Fair Value Measurements

9 Months Ended

Jul. 31, 2014

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



	July 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	390,006	$	—	$	—	$	390,006
U.S. government obligations	—		155,271		—		155,271
Commercial paper	—		79,993		—		79,993
Foreign currency forward contracts	—		849		—		849
Total assets measured at fair value	$	390,006	$	236,113	$	—	$	626,119

Liabilities:
Foreign currency forward contracts	$	—	$	390	$	—	$	390
Total liabilities measured at fair value	$	—	$	390	$	—	$	390

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



	July 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	390,006	$	49,995	$	—	$	440,001
Short-term investments	—		120,250		—		120,250
Prepaid expenses and other	—		849		—		849
Long-term investments	—		65,019		—		65,019
Total assets measured at fair value	$	390,006	$	236,113	$	—	$	626,119

Liabilities:
Accrued liabilities	$	—	$	390	$	—	$	390
Total liabilities measured at fair value	$	—	$	390	$	—	$	390

Ciena’s Level 3 assets that were included in other long-term assets reflect an embedded redemption feature contained within the 2015 Notes. The embedded redemption feature is bifurcated from the 2015 Notes using the “with-and-without” approach. As such, the total value of the embedded redemption feature is calculated as the difference between the value of the 2015 Notes (the “Hybrid Instrument”) and the value of an identical instrument without the embedded redemption feature (the “Host Instrument”). Both the Host Instrument and the Hybrid Instrument are valued using a modified binomial model. The modified binomial model utilizes a risk free interest rate, an implied volatility of Ciena’s stock, the recovery rates of bonds and the implied default intensity of the 2015 Notes.

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



	Level 3
Balance at October 31, 2013	$	2,740
Issuances	—
Settlements	—
Changes in unrealized gain (loss)	(2,740		)
Transfers into Level 3	—
Transfers out of Level 3	—
Balance at July 31, 2014	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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