Ciena (CIEN) 8-K CIENA Reports Third Quarter Results

Investor Contacts:	Suzanne DuLong or Jessica Towns
	CIENA Corporation
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	email: ir@ciena.com
Press Contacts:	Denny Bilter or Aaron Graham
	CIENA Corporation
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	email: pr@ciena.com

FOR IMMEDIATE RELEASE

CIENA Reports Third Quarter Results

LINTHICUM, Md.–August 21, 2003– CIENA^® Corporation (NASDAQ: CIEN), a leading global provider of innovative networking solutions, today reported its third quarter results for the period ending July 31, 2003. Revenue for the quarter totaled $68.5 million, an increase of 37% from same period a year ago. On a generally accepted accounting principles (GAAP) basis, CIENA’s reported net loss for the period was $88.9 million, or a net loss of $0.20 per share.

Revenue for the nine months ending July 31, 2003 totaled $212.5 million. On a GAAP basis, CIENA’s net loss for the nine-month period was $271.5 million, or a net loss of $0.62 per share.

“Our actions to restore profitability and positive operating cash flow to our business are focused simultaneously on driving revenue, improving gross margin and aligning our costs in pursuit of growth market opportunities,” said Gary Smith, CIENA’s president and CEO. “This quarter we recognized meaningful revenue from our recently completed acquisition of WaveSmith, improved our gross margin and achieved our operating expense targets a quarter ahead of plan.

“CIENA is a very different company than it was just a year ago, and we’re not finished,” said Smith. “We have been taking deliberate steps to evolve into a more comprehensive network solutions provider. That transformation extends to every facet of our business – from the markets we target and the products we sell to the way we receive and process orders to the way we prioritize R&D dollars.

“This transformation is not an option,” continued Smith. “If CIENA is going to thrive in today’s telecom environment, we must get bigger, not smaller. We continue to believe that we cannot simply cost-cut our way back to sustainable profitability. We believe restoring growth and profitability to our business will require the combination of expanding our addressable markets while simultaneously reducing and realigning our spending with the opportunities we see.”

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CIENA Reports Q3 Results/August 21, 2003/Page 2 of 7

Non-GAAP Presentation
In evaluating the operating performance of its business, CIENA’s management excludes certain charges or credits that are required by GAAP. These items, which are identified in the table below, share one or more of the following characteristics: they are unusual, and CIENA does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of the Company’s control.

		Quarter Ended			Nine Months Ended
		July 31, 2003			July 31, 2003
Item		(in thousands)			(in thousands)
Deferred stock compensation		$	3,931		$	13,290
Amortization of intangible assets			4,479			11,453
In-process research and development			1,500			1,500
Nortel settlement			—			2,500
Restructuring costs			15,527			18,251
Loss on equity investments			—			10
Loss on extinguishment of debt			—			20,606
Income tax benefit on adjusted net loss			22,397			71,944
	Total Adjustments	$	47,834		$	139,554
GAAP Net Loss		$	(88,874	)	$	(271,477	)
Adjusted for items above			47,834			139,554
Non GAAP Net Loss		$	(41,040	)	$	(131,923	)

Please see Appendix A for additional information about this table.

These adjustments are not in accordance with GAAP, and making such adjustments may not permit meaningful comparisons to other companies. As of the quarter ended July 31, 2003, CIENA’s weighted average shares outstanding were approximately 451,009,000. Adjusting CIENA’s quarterly GAAP results as noted would reduce the Company’s net loss in its third fiscal quarter to $0.09 per share.

As of the nine months ended July 31, 2003, CIENA’s weighted average shares outstanding were approximately 438,133,000. Adjusting CIENA’s nine-month GAAP results as noted would reduce the Company’s net loss for the period to $0.30 per share.

Third Quarter Performance Highlights

• Recognized revenue from a record-high 72 customers.

• Added seven new customers in the quarter, including two incumbent carriers.

• Lowered cash burn 13% sequentially.

• Ended the quarter with cash and short- and long-term securities valued at $1.75 billion, using cash of $68.2 million in the quarter.

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CIENA Reports Q3 Results/August 21, 2003/Page 3 of 7

• Closed the acquisition of WaveSmith Networks and recognized meaningful revenue from the DN platform in the quarter.

• Achieved operating expense target of low-to-mid $80 million one quarter ahead of plan.

• Reduced inventory for the eighth sequential quarter.

Third Quarter Solution Highlights

• Launched ONLINE™ Metro Service Aggregator to support multiple data services in one platform.

• Integrated management of multiservice solutions extending CIENA’s point-and-click service provisioning and other management functions into the data layer.

• Introduced enhancements to MetroDirector K2 enabling flexible new Ethernet services on existing networks.

• Announced new CoreStream capabilities enabling end-to-end data service offerings and lower network costs.

• Released ON-Designer™ software suite for automated design, validation and turn-up of end-to-end networks.

• Delivered integrated Ethernet multiplexing on ONLINE Edge™.

Business Outlook
“We continue to win new customers and to expand the solution set sold to existing customers,” said Smith. “However, the timing of revenue recognition, particularly with incumbent carriers, remains difficult to predict with certainty. As a result, we believe revenue in our fourth fiscal quarter is likely to be between five percent up or down from our fiscal third quarter revenue, depending on the timing of significant orders.

“As part of ongoing efforts to transform CIENA and restore profitability, we also have set new operating expense targets,” said Smith. “CIENA has consistently viewed cost reduction holistically – as a process ultimately leading toward a different CIENA. We believe the restructuring steps taken previously make it possible for us to reduce ongoing operating expenses by an additional 10% to 20% over the next year without jeopardizing customer commitments or near- or long-term growth opportunities.

“Further, we expect to realize a significant portion of our total longer-term cost savings starting in the first half of fiscal 2004. We also expect to continue to take steps that enable us to lower our quarterly cash burn and improve our already strong balance sheet,” concluded Smith.

Separately today, CIENA announced its intent to acquire Akara Corporation, signaling its entrée into the growing market for SONET/SDH-based extended storage area networking (SAN) solutions. CIENA expects this transaction to be completed in its fourth fiscal quarter 2003.

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CIENA Reports Q3 Results/August 21, 2003/Page 4 of 7

Live Web Broadcast of Q3 Results
CIENA will host a discussion of its fiscal third quarter 2003 results with investors and financial analysts today, Thursday, August 21, 2003 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via CIENA’s homepage at www.CIENA.com. An archived version of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of CIENA’s website at: www.CIENA.com/investors.

NOTE TO CIENA INVESTORS

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions of CIENA (the Company) that involve risks and uncertainties. Forward-looking statements in this release, including: this transformation is not an option, if CIENA is going to thrive in today’s telecom environment, we must get bigger, not smaller, we continue to believe that we cannot simply cost-cut our way back to sustainable profitability, we believe restoring growth and profitability to our business will require the combination of expanding our addressable markets while simultaneously reducing and realigning our spending with the opportunities we see, we continue to win new customers and to expand the solution set sold to existing customers, the timing of revenue recognition, particularly with incumbent carriers, remains difficult to predict with certainty, as a result, we believe revenue in our fourth fiscal quarter is likely to be between five percent up or down from our fiscal third quarter revenue, depending on the timing of significant orders, CIENA has consistently viewed cost reduction holistically – as a process ultimately leading toward a different CIENA, we believe the restructuring steps taken previously make it possible for us to reduce ongoing operating expenses by an additional 10% to 20% over the next year without jeopardizing customer commitments or near- or long-term growth opportunities, further, we expect to realize a significant portion of our total longer-term cost savings starting in the first half of fiscal 2004, we also expect to continue to take steps that enable us to lower our quarterly cash burn and improve our already strong balance sheet, and CIENA expects this transaction to be completed in its fourth fiscal quarter 2003, are based on information available to the Company as of the date hereof. The Company’s actual results could differ materially from those stated or implied in such forward-looking statements, due to risks and uncertainties associated with the Company’s business, which include the risk factors disclosed in the Company’s Report on Form 10-Q filed with the Securities and Exchange Commission on August 21, 2003. Forward-looking statements include statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” and “would” or similar words. The Company assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.

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CIENA Reports Q3 Results/August 21, 2003/Page 5 of 7

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

		Quarter Ended						Nine Months Ended
		July 31,			July 31,			July 31,			July 31,
		2002			2003			2002			2003
Revenues:
	Products	$	41,029		$	59,294		$	254,428		$	183,913
	Services		8,999			9,184			44,809			28,579
Total Revenue			50,028			68,478			299,237			212,492
Costs:
	Products		37,450			39,249			191,595			123,335
	Services		13,510			12,749			66,163			42,300
	Provision (benefit) for excess and obsolete inventory costs		41,192			(55	)		284,883			(4,158	)
Total cost of goods sold			92,152			51,943			542,641			161,477
Gross profit (loss)			(42,124	)		16,535			(243,404	)		51,015
Operating expenses:
	Research and development(exclusive of $3,860, $2,932, $11,277 and $10,136 deferred stock compensation costs)		53,950			47,963			178,264			153,890
	Selling and marketing(exclusive of $842, $687, $2,649 and $2,122 deferred stock compensation costs)		30,829			24,536			98,264			76,805
	General and administrative (exclusive of $256, $312, $658, and $1,032 deferred stock compensation costs)		10,798			7,969			37,729			28,241
	Deferred stock compensation costs		4,958			3,931			14,584			13,290
	Amortization of intangible assets (exclusive of $0, $966, $0, and $2,315 included in cost of goods sold related to certain technology licenses)		2,343			4,479			5,969			11,453
	In-process research and development		—			1,500			—			1,500
	Nortel Networks settlement costs		—			—			—			2,500
	Restructuring costs		18,562			15,527			146,738			18,251
	Provision for doubtful accounts		(1,242	)		—			14,813			—
Total operating expenses			120,198			105,905			496,361			305,930
Loss from operations			(162,322	)		(89,370	)		(739,765	)		(254,915	)
Interest and other income (expense), net			13,558			8,865			44,775			33,297
Interest expense			(10,614	)		(8,070	)		(29,756	)		(28,334	)
Loss on equity investments, net			—			—			(5,740	)		(10	)
Loss on extinguishment of debt			—			—			—			(20,606	)
Loss before income taxes			(159,378	)		(88,575	)		(730,486	)		(270,568	)
Provision for income taxes			607			299			112,243			909
Net loss		$	(159,985	)	$	(88,874	)	$	(842,729	)	$	(271,477	)
Basic and dilutive net loss per common share and dilutive potential common share		$	(0.42	)	$	(0.20	)	$	(2.45	)	$	(0.62	)
Weighted average basic common and dilutive potential common shares outstanding			376,548			451,009			344,242			438,133

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CIENA Reports Q3 Results/August 21, 2003/Page 6 of 7

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

				October 31,			July 31,
				2002			2003
ASSETS
Current assets:
	Cash and cash equivalents			$	377,189		$	585,258
	Short-term investments				1,130,414			727,078
	Accounts receivable, net				28,680			41,966
	Inventories, net				47,023			26,954
	Prepaid expenses and other				54,351			33,863
		Total current assets			1,637,657			1,415,119
Long-term investments					570,861			437,135
Equipment, furniture and fixtures, net					196,951			132,061
Goodwill					212,500			301,024
Other intangible assets, net					62,457			130,889
Other long-term assets					70,596			62,635
		Total assets		$	2,751,022		$	2,478,863
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	39,841		$	40,390
	Accrued liabilities				132,588			110,880
	Restructuring liabilities				27,423			12,686
	Unfavorable lease commitments				7,630			8,744
	Income taxes payable				—			5,203
	Deferred revenue				15,388			16,802
	Other current obligations				948			—
		Total current liabilities			223,818			194,705
	Long-term deferred revenue				15,444			13,342
	Long-term restructuring liabilities				65,742			53,657
	Long-term unfavorable lease commitments				70,124			63,365
	Other long-term obligations				5,009			2,886
	Convertible notes payable				843,616			729,514
		Total liabilities			1,223,753			1,057,469
Commitments and contingencies
Stockholders’ equity:
	Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding				—			—
	Common stock – par value $0.01; 980,000,000 shares authorized; 432,842,481 and 468,743,185 shares issued and outstanding				4,328			4,687
Additional paid-in capital					4,683,865			4,841,120
Deferred stock compensation					(24,983	)		(14,878	)
Notes receivable from stockholders					(3,866	)		(545	)
Accumulated other comprehensive income					8,840			3,402
Accumulated deficit					(3,140,915	)		(3,412,392	)
		Total stockholders’ equity			1,527,269			1,421,394
Total liabilities and stockholders’ equity				$	2,751,022		$	2,478,863
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CIENA Reports Q3 Results/August 21, 2003/Page 7 of 7

Appendix A

The adjustments management makes in analyzing CIENA’s third quarter 2003 GAAP results are as follows:

• Deferred stock compensation costs– a non-cash expense largely unrelated to normal operations, and which arises under GAAP accounting from the assumption of unvested stock options issued by any companies we acquire, including Cyras, ONI and WaveSmith.

• Amortization of intangible asset –a non-cash expense unrelated to normal operations arising from acquisitions of intangible assets, principally developed technology acquired in the Cyras, ONI and WaveSmith acquisitions which CIENA is required to amortize over its expected useful life.

• In-process research and development –a non-recurring expense related to acquired technology.

• Nortel litigation –a non-recurring expense, unrelated to normal operations.

• Restructuring costs– non-recurring charges, unrelated to normal operations, incurred as the result of reducing the size of the Company’s operations to align its resources with the reduced size of the telecommunications market as well as the result of targeting new segment opportunities within the overall market.

• Income tax benefit on adjusted net loss –the income tax charge or benefit on the adjusted net loss, which is a necessary adjustment for consistency. The Company currently has a full valuation allowance for GAAP reporting purposes and accordingly does not recognize a tax benefit for losses generated.

ABOUT CIENA
CIENA Corporation delivers innovative network solutions to the world’s largest service providers, increasing the cost-efficiency of current services while enabling the creation of new carrier-class data services built upon the existing network infrastructure. Additional information about CIENA can be found at www.ciena.com.

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