Fair Value Measurements

3 Months Ended

Apr. 30, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

(6) 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):

	April 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:
U.S. government obligations	$	50,098	$	—	$	—	$	50,098
Foreign currency forward contracts		—		277		—		277
Embedded redemption feature		—		—		13,380		13,380
Total assets measured at fair value	$	50,098	$	277	$	13,380	$	63,755

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

	April 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Prepaid expenses and other	$	—	$	277	$	—	$	277
Long-term investments		50,098		—		—		50,098
Other long-term assets		—		—		13,380		13,380
Total assets measured at fair value	$	50,098	$	277	$	13,380	$	63,755

     Ciena’s Level 3 assets included in other long-term assets reflect the 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 fair value measurements of Level 3 assets:

	Level 3
Balance at October 31, 2010	$	34,415
Issuances		—
Settlements		(30,195	)
Changes in unrealized gain (loss)		9,160
Transfers into Level 3		—
Transfers out of Level 3		—
Balance at April 30, 2011	$	13,380