Derivative Instruments

12 Months Ended

Oct. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives         

During fiscal 2019 and fiscal 2018, Ciena entered into forward contracts to hedge its foreign exchange exposure from its forecasted cash flows in order to reduce the variability in its Canadian Dollar and Indian Rupee denominated expense, which principally relates to research and development activities. The notional amount of these contracts was approximately $197.4 million and $163.2 million as of October 31, 2019 and October 31, 2018, respectively. These foreign exchange contracts have maturities of 24 months or less and have been designated as cash flow hedges.

During fiscal 2019 and fiscal 2018, in order to hedge its foreign exchange exposure from certain balance sheet items, Ciena entered into forward contracts to mitigate risk due to volatility in the Brazilian Real, Canadian Dollar, Euro, Australian Dollar,

British Pound Sterling, Mexican Peso, and Japanese Yen. The notional amount of these contracts was approximately $206.0 million and $162.6 million as of October 31, 2019 and October 31, 2018. 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 17 below) and has hedged such risk by entering into floating to fixed interest rate swap arrangements (“interest rate swaps”). During the fourth quarter of fiscal 2018, Ciena refinanced its previous term loan in the aggregate principal amount of $394.0 million, maturing on January 30, 2022 (the “2022 Term Loan”), into a new term loan due September 28, 2025 (the “2025 Term Loan”), increasing the aggregate outstanding principal to $700.0 million and extending the maturity to September 2025 (see Note 17 below). In conjunction with the refinancing, Ciena unwound its then-existing interest rate swaps for a cash gain of $6.8 million, which was recorded in Other Comprehensive Income, and entered into new floating-to-fixed interest rate swaps. The interest rate swaps fix the LIBOR rate of approximately $350.0 million of the principal amount of the 2025 Term Loan at 2.957% through September 2023. The total notional amount of these interest rate swaps in effect as of October 31, 2019 was $350.0 million.

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

Other information regarding Ciena’s derivatives is immaterial for separate financial statement presentation. See Notes 5 and 7 above.

Debt Conversion Liability Associated With the New Notes

The New Notes provided Ciena the option, at its election, to settle conversions of such notes for cash, shares of its common stock, or a combination of cash and shares equal to the aggregate amount due upon conversion. On August 30, 2018, Ciena notified the noteholders that it had elected to settle conversion of the New Notes in a combination of cash and shares, provided that the cash portion would not exceed an aggregate amount of $400.0 million. Ciena became obligated to settle a portion of the conversion feature in cash and reclassified the cash conversion feature from equity to a derivative liability at its current fair value of $152.1 million. As of October 31, 2018, Ciena recorded a loss of approximately $12.1 million related to the change in fair value of the embedded conversion feature. On November 15, 2018, Ciena paid approximately $111.3 million in cash and issued 1.6 million shares in settlement of this embedded conversion feature.