Item 1. Financial Statements

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Item 1. Financial Statements

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Revenue:
Products	$	759,948	$	670,043	$	1,424,955	$	1,267,263
Services	189,279		163,884		368,715		323,794
Total revenue	949,227		833,927		1,793,670		1,591,057
Cost of goods sold:
Products	452,057		339,601		824,622		654,699
Services	95,389		81,907		183,080		166,048
Total cost of goods sold	547,446		421,508		1,007,702		820,747
Gross profit	401,781		412,419		785,968		770,310
Operating expenses:
Research and development	159,324		110,246		307,733		242,987
Selling and marketing	119,939		110,387		238,820		207,665
General and administrative	45,572		43,635		90,070		83,628
Significant asset impairments and restructuring costs	9,102		8,209		12,511		14,076
Amortization of intangible assets	8,920		6,019		17,838		11,929
Acquisition and integration costs	495		294		563		601

Total operating expenses	343,352		278,790		667,535		560,886
Income from operations	58,429		133,629		118,433		209,424
Interest and other income (loss), net	808		(1,274)		4,494		(2,395)
Interest expense	(11,985)		(7,785)		(20,633)		(15,145)

Income before income taxes	47,252		124,570		102,294		191,884
Provision for income taxes	8,330		21,453		17,549		33,419
Net income	$	38,922	$	103,117	$	84,745	$	158,465
Basic net income per common share	$	0.26	$	0.66	$	0.55	$	1.02
Diluted net income per potential common share	$	0.25	$	0.66	$	0.55	$	1.01
Weighted average basic common shares outstanding	152,197		155,331		153,179		155,257
Weighted average dilutive potential common shares outstanding	153,344		156,876		154,580		156,734

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Net income	$	38,922	$	103,117	$	84,745	$	158,465
Change in unrealized gain (loss) on available-for-sale securities, net of tax	(1,331)		42		(2,105)		(7)
Change in unrealized gain (loss) on foreign currency forward contracts, net of tax	(1,346)		3,817		(6,685)		10,434
Change in unrealized gain on forward starting interest rate swaps, net of tax	7,112		2,649		11,038		4,031
Change in cumulative translation adjustments	(5,589)		10,400		(18,746)		26,261
Other comprehensive gain (loss)	(1,154)		16,908		(16,498)		40,719
Total comprehensive income	$	37,768	$	120,025	$	68,247	$	199,184

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


	April 30, 2022		October 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,019,863	$	1,422,546
Short-term investments	529,552		181,483
Accounts receivable, net of allowance for credit losses of $10.8 million and $10.9 million as of April 30, 2022 and October 30, 2021, respectively.	774,896		884,958
Inventories, net	536,878		374,265
Prepaid expenses and other	367,344		325,654
Total current assets	3,228,533		3,188,906
Long-term investments	87,142		70,038
Equipment, building, furniture and fixtures, net	278,494		284,968
Operating right-of-use assets	45,721		44,285
Goodwill	328,924		311,645
Other intangible assets, net	88,956		65,314
Deferred tax asset, net	798,238		800,180
Other long-term assets	108,121		99,891
Total assets	$	4,964,129	$	4,865,227
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	352,999	$	356,176
Accrued liabilities and other short-term obligations	333,150		409,285
Deferred revenue	156,400		118,007
Operating lease liabilities	19,279		18,632
Current portion of long-term debt	6,930		6,930
Total current liabilities	868,758		909,030
Long-term deferred revenue	62,369		57,457
Other long-term obligations	148,043		166,803
Long-term operating lease liabilities	40,355		41,564
Long-term debt, net	1,062,182		670,355
Total liabilities	$	2,181,707	$	1,845,209
Commitments and contingencies (Note 22)
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; 150,865,553 and 154,858,981 shares issued and outstanding	1,509		1,549
Additional paid-in capital	6,497,359		6,803,162
Accumulated other comprehensive income (loss)	(16,059)		439
Accumulated deficit	(3,700,387)		(3,785,132)
Total stockholders’ equity	2,782,422		3,020,018
Total liabilities and stockholders’ equity	$	4,964,129	$	4,865,227

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Six Months Ended
	April 30,		May 1,
	2022		2021
Cash flows provided by operating activities:
Net income	$	84,745	$	158,465
Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements	46,030		47,295
Share-based compensation costs	50,970		40,499
Amortization of intangible assets	24,463		18,517
Deferred taxes	(13,474)		(9,606)
Provision for inventory excess and obsolescence	8,487		10,402
Provision for warranty	7,228		7,937
Other	(5,833)		5,928
Changes in assets and liabilities:
Accounts receivable	104,455		(180)
Inventories	(171,056)		(66,934)
Prepaid expenses and other	(36,673)		(8,565)
Operating lease right-of-use assets	8,222		8,253
Accounts payable, accruals and other obligations	(88,960)		(30,108)
Deferred revenue	43,753		45,482
Short- and long-term operating lease liabilities	(10,216)		(9,726)
Net cash provided by operating activities	52,141		217,659
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property	(45,249)		(51,651)

Purchase of available-for-sale securities	(461,548)		(102,429)
Proceeds from maturities of available-for-sale securities	90,000		91,810
Settlement of foreign currency forward contracts, net	3,708		9,414

Purchase of cost method equity investments	(8,000)		—
Proceeds from sale of cost method equity investments	—		4,678
Acquisition of business, net of cash acquired	(62,043)		—

Net cash used in investing activities	(483,132)		(48,178)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of senior notes	400,000		—


Payment of long-term debt	(3,465)		(3,465)

Payment of debt issuance costs	(5,145)		—
Payment of finance lease obligations	(1,635)		(1,463)

Shares repurchased for tax withholdings on vesting of stock unit awards	(35,004)		(27,893)
Repurchases of common stock - repurchase program	(332,794)		(38,498)
Proceeds from issuance of common stock	15,185		13,480
Net cash provided by (used in) financing activities	37,142		(57,839)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8,807)		2,696
Net increase (decrease) in cash, cash equivalents and restricted cash	(402,656)		114,338
Cash, cash equivalents and restricted cash at beginning of period	1,422,604		1,088,708
Cash, cash equivalents and restricted cash at end of period	$	1,019,948	$	1,203,046
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	16,809	$	14,949
Cash paid during the period for income taxes, net	$	17,905	$	27,666
Operating lease payments	$	10,917	$	10,785
Non-cash investing and financing activities
Purchase of equipment in accounts payable	$	8,093	$	4,966

Repurchase of common stock in accrued liabilities from repurchase program	$	5,000	$	900



Operating right-of-use assets subject to lease liability	$	3,589	$	1,770

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Common Stock Shares	Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
Balance at October 30, 2021	154,858,981	$	1,549	$	6,803,162	$	439	$	(3,785,132)	$	3,020,018

Net income	—	—		—		—		84,745		84,745
Other comprehensive loss	—	—		—		(16,498)		—		(16,498)
Repurchase of common stock - repurchase program	(5,084,758)	(51)		(336,943)		—		—		(336,994)
Issuance of shares from employee equity plans	1,593,394	16		15,169		—		—		15,185
Share-based compensation expense	—	—		50,970		—		—		50,970
Shares repurchased for tax withholdings on vesting of stock unit awards	(502,064)	(5)		(34,999)		—		—		(35,004)

Balance at April 30, 2022	150,865,553	$	1,509	$	6,497,359	$	(16,059)	$	(3,700,387)	$	2,782,422


	Common Stock Shares	Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
Balance at October 31, 2020	154,563,005	$	1,546	$	6,826,531	$	(35,358)	$	(4,283,122)	$	2,509,597
Net income	—	—		—		—		158,465		158,465
Other comprehensive income	—	—		—		40,719		—		40,719
Repurchase of common stock - repurchase program	(735,075)	(8)		(39,390)		—		—		(39,398)
Issuance of shares from employee equity plans	1,667,160	17		13,463		—		—		13,480
Share-based compensation expense	—	—		40,499		—		—		40,499
Shares repurchased for tax withholdings on vesting of stock unit awards	(532,968)	(5)		(27,888)		—		—		(27,893)

Effect of adoption of new accounting standard	—	—		—		—		(2,206)		(2,206)
Balance at May 1, 2021	154,962,122	$	1,550	$	6,813,215	$	5,361	$	(4,126,863)	$	2,693,263

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) INTERIM FINANCIAL STATEMENTS

The interim financial statements included herein for Ciena Corporation and its wholly owned subsidiaries (“Ciena”) have been prepared by Ciena, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Ciena to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. The inputs into certain of Ciena’s judgments, assumptions, and estimates reflect, among other things, the information available to Ciena regarding the economic implications of the COVID-19 pandemic, and expectations as to its impact on Ciena’s business. 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 Ciena’s estimates and actual results, Ciena’s consolidated financial statements will be affected. In addition, because the duration and severity of COVID-19 pandemic are uncertain, certain of these estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. As events continue to evolve, Ciena’s estimates may change materially in future periods.

In the opinion of management, the financial statements included in this report reflect all normal recurring adjustments that Ciena considers necessary for the fair statement of the results of operations of Ciena for the interim periods covered and of the financial position of Ciena at the date of the interim balance sheets. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The Condensed Consolidated Balance Sheet as of October 30, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. However, Ciena believes that the disclosures are adequate to understand the information presented herein. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with Ciena’s audited consolidated financial statements and the notes thereto included in Ciena’s annual report on Form 10-K for fiscal 2021 (the “2021 Annual Report”).

Ciena has a 52 or 53-week fiscal year, with quarters ending on the Saturday nearest to the last day of January, April, July and October, respectively, of each year. Fiscal 2022 and 2021 are 52-week fiscal years.

(2) SIGNIFICANT ACCOUNTING POLICIES

Except for the changes in certain policies described below, there have been no material changes to Ciena’s significant accounting policies, compared to the accounting policies described in Note 1, Ciena Corporation and Significant Accounting Policies and Estimates, in Notes to Consolidated Financial Statements in Item 8 of Part II of the 2021 Annual Report.

Newly Issued Accounting Standards - Effective

In December 2019, the Financial Accounting Standards Board (the ”FASB”) issued Accounting Standards Update No. 2019-12 (“ASU 2019-12”), Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance. Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. ASU 2019-12 was effective for Ciena beginning in the first quarter of fiscal 2022. Ciena adopted ASU 2019-12 beginning in the first quarter of fiscal 2022 without any material impact on its financial position and results of operations.

In November 2021, the FASB issued ASU No. 2021-10 (“ASU 2021-10”), Government Assistance, to increase transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 was effective for annual periods beginning after December 15, 2021. Early adoption was permitted. Ciena adopted ASU 2021-10 in the first quarter of fiscal 2022 without any material impact on its financial position and results of operations

In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional guidance on contract modifications and hedging accounting to ease the financial reporting burdens of the expected market transition from the London

Interbank Offered Rate (“LIBOR”) to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, which refines the scope of Topic 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate activities. The new guidance was effective upon issuance and may be applied prospectively through December 31, 2022. Ciena adopted Topic 848 beginning in the first quarter of fiscal 2022 without any material impact on its financial position and results of operations.

Newly Issued Accounting Standards - Not Yet Effective

In October 2021, the FASB issued ASU No. 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers to improve the accounting for acquired revenue contracts with customers in a business combination to address recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods beginning after December 15, 2022 on a prospective basis. Early adoption is permitted. Ciena is currently evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures.

**(3)**REVENUE

Disaggregation of Revenue

Ciena’s disaggregated revenue as presented below depicts the nature, amount, and timing of revenue and cash flows for similar groupings of Ciena’s various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies may differ across Ciena’s product lines, resulting in different economic risk profiles for each line.

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


	Quarter Ended April 30, 2022
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	625,294	$	—	$	—	$	—	$	625,294
Routing and Switching	109,186		—		—		—		109,186
Platform Software and Services	—		69,157		—		—		69,157
Blue Planet Automation Software and Services	—		—		16,881		—		16,881
Maintenance Support and Training	—		—		—		74,019		74,019
Installation and Deployment	—		—		—		41,430		41,430
Consulting and Network Design	—		—		—		13,260		13,260
Total revenue by product line	$	734,480	$	69,157	$	16,881	$	128,709	$	949,227

Timing of revenue recognition:
Products and services at a point in time	$	734,480	$	21,743	$	4,036	$	13,469	773,728
Services transferred over time	—		$	47,414	$	12,845	$	115,240	175,499
Total revenue by timing of revenue recognition	$	734,480	$	69,157	$	16,881	$	128,709	$	949,227


	Quarter Ended May 01, 2021
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	573,657	$	—	$	—	$	—	$	573,657
Routing and Switching	63,628		—		—		—		63,628
Platform Software and Services	—		56,688		—		—		56,688
Blue Planet Automation Software and Services	—		—		23,958		—		23,958
Maintenance Support and Training	—		—		—		70,418		70,418
Installation and Deployment	—		—		—		37,999		37,999
Consulting and Network Design	—		—		—		7,579		7,579
Total revenue by product line	$	637,285	$	56,688	$	23,958	$	115,996	$	833,927

Timing of revenue recognition:
Products and services at a point in time	$	637,285	$	20,765	$	10,765	$	1,411	$	670,226
Services transferred over time	—		35,923		13,193		114,585		163,701
Total revenue by timing of revenue recognition	$	637,285	$	56,688	$	23,958	$	115,996	$	833,927


	Six Months Ended April 30, 2022
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	1,166,230	$	—	$	—	$	—	$	1,166,230
Routing and Switching	194,896		—		—		—		194,896
Platform Software and Services	—		142,074		—		—		142,074
Blue Planet Automation Software and Services	—		—		37,992		—		37,992
Maintenance Support and Training	—		—		—		146,509		146,509
Installation and Deployment	—		—		—		81,800		81,800
Consulting and Network Design	—		—		—		24,169		24,169
Total revenue by product line	$	1,361,126	$	142,074	$	37,992	$	252,478	$	1,793,670

Timing of revenue recognition:
Products and services at a point in time	$	1,361,126	$	51,424	$	12,810	$	21,960	$	1,447,320
Services transferred over time	—		90,650		25,182		230,518		346,350
Total revenue by timing of revenue recognition	$	1,361,126	$	142,074	$	37,992	$	252,478	$	1,793,670


	Six Months Ended May 01, 2021
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	1,085,981	$	—	$	—	$	—	$	1,085,981
Routing and Switching	127,934		—		—		—		127,934
Platform Software and Services	—		106,527		—		—		106,527
Blue Planet Automation Software and Services	—		—		40,892		—		40,892
Maintenance Support and Training	—		—		—		138,049		138,049
Installation and Deployment	—		—		—		77,610		77,610
Consulting and Network Design	—		—		—		14,064		14,064
Total revenue by product line	$	1,213,915	$	106,527	$	40,892	$	229,723	$	1,591,057

Timing of revenue recognition:
Products and services at a point in time	$	1,213,915	$	36,828	$	15,939	$	3,268	$	1,269,950
Services transferred over time	—		69,699		24,953		226,455		321,107
Total revenue by timing of revenue recognition	$	1,213,915	$	106,527	$	40,892	$	229,723	$	1,591,057

Ciena reports its sales geographically using the following markets: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia Pacific, Japan and India (“APAC”). Americas includes activities in North America and South America. Within each 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. The following table reflects Ciena’s geographic distribution of revenue based principally 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):


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Geographic distribution:
Americas	$	700,840	$	587,475	$	1,295,984	$	1,084,086
EMEA	145,106		155,054		295,891		310,472
APAC	103,281		91,398		201,795		196,499
Total revenue by geographic distribution	$	949,227	$	833,927	$	1,793,670	$	1,591,057

Ciena’s revenue includes $642.2 million and $518.6 million of United States revenue for the second quarter of fiscal 2022 and 2021, respectively. For the six months ended April 30, 2022 and May 1, 2021, United States revenue was $1.2 billion and $1.0 billion, respectively. No other country accounted for 10% or more of total revenue for the periods presented above.

For the periods below, the only customer that accounted for at least 10% of Ciena’s revenue was as follows (in thousands):


	Quarter Ended			Six Months Ended
	April 30,		May 1,	April 30,	May 1,
	2022		2021	2022	2021


AT&T	$	103,189	125,138	214,065	193,941

AT&T purchased products and services from each of Ciena’s operating segments for each of the periods presented.

Networking Platforms revenue reflects sales of Ciena’s Converged Packet Optical and Routing and Switching product lines.
Converged Packet Optical - includes the 6500 Packet-Optical Platform, the Waveserver® stackable interconnect system, the 6500 Reconfigurable Line System (RLS), the 5400 family of Packet-Optical Platforms, and the Coherent ELS open line system (OLS). This product line also includes the Z-Series Packet-Optical Platform and Optical Microsystems products.
Routing and Switching - includes the 3900 family of service delivery platforms and the 5000 family of service aggregation. This product line also includes the 6500 Packet Transport System (PTS), which combines packet switching, control plane operation, and integrated optics, the 8100 Coherent IP networking platforms, and the 8700 Packetwave Platform. This product line also includes the Vyatta (as defined in Note 4 below) virtual routing and switching products acquired from AT&T during the first quarter of fiscal 2022.

The Networking Platforms segment 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 Condensed Consolidated Statements of Operations. Operating system software and enhanced software features embedded in Ciena hardware are each 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 and its OneControl Unified Management System, as well as planning tools and a number of legacy software solutions that support Ciena’s 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 described above. Revenue from the software portion of this segment is included in product revenue on the Condensed Consolidated Statements of Operations. Revenue from services portions of this segment is included in services revenue on the Condensed 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 operations support system (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 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 Condensed Consolidated Statements of Operations. Revenue from services portions of this segment is included in services revenue on the Condensed Consolidated Statements of Operations.

Ciena’s software platform revenue typically reflects either perpetual or term-based software licenses, and these sales are considered distinct performance obligations in which revenue is generally recognized upfront at a point in time upon transfer of control. Revenue from software subscription and support is 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 is recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period.

Global Services revenue 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 Condensed Consolidated Statements of Operations.

Ciena’s Global Services are considered a distinct performance obligation for which 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 is also 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):


	Balance at April 30, 2022		Balance at October 30, 2021
Accounts receivable, net	$	774,896	$	884,958
Contract assets for unbilled accounts receivable, net	$	144,344	$	101,355
Deferred revenue	$	218,769	$	175,464

Ciena’s contract assets represent unbilled accounts receivable, net 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 in the Condensed Consolidated Balance Sheets. See Note 12 below.

Contract liabilities consist of deferred revenue and represent advanced payments against non-cancelable customer orders received prior to revenue recognition. Ciena recognized approximately $82.0 million and $78.0 million of revenue during the first six months of fiscal 2022 and 2021, respectively, that was included in the deferred revenue balance as of October 30, 2021 and October 31, 2020, respectively. Revenue recognized due to changes in transaction price from performance obligations satisfied or partially satisfied in previous periods was immaterial during the six months ended April 30, 2022 and May 1, 2021.

Capitalized Contract Acquisition Costs

Capitalized contract acquisition costs consist of deferred sales commissions, and were $32.5 million and $27.6 million as of April 30, 2022 and October 30, 2021, respectively. Capitalized contract acquisition costs were included in (i) prepaid expenses and other and (ii) other long-term assets. The amortization expense associated with these costs was $14.1 million and $10.7 million during the first six months of fiscal 2022 and 2021, respectively, and was included in selling and marketing expense on the Condensed Consolidated Statement of Operations.

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 April 30, 2022, the aggregate amount of RPO was $2.7 billion. As of April 30, 2022, Ciena expects approximately 90% of the RPO to be recognized as revenue within the next 12 months.

**(4)**BUSINESS COMBINATIONS

Vyatta and Xelic Acquisitions

On November 1, 2021, Ciena acquired AT&T’s Vyatta Software Technology (“Vyatta”), a provider of software-based virtual routing and switching technology. AT&T is a customer of Ciena, see Note 3 above. On March 9, 2022, Ciena acquired Xelic, Inc. (“Xelic”), a provider and developer of field programmable gate array (FPGA) and application-specific integrated circuit (ASIC) technology and optical networking IP cores. These businesses were acquired for an aggregate of approximately $64.3 million, of which $63.5 million was paid in cash and $0.8 million represents a future payable arrangement. These transactions have each been accounted for as the acquisition of a business.

Ciena incurred approximately $1.7 million in acquisition-related costs associated with these acquisitions. These costs and expenses primarily include fees associated with financial, legal and accounting advisors. These costs were recorded in acquisition and integration costs in the Condensed Consolidated Statement of Operations.

The following table summarizes the final purchase price allocation related to the acquisitions based on the estimated fair value of the acquired assets and assumed liabilities (in thousands):


	Amount
Cash and cash equivalents	$	201
Prepaid expenses and other	1,614
Equipment, furniture and fixtures	694
Customer relationships and contracts	15,800
Developed technology	32,491
Goodwill	17,982
Accrued liabilities	(4,434)
Total purchase consideration	$	64,348

Customer relationships and contracts represent agreements with existing Vyatta customers and have an estimated useful life of two years.

Developed technology represents purchased technology that has reached technological feasibility and for which the acquired companies 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 these acquisitions are primarily related to expected economic synergies. The total goodwill amount was recorded in the Networking Platforms segment. The goodwill is not deductible for income tax purposes.

Pro forma disclosures have not been included due to immateriality. The amounts of revenue and earnings for these acquisitions since the acquisition dates, which are included in the Condensed Consolidated Statement of Operations for the reporting period are immaterial.

(5) CANADIAN EMERGENCY WAGE SUBSIDY

In April 2020, the Canadian government introduced the Canada Emergency Wage Subsidy (“CEWS”) to help employers offset a portion of their employee wages for a limited period in response to the COVID-19 outbreak, retroactive to March 15, 2020. The CEWS program expired in October 2021. The subsidy covered employers of all sizes and across all sectors.

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 Condensed Consolidated Statement of Operations to which the grant activity relates. During the second quarter and six months ended May 1, 2021, Ciena recorded a CAD$51.1 million ($40.4 million) benefit, net of certain fees, related to CEWS for claim periods beginning March 15, 2020, including CAD$43.9 million ($34.7 million) related to employee wages during fiscal 2020.

The following table summarizes CEWS for the periods indicated (in thousands, USD):


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Product	$	—	$	4,189	$	—	$	4,189
Service	—		2,620		—		2,620
CEWS benefit in cost of goods sold	—		6,809		—		6,809
Research and development	—		28,923		—		28,923
Sales and marketing	—		2,551		—		2,551
General and administrative	—		2,161		—		2,161
CEWS benefit in operating expense	—		33,635		—		33,635
Total CEWS benefit	$	—	$	40,444	$	—	$	40,444

**(6)**SIGNIFICANT ASSET IMPAIRMENT AND RESTRUCTURING COSTS

Restructuring Costs

Ciena has undertaken a number of restructuring activities intended to reduce expense and to 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 the Condensed Consolidated Balance Sheets, for the six months ended April 30, 2022 (in thousands):


	Workforce reduction			Other restructuring activities			Total
Balance at October 30, 2021	$	781		$	—		$	781
Charges	1,413		(1)	7,018		(2)	8,431

Cash payments	(1,388)			(7,018)			(8,406)
Balance at April 30, 2022	$	806		$	—		$	806
Current restructuring liabilities	$	806		$	—		$	806

(1) Reflects employee costs associated with workforce reductions during the six months ended April 30, 2022 as part of a business optimization strategy to improve gross margin, constrain operating expense and redesign certain business processes.

(2) Primarily represents the redesign of certain business processes associated with Ciena’s supply chain and distribution structure reorganization and costs related to restructured real estate facilities.

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 the Condensed Consolidated Balance Sheets for the six months ended May 1, 2021 (in thousands):


	Workforce reduction			Other restructuring activities			Total
Balance at October 30, 2020	2,915			$	—		$	2,915
Charges	2,617		(1)	11,459		(2)	14,076


Cash payments	(4,696)			(11,459)			(16,155)
Balance at May 1, 2021	$	836		$	—		$	836
Current restructuring liabilities	$	836		$	—		$	836

(1) Reflects employee costs associated with workforce reductions during the six months ended May 1, 2021 as part of a business optimization strategy to improve gross margin, constrain operating expense and redesign certain business processes.

Significant Asset Impairments

In February 2022, armed conflict escalated between Russia and Ukraine. The United States and certain other countries have imposed sanctions on Russia and could impose further sanctions. On March 7, 2022, Ciena announced its decision to immediately suspend its business operations in Russia. As a result, Ciena recorded impairment charges of $4.1 million of which $2.0 million was a provision for credit losses.

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

The components of interest and other income (loss), net, are as follows for the periods indicated (in thousands):


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Interest income	$	1,434	$	554	$	2,188	$	1,088

Gains (losses) on non-hedge designated foreign currency forward contracts	2,334		5,180		(1,926)		9,709
Foreign currency exchange gains (losses)	(1,267)		(6,575)		3,499		(13,493)

Unrealized gain on cost method equity investment	—		—		4,120		—
Other	(1,693)		(433)		(3,387)		301
Interest and other income (loss), net	$	808	$	(1,274)	$	4,494	$	(2,395)

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 local currencies as their functional currencies. Ciena recorded $3.5 million in foreign currency exchange rate gains for the first six months of fiscal 2022 and during the first six months of fiscal 2021, Ciena recorded $13.5 million in foreign currency exchange rate losses, both as a result of monetary assets and liabilities that were transacted in a currency other than Ciena’s functional currency. The related remeasurement adjustments were recorded in interest and other income (loss), net, on the Condensed Consolidated Statements of Operations. From time to time, Ciena uses foreign currency forwards to hedge this type of balance sheet exposure. 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, on the Condensed Consolidated Statements of Operations. During the first six months of fiscal 2022, Ciena recorded losses of $1.9 million and during the first six months of fiscal 2021, Ciena recorded gains of $9.7 million from non-hedge designated foreign currency forward contracts. During the first six months of fiscal 2022, Ciena recorded an unrealized gain of $4.1 million on its cost method equity investment.

(8) INCOME TAXES

The effective tax rate for the quarter ended April 30, 2022 was higher than the effective tax rate for the quarter ended May 1, 2021, primarily due to a higher foreign tax rate.

The effective tax rate for the six months ended April 30, 2022 was lower than the effective tax rate for the six months ended May 1, 2021, primarily due to a lower foreign tax rate in the six months ended April 30, 2022.

Ciena’s 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 ability to utilize tax attributes and changes in tax laws and business reorganizations. Ciena continues to monitor these items and will adopt strategies to address their impact as appropriate. In certain jurisdictions, Ciena provides a valuation allowance for its deferred tax assets in excess of deferred tax liabilities because Ciena has concluded that it is more likely than not that such deferred tax assets will ultimately not be realized. The ultimate realization of deferred tax assets is dependent upon 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. Ciena assesses available positive and negative evidence regarding its ability to realize deferred tax assets and record a valuation allowance when it is more likely than not that deferred tax assets will not be realized. To form a conclusion, management considers its recent financial results and trends and makes judgments and estimates related to projections of profitability, the timing and extent of the use of net operating loss carryforwards, and tax planning strategies.

Ciena will continue to evaluate future financial performance to determine whether such profitability is both sustainable and significant enough to provide sufficient evidence to support reversal of all or a portion of the valuation allowance. Any future release of valuation allowance may be recorded as a tax benefit increasing net income or as an adjustment to paid-in capital, based on tax ordering requirements.

(9) SHORT-TERM AND LONG-TERM INVESTMENTS

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


	April 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. government obligations:
Included in short-term investments	$	530,051	$	1	$	(500)	$	529,552
Included in long-term investments	89,593		—		(2,451)		87,142
	$	619,644	$	1	$	(2,951)	$	616,694


	October 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. government obligations:
Included in short-term investments	$	181,488	$	5	$	(10)	$	181,483
Included in long-term investments	70,225		—		(187)		70,038
	$	251,713	$	5	$	(197)	$	251,521

The following table summarizes the final legal maturities of debt investments as of April 30, 2022 (in thousands):


	Amortized Cost		Estimated Fair Value
Less than one year	$	530,051	$	529,552
Due in 1-2 years	89,593		87,142
	$	619,644	$	616,694

(10) FAIR VALUE MEASUREMENTS

As of the date indicated, the following table summarizes the assets and liabilities that are recorded at fair value on a recurring basis (in thousands):


	April 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	607,553	$	—	$	—	$	607,553
Bond mutual fund	100,428		—		—		100,428
Time deposits	133,544		—		—		133,544
Deferred compensation plan assets	13,274		—		—		13,274
U.S. government obligations	—		616,694		—		616,694

Foreign currency forward contracts	—		5,867		—		5,867


Total assets measured at fair value	$	854,799	$	622,561	$	—	$	1,477,360

Liabilities:
Foreign currency forward contracts	$	—	$	5,281	$	—	$	5,281
Forward starting interest rate swaps	—		1,465		—		1,465

Total liabilities measured at fair value	$	—	$	6,746	$	—	$	6,746


	October 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	1,120,851	$	—	$	—	$	1,120,851
Bond mutual fund	75,425		—		—		75,425
Time deposits	30,036		—		—		30,036
Deferred compensation plan assets	12,968		—		—		12,968
U.S. government obligations	—		251,521		—		251,521

Foreign currency forward contracts	—		14,935		—		14,935


Total assets measured at fair value	$	1,239,280	$	266,456	$	—	$	1,505,736

Liabilities:
Foreign currency forward contracts	$	—	$	716	$	—	$	716

Forward starting interest rate swaps	—		15,928		—		15,928
Total liabilities measured at fair value	$	—	$	16,644	$	—	$	16,644

As of the date indicated, the assets and liabilities above are presented on Ciena’s Condensed Consolidated Balance Sheets as follows (in thousands):


	April 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	841,525	$	—	$	—	$	841,525
Short-term investments	—		529,552		—		529,552
Prepaid expenses and other	—		5,867		—		5,867
Long-term investments	—		87,142		—		87,142
Other long-term assets	13,274		—		—		13,274
Total assets measured at fair value	$	854,799	$	622,561	$	—	$	1,477,360

Liabilities:
Accrued liabilities and other short-term obligations	$	—	$	5,281	$	—	$	5,281
Other long-term obligations	—		1,465		—		1,465
Total liabilities measured at fair value	$	—	$	6,746	$	—	$	6,746


	October 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	1,226,312	$	—	$	—	$	1,226,312
Short-term investments	—		181,483		—		181,483
Prepaid expenses and other	—		14,935		—		14,935
Long-term investments	—		70,038		—		70,038
Other long-term assets	12,968		—		—		12,968
Total assets measured at fair value	$	1,239,280	$	266,456	$	—	$	1,505,736

Liabilities:
Accrued liabilities and other short-term obligations	$	—	$	716	$	—	$	716

Other long-term obligations	—		15,928		—		15,928
Total liabilities measured at fair value	$	—	$	16,644	$	—	$	16,644

Ciena did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

(11) INVENTORIES

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


	April 30, 2022		October 30, 2021
Raw materials	$	373,517	$	175,399
Work-in-process	12,268		10,260
Finished goods	157,919		180,800
Deferred cost of goods sold	28,921		44,765
Gross inventories	572,625		411,224
Reserve for inventory excess and obsolescence	(35,747)		(36,959)
Inventories, net	$	536,878	$	374,265

The increase in raw materials inventory is related to the steps Ciena is taking to mitigate the impact of current supply chain constraints and the global market shortage of semiconductor parts. 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 the first six months of fiscal 2022, Ciena recorded a provision for inventory excess and obsolescence of $8.5 million, primarily related to a decrease in the forecasted demand for certain Networking Platforms products. Deductions from the provision for excess and obsolete inventory relate primarily to disposal activities.

(12) PREPAID EXPENSES AND OTHER

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


	April 30, 2022		October 30, 2021
Contract assets for unbilled accounts receivable, net	$	144,344	$	101,355
Prepaid VAT and other taxes	71,658		77,388
Prepaid expenses	68,879		62,189
Product demonstration equipment, net	35,139		29,362
Capitalized contract acquisition costs	26,531		21,753
Other non-trade receivables	14,637		18,408
Derivative assets	5,867		14,935

Deferred deployment expense	289		264
	$	367,344	$	325,654

Depreciation of product demonstration equipment was $4.8 million during the first six months of fiscal 2022 and $5.1 million during the first six months of fiscal 2021.

For further discussion on contract assets and capitalized contract acquisition costs, see Note 3 above.

(13) INTANGIBLE ASSETS

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


	April 30, 2022						October 30, 2021
	Gross Intangible		Accumulated Amortization		Net Intangible		Gross Intangible		Accumulated Amortization		Net Intangible
Developed technology	$	428,218	$	(374,782)	$	53,436	$	395,726	$	(359,828)	$	35,898
Patents and licenses	7,815		(3,767)		4,048		7,815		(3,321)		4,494
Customer relationships, covenants not to compete, outstanding purchase orders and contracts	390,777		(359,305)		31,472		375,329		(350,407)		24,922
Total intangible assets	$	826,810	$	(737,854)	$	88,956	$	778,870	$	(713,556)	$	65,314

The aggregate amortization expense of intangible assets was $24.5 million during the first six months of fiscal 2022 and $18.5 million during the first six months of fiscal 2021. Expected future amortization of intangible assets for the fiscal years indicated is as follows (in thousands):


Fiscal Year	Amount
2022	$	19,814
2023	28,815
2024	19,180
2025	13,317
2026	7,105
Thereafter	725
	$	88,956

(14) OTHER BALANCE SHEET DETAILS

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


	April 30, 2022		October 30, 2021
Compensation, payroll related tax and benefits (1)	$	122,590	$	201,119
Warranty	45,684		48,019
Vacation	31,658		31,200
Income taxes payable	9,535		13,577
Foreign currency forward contracts	5,281		716

Interest payable	5,202		598
Finance lease liabilities	3,834		3,620
Other	109,366		110,436
	$	333,150	$	409,285

(1) Reduction is primarily due to the timing of bonus payments to employees under Ciena’s annual cash incentive compensation plan.

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


	Beginning Balance		Current Period Provisions	Settlements	Ending Balance
Six Months Ended May 1, 2021	$	49,868	7,937	(9,682)	$	48,123
Six Months Ended April 30, 2022	$	48,019	7,228	(9,563)	$	45,684

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


	April 30, 2022		October 30, 2021
Products	$	19,911	$	12,859
Services	198,858		162,605
Total deferred revenue	218,769		175,464
Less current portion	(156,400)		(118,007)
Long-term deferred revenue	$	62,369	$	57,457

(15) DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives

Ciena conducts business globally in numerous currencies, and thus is exposed to adverse foreign currency exchange rate changes. To limit this exposure, Ciena enters into foreign currency contracts. Ciena does not enter into such contracts for speculative purposes.

As of April 30, 2022 and October 30, 2021, Ciena had forward contracts to hedge its foreign exchange exposure in order to reduce variability that is principally related to research and development activities. The notional amount of these contracts was approximately $251.5 million and $288.6 million as of April 30, 2022 and October 30, 2021, respectively. These foreign exchange contracts have maturities of 24 months or less and have been designated as cash flow hedges.

As of April 30, 2022 and October 30, 2021, 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 $93.1 million and $296.1 million as of April 30, 2022 and October 30, 2021, respectively. 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 16 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 for $350.0 million of the 2025 Term Loan (as defined in Note 16 below) at 2.957% through September 2023. The total notional amount of interest rate swaps in effect was $350.0 million as of April 30, 2022 and October 30, 2021.

In April 2022, Ciena entered into floating to fixed forward starting interest rate swap arrangements (“forward starting swaps”). The forward starting swaps fix the Secured Overnight Funding Rate (“SOFR”) for $350.0 million of the 2025 Term Loan (as defined in Note 16 below) at 2.968% from September 2023 through the 2025 Term Loan maturity. The total notional amount of forward starting swaps effective September 2023 was $350 million as of April 30, 2022. Ciena entered into the forward starting swaps to hedge its anticipated SOFR rate risk from the 2025 Term Loan because the LIBOR rate is expected to be discontinued in 2023.

Ciena expects the variable rate payments to be received under the terms of the interest rate swaps and forward starting swaps to offset exactly the forecasted variable rate payments on the equivalent notional amounts of the 2025 Term Loan. These derivative contracts have been designated as cash flow hedges.

Other information regarding Ciena’s derivatives is immaterial for separate financial statement presentation. See Note 7 and Note 10 above.

(16) SHORT-TERM AND LONG-TERM DEBT

2025 Term Loan

On January 23, 2020, Ciena entered into a Refinancing Amendment to Credit Agreement pursuant to which Ciena refinanced the entire outstanding amount of its then existing senior secured term loan and incurred a new senior secured term loan in an aggregate principal amount of $693.0 million and maturing on September 28, 2025 (the “2025 Term Loan”).

The net carrying value of the 2025 Term Loan was comprised of the following for the periods indicated (in thousands):


	April 30, 2022								October 30, 2021
	Principal Balance		Unamortized Discount		Deferred Debt Issuance Costs		Net Carrying Value		Net Carrying Value
2025 Term Loan	$	677,407	$	(1,089)	$	(2,037)	$	674,281	$	677,285

Deferred debt issuance costs that were deducted from the carrying amounts of the 2025 Term Loan totaled $2.0 million as of April 30, 2022 and $2.3 million at October 30, 2021. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate, through the maturity of the 2025 Term Loan. The amortization of deferred debt issuance costs for the 2025 Term Loan is included in interest expense, and was $0.3 million during the first six months of each of fiscal 2022 and fiscal 2021. The carrying value of the 2025 Term Loan listed above is also net of any unamortized debt discounts.

As of April 30, 2022, the estimated fair value of the 2025 Term Loan was $677.5 million. Ciena’s 2025 Term Loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its 2025 Term Loan using a market approach based on observable inputs, such as current market transactions involving comparable securities.

2030 Notes

On January 18, 2022, Ciena entered into an Indenture among Ciena, as issuer, certain domestic subsidiaries of Ciena, as guarantors (collectively, the “Guarantors”), and U.S. Bank National Association, as trustee (the “Trustee”), pursuant to which Ciena issued $400.0 million in aggregate principal amount of 4.00% senior notes due 2030 (the “2030 Notes”).

Ciena’s obligations under the 2030 Notes and the Indenture are irrevocably and unconditionally guaranteed, jointly and severally, on an unsecured senior basis by each of its domestic subsidiaries that is a borrower under or guarantor with respect to the 2025 Term Loan and Ciena’s senior secured asset-based revolving credit facility (the “ABL Credit Facility”).

The net proceeds from the sale of the 2030 Notes, after deducting costs, were approximately $395.5 million. Ciena intends to use the net proceeds from the Offering for general corporate purposes.

The 2030 Notes bear interest at a rate of 4.00% per annum and mature on January 31, 2030. Interest is payable on the 2030 Notes in arrears on January 31 and July 31 of each year, commencing on July 31, 2022.

The 2030 Notes and related subsidiary guarantees are the general unsubordinated unsecured senior obligations of Ciena and the Guarantors, respectively, and (i) rank equally in right of payment with all other existing and future senior indebtedness of Ciena and the Guarantors; (ii) are effectively subordinated to all existing and future secured indebtedness of Ciena and the Guarantors, including indebtedness under the 2025 Term Loan and the ABL Credit Facility, to the extent of the value of the assets securing such indebtedness; (iii) are structurally subordinated to all existing and future obligations, including indebtedness, of Ciena’s subsidiaries that do not guarantee the 2030 Notes; and (iv) are senior in right of payment to all of Ciena’s existing and future unsecured indebtedness that is, by its terms, expressly subordinated in right of payment to the 2030 Notes.

The Indenture contains restrictive covenants that limit the ability of Ciena and the Restricted Subsidiaries (as defined in the Indenture) or the Guarantors, as applicable, to, among other things, create certain liens or consolidate or merge with or into, or sell, lease, transfer, convey or otherwise dispose of all or substantially all the assets of Ciena or Ciena and its subsidiaries taken as a whole. These covenants are subject to a number of important exceptions and qualifications as set forth in the Indenture.

The Indenture provides for events of default (subject in certain cases to customary grace and cure periods) that include, among others, nonpayment of principal or interest when due, breach of covenants or other agreements in the Indenture, defaults in payment of certain other indebtedness and certain events of bankruptcy or insolvency. Generally, if an event of default occurs, the Trustee or the holders of at least 25% in principal amount of the outstanding 2030 Notes may declare the principal amount of and accrued but unpaid interest on all of the 2030 Notes to be due and payable immediately, provided that such amounts become due and payable without any further action or notice in the case of an event of bankruptcy or insolvency that constitutes an event of default.

Prior to January 31, 2025, Ciena may redeem the 2030 Notes, in whole or part, at a price equal to 100% of the principal amount thereof, plus a “make-whole” of 102% of the principal amount of the notes to be redeemed, and any accrued and unpaid interest. On or after January 31, 2025, Ciena may redeem the 2030 Notes, in whole or part, at the redemption prices set forth in the Indenture and form of the 2030 Notes, plus any accrued and unpaid interest. In addition, until January 31, 2025, Ciena may redeem up to 40% of the aggregate principal amount of the 2030 Notes with the net cash proceeds of certain equity offerings, as

described in the Indenture, at a redemption price equal to 104% of the principal amount of the 2030 Notes to be redeemed, plus any accrued and unpaid interest. If a change of control triggering event occurs, as described in the Indenture, Ciena must offer to repurchase all of the 2030 Notes (unless otherwise redeemed) at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest.

The net carrying value of the 2030 Notes was comprised of the following for the period indicated (in thousands):


	April 30, 2022
	Principal Balance		Deferred Debt Issuance Costs		Net Carrying Value
2030 Senior Notes 4.00% fixed-rate	$	400,000	$	(5,169)	$	394,831

Deferred debt issuance costs that were deducted from the carrying amount of the 2030 Notes totaled $5.2 million as of April 30, 2022. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate, through the maturity of the 2030 Notes. The amortization of deferred debt issuance costs for the 2030 Notes is included in interest expense, and was $0.2 million during the first six months of fiscal 2022.

As of April 30, 2022, the estimated fair value of the 2030 Notes was $363.0 million. The 2030 Notes are categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its 2030 Notes using a market approach based on observable inputs, such as current market transactions involving comparable securities.

(17) ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated balances of other comprehensive income (“AOCI”), net of tax, for the six months ended April 30, 2022 (in thousands):


	Unrealized Gain (Loss) on						Cumulative
	Available-for-sale Securities		Foreign Currency Forward Contracts		Forward Starting Interest Rate Swaps		Foreign Currency Translation Adjustment		Total
Balance at October 30, 2021	$	(164)	$	6,216	$	(12,179)	$	6,566	$	439
Other comprehensive gain (loss) before reclassifications	(2,105)		(5,083)		6,098		(18,746)		(19,836)
Amounts reclassified from AOCI	—		(1,602)		4,940		—		3,338
Balance at April 30, 2022	$	(2,269)	$	(469)	$	(1,141)	$	(12,180)	$	(16,059)

The following table summarizes the changes in AOCI, net of tax, for the six months ended May 1, 2021 (in thousands):


	Unrealized Gain (Loss) on						Cumulative
	Available-for-sale Securities		Foreign Currency Forward Contracts		Forward Starting Interest Rate Swaps		Foreign Currency Translation Adjustment		Total
Balance at October 31, 2020	$	45	$	(219)	$	(21,535)	$	(13,649)	$	(35,358)
Other comprehensive gain (loss) before reclassifications	(7)		14,690		(494)		26,261		40,450
Amounts reclassified from AOCI	—		(4,256)		4,525		—		269
Balance at May 1, 2021	$	38	$	10,215	$	(17,504)	$	12,612	$	5,361

All amounts reclassified from AOCI, related to settlement (gains) losses on foreign currency forward contracts designated as cash flow hedges, impacted research and development expense on the Condensed 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 Condensed Consolidated Statements of Operations.

(18) EARNINGS PER SHARE CALCULATION

Basic net income per common share (“Basic EPS”) is computed using the weighted average number of common shares outstanding. Diluted net income per potential common share (“Diluted EPS”) is computed using the weighted average number

of the following, in each case, to the extent that 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.

The following table presents the calculation of Basic and Diluted EPS (in thousands, except per share amounts):


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Net income	$	38,922	$	103,117	$	84,745	$	158,465
Basic weighted average shares outstanding	152,197		155,331		153,179		155,257
Effect of dilutive potential common shares	1,147		1,545		1,401		1,477
Diluted weighted average shares	153,344		156,876		154,580		156,734
Basic EPS	$	0.26	$	0.66	$	0.55	$	1.02
Diluted EPS	$	0.25	$	0.66	$	0.55	$	1.01
Antidilutive employee share-based awards, excluded	1,392		30		1,077		82

(19) STOCKHOLDERS’ EQUITY

Stock Repurchase Program and Accelerated Share Repurchase Agreement

On December 9, 2021, Ciena announced that its Board of Directors authorized a program to repurchase up to $1.0 billion of its common stock. On December 13, 2021, Ciena entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Goldman, Sachs & Co. LLC (“Goldman”) to repurchase $250.0 million (the “Repurchase Price”) of its common stock as part of the repurchase program. Under the terms of the ASR Agreement, Ciena paid the Repurchase Price to Goldman, and received approximately 3.6 million shares of its common stock from Goldman, calculated based on the average of the volume-weighted average prices of Ciena’s common stock of $69.78 for the period from December 14, 2021 to February 11, 2022, less a discount, which completed the repurchases contemplated by the ASR Agreement. Shares repurchased pursuant to the ASR Agreement were immediately retired upon receipt.

During the second quarter of fiscal 2022, Ciena repurchased an additional 1.5 million shares of its common stock, for an aggregate purchase price of $87.0 million at an average price of $57.92 per share. As of April 30, 2022, Ciena has repurchased an aggregate of 5.1 million shares for an aggregate purchase price of $337.0 million at an average price of $66.28 per share and has an aggregate of $663.0 million of authorized funds remaining under its stock repurchase program. 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 Stock Unit Award Tax Withholdings

Ciena repurchases shares of its common stock to satisfy employee tax withholding obligations due on vesting of stock unit awards. The related purchase price of $35.0 million for the shares of Ciena’s stock repurchased during the first six months of fiscal 2022 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.

(20) SHARE-BASED COMPENSATION EXPENSE

The following table summarizes share-based compensation expense for the periods indicated (in thousands):


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Products	$	1,058	$	498	$	1,958	$	1,451
Services	1,943		1,421		3,527		2,626
Share-based compensation expense included in cost of goods sold	3,001		1,919		5,485		4,077
Research and development	8,309		5,844		15,140		10,638
Selling and marketing	8,061		6,610		15,121		12,426
General and administrative	7,334		6,743		15,246		13,101

Share-based compensation expense included in operating expense	23,704		19,197		45,507		36,165
Share-based compensation expense capitalized in inventory, net	(32)		419		(22)		257
Total share-based compensation expense	$	26,673	$	21,535	$	50,970	$	40,499

As of April 30, 2022, total unrecognized share-based compensation expense was approximately $218.8 million, which relates to unvested stock unit awards and is expected to be recognized over a weighted-average period of 1.64 years.

(21) SEGMENTS 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.

Ciena's long-lived assets, including equipment, building, furniture and fixtures, right-of-use (“ROU”) assets, finite-lived intangible assets and maintenance spares, are not reviewed by Ciena's chief operating decision maker for purposes of evaluating performance and allocating resources. As of April 30, 2022, equipment, building, furniture and fixtures, net, totaled $278.5 million, and operating ROU assets totaled $45.7 million both of which support asset groups within Ciena’s four operating segments and unallocated selling and general and administrative activities. As of April 30, 2022, 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		Blue Planet Automation Software and Services		Global Services		Total
Other intangible assets, net	$	46,386	$	—	$	42,570	$	—	$	88,956
Goodwill	$	83,684	$	156,191	$	89,049	$	—	$	328,924
Maintenance spares, net	$	—	$	—	$	—	$	50,196	$	50,196

Segment Profit (Loss)

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; significant asset impairments and restructuring costs; amortization of intangible assets; acquisition and integration costs; interest and other income (loss), net; interest expense; and provision for income taxes.

The table below sets forth Ciena’s segment profit (loss) and the reconciliation to net income for the periods indicated (in thousands):


	Quarter Ended				Six Months Ended
	April 30,		May 1,		April 30,		May 1,
	2022		2021		2022		2021
Segment profit (loss):
Networking Platforms	$	152,769	$	211,412	$	286,894	$	367,843
Platform Software and Services	43,556		36,506		93,052		64,166
Blue Planet Automation Software and Services	(6,520)		5,688		(7,554)		3,254
Global Services	52,652		48,567		105,843		92,060
Total segment profit	242,457		302,173		478,235		527,323
Less: Non-performance operating expenses
Selling and marketing	119,939		110,387		238,820		207,665
General and administrative	45,572		43,635		90,070		83,628
Significant asset impairments and restructuring costs	9,102		8,209		12,511		14,076
Amortization of intangible assets	8,920		6,019		17,838		11,929
Acquisition and integration costs	495		294		563		601

Add: Other non-performance financial items
Interest expense and other income (loss), net	(11,177)		(9,059)		(16,139)		(17,540)

Less: Provision for income taxes	8,330		21,453		17,549		33,419
Net income	$	38,922	$	103,117	$	84,745	$	158,465

Entity-Wide Reporting

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 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):


	April 30, 2022		October 30, 2021
Canada	$	237,106	$	240,968
United States	46,506		50,744
Other International	40,603		37,541
Total	$	324,215	$	329,253

(22) COMMITMENTS AND CONTINGENCIES

Canadian 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 (“ENCQOR”) 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 could have received up to an aggregate CAD$57.6 million (approximately $44.8 million) in reimbursement from the three Canadian government entities for eligible costs over the period from February 20, 2017 through March 31, 2022. Amounts received under the agreements were subject to recoupment in the event that Ciena fails to achieve certain minimum investment, employment and project milestones. 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 Condensed Consolidated Statement of Operations to which the grant activity relates. As of April 30, 2022, Ciena has recorded CAD$57.6 million (approximately $44.8 million) in cumulative benefits as a reduction in research and development expense of which CAD$6.6 million ($5.2 million) was recorded in the first six months of fiscal 2022. As of April 30, 2022, amounts receivable from this grant were CAD$3.3 million ($2.6 million) included in prepaid expenses and other in the Condensed Consolidated Balance Sheets.

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.

(23) SUBSEQUENT EVENTS

Stock Repurchase Program

From the end of the second quarter of fiscal 2022 through June 3, 2022, Ciena repurchased an additional 1,161,320 shares of its common stock, for an aggregate purchase price of $60.0 million at an average price of $51.67 per share, inclusive of repurchases pending settlement. As of June 3, 2022, Ciena has repurchased an aggregate of 6,246,078 shares and has $603.0 million of authorized funds remaining under its stock repurchase program.

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