the odds. Sure, we have the
best technology. We also work hard to foster
a strong and authentic culture, which has
engendered a long track record of trust with
our customers and encourages engagement
with our communities. Simply put, Ciena’s
success is rooted in our people.

That’s what we deliver.

At Ciena it’s our business to expand the
limits of what’s possible for our customers.

We own the enabling technologies
on which our innovation flourishes. While
others make announcements, we execute
our roadmap and deploy solutions.

And this year we deployed WaveLogicTM
5 Extreme, the industry’s first single-
wavelength 800G solution.

Here, at Ciena.

Ciena At a Glance

Who We Are

We are an industry-leading, global networking systems, services,
and software company. We enable our customers to adapt and respond
in real-time to ever-changing demands through the creation and
deployment of the Adaptive Network.

$3.5B

FY'20 Revenue

8.0%

3-yr Revenue
CAGR

$1.3B

Cash Position

#1 or

#21

Market Position

1,700+

Customers

Strong2

Governance
Practices

1 As cited by Omdia, Dell’Oro Group and Cignal AI for different markets.
2 ISS QualityScore of 1 (out of 10) —Bloomberg.

Our Portfolio Enabling the Adaptive Network

Software Control
and Automation

Analytics and
Intelligence

Programmable
Infrastructure

Blue Planet® multi-domain orchestration,
federated inventory, and service order
management solutions support the
broadest range of closed-loop automation
use cases across multi-layer, multi-vendor
networks.

Ciena’s Manage, Control and Plan
(MCP) domain controller provides
intelligent, data-driven software-defined
programmability to lifecycle operations
of Ciena networks.

Ciena and Blue Planet® Unified Assurance
and Analytics: Open suite of software
products that unifies multi-layer, multi-
domain assurance, with AI-powered
analytics to provide strategic insights to
transform and simplify business, IT, and
network operations.

MCP Advanced Apps: Applications
designed to enhance operations and
simplify user experience for optimization
of multi-layer network performance,
featuring Liquid SpectrumTM for increased
optical network capacity and service
availability, and Adaptive IPTM Apps for
advanced real-time visualization and
analysis of IP networks.

Converged Packet-Optical Networking:
Software-programmable platforms,
featuring Ciena’s award-winning WaveLogic
Photonics with optional agnostic packet/
OTN switching, designed to maximize scale,
flexibility, and open networking. Optimizes
network performance across applications
from metro to submarine, and is the
dominant portfolio used globally for Data
Center Interconnect.

Packet Networking: Purpose-built routing,
switching, and x86 VNF hosting platforms—
using a common Service-Aware Operating
System (SAOS)—provide the building
blocks for low-touch, high-velocity IP,
Segment Routing, Ethernet, MPLS, and
10G PON in access to metro networks.

Ciena Services

A consultative approach to build, operate, and continually improve customers’ networks
to accelerate their unique journey to the Adaptive Network.

We bring experienced technical personnel, best practices, and processes—along with
the most effective tools for handling network complexities to work alongside customers
every step of the way.

GARY B. SMITH

President and
Chief Executive Officer

To Our Shareholders

2020 was a year unlike any in recent memory.
The challenges brought on by the global pandemic tested
us as individuals, companies, and entire industries. While
Ciena was not immune to the unforeseen challenges,
our commitment and perseverance proved out our long-
term strategy as well as the strength and durability of
our business model. I am extremely proud of how we
performed, including how the Ciena team supported one
another, our customers, and our communities. I have said
for many years that the core of Ciena’s business is our
people, and that was on full display in 2020, enabling us
to thrive across many dimensions.

The year’s unique circumstances emphasized the critical
role of our communications networks. The network and
its ability to connect people has been essential in helping
the world navigate and overcome the challenges of the
global coronavirus pandemic. It is the strength of our
customers’ networks that keeps us connected to loved
ones, friends, colleagues, and important services.
At Ciena, we have been intently focused on delivering
those networks that can successfully adapt to ever-
changing demands, allowing people and companies to
maintain these critical connections.

COVID-19: Staying Safe and Connected

Amidst an unusually dynamic market and significant
uncertainty in 2020, we focused our energy on our people
and our customers. From the very start, we acted quickly
in closing our offices and implementing travel restrictions
designed to protect our employees and customers.
Our holistic approach to the wellbeing of our employees
is underpinned by four pillars — physical, emotional,
social, and financial. In this unique year, we emphasized
and extended our support resources, including employee
assistance programs, pandemic leave and other benefits
that provide additional time to focus on rest and recovery,
work-from-home reimbursement and support, and
additional learning and development resources.

We also focused on our customers, going to great lengths
to deliver on our roadmap commitments — an effort that
was most evident in deployments of WaveLogic 5 Extreme,
our fifth-generation coherent modem technology and the
industry’s first single-wavelength 800G solution.

We innovated with unique engagement approaches to
support and interact with our customers in a world where
social distancing and other physical constraints posed
limitations. We virtualized customer events, such as
our mobile lab, innovation showcases, and e-learning
bundles. And we leveraged our robust business continuity
plan, supported by supply chain diversification in recent
years, to continue delivering products and services when
movement restrictions and lockdowns were put
in place. These efforts, along with ongoing investments
in productivity and efficiency, enabled us to meet and
often exceed customer expectations and requirements
for them to succeed in a difficult environment.

Playing a Role in Our Communities

Of equal importance, in 2020 we gave back to our
communities in meaningful ways. As a key enabler
of innovations that power the world’s networks, we
do everything we can to ensure that network operators
can deliver connectivity for their customers at all
times, especially during this crisis.

We have responded to our customers’ rapid growth
in bandwidth demand resulting from the dramatic shift
in how we are living today, including the exponential rise
in remote working, distance education, e-gaming, and
streaming entertainment. Ciena’s technology is also
essential to enabling the healthcare community to treat
patients and work to contain the spread of COVID-19,
as well as for governments to coordinate efforts and
communicate instructions to citizens.

Ciena went above and beyond this responsibility in 2020.
We donated PPE and utilized our engineering resources
to design and produce face shields. As individuals and
teams, the Ciena family served its communities around
the world like never before with thousands of volunteer
hours devoted to supporting local causes. Through
our Ciena Cares program, employee service hours and
charitable contributions were triple matched by the
company to force multiply the positive impact. And we
announced our longer-term Digital Inclusion Commitment,
under which we began working with business partners,
such as Verizon, Spark and others around the world, to
enable greater opportunities for underserved students in
our communities through programs that promote greater
access, technology, and skills.

Strong Business Model

Of course, we remain keenly focused on delivering strong
and differentiated operating results and shareholder value.
Despite some impact of pandemic-related challenges
on our business in fiscal 2020, including slowdowns in
customer spending and business velocity in the second
half of the year, we performed well overall in a difficult
environment. We generated $3.53 billion in revenue,
reflecting the valuable diversity in our business with a
strong contribution from non-telco customers of a record
40 percent as compared to 37.5 percent in fiscal 2019.
The diversity was represented across several customer
segments with a highlight being the direct government
business, which grew almost 40 percent year over year.

As a result of higher gross margins and lower operating
expense due to business dynamics relating to the
pandemic, we delivered outstanding profitability in 2020,
including adjusted operating margin of 17.6 percent
and adjusted EPS of $2.95. Free cash flow was $411 million,
which represented 66 percent of adjusted operating
income, and we ended the year with approximately
$1.3 billion in cash and investments. In fact, our balance
sheet remains a significant competitive differentiator,
particularly in an environment where financial strength
and resiliency are critical. Our strong balance sheet
and cash flow generation also affords us the flexibility
to continue investing in our business for the long term,
while returning capital to shareholders. Like many others,
we suspended our equity buyback program in early
fiscal 2020 at the height of COVID-related uncertainties.
However, we reinstituted the program in the first
quarter of fiscal 2021, and have targeted repurchases
of approximately $150 million during the year.

Continued Advances in Innovation

Exemplifying our innovation leadership, in 2020 we
delivered significant advances across all three dimensions
of our Adaptive Network vision.

In Programmable Infrastructure, customers began to
deploy WaveLogic 5 Extreme, the industry’s first single-
wavelength 800G solution. The technology leapfrogs
the nearest competitive offerings by delivering 50 percent
more capacity per wavelength and up to 20 percent higher
spectral efficiency. At the end of fiscal 2020, we had orders
from 65 customers around the world and had shipped
nearly 5,000 units. We also extended the capabilities of
our Packet Networking portfolio in IP optical convergence,
virtualization, 5G, and Edge Cloud. Increased demand
for services, applications, and content at the network
edge is driving strong interest for this portfolio. In fact,
during fiscal 2020, we secured a number of awards for
this portfolio, including seven deployments of our
Adaptive IP solutions.

Our COVID-19 Response

Safety and Community

Business Continuity

Financial Strength

•

Prioritizing health of employees and
following CDC guidance for employers

The vast majority of our employees
working remotely

•

Supply chain design and business
continuity planning has allowed us to
continue to support customers and
minimize disruption

Instituted pandemic employee benefits

•

Tripled our corporate charitable
matching program for employee
donations and volunteering

Significant IT investment in digital
platforms and virtual collaboration
tools has enabled a seamless transition
to remote working

Result: Our employees have excelled
through their continued focus, strength,
and kindness.

Result: We are well positioned to manage
through the current challenges presented
by COVID-19.

•

We have a strong balance sheet and
solid cash flow generation

In light of our confidence around our
cash generation, we reinstated our
share repurchase program starting in
the first quarter of 2021

Result: Our financial strength provides
long-term resiliency and differentiated
flexibility to support our business.

Across Analytics and Intelligence and Software Control
and Automation, we made technology investments in both
Blue Planet and our MCP domain controller, which resulted
in increased engagement with network operators seeking
to drive digital transformation through automation. We had
a strong finish to the year with our Blue Planet business,
including a strategic partnership with DISH and a major
win with a global systems integrator. And, the number of
customers adopting MCP grew by more than 300 percent
in 2020, including large carriers such as AT&T, Deutsche
Telekom, and other Tier 1 operators.

“ As a key enabler of
innovations that power the
world’s networks, we do
everything we can to ensure
that network operators
can deliver connectivity
for their customers at
all times …”

Executing Our Strategy

Core Networks

Next Gen Metro
& Edge

Blue Planet

Investment

MOVING BITS AUTOMATING NETWORKS ROOTED IN PEOPLEThe AdaptiveNetwork™DiversificationGlobal ScaleLeading Technology and InnovationEnabling our Adaptive Network vision, our Global Services
business is demonstrating increasing strategic value
to our customers as they adapt their networks to
new challenges and opportunities. During fiscal 2020,
our network transformation offering was selected by two
Tier 1 service providers for legacy to next-generation
network migration projects.

Extending Our Leadership and
Investing in the Future

Through the efforts of our world-class employees and our
relentless innovation, we are dedicated to enabling greater
connectivity that helps improve the experiences and
lives of people around the world. The challenges of 2020
demonstrated our ability to deliver on that promise while
taking market share and driving a profitable business.

Demand for connectivity continues, the adoption of
cloud architectures has accelerated, and network traffic
continues to grow, driven by fiber densification initiatives
such as 5G and Fiber Deep and materialization of use
cases for the Internet of Things (IoT). As a result, we
are confident about both continued industry momentum
and the competitive position of our business, which
has never been stronger. We will press down on these
advantages and leverage our differentiated ability
to continue investing — in our people, technology, and
customer engagement — to expand our leadership
position going forward.

As always, I am grateful for your continued support.
I hope in these challenging times that you and those close
to you remain safe and healthy.

Our Core Values

Our brand is built on the ongoing
commitment we have as a company to
our shared core values

Customer-first
Treat them like you expect
to be treated

Integrity
Always do the right thing;
keep your promises

Velocity
Be quick and efficient

Innovation
Think outside the box;
live a growth mindset

Sincerely,

Outstanding People
We support you to be your best;
support others

Gary B. Smith
President and Chief Executive Officer

Adapt. Solve. Accelerate.

Above and beyond connectivity, network providers are prioritizing
the need to digitally transform their networks. These initiatives
create networks that can adapt to better address increasingly
dynamic traffic flows and stringent customer requirements. Ciena’s
products and services are designed to accelerate this journey.

THE ADAPTIVE NETWORK

As a key enabler of innovations that drive network connectivity, Ciena
plays a key role in ensuring that network providers can deliver the
highly-reliable services their customers expect. Driving our approach
is the Adaptive Network, which builds on autonomous networking
concepts that enable dynamic, programmable architectures driven by
software analytics and intelligence. From our WaveLogic 5 Extreme 800G
solution to segment routing to emerging 5G use cases that Blue Planet
orchestrates, Ciena is delivering to our customers’ priorities.

5G Network Slicing
Use Case

Network slicing creates multiple
unique virtualized networks over
common physical infrastructure,
each with a differentiated
performance profile. Ciena’s
5G solutions allow operators to
address several 5G applications
such as IoT, mobile gaming, and
video streaming. The lifecycle of
each slice is managed by Ciena’s
MCP domain controller and Blue
Planet Automation Software.

Reducing Network
Complexity

Networks must be simplified so
operators can cost-effectively
scale their networks to support
existing and emerging services.
Ciena’s Adaptive IP provides
standards-based IP connectivity
from access to metro that is
automated and lean, to reduce
network complexity and accelerate
network providers’ ability to
monetize all types of applications
like 5G, Fiber Deep, IP VPN Business
Services, and Edge Cloud.

2020 was a unique year with many
of us working, learning, socializing,
and conducting business remotely.
Gaming grew double-digits and
online distance learning surged like
never before. Ciena’s high capacity,
low-latency networking solutions
and intelligent software innovations
have enabled countless people to
stay connected.

Plan. Execute. Excel.

Our strategy — focused on innovation leadership, diversification,
and global scale — has enabled Ciena to manage well through
the challenges of 2020 and deliver strong financial performance.
Results illustrate our solid execution and continued momentum
across several metrics, particularly profitability.

TAKING SHARE AND GROWING FASTER THAN MARKET

Our global market share, excluding China, grew from 17.5 percent in
2015 to approximately 25 percent in 2020. Illustrating this gain is Ciena’s
five-year revenue CAGR of over 7.5 percent which is roughly double
that of market growth during that timeframe. The result is a focused
market leader that has the resources to invest for the future, even in an
uncertain environment.

Adjusted Gross Margin

Adjusted Operating Margin

45%

43%

44%

47%

18%

12%

11%

13%

Adjusted EPS

Adjusted EBITDA
(in millions)

$2.95

$2.11

$714

$557

$410

$421

$1.39

$1.14

$1.3B

Cash Position,

up $300M Y/Y

2020 Geographic Revenue Distribution

Asia Pacific

13%

Europe, Middle East
and Africa

17%

70%

Americas

Live. Work. Collaborate.

Our customers enable technologies and applications that empower
users to have greater control over how they live, work, and
collaborate. Our solutions for an evolving network are in direct
response to how technology has and continues to revolutionize our
world and daily lives.

NEXT-GEN READINESS

On-demand programming, sharing a photo, and gaming are examples
of how we live and communicate in this era of next-gen technology.
Further, we are no longer tethered to the traditional concept of work and
collaboration. Diverse and global teams can work together in real-time to
solve problems and perform tasks never thought possible. Ciena works
with our customers to provide solutions that adjust to the changing needs
of the network and its users.

Analytics and
Intelligence

Given the vast amount of data
produced by the growing number
of applications on the network,
there is a greater need than ever
to provide analytics and insight to
our customers. For example, using
machine learning and artificial
intelligence we can more accurately
predict potential network problems
and anticipate trends that would
otherwise disrupt the user’s
experience.

Programmable
Infrastructure

Optical hardware can no longer
simply put photons on a fiber.
To respond to growing and dynamic
traffic levels, providers need the
ability to change and reconfigure
the network in real-time.
A programmable infrastructure
provides the necessary
combination of optical and packet
hardware, along with virtual
instances.

30%Traffic Growth*

* 2017–2022 global Internet traffic
CAGR forecast, Cisco VNI

Include. Contribute. Improve.

Sustainability is a fundamental part of our strategy and a key
segment to our overall corporate objectives. Our people are core
to our success, and we are committed to enabling our employees,
customers, and stakeholders to act with sustainability in mind.

OUR PEOPLE PROMISE

In 2020, we enhanced our Environmental, Social and Governance (ESG)
efforts and set lofty goals for ourselves. For our people, we launched
a number of wellbeing platforms, triple-matched employee charitable
donations, introduced a digital inclusion commitment, and increased our
volunteer hours. In addition, we continue to innovate on our technology
using virtualization to enable our customers to reduce their footprint while
enhancing their network. Our primary focus has always been on delivering
the best technology. We have increased our focus and commitment to
promoting a workplace that prioritizes ESG.

Our Commitment
to Wellbeing

Wellbeing has always been
important for Ciena and the global
pandemic has only strengthened
our commitment to the mental
health of our employees and
their families. In addition to new
wellbeing platforms and mental
health sessions, we offer global
pandemic leave and work from
home expense relief. The health of
our people is core to our success.

Digital
Inclusion

In 2020, we launched our Digital
Inclusion Commitment, focused
on underserved students in our
communities around the world.
We aim to expand opportunities
for 100,000 students by mobilizing
our core strengths — Our People,
Innovation, and Partnerships — to
enable greater digital connectivity
for exponential societal impact.
Through this program we will
fund $10M in programs over five
years to increase access to digital
connection, technology, and skills.

Approximately

$2Min matched donations

Ciena Leadership

Executive Officers

Patrick H. Nettles, Ph.D

Scott A. McFeely

Executive Chairperson
of the Board of Directors

Senior Vice President,
Global Products and Services

Gary B. Smith

President, Chief Executive Officer
and Director

Andrew C. Petrik

Vice President
and Controller

James E. Moylan, Jr.

Senior Vice President,
Chief Financial Officer

Stephen B. Alexander

Senior Vice President,
Chief Technology Officer

Rick L. Hamilton

Senior Vice President,
Blue Planet Software

Outside Board Members

Jason M. Phipps

Senior Vice President,
Global Customer Engagement

David M. Rothenstein

Senior Vice President,
General Counsel and Secretary

Mary Yang

Senior Vice President,
Chief Strategy Officer

Hassan M. Ahmed, Ph.D.

Devinder Kumar

Former Chairman of the
Board and Chief Executive Officer
Affirmed Networks

Senior Vice President,
Chief Financial Officer, Treasurer
Advanced Micro Devices, Inc.

Bruce L. Claflin

Former Chief Executive Officer
3Com Corporation

Lawton W. Fitt

Chairperson
The Progressive Corporation

T. Michael Nevens

Senior Adviser
Permira Advisors, LLC

Judith M. O’Brien

Former Partner
King & Spalding LLP

Patrick T. Gallagher

Joanne B. Olsen

Chairperson
Harmonic, Inc.

Former Executive Vice President
Global Cloud Services and Support
Oracle 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, 2020

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

1934

For the transition period from

Commission file number 001-36250

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)

Registrant’s telephone number, including area code: (410) 694-5700

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

Title of each class

Common Stock, $0.01 par value

Trading Symbol(s)

CIEN

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 þ No o

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 o No
þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes þ No o
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,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

Accelerated
filer

☐

Non-accelerated filer ☐

Smaller reporting
company

Emerging growth
company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) YES ☐ NO þ
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $7.1 billion
based on the closing price of the Common Stock on the New York Stock Exchange on May 1, 2020.

The number of shares of registrant’s Common Stock outstanding as of December 11, 2020 was 154,564,349.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of the Form 10-K incorporates by reference certain portions of the registrant’s definitive proxy statement for its 2021
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.

CIENA CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED OCTOBER 31, 2020

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

PART IV

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

Signatures

Page

138

139

140

141

142

143

Cautionary Note Regarding Forward-Looking Statements

PART I

This annual 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, trends in our business,
business prospects and strategies and other “forward-looking” information. In some cases, you can identify
“forward-looking statements” by words like “may,” “will,” “can,” “should,” “could,” “expects,” “future,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “projects,” “targets,” or
“continue” or the negative of those words and other comparable words. These statements may relate to, among
other things, the impact of COVID-19 on our business, financial results and operations; our competitive
landscape; market conditions and growth opportunities; factors impacting our industry and markets; factors
impacting the businesses of network operators and their network architectures; adoption of next-generation
infrastructures that are more open, programmable and automated; our strategy, including our research and
development, supply chain and go-to-market initiatives; efforts to increase application of our solutions in
customer networks and to increase the reach of our business into new or growing customer and geographic
markets; our backlog and seasonality in our business; expectations for our financial results, revenue, gross
margin, operating expense and key operating measures in future periods; the adequacy of our sources of
liquidity to satisfy our working capital needs, capital expenditures and other liquidity requirements; business
initiatives including information technology (“IT”) transitions or initiatives; the impact of the Tax Cuts and
Jobs Act (the “Tax Act”) and changes in our effective tax rates; and market risks associated with financial
instruments and foreign currency exchange rates. These statements are subject to known and unknown risks,
uncertainties and other factors, and actual events or results may differ materially.

For a discussion of additional important factors that could cause actual results to vary materially from
those anticipated in the forward-looking statements, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Risk Factors” in this annual report. However, we operate in a very
competitive and dynamic environment and new risks and uncertainties emerge, are identified or become
apparent from time to time. We cannot predict all risks and uncertainties that could have an impact on the
forward-looking statements contained in this annual report. You should be aware that the forward-looking
statements contained in this annual report are based on our current views and assumptions. We undertake no
obligation to revise or update any forward-looking statements made in this annual report to reflect events or
circumstances after the date hereof or to reflect new information or the occurrence of unanticipated events,
except as required by law. The forward-looking statements in this annual report are intended to be subject to
protection afforded by the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Unless the context requires otherwise, references in this annual report to
“Ciena,” the “Company,” “we,” “us” and “our” refer to Ciena Corporation.

Risk Factors Summary

Investing in our securities involves a high degree of risk. The following is a summary of the principal
factors that make an investment in our securities speculative or risky, all of which are more fully described
below in the section titled “Risk Factors.” This summary should be read in conjunction with the “Risk Factors”
section and should not be relied upon as an exhaustive summary of the material risks facing our business. In
addition to the following summary, you should consider the information set forth in the “Risk Factors” section
and the other information contained in this annual report before investing in our securities.

Risks Related to Our Business and Industry

•

The COVID-19 pandemic has impacted our business and results of operation and could have a material
adverse effect on our business, results of operations and financial condition in the future.
COVID-19-related restrictions on travel and gatherings could adversely impact our ability to compete
for business, particularly with customers where we are not an incumbent supplier.
Our revenue, gross margin and operating results can fluctuate significantly and unpredictably from
quarter to quarter.

•

A small number of customers account for a significant portion of our revenue. The loss of these
customers or a significant reduction in their spending could have a material adverse effect on our
business and results of operations.

• We face intense competition that could hurt our sales and results of operations, and we expect the
competitive landscape in which we operate to continue to broaden to include additional solutions
providers.
Investment of research and development resources in communications networking technologies for
which there is not an adequate market demand, or failure to sufficiently or timely invest in
technologies for which there is market demand, would adversely affect our revenue and profitability.

•

• We have no guaranteed purchases and regularly have to re-win business for existing customers.
•

Network equipment sales often involve lengthy sales cycles and protracted contract negotiations that
may require us to agree to commercial terms or conditions that negatively affect pricing, risk
allocation, payment and the timing of revenue recognition.
If the market for network software does not evolve in the way we anticipate or if customers do not
adopt our Blue Planet Automation Software and Services, we may not be able to monetize these
software assets and realize a key part of our business strategy.
If we are unable to adapt our business to the consumption models for networking solutions adopted by
our customers and to offer attractive solutions across these consumption models, our business,
competitive position and results of operations could be adversely affected.
Our go-to-market activities and the distribution of our WaveLogic® coherent modem technology
within the merchant modem market could expose us to increased or new forms of competition, or
adversely affect our existing systems business and results of operations.
If we fail to accurately predict demand, we may be required to write off significant amounts of
inventory as a result of our inventory purchase practices and could incur additional costs or experience
manufacturing delays.
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.

•

• We may be required to write down the value of certain significant assets, which would adversely affect

our operating results.

• We may be exposed to unanticipated risks and additional obligations in connection with our resale of

•

complementary products or technology of other companies.
Product performance problems and undetected errors affecting the performance, interoperability,
reliability or security of our products could damage our business reputation and negatively affect our
results of operations.
Strategic acquisitions and investments could disrupt our operations and may expose us to increased
costs and unexpected liabilities.

Risks Relating to the Macroeconomic Environment and our Global Presence

•

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.
The international scale of our sales and operations exposes us to additional risk and expense that could
adversely affect our results of operations.
Efforts to increase our sales and capture market share in targeted international markets may be
unsuccessful.

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

Risks Related to Our Operations and Reliance on Third Parties

• We may experience delays in the development and production of our products that may negatively

affect our competitive position and business.

• We rely on third-party contract manufacturers, and our business and results of operations may be

adversely affected by risks associated with their businesses, financial condition and the geographies in
which they operate.

•

Our reliance on 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.
Our reliance on certain third-party suppliers exposes us to certain risks relating to their businesses and
financial position that, in turn, could disrupt our business or limit our sales.

• We rely on third-party resellers and distribution partners to sell our solutions, and our failure to

develop and manage these relationships effectively could adversely affect our business and result of
operations.
Our failure to manage our relationships with third-party service partners effectively could adversely
impact our financial results and relationships with customers.
Growth of our business is dependent on the proper functioning and scalability of our internal business
processes and information systems. Adoption of new systems, modifications or interruptions of
services may disrupt our business, processes and internal controls.
Restructuring activities could disrupt our business and affect our results of operations.
If we are unable to attract and retain qualified personnel, or if our existing personnel are harmed by
COVID-19, we may be unable to manage our business effectively.

•

•
•

Risks Related to Intellectual Property, Litigation, Regulation and Government Policy
Our intellectual property rights may be difficult and costly to enforce.

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

•

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

• We are a party to legal proceedings, investigations and other claims or disputes, which are costly to

defend and, if determined adversely to us, could require us to pay fines or damages, undertake remedial
measures or prevent us from taking certain actions, any of which could adversely affect our business.
Changes in trade policy, including the imposition of tariffs and efforts to withdraw from or materially
modify international trade agreements, may adversely affect our business, operations and financial
condition.
Changes in government regulations affecting the communications and technology industries and the
businesses of our customers could harm our prospects and operating results.
The effects of the United Kingdom’s withdrawal from membership in the European Union remain
uncertain.
Government regulations related to the environment, climate change and social initiatives could
adversely affect our business and operating results.
Changes in effective tax rates and other adverse outcomes with taxing authorities could adversely
affect our results of operations.
Failure to maintain effective internal controls over financial reporting could have a material adverse
effect on our business, operating results and stock price.

•

Risks Related to Our Common Stock, Indebtedness and Investments

•
•

•

Our stock price is volatile.
Outstanding indebtedness under our senior secured credit facilities may adversely affect our liquidity
and results of operations and could limit our business.
Significant volatility and uncertainty in the capital markets may limit our access to funding on
favorable terms or at all.

Item 1. Business

Overview

We are a networking systems, services and software company, providing solutions that enable a wide range

of network operators to deploy and manage next-generation networks that deliver services to businesses and
consumers. We provide hardware, software and services that enable the transport, routing, switching,
aggregation, service delivery and management of video, data and voice traffic on communications networks.
Our solutions are used by communications service providers, cable and multiservice operators, Web-scale
providers, submarine network operators, governments, enterprises, research and education institutions and
emerging network operators.

Our solutions include Networking Platforms, including our Converged Packet Optical and Packet

Networking portfolios, which can be applied from the network core to end-user access points, and which allow
network operators to scale capacity, increase transmission speeds, allocate traffic and adapt dynamically to
changing end-user service demands. Our Converged Packet Optical portfolio includes products and solutions
that support the connection of content to content and users to content, including in long haul and regional,
submarine and data center interconnect networks. Our Packet Networking portfolio includes products and
solutions that enable next-generation metro, access and aggregation networks, connecting users to content in
applications that include 5G, mobile backhaul, virtualization and enterprise services.

To complement these solutions, we offer Platform Software, which provides management, domain control
and specialized applications that automate network lifecycle operations, including provisioning equipment and
services, network data, analytics and policy-based assurance to achieve closed loop automation across multi-
vendor and multi-domain network environments. Through our Blue Planet® Software suite, we enable
customers to transform their business and operations support systems (“OSS”) through software-based
automation of their network and IT infrastructures. To complement our hardware and software products, we
offer a broad range of services that help our customers build, operate and improve their networks and associated
operational environments, including network optimization and migration offerings.

We refer to our complete portfolio vision as the Adaptive Network™. The Adaptive Network emphasizes a

programmable network infrastructure, software control and automation capabilities, network analytics and
intelligence, and related advanced services. By transforming network infrastructures into a dynamic,
programmable environment driven by automation and analytics, network operators can realize greater business
agility, dynamically adapt to changing end-user service demands and rapidly introduce new revenue-generating
services. They can also gain valuable real-time network insights, allowing them to optimize network operation
and maximize the return on their network infrastructure investment.
Access to SEC Reports

Our website address is www.ciena.com. We make our annual reports on Form 10-K, quarterly reports on

Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge 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 these reports, 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

Network Traffic Growth and Increased Capacity Requirements

The markets in which we sell are dynamic and are characterized by a high rate of change. Optical networks

– which carry video, data and voice traffic by encoding digital information on multiple wavelengths of light
traveling across fiber optic cables – have experienced strong traffic growth. This network traffic growth is being
driven by a diverse set of communications services that often require on-demand service levels by their
enterprise and consumer end users:

•

Cloud-Based Services. Enterprises and consumers continue to replace locally-housed computing and
storage by adopting a broad array of innovative cloud-based models – including Platform as a Service

(PaaS), Software as a Service (SaaS) and Infrastructure as a Service (IaaS) – and an expanding range of
cloud-based services that host key applications, store data, enable the viewing and downloading of
content, and utilize on-demand computing resources.

•

Over-the-Top (“OTT”) Services and Video Streaming. OTT content refers to video, multimedia and
other applications provided directly from the content source to the viewer or end user across a third-
party network. Traffic from streaming and OTT services, including high definition and ultra-high
definition video, has expanded with the increased availability of, and end-user demand for, video
content accessible through a variety of devices and media.

• Mobile Traffic and Applications. Traffic from mobile web applications, including video, internet and

data services, has expanded with the continued proliferation of smartphones and other wireless devices.
Because much of wireless traffic ultimately travels across a wireline network to reach its destination,
growth in mobile communications continues to place demands upon wireline networks, including the
backhaul and fronthaul portions of networks emanating from cell sites.

Emerging services and applications are further impacting or expected to impact network infrastructures,
particularly at the edge of networks, where increased computing power and automation are required to meet the
quality of experience required by end users. These include:

•

5G Mobile Networks. Fifth-generation wireless broadband (“5G”) technology is expected to enable
meaningful increases in bandwidth and performance, enabling emerging applications and services that
4G/LTE networks cannot support. To fully capitalize on these opportunities, network operators will
need to consider the demands 5G technology will place on their wireline infrastructures, including
through the addition of additional cell sites as part of the network densification efforts that are paving
the way for 5G implementation.

Fiber Deep. Similar to 5G, Fiber Deep is a network densification initiative by cable and multiservice
operators that seeks to push more digital fiber closer to the end user and to increase potential
bandwidth, computing capability and data speeds to homes and enterprises, while at the same time
decreasing power, space and operating costs.

Internet of Things (“IoT”). As networked connections between devices and servers grow, machine-to-
machine-related traffic (“M2M”) is expected to represent an increasing portion of traffic. These
connections allow sharing of data that can be monitored and analyzed, including in smart grid
applications, health care and safety monitoring, resource and inventory management, home
entertainment, consumer appliances, connected transportation and other M2M data applications.

Ultra-High Definition Video (“UHD”) and Virtual Reality (“VR”) and Augmented Reality (“AR”).
UHD video and the advent of immersive technologies like VR, AR and 360° video are likely to place
further capacity and capability demands on networks as adoption of these technologies grows.
Consumer electronics industries are rapidly advancing these technologies and making them more
widely available and affordable to consumers.

Edge Computing. Immersive cloud services and gaming using AR and VR technologies require a low
latency environment to provide the required user experience. We expect network operators to increase
the number and capabilities of edge computing locations to allow these latency-sensitive workloads to
be processed closer to users, which may affect network topologies and traffic patterns.

• Machine Learning (“ML”) and Artificial Intelligence (“AI”). As broad foundational technologies that

increase network intelligence and improve automation, ML and AI enable improvements in network
planning, operations, user experience and trouble resolution. We believe that adoption of these
technologies will continue to increase as the IoT expands and additional services are created, and
therefore that ML and AI will serve as drivers of further network traffic and solutions innovation.

We believe that increased adoption of these services and applications and their performance requirements

will further increase network traffic and place additional service challenges on network infrastructures,
requiring network operator investment in both core infrastructure networks and metro, access and aggregation
networks.

Transition to Programmable Automated Networks

Many networks are still managed through legacy provisioning, inventory management, planning and
fulfillment systems, and are predominantly static, or require a higher degree of manual intervention. To address
growing service demands and better manage network costs, network operators are looking to adopt next-
generation infrastructures that are programmable in real-time, can be accessed and configured via common open
interfaces, and are better capable of leveraging data for automation. To bridge the gap between the operational
realities of today and the more responsive network infrastructures of the future, we expect network operators to
pursue strategies that include additional hardware programmability and software-centric strategies that
emphasize one or more of the following:

•

Closed Loop Automation. Network operators are seeking to reduce network operating costs and better
leverage analytics, automation and control capabilities to automate end-to-end service creation and
delivery. Closed loop automation is a continuous cycle of communications between the network
hardware infrastructure and software elements to analyze network conditions, traffic demands, and
resource availability and to determine the best placement of traffic for optimal service quality and
resource utilization.

Software-Defined Networking (“SDN”). SDN seeks to simplify networks to create more open
environments that ease management, support automation and quickly deliver customized services to
end users, by enabling individual network elements to be directly programmable by standards-based
software control. This results in end-to-end visibility of network flows, enabling the optimization of
traffic paths and the control of data flows through a network.

Network Function Virtualization (“NFV”). NFV is the separation of network services or capabilities
from the physical network assets that traditionally provide these services or capabilities to end users.
Network operators are increasingly looking for solutions like NFV, which enables network functions
through software that runs on industry-standard servers and network and storage platforms, in order to
reduce their dependence on single-purpose hardware and accelerate the time to market for new
revenue-generating services.

We believe that adoption of these strategies, and the related evolution of core network and metro and access
network infrastructures, will require network operators and their network solutions vendors to increasingly look
to utilize an ecosystem of physical and virtual network resources. We expect that these network architectural
approaches, in turn, will drive increased openness and interoperability of multi-vendor, multi-domain network
environments, requiring an increased degree of cooperation, collaboration and interoperability among
networking solutions vendors.

Industry Consolidation

Our industry has experienced significant consolidation in recent years among our competitors, customers
and suppliers alike. To drive scale and market share gains, and to meet the intense investment capacity required
to keep pace with technology innovation, there has been increased acquisition activity among competing
vendors of networking solutions. Among our customers, there have been significant horizontal and vertical
consolidation activities by communications service providers and cable operators, with several such operators
acquiring media and content companies. Customer consolidation can increase their purchasing power and has in
the past resulted in delays or reductions in network spending due to changes in strategy or leadership, the timing
of regulatory approvals and debt burdens associated with such transactions. Further, significant consolidation
among component suppliers, including in the semiconductor space, may reduce the number of independent

suppliers and could create supply challenges affecting our pricing or supply volumes. Consolidation activity
across our industry can create opportunities and challenges for our business. We expect this trend to continue,
and it may have a significant impact on the entire industry, including our competitive landscape and the range of
sales opportunities for vendors and their supply chains.

Different Approaches to Design and Procure Network Infrastructure Solutions

Network operators are pursuing a diverse range of approaches, or “consumption models,” in their design

and procurement of network infrastructure solutions. In addition to purchasing fully integrated network
solutions including hardware, software and services from the same vendor, new consumption models include
the procurement or use of:

•

a fully integrated hardware solution from one vendor with the separate use of a network operator’s own
software or another vendor’s SDN-based control;
integrated photonic line systems with open interfaces from one vendor and the separate or
“disaggregated” procurement of modem technology from a different vendor; and
open source software in concert with or as an alternative to integrated, proprietary third-party software
solutions.

Network operators, including certain of our largest customers, are also pursuing the development and use of

published reference designs and open source specifications for the procurement of off-the-shelf or
commoditized hardware (often referred to as “white box” hardware). This commoditized hardware could be
used with in-house developed data path and control software or third-party developed network operating
software. Further, a number of network operators are pursuing network strategies that emphasize the
deployment of smaller form factor, pluggable modem technology, typically in a switch or router platform, as an
alternative to integrated optical platforms.

The consumption models that ultimately emerge and their level of adoption will depend in significant part

on the circumstances and strategies of certain network operators. While the adoption of these approaches has
been limited to date, we expect that continued customer consideration of a variety of consumption models will
require network operators and vendors alike to assess, and possibly broaden, their offerings and commercial
models over time, thereby placing a premium on a vendor’s ability to provide robust network solutions with the
maximum amount of flexibility and choice.

Strategy

Our strategy is to leverage our technology leadership, diversification and global scale to drive the profitable

growth of our business. Key elements of this strategy include:

Extend Innovation Leadership and Grow our Networking Platforms and Services Businesses. We are
focused on using our significant research and development investment capacity to push the pace of innovation
in our markets and provide leading offerings that leverage our Adaptive Network vision to make our customers’
networks more adaptive through further advances in programmable hardware, analytics, and control and
automation. In fiscal 2020, we brought to market our fifth-generation coherent modem technology capable of
delivering 800 gigabits of capacity per second over a single wavelength. We are growing our Networking
Platforms business by addressing fast-growing markets and applications. For example, we are advancing our
Converged Packet Optical portfolio for applications in data center interconnection and submarine networks, and
bringing to market and seeking adoption for our footprint-optimized WaveLogic 5 Nano (WL5n) 100G-400G
coherent pluggable transceivers. We are also developing Packet Networking solutions with enhanced IP/
Ethernet capabilities to expand our addressable market into additional next-generation metro and access
applications, including packet routing, aggregation and switching, 5G cross-haul, Fiber Deep, and edge
computing. To support our enhanced hardware offering, we are growing our attached services business to
include broader service offerings and engagements involving network migration and optimization and multi-
vendor network integration.

Embrace Multiple Consumption Models and Promote Choice. As network operators pursue diverging

consumption models, we intend to offer a range of networking solutions across those models to drive the
evolution of next-generation network infrastructures and to promote choice in our markets. We are currently
seeking to make our technology available in both integrated systems and pluggable form factors that address a
range of technical and economic requirements of network operators pursuing differing consumption models.
Specifically, we are currently pursuing these two distinct product development paths for our next-generation
coherent optical chipset to enable this range of solutions, and, in fiscal 2021 we expect to introduce our
WaveLogic 5 Nano 100G-400G coherent pluggable transceivers for next-generation access, metro, regional and
data center interconnect network applications. Separately, through our Optical Microsystems business we are
pursuing sales opportunities that leverage our WaveLogic technology as a “merchant modem” – the
combination of an optical chipset or application-specific integrated circuit (ASIC) with other key optical
components and sold independently of integrated systems. Merchant modem vendors often sell their modem
technology in the form of an optical module or pluggable to a variety of market participants, including other
original equipment manufacturers with whom we compete. By addressing multiple consumption models, we
seek to secure a larger portion of the world’s optical network wavelengths, expand our addressable market and
access new customer verticals and applications. We expect this may require us to continue to broaden our
existing product offering beyond traditional hardware systems and to expand our commercial models over time.

Increase Adoption of Blue Planet Automation Software Platform. We seek to promote broader adoption of
our Blue Planet Automation Software, highlighting its ability to transform network operations and management
and reduce the need for manual intervention in key operational processes. In so doing, we believe that Blue
Planet can help customers with large-scale software and IT-led OSS transformations by transitioning legacy
networks into “service ready” networks, accelerating the creation, delivery and lifecycle management of new,
cloud-based services. We are also investing in Blue Planet-related services and seek to use insights from
common business, operational and networking challenges to position our Blue Planet solutions as the means by
which to achieve the digital network transformation sought by our customers.

Focus Diversification on High-Growth Applications and Customer Segments. We believe that the

continued diversification of our business is important to address the dynamic industry environment in which we
operate, to continue to grow our business, and to better withstand potential slowdowns adversely affecting
particular geographies, markets or customer segments. A key part of our strategy is to continue to diversify our
solutions offerings, customer base and geographic reach to address fast-growing applications and markets. Our
go-to-market strategy seeks to capture additional market share with existing customers and emerging network
operators, and to displace competitors, particularly in international markets.

Customers and Markets

We sell our product and service solutions through direct and indirect sales channels to network operators in

the following customer and market segments:

•

Communications Service Providers. Our communications service provider customers include regional,
national and international wireline and wireless carriers.

• Web-scale Providers. Our “Web-scale” provider customers – also often referred to in the market as
hyper-scale providers – include internet content providers and providers of internet services and
infrastructure, including data centers, cloud networking, storage infrastructure and web hosting
services. These providers are focused on applications such as search, social media, video, real-time
communications and cloud-based service offerings, as well as other emerging network services. As
significant purchasers of capacity on submarine networks and from communications service providers
on a global basis, these customers can also influence networking solution alternatives by those network
operators.

•

Cable and Multiservice Operators (MSO). Our customers include regional, national and international
cable and multiservice operators.

Submarine Network Operators. Our customers include service providers, Web-scale providers and
consortia operators of submarine communications networks across the globe.

Enterprises. Our enterprise customers include large, multi-site commercial organizations, including
participants in the financial, health care, transportation, utilities, energy and retail industries.

Government, Research and Education. Our government customers include federal and state agencies in
the United States as well as international governmental entities. Our research and education customers
include research and education institutions around the world, as well as communities or consortia,
including leaders in research, academia, industry and government.

Products and Services

Networking Platforms

Our Networking Platforms segment consists of our Converged Packet Optical and Packet Networking

portfolios.

Converged Packet Optical. Our Converged Packet Optical portfolio includes a range of hardware

networking products and solutions that use our WaveLogic coherent optical technology and are optimized for
the convergence of coherent optical transport, Optical Transport Network (“OTN”) switching and packet
switching.

Our 6500 Packet-Optical Platform provides a flexible and scalable dense wavelength division multiplexing

(“DWDM”) solution that adds capacity to core, regional, metro and submarine networks and enables efficient
transport at high transmission speeds. This platform provides leading coherent wavelength capacities, from 40G
to 800G, along with multi-layer control plane capabilities for scale and service differentiation. This platform,
which includes several chassis sizes and a comprehensive set of line cards optimized for individual services or
applications, can be used throughout the network, from customer premises to access and metropolitan networks,
regional and core networks, and submarine cable landing sites.

Our Waveserver® family of products consists of stackable interconnect platforms that allow network
operators to scale bandwidth and support high-bandwidth interconnect applications, such as high-speed data
transfer, content delivery, virtual machine migration and disaster recovery/backup between data centers.
Waveserver is a specialized, compact platform that is purpose-built for addressing data center and other space-
constrained environments using a small footprint and low power design. With its management interfaces and
open APIs, Waveserver is easy to operate and to integrate into existing networks and facilitates deployment of
on-demand cloud and high-capacity connectivity services.

Our 6500 Reconfigurable Line System (RLS) is a compact, simple-to-deploy, photonic layer solution that

improves scalability, reduces footprint, and offers more flexibility and programmability. Its applications include
long-haul and metro data center interconnection and metro and access network modernization and
simplification. It provides highly dense remote optical add/drop multiplexing features and amplifier
configurations that enable network operators to react to unpredictable traffic requirements by scaling
connectivity and capacity.

Our 5400 family of Packet-Optical Platforms consist of multi-terabit reconfigurable switching systems that
consolidate the functionality of an add/drop multiplexer and a digital cross-connect 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. These
products provide for optical transport, traffic aggregation at the network edge and switching that are optimized
for handoff at the network core.

Our entrance into the market for merchant modem opportunities remains in the early stages. As such,
revenue has not been significant to date. Sales of our Optical Microsystems products are reflected within the
Converged Packet Optical product line of our Networking Platforms segment.

Packet Networking. Our Packet Networking portfolio includes products and solutions that enable next-
generation metro, access and aggregation networks, including solutions that allow customers to simplify their
network designs while delivering new, revenue-generating services. These products route, aggregate and switch
packet-based traffic to support such applications as IP services, Ethernet business services, mobile cross-haul,
converged haul and services, and Fiber Deep, as well as ongoing network infrastructure scaling. Our Packet
Networking products form a key element of our Adaptive IP solution, which leverages the Adaptive Network
vision and our Blue Planet Automation Software to deliver end-to-end IP-based services in a more simplified
and modular manner than traditional router-based IP network designs. Adaptive IP at the programmable
infrastructure layer is built upon the latest generation of our Service Aware Operating System (SAOS) within
our Packet Networking platforms, which adds IP capabilities targeted towards 5G, IP VPN services and Fiber
Deep applications. Our Packet Networking products enable operators to achieve improved network cost
effectiveness, including reduced costs associated with power and space, as compared to more complex,
traditional IP routing network designs.

Our 3900 family of Service Delivery Platforms and our 5000 family of Service Aggregation Platforms
support network access and aggregation and have been principally deployed to support IP and Ethernet business
services and wireless front haul, backhaul and mid-backhaul applications. Our 3900 family of platforms
are purpose-built to fit small, medium and large customer sites as well as multi-tenant office and residential
buildings and edge office or outside plant applications. They also allow customers to migrate toward software-
based networking and services based on NFV. Our 5000 family provides aggregation to fill higher capacity
links within both the metro access and aggregation tiers of networks, allowing operators to reduce the number
of router assets required in the core and to better implement edge cloud architectures.

Our 6500 Packet Transport System (“PTS”) combines packet switching, control plane operation and
integrated optics. Together with our 3900 platforms, PTS enables our service provider customers to migrate
their legacy TDM (SONET/SDH/PDH) services to a scalable, lower operational cost packet solution.

Our Packet Networking portfolio also includes 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 packet switching and coherent WaveLogic DWDM optical transport technologies for both data center
networks and metro networks.

Platform Software and Services

Our software offerings also include our Platform Software, which provides domain control management,
analytics, data and planning tools to assist customers in managing our Networking Platforms products in their
networks. Our Platform Software includes:

• Manage, Control and Plan (“MCP”). MCP software provides SDN-based domain control of our next-
generation packet and optical solutions, unifying fault, configuration, accounting, performance and
security (FCAPS) management of our multi-layer network infrastructure, with service management and
online network planning. MCP integrates with and simplifies network operators’ business processes
and lifecycle operations – including equipment commissioning, service provisioning, assurance and
performance monitoring.

•

OneControl Unified Management System. OneControl is an integrated network and service
management solution that supports certain of our Networking Platform products. OneControl offers
end-to-end service creation, activation and assurance, and visualization of performance information for
network health status. OneControl enables management functions, including network inventory,
network element configuration backup, software delivery and security administration.

•

Platform Software Services. To complement our Platform Software portfolio, we offer a range of
related services that include software subscription services, consulting, network migration and
integration, installation and upgrade support services, and technical support relating to our Platform
Software offerings. These services are focused on enabling our customers to operate their Ciena
networks most efficiently, and to modernize their operations.

Our Platform Software offering also includes planning tools and a number of legacy software solutions that
support our installed base of network solutions. As we achieve further customer adoption of our MCP software
platform and we transition features, functionality and customers to this platform, we expect revenue to decline
for our legacy Platform Software solutions.

Blue Planet Automation Software and Services

Our Blue Planet Automation Software is a comprehensive, micro-services, standards-based open software

suite that enables customers to implement large-scale software and IT-led OSS transformations by transforming
legacy networks into “service ready” networks, accelerating the creation, delivery and lifecycle management of
new, cloud-based services. Our Blue Planet Automation Software solutions also allow service providers to drive
optimization and increased automation of their network and IT infrastructures, reducing costs and enabling a
more predictive, autonomous network. A number of applications can be deployed on this software platform,
either individually or in any combination, including:

• Multi-Domain Service Orchestration (MDSO). Network infrastructures are comprised of multiple

technology layers and domains – such as the data center, cloud, metro, access and core networks – and
it is often complex for network operators to offer end-to-end services in this environment. Blue Planet
enables service orchestration across multiple physical and virtual network domains, multiple layers
(Optical, Ethernet, IP and Mobile) and multiple hardware and software vendors.

•

Inventory (“BPI”). By integrating or “federating” data from multiple inventory systems and presenting
it in a single dynamic view, BPI allows real-time visibility into the topology and status of network and
service resources from end to end. Integrating with legacy operation support systems (“OSS”), BPI
helps network providers simplify key operational processes such as service fulfillment, network
planning and service assurance.

Route Optimization and Analysis (“ROA”). ROA combines routing, traffic and performance analytics
for real-time monitoring of IP services across the cloud. These capabilities enable troubleshooting of
latent or transient network problems and modeling to predict the impact of network infrastructure,
service and workload changes to build more resilient networks.

NFV Orchestration (“NFVO”). Blue Planet provides NFV management and orchestration capabilities
for creating and managing virtualized network functions and data center resources. NFVO uses an
open, vendor-agnostic approach that allows network operators to select and scale those virtual network
functions (VNFs) they wish to offer to customers.

Unified Assurance & Analytics (“UAA”). UAA leverages multi-layer/multi-domain assurance and AI-
powered analytics to provide insights into the health and performance of network resources and
services, ensuring an end-customer quality of experience and availability to meet dynamic service
demands.

Blue Planet Services. To complement our software portfolio, we offer a range of related services that
include professional services for solution customization and OSS integration, software and solution
support services, consulting and design, and technical support relating to our software offerings. These
services are focused on enhancing network automation and network analytics, enabling multi-vendor
integration and support, and implementing programmable multi-domain next-generation networks.

The Blue Planet Automation Software portfolio when used together allows operators to fulfill services
rapidly and to meet end-customer quality-of-experience expectations via an entire services lifecycle approach,
thus accelerating network operators towards their vision of self-healing and self-optimizing closed loop
automation. Our entrance into the market relating to these software automation capabilities remains in the early
stages and, as such, revenue from our Blue Planet Automation Software and Services segment continues to
represent a relatively small portion of our total revenue.

Global Services

To complement our Networking Platforms portfolio, we offer a broad suite of value-added services that
help our customers to build, improve and operate their networks. We believe that our services offerings and our
close collaboration with our customers provide us with valuable insight into the network and business
challenges they face, allowing us to provide services to meet their desired business outcomes. We have
undertaken a multi-year transformation process to enhance our service delivery capability, reorganizing our
resources into regional service delivery functions to better serve our customers, and streamlining our services
cost structure and portfolio. At the same time, we have broadened our services platform to include additional
advanced networking services, including network migration, optimization and multi-vendor service capabilities.
Through these transformation initiatives, we have improved the cost model of our services offering and have
driven greater business value for our customers.

Our Global Services portfolio includes a range of offerings to meet customer needs and maximize their

network infrastructure investment throughout the network lifecycle. These include:

•

Build. Services that ensure proper planning, design, installation, deployment and implementation of
communications networks;

Improve. Services that maintain and support network infrastructures and consulting and network design
services to enhance network performance or migrate to next-generation infrastructures; and

Operate. Services that maintain or monitor network infrastructure operations.

We also provide a portfolio of training services and provide these and the services above using a

combination of our internal services resources, technical support engineers, and qualified and authorized third-
party service partners.

Product Development

To remain competitive, we must continually invest in and enhance our solutions offerings, adding new
features and functionality and ensuring alignment with market demand. Our product development efforts seek to
design and bring to market solutions that leverage our Adaptive Network vision to make our customers’
networks more adaptive through further advances in programmable hardware, analytics, and control and
automation. Through our development efforts, we seek to enable network operators to achieve improved
economics and return on their network infrastructure investment, including with respect to price for
performance, power consumption, space requirements, service enablement, and lifecycle operating costs. Our
approach is also focused on designing products that address a range of emerging consumption models for
networking solutions. Our current development efforts are focused on:

•

Reinforcing our coherent optical leadership with continued development that advances reach,
transmission speed and spectral efficiency;
Executing on parallel innovation paths for the next generation of our modem technology – including
our WaveLogic 5 Nano and its pluggable form factors;
Extending the IP/Ethernet capabilities of our Packet Networking solutions to support mobile network
cross-haul, edge cloud, and network densification and virtualization initiatives, such as 5G and Fiber
Deep;

•

Pursuing development to address different consumption models, including our pluggable and merchant
modem development initiatives;
Enhancing our Adaptive Network vision through advances in hardware programmability and software-
based domain control, automation and analytics through MCP and purpose-built applications.

Our research and development efforts are also geared toward portfolio optimization and engineering

changes intended to drive product and manufacturing cost reductions across our platforms.

We regularly review our existing solutions offerings and prospective development of new components,
features or products in order to determine their fit within our portfolio and broader corporate strategy. We also
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 sales
organizations. In some cases, where we seek to utilize or gain access to complementary or emerging
technologies or solutions, we may obtain technology through an acquisition or, alternatively, through initiatives
with third parties pursuant to technology licenses, original equipment manufacturer (OEM) arrangements and
other strategic technology relationships or investments. In addition, we participate in industry and standards
organizations and, where appropriate, incorporate information from these affiliations throughout the product
development process.

Sales and Marketing

Our Global Sales and Marketing organization includes a direct sales presence that is organized

geographically around the following markets: (i) the United States, Canada, the Caribbean and Latin America
(“Americas”); (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia Pacific, Japan and India
(“APAC”). Within each geographic area, we maintain specific teams or personnel that focus on a particular
region, country, customer or market vertical, or portfolio. These teams include sales management, account
salespersons and sales engineers, as well as services professionals and commercial management personnel, who
ensure that we maintain a high-touch, consultative relationship with our customers.

We also maintain a global partner program that involves resellers, systems integrators, service providers
and other third-party distributors who market and sell our products and services. We utilize these third-party
channel partners to market and sell our solutions into specific geographies, applications or customer verticals.
We believe there are opportunities to leverage these relationships to expand our addressable market, while at the
same time reducing the financial and operational risk of entering additional markets. For third parties in our
Ciena Partner Network, we maintain a code of conduct that is available on our website and that sets forth our
expectations for the high standards of ethical and legally compliant conduct we require of them in supporting
our business.

To support our sales efforts, we engage in marketing activities to generate demand for our products and

services. Our marketing strategy is highly focused on building our brand to create customer preference for
Ciena, engaging in thought leadership programs to illustrate how our innovations solve customer business
problems, and enabling our sales teams to drive customer adoption of our solutions. Our marketing team
supports our sales efforts through a variety of activities, including direct customer interaction, account-based
marketing campaigns, portfolio marketing, industry events, media relations, industry analyst relations, social
media, trade shows, our website and other marketing vehicles for our customers and channel partners.

Operations and Supply Chain Management

Our operations personnel manage the relationships with our third-party manufacturers and global supply
chain, addressing component sourcing, manufacturing, product testing and quality, and fulfillment and logistics
relating to the distribution and support of our products.

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

in lower cost regions. We rely upon third-party contract manufacturers, including those with facilities in
Canada, Mexico, Thailand and the United States, to manufacture, support and ship our products, and therefore
are exposed to risks associated with their businesses, financial condition and the geographies in which they
operate, including political risk and changes in tax and trade policy involving such countries. We also rely upon
contract manufacturers and other third parties to perform design and prototype development, component
procurement, full production, final assembly, testing and distribution operations. 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. We work closely with our manufacturers
and suppliers to manage material, quality, cost and delivery times, and we continually evaluate their services to
ensure performance on a reliable and cost-effective basis. Generally, our agreements with our supply chain and
contract manufacturers are frame agreements against which we place purchase orders and do not represent long-
term commitments.

We currently use distribution partners to fulfill and deliver our products. We believe that our sourcing,

manufacturing and distribution strategies allow 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.

We continue to focus on a range of initiatives that seek to optimize our operations, improve our resiliency,

and drive cost reductions. We seek to balance these goals through our sourcing and supply chain strategy,
outsourcing and use of lower cost geographies. Our efforts also include process optimization initiatives, such as
vendor-managed inventory, and other operational models and strategies designed to drive improved efficiencies
in our sourcing, production, logistics and fulfillment.

We actively work with our third-party vendors and business partners to promote socially responsible

business practices within our own business and those within our global supply chain. To that end, we have
adopted the principles set forth in the Responsible Business Alliance (“RBA”) Code of Conduct. The RBA
Code of Conduct establishes standards to ensure working conditions in the electronics industry, or industries in
which electronics are a key component, and its supply chains are safe, that workers are treated with respect and
dignity, and that business operations are environmentally responsible and conducted ethically. We promote
these principles and require our suppliers to adhere to these same standards. We also publish a Corporate Social
Responsibility Report, which includes more detail about our efforts to promote responsible business practices.

Seasonality

Like other companies in our industry, we experience 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 period coincides with the first quarter of our fiscal year. This seasonality in our order
flows has often resulted in weaker revenue results in the first quarter of our fiscal year. These seasonal effects
may not apply consistently in future periods and may not be a reliable indicator of our future revenue or results
of operations.

Competition

Competition among networking solution vendors remains intense on a global basis. The markets in which

we compete are characterized by rapidly advancing technologies, frequent introduction of new solutions and
aggressive selling efforts, including using significant pricing pressure to displace incumbent vendors and
capture market share. Competition for sales of networking solutions, including our Networking Platforms and
Platform Software and Services, is dominated by a small number of very large, multi-national companies. Our
competitors include Huawei, Nokia, Cisco, Juniper Networks and ZTE. As compared to us, many of these
competitors have substantially greater financial, operational and marketing resources, significantly broader

product offerings and more established relationships with service providers and other customer segments.
Because of their scale and resources, they may be perceived to be a better fit for the procurement or network
strategies of larger network operators. 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 Infinera, ADVA and Ribbon Communications. We also compete with a number of companies that
provide significant competition for a specific product, application, service, customer segment or geographic
market.

Keeping pace with the market’s demands for technology innovation requires considerable research and
development investment capacity. As a result, some of our competitors, both large and small, have chosen to
rely upon merchant modem technology developed by and procured from third-party providers, including NTT
Electronics (NEL), Inphi (which has agreed to be acquired by Marvell Technology Group) and Acacia
Communications (which has agreed to be acquired by Cisco). We may compete with these providers, either
indirectly as a result of their technology being a key enabling technology for our competitors or an alternative
consumption model such as “whitebox” technology, or directly in merchant modem sales opportunities.

As we promote our corporate strategy and seek increased customer adoption of our Blue Planet Automation

Software, we expect to compete more directly with software vendors and traditional IT services vendors.
Competitors for our Blue Planet Automation Software include Cisco, Nokia, Amdocs, Netcracker and Ericsson.

Across our markets and segments, the principal competitive factors can include, among others:

incumbency and strength of existing business relationships;
technology roadmap and forward innovation capacity;
time-to-market in delivering products and features;

the ability to meet business needs and drive successful outcomes;
•
•
functionality, speed, capacity, scalability and performance of network solutions;
• price for performance, cost per bit and total cost of ownership of network solutions;
•
•
•
• company stability and financial health;
• ability to offer comprehensive networking solutions, consisting of hardware, software and services;
flexibility and openness of platforms, including ease of integration, interoperability and integrated
•
management;

• ability to offer solutions that accommodate a range of different consumption models;
• operating costs, space requirements and power consumption of network solutions;
• software and network automation capabilities;
• manufacturing and lead-time capability; and
• services and support capabilities.

As a result of the intense environment in which we compete, winning new opportunities can often require

that we agree to unfavorable commercial terms or pricing and other onerous contractual commitments. In so
doing, our expectation is that we can recover or improve the economics of such relationships over time.
However, these terms can adversely affect our results of operations in any period. These terms can also lengthen
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 place a disproportionate allocation of risk
upon us.

Our competitive landscape has been and is likely to continue to be impacted by pending trade and related
matters between the U.S. and China. For example, in May 2019, the U.S. Department of Commerce amended
the Export Administration Regulations by adding Huawei Technologies Co., Ltd. and certain affiliates to the
“Entity List,” resulting in significant new restrictions on export, reexport and transfer of U.S. regulated
technologies and products to Huawei. In August 2020, the U.S. Department of Commerce added additional
Huawei affiliates to the Entity List, confirmed the expiration of a temporary general license applicable to

Huawei, and amended the foreign direct product rule under the U.S. Export Administration Regulations in a
manner that significantly expanded its application to Huawei. Separately, the U.S. has taken steps to restrict
federal agencies from doing business with, and U.S. wireless carriers from using federal subsidies to buy
equipment from, Huawei and ZTE. The U.S. has also encouraged other governments to consider similar
restrictions. These actions have resulted in escalating tensions between the United States and China and
introduce a risk that the Chinese government may take additional steps to retaliate against U.S. industries or
companies.

We also expect the competition in our industry to continue to broaden and to intensify as network operators

pursue a diverse range of network strategies and consumption models. As these changes occur, we expect that
our business will overlap more directly with additional networking solution suppliers, including IP router
vendors, data center switch providers and other suppliers or integrators of networking technology traditionally
geared toward different network applications, layers or functions. We may also face competition from system
and component vendors, including those in our supply chain, who develop pluggable modem technology or
other networking products based on off-the-shelf or commoditized hardware technology, referred to as “white
box” hardware, particularly where a customer’s network strategy seeks to emphasize deployment of such
product offerings or to adopt a disaggregated approach to the procurement of hardware and software.

Patents, Trademarks and Other Intellectual Property Rights

The success of our business and technology leadership depends significantly on 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 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, 2020, we had
approximately 2,000 issued patents and more than 500 pending patent applications worldwide.

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

we are taking will detect, prevent, or minimize the risks of 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, 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.

Our operating system software, Platform Software, Blue Planet Automation Software and other solutions
incorporate software and components under licenses from third parties, including software subject to various
open source software licenses. Failure to obtain or maintain such licenses or other third-party intellectual
property rights could affect our development efforts and market opportunities, or could require us to re-engineer
our products or to obtain alternate technologies. Moreover, there is a risk that open source and other technology
licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability
to commercialize our products.

Governmental Regulations

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 (the “EU”). 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
applicable 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 require us to incur additional costs. To date, our compliance actions and costs relating to
environmental regulations have not resulted in a material cost or effect on our capital expenditures, earnings or
competitive position.

Our innovation efforts and our environmental sustainability initiatives are closely linked. Our product
development efforts focus on allowing network operators to continually “do more with less.” We promote
environmental sustainability through our efforts to improve the energy efficiency per gigabit of throughput in
our high-performance networking solutions, as well as our initiatives to improve power, space and cooling
requirements, and to reduce the total number of network elements required to operate a network. We pursue
opportunities to minimize the resource impacts in our product design and sourcing, and to assess and improve
efficiencies over the life cycle of our products, including packaging and distribution, and end-of-life reuse,
refurbishment, and recycling. We make CDP climate change and water disclosures and are a member of the
RBA. We have adopted, and seek to ensure that our key direct suppliers adopt, the standards and principles set
forth in the RBA Code of Conduct.

Other Regulations

As a company with global operations, we are subject to complex foreign and U.S. laws and regulations,
including trade regulations, tariffs, import and export regulations, anti-bribery and corruption laws, antitrust or
competition laws, data privacy laws, such as the EU General Data Protection Regulation (the “GDPR”), and
environmental regulations, among others. We have policies and procedures in place to promote compliance with
these laws and regulations. To date, our compliance actions and costs relating to these laws, rules and
regulations have not resulted in a material cost or effect on our capital expenditures, earnings or competitive
position. Government regulations are subject to change, and accordingly we are unable to assess the possible
effect of compliance with future requirements or whether our compliance with such regulations will materially
impact our business in the future. For further discussion of how government regulations may affect our
business, see the related discussion in “Risk Factors – Risks Related to Intellectual Property, Litigation,
Regulation and Government Policy.”

People and Culture

Our technology solutions are developed, provided, marketed, sold and supported by the talented individuals

that make up our 7,032 person global workforce as of October 31, 2020. We understand that our industry and
innovation leadership is ultimately rooted in people. Competition for qualified personnel in the technology
space is intense, and our success depends in large part on our ability to recruit, develop and retain a productive
and engaged workforce. Accordingly, investing in our employees and their wellbeing, offering competitive
compensation and benefits, and adopting progressive human capital management practices constitute a core
element of our corporate strategy.

As a strategic imperative for our business, our Board of Directors oversees management’s design and
execution of our “people strategy.” This strategy seeks to ensure that we continue to attract and retain the talent
necessary to execute on our business plans, and that we have programs, initiatives, rewards and recognition that
are well aligned and support these goals. As part of this strategy, during fiscal 2020, our executive leadership
team developed and we launched to our employees our “People Promise,” which focuses on fostering a
workplace environment where our employees are empowered, feel included and have an opportunity to make a
difference through their work at Ciena. In doing so, we seek to cultivate for employees a culture of vibrancy,
belonging and happiness, while enabling us to be an attractive employer of choice within our markets. To that
end, our people strategy is focused on the following:

•

Support Employee Wellbeing and Engagement. We prioritize supporting the overall wellbeing of our
employees from a physical, emotional, financial and social perspective. We also regularly seek input

from employees, including through broad employee satisfaction surveys and pulse surveys on specific
issues, intended to assess our degree of success in promoting an environment where employees are
engaged, satisfied, productive and possess a strong understanding of our business goals. Our global
wellbeing program includes a long-standing practice of remote and flexible working arrangements,
flexible paid time off in the U.S. and Canada, life planning and retirement readiness programming,
wellness platforms and expense reimbursement benefits, fitness challenges and rewards, 24x7 crisis
support and employee assistance program, and mental health coaching.

Offer Competitive Compensation and Ensure Pay Equity. We strive to ensure that our employees
receive competitive, fair and transparent compensation and innovative benefits offerings, including by
conducting gender pay fairness assessments, tying incentive compensation to both business and
individual performance, offering competitive parental and adoption leave, providing meaningful
retirement benefits, maintaining an employee stock purchase plan, and providing broader access to
equity compensation, which we pushed deeper into the organization in fiscal 2019 and 2020.

Promote Belonging through Diversity and Inclusion Initiatives. We promote an inclusive and diverse
workplace, where all individuals are respected and feel they belong regardless of their age, race,
national origin, gender, religion, disability, sexual orientation or gender identity through recruiting
outreach, internal networking and resource groups, inclusivity networks, and mentoring programs.

Provide Programs for Employee Recognition. We also offer rewards and recognition programs to our
employees, including awards to recognize employees who best exemplify our core values, “applause”
and spot awards to recognize employee contributions, patent incentive and distinguished engineer
awards, and awards recognizing employees who exemplify our commitment to our communities and
volunteerism. We believe that providing these recognition programs helps drive strong employee
performance.

Create Opportunities for Growth and Development. We focus on creating opportunities for employee
growth, development, training and education, including opportunities to cultivate talent and identify
candidates for new roles from within the company, early in career and new graduate networking and
development programs, management and leadership development programs, mentoring programs, and
support for continuing education through tuition reimbursement.

Promote Community Outreach and Support. We believe it is important to give back and promote
community outreach and support through corporate giving, charitable matching, and employee
volunteerism in the communities in which we live and work. Through our “Ciena Cares” community
program, we provide corporate matching of employee charitable donations, flexible volunteering
during work time, and corporate rewards for service hours that can be donated by employees.

•

Response to the COVID-19 Pandemic. In response to the COVID-19 pandemic, we have prioritized the

safety of our employees and business partners, while continuing to support the needs of our customers and
communities during this unprecedented period.

•

Employees. We have temporarily closed our offices around the world, and they remain closed with
limited exceptions or for a small number of employees in certain roles. We shifted from existing
flexible working arrangements to a requirement that the vast majority of our employees work from
home on a regular basis, using digital platforms and virtual collaboration tools to maintain productivity
and to remain in contact with one another and our business partners. To support and protect our
employees, we have also: instituted travel bans and restrictions; taken meaningful precautions in
accordance with relevant guidelines to protect the health and safety of the small number of employees
who need to be in offices, laboratory environments or at customer or partner sites to perform their
roles; and adopted new employee benefits and wellbeing initiatives, including physical, emotional,
mental, and social programming, global pandemic leave, work from home reimbursement, regular
mental wellbeing sessions, morale initiatives, and new wellbeing platforms. In addition, we have

adopted a comprehensive set of global site reopening guidelines, which specify the requirements for
and limited circumstances under which we will consider reopening one or more of our offices during
the ongoing pandemic.

•

Community. We and our global workforce have undertaken a range of volunteering and charitable
actions to support our neighbors, communities and front-line health care workers during this
challenging time. Examples include: enhancing by three times our corporate charitable matching
program for employee donations and volunteering; donating personal protective equipment; and 3-D
printing and designing face shields and components for health care workers. We have also created a
new community initiative focused on promoting digital inclusion, providing greater opportunities for
underserved students through access, technology and digital skills, and have undertaken joint
community projects with business partners as part of this program.

Information About Our Directors and Executive Officers

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

Name
Patrick H. Nettles, Ph.D.
Gary B. Smith
Stephen B. Alexander

Rick L. Hamilton
Scott A. McFeely
James E. Moylan, Jr.
Andrew C. Petrik
Jason M. Phipps
David M. Rothenstein
Mary Yang
Hassan M. Ahmed, Ph.D. (1)(3)
Bruce L. Claflin (1)(3)
Lawton W. Fitt (2)
Patrick T. Gallagher (1)(3)
Devinder Kumar (2)
T. Michael Nevens (2)
Judith M. O’Brien (1)(3)
Joanne B. Olsen (1)(3)

Age

Position

77 Executive Chairman of the Board of Directors
60 President, Chief Executive Officer and Director
61 Senior Vice President and Chief Technology Officer
49 Senior Vice President, Blue Planet Software
57 Senior Vice President, Global Products and Services
69 Senior Vice President and Chief Financial Officer
57 Vice President and Controller
48 Senior Vice President, Global Customer Engagement
52 Senior Vice President, General Counsel and Secretary
52 Senior Vice President and Chief Strategy Officer
62 Director
69 Director
67 Director
65 Director
65 Director
71 Director
70 Director
62 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: Mr. Claflin, Mr. Gallagher and Mr.
Nevens in 2021; Ms. Fitt, Mr. Kumar and Dr. Nettles in 2022; and Ms. O’Brien, Ms. Olsen and Mr. Smith in
2023. In June 2020, Dr. Ahmed was appointed to fill a newly created vacancy in Class III of the Board of
Directors. Accordingly, he will stand for election at the 2021 Annual Meeting of Stockholders and, if elected by
stockholders, his term of office will expire in 2024.

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. Dr.
Nettles also serves on the board of directors of The Progressive Corporation, a publicly traded company. Dr.
Nettles previously served on the boards of directors of Axcelis Technologies, Inc., where he was independent
chairman of the board, Apptrigger, Inc., which was formerly known as Carrius Technologies, Inc., and
Optiwind Corp, and previously served as a Trustee for the Georgia Tech Foundation, Inc.

Gary B. Smith joined Ciena in 1997 and has served as President and Chief Executive Officer since

May 2001. Mr. Smith has served on Ciena’s Board of Directors since October 2000. Prior to his current role, his
positions with Ciena included Chief Operating Officer and Senior Vice President, Worldwide Sales. Mr. Smith
previously served as Vice President of Sales and Marketing for INTELSAT and Cray Communications, Inc.
Mr. Smith also serves on the board of directors of CommVault Systems, Inc., a publicly traded company, and

previously served on the board of directors of Avaya 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 and Technology and General Manager of Transport and Switching and Data
Networking.

Rick L. Hamilton joined Ciena in October 2016 and has served as Senior Vice President, Blue Planet
Software since February 2017. Mr. Hamilton is responsible for managing Ciena’s Blue Planet Automation
Software and Services portfolio. Mr. Hamilton previously served as Senior Vice President, Global Services &
Automation. Prior to joining Ciena, he served as Corporate Vice President, Professional Services for Juniper
Networks from January to October 2016. From January 2004 to December 2015, Mr. Hamilton served with
Cisco Systems in various services leadership positions, including most recently as Vice President, Cloud &
Managed Services.

Scott A. McFeely joined Ciena in March 2010 and has served as Senior Vice President, Global Products

and Services since May 2018. Mr. McFeely is responsible for all aspects of Ciena’s networking portfolio
including research and development activities relating to its Converged Packet Optical and Packet Networking
portfolios, Platform Software and Services, product line management, supply chain operations, and Global
Services. From November 2015 to May 2018, Mr. McFeely served as Senior Vice President, Networking
Platforms and became an executive officer in February 2017. From March 2010 to October 2015, he served as
Vice President, Global Portfolio Management and Business Operations. Mr. McFeely joined Ciena in
connection with its acquisition of Nortel’s Metro Ethernet Networks business, with which he spent more than 20
years in a variety of technical and management roles.

James E. Moylan, Jr. joined Ciena in 2007 and has served as Senior Vice President and Chief Financial

Officer since December 2007.

Andrew C. Petrik joined Ciena in 1996 and has served as Vice President, Controller since August 1997. He

also served as Treasurer from August 1997 to October 2008.

Jason M. Phipps joined Ciena in 2002 and has served as Senior Vice President, Global Customer
Engagement (formerly titled Senior Vice President, Global Sales and Marketing) since February 2017. Mr.
Phipps is responsible for Ciena’s global sales organization and its marketing and communications functions.
From January 2014 to February 2017, Mr. Phipps served as Vice President and General Manager, North
America Sales, during which time he also oversaw the Global Partners & Channels practice, and from March
2011 to December 2013 he served as Vice President, Global Sales Operations. Mr. Phipps has also previously
held a number of sales and marketing leadership positions with Ciena.

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.

Mary Yang joined Ciena in April 2020 as Senior Vice President and Chief Strategy Officer. Prior to joining

Ciena, she served as Vice President of Corporate and Business Development at NIO from 2016 to 2020. From
2014 to 2016, she served as Vice President of Corporate Development and Strategic Alliances at Fortinet.

Hassan M. Ahmed, Ph.D. has served as a Director of Ciena since June 2020. Dr. Ahmed most recently
served as Chairman of the Board and Chief Executive Officer of Affirmed Networks, which was acquired by
Microsoft in April 2020. Before founding Affirmed Networks in 2010, he was a senior advisor at Charles River
Ventures. From 1998 to 2008, Dr. Ahmed served as Chairman and Chief Executive Officer of Sonus Networks.
Prior to that time, he served in various executive roles at Ascend Communications, Cascade Communications

and Analog Devices. He also served as President and founder of WaveAccess, and founded and served as
director of the VLSI Systems Group of Motorola Codex. Dr. Ahmed previously served as Associate Professor
of Electrical, Computer and Systems Engineering and Associate Professor of Finance at Boston University. Dr.
Ahmed currently serves on the boards of directors of Vesper Technologies, Inc. and Oxefit, Inc., both private
companies.

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 currently serves on the board of
directors of IDEXX Laboratories, Inc., a publicly traded company, where he is the Chairman of the Nominating
and Governance Committee. Mr. Claflin previously served on the board of directors of Advanced Micro
Devices, Inc. (“AMD”).

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. Ms. Fitt currently serves on the boards of directors of The Carlyle Group Inc., The Progressive
Corporation, where she serves as Chairperson of the Board, and Micro Focus International PLC, all publicly
traded companies. Ms. Fitt also serves as a director or trustee of several non-profit organizations. Ms. Fitt
previously served on the boards of directors of ARM Holdings PLC and Thomson Reuters Corporation.

Patrick T. Gallagher has served as a Director of Ciena since May 2009. Since October 2007, Mr.
Gallagher has served as Chairman of Harmonic Inc., a publicly traded company and global provider of high-
performance video solutions to the broadcast, cable, telecommunications and managed service provider sectors.
Mr. Gallagher has served as Chairman of privately held Intercloud SAS, a Paris-headquartered provider of
global private cloud connectivity services, since July 2015, and as Chairman of privately held Mirabeau SAS, a
French wine producer, since August 2019. 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 also previously
served on the board of directors of Sollers JSC.

Devinder Kumar has served as a Director of Ciena since August 2019. Mr. Kumar currently serves as

Senior Vice President, Chief Financial Officer and Treasurer of AMD, a publicly traded company, in which
capacity he is responsible for their global finance organization as well as global corporate services and facilities.
He was appointed Chief Financial Officer in January 2013 and Treasurer in April 2015. Since he joined AMD
in 1984, Mr. Kumar has progressed through several leadership positions in corporate accounting and corporate
finance, including serving as interim CFO, corporate controller and assistant treasurer. He also spent 10 years in
Asia as financial controller for AMD Penang and group finance director for AMD’s Manufacturing Services
Group across Singapore, Thailand, China and Malaysia.

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 has been an adjunct

professor of Corporate Governance and Strategy at the Mendoza College of Business at the University of Notre
Dame. Mr. Nevens also serves as the Chairman of the board of directors of NetApp, Inc., a publicly traded
company. Mr. Nevens previously served on the board of directors of Altera Corporation.

Judith M. O’Brien has served as a Director of Ciena since July 2000. From November 2012 until her
retirement in December 2019, Ms. O’Brien served as a partner and head or co-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 boards of directors of privately held companies Theatro Labs, Inc., MagicCube, Inc., and
LightDeck Diagnostics, Inc. Ms. O’Brien also previously served on the boards of directors of Adaptec, Inc. and
Inform, Inc.

Joanne B. Olsen has served as a Director of Ciena since October 2018. Ms. Olsen previously served as
Executive Vice President of Global Cloud Services and Support at Oracle from 2016 until her retirement in
August 2017. In that role, she drove Oracle’s cloud transformation services and support strategy, partnering
with leaders across all business units. Ms. Olsen previously served as Senior Vice President and leader of
Oracle’s applications sales, alliances, and consulting organizations in North America from 2012 through 2016,
and from 2010 through 2012 served in various general management positions at Oracle. Ms. Olsen began her
career with IBM, where, between 1979 and 2010, she held a variety of executive management positions across
sales, global financing and hardware. Ms. Olsen also serves on the boards of directors of Teradata Corporation
and Keysight Technologies, Inc., both publicly traded companies.

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.

Risks Related to Our Business and Industry

The COVID-19 pandemic has impacted our business and results of operation and could have a material
adverse effect on our business, results of operations and financial condition in the future.

On January 30, 2020, the World Health Organization (the “WHO”) declared a global emergency due to the

outbreak of COVID-19, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.
Unprecedented actions have been taken by governments globally to try to contain the pandemic, such as travel
bans and restrictions, business closures, social distancing measures, quarantines and shelter-in-place orders.
This pandemic and the countermeasures to contain the virus have caused economic and financial disruptions
globally, including in most of the regions in which we sell our products and services and conduct our business
operations. In the second quarter of fiscal 2020, the COVID-19 pandemic adversely impacted our financial
results and business operations, primarily due to supply chain disruptions, limitations on customer fulfillment
activity and our level of success in obtaining new customers or selling into recent customer design wins on their
original timelines. During the third and fourth quarters of fiscal 2020, our order volumes declined significantly
from previous quarters and were meaningfully below revenue during the second half of fiscal 2020 as we
experienced a more cautious customer spending and customer delays in operationalizing network projects that
we anticipated. The magnitude and duration of disruption from the COVID-19 pandemic, and its impact on
global business activity and our business and operations remains uncertain and could worsen.

Employees

As a result of the COVID-19 pandemic, we have temporarily closed Ciena offices globally, implemented
travel restrictions and withdrawn from industry events. Our transition to a work from home policy for most of
our employees could impact the ability of our employees to advance research and development projects as
efficiently or productively as they could in a lab environment or office setting. The extent and duration of
ongoing workplace restrictions and limitations, particularly in sites with significant headcount, could adversely
impact our operations and our ability to execute on strategic imperatives for our business. Continued restrictions
on travel and limitations on interaction with customers, such as field and lab trials, may impact our sales and
marketing activities, including our ability to secure new customers, to qualify and sell new products, or to grow
sales with customers where or with whom we do not have a longer-standing supply relationship, such as within
international markets and for our Blue Planet Automation Software and Services segment and our Packet
Networking product line.

Supply Chain

Also as a result of the COVID-19 pandemic, we have experienced some disruption and delays in our global

supply chain and related operations. We rely on third-party manufacturing operations in Canada, Mexico,
Thailand and the United States. We also rely on a global component supply network involving many vendors
and countries throughout the world. During the second quarter of fiscal 2020, some of our component suppliers
– particularly those with facilities in China and Malaysia – experienced challenges related to COVID-19 that
resulted in temporary closures or reductions of supply capacity. During the second half of fiscal 2020, we took a
number of steps, some of which remain ongoing, including multi-sourcing and pre-ordering components and
finished goods inventory, in an effort to reduce the impact of the adverse supply chain conditions we
experienced. However, there can be no assurance that these efforts will be successful or that supply chain
disruptions will not continue, or worsen, in the future. Limits on manufacturing availability or capacity, or
delays in production or delivery of components or raw materials, due to COVID-related restrictions could delay
or inhibit our ability to obtain supply of components and produce finished goods. If the COVID-19 pandemic

worsens, it could also result in further disruptions or restrictions on our ability to source, manufacture or
distribute our products, including temporary closures of our key manufacturing facilities or the facilities of our
suppliers and their manufacturers. If we experience more pronounced disruptions in our operations, we may
experience constrained supply that may materially adversely impact our business and results of operations in
future periods.

Services and Customer Fulfillment

We have experienced some disruption in our ability to provide installation, professional and fulfillment

services to customers during the COVID-19 pandemic. These disruptions have resulted from site access
limitations, limited customer availability, project delays or re-prioritization by customers, travel bans and
restrictions on movement or gatherings. We have also experienced transportation disruptions, such as reduced
availability of air transport, port closures, and increased border controls or closures. These conditions have also
made it more challenging to execute and adversely impacted the timing of customer plans to operationalize
newer projects and recent customer design wins, primarily in international markets. We expect these conditions
to persist in the short-term, adversely impacting our revenue and results of operations. If any of these logistics
or transportation disruptions persist for longer periods or worsen, our operations and ability to meet customer
demand could be materially adversely affected. Our customers have also experienced, and may continue to
experience, disruptions in their operations, which can result in delayed, reduced, or canceled orders, and
increased collection risks, and which may adversely affect our results of operations.

Demand for Products and Services

We experienced a dynamic demand environment during fiscal 2020. During the second quarter of fiscal

2020, we experienced higher than typical orders for our products and services among a concentrated set of
larger customers with whom we had existing positions as a supplier. At that time, we believed that some portion
of these orders likely reflected short-term purchasing behaviors based on customer-specific considerations in the
face of the pandemic, including: customer concerns about future continued availability of supply;
implementation of customer business continuity actions; our desire for increased visibility into expected
demand; customer consumption of their existing inventory or spare equipment; additional network capacity
requirements; acceleration of capital spending; and, possibly, increased bandwidth demands being placed on
networks due to the pandemic. During the third and fourth quarters of fiscal 2020, our order volumes declined
significantly from previous quarters, particularly with our communications service provider and cable operator
customers. With respect to these customer segments in particular, we believe that this greater capital
expenditure restraint stems from the deferral or re-prioritization of certain new network initiatives and continued
uncertainty associated with the impact of the pandemic and economic uncertainty upon their enterprise business
segments. As a result, our quarterly order volumes were meaningfully below revenue during the second half of
fiscal 2020, challenging our visibility and the outlook for our orders and revenue in future periods. In the near-
term, we expect this more cautious spending environment to continue into fiscal 2021 and we expect these
conditions to continue to adversely affect our order volumes and revenue in the short term. In addition, as our
customers and their customers evaluate the ways in which networks and working environments will change
even after the pandemic subsides, there may be long-lasting changes in customer behaviors and needs, including
the end users of our customers, which may impact the demand for our products and services in the long-term.

Market and Economic Conditions

Our business and operating results depend significantly on general market and economic conditions.

Market volatility and weakness in the regions in which we operate have previously resulted in sustained periods
of decreased demand for our products and services, which has adversely affected our operating results.
Macroeconomic and market conditions could be adversely affected by a variety of political, economic or other
factors, including long-term factors emerging from the effects of the pandemic in the United States and
international markets, which could in turn adversely affect spending levels of our customers and their end users,
and could create volatility or deteriorating conditions in the markets in which we operate. Due to our

concentration of revenue in the United States, and the increasing concentration of our customers experienced
during fiscal 2020, we would expect to incur a more significant impact from any adverse change in the capital
spending environment or macroeconomic or market weakness in the United States.

As a result of continued economic uncertainty stemming from the pandemic, during the second half of
fiscal 2020 we experienced a significant reduction in our order volumes, as compared to our revenue, and a
reduction in our short-term outlook for our orders and revenue. We believe that ongoing concerns relating to the
pandemic, and its impact on the enterprise business segments of our communications service provider and cable
operator customers continue to adversely impact the velocity of business in general, with a particular impact on
customer willingness and ability to initiate new network projects. We believe customers are exercising greater
restraint in these projects, and more carefully prioritizing where and when to add network capacity. Delays in
operationalizing new network projects that we anticipated have also adversely affected our expectations for
revenue in the future. As a result of these dynamics, growth rates in our addressable markets slowed and the
overall market growth was flat to down in 2020 as compared to 2019, which we expect to continue to adversely
impact our revenue in the near term. We expect these market dynamics, including constrained customer
spending and the decreased velocity of new business execution, to persist through at least the first half of fiscal
2021. If these dynamics persist for longer periods or worsen, our revenue and operating results could be
materially adversely affected.

While the COVID-19 pandemic has not materially impacted our liquidity and capital resources to date, it

has led to increased disruption and volatility in capital markets and credit markets. The duration and severity of
any further economic or market impact of the COVID-19 pandemic remains uncertain and there can be no
assurance that it will not have an adverse effect on our liquidity and capital resources, including our ability to
access capital markets, in the future. The inputs into certain of our judgments, assumptions, and estimates
considered the economic implications of the COVID-19 pandemic on our critical and significant accounting
estimates. The actual results that we experience may differ materially from our estimates. As the impact of
COVID-19 pandemic continues, our estimates may carry a higher degree of variability and volatility, and, as
events continue to evolve, our estimates may change materially in future periods. In addition, if COVID-19
impacts the financial position of our customers or 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, including
disruption caused by the COVID-19 pandemic, 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.

Other Factors

The situation relating to the COVID-19 pandemic and its potential effects on our business and financial

results remains dynamic. The broader implications for our business and results of operations remain uncertain
and will depend on many factors outside our control, including, without limitation, the timing, extent, trajectory
and duration of the pandemic, the development and availability of effective treatments and vaccines, the
imposition of protective public safety measures, and the impact of the pandemic on the global economy and
enterprise and consumer behaviors. If these and other effects of the COVID-19 pandemic, including its effect on
broader economies, financial markets and overall demand environment for our products, continues or worsens,
it could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

The COVID-19 pandemic may also increase the likelihood and severity of other risks discussed in this
“Risk Factors” section, including but not limited to risks related to competition, development of the market for
and demand for our products, delays in the development and production of our products, reliance on third

parties, our international scale, our exposure to currency exchange rate fluctuations and the credit risks of our
customers and resellers, and volatility in the capital markets.

COVID-19-related restrictions on travel and gatherings could adversely impact our ability to compete for
business, particularly with customers where we are not an incumbent supplier.

Competition for sales of communications networking equipment, software and services is intense on a
global basis, as we and our competitors aggressively seek to capture market share and displace incumbent
equipment vendors. Part of our strategy is to leverage our technology leadership and to aggressively capture
additional market share and displace competitors, particularly with communications service providers
internationally. This market share capture has been an important contributor to our growth in recent years.
However, restrictions on travel and gatherings due to COVID-19 countermeasures have impacted, and are likely
to continue to impact, our interaction with customers, and the timing of certain field and lab trials. Restrictions
have also impacted, and are likely to continue to impact, our ability to carry out certain sales and marketing
activities, and adversely impacted our ability to secure new customers, to qualify and sell new products, and to
grow sales with customers where we do not have longer-standing supply relationships, including within our
Blue Planet Automation Software and Services segment and our Packet Networking product line. If we fail to
win new business or to compete successfully in our markets, our business and results of operations could suffer.

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

Our revenue, gross margin 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. Visibility into customer spending levels can be uncertain,
spending patterns are subject to change, and reductions in our expense levels can take significant time to
implement. A significant portion of our quarterly revenue is generated from customer orders received during
that same quarter (which we refer to as “book to revenue”). Accordingly, our revenue for a particular quarter is
difficult to predict, and a shortfall in expected orders in any given quarter can materially adversely affect our
revenue and results of operations for that quarter or future quarterly periods. For example, our quarterly order
volumes were meaningfully below revenue during the second half of fiscal 2020, challenging our visibility and
the outlook for our orders and revenue in future periods. Additional factors that contribute to fluctuations in our
revenue, gross margin and operating results include:

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changes in spending levels or network deployment plans by customers, particularly with respect to our
service provider and Web-scale provider customers;
order timing and volume, including book to revenue orders;
shipment and delivery timing;
backlog levels;
the level of competition and pricing pressure in our industry;
the pace and impact of price erosion that we regularly encounter in our markets;
the impact of commercial concessions or unfavorable commercial terms required to maintain
incumbency or secure new opportunities with key customers;
the mix of revenue by product segment, geography and customer in any particular quarter;
our level of success in achieving targeted cost reductions and improved efficiencies in our supply
chain;
our incurrence of start-up costs, including lower margin phases of projects required to support initial
deployments, gain new customers or enter new markets;
our level of success in accessing new markets and obtaining new customers;
long- and short-term changing behaviors or customer needs that impact demand for our products and
services or the products and services of our customers;
technology-based price compression and our introduction of new platforms with improved price for
performance;

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changing market, economic and political conditions, including the impact of tariffs and other trade
restrictions or efforts to withdraw from or materially modify international trade agreements;
factors beyond our control such as natural disasters, acts of war or terrorism, and public health
emergencies, including the COVID-19 pandemic;
the financial stability of our customers and suppliers;
consolidation activity among our customers, suppliers and competitors;
the timing of revenue recognition on sales, particularly relating to large orders;
installation service availability and readiness of customer sites;
availability of components and manufacturing capacity;
adverse impact of foreign exchange; and
seasonal effects in our business.

As a result of these factors and other conditions affecting our business and operating results, we believe that

quarterly comparisons of our operating results are not necessarily a good indication of possible future
performance. Quarterly fluctuations from the above factors may cause our revenue, gross margin and results of
operations to underperform in relation to our guidance, long-term financial targets or the expectations of
financial analysts or investors, which may cause volatility or decreases in our stock price. See the risk factor
above entitled “The COVID-19 pandemic has impacted our business and results of operation and could have a
material adverse effect on our business, results of operations and financial condition in the future” for
additional factors related to COVID-19 that could cause our revenue, gross margin and operating results to
fluctuate.

A significant portion of our revenue is concentrated among a small number of customers. For example, our

ten largest customers contributed 54.5% of our revenue for fiscal 2020 and 59.3% of our fiscal 2019 revenue,
and we have seen a further concentration in our orders during the second and third quarters of fiscal 2020.
Historically, our largest customers by revenue principally consisted of large communications service providers.
For example, AT&T accounted for approximately 10.6% of our revenue for fiscal 2020 and 10.9% of our
revenue for fiscal 2019, and Verizon accounted for 12.9% of our revenue for fiscal 2019. As a result of efforts
in recent years to diversify our business, the customer segments and geographies that comprise our customer
base and top customers by revenue have changed. During fiscal 2020 and 2019, three Web-scale providers were
among our top ten customers. Web-scale customers have been important contributors to our revenue through
both our direct sales to them, including for data center interconnection, and their indirect impact on purchases
by other network operators. Consequently, our financial results and our ability to grow our business are closely
correlated with the spending of a relatively small number of customers. Our business and results of operations
could be materially adversely impacted by the loss of a large customer within or outside of these customer
segments as well as by reductions in spending or capital expenditure budgets, changes in network deployment
plans or changes in consumption models for acquiring networking solutions by our largest customers.

There have been significant horizontal and vertical consolidation activities by communications service
providers and cable operators, with several such operators acquiring media and content companies. Customer
consolidation can increase customer purchasing power and has in the past resulted in delays or reductions in
network spending due to changes in strategy or leadership, the timing of regulatory approvals and debt burdens
associated with such transactions.

Because of our concentration of revenue with communications service providers and Web-scale providers,
our business and results of operations can be significantly affected by market, industry or competitive dynamics
adversely affecting these customer segments. For example, communications service providers continue to face a
rapidly shifting competitive landscape as cloud service operators, “over-the-top” (OTT) providers, and other
content providers challenge their traditional business models and network infrastructures. These dynamics have

in the past had an adverse effect on network spending levels by certain of our largest service provider
customers. Several of these, including AT&T, have announced various initiatives that seek to modify how they
purchase networking infrastructure or reduce capital expenditures on network infrastructure in future periods
that may adversely affect our results of operations. Web-scale providers are also under consumer and
government scrutiny and have been the subject of regulatory and other government actions, including antitrust
investigations. There can be no assurance that these government actions will not adversely impact the network
spending, procurement strategies, or business practices of our Web-scale customers in a manner adverse to us.
Our business and results of operations could be materially adversely affected by these factors and other market,
industry or competitive dynamics adversely impacting our customers.

In addition, the negative effects of the COVID-19 pandemic on global economic conditions have affected

and may continue to affect the network spending, procurement strategies, or business practices of our largest
customers. For example, our service provider customers rely in part upon the sale of services to consumers and
enterprises, including those in the retail, entertainment, and travel industries, which have been acutely impacted
by the negative economic effects of the COVID-19 pandemic. Similarly, certain of our Web-scale customers
have business models that heavily rely upon advertising revenue from enterprises, including those in industries
acutely affected by the COVID-19 pandemic. If any of our large customers experience a loss in revenue due to
the impact of COVID-19 on their consumer or enterprise customers, they may reduce capital spending on
networking projects, including data centers, which could materially adversely affect our business and results of
operations.

We face intense competition that could hurt our sales and results of operations, and we expect the
competitive landscape in which we operate to continue to broaden to include additional solutions
providers.

We face an intense competitive market for sales of communications networking equipment, software and

services. Competition is intense on a global basis, as we and our competitors aggressively seek to capture
market share and displace incumbent equipment vendors. Our industry has historically been dominated by a
small number of very large vendors, some 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. In addition, to drive scale and market share gains and meet the intense
investment capacity required to keep pace with technology innovation, acquisition activity among vendors of
networking solutions has increased. Consolidation in our industry may result in competitors with greater
resources, pricing flexibility, or other synergies, which may provide them with a competitive advantage.

Certain of our customers are adopting procurement strategies that seek to purchase a broader set of
networking solutions from a single or small number of vendors. Because of their scale, resources, and a more
diverse set of solution offerings, certain of our larger competitors may be perceived to be a better fit for the
procurement or network operating and management strategies of these customers. We also compete with a
number of smaller companies that provide significant competition for specific products, applications, customer
segments or geographic markets. 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.

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

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the ability to meet customer business needs and drive successful outcomes;
functionality, speed, capacity, scalability, performance, quality and reliability of solutions;
price for performance, cost per bit and total cost of ownership of solutions;
incumbency and strength of existing business relationships;
ability to offer comprehensive networking solutions, consisting of hardware, software and services;
time-to-market in delivering products and features;
technology roadmap and forward innovation capacity and ability to deliver on network innovation;

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company stability and financial health;
flexibility and openness of platforms, including ease of integration, interoperability and integrated
management;
ability to offer solutions that accommodate a range of emerging customer consumption models for
network solutions;
operating costs, space requirements and power consumption of network solutions;
software and network automation and analytics capabilities;

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services and support capabilities.

Part of our strategy is to leverage our technology leadership and to aggressively capture additional market
share and displace competitors, particularly with communications service providers internationally. In an effort
to maintain our incumbency or to secure new customer opportunities, we have in the past, and may in the future,
agree to aggressive pricing, commercial concessions and other unfavorable terms that result in low or negative
gross margins on a particular order or group of orders. Competition can also result in onerous commercial and
legal terms and conditions that place a disproportionate amount of risk on us.

We expect the competition in our industry to continue to broaden and to intensify, as network operators

pursue a diverse range of network strategies and consumption models. As these changes occur, we expect that
our business will compete more directly with additional networking solution suppliers, including IP router
vendors, data center switch providers and other suppliers or integrators of networking technology. In addition,
as we seek increased customer adoption of our Blue Planet Automation Software and Services, and as network
operator demands for programmability, automation and analytics increase, we expect to compete more directly
with software vendors and IT vendors or integrators of these solutions. We may also face competition from
system and component vendors, including those in our supply chain, that develop networking products based on
off-the-shelf or commoditized hardware technology, referred to as “white box” hardware, particularly where a
customer’s network strategy seeks to emphasize deployment of such product offerings or adopt a disaggregated
approach to the procurement of hardware and software. An increase in competitive intensity, the adoption of
new consumption models, or the entry of new competitors into our markets, may adversely impact our business
and results of operations. If competitive pressures increase, or if we fail to compete successfully in our markets,
our business and results of operations could suffer.

Investment of research and development resources in communications networking technologies for which
there is not an adequate market demand, 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 hardware and software solutions is characterized by rapidly

evolving technologies, changes in market demand and increasing adoption of software-based networking
solutions. We continually invest in research and development to sustain or enhance our existing hardware and
software solutions and to develop or acquire new technologies including new software platforms. There is often
a lengthy period between commencing these development initiatives and bringing new or improved solutions to
market. Accordingly, there is no guarantee that our new products, including our Blue Planet Automation
Software and Services, or enhancements to other solutions, will achieve market acceptance or that the timing of
market adoption will be as predicted. As a result of the COVID-19 pandemic, technology preferences, customer
demand and the markets for our solutions may move in directions that we had not anticipated. As a general
matter, there is a significant possibility that some of our development decisions, including significant
expenditures on acquisitions, research and development, or investments in technologies, will not meet our
expectations, and that our investment in some projects will be unprofitable. There is also a possibility that we
may miss a market opportunity because we failed to invest or invested too late in a technology, product or
enhancement sought by our customers or the markets into which we sell. 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. In addition, failure to develop,
on a cost-effective basis, innovative new or enhanced solutions that are attractive to customers and profitable to

us could have a material adverse effect on our business, results of operations, financial condition and cash
flows.

We have no guaranteed purchases and regularly have to re-win business for existing customers.

Generally, our customer contracts do not require customers to purchase any minimum or guaranteed
volumes, and we conduct sales through framework contracts under which customers place purchase orders for
which they often have the right to modify or cancel. We must regularly compete for and win business with
existing customers across all of our customer segments. In addition, Web-scale providers tend to operate on
shorter procurement cycles than some of our traditional customers, which can require us to compete to re-win
business with these customers more frequently than required with other customers segments. As such, there is
no assurance that our incumbency will be maintained at any given customer or that our revenue levels from a
customer in a particular period can be achieved in future periods. Customer spending levels can be
unpredictable, and our sales to any customer could significantly decrease or cease at any time.

Our sales efforts, 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 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 to us or decides to purchase our solutions, the length of time before deployment
can vary depending on the customer’s schedule, site readiness, the size of the network deployment, the degree
of custom 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. To maintain incumbency with key customers, we may
be required to offer discounted pricing, make commercial concessions or offer less favorable terms as compared
to our historical business arrangements with these customers. 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. Alternatively, customers may insist on 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 and gross margin.

If the market for network software does not evolve in the way we anticipate or if customers do not adopt
our Blue Planet Automation Software and Services, we may not be able to monetize these software assets
and realize a key part of our business strategy.

A key part of our business strategy is to increase customer adoption of our Blue Planet Automation
Software Platform. If the markets relating to software solutions for network automation, including service
orchestration, route optimization, analytics and assurance, and SDN or NFV, do not develop as we anticipate, or
if we are unable to commercialize, increase market awareness and gain adoption of our Blue Planet Automation
Software and Services within those markets, revenue from our Blue Planet Automation Software and Services
may not grow. We have a limited history in commercializing and selling these software solutions and have only
recently acquired certain elements of our Blue Planet portfolio. Moreover, the market and competitive landscape
for these solutions is dynamic, and it is difficult to predict important trends, including the potential growth, if
any, of this market. If the market for these software solutions does not evolve in the way we anticipate or if
customers do not adopt our Blue Planet Automation Software and Services, a key part of our strategy for growth
would be adversely affected and our financial results may suffer.

If we are unable to adapt our business to the consumption models for networking solutions adopted by
our customers and to offer attractive solutions across these consumption models, our business,
competitive position and results of operations could be adversely affected.

Growing bandwidth demands and network operator efforts to reduce costs are resulting in a diverse range
of approaches to the design and procurement of network infrastructure. We refer to these different approaches
as “consumption models.” These consumption models can include: the traditional systems procurement of fully
integrated solutions including hardware, software and services from the same vendor; the procurement of a fully
integrated hardware solution from one vendor with the separate use of a network operator’s own SDN-based
controller; the procurement of an integrated photonic line system with open interfaces from one vendor and the
separate or “disaggregated” procurement of modem technology from a different vendor; or the development and
use of published reference designs and open source specifications for the procurement of “white box” hardware
to be used with open source software. In parallel, network operators are also exploring procurement alternatives
for software solutions, ranging from integrated and proprietary software platforms to fully open source
software.

We believe that network operators will continue to consider a variety of different consumption models.
Many of these approaches are in their very early stages of development and evaluation, and the types of models
and their levels of adoption will depend in significant part on the nature of the circumstances and strategies of
particular network operators. Among our customers, AT&T, certain Web-scale providers and others are
pursuing network strategies that emphasize enhanced software programmability, management and control of
networks, and deployment of “white box” hardware. A number of network operators are pursuing the
deployment of smaller form factor, pluggable modem technology, particularly within switching and routing
solutions, as an alternative to integrated optical networking platforms. Other network operators, including
certain of our Web-scale customers, are playing a leading role in the transition to software-defined networking
or the standardization of communications network solutions. We believe that the potential for different
approaches to the procurement of networking infrastructure will require network operators and vendors to
evolve and broaden their existing solutions and commercial models over time. Adoption of a range of
consumption models may also alter and broaden our competitive landscape to include other technology vendors,
including routing vendors, component vendors and IT software vendors. If we are unable to adapt our business
to these new consumption models and offer attractive solutions and commercial models that accommodate the
range of consumption models ultimately adopted by our customers or within our markets, our business,
competitive position and results of operations could be adversely affected.

Our go-to-market activities and the distribution of our WaveLogic coherent modem technology within
the merchant modem market could expose us to increased or new forms of competition, or adversely
affect our existing systems business and results of operations.

We recently entered the merchant modem market to monetize our coherent optical technology, expand our
addressable market and address a range of customer consumption models for networking solutions. Making our
critical technology available in this manner could adversely impact the sale of products in our existing systems
business. For example, our customers may choose to adopt disaggregated consumption models or third-party
solutions that embed Ciena-designed optical modules instead of purchasing systems-based solutions from us.
Accordingly, we may encounter situations where we are competing for opportunities in the market directly
against a system from one of our competitors that incorporates Ciena-designed modules. Making this key
technology available and enabling third-party sales of Ciena-designed modules may adversely affect our
competitive position and increase the risk that third parties misappropriate or attempt to use our technology or
related intellectual property without our authorization. These and other risks or unanticipated liabilities or costs
associated with the sales of our WaveLogic coherent technology could harm our reputation and adversely affect
our business and our results of operations. Our go-to-market activities and the distribution of our WaveLogic
coherent technology within the merchant modem market could expose us to increased or new forms of
competition, or adversely affect our systems business and results of operation.

If we fail to accurately predict demand, we may be required to write off significant amounts of inventory
as a result of our inventory purchase practices and could incur additional costs or experience
manufacturing delays.

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. In a number of cases these
suppliers may require longer lead times for fulfillment than we have with our customers. Thus, 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. We regularly incur, on a quarterly basis, expense
provisions against excess or obsolete inventory and may have difficulty forecasting inventory and customer
spending. 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. Our products
are highly configurable, and certain new products have overlapping feature sets or application with existing
products. Accordingly, it is increasingly possible that customers may forgo purchases of certain products we
have inventoried in favor of a similar or newer product. We may also be exposed to 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. Conversely, if we underestimate our demand, our
contract manufacturers and component suppliers may have inadequate time, materials, or components required
to manufacture our products. This could increase costs or delay or interrupt manufacturing of our products,
resulting in delays in shipments and deferral or loss of revenues and could adversely impact customer
satisfaction. See the risk factor above entitled “The COVID-19 pandemic has impacted our business and results
of operation and could have a material adverse effect on our business, results of operations and financial
condition in the future” for additional factors related to COVID-19 that could cause decreased visibility into
customer demand.

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.

We may be required to write down the value of certain significant assets, which would adversely affect
our operating results.

We have a number of significant assets on our balance sheet as of October 31, 2020 and the value of these

assets can be adversely impacted by factors related to our business and operating performance, as well as factors
outside of our control. As of October 31, 2020, our balance sheet includes a $647.8 million net deferred tax
asset. The value of our net deferred tax assets can be significantly impacted by changes in tax policy or our tax
planning strategy. For example, the Tax Act required us to write down our net deferred tax assets by
approximately $438.2 million in fiscal 2018. If any additional write downs are required, our operating results
may be materially adversely affected.

As of October 31, 2020, our balance sheet also includes $310.8 million of goodwill. We test each reporting

unit for impairment of goodwill on an annual basis and, between annual tests, if an event occurs or
circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its

carrying value. As of October 31, 2020, our balance sheet also includes $488.1 million in long-lived assets,
which includes $96.6 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 on which our estimates are based. The value of our net deferred tax
asset above may also be subject to change in the future, based on our actual or projected generation of future
taxable income. If market conditions or our forecasts for our business or any particular operating segment
change, we may be required to reassess the value of these assets. We could be required to record an impairment
charge against our goodwill and long-lived assets or a valuation allowance against our deferred tax assets. Any
write down of the value of these significant assets would have the effect of decreasing our earnings or
increasing our losses in such period. If we are required to take a substantial write down or charge, our operating
results would be materially adversely affected in such period.

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 on these relationships to add complementary products or technologies, to diversify our
product portfolio, or to 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.

Product performance problems and undetected errors affecting the performance, interoperability,
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 performance. 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 offerings, including evolutions of our WaveLogic coherent optical modem
technology, Packet Networking platforms and solutions targeting access and metro networks and data center
interconnect applications. 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, and we may have to
do so again in the future. Remediation of such events could materially adversely impact our business and results
of operations. In addition, we may encounter unanticipated security vulnerabilities relating to our products or
the activities of our supply chain. Our products are used in customer networks transmitting a range of sensitive
information and any actual or perceived exposure of our solutions to malicious software or cyber-attacks could
adversely affect our business and results of operations. Product performance, reliability, security and quality
problems 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;
higher charges for increased inventory obsolescence;
costs, liabilities and claims that may not be covered by 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.

Strategic acquisitions and investments could disrupt our operations and may expose us to increased costs
and unexpected liabilities.

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

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failure to achieve the anticipated transaction benefits or the projected financial results and
operational synergies;
greater than expected 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;
the loss of key employees;
disruption or termination of business relationships with customers, suppliers, vendors, landlords,
licensors and other business partners;
ineffective internal controls over financial reporting;
dependence on unfamiliar suppliers or manufacturers;
assumption of or exposure to unanticipated liabilities, including intellectual property infringement or
other legal claims; and
adverse tax or accounting impact.

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

Risks Relating to the Macroeconomic Environment and our Global Presence

Our business and operating results depend significantly on general market and economic conditions.

Market volatility and weakness in the regions in which we operate have previously resulted in sustained periods
of decreased demand for our products and services, which has adversely affected our operating results. The
current global macroeconomic environment is challenging and volatile, and is being significantly and adversely

impacted by the COVID-19 pandemic. Macroeconomic and market conditions could also be adversely affected
by a variety of political, economic or other factors in the United States and international markets, which could in
turn adversely affect spending levels of our customers and their end users, and could create volatility or
deteriorating conditions in the markets in which we operate. Due to our concentration of revenue in the United
States, we would expect to incur a more significant impact from any adverse change in the capital spending
environment or macroeconomic or market weakness in the United States. 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;
decreased ability to forecast operating results and make decisions about budgeting, planning and future
investments;
increased overhead and production costs as a percentage of revenue;
tightening of credit markets needed to fund capital expenditures by us or our customers;
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.

Each of our customers has a unique set of circumstances, and it is unclear how macroeconomic and market

conditions, including those created by COVID-19, may continue to impact their purchasing volumes or
behaviors. Reductions in customer spending in response to unfavorable or uncertain macroeconomic and market
conditions, globally or in a particular region where we operate, would adversely affect our business, results of
operations and financial condition.

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 on 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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adverse social, political and economic conditions;
effects of adverse changes in currency exchange rates;
greater difficulty in collecting accounts receivable and longer collection periods;
difficulty and cost of staffing and managing foreign operations;
higher incidence of corruption or unethical business practices;
less protection for intellectual property rights in some countries;
tax and customs changes that adversely impact our global sourcing strategy, manufacturing practices,
transfer-pricing, or competitiveness of our products for global sales;
compliance with certain testing, homologation or customization of products to conform to local
standards;
significant changes to free trade agreements, trade protection measures, tariffs, export compliance,
domestic preference procurement requirements, qualification to transact business and additional
regulatory requirements; and
natural disasters, acts of war or terrorism, and public health emergencies, including the COVID-19
pandemic.

Our international operations are subject to complex foreign and U.S. laws and regulations, including anti-

bribery and corruption laws, antitrust or competition laws, data privacy laws, such as the GDPR, and
environmental regulations, among others. In particular, recent years have seen a substantial increase in anti-

bribery law enforcement activity by U.S. regulators, and we currently operate and seek to operate in many parts
of the world that are recognized as having greater potential for corruption. Violations of any 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. Our policies and procedures to promote compliance with these laws
and regulations and to mitigate these risks may not protect us from all acts committed by our employees or
third-party vendors, including contractors, agents and services partners. Additionally, the costs of complying
with these laws (including the costs of investigations, auditing and monitoring) could adversely affect our
current or future business.

The success of our international sales and operations will depend, in large part, on our ability to anticipate

and manage these risks effectively. 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.

Efforts to increase our sales and capture market share in targeted international markets may be
unsuccessful.

Part of our business and growth strategy is to expand our geographic reach and increase market share in
international markets through a combination of direct and indirect sales resources. We are also aggressively
pursuing opportunities with service provider customers in additional geographies, including EMEA and APAC.
This diversification of our markets and customer base has been a significant component of the growth of our
business in recent years. Our efforts to continue to increase our sales and capture market share in international
markets may ultimately be unsuccessful or may adversely impact our financial results, including our gross
margin. Our failure to continue to increase our sales and market share in international markets could limit our
growth and could harm our results of operations.

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

As a company with global operations, we face exposure to movements in foreign currency exchange rates.
Due to our global presence, a significant 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. An increase in the value of the U.S. Dollar could increase the real
cost to our customers of our products in those markets outside the United States where we sell in Dollars, and a
weakened Dollar could increase the cost of local operating expenses and procurement of materials or service
that we purchase in foreign currencies. From time to time, we 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 we cannot hedge against all foreign exchange rate
volatility. Losses associated with these hedging instruments and the adverse effect of foreign currency exchange
rate fluctuation may negatively affect our results of operations.

Risks Related to Our Operations and Reliance on Third Parties

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

Our hardware and software networking solutions, including our coherent optical chipset, our WaveLogic

modem technology and the components thereof, are based on complex technology, and we can experience
unanticipated delays in developing, manufacturing and introducing these solutions to market. Delays in product
development efforts by us or our supply chain may affect our reputation with customers, affect our ability to
capture market opportunities and impact the timing and level of demand for our products. Among other things,
we are currently extending our Packet Networking portfolio with additional IP features, and introducing new

solutions within our Platform Software and Services and Blue Planet Automation Software and Services
segments. 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-effectiveness 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. The development of new technologies may increase
the complexity of supply chain management or require the acquisition, licensing or interworking with the
technology of third parties. 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
or produce products in a timely manner, our competitive position may suffer, and our business, financial
condition and results of operations could be harmed.

We rely on third-party contract manufacturers, and our business and results of operations may be
adversely affected by risks associated with their businesses, financial condition and the geographies in
which they operate.

We rely on third-party contract manufacturers, including those with facilities in Canada, Mexico, Thailand,

and the United States, to perform a substantial portion of our supply chain activities, including component
sourcing, manufacturing, product testing and quality, and fulfillment and logistics relating to the distribution
and support 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 associated with the locations or countries where our products are manufactured,
including potential manufacturing disruptions caused by social, geopolitical, environmental or health
factors, including pandemics or widespread health epidemics such as the COVID-19 pandemic;
changes in law or policy governing tax, trade, manufacturing, development and investment in the
countries where we currently manufacture our products, including the World Trade Organization
Information Technology Agreement or other free trade agreements;
inventory liability for excess and obsolete supply;
limited warranties provided to us; and
potential misappropriation of our intellectual property.

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 we experience a disruption of manufacturing or our contract manufacturers
discontinue operations, we may be required to identify and qualify alternative manufacturers, which could cause
us to be delayed in or unable to meet our supply requirements to our customers and result in the breach of our
customer agreements. The process of qualifying a new contract manufacturer and commencing volume
production is expensive and time-consuming, and if we are required to change or qualify a new contract
manufacturer, we would likely experience significant business disruption and could lose revenue and damage
our existing customer relationships. See the risk factor above entitled “The COVID-19 pandemic has impacted
our business and results of operation and could have a material adverse effect on our business, results of
operations and financial condition in the future” for additional factors related to COVID-19 and our third-party
contract manufacturers that could adversely affect our business and financial results.

We maintain a global sourcing strategy and depend on a diverse set of third-party suppliers in international
markets that comprise our supply chain. We rely on these third parties for activities relating to product design,
development and support, and in the sourcing of products, components, subcomponents and related raw
materials. Our products include optical and electronic components for which reliable, high-volume supply is
often available only from sole or limited sources. We do not have any guarantees of supply from our third-party
suppliers, and in certain cases we have limited contractual arrangements or are relying on standard purchase
orders. 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, and 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 and
increased costs and could negatively affect our product gross margin and results of operations. There are a
number of significant technology trends or developments underway or emerging – including the Internet of
Things, autonomous vehicles, and advances in mobile communications such as the emergence of 5G – that have
previously resulted in, and can be expected in the future to result in, increased market demand for key raw
materials or components upon which we rely. Increases in market demand or scarcity of raw materials for
components have resulted, and may in the future result, in shortages in availability of important components for
our solutions, product allocation challenges, deployment delays and increased cost, lead times and delivery
cycle time lines.

We have experienced, and may experience in the future, consolidation among suppliers of our components.

Significant consolidation among component suppliers, including in the semiconductor space, may reduce the
number of independent suppliers, which can negatively impact our ability to access components or the price we
have to pay for such components. Moreover, our access to necessary components could be adversely impacted
by evolving competitive landscapes, converging solutions offerings and competition from component vendors,
including those in our supply chain, who develop competing networking products for emerging consumption
models, including pluggable modem technology or offerings based on “white box” hardware.

These and other industry, market and regulatory disruptions and 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.

Our reliance on certain third-party suppliers exposes us to certain risks relating to their businesses and
financial position that, in turn, could disrupt our business or limit our sales.

We are exposed to risks relating to unfavorable economic conditions, financial difficulties and a wide range

of market, regulatory and industry challenges affecting the businesses, financial position and results of
operations of our third-party suppliers of components and certain finished goods inventory. These challenges
can affect their business in a number of ways, including material costs, sales, liquidity levels, ability to continue
investing in their businesses, ability to import or export goods, ability to meet development commitments and
manufacturing capability.

A number of our key technology vendors rely upon sales to customers, including our competitors, in China

for a material portion of their revenue. Recently, there have been a number of significant geopolitical events,
including trade tensions and regulatory actions, involving the governments of the United States and China. In
May 2019, the U.S. Department of Commerce amended the Export Administration Regulations by adding
Huawei Technologies Co., Ltd. and certain affiliates to the “Entity List” for actions contrary to the national
security and foreign policy interests of the United States, imposing significant new restrictions on export,
reexport and transfer of U.S. regulated technologies and products to Huawei. In August 2020, the U.S.
Department of Commerce added additional Huawei affiliates to the Entity List, confirmed the expiration of a
temporary general license applicable to Huawei and amended the foreign direct product rule in a manner that
represents a significant expansion of its application to Huawei. Several of our third-party component suppliers,

including certain sole and limited source suppliers, sell products to Huawei and, in some cases, Huawei is a
significant customer for such suppliers. At this time, there can be no assurance regarding the scope or duration
of these restrictions, including the foreign direct product rule, or further actions imposed on Huawei, and any
future impact on our suppliers. Any continued restriction on our suppliers’ ability to make sales to Huawei may
adversely impact their businesses and financial position. In addition, in January 2018, China’s Ministry of
Industry and Information Technology released its Optoelectronic Devices Industry Technology Roadmap, a
five-year plan to improve China’s capabilities in the optoelectronics industry. There can be no assurance that
this initiative, or similar efforts in China such as the Made in China 2025 initiatives, will not have an adverse
impact on the business of our suppliers or our access to necessary components. These and similar industry,
market and regulatory disruptions affecting our suppliers could, in turn, expose our business to loss or lack of
supply or discontinuation of components that could result in lost revenue, additional product costs, increased
lead times and deployment delays that could harm our business and customer relationships. 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.

We rely on third-party resellers and distribution partners to sell our solutions, and our failure to develop
and manage these relationships effectively could adversely affect our business and result of operations.

In order to sell into new markets, diversify our customer base and broaden the application for our solutions,
and to complement our global field resources, we rely on a number of third-party resellers, distribution partners
and sales agents, both domestic and international, and we believe that these relationships are an important part
of our business. There can be no assurance that we will successfully identify and qualify these resources or that
we will realize the expected benefits of these sales relationships. Our failure to effectively identify, develop and
manage our third-party sales relationships could adversely affect our business, growth and result of operations.
We must also assess and qualify resellers, distribution partners and sales agents under our channel programs to
ensure their understanding of and willingness and ability to adhere to our Code of Business Conduct and Ethics,
our Ciena Partner Network Code of Business Conduct and Ethics and ethical business practices. We may be
held responsible or liable for the actions or omissions of these third parties. Actions, omissions or violations of
law by our third-party sales partners or agents could have a material adverse effect on our business, operating
results and financial condition.

Our failure to manage our relationships with third-party service partners effectively could adversely
impact our financial results and relationships 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 on these partners for certain installation, maintenance and support
functions. In addition, as network operators increasingly seek to 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 to ensure the skillful performance
of other services associated with expanded solutions offerings, including site assessment and construction-
related services. We must also assess and certify service partners in order to ensure their understanding of and
willingness and ability to adhere to our Code of Business Conduct and Ethics, the RBA Code of Conduct, and
ethical business practices. Vetting and certification of these partners can be costly and time-consuming, and
certain partners may not have the same operational history, financial resources and scale as we have. Moreover,
certain service partners may provide similar services for other companies, including our competitors. We may
not be able to manage our relationships with our service partners effectively, and we cannot be certain that they
will be able to deliver services in the manner or time required, that we will be able to maintain the continuity of
their services, or that they will adhere to our approach to ethical business practices. We may also be exposed to
a number of risks or challenges relating to the performance of our service partners, including:

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delays in recognizing revenue;
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.

As our service offering expands and customers look to identify vendors capable of managing, integrating
and optimizing multi-domain, multi-vendor networks with unified software, our relationships with third-party
service partners will become increasingly important. If we do not effectively manage 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.

Growth of our business is dependent on the proper functioning and scalability of our internal business
processes and information systems. Adoption of new systems, modifications or interruptions of services
may disrupt our business, processes and internal controls.

We rely on 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 continually
pursue initiatives to transform and optimize our business operations through the reengineering of certain
processes, investment in automation, and engagement of strategic partners or resources to assist with certain
business functions. These changes require a significant investment of capital and human resources and may be
costly and disruptive to our operations, and they 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 system upgrades or other initiatives. 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 IT systems, and those of third-party IT 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, cyber-security related incidents, and computer system or network
failures. There can be no assurance that our business systems or those of our third-party business partners will
not be subject to similar incidents, exposing us to significant cost, reputational harm and disruption or damage
to our business.

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

We have taken steps, including reductions in force, office closures, and internal reorganizations to reduce

the 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, to achieve our target operating model and profitability objectives, or to
reflect more closely 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, or if our existing personnel are harmed by
COVID-19, we may be unable to manage our business effectively.

Our future success and ability to maintain a technology leadership position depends upon our ability to

recruit and retain the services of executive, engineering, sales and marketing, and support personnel.
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. There can be no assurance
that the programs, initiatives, rewards and recognition that are part of our annual “people strategy” will be
successful in attracting and retaining the talent necessary to execute on our business plans. Because we rely on
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. We have a number of workforce planning initiatives
underway and our failure to manage these programs effectively could result in the loss of key personnel.
Similarly, the failure to properly manage the necessary knowledge transfer required from these employee
transitions could impact our ability to maintain industry and innovation leadership. The loss of members of our
management team or other key personnel, including due to COVID-19, could be disruptive to our business and,
were it necessary, it could be difficult to replace such individuals. If we are unable to attract and retain qualified
personnel, we may be unable to manage our business effectively, and our operations and financial results could
suffer.

In addition, a number of our team members are foreign nationals who rely on visas or work-entry permits in

order to legally work in the United States and other countries. Changes in government policy and global events
such as pandemics may interfere with our ability to hire or retain personnel who require these visas or entry
permits. For example, in response to the COVID-19 pandemic, the United States suspended entry of certain
foreign nationals, which could impact our ability to attract, develop, integrate and retain highly skilled
employees with appropriate qualifications from other countries. Numerous U.S. Embassies have suspended the
processing of new visa applications for a period of time during 2020 due to COVID-19 related concerns
impacting Embassy operations and staffing. In addition, on April 22, 2020, in a stated effort to protect
Americans from competition from foreign workers during the COVID-19 pandemic, the U.S. President signed
an executive order to pause for 60 days the issuance of immigrant visas issued at U.S. embassies to enter the
United States, and on June 22, 2020 extended the pause and added restrictions on the issuance of several
categories of temporary visas through at least the end of the calendar year, including restrictions on new H-1B
visas for certain skilled workers and new L-1 visas for intracompany transfers of executives/managers and
specialized knowledge persons such as those employed in information technology and engineering, subject to
certain exceptions. Additional changes in immigration policy, including the implementation of restrictive
interpretations by the U.S. Citizenship and Immigration Services of regulatory requirements for H-1B, L-1 and
other U.S. work visa categories, may also adversely affect our ability to hire or retain key talent, which could
have an impact on our business operations.

Risks Related to Intellectual Property, Litigation, Regulation and Government Policy

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 for our
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
detect, prevent or minimize the risks of such unauthorized use. In addition, our intellectual property strategy
must continually evolve to protect our proprietary rights in new solutions, including our software solutions.
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. We have been subject to several claims related to patent infringement, and we have been
requested to indemnify customers pursuant to contractual indemnity obligations relating to infringement claims
made by third parties. 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 seek to derive value from their ownership solely 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 or otherwise require us to incur substantial costs, including legal fees. 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 increase as a result of acquisitions, as we
would have a lower level of visibility into the development process with respect to the acquired 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 intelligent automation software and other products. 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.

Some of our solutions, including our Blue Planet Automation Software, utilize elements of open source or

publicly available software. As network operators seek to enhance programmability and automation of
networks, we 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 increases 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.

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, and on the networks of our

third-party providers, certain information that is confidential, proprietary or otherwise sensitive in nature. This
information includes intellectual property, financial information and confidential business information relating
to us and our customers, suppliers and other business partners. 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 and other business
applications, and the systems and storage and other business applications maintained by our third-party
providers, have been in the past, and may be in the future, subject to attempts to gain unauthorized access,
breach, malfeasance or other system disruptions. In some cases, it is difficult to anticipate or to detect
immediately such incidents and the damage caused thereby. If an actual or perceived breach of security occurs
in our network or any of our third-party providers’ networks, we could incur significant costs and our reputation
could be harmed. In addition, the internet has experienced an increase in cyber threats during the COVID-19
pandemic in the form of phishing emails, malware attachments and malicious websites. While we work to
safeguard our internal network systems and validate the security of our third-party providers to mitigate these
potential risks, including through information security policies and employee awareness and training, there is no
assurance that such actions will be sufficient to prevent cyber-attacks or security breaches. We have been
subjected in the past to a range of incidents including phishing, emails purporting to come from a company
executive or vendor seeking payment requests, and communications from look-alike corporate domains. While
these have not had a material effect on our business or our network security to date, security incidents involving
access or improper use of 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.

We are a party to legal proceedings, investigations and other claims or disputes, which are costly to
defend and, if determined adversely to us, could require us to pay fines or damages, undertake remedial
measures or prevent us from taking certain actions, any of which could adversely affect our business.

In the course of our business, we are, and in the future may be, a party to legal proceedings, investigations
and other claims or disputes, which have related and may relate to subjects including commercial transactions,
intellectual property, securities, employee relations, or compliance with applicable laws and regulations. A
description of certain of these types of matters can be found in Note 26 to our Consolidated Financial

Statements in Item 8 of Part II of this report. Legal proceedings and investigations are inherently uncertain and
we cannot predict their duration, scope, outcome or consequences. There can be no assurance that these or any
such matters that have been or may in the future be brought against us will be resolved favorably. In connection
with any government investigations, in the event the government takes action against us or the parties resolve or
settle the matter, we may be required to pay substantial fines or civil and criminal penalties and/or be subject to
equitable remedies, including disgorgement or injunctive relief. Other legal or regulatory proceedings, including
lawsuits filed by private litigants, may also follow as a consequence. These matters are likely to be expensive
and time-consuming to defend, settle and/or resolve, and may require us to implement certain remedial
measures that could prove costly or disruptive to our business and operations. They may also cause damage to
our business reputation. The unfavorable resolution of one or more of these matters could have a material
adverse effect on our business, results of operations, financial condition or cash flows.

Changes in trade policy, including the imposition of tariffs and efforts to withdraw from or materially
modify international trade agreements, may adversely affect our business, operations and financial
condition.

The United States and various foreign governments have established certain trade and tariff requirements
under which we have implemented a global approach to the sourcing and manufacture of our products, as well
as distribution and fulfillment to customers around the world. Recently, the U.S. government has indicated a
willingness to revise, renegotiate, or terminate various existing multilateral trade agreements and to impose new
taxes on certain goods imported into the U.S. Because we rely on a global sourcing strategy and third-party
contract manufacturers in markets outside of the U.S. to perform substantially all of the manufacturing of our
products, such steps, if adopted, could adversely impact our business and operations, increase our costs, and
make our products less competitive in the U.S. and other markets.

For example, the U.S. government has previously threatened to undertake a number of actions relating to

trade with Mexico, including the closure of the border and the imposition of escalating tariffs on goods
imported into the U.S. from Mexico. A substantial portion of our products are manufactured and distributed by
third-party contract manufacturers in Mexico. If adopted, such actions could adversely impact our business and
significantly disrupt our operations. These actions may also make our products less competitive in the United
States and other markets. In addition, the U.S. government reached a new trade agreement with the Canadian
and Mexican governments to replace the North American Free Trade Agreement (“NAFTA”) with the United
States-Mexico-Canada Agreement (“USMCA”), which entered into force on July 1, 2020. There can be no
assurance that the ongoing transition from NAFTA to the USMCA will not adversely impact our business or
disrupt our operations.

In addition, our supply chain includes certain direct and indirect suppliers based in China who supply goods

to us, our manufacturers or our third-party suppliers. Recently, there have been a number of significant
geopolitical events, including trade tensions and regulatory actions, involving the governments of the United
States and China. The U.S. government has raised tariffs, and imposed new tariffs, on a wide range of imports
of Chinese products, including component elements of our solutions and certain finished goods products that we
sell. China has retaliated by raising tariffs, and imposing new tariffs, on certain experts of U.S. goods to China.
In May 2020, the U.S. introduced significant further restrictions limiting access to controlled U.S. technology to
additional Chinese government and commercial entities, including certain of our competitors based in China. In
August 2020, the U.S. Department of Commerce took further action against Huawei by adding additional
Huawei affiliates to the Entity List, confirming the expiration of a temporary general license applicable to
Huawei and amending the foreign direct product rule in a manner that represents a significant expansion of its
application to Huawei. The situation involving U.S.-China trade relations remains volatile and uncertain and
there can be no assurance that further actions by either country will not have an adverse impact on our business,
operations and access to technology, or components thereof, sourced from China.

At this time, it remains unclear what additional actions, if any, will be taken by the U.S. or other

governments with respect to international trade agreements, the imposition of tariffs on goods imported into the

U.S., tax policy related to international commerce, or other trade matters. Based on our manufacturing practices
and locations, there can be no assurance that any future executive or legislative action in the United States or
other countries relating to tax policy and trade regulation would not adversely affect our business, operations
and financial results.

Government regulation of usage, import or export of our products, or our technology within our products,

changes in that regulation, 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. These
regulations could adversely affect the sale or use of our products, substantially increase our cost of sales and
adversely affect our business and revenue.

Changes in government regulations affecting the communications and technology industries and the
businesses of our customers could harm our prospects and operating results.

The Federal Communications Commission (the “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 cable and multiservice network operators, are subject to
the rules and regulations of these agencies, while others participate in and benefit from government-funded
programs that encourage the development of network infrastructures. These regulatory requirements and
funding programs are subject to changes that may adversely impact our customers, with resulting adverse
impacts on our business.

In December 2017, the FCC voted to roll back its 2015 order regulating broadband internet service
providers as telecommunications service carriers under Title II of the Telecommunications Act. This decision,
which was reaffirmed and updated in October 2020 following a partial remand and reversal by the U.S. Court of
Appeals for the District of Columbia Circuit, repeals net neutrality regulations that prohibit blocking, degrading
or prioritizing certain types of internet traffic and restores the light touch regulatory treatment of broadband
service in place prior to 2015. Although the FCC’s initial decision has preempted state jurisdiction on net
neutrality, the U.S. Court of Appeals decision vacated the specific preemption provision in the 2017 order. At
least two states, Montana and New York, took executive action directed at reinstating aspects of the FCC’s 2015
order even prior to the U.S. Court of Appeals decision. In addition, in September 2018, California passed
legislation that seeks to reestablish net neutrality. Changes in regulatory requirements or uncertainty associated
with the regulatory environment could delay or serve as a disincentive to investment in network infrastructures
by network operators, which 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.

In October 2019, the Supreme Court of India ruled against an industry group of India service providers in a

long-standing dispute over the calculation of license and other regulatory fees owing to India’s Department of
Telecommunications. The ruling has resulted in the possibility of significant near-term liability among these
service providers, which include our customers, for amounts owing to India’s Department of
Telecommunications in relation to these revenue-based license fees along with certain penalties and interest.
There can be no assurance that this ruling, the resulting license fee interpretation and amounts owing, will not
adversely affect spending by these customers or our business or sales in India.

Separately, certain of our Web-scale customers have been the subject of regulatory and other government

actions, including inquiries and investigations, formal or informal, by competition authorities in the United
States, Europe and other jurisdictions. In July 2019, the U.S. Department of Justice announced that it would
commence an antitrust review into significant online technology platforms, and in September 2019, various

state attorneys general announced antitrust investigations involving certain technology companies. In addition,
certain committees of the U.S. Congress have recently held hearings and pursued investigations to consider the
businesses associated with these platforms, their impact on competition, and their conduct. There can be no
assurance that these government actions will not adversely impact the network spending, procurement
strategies, or business practices of our Web-scale customers in a manner adverse to us.

The effects of the United Kingdom’s withdrawal from membership in the European Union remain
uncertain.

In June 2016, the UK held a referendum in which voters approved an exit from the EU, commonly referred
to as “Brexit,” in March 2017, notified the EU that it intended to exit as provided in Article 50 of the Treaty on
European Union, and on January 31, 2020, the UK formally withdrew from the EU. The terms of the
withdrawal were subject to contentious negotiations that created significant uncertainty about the future
relationship between the UK and the EU, and negotiations about the future trading relationship between the UK
and EU continue during a transition period that expires on December 31, 2020. It is possible that the level of
economic activity in this region will be adversely impacted by Brexit and that there will be increased regulatory
and legal complexities, including those relating to tax, trade, security and employees. Such changes could be
costly and potentially disruptive to our operations and business relationships in these markets. Economic
uncertainty related to Brexit, including volatility in global stock markets and currency exchange rates, could
adversely impact our business. In addition, there is a risk that the UK and the EU will fail to reach any
agreement during the transition period on the terms of their future trading relationship, which has resulted in
additional uncertainty and could lead to further costs and disruptions. While we have adopted certain
operational and financial measures to reduce the risks of doing business internationally, we cannot ensure that
such measures will be adequate to allow us to operate without disruption or adverse impact to our business and
financial results in the affected regions.

Government regulations related to the environment, climate change and 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 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 EU. Compliance with these and similar environmental regulations may increase our cost of
designing, manufacturing, selling and removing our products. The SEC requires disclosure regarding the use of
“conflict minerals” mined from the Democratic Republic of the Congo and adjoining countries (the “DRC”) and
disclosure with respect to 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 that can supply “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 verify sufficiently 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.

Changes in effective tax rates and other adverse outcomes with taxing authorities could adversely affect
our results of operations.

Our future effective tax rates could be subject to volatility or adversely affected by changes in tax laws,

regulations, accounting principles, or interpretations thereof. The impact of income taxes on our business can
also be affected by a number of items relating to our business. These may include estimates for and the actual
geographic mix of our earnings; changes in the valuation of our deferred tax assets; the use or expiration of net
operating losses or research and development credit arrangements applicable to us in certain geographies; and
changes in our methodology for transfer pricing, valuing developed technology or conducting intercompany
arrangements. On December 22, 2017, the Tax Act was signed into law and introduced significant changes to
U.S. federal corporate tax law. These changes include a reduction to the federal corporate income tax rate, the
current taxation of certain foreign earnings, the imposition of base-erosion prevention measures which may
limit the deductions relating to certain intercompany transactions, and possible limitations on the deductibility
of net interest expense or corporate debt obligations. Accounting for the income tax effects of the Tax Act
requires significant judgments and estimates that are based on then current interpretations of the Tax Act and
could be affected by changing interpretations of the Tax Act, as well as additional legislation and guidance
around the Tax Act. Any refinements to tax estimates are difficult to predict and could impact our financial
results. We are also subject to the continuous examination of our income tax and other returns by the Internal
Revenue Service and other tax authorities and have a number of such reviews underway at any time. It is
possible that tax authorities may disagree with certain positions we have taken and an adverse outcome of such
a review or audit could have a negative effect on our financial position and operating results. There can be no
assurance that the outcomes from such examinations, or changes in our effective tax rates, will not have an
adverse effect on our business, financial condition and results of operations.

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 efforts to transform
business processes or to transition certain functions to third-party resources or providers, will necessitate
modifications to our internal control systems, processes and related information systems 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.

Risks Related to Our Common Stock, Indebtedness and Investments

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 2020, our closing stock price ranged from a high of $60.99 per share to a low of
$34.50 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 results and our forward-looking guidance for
such results, the published expectations of investment 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 by us or our competitors of financial results or changes in estimated financial results,
technological innovations, the gain or loss of customers, or other strategic initiatives. 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.

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

We are a party to credit agreements relating to a $300 million senior secured asset-based revolving credit
facility and an outstanding senior secured term loan with approximately $687.8 million repayable at maturity in
fiscal 2025. The agreements governing these credit facilities contain certain covenants that limit our ability,
among other things, to 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:

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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 debt transactions or credit facilities, including equipment loans, working
capital lines of credit, senior notes and other long-term debt, which may increase our indebtedness and result in
additional restrictions on 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 have 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 we 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 or our leverage and
outstanding indebtedness could increase. Global capital markets have undergone periods of significant volatility
and uncertainty in the past, and there can be no assurance that such financing alternatives will be available to us
on favorable terms or at all, should we determine it necessary or advisable to seek additional capital. See the
risk factor above entitled “The COVID-19 pandemic has impacted our business and results of operation and
could have a material adverse effect on our business, results of operations and financial condition in the
future” for additional factors related to COVID-19 that could impact the volatility of capital markets.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Overview. As of October 31, 2020, 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 business segments and related functions.
Our principal executive offices are located in one building in Hanover, Maryland.

Our largest facilities are our research and development centers located in Ottawa, Canada and Gurgaon,
India. We also have engineering and/or service delivery facilities located in San Jose, California; Alpharetta,
Georgia; Quebec, Canada; Austin, Texas; and Pune and Bangalore, India. In addition, we lease various smaller
offices in the United States, Canada, 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. We 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 our corporate headquarters in
Hanover, Maryland, consisting of an agreed-upon rentable area of 105,614 square feet.

Ottawa Leases. On October 23, 2014, Ciena Canada, Inc. entered into an 18-year lease agreement for the

office building located at 5050 Innovation Drive, Ottawa, Canada, consisting of a rentable area of 170,582
square feet. In addition, on April 15, 2015, Ciena Canada, Inc. entered into a 15-year lease agreement for two
new office buildings adjacent to the building at 5050 Innovation Drive, located at 383 and 385 Terry Fox Drive,
Ottawa, Canada, consisting of a rentable area of approximately 255,000 square feet.

Gurgaon Leases. On August 13, 2020, Ciena India Pvt. Ltd. extended our rental agreement for five years

for an office building located at Plot No. 13, Echelon Institutional Sector 32, Gurgaon, which is adjacent to
another building rented by Ciena India Pvt. Ltd., located at Plot No. 14, Echelon Institutional Sector 32,
Gurgaon. The Gurgaon offices consist of a rentable area of 282,580 square feet.

For additional information regarding our lease obligations, see Note 17 to our Consolidated Financial

Statements included in Item 8 of Part II of this annual report.

Item 3. Legal Proceedings

The information set forth under the heading “Litigation” in Note 26 to our Consolidated Financial

Statements in Item 8 of Part II of this report, is incorporated herein by reference.

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) Our common stock is traded on the New York Stock Exchange under the stock symbol “CIEN.”

As of December 11, 2020, there were approximately 845 holders of record of our common stock and
154,564,349 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.

Stock Performance Graph

The following graph shows a comparison of cumulative total returns for an investment in our common stock,
the S&P North American Technology-Multimedia Networking Index and the Russell 1000 from October 31, 2015
to October 31, 2020. The Russell 1000 index comprises the stocks representing the 1,000 largest publicly traded
American companies as measured by market capitalization. The S&P North American Technology-Multimedia
Networking Index comprises stocks in the S&P Total Market Index that are classified under the Global Industry
Classification Standard communications equipment sub-industry. This graph is not deemed to be “soliciting
material” or “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 North American Technology-Multimedia Networking

Index and the Russell 1000, respectively, on October 31, 2015 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 our
Consolidated Financial Statements and the notes thereto included in Item 8, “Financial Statements and
Supplementary Data” in Part II of this annual report. We have a 52 or 53-week fiscal year, which ends on the
Saturday nearest to the last day of October in each year, with quarters ending on the Saturday nearest to the last
day of January, April, July and October, respectively for each year. Fiscal 2020, 2019, 2017 and 2016 each
consisted of 52 weeks, and fiscal 2018 consisted of 53 weeks. Effective the second quarter of fiscal 2020, we
changed the presentation of reporting for our financial statements and notes thereto to reflect the actual dates on
which fiscal years ended. Because these dates can change from period to period, for consistency purposes, We
previously presented such information indicating that our fiscal years ended on October 31 and our quarters
ended on January 31, April 30, July 31 and October 31. This change, affecting only the presentation of such
information, was made on a prospective basis and it does not impact comparability of previous financial results.
References to prior reported periods have been changed to reflect the actual period end dates of November 2,
2019, November 3, 2018, October 28, 2017, and October 29, 2016 for periods reported herein.

Revenue
Gross profit
Income from operations
Provision (benefit) for income
taxes
Net income (loss)
Basic net income (loss) per
common share
Diluted net income (loss) per
potential common share
Weighted average basic common
shares outstanding
Weighted average diluted potential
common shares outstanding
Net cash provided by operating
activities
Cash used for repurchase of
common stock - repurchase
program

Year Ended
(in thousands, except per share data)

October 31,
2020 (1) (2) (3) (4)
$ 3,532,157
$ 1,652,891
486,964
$

November 2,
2019 (1) (3) (4)
$ 3,572,131
$ 1,542,066
346,766
$

November 3,
2018 (1) ) (2) (4) (5)
$ 3,094,286
$ 1,314,690
229,946
$

October 28,
2017
$ 2,801,687
$ 1,245,786
214,722
$

October 29,
2016
$ 2,600,573
$ 1,161,576
156,169
$

$
$

94,670
361,291

2.34

2.32

$
$

59,756
253,434

1.63

1.61

$
$

493,471
(344,690) $ 1,261,953

$ (1,105,827) $
$

14,134
72,584

(2.40) $

(2.49) $

8.89

7.53

0.52

0.51

154,287

155,720

143,738

141,997

138,312

155,955

157,612

143,738

169,919

150,704

493,654

413,140

229,261

234,882

289,520

74,535

150,076

110,981

— $

—

Cash, cash equivalents and
investments
Deferred tax asset, net
Total assets
Short-term and long-term debt, net $
Total liabilities
Stockholders’ equity

$ 1,321,517
$
647,805
$ 4,180,917
683,286
$ 1,671,320
$ 2,509,597

$ 1,023,999
$
714,942
$ 3,893,346
687,406
$
$ 1,720,585
$ 2,172,761

953,374
$
$
745,039
$ 3,756,523
693,450
$
$ 1,827,189
$ 1,929,334

$
969,429
$ 1,155,104
$ 3,951,711
935,981
$
$ 1,815,369
$ 2,136,342

$ 1,143,035
$
1,116
$ 2,873,575
$ 1,253,682
$ 2,107,234
766,341
$

(1) See Note 21 to our Consolidated Financial Statements in Item 8 of Part II of this report for information
regarding the share repurchase program authorized by our Board of Directors.
(2) See Note 3 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for
additional information regarding the acquisitions of Packet Design, LLC (“Packet Design”) on July 2,
2018, DonRiver Holdings, LLC (“DonRiver”) on October 1, 2018, and Centina Systems, Inc. (“Centina”)
on November 2, 2019.
(3) See Note 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
for additional information regarding changes in our short-term and long-term debt.
(4) See Note 20 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
for additional information regarding changes in our weighted average basic and diluted potential common
shares outstanding.
(5) Net income, deferred tax asset, net, total assets and stockholders’ equity for fiscal 2018 reflect a $472.8
million impact for the remeasurement of the net deferred tax assets and the federal transition tax. See Note
22 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for additional
information.

At the beginning of fiscal 2019, we adopted Accounting Standards Codification (“ASC”) 606, a new accounting
standard related to revenue recognition, using the modified retrospective method to those contracts that were not
completed as of October 31, 2018.

At the beginning of fiscal 2020, we adopted ASC 842, a new accounting standard related to leases, which
requires right-of-use ("ROU") assets and lease liabilities to be recorded on the balance sheet for leases, on a
modified retrospective basis, such that related amounts in prior periods have not been restated. See Note 1 to
our Consolidated Financial Statements included in Item 8 of Part II of this annual report for the impact of this
adoption. No other factors materially affected the comparability of the information presented above.

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

The following discussion and analysis should be read in conjunction with our “Selected Consolidated
Financial Data” and consolidated financial statements and notes thereto included elsewhere in this annual
report.

Overview

We are a networking systems, services and software company, providing solutions that enable a wide range

Our solutions include Networking Platforms, including our Converged Packet Optical and Packet

We refer to our complete portfolio vision as the Adaptive Network. The Adaptive Network emphasizes a

Impact of the COVID-19 Pandemic on our Business and Operations

COVID-19 was declared a pandemic in March 2020 and continues to have a significant impact on the
global economy, the industries and customers we serve and our operations. In response to the COVID-19
pandemic, we have prioritized the safety of our employees and business partners, while continuing to support
the needs of our customers and communities during this unprecedented period. We have also implemented
business continuity plans designed to minimize potential business disruption from the COVID-19 pandemic and
to protect our supply chain and customer fulfillment and support operations.

Demand for Products & Services. Since the outset of the COVID-19 pandemic, we have experienced a
dynamic demand environment, as reflected in significant changes in our order volumes and revenue. During the
second quarter of fiscal 2020, we experienced higher than typical orders for our products and services among a
concentrated set of larger customers with whom we had an existing position as a supplier. At that time, we
believed that some portion of these orders likely reflected short-term purchasing behaviors based on customer-
specific considerations in the face of the pandemic, including: customer concerns about future continued
availability of supply; implementation of customer business continuity actions; our enhanced efforts to obtain
increased visibility into expected demand; customer consumption of their existing inventory or spare
equipment; additional network capacity requirements; acceleration of capital spending; and, possibly, increased
bandwidth demands being placed on networks due to the pandemic. During the third and fourth quarters of
fiscal 2020, our order volumes declined significantly from the level achieved in the second quarter of fiscal
2020, particularly among our communications service provider customers and cable operator customers. We
believe that this greater capital expenditure restraint stems from the deferral or re-prioritization of certain new
network initiatives and continued uncertainty associated with the impact of the pandemic and economic
uncertainty upon their enterprise business segments. As a result, our order volumes were meaningfully below
revenue during the second half of fiscal 2020, challenging our visibility and the outlook for orders and revenue
in future periods. We expect this more cautious spending environment to continue into fiscal 2021 and expect
these conditions to continue to adversely affect our order volumes and revenue in the short term. Over the
longer term, we continue to believe that the unique and increased demands placed on network infrastructures as
a result of the COVID-19 pandemic, and the related increase in remote working worldwide, have accelerated
certain trends, including cloud network adoption, networking resilience and flexibility, and enhanced network
automation. We believe that we are well positioned competitively to capitalize on the longer-term opportunities
that we expect to be presented by these dynamics.

Supply Chain. During the second quarter of fiscal 2020, some of our component suppliers – particularly

those with facilities in China and Malaysia – experienced challenges related to COVID-19 that resulted in
temporary closures or reductions of supply capacity. Although in many cases we were able to overcome these
conditions through execution of our mitigation planning, supply chain disruptions negatively impacted our
revenue for the second quarter of fiscal 2020. During the second half of fiscal 2020, we took a number of steps,
some of which remain ongoing, including multi-sourcing and pre-ordering components and finished goods
inventory, in an effort to reduce the impact of the adverse supply chain conditions that we experienced. As a
result of these actions, and generally improved conditions with our suppliers or the geographies in which they
operate, supply chain related challenges to our operations abated in the third and fourth quarters of fiscal 2020
and were not material to revenue. However, there can be no assurance that supply chain disruptions related to
COVID-19 will not continue, or worsen, in the future.

Services and Customer Fulfillment. We have experienced some disruption in our ability to provide
installation, professional and fulfillment services to customers due to site access limitations, limited customer
availability, project delays or re-prioritization by customers, and travel bans or restrictions on movement or
gatherings. These conditions, which adversely impacted revenue in the second quarter of fiscal 2020, have also
adversely impacted the timing of customer plans for newer network projects and our ability to operationalize
recent customer design wins, primarily in international markets. We expect these conditions to persist in the
short-term and, as a result, to continue to adversely impact our revenue and results of operations. We continue
to take steps and work with customers to ensure their business needs are supported, while protecting the health
and safety of our employees, customers and business partners. However, should restrictions or disruptions
persist or worsen, including any reduced availability of air transport, port closures, or increased border controls
or closures, our business, operations and ability to meet customer demand could be materially adversely
affected.

Sales & Marketing. The competitive nature of our business depends on our ability to conduct sales and
marketing activities with our customers. For instance, in the past few years, our ability to be first to market with
leading networking solutions, and to conduct sales and marketing activities around these new technology
offerings, has had a significant impact on our revenue and growth. In the first half of fiscal 2020, we were the
first to market with 800 gigabit technology with our fifth-generation WaveLogic® coherent modem technology.
Restrictions on travel due to COVID-19 and limitations on interactions with customers, such as field and lab

trials, have negatively impacted our ability to carry out certain sales and marketing activities, including our
ability to secure new customers, to qualify and sell new products, and to grow sales with customers. This is
particularly the case where we do not have longer-standing supply relationships, such as within international
markets and for our Blue Planet Automation Software and Services segment and our Packet Networking
product line. We believe customers are exercising greater restraint in networking projects, including data
centers, and are also more carefully prioritizing where and when to add network capacity. Delays in
operationalizing new network projects that we anticipated occurring on their original timelines adversely
affected our revenue during fiscal 2020. Conversely, our recent gross margin performance has benefited from
these dynamics, with a larger percentage of our revenue comprised of existing business, as compared to new
design wins and early in life projects, which tend to have lower margins.

Market Growth & Conditions. We believe that ongoing concerns relating to the pandemic, and its impact

on the enterprise business segments of our communications service provider and cable operator customers,
continue to adversely impact the velocity of business in general, with a particular impact on customer
willingness and ability to initiate new network projects. For example, our service provider customers rely in part
upon the sale of services to consumers and enterprises, including those in the retail, entertainment, and travel
industries, which have been acutely impacted by the negative economic effects of the COVID-19 pandemic.
Similarly, certain of our Web-scale customers have business models that heavily rely upon advertising revenue
from enterprises, including those in industries acutely affected by the COVID-19 pandemic. As a result of these
dynamics, the growth rates in our addressable markets slowed during fiscal 2020 as compared to fiscal 2019,
which adversely impacted our revenue in fiscal 2020. We expect these market dynamics, including constrained
customer spending and the decreased velocity of new business execution, to persist into fiscal 2021.

Liquidity & Balance Sheet. As of the end of the fourth quarter of fiscal 2020, we had $1.3 billion in cash

and investments. We believe our strong liquidity and balance sheet position is an important competitive
differentiator at this time. It enables us to continue to invest in innovation, ensure a strong inventory position to
support customers and provide for working capital needs. We regularly evaluate our liquidity position, debt
obligations, and anticipated cash needs to fund our operating or investment plans, and may consider capital
raising and other market opportunities that may be available to us. In light of the uncertainty surrounding the
duration and severity of potential macroeconomic impacts of COVID-19, on March 17, 2020, we temporarily
suspended purchases of our common stock under our stock repurchase program and reallocated our investments
principally to U.S. government-backed funds. On December 10, 2020, we announced that we will resume
purchases under our stock repurchase program beginning in the first quarter of fiscal 2021.

The COVID-19 pandemic and countermeasures taken to contain its spread have caused economic and
financial disruptions globally. We continue to monitor the situation and actively assess further implications to
our business, supply chain, fulfillment operations and customer demand. However, the COVID-19 situation
remains dynamic, and the duration and severity of its impact on our business and results of operations in future
periods remains uncertain. If the COVID-19 pandemic or its adverse effects become more severe or prevalent or
are prolonged in the locations where we, our customers, suppliers or manufacturers conduct business, or we
experience more pronounced disruptions in our business or operations, or in economic activity and demand for
our products and services generally, our business and results of operations in future periods could be materially
adversely affected.

Market Opportunity

The markets in which we sell our communications networking solutions are dynamic and are characterized
by a high rate of change, including rapid growth in bandwidth demand and network traffic, the proliferation of
cloud-based services and new approaches, or “consumption models,” for designing and procuring networking
solutions. Emerging services and applications, including 5G mobile communications, Fiber Deep and the
Internet of Things, are further impacting or expected to impact wireline network infrastructures, particularly at
the edge of networks, where increased computing power and automation are required to provide the quality of
experience demanded by end users. Many network operators are under pressure to constrain their capital
expenditure budgets, as they cannot grow their network spending at the rate of bandwidth growth, including due
to their business models. To address these growing service demands and better manage network cost, many

network operators are looking to adopt next-generation infrastructures that are more programmable and better
capable of leveraging data for network insight, analytics and automation. Other network operators are pursuing
a diverse range of consumption models in their design and procurement of network infrastructure solutions. Our
Adaptive Network vision and our business strategy to capitalize on these changing market dynamics include the
initiatives set forth in the “Strategy” section of the description of our business in Item 1 of Part 1 of this annual
report.

Business Diversification

A key element of our strategy is to continue to diversify our solutions offerings, customer base and

geographic reach to address fast-growing applications and markets. We believe that the continued
diversification of our business is important to address the dynamic industry environment in which we operate, to
grow our business, and to better withstand potential slowdowns adversely affecting particular geographies,
markets or customer segments. In recent fiscal years prior to fiscal 2020, our diversification and global scale
were key contributors to our strong revenue growth. In fiscal 2020, we believe this diversification allowed us to
maintain a greater degree of stability and allowed us to remain resilient despite the impact of the COVID-19
pandemic on any particular geography, segment or customer account.

Investment in Technology Innovation

We believe that our investment capacity and our efforts to push the pace of innovation in our markets, and

to provide market-leading offerings ahead of our competitors, are important competitive differentiators in our
markets. Keeping pace with the market’s demand for technology innovation requires considerable research and
development investment capacity and expenditures, and research and development spending represented 45.4%
of our operating expenses in fiscal 2020. During fiscal 2020, we invested $529.9 million in research and
development activities, a decrease of approximately 3.3% compared to fiscal 2019, primarily due to the impact
of COVID-19. However, we expect our operating expenses to increase in fiscal 2021, in part to support
additional investment in research and development activities. We believe that remaining competitive in our
addressable geographies, markets, and customer segments depends on our continued significant investment in
innovation and our ability to offer leading solutions that enable adoption of next-generation network
infrastructures and evolving consumption models for networking solutions.

Optical and Packet Infrastructure Technology. We are focused on growing our optical and packet

infrastructure business by addressing fast-growing markets and applications, including data center
interconnection, packet aggregation and routing and submarine networks. In fiscal 2020, we brought to market
our fifth-generation coherent modem technology capable of delivering 800 gigabits of capacity per second over
a single wavelength, and, during 2021, we expect to bring to market our footprint-optimized WaveLogic 5 Nano
100G-400G coherent pluggable transceivers. We are also developing Packet Networking solutions with
enhanced IP/Ethernet capabilities to expand our addressable market into additional next generation metro and
access applications including packet routing, aggregation and switching, 5G cross-haul, Fiber Deep, and edge
computing. In fiscal 2020, we also announced the future addition of several new routing platforms to support
the demands of mobile xHaul (fronthaul, midhaul and backhaul) transport, which we expect to make available
in fiscal 2021.

Blue Planet Automation Software. We have continued to pursue both organic investments and acquisition

opportunities to expand our Blue Planet Automation Software and Services portfolio and business.
On November 4, 2019, we acquired privately held Centina Systems, Inc., a provider of service assurance
analytics and network performance management solutions. The acquisition of Centina is intended to accelerate
Blue Planet’s software strategy of providing closed loop, intelligent automation solutions that help
communications service providers analyze network conditions, traffic demands, and resource availability, and
determine the best placement of traffic for optimal service quality and resource utilization. See Note 3 to our
Consolidated Financial Statements included in Item 8 of Part II of this report for more information on this
acquisition and the related accounting. In addition, we have enhanced our Blue Planet Intelligent Automation

software portfolio for 5G automation applications, including vendor-agnostic network slicing features and
dynamic planning capabilities that are intended to better enable mobile network operators to deliver 5G mobile
services.

Fiscal Year-End Backlog

Generally, we make sales pursuant to purchase orders placed by customers 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. Moreover, we
are periodically awarded business for new network opportunities or network upgrades following a selection
process. In calculating backlog, we only include (i) customer purchase orders for products that have not been
shipped and for services that have not yet been performed; and (ii) customer orders relating to products that
have been delivered and services that have been performed, but are awaiting customer acceptance under the
applicable contract 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 instances of both cancellation and
non-acceptance are rare. Backlog may be fulfilled several quarters following receipt of a purchase order, or in
the case of certain service obligations, may relate to multi-year support period. As a result, backlog should not
necessarily be viewed as an accurate indicator of future revenue for any particular period.

Our backlog was $1.19 billion as of October 31, 2020 as compared to $1.21 billion as of November 2,
2019. Backlog includes product and service orders from commercial and government customers combined.
Backlog at October 31, 2020 includes approximately $193.5 million primarily related to orders for products and
maintenance and support services that are not expected to be filled or performed within fiscal 2021. Because
backlog can be defined in different ways by different companies, our presentation of backlog may not be
comparable with figures presented by other companies in our industry.

Consolidated Results of Operations

A discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal

2019 is presented below. A discussion of fiscal 2019 compared to fiscal 2018 can be found under Item 7 of Part
II of our Annual Report on Form 10-K for the fiscal year ended November 2, 2019, filed with the SEC on
December 20, 2019 (our “2019 Annual Report”), which is available free of charge on the SEC’s website at
www.sec.gov and our Investor Relations website at investor.ciena.com.

Operating Segments

Our results of operations are presented based on the following operating segments: (i) Networking
Platforms; (ii) Platform Software and Services; (iii) Blue Planet Automation Software and Services; and (iv)
Global Services. See Note 24 to our Consolidated Financial Statements included in Item 8 of Part II of this
annual report for more information on our segment reporting.

Fiscal 2020 Compared to Fiscal 2019

Revenue

During fiscal 2020, approximately 15.9% of our revenue was non-U.S. Dollar denominated, primarily
including sales in Euros, Canadian Dollars, Japanese Yen, Brazilian Reais, British Pounds, and Indian Rupee.
During fiscal 2020 as compared to fiscal 2019, the U.S. Dollar fluctuated against these and other currencies.
Consequently, our revenue reported in U.S. Dollars was slightly reduced by approximately $13.5 million, or
0.4%, as compared to fiscal 2019 due to fluctuations in foreign currency. The table below sets forth the changes
in our operating segment revenue for the periods indicated (in thousands, except percentage data):

Fiscal Year

2020

2019

Increase
(decrease)

%**

Revenue:

Networking Platforms
Converged Packet
Optical
Packet Networking

Total Networking
Platforms

Platform Software and
Services
Blue Planet
Automation Software
and Services

Global Services
Maintenance Support
and Training
Installation and
Deployment
Consulting and
Network Design
Total Global
Services

$ 2,547,647
267,416

72.1
7.6

$ 2,562,841
348,477

2,815,063

79.7

2,911,318

71.8
9.8

81.6

(15,194)
(81,061)

(96,255)

(0.6)
(23.3)

(3.3)

197,809

5.6

155,376

62,632

1.8

54,555

269,354

152,003

35,296

7.6

4.3

1.0

261,337

148,233

41,312

4.3

1.5

7.3

4.1

1.2

42,433

27.3

8,077

14.8

8,017

3,770

3.1

2.5

(6,016)

(14.6)

456,653

12.9

450,882

12.6

5,771

1.3

Consolidated revenue

$ 3,532,157

100.0

$ 3,572,131

100.0

(39,974)

(1.1)

_________________________________

Denotes % of total revenue

** Denotes % change from 2019 to 2020

•

Networking Platforms segment revenue decreased, reflecting product line sales decreases of $15.2
million of our Converged Packet Optical products and $81.1 million of our Packet Networking
products.

◦

Converged Packet Optical sales decreased, primarily reflecting a sales decrease of $86.7
million of our 6500 Packet-Optical Platform primarily to communications service providers.
This sales decrease was partially offset by sales increases of $38.3 million of our Waveserver
products, primarily to communications service providers and cable and multiservice operators,
and $26.3 million of our 5400 family of Packet-Optical Platforms primarily to
communications service providers.

Packet Networking sales decreased, primarily reflecting a sales decrease of $87.2 million of
our 6500 Packet Transport System (PTS) to a certain communications service provider in the
Americas.

Platform Software and Services segment revenue increased, reflecting increases of $26.3 million in
software sales and $16.1 million in services, primarily to communications service providers. The
software sales increase was primarily due to increased sales of $32.1 million of our MCP software
platform, partially offset by a decline in sales of $6.9 million of our OneControl Unified Management
System software. We continue to pursue further customer adoption of our MCP software platform and

its enhanced features and functionality. As we transition existing customers as well as features and
functionality from our legacy software to this platform, we expect revenue declines for our legacy
software solutions within this segment.

•

Blue Planet Automation Software and Services segment revenue increased, primarily reflecting an
increase of $7.2 million in software services. Our entrance into the software automation market
remains in the early stages and, as such, revenue from our Blue Planet Automation Software platform
has not been significant to date.

• Global Services segment revenue increased, primarily reflecting sales increases of $8.0 million of our

maintenance support and training and $3.8 million of our installation and deployment services,
partially offset by a sales decrease of $6.0 million of our consulting and network design services in part
due to impacts of COVID-19 as described above.

Our operating segments engage in business and operations across three geographic regions: Americas;
Europe, Middle East and Africa (“EMEA”) and Asia Pacific, Japan and India (“APAC”). As discussed in Note
2 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report, effective the
beginning of fiscal 2020, our Global Sales and Marketing organization combined our previous North America
and Caribbean and Latin America (“CALA”) regions into a new Americas sales region. The decrease in our
Americas region revenue for fiscal 2020 was primarily driven by decreased sales in Canada, Argentina and
Mexico. The increase in our EMEA region revenue for fiscal 2020 was primarily driven by increased sales in
the Netherlands, the United Arab Emirates and France, partially offset by decreased sales in the United
Kingdom. The decrease in our APAC region revenue for fiscal 2020 was primarily driven by decreased sales in
Japan, India and South Korea, partially offset by increased sales in Singapore and Australia. The following table
reflects our geographic distribution of revenue, which is principally based on the relevant location for our
delivery of products and performance of services. Our revenue, when considered by geographic distribution, can
fluctuate significantly, and the timing of revenue recognition for large network projects, particularly outside of
the United States, can result in large variations in geographic revenue results in any particular period. The table
below sets forth the changes in geographic distribution of revenue for the periods indicated (in thousands,
except percentage data):

Fiscal Year

2020
2,469,278

591,468

471,411

69.9

16.8

13.3

2019
2,503,913

566,718

501,500

70.1

15.9

14.0

3,532,157

100.0

3,572,131

100.0

Increase
(decrease)

%**

(34,635)

24,750

(30,089)

(39,974)

(1.4)

4.4

(6.0)

(1.1)

Americas

EMEA

APAC

Total

_________________________________

Denotes % of total revenue

** Denotes % change from 2019 to 2020

•

Americas revenue decreased, primarily reflecting sales decreases of $81.1 million within our
Networking Platforms segment and $3.3 million within our Blue Planet Automation Software and
Services segment. These sales decreases were partially offset by sales increases of $30.8 million within
our Platform Software and Services segment and $19.0 million within our Global Services segment.
Our Networking Platforms segment revenue decrease reflects a product line sales decrease of $89.7
million of Packet Networking products, including a decrease of $87.9 million in sales of our 6500
Packet Transport System (PTS) to a communications service provider. Our Networking Platforms
segment also reflects an increase of $8.6 million of Converged Packet Optical products, which includes
sales contributions from a diverse set of customer verticals, primarily from government, cable and

multiservice operators, submarine network operators and communications service providers, and
continued strong demand for our Waveserver product, which partially offset a reduction in sales of
6500 Packet-Optical Platform with large communication service providers.

•

EMEA revenue increased, primarily reflecting sales increases of $20.4 million within our Networking
Platforms segment, $5.2 million within our Platform Software and Services segment and $3.4 million
within our Blue Planet Automation Software and Services segment, partially offset by a sales decrease
of $4.2 million within our Global Services segment. Our Networking Platforms segment revenue
increase reflects a product line sales increase of $15.8 million of Converged Packet Optical products,
primarily related to sales increases of $8.4 million of our 6500 Packet-Optical Platform to
communications service providers and Web-scale providers and $6.5 million of our 5400 family
Packet-Optical Platforms to communications service providers.

APAC revenue decreased, primarily reflecting sales decreases of $35.6 million within our Networking
Platforms segment and $9.0 million of our Global Services segment. These sales decreases were
partially offset by sales increases of $8.0 million within our Blue Planet Automation Software and
Services segment and $6.4 million within our Platform Software and Services segment. Our
Networking Platforms segment revenue decrease primarily reflects a decrease of $56.5 million in sales
of our 6500 Packet-Optical Platform to communications service providers in Japan and India, partially
offset by an increase of $16.7 million in sales of our Waveserver products primarily to Web-scale
providers.

In fiscal 2020 and fiscal 2019, our top ten customers contributed 54.5% and 59.3% of our revenue,
respectively. Consequently, our financial results are closely correlated with the spending of a relatively small
number of customers and can be significantly affected by market, industry or competitive dynamics affecting
the businesses of those customers. Our reliance on a relatively small number of customers increases our
exposure to changes in their spending levels, network priorities and purchasing strategies. The loss of a
significant customer could have a material adverse effect on our business and results of operations, and our
results of operations can fluctuate quarterly depending on sales volumes and purchasing priorities with these
large customers. Sales to AT&T were $373.2 million, or 10.6% of total revenue, in fiscal 2020, and $388.7
million, or 10.9% of total revenue, in fiscal 2019. Verizon accounted for $459.8 million, or 12.9% of total
revenue, in fiscal 2019. Sales to one of our Web-scale customers was $370.6 million, or 10.4% of total revenue,
in fiscal 2019. No other customer accounted for greater than 10% of our revenue in fiscal 2020 or fiscal 2019.
The identity of and percentage of revenue attributable to our largest customers has varied from period to period.
For example, the Web-scale provider noted above contributed greater than 10% of our revenue for the first time
in fiscal 2019.

While drivers of bandwidth growth and network evolution remain strong, many of our network operator
customers are under pressure to constrain their capital expenditure budgets, and their businesses cannot grow
their network spending at the rate of bandwidth growth. As a result, as we innovate and introduce new and more
robust solutions that increase capacity or features, there is a market expectation of solutions that are more cost-
effective from a price for performance perspective than existing or competing solutions. The combination of
this regular technology-driven price compression, price competition in our markets and ongoing customer
efforts to manage network costs can impact our growth rates and requires that we increase our volume of
product shipments to maintain and grow revenue.

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 associated with our provision

of services including installation, deployment, maintenance support, consulting and training activities, and,
when applicable, estimated losses on committed customer contracts. The majority of these costs relate to
personnel, including employee and third-party contractor-related costs.

Our gross profit as a percentage of revenue, or “gross margin,” can fluctuate due to a number of factors,

particularly when viewed on a quarterly basis. Our gross margin can fluctuate and be adversely impacted
depending on our revenue concentration within a particular segment, product line, geography, or customer,
including our success in selling software in a particular period. Our gross margin remains highly dependent on
our continued ability to drive product cost reductions relative to the price erosion that we regularly encounter in
our markets. Moreover, we are often required to compete with aggressive pricing and commercial terms, and, to
secure business with new and existing customers, we may agree to pricing or other unfavorable commercial
terms that adversely affect our gross margin. Success in taking share and winning new business can result in
additional pressure on gross margin from these pricing dynamics and the early stages of these network
deployments. Early stages of new network builds also often include an increased concentration of lower margin
“common” equipment, photonics sales and installation services, with the intent to improve margin as we sell
channel cards and maintenance services to customers adding capacity or services to their networks. Gross
margin can be impacted by technology-based price compression and the introduction or substitution of new
platforms with improved price for performance as compared to existing solutions that carry higher margins.
Gross margin can also be impacted by changes in expense for excess and obsolete inventory and warranty
obligations.

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 set forth the changes in revenue, cost of goods sold and gross profit for the periods

indicated (in thousands, except percentage data):

Fiscal Year

Total revenue

Total cost of goods sold

Gross profit

2020
3,532,157

1,879,266

1,652,891

%*
100.0

53.2

46.8

2019
3,572,131

2,030,065

1,542,066

%*
100.0

56.8

43.2

Increase
(decrease)

(39,974)

(150,799)

110,825

%**

(1.1)

(7.4)

7.2

_________________________________

Denotes % of total revenue

** Denotes % change from 2019 to 2020

Product revenue
Product cost of goods
sold
Product gross profit

2020
$ 2,914,790

1,573,791
$ 1,340,999

_________________________________

Denotes % of product revenue

** Denotes % change from 2019 to 2020

Fiscal Year

100.0

2019
$ 2,983,815

Increase
(decrease)

%**

100.0

(69,025)

54.0
46.0

1,716,358
$ 1,267,457

57.5
42.5

(142,567)
73,542

(2.3)

(8.3)
5.8

Fiscal Year

Service revenue
Service cost of goods sold
Service gross profit

2020
617,367
305,475
311,892

%*
100.0
49.5
50.5

2019
588,316
313,707
274,609

%*
100.0
53.3
46.7

Increase
(decrease)

29,051
(8,232)
37,283

%**

4.9
(2.6)
13.6

_________________________________

Denotes % of service revenue

** Denotes % change from 2019 to 2020

• Gross profit as a percentage of revenue increased as our gross margin benefited significantly from a

favorable mix of customers and product lines that we believe to be a short-term effect due to
COVID-19 related factors, and, to a lesser extent, continued improvement in our service margin. Due
to the impact of COVID-19 and related restrictions on sales and marketing activities described in
“Overview” above, during the last three quarters of fiscal 2020, a higher proportion of our revenue
consisted of sales of existing technology offerings deployed in the networks of existing customers, as
compared to sales to new customers, early stage network deployments for recent design wins, or the
introduction of new platforms, which tend to carry lower margins. We expect our gross margins to
reduce from these elevated short-term levels as some of the pandemic’s impacts on new business
lessen and our overall revenue resumes a more typical composition of revenue from existing and new
business. Our efforts to expand our customer base or market share have in prior periods adversely
affected our gross margin depending upon our mix of revenues from new wins or early stage
deployments in a particular period.

• Gross profit on products as a percentage of product revenue increased, primarily due to a favorable

mix of customers and product lines, as described above, and continued product cost reductions,
partially offset by market-based price compression we encountered during the period.

• Gross profit on services as a percentage of services revenue increased, primarily due to a higher

concentration of revenue from maintenance service contracts with relatively low incremental costs, and
fewer early stage network deployment activities due to the impact of COVID-19.

Operating Expense

Operating expense decreased in fiscal 2020 from the level reported for fiscal 2019 primarily due to a
reduction in certain variable compensation costs associated with our annual cash incentive compensation plan
and the impact of COVID-19 on our travel and entertainment costs.

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,
product testing, 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 both purchased technology and
the value of customer relationships derived from our acquisitions.

Acquisition and integration costs consist of expenses for financial, legal and accounting advisors,
severance and other employee-related costs associated with our acquisitions of DonRiver and Centina,
including costs and recoveries of acquisition consideration associated with a three-year earn-out
arrangement related to the DonRiver acquisition.

Significant asset impairments and restructuring costs primarily reflect actions we have taken to
improve the alignment of our workforce, facilities and operating costs with perceived market
opportunities, business strategies, changes in market and business conditions, the redesign of certain
business processes and significant impairments of assets.

During fiscal 2020, approximately 48.5% of our operating expense was non-U.S. Dollar denominated,
including Canadian Dollars, Indian Rupees, Brazilian Reais, British Pounds and Euros. During fiscal 2020 as
compared to fiscal 2019, the U.S. Dollar fluctuated against these and other currencies. Consequently, our
operating expense reported in U.S. Dollars was reduced by approximately $6.2 million, or 0.5%, net of hedging.

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

percentage data):

Fiscal Year

2020

2019

Increase
(decrease)

%**

Research and
development
Selling and marketing
General and
administrative
Amortization of
intangible assets
Acquisition and
integration costs
Significant asset
impairments and
restructuring costs
Total operating expenses

$ 529,888
416,425

15.0
11.8

$ 548,139
423,046

15.3
11.8

(18,251)
(6,621)

169,548

23,383

4,031

4.8

0.7

0.1

174,399

21,808

3,370

4.9

0.6

0.1

(4,851)

1,575

661

22,652
$ 1,165,927

0.6
33.0

24,538
$ 1,195,300

0.7
33.4

(1,886)
(29,373)

(3.3)
(1.6)

(2.8)

7.2

19.6

(7.7)
(2.5)

_________________________________

Denotes % of total revenue

** Denotes % change from 2019 to 2020

•

Research and development expense benefited from $3.5 million as a result of foreign exchange rates,
net of hedging, primarily due to a stronger U.S. Dollar in relation to the Canadian Dollar and Indian
Rupee. Including the effect of foreign exchange rates, research and development expense decreased by
$18.3 million. This decrease primarily reflects decreases in employee and compensation costs,
professional services, facility costs, and travel and entertainment costs, as a result of COVID-19,
partially offset by an increase in software technology costs.

Selling and marketing expense benefited from $1.6 million as a result of foreign exchange rates,
primarily due to a stronger U.S. Dollar in relation to the Brazilian Reais. Including the effect of foreign
exchange rates, sales and marketing expense decreased by $6.6 million. This decrease primarily
reflects decreases in travel and entertainment costs due to restrictions on travel as a result of
COVID-19, partially offset by an increase in employee and compensation costs.

• General and administrative expense benefited from $1.1 million as a result of foreign exchange

rates, primarily due to a stronger U.S. Dollar in relation to the Indian Rupee and Brazilian Reais.
Including the effect of foreign exchange rates, general and administrative expense decreased by $4.9
million. This decrease primarily reflects decreases in employee and compensation costs and travel and
entertainment costs partially offset by increased bad debt expense.

•

Amortization of intangible assets increased due to additional intangibles acquired in connection with
our acquisition of Centina in the first quarter of fiscal 2020.

Acquisition and integration costs reflect employment-related costs and recoveries of acquisition
consideration associated with a three-year earn-out arrangement related to the DonRiver acquisition
and, legal, employee-related and other costs related to our acquisition of Centina.

Significant asset impairments and restructuring costs reflect global workforce reductions as part of
a business optimization strategy to improve gross margin, constrain operating expense, the redesign of
certain business processes and unfavorable lease commitments for certain facility locations in the
United States and India where we have vacated unused space.

Other Items

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

percentage data):

Fiscal Year

2020

2019

Increase
(decrease)

%**

Interest and other
income (loss), net
Interest expense
Loss on
extinguishment/
modification of debt
Provision for income
taxes

$
$

964
31,321

— $
$
0.9

3,876
37,452

0.1
1.0

$
$

(2,912)
(6,131)

(646)

— $

—

— $

646

94,670

2.7

59,756

1.7

34,914

(75.1)
(16.4)

—

58.4

_________________________________

Denotes % of total revenue

** Denotes % change from 2019 to 2020

•

Interest and other income (loss), net decreased, primarily reflecting lower interest income due to
reduced interest rates on our investments, partially offset by a favorable adjustment to the carrying
value of a cost method equity investment and the impact of foreign exchange rates on assets and
liabilities denominated in a currency other than the relevant functional currency, net of hedging
activity.

Interest expense decreased, primarily due to a reduction of LIBOR rates impacting our New 2025
Term Loan. For additional information on our 2025 Term Loan, see Note 18 to our Consolidated
Financial Statements in Item 8 of Part II of this report.

Loss on extinguishment and modification of debt reflects the refinance of our 2025 Term Loan. See
Note 18 to our Consolidated Financial Statements in Item 8 of Part II of this report.

Provision for income taxes increased, due to higher earnings for fiscal 2020 and the effective tax rate
for fiscal 2020 was higher compared to fiscal 2019, primarily due to a higher foreign effective tax rate.

Segment Profit (Loss)

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

except percentage data):

Fiscal Year

2020

2019

Increase
(decrease)

Segment profit (loss):

Networking Platforms

Platform Software and Services

827,105

105,609

759,244

64,210

Blue Planet Automation Software and Services $

(12,446) $

(17,769) $

67,861

41,399

5,323

Global Services

202,735

188,242

14,493

8.9

64.5

(30.0)

7.7

_________________________________

Denotes % change from 2019 to 2020

•

Networking Platforms segment profit increased, primarily due to higher gross margin and lower
research and development costs, partially offset by lower sales volume as described above.

Platform Software and Services segment profit increased, primarily due to higher sales volume, as
described above, and lower research and development costs, partially offset by reduced gross margin
on software-related services.

Blue Planet Automation Software and Services segment loss decreased, primarily due to higher
gross margin on software-related services and higher sales volume, partially offset by higher research
and development costs and lower gross margin on software revenue due to increased intangible
amortization costs.

• Global Services segment profit increased, primarily due to improved gross margin and higher sales

volume, as described above.

Liquidity and Capital Resources

Overview. For the fiscal year ended October 31, 2020, we generated $493.7 million of cash from

operations, as our net income (adjusted for non-cash charges) of $693.5 million exceeded our working capital
requirements of $199.8 million. For additional details on our cash provided by operating activities, see the
discussion below under the caption “Cash Provided By Operating Activities.”

Cash, cash equivalents and investments increased by $297.5 million during fiscal 2020. The cash from
operations above was partially offset by the following: (i) cash used to fund our investing activities for capital
expenditures totaling $82.7 million; (ii) cash used for stock repurchase under our stock repurchase program of
$74.5 million; (iii) cash used in the acquisition of Centina of $28.3 million, net of cash acquired; (iv) stock
repurchased upon vesting of our stock unit awards to employees relating to tax withholding of $32.5 million;
and (v) cash used for payments on our term loan due September 28, 2025 (the “2025 Term Loan”) of $5.2
million. Proceeds from the issuance of equity under our employee stock purchase plans provided $28.1 million
in cash during fiscal 2020.

See Notes 3, 18 and 21 to our Consolidated Financial Statements included in Item 8 of Part II of this report

for information relating to these transactions.

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
Total cash and cash equivalents and investments in marketable debt
securities

October 31,
2020
$ 1,088,624
150,667
82,226

November 2,
2019
904,045
109,940
10,014

Increase
(decrease)

184,579
40,727
72,212

$ 1,321,517

$ 1,023,999

297,518

Principal Sources of Liquidity. Our principal sources of liquidity on hand include our cash and investments,

which as of October 31, 2020 totaled $1.32 billion, as well as the senior secured asset-based revolving credit
facility to which we and certain of our subsidiaries are parties (the “ABL Credit Facility”). The ABL Credit
Facility, which we entered into with certain of our subsidiaries on October 28, 2019, replaced a predecessor
senior secured asset-based revolving credit facility and provides for a total commitment of $300 million with a
maturity date of October 28, 2024. We principally use 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. As of October 31, 2020, letters of credit totaling $83.0 million were outstanding
under our ABL Credit Facility. There were no borrowings outstanding under the ABL Credit Facility as of
October 31, 2020.

Foreign Liquidity. The amount of cash, cash equivalents and short-term investments held by our foreign
subsidiaries was $96.2 million as of October 31, 2020. We intend to reinvest indefinitely our foreign earnings. If
we were to repatriate these accumulated historical foreign earnings, the provisional amount of unrecognized
deferred income tax liability related to foreign withholding taxes would be approximately $25.0 million. See
Note 22 to our Consolidated Financial Statements included in Item 8 of Part II of this report.

Stock Repurchase Authorization. On December 13, 2018, we announced that our Board of Directors
authorized a program to repurchase up to $500 million of our common stock, which replaced in its entirety the
previous stock repurchase program authorized in fiscal 2018. In light of the uncertainty surrounding the
duration and severity of potential macroeconomic impacts of COVID-19, on March 17, 2020, we temporarily
suspended purchases of our common stock under this program. We repurchased $74.5 million under this
program during fiscal 2020, and had $275.4 million remaining under the current authorization as of October 31,
2020. On December 10, 2020, we announced that we will resume purchases under the stock repurchase program
beginning in the first quarter of fiscal 2021. The amount and timing of repurchases are subject to a variety of
factors including liquidity, cash flow, stock price and general business and market conditions. The program may
be modified, suspended, or discontinued at any time.

Liquidity Position. Based on past performance and current expectations, we believe that cash from

operations, cash, cash equivalents, investments, and other sources of liquidity, including our ABL Credit
Facility, will satisfy our working capital needs, capital expenditures, and other liquidity requirements associated
with our operations through at least the next 12 months. We regularly evaluate our liquidity position, debt
obligations, and anticipated cash needs to fund our operating or investment plans, and will continue to consider
capital raising and other market opportunities that may be available to us. We regularly evaluate alternatives to
manage our capital structure and market opportunities to enhance our liquidity and provide further operational
and strategic flexibility. While the COVID-19 pandemic has not materially impacted our liquidity and capital
resources to date, it has led to disruptions and volatility in capital markets and credit markets. The duration and
severity of any further economic or market impact of the COVID-19 pandemic remains uncertain, and there can
be no assurance that it will not have an adverse effect on our liquidity and capital resources, including our
ability to access capital markets, in the future.

Cash Provided by Operating Activities

The following sections set forth the components of our $493.7 million of cash provided by operating

activities for fiscal 2020:

Net income (adjusted for non-cash charges)

The following tables set forth our net income (adjusted for non-cash charges) during fiscal 2020 (in

thousands):

Net income

Adjustments for non-cash charges:

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

Share-based compensation costs

Amortization of intangible assets

Deferred taxes

Provision for doubtful accounts

Provision for inventory excess and obsolescence

Provision for warranty

Other

Year Ended

October 31, 2020

361,291

93,908

67,758

38,619

64,339

8,855

24,701

22,417

11,628

Net income (adjusted for non-cash charges)

693,516

Working Capital

We used $199.8 million of cash for working capital during fiscal 2020. The following tables set forth the

major components of the cash used in working capital (in thousands):

Cash used in accounts receivable

Cash used in inventories

Cash used in prepaid expenses and other

Cash used in accounts payable, accruals and other obligations

Cash provided by deferred revenue

Cash used in operating lease assets and liabilities, net

Total cash used for working capital

As compared to the end of fiscal 2019:

Year Ended

October 31, 2020

(17,299)

(25,044)

(38,998)

(117,931)

2,519

(3,109)

(199,862)

•

The $17.3 million of cash used in accounts receivable during fiscal 2020 reflects increased sales
volume at the end of the fourth quarter of fiscal 2020;

The $25.0 million of cash used in inventory during fiscal 2020 primarily reflects increases in finished
goods to meet customer delivery schedules related to some of the actions that we took during the last
three quarters of fiscal 2020 to mitigate the risk of adverse supply chain impact on our business and
operations due to COVID-19 related disruptions;

The $39.0 million of cash used in prepaid expenses and other during fiscal 2020 primarily reflects
increases in upfront future discounts paid to customers;

The $117.9 million of cash used in accounts payable, accruals and other obligations during fiscal 2020
primarily reflects lower employee bonus accrual associated with our annual cash incentive
compensation plan and increased payments for inventory purchases;

•

The $2.5 million of cash provided by deferred revenue during fiscal 2020 represents an increase in
advanced payments received from customers prior to revenue recognition; and

The $3.1 million of cash used in operating lease assets and liabilities, net, during fiscal 2020 represents
cash paid for operating leases. For more details, see Note 17 to our Consolidated Financial Statements
included in Item 8 of Part II of this report.

Our days sales outstanding (“DSOs”) were 82 for both fiscal 2020 and fiscal 2019. Our inventory turns
decreased from 5.0 turns during fiscal 2019 to 4.6 turns during fiscal 2020 due to the increase in inventory. The
calculation of DSOs includes accounts receivables and contract assets for unbilled receivables included in
prepaid expenses and other.

Cash paid for interest

The following table sets forth the cash paid for interest during fiscal 2020 (in thousands):

Term Loan due September 28, 2025 (Old)(1)
Term Loan due September 28, 2025 (New)(2)
Interest rate swaps(3)
ABL Credit Facilities(4)
Capital leases

Total cash paid during period

Year Ended

October 31, 2020

6,691

12,306

7,258

1,801

4,781

32,837

(1) Interest on the Old 2025 Term Loan was payable periodically based on the interest period selected for
borrowing. The Old 2025 Term Loan bore interest at LIBOR for the chosen borrowing period plus a spread of
2.00% subject to a minimum LIBOR rate of 0.00%. On January 23, 2020, we refinanced and replaced this term
loan with the New 2025 Term Loan. See Note 18 to our Consolidated Financial Statements included in Item 8
of Part II of this annual report.
(2) Interest on the New 2025 Term Loan is payable periodically based on the interest period selected for
borrowing. The New 2025 Term Loan bears interest at LIBOR for the chosen borrowing period plus a spread of
1.75% subject to a minimum LIBOR rate of 0.00%. At the end of fiscal 2020, the interest rate on the New 2025
Term Loan was 1.90%.
(3) The interest rate swaps fix the LIBOR rate for $350.0 million of the New 2025 Term Loan at 2.957% through
September 2023.
(4) During fiscal 2020, we utilized the ABL Credit Facility and its predecessor to collateralize certain standby
letters of credit and paid $1.8 million in commitment fees, interest expense and other administrative charges
relating to the ABL Credit Facility.

For additional information about our term loans, ABL Credit Facility and interest rate swaps, see Notes 15,

18 and 19 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report and Item
7A of Part II of this annual report.

Contractual Obligations

The following is a summary of our future minimum payments under contractual obligations as of October

31, 2020 (in thousands):

Principal due on Term Loan due
September 28, 2025(1)
Interest due on Term Loan due
September 28, 2025(1)
Payments due under interest rate
swaps(1)
Operating leases(2)
Purchase obligations(3)
Finance leases(4)
Total(5)

Total

Less than one
year

One to three
years

Three to five
years

Thereafter

$ 687,803

6,930

13,860

$ 667,013

64,032

13,220

26,039

24,773

29,050
86,414
524,074
97,333
$ 1,488,706

9,956
20,989
524,074
7,444
$ 582,613

19,094
34,104
—
15,712
$ 108,809

—
21,956
—
16,076
$ 729,818

—

—
9,365
—
58,101
67,466

(1) Interest on the New 2025 Term Loan and payments due under the interest rate swaps is variable and is
calculated using the rate in effect on the balance sheet date. For additional information about our term loans and
the interest rate swaps, see Notes 15 and 18 to our Consolidated Financial Statements included in Item 8 of Part
II of this annual report and Item 7A of Part II of this annual report.
(2) This represents total minimum lease payments subject to operating lease accounting. For more information on
our operating leases, see Note 17 to our Consolidated Financial Statements included in Item 8 of Part II of this
annual report.
(3) 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.
(4) This represents the total minimum lease payments subject to finance lease accounting. For more information,
see Note 17 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
(5) As of October 31, 2020, we also had $9.6 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 on 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, 2020 (in thousands):

Standby letters of credit

82,971

35,330

24,464

11,089

12,088

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 revenue recognition,
share-based compensation, bad debts, inventories, intangible and other long-lived assets, goodwill, 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. The inputs into certain of our judgments, assumptions, and estimates reflect, among other
things, the information available to us regarding the economic implications of the COVID-19 pandemic, and
expectations as to its impact on our business and on our critical and significant accounting estimates. 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 materially 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. In addition, including because the duration
and severity of COVID-19 pandemic are uncertain, certain of our estimates could require further judgment or
modification and therefore carry a higher degree of variability and volatility. As events continue to evolve, our
estimates may change materially in future periods.

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 control of the promised products or services is transferred to its customer, in

an amount that reflects the consideration to which we expect to be entitled in exchange for those products or
services.

We determine revenue recognition by applying the following five-step approach:

•
•
•
•
•

identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.

Generally, we make sales pursuant to purchase orders placed by customers under framework agreements

that govern the general commercial terms and conditions of the sale of our products and services. These
purchase orders under framework agreements are used to determine the identification of the contract or
contracts with this customer. Purchase orders typically include the description, quantity, and price of each
product or service purchased. Purchase orders may include one-line bundled pricing for both products and
services. Accordingly, purchase orders can include various combinations of products and services that are
generally distinct and accounted for as separate performance obligations. We evaluate each promised product
and service offering to determine whether it represents a distinct performance obligation. In doing so, we
consider, among other things, customary business practices, whether the customer can benefit from the product
or service on its own or together with other resources that are readily available, and whether our commitment to
transfer the product or service to the customer is separately identifiable from other obligations in the purchase
order. For transactions where we deliver the product or services, we are typically the principal and record
revenue and costs of goods sold on a gross basis.

service term. Our other service offerings are generally invoiced upon completion of the service. Payment terms
and cash received typically range from 30 to 90 days from the invoicing date. Historically, we have not
provided any material financing arrangements to its customers. As a practical expedient, we do not adjust the
amount of consideration we will receive for the effects of a significant financing component as we expect, at
contract inception, that the period between our transfer of the products or services to the customer, and customer
payment for the products or services will be one year or less. Shipping and handling fees invoiced to customers
are included in revenue, with the associated expense included in product cost of goods sold. We record revenue
net of any associated sales taxes.

We recognize revenue upon the transfer of control of promised products or services to a customer. Transfer

of control occurs once the customer has the contractual right to use the product, generally upon shipment or
delivery to the customer. Transfer of control can also occur over time for services such as software subscription,
maintenance, installation and various professional services as the customer receives the benefit over the contract
term.

Significant Judgments

Revenue is allocated among performance obligations based on standalone selling price (“SSP”). SSP

reflects the price at which we would expect to sell that product or service on a stand-alone basis at contract
inception and that we would expect to be entitled to receive for the promised products or services. SSP is
estimated for each distinct performance obligation, and judgment may be required in its determination. The best
evidence of SSP is the observable price of a product or service when we sell the products separately in similar
circumstances and to similar customers. In instances where SSP is not directly observable, we determine SSP
using information that may include market conditions and other observable inputs.

We apply judgment in determining the transaction price, as we may be required to estimate variable

consideration when determining the amount of revenue to recognize. Variable consideration can include various
rebate, cooperative marketing, and other incentive programs that we offer to our distributors, partners and
customers. When determining the amount of revenue to recognize, we estimate the expected usage of these
programs, applying the expected value or most likely estimate and updates the estimate at each reporting period
as actual utilization data becomes available. We also consider any customer right of return and any actual or
potential payment of liquidated damages, contractual or similar penalties, or other claims for performance
failures or delays in determining the transaction price, where applicable.

When transfer of control is judged to be over time for installation and professional service arrangements,
we apply the input method to determine the amount of revenue to be recognized in a given period. Utilizing the
input method, we recognize revenue based on the ratio of actual costs incurred to date to the total estimated
costs expected to be incurred. Revenue for software subscription and maintenance is recognized ratably over the
period during which the services are performed.

Our total deferred revenue for products was $17.5 million and $27.4 million as of October 31, 2020 and
November 2, 2019, 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 $140.8 million and $129.5
million as of October 31, 2020 and November 2, 2019, respectively.

Business Combinations

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

of the fair value of assets acquired and liabilities assumed in order to allocate purchase price consideration
properly between assets that are depreciated and amortized from goodwill. These assumptions and estimates
include a market participant’s use of the asset and the appropriate discount rates for a market participant. Our
estimates are based on historical experience, information obtained from the management of the acquired
companies and, when appropriate, include assistance from independent third-party appraisal firms. Our
significant assumptions and estimates can include, but are not limited to, the cash flows that an asset is expected
to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be
derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition,
unanticipated events and circumstances may occur that may affect the accuracy or validity of such estimates.
During fiscal 2018, we completed the Packet Design acquisition for a purchase price of $41.1 million and the
DonRiver acquisition for a purchase price of $54.2 million, including a contingent consideration component.
During fiscal 2020, we completed the Centina acquisition for a purchase price of $34.0 million. See Note 3 to
our Consolidated Financial Statements included in Item 8 of Part II of this annual report for more information
regarding these transactions and the three-year earn-out arrangement in connection with the DonRiver
acquisition.

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 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 as share-based expense over the performance period, using graded vesting, which considers each
performance period or tranche separately, based on our determination of whether it is probable that the
performance targets will be achieved. At the end of 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.

Share-based compensation expense is taken into account based on awards granted. In the event of a
forfeiture of an award, the expense related to the unvested portion of that award is reversed. Reversal of share-
based compensation expense based on forfeitures can materially affect the measurement of estimated fair value
of our share-based compensation. See Note 23 to our Consolidated Financial Statements in Item 8 of Part II of
this annual 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, 2020, total unrecognized compensation expense was $111.9 million, which relates to unvested restricted
stock units and is expected to be recognized over a weighted-average period of 1.47 years.

We are required to record excess tax benefits or tax deficiencies related to stock-based compensation as

income tax benefit or expense when share-based awards vest or are settled.

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, which are affected by changes in our strategic direction, discontinuance of a

product or introduction of newer versions of our products, declines in the sales of or forecasted demand for
certain products, and general 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.

We recorded charges for excess and obsolete inventory of $24.7 million, $28.1 million and $30.6 million in

fiscal 2020, 2019 and 2018, respectively. Our inventory, net of allowance for excess and obsolescence, was
$344.4 million and $345.0 million as of October 31, 2020 and November 2, 2019, 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 collectability of customer accounts. We perform ongoing credit evaluations of our
customers and generally have not required collateral or other forms of security from them. 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 $719.4 million and $724.9 million as

of October 31, 2020 and November 2, 2019, respectively. Our allowance for doubtful accounts was $10.6
million and $20.1 million as of October 31, 2020 and November 2, 2019, respectively. The reduction in our
allowance for doubtful accounts as of October 31, 2020 compared to November 2, 2019 is primarily due to the
final settlement from a significant asset impairment of $12.2 million for a trade receivable related to a single
customer in the APAC region recorded in fiscal 2017.

Goodwill

Our goodwill was generated from the acquisitions of (i) Cyan during fiscal 2015, (ii) the high-speed

photonics components assets of TeraXion during fiscal 2016, (iii) Packet Design on July 2, 2018, (iv) DonRiver
on October 1, 2018, and (v) Centina on November 2, 2019. The goodwill from these acquisitions is primarily
related to expected synergies. Goodwill is the excess of the purchase price over the fair values assigned to the
net assets acquired in a business combination. We test goodwill for impairment on an annual basis, which we
have determined to be as of the last business day of fiscal September each year. We also test goodwill for
impairment between annual tests if an event occurs or circumstances change that would, more likely than not,
reduce the fair value of the reporting unit below its carrying value.

We test goodwill impairment by comparing the fair value of the reporting unit with the unit’s carrying

amount, including goodwill. Goodwill is allocated to reporting units based on relative fair value using a
discounted cash flow model. If this test indicates that the fair value is less than the carrying value, then an
impairment loss is recognized limited to the total amount of goodwill allocated to that reporting unit. A non-
cash goodwill impairment charge would have the effect of decreasing earnings or increasing 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. As of October 31, 2020 and November 2, 2019, the goodwill balance was
$310.8 million and $297.9 million, respectively. There were no goodwill impairments resulting from our fiscal
2020 and 2019 impairment tests and no reporting unit was determined to be at risk of failing the goodwill

impairment test. See Note 13 to our Consolidated Financial Statements included in Item 8 of Part II of this
annual report.

Long-lived Assets

Our long-lived assets include equipment, building, furniture and fixtures, ROU assets, finite-lived
intangible assets and maintenance spares. As of October 31, 2020 and November 2, 2019 these assets totaled
$488.1 million and $455.1 million, net, respectively. We test long-lived assets for impairment whenever
triggering events or changes in circumstances indicate that the assets’ carrying amount is not recoverable from
its undiscounted cash flows. 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 Assets

Pursuant to ASC Topic 740, Income Taxes, we maintain a valuation allowance for a deferred tax asset
when it is deemed to be more likely than not that some or all of the deferred tax asset will not be realized. The
ultimate realization of deferred tax assets is dependent on the generation of future taxable income (including the
reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become
deductible. In evaluating whether a valuation allowance is required under such rules, we consider all available
positive and negative evidence, including prior operating results, the nature and reason for any losses, our
forecast of future taxable income, utilization of tax planning strategies, and the dates on which any deferred tax
assets are expected to expire. These assumptions and estimates require a significant amount of judgment and are
made based on current and projected circumstances and conditions.

Quarterly, we perform an analysis to determine the likelihood of realizing our deferred tax assets and

whether sufficient evidence exists to support reversal of all or a portion of the valuation allowance. The
valuation allowance balances at October 31, 2020 and November 2, 2019 were $151.4 million and $136.0
million, respectively. The corresponding net deferred tax assets were $647.8 million and $714.9 million,
respectively. We will continue to evaluate future financial performance to determine whether such performance
is both sustained and significant enough to provide sufficient evidence to support reversal of all or a portion of
the remaining valuation allowance. The value of our net deferred tax asset may be subject to change in the
future, depending on our generation or projections of future taxable income, as well as changes in tax policy or
our tax planning strategy. For further discussion, see Note 22 to our Consolidated Financial Statements included
in Item 8 of Part II of this annual report.

Warranty

Our liability for product warranties, included in other accrued liabilities, was $49.9 million and $48.5
million as of October 31, 2020 and November 2, 2019, 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 on 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 on
historical trends and the cost to support the customer cases within the warranty period. The provision for
product warranties, net of adjustments for previous years’ provisions, was $22.4 million, $23.1 million and
$21.0 million for fiscal 2020, 2019 and 2018 respectively. The provision for warranty claims may fluctuate on a
quarterly basis depending on 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. See Note 14 to our Consolidated Financial Statements included in Item 8 of Part II
of this annual report. 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 included in Item 8 of Part II of this annual 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, 2020. Our revenue can
fluctuate from quarter to quarter as a result of a number of factors, including changes in customer spending
levels or networking strategies, order timing and volume, backlog levels, timing of revenue recognition and
other competitive dynamics. As our business has evolved, including the sales of our solutions to meet the “on-
demand” service requirements of both our customers and their end users, the amount of quarterly revenue that
we recognize in a quarter from customer orders received in that same quarter (which we refer to as “book to
revenue”) has increased as compared to our historical periods. Increased reliance on book to revenue introduces
a number of risks, including the inherent difficulty in forecasting the amount and timing of book to revenue in
any given quarter, and may increase the likelihood of fluctuations in our results. 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.

Oct. 31,
2020

Aug. 1, May. 2,
2020

2020

Feb. 1,
2020

Nov. 2,
2019

Aug. 3, May. 4,
2019

2019

Feb. 2,
2019

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
Acquisition and
integration costs
(recoveries)
Significant asset
impairments and
restructuring costs

$668,661 $819,022 $739,892 $687,215 $820,007 $810,588 $710,688 $642,532
135,995
159,819
778,527
828,480

145,697
832,912

157,690
976,712

150,018
960,606

147,980
967,987

154,323
865,011

154,161
894,053

343,413
80,718

436,227
75,804

405,138
75,589

389,013
73,364

469,945
78,346

454,921
81,333

411,050
79,284

380,442
74,744

424,131
404,349

512,031
464,681

480,727
413,326

462,377
370,535

548,291
419,696

536,254
424,352

490,334
374,677

455,186
323,341

137,237

130,221

131,530

130,900

141,657

139,880

137,969

128,633

113,382

94,763

101,214

107,066

117,201

104,230

103,502

98,113

43,415

41,635

42,030

42,468

50,307

42,695

42,154

39,243

5,851

5,840

5,839

5,853

5,222

5,529

5,528

3,127

(2,329)

1,414

1,819

(735)

1,362

1,135

1,608

7,854

6,515

3,811

4,472

12,842

5,355

4,068

2,273

Total operating
expenses
Income from
operations
Interest and other
income (loss), net
Interest expense
Loss on
extinguishment and
modification of debt
Income before
income taxes
Provision for
income tax
Net income
Basic net income
per common share
Diluted net income
per potential
common share
Weighted average
basic common
shares outstanding
Weighted average
diluted potential
common shares
outstanding

310,866

276,645

285,838

292,578

326,494

299,051

294,357

275,398

93,483

188,036

127,488

77,957

93,202

125,301

80,320

47,943

(249)
(7,395)

232
(7,251)

(2,665)
(7,860)

3,646
(8,815)

(1,183)
(9,136)

1,050
(9,404)

(244)
(9,471)

4,253
(9,441)

—

(646)

—

85,839

181,017

116,963

72,142

82,883

116,947

70,605

42,755

20,798
$ 65,041

38,750

25,308
$142,267 $ 91,655

9,814
$ 62,328

2,552
$ 80,331

30,198
$ 86,749

17,867
$ 52,738

9,139
$ 33,616

0.42

0.92

0.60

0.40

0.52

0.56

0.34

0.22

0.42

0.91

0.59

0.40

0.51

0.55

0.33

0.21

154,706

154,184

153,858

154,334

154,852

155,488

156,170

156,314

156,563

156,318

155,141

155,738

156,612

157,455

158,289

158,174

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. The

following discussion about these market risks includes forward-looking statements. Actual results could differ
materially from those projected in these forward-looking statements.

Interest Rate Sensitivity. We currently hold investments in U.S. government obligations with varying
maturities. See Notes 6 and 7 to our Consolidated Financial Statements included in Item 8 of Part II of this
annual 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 $1.7 million decline in value.

Our earnings and cash flows from operations would be exposed to changes in interest rates because of the
floating rate of interest in our 2025 Term Loan if such loan was not hedged using floating-to-fixed rate interest
rate swaps. See Note 15 to our Consolidated Financial Statements included in Item 8 of Part II of this annual
report. The 2025 Term Loan bears interest at LIBOR plus a spread of 1.75%, subject to a minimum LIBOR rate
of 0.00%. We have entered into interest rate swap arrangements (“interest rate swaps”) that fix the LIBOR rate
of approximately $350.0 million of the 2025 Term Loan principal amount at 2.957% through September 2023.
As such, a 100 basis point (1.0%) increase in the LIBOR rate as of our most recent LIBOR rate setting would
increase our annualized interest expense by approximately $3.4 million on our 2025 Term Loan as recognized
in our Consolidated Financial Statements. See Note 18 to our Consolidated Financial Statements included in
Item 8 of Part II of this annual report for information relating to our 2025 Term Loan.

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

to and can be impacted by movements in foreign currency exchange rates. Because we sell globally, some of
our sales transactions and revenue are non-U.S. Dollar denominated, with the Canadian Dollar, Euro and
Japanese Yen being our most significant foreign currency revenue exposures. If the U.S. Dollar strengthens
against these currencies, our revenue for these transactions 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 costs of our
products to customers in markets outside the United States, which could impact our competitive position.
During fiscal 2020, approximately 15.9% of revenue was non-U.S. Dollar denominated. During fiscal 2020 as
compared to fiscal 2019, the U.S. Dollar fluctuated against a number of foreign currencies. Consequently, our
revenue reported in U.S. Dollars was slightly reduced by approximately $13.5 million or 0.4%. As it relates to
costs of goods sold, employee-related and facilities costs associated with certain manufacturing-related
operations in Canada represent our primary exposure to foreign currency exchange risk.

With regard to operating expense, our primary exposure to foreign currency exchange risk relates to the
Canadian Dollar, Indian Rupee, Brazilian Real, British Pound and Euro. During fiscal 2020, approximately
48.5% of our operating expense was non-U.S. Dollar denominated. If currencies strengthen against the U.S.
Dollar, costs reported in U.S. Dollars will increase. During fiscal 2020 as compared to fiscal 2019, the U.S.
Dollar fluctuated against these and other currencies. Consequently, our operating expense reported in U.S.
Dollars was reduced by approximately $6.2 million, or 0.5%, net of hedging.

From time to time, we use foreign currency forward contracts to reduce variability in certain forecasted
non-U.S. Dollar denominated cash flows. Generally, these derivatives have maturities of 24 months or less and
are designated as cash flow hedges. At the inception of the cash flow hedge, and on an ongoing basis, we assess
whether the forward contract has been effective in offsetting changes in cash flows attributable to the hedged
risk during the hedging period. 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.

During fiscal 2020, we recorded $13.0 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 our Consolidated Statement
of Operations. From time to time, we use 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 2020, we recorded a gain on
non-hedge designated foreign currency forward contracts of $5.6 million. See Notes 1, 5 and 15 to our
Consolidated Financial Statements included in Item 8 of Part II of this annual 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

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Note 1: Ciena Corporation and Significant Accounting Policies and Estimates

Note 2: Revenue

Note 3: Business Combinations

Note 4: Restructuring Costs

Note 5: Interest and Other Income

Note 6: Short-Term and Long-Term Investments

Note 7: Fair Value Measurements

Note 8: Accounts Receivable

Note 9: Inventories

Note 10: Prepaid Expenses and Other

Note 11: Equipment, Building, Furniture and Fixtures

Note 12: Intangible Assets

Note 13: Goodwill

Note 14: Other Balance Sheet Details

Note 15: Derivative Instruments

Note 16: Accumulated Other Comprehensive Income

Note 17: Leases

Note 18: Short-Term and Long-Term Debt

Note 19: ABL Credit Facility

Note 20: Earnings per Share Calculation

Note 21: Stockholders’ Equity

Note 22: Income Taxes

Note 23: Share-Based Compensation Expense

Note 24: Segment and Entity Wide Disclosures

Note 25: Other Employee Benefit Plans

Note 26: Commitments and Contingencies

Note 27: Subsequent Events

Page

Number

104

108

111

112

113

115

116

117

118

120

121

123

124

125

126

130

133

136

137

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Ciena Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ciena Corporation and its subsidiaries (the
“Company”) as of October 31, 2020 and November 2, 2019, and the related consolidated statements of
operations, of comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the
three years in the period ended October 31, 2020, including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of October 31, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of October 31, 2020 and November 2, 2019, and the results of its
operations and its cash flows for each of the three years in the period ended October 31, 2020 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, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it
accounts for leases in 2020 and the manner in which it accounts for revenue from contracts with customers in
2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the Report of Management on Internal Control Over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial
statements and on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements
and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.

Reserve for Excess and Obsolete Inventory

As described in Notes 1 and 9 to the consolidated financial statements, the Company’s consolidated inventory
balance, net of the allowance, was $344 million as of October 31, 2020. Management establishes a reserve for
excess and obsolete inventory when impairment has been identified and recorded a reserve for excess and
obsolete inventory of $40 million as of October 31, 2020. Management 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, which are affected by changes in
the Company’s strategic direction, discontinuance of a product or introduction of newer versions of a product,
declines in the sales of or forecasted demand for certain products, and general market conditions.

The principal considerations for our determination that performing procedures relating to the reserve for excess
and obsolete inventory is a critical audit matter are the significant judgment by management when developing
their estimate, which in turn led to a high degree of auditor judgment, subjectivity, and effort to perform
procedures and evaluate the audit evidence obtained relating to the assumptions regarding future demand.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing the
effectiveness of controls relating to the Company’s evaluation of the reserves for excess and obsolete inventory,
including controls over the assumptions used within the model. These procedures also included, among others,
testing management’s process for determining the reserve for excess and obsolete inventory. This included
evaluating the appropriateness of the inventory reserve method and the reasonableness of the significant
assumptions relating to the future demand. Evaluating the assumptions related to future demand involved
evaluating whether the assumptions used were reasonable considering historical sales and expectations
regarding future sales. Testing management's process for determining future demand included procedures to
evaluate the reliability, completeness and relevance of management's data used in the future demand

assumption. Testing the relevance and reliability of the data included evaluating the reasonableness of the long-
term sales forecasts and historical activity.

/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
December 18, 2020

We have served as the Company’s auditor since 1992.

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

ASSETS
Current assets:

Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories, net
Prepaid expenses and other
Total current assets
Long-term investments
Equipment, building, furniture and fixtures, net
Operating right-of-use assets
Goodwill
Other intangible assets, net
Deferred tax asset, 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
Operating lease liabilities
Current portion of long-term debt

Total current liabilities
Long-term deferred revenue
Other long-term obligations
Long-term operating lease liabilities
Long-term debt, net
Total liabilities

Commitments and contingencies (Note 26)
Stockholders’ equity:

Preferred stock — par value $0.01; 20,000,000 shares authorized; zero shares issued
and outstanding
Common stock — par value $0.01; 290,000,000 shares authorized; 154,563,005 and
154,403,850 shares issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

October 31, 2020 November 2, 2019

1,088,624
150,667
719,405
344,379
308,084
2,611,159
82,226
272,377
57,026
310,847
96,647
647,805
102,830
4,180,917

291,904
334,132
108,700
19,035
6,930
760,701
49,663
123,185
61,415
676,356
1,671,320

904,045
109,940
724,854
345,049
297,914
2,381,802
10,014
286,884
—
297,937
112,781
714,942
88,986
3,893,346

344,819
382,740
111,381
—
7,000
845,940
45,492
148,747
—
680,406
1,720,585

—

1,546
6,826,531
(35,358)
(4,283,122)
2,509,597
4,180,917

1,544
6,837,714
(22,084)
(4,644,413)
2,172,761
3,893,346

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
Acquisition and integration costs
Significant asset impairments and restructuring costs

Total operating expenses

Income from operations
Interest and other income (loss), net
Interest expense
Loss on extinguishment and modification of debt
Income before income taxes
Provision for income taxes
Net income (loss)

Basic net income (loss) per common share
Diluted net income (loss) per potential common share
Weighted average basic common shares outstanding
Weighted average diluted potential common shares
outstanding

October 31, 2020 November 2, 2019 November 3, 2018

Year Ended

2,914,790
617,367
3,532,157

2,983,815
588,316
3,572,131

2,565,460
528,826
3,094,286

1,573,791
305,475
1,879,266
1,652,891

529,888
416,425
169,548
23,383
4,031
22,652
1,165,927
486,964
964
(31,321)
(646)
455,961
94,670
361,291

2.34
2.32
154,287

$
$

1,716,358
313,707
2,030,065
1,542,066

548,139
423,046
174,399
21,808
3,370
24,538
1,195,300
346,766
3,876
(37,452)
—
313,190
59,756
253,434

1.63
1.61
155,720

$
$

1,507,157
272,439
1,779,596
1,314,690

491,564
394,060
160,133
15,737
5,111
18,139
1,084,744
229,946
(12,029)
(55,249)
(13,887)
148,781
493,471
(344,690)

(2.40)
(2.49)
143,738

155,955

157,612

143,738

$
$

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

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

Net income (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 forward starting interest rate
swaps, net of tax
Change in accumulated translation adjustments
Other comprehensive income (loss)
Total comprehensive income (loss)

October 31,
2020
361,291

Year Ended

November 2,
2019
253,434

November 3,
2018
$ (344,690)

(107)

577

(1,144)

3,985

(1,674)

(7,849)
(4,174)
(13,274)
348,017

(20,103)
(763)
(16,304)
237,130

6,199
686
5,237
$ (339,453)

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)

October 31,
2020

Year Ended
November 2,
2019

November 3,
2018

361,291

253,434

(344,690)

Cash flows from operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

Loss on extinguishment of debt
Loss on fair value of debt conversion liability
Depreciation of equipment, building, furniture and fixtures, and
amortization of leasehold improvements
Share-based compensation costs
Amortization of intangible assets
Deferred taxes
Provision for doubtful accounts
Provision for inventory excess and obsolescence
Provision for warranty
Other
Changes in assets and liabilities:

Accounts receivable
Inventories
Prepaid expenses and other
Operating lease right-of-use assets
Accounts payable, accruals and other obligations
Deferred revenue
Short and long-term operating lease liabilities

Net cash provided by operating activities
Cash flows provided by (used in) investing activities:

Payments for equipment, furniture, fixtures and intellectual property
Purchase of available for sale securities
Proceeds from maturities of available for sale securities
Purchase of equity investment
Settlement of foreign currency forward contracts, net
Acquisition of businesses, net of cash acquired

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from issuance of long-term debt, net
Payment of long-term debt
Payment for debt conversion liability
Payment for make-whole provision upon conversion of long-term debt
Payment of debt issuance costs
Payment of finance lease obligations
Shares repurchased for tax withholdings on vesting of restricted stock units
Repurchases of common stock - repurchase program
Proceeds from issuance of common stock
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted
cash
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of fiscal year
Cash, cash equivalents and restricted cash 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
Operating lease payments

Non-cash investing and financing activities

Purchase of equipment in accounts payable

Contingent consideration for acquisition of business
Conversion of 3.75% convertible senior notes, due October 15, 2018
(Original) into 3,038,208 shares of common stock
Conversion of 4.0% convertible senior notes, due December 15, 2020
into 9,197,943 shares of common stock, net
Conversion of debt conversion liability into 1,585,140 shares of
common stock

Operating lease right-of-use assets subject to lease liability

Unrealized gain on equity investment

$
$
$

—
—

93,908
67,758
38,619
64,339
8,855
24,701
22,417
11,628

(17,299)
(25,044)
(38,998)
16,787
(117,931)
2,519
(19,896)
493,654

(82,667)
(223,196)
110,390
—
3,531
(28,300)
(220,242)

—
(5,198)
—
—
(382)
(2,703)
(32,472)
(74,535)
28,068
(87,222)

(1,643)
184,547
904,161
1,088,708

32,837
53,076
22,089

7,854

$
$
$

— $

—
—

87,576
59,736
35,136
19,865
6,740
28,085
23,105
(910)

65,712
(112,941)
(96,618)
—
27,740
16,480
—
413,140

(62,579)
(158,074)
248,748
(2,667)
(1,351)
—
24,077

—
(7,000)
(111,268)
—
(1,191)
(3,319)
(29,059)
(150,076)
22,947
(278,966)

476
158,727
745,434
904,161

39,579
33,570

$
$
— $

16,549

— $

10,039
12,070

84,214
52,972
25,806
463,631
2,700
30,615
20,992
21,685

(168,357)
(27,445)
(21,425)
—
85,798
(19,344)
—
229,261

(67,616)
(286,824)
410,109
(1,767)
9,385
(82,670)
(19,383)

305,125
(292,730)
—
(13,453)
(1,936)
(3,624)
(4,757)
(110,981)
23,127
(99,229)

(5,856)
104,793
640,641
745,434

44,750
26,900
—

5,118

10,900

— $

61,270

— $

214,286

— $

52,944

24,160

2,681

— $

—

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 networking systems, services and software company,

providing solutions that enable a wide range of network operators to deploy and manage next-generation
networks that deliver services to businesses and consumers. Ciena provides hardware, software and services that
e the transport, routing, switching, aggregation, service delivery and management of video, data and voice
traffic on communications networks. Ciena’s solutions are used by communications service providers, cable and
multiservice operators, Web-scale providers, submarine network operators, governments, enterprises, research
and education institutions and emerging network operators.

Ciena’s solutions include Networking Platforms, including Ciena’s Converged Packet Optical and Packet
Networking portfolios, which can be applied from the network core to end-user access points, and which allow
network operators to scale capacity, increase transmission speeds, allocate traffic and adapt dynamically to
changing end-user service demands. Ciena’s Converged Packet Optical portfolio includes products and
solutions that support the connection of content to content and users to content, including in long haul and
regional, submarine and data center interconnect networks. Ciena’s Packet Networking portfolio includes
products and solutions that enable next-generation metro, access and aggregation networks, connecting users to
content in applications that include 5G, mobile backhaul, virtualization and enterprise services.

To complement these solutions, Ciena offers Platform Software, which provides management, domain

control and specialized applications that automate network lifecycle operations, including provisioning
equipment and services, network data, analytics and policy-based assurance to achieve closed loop automation
across multi-vendor and multi-domain network environments. Through Ciena’s Blue Planet® Software suite,
Ciena enables customers to transform their business and operations support systems (“OSS”) through software-
based automation of their network and IT infrastructures. To complement these hardware and software
products, Ciena offers a broad range of services that help its customers build, operate and improve their
networks and associated operational environments, including network optimization and migration offerings.

Ciena refers to its complete portfolio vision as the Adaptive Network. The Adaptive Network emphasizes a

programmable network infrastructure, software control and automation capabilities, network analytics and
intelligence, and related advanced services. By transforming network infrastructures into a dynamic,
programmable environment driven by automation and analytics, network operators can realize greater business
agility, dynamically adapt to changing end user service demands and rapidly introduce new revenue-generating
services. They can also gain valuable real-time network insights, allowing them to optimize network operation
and maximize the return on their network infrastructure investment.

Basis of Presentation

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.

Ciena has a 52 or 53-week fiscal year, which ends on the Saturday nearest to the last day of October in each
year. Fiscal 2020 and fiscal 2019 each consisted of a 52-week fiscal year and fiscal 2018 consisted of a 53-week
fiscal year. Effective the second quarter of fiscal 2020, Ciena changed the presentation of reporting for its
financial statements and notes thereto to reflect the actual dates on which fiscal years ended. Because these
dates can change from period to period, for consistency purposes, Ciena previously presented such information
indicating that its fiscal years ended on October 31. This change, affecting only the presentation of such
information, was made on a prospective basis and it does not impact comparability of previous financial results.

Reference to prior reported periods have been changed to reflect the actual period end dates of November 2,
2019, November 3, 2018 and October 28, 2017 for periods reported herein.

Business Combinations

Ciena records acquisitions using the purchase method of accounting. All of the assets acquired, liabilities

assumed, contractual contingencies and contingent consideration are recognized at their fair value as of the
acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and net
intangible assets acquired is recorded as goodwill. The application of the purchase method of accounting for
business combinations requires management to make significant estimates and assumptions in the determination
of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price
consideration between assets that are depreciated and amortized from goodwill. These assumptions and
estimates include a market participant’s use of the asset and the appropriate discount rates for a market
participant. Ciena’s estimates are based on historical experience, information obtained from the management of
the acquired companies and, when appropriate, include assistance from independent third-party appraisal firms.
Significant assumptions and estimates can include, but are not limited to, the cash flows that an asset is expected
to generate in the future, the appropriate weighted-average cost of capital and the cost savings expected to be
derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition,
unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.

Use of Estimates

The preparation of the financial statements and related disclosures in conformity with Generally Accepted

Accounting Principles (“GAAP”) 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, bad debts, valuation of
inventories and investments, recoverability of intangible assets, other long-lived assets and goodwill, income
taxes, warranty obligations, restructuring liabilities, derivatives, contingencies and litigation. Ciena bases its
estimates on historical experience and assumptions that it believes are reasonable. Actual results may differ
materially from management’s estimates.

Cash and Cash Equivalents

Ciena considers all highly liquid investments purchased with original maturities of three months or less to

be cash equivalents. Any restricted cash collateralizing letters of credit is included in other current assets and
other long-term assets depending on the duration of the restriction.

Investments

Ciena’s investments in debt securities are classified as available-for-sale and 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.

Ciena has minority equity investments in privately held technology companies that are classified in other
long-term assets. These investments are carried at cost because Ciena owns less than 20% of the voting equity

and does not have the ability to exercise significant influence over the company. Ciena monitors these
investments for impairment and makes appropriate reductions to the carrying value when necessary. As
of October 31, 2020, the combined carrying value of these investments was $13.4 million. Ciena elects to
estimate the fair value at cost minus impairment, if any, plus or minus observable price changes in orderly
transactions for identical or similar investments of the same issuer. Ciena evaluates these investments for
impairment or observable price changes quarterly and records adjustments to interest and other income (loss),
net on the Consolidated Statements of Operations.

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 has the following operating segments for reporting purposes: (i) Networking Platforms; (ii)
Platform Software and Services; (iii) Blue Planet Automation Software and Services; and (iv) Global Services.
See Note 24 below.

Goodwill

Goodwill is the excess of the purchase price over the fair values assigned to the net assets acquired in a
business combination. Ciena tests goodwill for impairment on an annual basis, which it has determined to be the
last business day of fiscal September each year. Ciena also tests goodwill for impairment between annual tests if
an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting
unit below its carrying value.

Ciena tests goodwill impairment by comparing the fair value of the reporting unit with the unit’s carrying

amount, including goodwill. If this test indicates that the fair value is less than the carrying value, then an
impairment loss is recognized limited to the total amount of goodwill allocated to that reporting unit. A non-
cash goodwill impairment charge would have the effect of decreasing earnings or increasing losses in such
period. If Ciena is required to take a substantial impairment charge, its operating results would be materially
adversely affected in such period.

Long-lived Assets

Long-lived assets include: equipment, building, furniture and fixtures, ROU assets, finite-lived 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, Building, Furniture and Fixtures and Internal Use Software

Equipment, building, furniture and fixtures are recorded at cost. Depreciation and amortization are

computed using the straight-line method over useful lives of two years to five years for equipment and 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 years to five years.

Leases

At the inception of a contract, Ciena must determine whether the contract is or contains a lease. The
contract is or contains a lease if the contract conveys the right to control the use of the property, plant, or
equipment for a designated term in exchange for consideration. Ciena’s evaluation of its contracts follows the
assessment of whether there is a right to obtain substantially all of the economic benefits from the use and the
right to direct the use of the identified asset in the contract. Operating leases are included in the Operating right-
of-use assets (“Operating ROU assets”), Operating lease liabilities and Long-term operating lease liabilities in
the Consolidated Balance Sheets. Finance leases are included in Equipment, building, furniture and fixtures, net
(“Finance ROU assets”), Accrued liabilities and other short-term obligations and Other long-term obligations in
the Consolidated Balance Sheets.

Ciena has operating and finance leases that primarily relate to real property. Ciena has elected not to
capitalize leases with a term of 12 months or less without a purchase option that it is likely to exercise. Ciena
has elected not to separate lease and non-lease components of operating and finance leases. Lease components
are payment items directly attributable to the use of the underlying asset, while non-lease components are
explicit elements of a contract not directly related to the use of the underlying asset, including pass-through
operating expenses like common area maintenance and utilities.

Operating ROU assets and lease liabilities and Finance ROU assets and lease liabilities are recognized on
the Consolidated Balance Sheets at the present value of the future lease payments over the life of the lease term.
Ciena uses discount rates based on incremental borrowing rates, on a collateralized basis, for the respective
underlying assets, for terms similar to the respective leases when implicit rates for leases are not determinable.
Operating lease costs are included as rent expense in the Consolidated Statements of Operations. Fixed base
payments on operating leases paid directly to the lessor are recorded as lease expense on a straight-line basis.
Related variable payments based on usage, changes in an index, or market rate are expensed as incurred.
Finance ROU assets are generally amortized on a straight-line basis over the lease term with the interest
expense on the lease liability recorded using the interest method. The amortization and interest expense are
recorded separately in the Consolidated Statements of Operations.

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 and Web-scale providers. Consolidation among Ciena’s
customers has increased this concentration. Consequently, Ciena’s accounts receivable are concentrated among
these customers. See Note 24 below.

Additionally, Ciena’s access to certain materials or components is dependent on 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 or
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 control of the promised products or services is transferred to its customer,

in an amount that reflects the consideration to which Ciena expects to be entitled in exchange for those products
or services.

Ciena determines revenue recognition by applying the following five-step approach:

•
•
•
•
•

Generally, Ciena makes sales pursuant to purchase orders placed by customers under framework
agreements that govern the general commercial terms and conditions of the sale of Ciena’s products and
services. These purchase orders under framework agreements are used to determine the identification of the
contract or contracts with this customer. Purchase orders typically include the description, quantity, and price of
each product or service purchased. Purchase orders may include one-line bundled pricing for both products and
services. Accordingly, purchase orders can include various combinations of products and services that are
generally distinct and accounted for as separate performance obligations. Ciena evaluates each promised
product and service offering to determine whether it represents a distinct performance obligation. In doing so,
Ciena considers, among other things, customary business practices, whether the customer can benefit from the
product or service on its own or together with other resources that are readily available, and whether Ciena’s
commitment to transfer the product or service to the customer is separately identifiable from other obligations in
the purchase order. For transactions where Ciena delivers the product or services, Ciena is typically the
principal and records revenue and costs of goods sold on a gross basis.

Purchase orders are invoiced based on the terms set forth either in the purchase order or the framework
agreement, as applicable. Generally, sales of products and software licenses are invoiced upon shipment or
delivery. Maintenance and software subscription services are invoiced quarterly or annually in advance of the
service term. Ciena’s other service offerings are generally invoiced upon completion of the service. Payment
terms and cash received typically range from 30 to 90 days from the invoicing date. Historically, Ciena has not
provided any material financing arrangements to its customers. As a practical expedient, Ciena does not adjust
the amount of consideration it will receive for the effects of a significant financing component as it expects, at

contract inception, that the period between Ciena transfer of the products or services to the customer, and
customer payment for the products or services will be one year or less. Shipping and handling fees invoiced to
customers are included in revenue, with the associated expense included in product cost of goods sold. Ciena
records revenue net of any associated sales taxes.

Ciena recognizes revenue upon the transfer of control of promised products or services to a customer.

Transfer of control occurs once the customer has the contractual right to use the product, generally upon
shipment or delivery to the customer. Transfer of control can also occur over time for services such as software
subscription, maintenance, installation, and various professional services as the customer receives the benefit
over the contract term.

Significant Judgments

Revenue is allocated among performance obligations based on standalone selling price (“SSP”). SSP
reflects the price at which Ciena would expect to sell that product or service on a stand-alone basis at contract
inception and that Ciena would expect to be entitled to receive for the promised products or services. SSP is
estimated for each distinct performance obligation, and judgment may be required in its determination. The best
evidence of SSP is the observable price of a product or service when Ciena sells the products separately in
similar circumstances and to similar customers. In instances where SSP is not directly observable, Ciena
determines SSP using information that may include market conditions and other observable inputs.

Ciena applies judgment in determining the transaction price, as Ciena may be required to estimate variable
consideration when determining the amount of revenue to recognize. Variable consideration can include various
rebate, cooperative marketing, and other incentive programs that Ciena offers to its distributors, partners and
customers. When determining the amount of revenue to recognize, Ciena estimates the expected usage of these
programs, applying the expected value or most likely estimate and updates the estimate at each reporting period
as actual utilization data becomes available. Ciena also considers any customer right of return and any actual or
potential payment of liquidated damages, contractual or similar penalties, or other claims for performance
failures or delays in determining the transaction price, where applicable.

When transfer of control is judged to be over time for installation and professional service arrangements,
Ciena applies the input method to determine the amount of revenue to be recognized in a given period. Utilizing
the input method, Ciena recognizes revenue based on the ratio of actual costs incurred to date to the total
estimated costs expected to be incurred. Revenue for software subscription and maintenance is recognized
ratably over the period during which the services are performed.

Capitalized Contract Acquisition Costs

Ciena has considered the impact of the guidance in ASC 340-40, Other Assets and Deferred Costs;
Contracts with Customers, and the interpretations of the Financial Accounting Standards Board (“FASB”)
Transition Resource Group for Revenue Recognition with respect to capitalization and amortization of
incremental costs of obtaining a contract. In conjunction with this interpretation, Ciena considers each customer
purchase in combination with the corresponding framework agreement, if applicable, as a contract. Ciena has
elected to implement the practical expedient, which allows for incremental costs to be recognized as an expense
when incurred if the period of the asset recognition is one year or less. If the period of the asset recognition is
greater than one year, Ciena amortizes these costs over the period of performance. Ciena considers sales
commissions incurred upon receipt of purchase orders placed by customers as incremental costs to obtain such
purchase orders. The practical expedient method is applied to the purchase order as a whole and thus the
capitalized costs of obtaining a purchase order is applied even if the purchase order contains more than one
performance obligation. In cases where a purchase order includes various distinct products or services with both
short-term (one year or less) and long-term (more than a year) performance periods, the cost of commissions

incurred for the total value of the purchase order is capitalized and subsequently amortized as each performance
obligation is recognized.

For the additional disclosures on capitalized contract acquisition costs, see Note 2 below.

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 on 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 receivable 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 them. In determining the appropriate
balance for Ciena’s allowance for doubtful accounts receivable, 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, or if actual defaults are higher than Ciena’s historical experience, Ciena may be
required to take a charge for an allowance for doubtful accounts receivable, which could have an adverse impact
on its results of operations.

Research and Development

Ciena charges all research and development costs to expense as incurred. Types of expense incurred in
research and development include employee compensation, prototype 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 expense when there is reasonable
assurance that Ciena has met the required conditions associated with the grant and that grant proceeds will be
received. Grant benefits are recorded to the particular line item of the Consolidated Statement of Operations to
which the grant activity relates. See Note 26 below.

Advertising Costs

Ciena expenses all advertising costs as incurred.

Legal Costs

Ciena expenses legal costs associated with litigation 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 recognizes the estimated fair value of restricted
stock units subject only to service-based vesting conditions by multiplying the number of shares underlying the
award by the closing price per share of Ciena common stock on the grant date. 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. Awards with performance-based vesting conditions (i) require the
achievement of certain operational, financial or other performance criteria or targets or (ii) vest based on
Ciena’s total shareholder return as compared to an index of peer companies, in whole or in part. Ciena
recognizes the estimated fair value of restricted stock units subject to performance-based vesting conditions
other than total shareholder return by assuming the satisfaction of any performance-based objectives at the
“target” level and multiplying the corresponding number of shares earned based upon such achievement by the
closing price per share of Ciena common stock on the grant date. Ciena recognizes the estimated fair value of
performance based awards subject to total shareholder return as compared to an index of peer companies using a
Monte Carlo simulation valuation model on the date of grant. At the end of each reporting period, Ciena
reassesses the probability of achieving the performance targets and the performance period required to meet
those targets. See Note 23 below.

Stock Repurchase Plan

Shares repurchased pursuant to Ciena’s share repurchase program are immediately retired upon purchase.

Repurchased common stock is reflected as a reduction of stockholders’ equity. Ciena’s accounting policy
related to its share repurchases is to reduce its common stock based on the par value of the shares and to reduce
its capital surplus for the excess of the repurchase price over the par value. Since the inception of its share
repurchase program in December 2018, Ciena has had an accumulated deficit balance; therefore, the excess
over the par value has been applied to additional paid-in capital. Once Ciena has retained earnings, the excess
will be charged entirely to retained earnings.

Due to the continued uncertainty surrounding the duration and severity of potential macroeconomic impacts

of COVID-19, Ciena considered it prudent to temporarily suspend purchases of its common stock under its
stock repurchase program effective as of March 17, 2020. See Note 27 below for information related to the
resumption of purchases under this plan in fiscal 2021.

Income Taxes

Ciena accounts for income taxes using an asset and liability approach. This approach recognizes deferred
tax assets and liabilities (“DTA”) 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 on 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 2012 and 2014 through 2018, in Canada for
2013 through 2015, and in the United Kingdom for 2014 through 2018. Management does not expect the

outcome of these 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 (2017), United Kingdom (2014), Canada (2013), and India (2012). 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 these foreign earnings outside the U.S. As of October 31, 2020,
the cumulative amount of such temporary differences for which a deferred tax liability has not been recognized
totaled approximately $375.0 million. If these earnings were distributed to the U.S. in the form of dividends, or
otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, Ciena would
be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign
withholding taxes.

Ciena is required to record excess tax benefits or tax deficiencies related to stock-based compensation as

income tax benefit or expense when share-based awards vest or are settled.

Ciena adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first
quarter of fiscal 2018. In connection with the adoption of this guidance, Ciena recognized approximately $62.1
million of deferred tax assets related to previously unrecognized tax benefits. This was recorded as a
cumulative-effect adjustment to retained earnings as of the beginning of the first quarter of fiscal 2018.

The Tax Cuts and Jobs Act (the “Tax Act”) includes provisions that affected Ciena in fiscal 2019 and fiscal

2020, including a provision designed to tax global intangible low-taxed income (“GILTI”). An accounting
policy choice is allowed to either treat taxes due on future U.S. inclusions related to GILTI in taxable income as
a current-period expense when incurred (the “period cost method”) or factor such amounts into the
measurement of deferred taxes (the “deferred method”). The calculation of the deferred balance with respect to
the GILTI tax provisions will depend, in part, on analyzing global income to determine whether future U.S.
inclusions in taxable income are expected related to GILTI and, if so, what the impact is expected to be. Ciena
is electing to use the period cost method for future GILTI inclusions. Additionally, Ciena is electing to use the
incremental cash tax savings approach when determining whether a valuation allowance needs to be recorded
against the U.S. net operating loss (“NOL”) due to the GILTI inclusions.

The Tax Act also introduced an alternative tax known as the base erosion and anti-abuse tax (“BEAT”). An

accounting policy choice has been made to consider BEAT as a period cost when incurred.

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 estimate the amount of loss reasonably, 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 term loan, see Note 18 below.

100

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. The fair values are determined based on model-based techniques using inputs
Ciena could not corroborated with market data.

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 and redesign
business processes. 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, typically of more than 60 days, which are accrued over the service period. See Note 4 below.

Foreign Currency

Certain of Ciena’s foreign branch offices and subsidiaries use the U.S. Dollar as their functional currency
because Ciena Corporation, 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 5 below.

Derivatives

Ciena’s 3.75% Convertible Senior Notes due October 15, 2018 (the “New Notes”) included a conversion

feature that was accounted for as a separate embedded derivative. The embedded conversion feature was
recorded at fair value using the underlying stock price, time to maturity and expected volatility of Ciena’s stock
and conversion price. These changes are included in interest and other income (loss), net on the Consolidated
Statement of Operations. On November 15, 2018, Ciena settled this embedded conversion feature.

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 24 months or less.

101

Ciena also has interest rate swap 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 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.

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.

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

See Notes 7 and 15 below.

Computation of Net Income (Loss) per Share

Ciena calculates basic earnings per share by dividing earnings attributable to common stock by the

weighted average number of common shares outstanding for the period. Diluted net income (loss) per potential
common share (“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 net income (loss) per common share (“Basic EPS”) and Diluted EPS on the face of its
income statement. A reconciliation of the numerator and denominator used for the Basic EPS and Diluted EPS
computations is set forth in Note 20 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 using the straight-line
method 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

Leases

In February 2016, FASB issued ASC 842, Leases, which requires an entity to recognize assets and
liabilities on the balance sheet for the rights and obligations created by leased assets and to provide additional
disclosures. Effective November 3, 2019, Ciena adopted ASC 842, which requires right-of-use ("ROU") assets
and lease liabilities to be recorded on the balance sheet, on a modified retrospective basis, such that related
amounts in prior periods have not been restated.

As a practical expedient for disclosure, Ciena has elected the “package of practical expedients” and, as a
result, did not reassess existing lease identifications, lease classifications or initial direct costs. As a practical
expedient, Ciena has elected not to capitalize leases with a term of 12 months or less without a purchase option
that it is likely to exercise. Also as a practical expedient, Ciena has elected not to separate lease and non-lease

102

components of operating and finance leases. Lease components are payment items directly attributable to the
use of the underlying asset, while non-lease components are explicit elements of a contract not directly related
to the use of the underlying asset, including pass-through operating expenses like common area maintenance
and utilities. In connection with its adoption of ASC 842, Ciena has implemented new accounting policies and
processes, and incorporated such into its existing internal control environment as necessary to support the
requirements of ASC 842.

Upon adoption, Ciena recorded Operating ROU assets of $53.3 million and lease liabilities of $76.0 million

related to its operating leases. As of November 2, 2019, the restructuring reserve liability for vacated office
space of $11.1 million was included in Accrued liabilities and other short-term obligations and Other long-term
obligations on the Consolidated Balance Sheet under prior accounting guidance. Upon adoption of ASC 842,
the existing lease reserve liability was reclassified as a reduction to the Operating ROU assets. ROU assets will
be tested for impairment when circumstances indicate that the carrying values may not be recoverable. The
adoption of this guidance did not require a cumulative effect adjustment or have an impact on the Consolidated
Statements of Operations or Consolidated Statements of Cash Flows.

Opening Balance Adjustments

The following table summarizes the cumulative effect of the changes made to Ciena’s Consolidated

Balance Sheet in connection with the adoption of ASC 842 (in thousands):

Balance at November 2,
2019

New Lease Accounting
Standard

Adjusted Balance at
November 3, 2019

ASSETS:
Operating right-of-use assets

Total assets

LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Accrued liabilities and other short-term
obligations
Short-term lease liabilities
Other long-term obligations
Long-term operating lease liabilities

Total liabilities and stockholders’
equity

$
$
$
$

— $

53,334 (1)

3,893,346

53,334

382,740
—
148,747
—

(1,484) (2)
20,498 (3)
(21,244) (4)
55,564 (5)

3,893,346

53,334

$
$
$
$

53,334

3,946,680

381,256
20,498
127,503
55,564

3,946,680

(1) Represents $76.0 million of operating leases recognized as Operating ROU assets upon adoption of ASC 842,
less $5.4 million of deferred rent, $6.2 million of tenant improvement allowances, $1.5 million of short-term
restructuring reserve liability and $9.6 million of long-term restructuring reserve liability all recognized as a
reduction to ROU assets.
(2) Represents $1.5 million of short-term restructuring reserve liability recognized as a reduction to Operating
ROU assets.
(3) Represents $20.5 million of lease liabilities for operating leases.
(4) Represents $9.6 million of long-term restructuring reserve liability, $5.4 million of deferred rent, and
$6.2 million of tenant improvement allowances recognized as a reduction to ROU assets.
(5) Represents $55.6 million of lease liabilities for operating leases.

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See Note 17 below for additional information.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic

820): Disclosure Framework which modifies the disclosure requirements on fair value measurements. ASU
2018-13 is effective for Ciena beginning in the first quarter of fiscal year 2020, and early adoption is permitted.
Adoption of ASU 2018-13 did not have a material effect on Ciena’s financial position or results of operations.

Newly Issued Accounting Standards - Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), Financial Instruments - Credit
Losses, which requires measurement and recognition of expected credit losses for financial assets held based on
historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability
of the reported amount. The new standard replaces the incurred loss impairment model. Under this standard,
Ciena will be required to use a forward-looking expected credit loss model for accounts receivable, contract
assets, and other financial instruments. ASU 2016-13 is effective for Ciena beginning in the first quarter of
fiscal 2021 on a modified retrospective basis with the cumulative effect of adoption recorded as an adjustment
to retained earnings. This standard will not have a material impact on Ciena’s Consolidated Financial
Statements and disclosures at adoption.

(2) REVENUE

Disaggregation of Revenue

Ciena’s disaggregated revenue represents similar groups that depict the nature, amount, and timing of

revenue and cash flows for Ciena’s various offerings. The sales cycle, contractual obligations, customer
requirements, and go-to-market strategies may differ for each of its product categories, resulting in different
economic risk profiles for each category.

The tables below set forth Ciena’s disaggregated revenue for the respective period (in thousands):

104

Year Ended October 31, 2020

Networking
Platforms

Platform
Software and
Services

Blue Planet
Automation
Software and
Services

Global
Services

Total

$2,547,647
267,416
—

— $
—
197,809

— $
—
—

— $2,547,647
267,416
—
197,809
—

—
—
—
—
$2,815,063

—
—
—
—
$ 197,809

62,632
—
—
—
62,632

—
269,354
152,003
35,296
$ 456,653

62,632
269,354
152,003
35,296
$3,532,157

$2,815,063

69,099

19,583

14,363

$2,918,108

—

128,710

43,049

442,290

614,049

Product lines:

Converged Packet Optical
Packet Networking
Platform Software and Services
Blue Planet Automation Software and

Services

Maintenance Support and Training
Installation and Deployment
Consulting and Network Design
Total revenue by product line

Timing of revenue recognition:

Products and services at a point in time
Products and services transferred over

time

Total revenue by timing of revenue

recognition

$2,815,063

$ 197,809

62,632

$ 456,653

$3,532,157

Year Ended November 2, 2019

Networking
Platforms

Platform
Software and
Services

Blue Planet
Automation
Software and
Services

Global
Services

Total

$2,562,841
348,477
—

— $
—
155,376

— $
—
—

— $2,562,841
348,477
—
155,376
—

—
—
—
—
$2,911,318

—
—
—
—
$ 155,376

54,555
—
—
—
54,555

—
261,337
148,233
41,312
$ 450,882

54,555
261,337
148,233
41,312
$3,572,131

$2,911,318

55,530

17,697

18,802

$3,003,347

—

99,846

36,858

432,080

568,784

Product lines:

Converged Packet Optical
Packet Networking
Platform Software and Services
Blue Planet Automation Software and

Services

Maintenance Support and Training
Installation and Deployment
Consulting and Network Design
Total revenue by product line

Timing of revenue recognition:

Products and services at a point in time
Products and services transferred over

time

Total revenue by timing of revenue

recognition

$2,911,318

$ 155,376

54,555

$ 450,882

$3,572,131

Effective the beginning of fiscal 2020, Ciena’s Global Sales and Marketing organization combined its
previous North America and CALA regions into a new “Americas” sales region. Accordingly, Ciena reflects its
sales geographically around the following markets: (i) Americas; (ii) EMEA; and (iii) APAC. Within each

105

geographic area, Ciena maintains specific teams or personnel that focus on a particular region, country,
customer or market vertical. These teams include sales management, account salespersons and sales engineers,
as well as services professionals and commercial management personnel.

For the periods below, Ciena’s geographic distribution of revenue was as follows (in thousands):

Geographic Distribution:

Americas
EMEA
APAC

Total revenue by geographic distribution

Year Ended

October 31, 2020

November 2, 2019

2,469,278 $
591,468
471,411
3,532,157 $

2,503,913
566,718
501,500
3,572,131

•

Networking Platforms revenue reflects sales of Ciena’s Converged Packet Optical and Packet
Networking product lines.

•

Converged Packet Optical - includes the 6500 Packet-Optical Platform, Waveserver®
stackable interconnect system, the 6500 Reconfigurable Line System (RLS) and the 5400
family of Packet-Optical Platforms. This product line also includes sales of the Z-Series
Packet-Optical Platform.

Packet Networking - includes the 3000 family of service delivery switches and service
aggregation switches and the 5000 family of service aggregation switches. This product line
also includes the 8700 Packetwave Platform, the Ethernet packet configuration for the 5410
Service Aggregation Switch, and the 6500 Packet Transport System (PTS), which combines
packet switching, control plane operation, and integrated optics.

The Networking Platforms segment revenue also includes sales of operating system software and
enhanced software features embedded in each of the product lines above. Revenue from this segment is
included in product revenue on the Consolidated Statements of Operations. Operating system software
and enhanced software features embedded in Ciena hardware are considered distinct performance
obligations for which the revenue is generally recognized upfront at a point in time upon transfer of
control.

•

Platform Software and Services provides analytics, data, and planning tools to assist customers in
managing Ciena’s Networking Platforms products in their networks. Ciena’s platform software
includes its Manage, Control and Plan (MCP) domain controller solution, OneControl Unified
Management System, as well as planning tools and a number of legacy software solutions that support
our installed base of network solutions. Platform software-related services revenue includes sales of
subscription, installation, support, and consulting services related to Ciena’s software platforms,
operating system software and enhanced software features embedded in each of the Networking
Platforms product lines above. Revenue from the software portion of this segment is included in
product revenue on the Consolidated Statements of Operations. Revenue from services portions of this
segment is included in services revenue on the Consolidated Statements of Operations.

Blue Planet Automation Software and Services is a comprehensive, micro-services, standards-based
open software suite, together with related services, that enables customers to implement large-scale
software and IT-led OSS transformations by transforming legacy networks into “service ready”
networks, accelerating the creation, delivery and lifecycle management of new, cloud-based services.
Ciena’s Blue Planet Automation Platform includes multi-domain service orchestration (MDSO),
inventory management (BPI), route optimization and analysis (ROA), network function virtualization

106

orchestration (NFVO), and unified assurance and analytics (UAA). Services revenue includes sales of
subscription, installation, support, consulting and design services related to Ciena’s Blue Planet
Automation Platform. Revenue from the software portion of this segment is included in product
revenue on the Consolidated Statements of Operations. Revenue from services portions of this segment
is included in services revenue on the Consolidated Statements of Operations.

Ciena’s software platform revenue typically reflects either perpetual or term-based software licenses, and
these sales are considered a distinct performance obligation where revenue is generally recognized upfront at a
point in time upon transfer of control. Revenue from software subscription and support are recognized ratably
over the period during which the services are performed. Revenue from professional services for solution
customization, software and solution support services, consulting and design, and build-operate-transfer
services relating to Ciena’s software offerings are recognized over time with Ciena applying the input method to
determine the amount of revenue to be recognized in a given period.

•

Global Services reflects sales of a broad range of Ciena’s services for maintenance support and
training, installation and deployment, and consulting and network design activities. Revenue from this
segment is included in services revenue on the Consolidated Statements of Operations.

Ciena’s Global Services are considered a distinct performance obligation where revenue is generally
recognized over time. Revenue from maintenance support is recognized ratably over the period during
which the services are performed. Revenue from installation and deployment services and consulting
and network design services are recognized over time with Ciena applying the input method to
determine the amount of revenue to be recognized in a given period. Revenue from training services is
generally recognized at a point in time upon completion of the service.

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities (deferred

revenue) from contracts with customers (in thousands):

Accounts receivable, net
Contract assets for unbilled accounts receivable
Deferred revenue

Balance at October 31, 2020
719,405
$
85,843
$
158,363
$

Balance at November 2, 2019
724,854
$
84,046
$
156,873
$

Our contract assets represent unbilled accounts receivable where transfer of a product or service has
occurred but invoicing is conditional upon completion of future performance obligations. These amounts are
primarily related to installation and deployment and professional services arrangements where transfer of
control has occurred, but Ciena has not yet invoiced the customer. Contract assets are included in prepaid
expenses and other current assets in the Consolidated Balance Sheets. See Note 10 below.

Contract liabilities consist of deferred revenue and represent advanced payments against non-cancelable

customer orders received prior to revenue recognition. Ciena recognized approximately $101.9 million and
$95.1 million of revenue during fiscal 2020 and 2019, respectively, that was included in the deferred revenue
balance at November 3, 2019 and November 4, 2018, respectively. Revenue recognized due to changes in
transaction price from performance obligations satisfied or partially satisfied in previous periods was immaterial
during fiscal 2020 and 2019.

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Capitalized Contract Acquisition Costs

Capitalized contract acquisition costs consist of deferred sales commissions and were $15.3 million and
$15.7 million as of October 31, 2020 and November 2, 2019, respectively, and are included in other current
assets and other assets. The amortization expense associated with these costs was $22.4 million and
$18.6 million during fiscal 2020 and fiscal 2019, respectively, and are included in sales and marketing expense.

Remaining Performance Obligations

Remaining Performance Obligations (“RPO”) are comprised of non-cancelable customer purchase orders

for products and services that are awaiting transfer of control for revenue recognition under the applicable
contract terms. As of October 31, 2020, the aggregate amount of RPO was $1.0 billion. As of October 31, 2020,
Ciena expects approximately 81% of the RPO to be recognized as revenue within the next twelve months.

(3) BUSINESS COMBINATIONS

Centina Systems, Inc. Acquisition

On November 2, 2019, Ciena acquired Centina Systems, Inc. (“Centina”), a provider of service assurance

analytics and network performance management solutions, for approximately $34.0 million in cash. This
transaction has been accounted for as the acquisition of a business.

During fiscal 2020, Ciena incurred approximately $0.8 million of acquisition-related costs associated with

this transaction. These costs primarily reflect fees associated with financial, legal and accounting advisors.

The following table summarizes the final purchase price allocation related to the acquisition based on the

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

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other

Equipment, furniture and fixtures

Goodwill

Customer relationships and contracts

Developed technology

Accounts payable

Accrued liabilities

Deferred revenue

Deferred tax liability

Total purchase consideration

Amount

5,718

610

536

13,055

400

22,200

(47)

(286)

(1,493)

(6,692)

34,018

Customer relationships and contracts represent agreements with existing Centina customers and have an

estimated useful life of two years.

Developed technology represents purchased technology that has reached technological feasibility and for
which Centina had substantially completed development as of the date of acquisition. Fair value was determined
using future discounted cash flows related to the projected income stream of the developed technology for a
discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed
technology is amortized on a straight-line basis over its estimated useful life of five years.

108

The goodwill generated from the acquisition of Centina is primarily related to expected synergies. The total

goodwill amount was recorded in the Blue Planet Automation Software and Services segment. The goodwill is
not deductible for income tax purposes.

Pro forma disclosures have not been included due to immateriality.

DonRiver Acquisition

On October 1, 2018, Ciena acquired Don River Holdings, LLC (“ DonRiver”), a global software and
services company specializing in federated network and service inventory management solutions within the
service provider Operational Support Systems (OSS) environment. This transaction has been accounted for as
the acquisition of a business.

During fiscal 2020, fiscal 2019 and fiscal 2018, Ciena incurred approximately $6.9 million, $7.5 million

and $3.5 million, respectively. These costs and expenses include fees associated with financial, legal and
accounting advisors, severance and other employee-related costs associated with our acquisition of DonRiver,
including the contingent compensation portion of the three year earn-out agreement as described below. These
costs were recorded in acquisition and integration costs in the Consolidated Statement of Operations.

The following table summarizes the purchase price for the acquisition (in thousands):

Cash

Contingent consideration

Total purchase price

Amount

43,283

10,900

54,183

The following table summarizes the final purchase price allocation related to the acquisition based on the

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

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other long-term assets

Goodwill

Customer relationships and contracts

Developed technology

Deferred revenue

Other current and long-term liabilities

Total purchase price

Amount

1,025

4,790

372

10,453

37,700

9,700

(193)

(9,664)

54,183

The acquisition of DonRiver included a $28.5 million three-year earn-out arrangement that consisted of
both a contingent consideration element and a contingent compensation element. The contingent consideration
element required additional cash consideration to be paid based on the future revenues generally derived from
the DonRiver business over a 25-month period from the acquisition date through October 31, 2020. The
undiscounted amounts potentially payable by Ciena under the contingent consideration element ranged from
$0.0 million to $15.0 million in the aggregate over the period. The $10.9 million fair value of the contingent
consideration element as of the acquisition date was estimated by applying the income approach based on a
discounted cash flow technique using Monte Carlo simulations. See Note 7 below. The contingent
compensation element of the earn-out arrangement included an employment condition for the selling
shareholders who became employees of Ciena upon the completion of the acquisition. The range of amounts
that Ciena could pay under the contingent compensation element is between $0.0 million and $13.5 million in

109

the aggregate over the period. These amounts are accrued over the period earned and recorded as expense in the
acquisition and integration costs line item in the Consolidated Statement of Operations. During fiscal 2020,
fiscal 2019 and fiscal 2018, Ciena recorded $6.9 million, $5.1 million and $0.4 million, of contingent
compensation associated with the earn-out arrangement, respectively.

The contingent consideration liability established at closing had an acquisition date fair value of $10.9
million. As of November 2, 2019, the fair value of the contingent consideration liability was $8.1 million.
During fiscal 2020 and fiscal 2019, decreases of $3.7 million and $2.8 million, respectively, were recorded as
reductions to expense in the acquisition and integration cost line item in the Consolidated Statement of
Operations. During fiscal 2019, $4.4 million of the total contingent consideration liability was earned. This
payment was paid during the first quarter of fiscal 2020. As of October 31, 2020, no contingent consideration
liability remained.

Customer relationships and contracts represent agreements with existing DonRiver customers. Customer
relationships and contracts are amortized on a straight-line basis over their estimated useful life of seven years.
Fair value was determined using the multi-period excess earnings method based on the present value of the
incremental after-tax cash flows (or “excess earnings”) attributable to customer relationships for a discrete
projection period.

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

which DonRiver had substantially completed development as of the date of acquisition. Fair value was
determined using future discounted cash flows related to the projected income stream of the developed
technology for a discrete projection period. Cash flows were discounted to their present value as of the closing
date. Developed technology is amortized on a straight-line basis over its estimated useful life of seven years.

The goodwill generated from the acquisition of DonRiver is primarily related to expected synergies. The

total goodwill amount was recorded in the previous Software and Software-Related Services segment. The
goodwill related to this acquisition is not deductible for tax purposes.

Pro forma disclosures have not been included due to immateriality.

Packet Design Acquisition

On July 2, 2018, Ciena acquired Packet Design, a provider of network performance management software

focused on Layer 3 network optimization, topology and route analytics, in a cash transaction for
approximately $41.1 million in cash. This transaction has been accounted for as the acquisition of a business.

During fiscal 2018, Ciena incurred approximately $1.6 million of acquisition-related costs associated with

this transaction. There were minimal acquisition-related costs associated with this transaction during fiscal
2019. These costs and expenses include fees associated with financial, legal and accounting advisors and
severance and other employment-related costs, including payments to certain former Packet Design employees.

The following table summarizes the final purchase price allocation related to the acquisition based on the

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

110

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other

Equipment, furniture and fixtures

Goodwill

Customer relationships and contracts

Developed technology

Accounts payable

Accrued liabilities

Deferred revenue

Total purchase price

Amount

642

1,525

450

20,304

2,200

21,900

(165)

(657)

(5,176)

41,054

Customer relationships and contracts represent agreements with existing Packet Design customers.
Customer relationships and contracts are amortized on a straight line basis over their estimated useful life of
three years.

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

which Packet Design had substantially completed development as of the date of acquisition. Fair value was
determined using future discounted cash flows related to the projected income stream of the developed
technology for a discrete projection period. Cash flows were discounted to their present value as of the closing
date. Developed technology is amortized on a straight line basis over its estimated useful life of five years.

The goodwill generated from the acquisition of Packet Design is primarily related to expected synergies.
The total goodwill amount was recorded in the previous Software and Software-Related Services segment. The
goodwill related to this acquisition is not deductible for tax purposes.

Pro forma disclosures have not been included due to immateriality.

(4) 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, which are included
in Accrued liabilities and other short-term obligations on Ciena’s Consolidated Balance Sheets, for the fiscal
years indicated (in thousands):

111

Balance at October 28, 2017
Charges
Cash payments
Balance at November 3, 2018
Charges
Cash payments
Balance at November 2, 2019
Charges
Adjustments related to ASC 842
Cash payments
Balance at October 31, 2020
Current restructuring liabilities
Non-current restructuring liabilities

Consolidation
of excess
facilities and other
restructuring
activities

Workforce
reduction

$
$
$

1,291
14,853 (1)
(14,036)
2,108
13,779 (2)
(11,904)
3,983
7,282 (3)
—
(8,350)
2,915
2,915
—

$
$
$

1,648
3,890 (4)
(3,799)
1,739
10,759 (5)
(1,338)
11,160
15,370 (6)
(11,160) (7)
(15,370)
—
—
—

$
$
$

Total

2,939
18,743
(17,835)
3,847
24,538
(13,242)
15,143
22,652
(11,160)
(23,720)
2,915
2,915
—

_________________________________
(1) During fiscal 2018, Ciena recorded a charge of $14.9 million of severance and other employee-related costs
associated with a workforce reduction of approximately 240 employees.
(2) During fiscal 2019, Ciena recorded a charge of $13.8 million of severance and other employee-related costs
associated with a workforce reduction of approximately 283 employees.
(3) During fiscal 2020, Ciena recorded a charge of $7.3 million of severance and other employee-related costs
associated with a workforce reduction of approximately 149 employees.
(4) Reflects unfavorable lease commitments in connection with a portion of facilities located in Petaluma,
California and in Gurgaon, India.
(5) Reflects unfavorable lease commitments in connection with a portion of facilities located in Alpharetta,
Georgia, Spokane, Washington, Durham, North Carolina and Hanover, Maryland.
(6) Primarily represents costs and imputed interest expense related to restructured facilities and the redesign of
certain business processes.
(7) Represents restructuring reserve liability recognized as a reduction to Operating ROU assets, net in relation to
adoption of ASC 842. See Notes 1 and 17 for further discussion.

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

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

Year Ended

October 31, 2020 November 2, 2019 November 3, 2018
13,703
$

14,410

6,860

5,551
(13,022)
—
1,575
964

3
(9,800)
—
(737)
3,876

6,791
(19,434)
(12,070)
(1,019)
(12,029)

Interest income
Gain on non-hedge designated foreign currency forward
contracts
Foreign currency exchange losses
Loss on fair value of debt conversion liability
Other
Interest and other income (loss), net

112

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
2020, 2019 and 2018, Ciena recorded $13.0 million, $9.8 million and $19.4 million, respectively, in exchange
rate losses, as a result of monetary assets and liabilities that were transacted in a currency other than the entity’s
functional currency, and the related remeasurement adjustments were recorded in interest and other income
(loss), net. 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 also reported in interest and other income (loss), net. During fiscal 2019, Ciena recorded
minimal gains from non-hedge designated foreign currency forward contracts. For fiscal 2020 and fiscal 2018,
Ciena recorded gains of $5.6 million and $6.8 million, respectively, from non-hedge designated foreign
currency forward contracts.

(6) SHORT-TERM AND LONG-TERM INVESTMENTS

As of October 31, 2020, investments are comprised of the following (in thousands):

U.S. government obligations:

Included in short-term investments

Included in long-term investments

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

October 31, 2020

150,559

82,252

232,811

109

—

109

(1) $

150,667

(26)

82,226

(27) $

232,893

As of November 2, 2019, investments are comprised of the following (in thousands):

U.S. government obligations:

Included in short-term investments

Included in long-term investments

November 2, 2019

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

109,715

10,017

119,732

225

—

225

— $

109,940

(3)

10,014

(3) $

119,954

The following table summarizes the legal maturities of debt investments at October 31, 2020 (in

thousands):

Less than one year

Due in 1-2 years

October 31, 2020

Amortized Cost
150,559
$

82,252

232,811

Estimated Fair
Value

150,667

82,226

232,893

(7) FAIR VALUE MEASUREMENTS

As of the dates indicated, the following tables summarize the fair value of assets and liabilities that were

recorded at fair value on a recurring basis (in thousands):

113

Assets:

Money market funds

Bond mutual fund

Deferred compensation plan assets

U.S. government obligations

Foreign currency forward contracts

Total assets measured at fair value

Liabilities:

Foreign currency forward contracts

Forward starting interest rate swaps

Total liabilities measured at fair value

Assets:
Money market funds
Deferred compensation plan assets
U.S. government obligations
Foreign currency forward contracts
Total assets measured at fair value

Liabilities:
Foreign currency forward contracts
Forward starting interest rate swaps
Contingent consideration
Total liabilities measured at fair value

October 31, 2020

Level 1

Level 2

Level 3

Total

889,293

— $ — $

889,293

50,361

8,213

—

232,893

—

50,361

8,213

232,893

947,867

232,975

$ — $

1,180,842

— $

—

681

$ — $

28,513

—

— $

29,194

$ — $

681

28,513

29,194

Level 1

Level 2

Level 3

Total

November 2, 2019

759,114
4,974
—
—
764,088

— $
—
119,954
1,570
121,524

— $
—
—
—
— $

759,114
4,974
119,954
1,570
885,612

— $
—
—
— $

35
21,093
—
21,128

— $
—
3,705
3,705

35
21,093
3,705
24,833

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

Sheet as follows (in thousands):

114

Assets:

Cash equivalents

Short-term investments

Prepaid expenses and other

Other long-term assets

Level 1

Level 2

Level 3

Total

October 31, 2020

939,654

— $

—

8,213

150,667

82,226

—

939,654

150,667

90,439

Total assets measured at fair value

947,867

232,975

— $

1,180,842

Liabilities:
Accrued liabilities and other short-term
obligations

Other long-term obligations

Total liabilities measured at fair value

— $

—

— $

681

28,513

29,194

— $

—

— $

681

28,513

29,194

Assets:

Cash equivalents

Short-term investments

Prepaid expenses and other

Long-term investments

Other long-term assets

Level 1

Level 2

Level 3

Total

November 2, 2019

759,114

— $

—

4,974

109,940

1,570

10,014

—

759,114

109,940

1,570

10,014

4,974

Total assets measured at fair value

764,088

121,524

— $

885,612

Liabilities:
Accrued liabilities and other short-term
obligations

Other long-term obligations

Total liabilities measured at fair value

— $

—

— $

21,093

21,128

— $

3,705

24,798

24,833

Ciena did not have any transfers between Level 1 and Level 2 fair value measurements during the periods

presented.

As of October 31, 2020, none of Ciena’s existing liabilities were classified as Level 3. As of November 2,

2019, Ciena’s Level 3 liability included $3.7 million in accrued liabilities and other short-term obligations. This
reflected a contingent consideration element of a three-year payout arrangement associated with Ciena’s
purchase of DonRiver in the fourth quarter of fiscal 2018. During the third quarter of fiscal 2020, the total
contingent consideration liability was recorded as a reduction to expense in acquisition and integration costs on
the Consolidated Statements of Operations to reflect the fair value of the consideration using the income
approach. No contingent consideration liability remains in Other long-term obligations on the Consolidated
Balance Sheets as of October 31, 2020.

(8) ACCOUNTS RECEIVABLE

115

As of October 31, 2020, no customer accounted for 10.0% of net accounts receivable. As of November 2,
2019, one customer accounted for 12.0% of net accounts receivable. Ciena has not historically experienced a
significant amount of bad debt expense. The reduction in Ciena’s allowance for doubtful accounts as of October
31, 2020 compared to November 2, 2019 is primarily due to the final settlement from a significant asset
impairment of $12.2 million for a trade receivable related to a single customer in the APAC region recorded in
fiscal 2017. The following table summarizes the activity in Ciena’s allowance for doubtful accounts for the
fiscal years indicated (in thousands):

Year Ended
November 3, 2018
November 2, 2019
October 31, 2020

$
$
$

Beginning Balance

Provisions

Net Deductions

Ending Balance

17,580
17,378
20,101

$
$
$

2,700
6,740
8,855

$
$
$

2,902
4,017
18,358

$
$
$

17,378
20,101
10,598

(9) 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

Reserve for excess and obsolescence

October 31, 2020 November 2, 2019
99,041
$

119,481

13,738

210,050

40,747

384,016

13,657

226,622

53,051

392,371

(39,637)

(47,322)

344,379

345,049

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, which are affected by changes in Ciena’s strategic direction, discontinuance of a product
or introduction of newer versions of products, declines in the sales of or forecasted demand for certain products,
and general market conditions. During fiscal 2020, fiscal 2019 and fiscal 2018, Ciena recorded a provision for
excess and obsolescence of $24.7 million, $28.1 million, and $30.6 million, respectively, primarily related to a
decrease in the forecasted demand for certain Networking Platforms 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
November 3, 2018
November 2, 2019
October 31, 2020

$
$
$

Beginning Balance

Provisions

Disposals

Ending Balance

51,206
50,938
47,322

$
$
$

30,615
28,085
24,701

$
$
$

30,883
31,701
32,386

$
$
$

50,938
47,322
39,637

(10) PREPAID EXPENSES AND OTHER

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

116

Contract assets for unbilled accounts receivable

Prepaid VAT and other taxes

Prepaid expenses

Product demonstration equipment, net

Other non-trade receivables

Capitalized contract acquisition costs

Deferred deployment expense

Derivative assets

Restricted cash

October 31, 2020 November 2, 2019
84,046
$

85,843

72,838

70,647

44,793

21,981

11,296

604

—

84,706

48,680

38,900

28,136

11,677

125

1,570

308,084

297,914

Depreciation of product demonstration equipment was $9.0 million, $8.8 million and $9.0 million for fiscal

2020, 2019 and 2018, respectively.

For further discussion on contract assets and capitalized contract acquisition costs, see Note 2 above.

(11) EQUIPMENT, BUILDING, FURNITURE AND FIXTURES

As of the dates indicated, equipment, building, furniture and fixtures are comprised of the following (in

thousands):

Equipment, furniture and fixtures

Building subject to finance lease

Leasehold improvements

Accumulated depreciation and amortization

October 31, 2020 November 2, 2019
544,012
$

523,231

70,791

89,407

683,429

(411,052)

71,760

94,626

710,398

(423,514)

272,377

286,884

During fiscal 2020, fiscal 2019 and fiscal 2018, Ciena recorded depreciation of equipment, building,
furniture and fixtures, and amortization of leasehold improvements of $84.9 million, $78.8 million and $75.3
million, respectively.

117

(12) 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

Gross
Intangible

395,726
3,565

October 31, 2020

Accumulated
Amortization
$ (335,512) $

(2,529)

Net
Intangible

Gross
Intangible

60,214
1,036

373,526
3,565

November 2, 2019

Accumulated
Amortization
$ (308,261) $

(2,244)

Net
Intangible

65,265
1,321

374,659
773,950

(339,262)
$ (677,303) $

35,397
96,647

374,381
751,472

(328,186)
$ (638,691) $

46,195
112,781

The aggregate amortization expense of intangible assets was $38.6 million, $35.1 million and $25.8 million

for fiscal 2020, fiscal 2019 and fiscal 2018, respectively. Expected future amortization of intangible assets for
the fiscal years indicated is as follows (in thousands):

Fiscal Year
2021

2022

2023

2024

2025

(13) GOODWILL

Amount
$ 35,452

29,232

14,422

11,371

6,170

$ 96,647

The following table presents the goodwill allocated to Ciena’s operating segments as of October 31,

2020 and November 2, 2019, as well as the changes to goodwill during fiscal 2020 (in thousands):

Platform Software and Services
Blue Planet Automation
Software and Services
Networking Platforms
Total

Balance at
November 2, 2019
156,191
$

Acquisitions
$

— $

75,994
65,752
297,937

13,055
—
13,055

Impairments

Translation

Balance at
October 31, 2020
156,191

— $

—
(145)
(145) $

89,049
65,607
310,847

— $

—
—
— $

(14) OTHER BALANCE SHEET DETAILS

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

118

Maintenance spares inventory, net
Cost method equity investments(1)
Capitalized contract acquisition costs
Deferred debt issuance costs, net(2)
Restricted cash

Other

October 31, 2020 November 2, 2019
55,482
$

62,077

13,408

4,001

1,596

21,664

102,830

10,727

3,994

1,609

17,132

88,986

(1) Ciena recorded an upward adjustment of $2.7 million to the carrying value of cost method equity investments
to interest and other income (loss), net on the Consolidated Statements of Operations during the fourth quarter
of fiscal 2020.
(2) Deferred debt issuance costs relate to Ciena’s senior secured asset-based revolving credit facility (the “ABL
Credit Facility”) entered into during fiscal 2019 and its predecessor credit facility (described in Note 19 below).
The amortization of deferred debt issuance costs for the ABL Credit Facility and its predecessor is included in
interest expense, and was $0.4 million for fiscal 2020, and $0.3 million for fiscal 2019 and fiscal 2018.

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

Finance lease liability

Interest payable

Contingent consideration

Other

October 31, 2020 November 2, 2019
182,363
$

135,462

49,868

26,945

2,836

672

—

118,349

334,132

48,498

22,290

2,764

1,007

4,372

121,446

382,740

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

thousands):

Year Ended
November 3, 2018

November 2, 2019

October 31, 2020

Beginning Balance

Current Year
Provisions

Settlements

Ending Balance

42,456

44,740

48,498

20,992

23,105

22,417

18,708

19,347

21,047

44,740

48,498

49,868

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, 2020 November 2, 2019
27,366
$

17,534

140,829

158,363

129,507

156,873

(108,700)

(111,381)

49,663

45,492

119

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

Finance lease liability

Interest rate swap liability

Income tax liability

Deferred tenant allowance

Straight-line rent

Contingent consideration

Other

(15) DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives

October 31, 2020 November 2, 2019
65,284
$

61,565

28,513

16,386

—

16,721

21,093

20,546

6,248

5,434

3,705

26,437

123,185

148,747

During fiscal 2020 and fiscal 2019, Ciena entered into forward contracts to hedge its foreign exchange
exposure from its forecasted cash flows in order 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 $254.9 million and $197.4 million as of October 31, 2020 and
November 2, 2019, respectively. These foreign exchange contracts have maturities of 24 months or less and
have been designated as cash flow hedges.

During fiscal 2020 and fiscal 2019, Ciena had forward contracts to hedge its foreign exchange exposure in
order to reduce the variability in various currencies of certain balance sheet items. The notional amount of these
contracts was approximately $212.0 million and $206.0 million as of October 31, 2020 and November 2, 2019.
These foreign exchange contracts have maturities of 12 months or less and have not been designated as hedges
for accounting purposes.

Interest Rate Derivatives

Ciena is exposed to floating rates of LIBOR interest on its term loan borrowings (see Note 18 below) and
has hedged such risk by entering into floating to fixed interest rate swap arrangements (“interest rate swaps”).
The interest rate swaps fix the LIBOR rate of approximately $350.0 million of the principal amount of the New
2025 Term Loan at 2.957% through September 2023. The total notional amount of these interest rate swaps in
effect as of October 31, 2020 was $350.0 million.

Ciena expects the variable rate payments to be received under the terms of the interest rate swaps to offset

exactly 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 Notes 5 and 7 above.

(16) ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated balances of other comprehensive income

(“AOCI”), net of tax (in thousands):

120

Unrealized Gain/(Loss) on

Available-for-
Sale Securities

Foreign
Currency
Forward
Contracts

Forward Starting
Interest Rate
Swaps

Cumulative

Foreign
Currency
Translation
Adjustment

Total

(451) $

(1,386) $

218

(9,398) $

(11,017)

—

(3,242)

1,568

(425)

(3,060)

6,011

188

6,417

686

—

3,481

1,756

(8,712)

(5,780)

577

—

152

(18,948)

(763)

(19,120)

3,971

(1,155)

—

2,816

925

(13,686)

(9,475)

(22,084)

(107)

(3,891)

(12,302)

(4,174)

(20,474)

—

2,747

4,453

—

7,200

(219) $

(21,535) $

(13,649) $

(35,358)

Balance at October 28,
2017
Other comprehensive gain
(loss) before
reclassifications
Amounts reclassified from
AOCI
Balance at November 3,
2018
Other comprehensive gain
(loss) before
reclassifications
Amounts reclassified from
AOCI
Balance at November 2,
2019
Other comprehensive loss
before reclassifications
Amounts reclassified from
AOCI
Balance at October 31,
2020

All amounts reclassified from AOCI related to settlement (gains) losses on foreign currency forward
contracts designated as cash flow hedges impacted revenue, research and development expense or sales and
marketing expense on the Consolidated Statements of Operations. All amounts reclassified from AOCI related
to settlement (gains) losses on forward starting interest rate swaps designated as cash flow hedges impacted
interest and other income (loss), net on the Consolidated Statements of Operations.

(17) LEASES

Ciena leases over 1.3 million square feet of facilities globally related to the ongoing operations of its
business segments and related functions. Ciena’s principal executive offices are located in Hanover, Maryland.
Ciena’s largest facilities are research and development centers located in Ottawa, Canada and Gurgaon, India.
Ciena also has engineering and/or service delivery facilities located in San Jose, California; Alpharetta, Georgia;
Quebec, Canada; Austin, Texas; and Pune and Bangalore, India. In addition, Ciena leases various smaller
offices in regions throughout the world to support sales and services operations. Office facilities are leased
under various non-cancelable operating or finance leases. Ciena's current leases have remaining terms that vary
up to 12 years. Certain leases provide for options to extend up to 10 years and/or options to terminate within six
years.

As discussed in Note 1 above, the restructuring reserve liability related to Ciena’s subleased space and
vacated space for which subleases are being pursued was $11.1 million as of November 2, 2019. Upon Ciena’s
adoption of ASC 842 on November 3, 2019, the existing Accrued liabilities and other short-term obligations
and Other long-term obligations were reclassified as a reduction of the Operating ROU assets recorded in
accordance with the updated guidance.

Leases included in the Consolidated Balance Sheets were as follows (in thousands):

121

Classification

Balance as of
October 31, 2020

Operating leases:

Operating ROU Assets

Operating lease liabilities

Finance leases:

Buildings, gross
Less: accumulated
depreciation
Buildings, net

Operating right-of-use assets
Operating lease liabilities and Long-term operating lease
liabilities

Equipment, building, furniture and fixtures, net

Finance lease liabilities

Accrued liabilities and other short-term obligations and
other long-term obligations

57,026

80,450

70,791

(17,837)
52,954

64,401

ROU assets that involve subleased or vacant space aggregate $5.0 million as of October 31, 2020. These
assets may become impaired if tenants are unable to service their obligations under the sublease, and/or if the
estimates as to occupancy are not realized, either of which may be more likely as COVID-19 impacts evolve.

The components of lease expense included in the Consolidated Statement of Operations were as follows (in

thousands):

Operating lease costs
Finance lease cost:

Classification
Operating expense

Year Ended
October 31, 2020

17,544

Operating expense
Interest expense

Amortization of finance ROU asset
Interest on finance lease liabilities

4,465
4,777
9,242
Total finance lease cost
2,976
Non-capitalized lease cost
Variable lease cost(1)
5,185
Net lease cost(2)
34,947
(1) Variable lease costs include expenses relating to insurance, taxes, maintenance and other costs required by the
applicable operating lease. Variable lease costs are determined by whether they are to be included in base rent
and if amounts are based on a consumer price index.
(2) Excludes other operating expense of $11.0 million for the fiscal year ended October 31, 2020 related to
amortization of leasehold improvements.

Operating expense
Operating expense

Future minimum lease payments and the present value of minimum lease payments related to operating and

finance leases as of October 31, 2020 were as follows (in thousands):

122

2021
2022
2023
2024
2025
Thereafter
Total lease payments

Less: Imputed interest

Present value of lease liabilities
Less: Current portion of present value of
minimum lease payments
Long-term portion of present value of
minimum lease payments

Operating Leases
20,989
18,689
15,415
13,118
8,838
9,365
86,414
(5,964)
80,450

(19,035)

Finance Leases

Total

7,444
7,754
7,958
7,958
8,118
58,101
97,333
(32,932)
64,401

(2,836)

28,433
26,443
23,373
21,076
16,956
67,466
183,747
(38,896)
144,851

(21,871)

61,415

61,565

122,980

As of October 31, 2020, the weighted average remaining lease terms and weighted average discount rates

for operating and finance leases were as follows (in thousands):

Weighted-average remaining lease term in years:

Operating leases

Finance leases

Weighted-average discount rates:

Operating leases

Finance leases

4.87

11.71

2.82 %

7.56 %

As of November 2, 2019, minimum aggregate rentals under operating leases were as follows (in

thousands):

2020
$ 28,776

2021
$ 24,184

2022
$ 16,767

2023
$ 13,393

2024
$ 10,632

Thereafter
$ 26,110

Total
$ 119,862

Operating leases(1)
(1) The amounts for operating lease commitments above include estimated variable expenses relating to
insurance, taxes, maintenance and other costs required by the applicable operating lease.

(18) SHORT-TERM AND LONG-TERM DEBT

New 2025 Term Loan

The net carrying values of Ciena’s term loan were comprised of the following for the fiscal periods

indicated (in thousands):

New 2025 Term Loan
Old 2025 Term Loan

Principal Balance
$
687,802
$

$
— $

October 31, 2020

Unamortized
Discount

Deferred Debt
Issuance Costs

(1,577) $
— $

(2,939) $
— $

Net Carrying
Value
683,286

$
— $

November 2,
2019

Net Carrying
Value

—
687,406

123

Deferred debt issuance costs deducted from the carrying amount of the term loan totaled $2.9 million at

October 31, 2020 and $3.6 million at November 2, 2019. 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 term loan. The amortization of deferred debt issuance costs for this term loan is included in interest expense,
and was $0.6 million during each of fiscal 2020 and fiscal 2019.

As of October 31, 2020, the estimated fair value of the term loan was $686.1 million. Ciena’s term loan is
categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its term loan using a market
approach based on observable inputs, such as current market transactions involving comparable securities.

On September 28, 2018, Ciena, as borrower, and Ciena Communications, Inc. and Ciena Government

Solutions, Inc., as guarantors, entered into an Increase Joinder and Refinancing Amendment to Credit
Agreement with the lenders party thereto and the Administrative Agent, pursuant to which Ciena refinanced its
term loan maturing on January 30,2022 (the “2022 Term Loan”) into term loan maturing on September 28, 2025
(the “Old 2025 Term Loan”). In connection with the transaction, Ciena received a loan in the amount of
$699.1 million, net of original discount, from the Old 2025 Term Loan and simultaneously repaid
$394.0 million of outstanding principal under the 2022 Term Loan, resulting in proceeds of $305.1 million. On
January 23, 2020, Ciena entered into a Refinancing Amendment to Credit Agreement pursuant to which Ciena
refinanced the entire outstanding amount of the Old 2025 Term Loan with an outstanding aggregate principal
amount of $693.0 million as of January 23, 2020 and incurred a new senior secured term loan in an aggregate
principal amount of $693.0 million and maturing on September 28, 2025 (the “New 2025 Term Loan”). The
New 2025 Term Loan requires Ciena to make installment payments of $1.73 million on a quarterly basis. Based
on the continuation of existing lenders, this arrangement was primarily accounted for as a modification of debt
and, as such, $0.4 million of debt issuance costs associated with the New 2025 Term Loan were expensed. The
aggregate balance of $3.4 million of debt issuance costs and approximately $1.9 million of original discount
from the Old 2025 Term Loan are included in the carrying value of the New 2025 Term Loan.

The Refinancing Amendment to Credit Agreement amends Ciena’s credit agreement, dated July 15, 2014,

as amended (the “Credit Agreement”) and provides that the New 2025 Term Loan will, among other things:

•

amortize in equal quarterly installments in aggregate amounts equal to 0.25% of the principal amount
of the New 2025 Term Loan as of January 23, 2020, with the balance payable at maturity;

be subject to mandatory prepayment provisions upon the occurrence of certain specified events
substantially similar to the 2022 Term Loan, including certain asset sales, debt issuances and receipt of
annual Excess Cash Flow (as defined in the Credit Agreement);

bear interest, at Ciena’s election, at a per annum rate equal to (a) LIBOR (subject to a floor of 0.00%)
plus an applicable margin of 1.75%, or (b) a base rate (subject to a floor of 1.00%) plus an applicable
margin of 1.00%; and

be repayable at any time at Ciena’s election, provided that repayment of the New 2025 Term Loan with
proceeds of certain indebtedness prior to July 23, 2020 will require a prepayment premium of 1.00% of
the aggregate principal amount of such prepayment.

(19) ABL CREDIT FACILITY

Ciena Corporation and certain of its subsidiaries are parties to the ABL Credit Facility, which provides for

a total commitment of $300 million with a maturity date of October 28, 2024. The ABL Credit Facility was
entered into on October 28, 2019 and replaced a predecessor senior secured asset-based revolving credit facility.
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, 2020, letters of credit totaling $83.0 million were outstanding under the ABL Credit

Facility. There were no borrowings outstanding under the ABL Credit Facility as of October 31, 2020.

124

(20) EARNINGS (LOSS) PER SHARE CALCULATION

The following tables (in thousands except per share amounts) reconcile Basic EPS and Diluted EPS. Basic
EPS is computed using the weighted average number of common shares outstanding. Diluted EPS is computed
using the weighted average number of the following, in each case, to the extent the effect is not anti-dilutive:
(i) common shares outstanding, (ii) shares issuable upon vesting of stock unit awards; and (iii) shares issuable
under Ciena’s employee stock purchase plan and upon exercise of outstanding stock options, using the treasury
stock method.

Numerator

Net income (loss)
Less: Loss on fair value of debt conversion liability
Net income (loss) used to calculate Diluted EPS

Denominator

Basic weighted average shares outstanding
Add: Shares underlying outstanding stock options,
employee stock purchase plan and restricted stock units

Diluted weighted average shares outstanding

EPS

Basic EPS

Diluted EPS

Year Ended

October 31, 2020 November 2, 2019 November 3, 2018
(344,690)
$
(12,894)
(357,584)

361,291
—
361,291

253,434
—
253,434

Year Ended

October 31, 2020 November 2, 2019 November 3, 2018
143,738

155,720

154,287

1,668

155,955

1,892

157,612

—

143,738

Year Ended

October 31, 2020 November 2, 2019 November 3, 2018
(2.40)
$

2.34

1.63

2.32

1.61

(2.49)

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, 2020 November 2, 2019 November 3, 2018
2,235

234

263

—

—
—
263

—

—
—
234

1,780

2,883
9,123
16,021

Shares underlying stock options and restricted stock units
Add: Shares underlying 3.75% Convertible Senior Notes
due 2018 (New Notes)
3.75% Convertible Senior Notes due October 15, 2018
(Original Notes)
4.0% Convertible Senior Notes due December 15, 2020
Total shares excluded due to anti-dilutive effect

(21) STOCKHOLDERS’ EQUITY

Stock Repurchase Program

125

On December 13, 2018, Ciena announced that its Board of Directors authorized a program to repurchase up

to $500 million of Ciena’s common stock. The program may be modified, suspended, or discontinued at any
time. Due to the continued uncertainty surrounding the duration and severity of potential macroeconomic
impacts of COVID-19, Ciena considered it prudent to temporarily suspend purchases of its common stock under
its stock repurchase program effective as of March 17, 2020. The reinstatement of the program and the amount
and timing of repurchases are subject to a variety of factors including liquidity, cash flow, stock price, and
general business and market conditions.

The following table summarizes activity of the stock repurchase program, reported based on trade date:

Shares
Repurchased

Weighted-
Average Price per
Share

Amount
Repurchased
(in thousands)
—

— $

Cumulative balance at November 3, 2018
Repurchase of common stock under the stock repurchase
program
Cumulative balance at November 2, 2019
Repurchase of common stock under the stock repurchase
program
Cumulative balance at October 31, 2020

— $

3,838,466
3,838,466

1,872,446
5,710,912

$
$

39.10
39.10

39.81
39.33

150,076
150,076

74,535
224,611

The purchase price for the shares of Ciena’s stock repurchased is reflected as a reduction of common stock

and additional paid-in capital.

Stock Repurchases Related to Restricted Stock Unit Tax Withholdings

Ciena repurchases shares of common stock to satisfy employee tax withholding obligations due upon
vesting of stock unit awards. The purchase price of $32.5 million for the shares of Ciena’s stock repurchased is
reflected as a reduction to stockholders’ equity. Ciena is required to allocate the purchase price of the
repurchased shares as a reduction of common stock and additional paid-in capital.

(22) 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

October 31, 2020

November 2, 2019

November 3, 2018

Year Ended

4,363

13,328

12,640

30,331

60,679

4,607

(947)

64,339

94,670

13,143

16,945

9,816

39,904

31,872

(9,159)

(2,861)

19,852

59,756

8,327

8,219

13,294

29,840

475,951 (1)
(8,202)

(4,118)

463,631

493,471

126

(1) The income tax expense for 2018 includes the impact of the remeasurement of the net deferred tax assets and
the federal transition tax. See further discussion below.

For the periods indicated, income before provision for income taxes consists of the following (in

thousands):

United States

Foreign

Total

Year Ended

October 31, 2020 November 2, 2019 November 3, 2018
106,972
$

256,461

387,697

68,264

56,729

41,809

455,961

313,190

148,781

Ciena’s foreign income tax as a percentage of foreign income may appear disproportionate compared to the

expected tax based on the U.S. federal statutory rate and is dependent on the mix of earnings and tax rates in
foreign jurisdictions.

For the periods indicated, the tax provision reconciles to the amount computed by multiplying income

before income taxes by the U.S. federal statutory rate of 21% for fiscal 2020 and fiscal 2019, and 23.4% for
fiscal 2018 (see note below) as follows:

Year Ended

Provision at statutory rate

Deferred tax assets remeasurement

Base Erosion and Anti-Abuse Tax

State taxes

Foreign taxes

Research and development credit

Non-deductible compensation

Fair value of debt conversion liability

Transition tax

Valuation allowance

Other

Effective income tax rate

October 31, 2020 November 2, 2019 November 3, 2018
23.41 %

21.00 %

— %

(1.02)%

2.21 %

0.51 %

(7.74)%

1.79 %

— %

0.02 %

3.58 %

0.41 %

20.76 %

— %

3.60 %

2.18 %

(0.37)%

(7.53)%

1.01 %

— %

0.29 %

(2.13)%

1.03 %

19.08 %

294.56 %

— %

(0.16)%

1.22 %

(8.80)%

3.39 %

1.90 %

23.23 %

(11.95)%

4.88 %

331.68 %

On December 22, 2017, the Tax Act was enacted. The Tax Act significantly revised the U.S. corporate

income tax by, among other things, lowering the statutory corporate income tax rate (“federal tax rate”) from
35% to 21% effective January 1, 2018, implementing a modified territorial tax system, and imposing a
mandatory one-time transition tax on accumulated earnings of foreign subsidiaries.

As a result of the decrease in the federal tax rate from 35% to 21% effective January 1, 2018, Ciena

computed its income tax expense for the November 3, 2018 fiscal year using a blended federal tax rate
of 23.41%. Ciena remeasured its DTA using the federal tax rate that will apply when the related temporary
differences are expected to reverse.

Our future income tax provisions and deferred tax balances may be affected by the amount of pre-tax
income, the jurisdictions where it is earned, the existence and utilizability of tax attributes, changes in tax laws
and business reorganizations. Ciena continues to monitor these items and will adopt strategies to address their
impact as appropriate.

127

In December 2017, the SEC issued Staff Accounting Bulletin No. 118, which addresses how a company
recognizes provisional amounts when it does not have the necessary information available, prepared or analyzed
(including computations) in reasonable detail to complete its accounting for the effect of the changes due to the
Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information
necessary to finalize its accounting, but cannot extend beyond one year. The final impact of the Tax Act may
differ from the above amounts to the extent they are provisional due to changes in interpretations of the Tax
Act, legislative action to address questions that arise because of the Tax Act, changes in accounting standards
for income taxes and related interpretations in response to the Tax Act, and any updates or changes to estimates
used in the provisional amounts. The enactment of the Tax Act resulted in Ciena recording a provisional tax
expense of $472.8 million in fiscal 2018. In the first quarter of fiscal 2019, the measurement period under the
Tax Act concluded, which resulted in immaterial adjustments to Ciena’s provisional estimates.

Ciena is also required to make accounting policy elections as a result of the Tax Act. These include whether
a valuation allowance is recorded for the estimated effect of the application of GILTI and BEAT or if these will
be treated as period costs when incurred. Ciena had made the incremental cash tax cost policy election with
respect to analyzing the impact of GILTI on the assessment of the realizability of net operating losses. The
realizability of U.S. tax carryforwards is not impacted by the BEAT, and the BEAT is a period cost when
incurred. Ciena is also required to elect to either treat taxes due on future GILTI inclusions in U.S. taxable
income as a current period expense when incurred or reflect such portion of the future GILTI inclusions in U.S.
taxable income that relate to existing basis differences in Ciena’s current measurement of deferred
taxes. Ciena’s accounting policy election is to treat the taxes due on future U.S. inclusions in taxable income
under GILTI as a period cost when incurred.

The significant components of DTA 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

Deferred tax asset, net of valuation allowance

Year Ended

October 31, 2020 November 2, 2019

73,825

504,233

188,157

33,017

799,232

54,183

455,007

302,325

39,405

850,920

(151,427)

(135,978)

647,805

714,942

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and

penalties, is as follows (in thousands):

128

Unrecognized tax benefits at October 28, 2017

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 November 3, 2018

Increase related to positions taken in prior period

Reductions related to settlements with taxing authorities

Reductions related to expiration of statute of limitations

Unrecognized tax benefits at November 2, 2019

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, 2020

Amount

141,582

(46,400)

2,482

(1,301)

96,363

1,959

(1,224)

(2,494)

94,604

653

1,151

(660)

95,748

As of October 31, 2020 and November 2, 2019, Ciena had accrued $3.9 million and $3.0 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 $0.9 million and $1.1 million were recorded as an
expense to the provision for income taxes during fiscal 2020 and fiscal 2018, respectively. During fiscal 2019,
Ciena recorded a provision for interest and penalties in its provision for income taxes of $1.0 million. 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.

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 these foreign earnings outside the U.S. As of October 31, 2020,
the cumulative amount of such temporary differences for which a deferred tax liability has not been recognized
is an estimated $375.0 million. If these earnings were distributed to the U.S., Ciena would be subject to
additional foreign withholding taxes of approximately $25.0 million. Additionally, there are no other significant
temporary differences for which a deferred tax liability has not been recognized.

As of October 31, 2020, Ciena continues to maintain a valuation allowance against net deferred tax assets
of $151.4 million primarily related to state and foreign net operating losses and credits that Ciena estimates it
will not be able to use.

The following table summarizes the activity in Ciena’s valuation allowance against its gross deferred tax

assets (in thousands):

Year Ended
November 3, 2018

November 2, 2019

October 31, 2020

Beginning Balance

Additions

Deductions

Ending Balance

185,898

142,650

135,978

23,720

27,459

25,749

66,968

34,131

10,300

142,650

135,978

151,427

As of October 31, 2020, Ciena had a $38.2 million income tax credit carry forward which begins to expire

in fiscal 2025. Ciena’s ability to use credit carry forwards is subject to limitations pursuant to the ownership
change rules of Internal Revenue Code Section 382.

129

million of deferred tax assets related to previously unrecognized tax benefits. This was recorded as a
cumulative-effect adjustment to retained earnings as of the beginning of the first quarter of fiscal 2018.

(23) SHARE-BASED COMPENSATION EXPENSE

Ciena has outstanding equity awards issued under its 2017 Omnibus Incentive Plan (the “2017 Plan”), its
2008 Omnibus Incentive Plan, and certain legacy equity plans and equity plans assumed as a result of previous
acquisitions. All equity awards granted on or after March 23, 2017 are made exclusively from the 2017 Plan.
Ciena also makes shares of its common stock available for purchase under its Amended and Restated 2003
Employee Stock Purchase Plan (the “ESPP”). Each of the 2017 Plan and the ESPP are described below.

2017 Plan

The 2017 Plan has a ten-year term and 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 2017 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 2017 Plan to vest, unless the awards are continued or substituted for in connection with the
transaction.

At Ciena’s 2020 Annual Meeting of Stockholders on April 2, 2020, Ciena’s stockholders approved an
amendment to the 2017 Plan to increase the number of shares available for issuance thereunder by 12.2 million
shares, which became effective as of such date. The 2017 Plan authorizes and reserves 21.1 million shares for
issuance. In addition, any shares that remained available for issuance under the 2008 Plan as of March 23, 2017
were added to the 2017 Plan and are available for issuance thereunder. The number of shares available under the
2017 Plan will also be increased from time to time by: (i) the number of shares subject to outstanding awards
granted under Ciena’s prior equity compensation plans that are forfeited, expire or are canceled without delivery
of common stock following the effective date of the 2017 Plan, and (ii) the number of shares subject to awards
assumed or substituted in connection with the acquisition of another company. As of October 31, 2020, the total
number of shares authorized for issuance under the 2017 Plan was 21.1 million and approximately 14.7 million
shares remained available for issuance thereunder.

Stock Options

There were no stock options granted by Ciena during fiscal 2020, fiscal 2019 or fiscal 2018. Outstanding

stock option awards granted to employees in prior periods are generally subject to service-based vesting
conditions and vest over a four-year period. The following table is a summary of Ciena’s stock option activity
for the periods indicated (shares in thousands):

Balance as of November 2, 2019

Granted

Exercised

Canceled

Balance as of October 31, 2020

Shares
Underlying
Options
Outstanding

Weighted
Average
Exercise Price

220

—

(105) $

(8) $

107

35.54

—

40.27

28.22

31.41

The total intrinsic value of options exercised during fiscal 2020, fiscal 2019 and fiscal 2018 was $1.3

million, $0.8 million and $2.2 million, respectively.

130

The following table summarizes information with respect to stock options outstanding at October 31, 2020,
based on Ciena’s closing stock price on the last trading day of Ciena’s fiscal 2020 (shares and intrinsic value in
thousands):

Range of

Exercise

Price

11.34 — $

15.00

17.50 — $

18.22

32.06 — $

37.10

41.52 — $

55.63

11.34 — $

55.63

Number

Underlying

107

Assumptions for Option-Based Awards

Options Outstanding and Vested at

October 31, 2020

Weighted
Average
Remaining

Contractual

Life

(Years)

Weighted

Average

Exercise

Price

2.33

1.97

2.26

2.63

2.41

13.60

18.16

35.89

47.87

31.41

Aggregate

Intrinsic

Value

943

203

—

1,213

Ciena recognizes the fair value of stock 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 2020, fiscal
2019, or fiscal 2018.

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. However, the 2017 Plan permits Ciena to grant service-based stock
awards with a minimum one-year vesting period. Awards with performance-based vesting conditions (i) require
the achievement of certain operational, financial or other performance criteria or targets or (ii) vest based on
Ciena’s total shareholder return as compared to an index of peer companies, in whole or in part.

Assumptions for Restricted Stock Unit Awards

Ciena recognizes the estimated fair value of performance-based awards as share-based compensation
expense over the performance period, using graded vesting, which considers each performance period or
tranche separately, based on Ciena’s determination of whether it is probable that the performance targets will be
achieved. At the end of each reporting period, Ciena reassesses the probability of achieving the performance
targets and the performance period required to meet those targets.

Ciena recognizes the estimated fair value of restricted stock units subject only to service-based vesting

conditions by multiplying the number of shares underlying the award by the closing price per share of Ciena
common stock on the grant date. Ciena recognizes the estimated fair value of restricted stock units subject to
performance-based vesting conditions other than total shareholder return by assuming the satisfaction of any
performance-based objectives at the “target” level and multiplying the corresponding number of shares earned
based upon such achievement by the closing price per share of Ciena common stock on the grant date.

Ciena recognizes the estimated fair value of performance based awards subject to total shareholder return as

compared to an index of peer companies using a Monte Carlo simulation valuation model. Assumptions for
awards granted during fiscal 2020, fiscal 2019 and fiscal 2018 included the following:

131

Expected volatility of Ciena common stock, which is a
weighted average of implied volatility and historical
volatility
Historical volatility of Ciena common stock
Historical volatility of S&P Networking Index
Correlation coefficient
Expected life in years
Risk-free interest rate
Expected dividend yield

October 31, 2020 November 2, 2019 November 3, 2018

Year Ended

31.77%
36.29%
18.40%
0.5891
2.87
1.65%
0.0%

34.10%
36.80%
17.39%
0.6251
2.87
2.62%
0.0%

34.93%
38.24%
17.14%
0.6597
2.89
1.94%
0.0%

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):

Restricted
Stock Units
Outstanding

Weighted
Average
Grant Date
Fair Value
Per Share

Aggregate Fair
Value

Balance as of November 2, 2019

4,010

27.94

146,091

Granted

Vested

Canceled or forfeited

Balance as of October 31, 2020

2,195

(1,945)

(211)

4,049

35.08

159,498

As of October 31, 2020 and November 2, 2019, 0.4 million and 0.3 million of the total restricted stock units

outstanding are performance based awards subject to total shareholder return, respectively. The total fair value
of restricted stock units that vested and were converted into common stock during fiscal 2020, fiscal 2019 and
fiscal 2018 was $83.5 million, $79.2 million and $54.3 million, respectively. The weighted average fair value of
each restricted stock unit granted by Ciena during fiscal 2020, fiscal 2019 and fiscal 2018 was $41.61, $34.53
and $22.46, respectively.

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 ratably over the vesting period on a
straight-line basis.

Share-based expense for performance-based restricted stock unit awards is recognized ratably over the
performance period based on 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.

Share-based compensation expense is recognized only for those awards that are ultimately expected to vest.

In the event of a forfeiture of an award, the expense related to the unvested portion of that award is reversed.
Reversal of share-based compensation expense based on forfeitures can materially affect the measurement of
estimated fair value of Ciena’s share-based compensation.

132

Amended and Restated 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 2020, fiscal 2019 and fiscal 2018, Ciena issued 0.7 million, 1.0 million and 1.1 million shares
under the ESPP, respectively. At October 31, 2020, 4.3 million shares remained available for issuance under the
ESPP.

Share-Based Compensation Expense

The following table summarizes share-based compensation expense for the periods indicated (in

thousands):

Year Ended

Product cost of goods sold
Service cost of goods sold
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

October 31, 2020 November 2, 2019 November 3, 2018
2,984
$
2,616

2,868
3,175

3,182
3,853

7,035
16,987
20,194
23,424

60,605

6,043
14,321
16,474
22,841

53,636

5,600
13,518
14,246
19,709

47,473

118
67,758

57
59,736

(101)
52,972

As of October 31, 2020, total unrecognized share-based compensation expense was $111.9 million which

relates to unvested restricted stock units and is expected to be recognized over a weighted-average period of
1.47 years.

(24) SEGMENT AND ENTITY WIDE DISCLOSURES

Segment Reporting

Ciena has the following operating segments for reporting purposes: (i) Networking Platforms; (ii) Platform

Software and Services; (iii) Blue Planet Automation Software and Services; and (iv) Global Services. During
fiscal 2019, Ciena separated its previous Software and Software-Related Services into two stand-alone
operating segments. Because Ciena previously disclosed its Platform Software and Services and Blue Planet
Automation Software and Services as distinct product lines in its presentation of segment revenue for Software
and Software-Related Services, there is no significant change to Ciena’s presentation of segment revenues as a
result of this separation. Comparative periods have been retrospectively adjusted to disclose segment profit for
Platform Software and Services and Blue Planet Automation Software and Services. See Note 2 above.

133

Ciena’s long-lived assets, including equipment, building, furniture and fixtures, Operating ROU assets,

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, 2020, equipment, building,
furniture and fixtures, net, totaled $272.4 million, and Operating ROU assets totaled $57.0 million both of
which support asset groups within Ciena’s four operating segments and unallocated selling and general and
administrative activities. As of October 31, 2020, finite-lived intangible assets, goodwill and maintenance
spares are assigned to asset groups within the following segments (in thousands):

Networking
Platforms

Platform
Software and
Services

October 31, 2020

Blue Planet
Automation
Software and
Services

Global
Services

Total

Other intangible assets, net

Goodwill

Maintenance spares, net

10,977

65,607

— $

156,191

85,670

89,049

— $

96,647

— $

310,847

— $

62,077

Segment Revenue

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

Revenue:

Networking Platforms

Converged Packet Optical

Packet Networking

Total Networking Platforms

October 31, 2020 November 2, 2019 November 3, 2018

Year Ended

2,547,647

2,562,841

2,194,519

267,416

2,815,063

348,477

2,911,318

283,499

2,478,018

Platform Software and Services

197,809

155,376

173,949

Blue Planet Automation Software and Services

62,632

54,555

26,764

Global Services

Maintenance Support and Training

Installation and Deployment

Consulting and Network Design

Total Global Services

Consolidated revenue

Segment Profit (Loss)

269,354

152,003

35,296

456,653

261,337

148,233

41,312

450,882

245,161

128,829

41,565

415,555

3,532,157

3,572,131

3,094,286

Segment profit (loss) is determined based on internal performance measures used by Ciena’s 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; significant asset impairments and restructuring costs,
acquisition and integration costs; interest and other income (loss), net; interest expense; loss on extinguishment
and modification of debt and provision for income taxes.

134

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

(loss) for the respective periods indicated (in thousands):

Segment profit (loss):

Networking Platforms

Platform Software and Services

Blue Planet Automation Software and Services

Global Services

Total segment profit

Less: non-performance operating expenses

Selling and marketing

General and administrative

Amortization of intangible assets

Acquisition and integration costs

Significant asset impairments and restructuring costs

Add: other non-performance financial items

Interest and other income (loss), net

Interest expense

Loss on extinguishment and modification of debt

Less: Provision for income taxes

Consolidated net income (loss)

October 31, 2020 November 2, 2019 November 3, 2018

Year Ended

827,105

759,244

581,113

105,609

(12,446)

202,735

1,123,003

416,425

169,548

23,383

4,031

22,652

964

(31,321)

(646)

94,670

64,210

(17,769)

188,242

993,927

423,046

174,399

21,808

3,370

24,538

3,876

(37,452)

—

59,756

78,048

(8,240)

172,205

823,126

394,060

160,133

15,737

5,111

18,139

(12,029)

(55,249)

(13,887)

493,471

361,291

253,434

(344,690)

Entity Wide Reporting

Ciena’s operating segments each engage in business across three geographic regions: Americas; EMEA;

and APAC. Americas include activities in North America and South America (previously, CALA). The
following table reflects Ciena’s geographic distribution of revenue principally based on the relevant location for
Ciena’s delivery of products and performance of services. For the periods below, Ciena’s geographic
distribution of revenue was as follows (in thousands):

Year Ended

Americas

EMEA

APAC

Total

October 31, 2020 November 2, 2019 November 3, 2018
2,026,627
$

2,503,913

2,469,278

591,468

471,411

566,718

501,500

464,876

602,783

3,532,157

3,572,131

3,094,286

North America includes $2.25 billion, $2.25 billion and $1.77 billion of United States revenue for fiscal

years ended October 31, 2020, November 2, 2019 and November 3, 2018, respectively. No other country
accounted for at least 10% of total revenue for the periods presented above.

The following table reflects Ciena’s geographic distribution of equipment, building, furniture and fixtures,

net, and Operating ROU assets, with any country accounting for at least 10% of total equipment, building,
furniture and fixtures, net, and Operating ROU assets specifically identified. Equipment, building, furniture and

135

fixtures, net, and Operating ROU assets 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, building, furniture and fixtures, net, and Operating ROU assets was as follows (in thousands):

Canada

United States

Other International

Total

October 31, 2020 November 2, 2019
211,901
$

214,188

65,321

49,894

58,119

16,864

329,403

286,884

While Ciena has benefited from the diversification of its business and customer base, its ten largest
customers contributed 54.5% of fiscal 2020 revenue, 59.3% of fiscal 2019 revenue and 56.5% of fiscal 2018
revenue.

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

thousands):

AT&T

Verizon

Web-scale provider

Total

October 31, 2020 November 2, 2019 November 3, 2018
374,576
$

373,163

388,704

n/a

459,787

370,577

318,013

n/a

373,163

1,219,068

692,589

________________________________

n/a

Denotes revenue representing less than 10% of total revenue for the period

The Web-scale provider noted above contributed greater than 10% of total revenue for the first time in
fiscal 2019 and purchased products from each of Ciena’s operating segments excluding Blue Planet Automation
Software and Services. The other customers identified above purchased products and services from each of
Ciena’s operating segments.

(25) 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$27,830
(approximately $20,895) for 2020). This plan includes a required employer contribution of 1% for all
participants and an employer matching contribution equal to 50% of the first 6% an employee contributes each
pay period. During fiscal 2020, 2019 and 2018, Ciena made matching contributions of approximately CAD$7.0
million (approximately $5.3 million), CAD$5.2 million (approximately $3.9 million) and CAD$5.1 million
(approximately $3.8 million), respectively.

Ciena has a 401(k) defined contribution profit sharing plan. Participants may contribute up to 60% of base

pay through pre-tax or Roth contributions, subject to certain limitations. The plan includes an employer
matching contribution equal to 50% of the first 8% 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 2020, 2019 and 2018, Ciena made matching contributions of approximately
$7.5 million, $5.9 million and $5.8 million, respectively.

(26) COMMITMENTS AND CONTINGENCIES

136

Government Grant

During fiscal 2018, Ciena entered into agreements related to the Evolution of Networking Services through

a Corridor in Quebec and Ontario for Research and Innovation project with the Canadian federal government,
the government of the province of Ontario and the government of the province of Quebec to develop a 5G
technology corridor between Quebec and Ontario to promote research and development, small business
enterprises and entrepreneurs in Canada. Under these agreements, Ciena can receive up to an aggregate
CAD$57.6 million (approximately $43.2 million) in reimbursement from the three Canadian government
entities for eligible costs over a period commencing on February 20, 2017 and ending on March 31, 2022. Ciena
anticipates receiving recurring disbursements over this period. Amounts received under the agreements are
subject to recoupment in the event that Ciena fails to achieve certain minimum investment, employment and
project milestones. As of October 31, 2020, Ciena has recorded CAD$40.6 million (approximately $30.5
million) in cumulative benefits as a reduction in research and development expense of which CAD$11.7 million
(approximately $8.7 million) was recorded in fiscal 2020. As of October 31, 2020, amounts receivable from this
grant were CAD$5.1 million (approximately $3.9 million).

Tax Contingencies

Ciena is subject to various tax liabilities arising in the ordinary course of business. Ciena does not expect

that the ultimate settlement of these tax liabilities will have a material effect on its results of operations,
financial position or cash flows.

Litigation

Ciena is subject to various legal proceedings, claims and other matters arising in the ordinary course of
business, including those that relate to employment, commercial, tax and other regulatory matters. Ciena is also
subject to intellectual property related claims, 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 such
matters will have a material effect on its results of operations, financial position or cash flows.

(27) SUBSEQUENT EVENTS

Share Repurchase Program

On December 10, 2020, Ciena announced that it will resume purchases under its stock repurchase program

beginning in the first quarter of fiscal 2021. The amount and timing of repurchases are subject to a variety of
factors including liquidity, cash flow, stock price and general business and market conditions. The program may
be modified, suspended, or discontinued at any time.

137

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

None.

138

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 Exchange Act).
Based on 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 our internal control over financial reporting (as defined in Rules 13a-15(f) and

15d-15(f) under the Securities Exchange Act of 1934, as amended) during the most recently completed fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

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, 2020. Management based this assessment on criteria for effective internal
control over financial reporting described in “COSO 2013 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, 2020, 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, 2020, as stated
in its report appearing in Item 8 of Part II of this annual report.

139

/s/ Gary B. Smith

Gary B. Smith
President and Chief Executive Officer

December 18, 2020

/s/ James E. Moylan, Jr.

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

December 18, 2020

Item 9B. Other Information

None.

140

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information relating to our directors and executive officers is set forth in Part I of this annual report under

the caption “Item 1. Business—Information About Our 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 our definitive proxy statement
with respect to our 2021 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 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 our definitive proxy statement
with respect to our 2021 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

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

Item 14. Principal Accountant Fees and Services

141

Item 15. Exhibits and Financial Statement Schedules

PART IV

(a)

(b)

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.

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.

Item 16. Form 10-K Summary

None.

142

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 18th
day of December 2020.

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.
Patrick H. Nettles, Ph.D.

/s/ Gary B. Smith
Gary B. Smith
(Principal Executive Officer)

/s/ James E. Moylan, Jr.
James E. Moylan, Jr.
(Principal Financial Officer)

/s/ Andrew C. Petrik
Andrew C. Petrik
(Principal Accounting Officer)

/s/ Hassan M. Ahmed, Ph.D.
Hassan M. Ahmed, Ph.D.

/s/ Bruce L. Claflin
Bruce L. Claflin

/s/ Lawton W. Fitt
Lawton W. Fitt

/s/ Patrick T. Gallagher
Patrick T. Gallagher

/s/ Devinder Kumar
Devinder Kumar

/s/ T. Michael Nevens
T. Michael Nevens

/s/ Judith M. O’Brien
Judith M. O’Brien

/s/ Joanne B. Olsen
Joanne B. Olsen

Executive Chairman of the Board of Directors

December 18, 2020

President, Chief Executive Officer and Director

December 18, 2020

Sr. Vice President, Finance and Chief Financial Officer

December 18, 2020

Vice President, Controller

December 18, 2020

Director

143

(This Page Intentionally Left Blank)

Shareholder Information

Corporate Headquarters

Stockholder Inquiries

Ciena Corporation
7035 Ridge Road
Hanover, MD 21076
Telephone: (800) 921.1144
or (410) 694.5700

ciena.com

Virtual Annual Meeting

Ciena’s annual meeting of shareholders
will be held at 3pm (Eastern)
on Thursday, April 1, 2021. Please visit
virtualshareholdermeeting.com/CIEN2021
at least 10 minutes prior to the start time.

Independent Registered

Public Accounting Firm

PricewaterhouseCoopers LLP

Transfer Agent

Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233-5000

(781) 575.2879
Computershare.com

Common Stock Market Data

NYSE: CIEN

Investor Relations

For additional information,
contact:

Investor Relations
Ciena Corporation
7035 Ridge Road
Hanover, MD 21076
Telephone: (877) 243.6273

Additional information is
available on Ciena’s website
at investor.ciena.com

Notes to Investors

The Annual Report contains certain forward-looking statements regarding future events or results that involve risks and
uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available
to Ciena as of the date hereof. Forward-looking statements include Ciena’s long-term financial targets, prospective financial
results, return of capital plans, business strategies, expectations about its addressable markets and market share, and
business outlook for future periods, as well as statements regarding Ciena’s expectations, beliefs, intentions or strategies
regarding the future. Often, these can be identified by forward-looking words such as “target”, “anticipate”, “believe”,
“could“, “estimate”, “expect”, “intend”, “may”, “should”, “will”, “would”, “plan”, “predict”, “potential”, “project”, and “continue”,
or similar words. Ciena’s actual results, performance or events may differ materially from these forward-looking statements
made or implied due to a number of risks, and uncertainties relating to Ciena’s business, including the effect of broader
economic and market conditions on our customers and their business; our ability to execute our business and growth
strategies; the duration and severity of the COVID-19 pandemic and the impact of countermeasures taken to mitigate
its spread on macroeconomic conditions, economic activity, demand for our technology solutions, short- and long-term
changes in customer or end user needs, continuity of supply chain, our business operations, liquidity and financial results;
changes in network spending or network strategy by our customers; seasonality and the timing and size of customer
orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter;
the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success
relating to efforts to optimize our operations; changes in foreign currency exchange rates affecting revenue and operating
expense; factors beyond our control such as natural disasters, acts of war or terrorism, and public health emergencies,
including the COVID-19 pandemic; the impact of the Tax Cuts and Jobs Act; changes in tax or trade regulations, including
the imposition of tariffs, duties or efforts to withdraw from or materially modify international trade agreements; and the
other risk factors disclosed in Ciena’s Annual Report and Form 10-K combined herein. All information, statements, and
projections in the Annual Report speak only as of the date of the Annual Report. Ciena assumes no obligation to revise or
update any forward-looking or other information included in this Annual Report, whether as a result of new information,
future events, or otherwise. This document also includes certain adjusted or non-GAAP measures of Ciena’s results
of operations. These measures are not intended to be a substitute for financial information presented in accordance with
GAAP. A reconciliation of these non-GAAP measures to Ciena’s GAAP results are included in the press release for the
event period available on Ciena.com.

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7035 Ridge Road
Hanover, MD 21076

(800) 921.1144 or
(410) 694.5700

ciena.com