Leases

6 Months Ended

May 01, 2021

Leases [Abstract]

Leases

LEASES

Ciena leases over 1.3 million square feet of facilities globally. Ciena’s principal executive offices are located in Hanover, Maryland. Ciena’s largest facilities are research and development centers located in Ottawa, Canada and Gurgaon, India. Ciena also has engineering and/or service delivery facilities located in San Jose, California; Alpharetta, Georgia; Quebec, Canada; and Pune and Bangalore, India. In addition, Ciena leases various smaller offices in regions throughout the world to support sales and services operations. Office facilities are leased under various non-cancelable operating or finance leases. Ciena's current leases have remaining terms that vary up to 11 years. Certain leases provide for options to extend up to ten years and/or options to terminate within five years.

Leases included in the Condensed Consolidated Balance Sheets were as follows (in thousands):

	Classification	As of May 1, 2021		As of October 31, 2020
Operating leases:
Operating ROU assets	Operating right-of-use assets	$	50,997	$	57,026
Operating lease liabilities	Operating lease liabilities and Long-term operating lease liabilities	73,159		80,450
Finance leases:
Buildings, gross	Equipment, building, furniture and fixtures, net	$	76,711	$	70,791
Less: accumulated depreciation	Equipment, building, furniture and fixtures, net	(21,771)		(17,837)
Buildings, net		$	54,940	$	52,954
Finance lease liabilities	Accrued liabilities and other short-term obligations and other long-term obligations	$	68,271	$	64,401

ROU assets that involve subleased or vacant space aggregate to $4.6 million as of May 1, 2021. These assets may become impaired if tenants are unable to service their obligations under the sublease, and/or if the estimates as to occupancy are not realized, either of which may be more likely as COVID-19 impacts evolve.

The components of lease expense included in the Condensed Consolidated Statement of Operations were as follows (in thousands):

		Quarter Ended				Six Months Ended
		May 1,		May 2,		May 1,		May 2,
	Classification	2021		2020		2021		2020
Operating lease costs	Operating expense	$	4,202	$	4,744	$	8,431	$	9,201
Finance lease cost:
Amortization of finance ROU asset	Operating expense	1,191		1,093		2,356		2,233
Interest on finance lease liabilities	Interest expense	1,207		1,168		2,428		2,412
Total finance lease cost		2,398		2,261		4,784		4,645
Non-capitalized lease cost	Operating expense	333		707		626		1,328
Variable lease cost(1)	Operating expense	1,452		1,324		3,051		2,635
Net lease cost(2)		$	8,385	$	9,036	$	16,892	$	17,809

(1) Variable lease costs include expenses relating to insurance, taxes, maintenance and other costs required by the applicable operating lease. Variable lease costs are determined by whether they are to be included in base rent and if amounts are based on a consumer price index.

(2) Excludes other operating expense of $2.6 million and $2.2 million for the second quarter of fiscal 2021 and 2020, respectively and $4.9 million and $6.5 million for the six months ended May 1, 2021 and May 2, 2020, respectively, related to amortization of leasehold improvements.

Future minimum lease payments and the present value of minimum lease payments related to operating and finance leases as of May 1, 2021 were as follows (in thousands):

	Operating Leases		Finance Leases		Total
Remaining fiscal 2021	$	10,772	$	8,125	$	18,897
2022	19,462		8,623		28,085
2023	16,020		8,624		24,644
2024	13,371		8,693		22,064
2025	9,058		8,832		17,890
Thereafter	9,434		58,544		67,978
Total lease payments	78,117		101,441		179,558
Less: Imputed interest	(4,958)		(33,170)		(38,128)
Present value of lease liabilities	73,159		68,271		141,430
Less: Current portion of present value of minimum lease payments	(19,364)		(3,245)		(22,609)
Long-term portion of present value of minimum lease payments	$	53,795	$	65,026	$	118,821

The weighted average remaining lease terms and weighted average discount rates for operating and finance leases were as follows:

	As of May 1, 2021		As of October 31, 2020
Weighted-average remaining lease term in years:
Operating leases	4.53		4.87
Finance leases	11.22		11.71
Weighted-average discount rates:
Operating leases	2.79	%	2.82	%
Finance leases	7.56	%	7.56	%

Leases

LEASES

Ciena leases over 1.3 million square feet of facilities globally. Ciena’s principal executive offices are located in Hanover, Maryland. Ciena’s largest facilities are research and development centers located in Ottawa, Canada and Gurgaon, India. Ciena also has engineering and/or service delivery facilities located in San Jose, California; Alpharetta, Georgia; Quebec, Canada; and Pune and Bangalore, India. In addition, Ciena leases various smaller offices in regions throughout the world to support sales and services operations. Office facilities are leased under various non-cancelable operating or finance leases. Ciena's current leases have remaining terms that vary up to 11 years. Certain leases provide for options to extend up to ten years and/or options to terminate within five years.

Leases included in the Condensed Consolidated Balance Sheets were as follows (in thousands):

	Classification	As of May 1, 2021		As of October 31, 2020
Operating leases:
Operating ROU assets	Operating right-of-use assets	$	50,997	$	57,026
Operating lease liabilities	Operating lease liabilities and Long-term operating lease liabilities	73,159		80,450
Finance leases:
Buildings, gross	Equipment, building, furniture and fixtures, net	$	76,711	$	70,791
Less: accumulated depreciation	Equipment, building, furniture and fixtures, net	(21,771)		(17,837)
Buildings, net		$	54,940	$	52,954
Finance lease liabilities	Accrued liabilities and other short-term obligations and other long-term obligations	$	68,271	$	64,401

ROU assets that involve subleased or vacant space aggregate to $4.6 million as of May 1, 2021. These assets may become impaired if tenants are unable to service their obligations under the sublease, and/or if the estimates as to occupancy are not realized, either of which may be more likely as COVID-19 impacts evolve.

The components of lease expense included in the Condensed Consolidated Statement of Operations were as follows (in thousands):

		Quarter Ended				Six Months Ended
		May 1,		May 2,		May 1,		May 2,
	Classification	2021		2020		2021		2020
Operating lease costs	Operating expense	$	4,202	$	4,744	$	8,431	$	9,201
Finance lease cost:
Amortization of finance ROU asset	Operating expense	1,191		1,093		2,356		2,233
Interest on finance lease liabilities	Interest expense	1,207		1,168		2,428		2,412
Total finance lease cost		2,398		2,261		4,784		4,645
Non-capitalized lease cost	Operating expense	333		707		626		1,328
Variable lease cost(1)	Operating expense	1,452		1,324		3,051		2,635
Net lease cost(2)		$	8,385	$	9,036	$	16,892	$	17,809

(1) Variable lease costs include expenses relating to insurance, taxes, maintenance and other costs required by the applicable operating lease. Variable lease costs are determined by whether they are to be included in base rent and if amounts are based on a consumer price index.

(2) Excludes other operating expense of $2.6 million and $2.2 million for the second quarter of fiscal 2021 and 2020, respectively and $4.9 million and $6.5 million for the six months ended May 1, 2021 and May 2, 2020, respectively, related to amortization of leasehold improvements.

Future minimum lease payments and the present value of minimum lease payments related to operating and finance leases as of May 1, 2021 were as follows (in thousands):

	Operating Leases		Finance Leases		Total
Remaining fiscal 2021	$	10,772	$	8,125	$	18,897
2022	19,462		8,623		28,085
2023	16,020		8,624		24,644
2024	13,371		8,693		22,064
2025	9,058		8,832		17,890
Thereafter	9,434		58,544		67,978
Total lease payments	78,117		101,441		179,558
Less: Imputed interest	(4,958)		(33,170)		(38,128)
Present value of lease liabilities	73,159		68,271		141,430
Less: Current portion of present value of minimum lease payments	(19,364)		(3,245)		(22,609)
Long-term portion of present value of minimum lease payments	$	53,795	$	65,026	$	118,821

The weighted average remaining lease terms and weighted average discount rates for operating and finance leases were as follows:

	As of May 1, 2021		As of October 31, 2020
Weighted-average remaining lease term in years:
Operating leases	4.53		4.87
Finance leases	11.22		11.71
Weighted-average discount rates:
Operating leases	2.79	%	2.82	%
Finance leases	7.56	%	7.56	%