Fair Value Measurements

12 Months Ended

Oct. 31, 2011

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

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

	October 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Embedded redemption feature	$	—	$	—	$	4,220	$	4,220
Contingent consideration	—		—		30,195		30,195
Total assets measured at fair value	$	—	$	—	$	34,415	$	34,415

	October 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
U.S. government obligations	$	50,264	$	—	$	—	$	50,264
Embedded redemption feature	—		—		7,020		7,020
Total assets measured at fair value	$	50,264	$	—	$	7,020	$	57,284

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

	October 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Prepaid expenses and other	$	—	$	—	$	30,195	$	30,195
Other long-term assets	—		—		4,220		4,220
Total assets measured at fair value	$	—	$	—	$	34,415	$	34,415

	October 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Long-term investments	$	50,264	$	—	$	—	$	50,264
Other long-term assets	—		—		7,020		7,020
Total assets measured at fair value	$	50,264	$	—	$	7,020	$	57,284

Ciena’s Level 3 assets included in prepaid expenses and other at October 31, 2010 reflect its contingent right to receive a refund of up to $33.5 million in aggregate purchase price paid in the MEN Acquisition. The fair value was based on the weighted average probabilities of expected cash flows discounted to its present value. Ciena's Level 3 assets included in other long-term assets reflect an embedded redemption feature contained within Ciena's 4.0% convertible senior notes. See Note 14 below. The embedded redemption feature is bifurcated from Ciena's 4.0% convertible senior notes using the "with-and-without" approach. As such, the total value of the embedded redemption feature is calculated as the difference between the value of the 4.0% convertible senior notes (the "Hybrid Instrument") and the value of an identical instrument without the embedded redemption feature (the “Host Instrument"). Both the Host Instrument and the Hybrid Instrument are valued using a modified binomial model. The modified binomial model utilizes a risk free interest rate, an implied volatility of Ciena's stock, the recovery rates of bonds and the implied default intensity of the 4.0% convertible senior notes.

As of the dates indicated, the following table sets forth, in thousands, the reconciliation of changes in Level 3 assets recorded at fair value:

	Level 3
Balance at October 31, 2010	$	34,415
Issuances	—
Settlements	(30,195		)
Changes in unrealized gain	2,800
Transfers into Level 3	—
Transfers out of Level 3	—
Balance at October 31, 2011	$	7,020

During fiscal 2009, a private technology company in which Ciena held a minority equity investment completed a round of equity financing and merged with another private technology company. These events required Ciena to perform an impairment analysis and measure the investment at fair value. In determining fair value, Ciena utilized Level 3 inputs including the recapitalization resulting from both the completion of the merger and the equity financing. Also, during fiscal 2009, a separate private technology company in which Ciena held a minority equity investment was acquired by a publicly-traded company. This event required Ciena to perform an impairment analysis and measure the investment at fair value. In determining fair value, Ciena utilized Level 2 inputs including the relevant exchange ratio for the acquisition transaction and the market price of the acquirer's common stock. Based on Ciena's ownership interest and the value of its investment following these events, Ciena recorded a non-cash loss on cost method investments of $5.3 million.