Edgar Filing: CIENA CORP

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36250

Ciena Corporation

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	23-2725311 (I.R.S. Employer Identification No.)



7035 Ridge Road, Hanover, MD (Address of Principal Executive Offices)	21076 (Zip Code)

(410) 694-5700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o (do not check if smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2 of the Exchange Act). YES o NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:



Class		Outstanding at March 4, 2016
common stock, $0.01 par value		137,548,675

CIENA CORPORATION

INDEX

FORM 10-Q



	PAGE NUMBER
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Statements of Operations for the Quarters Ended January 31, 2015 and January 31, 2016	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters Ended January 31, 2015 and January 31, 2016	4
Condensed Consolidated Balance Sheets at October 31, 2015 and January 31, 2016	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2015 and January 31, 2016	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	49
Item 4. Controls and Procedures	51
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	51
Item 1A. Risk Factors	52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3. Defaults Upon Senior Securities	65
Item 4. Mine Safety Disclosures	65
Item 5. Other Information	65
Item 6. Exhibits	66
Signatures	67

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



	Quarter Ended January 31,
	2016			2015
Revenue:
Products	$	457,589		$	422,315
Services	115,526			106,847
Total revenue	573,115			529,162
Cost of goods sold:
Products	260,482			236,548
Services	61,183			62,319
Total cost of goods sold	321,665			298,867
Gross profit	251,450			230,295
Operating expenses:
Research and development	108,046			100,761
Selling and marketing	82,478			76,712
General and administrative	31,142			29,553
Acquisition and integration costs	1,299			—
Amortization of intangible assets	16,862			11,019
Restructuring costs	384			8,085
Total operating expenses	240,211			226,130
Income from operations	11,239			4,165
Interest and other income (loss), net	(8,776		)	(8,233		)
Interest expense	(12,710		)	(13,661		)
Loss before income taxes	(10,247		)	(17,729		)
Provision for income taxes	1,299			1,050
Net loss	$	(11,546	)	$	(18,779	)
Basic net loss per common share	$	(0.08	)	$	(0.17	)
Diluted net loss per potential common share	$	(0.08	)	$	(0.17	)
Weighted average basic common shares outstanding	136,675			107,773
Weighted average dilutive potential common shares outstanding	136,675			107,773

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)



	Quarter Ended January 31,
	2016			2015
Net loss	$	(11,546	)	$	(18,779	)
Change in unrealized gain on available-for-sale securities, net of tax	22			36
Change in unrealized loss on foreign currency forward contracts, net of tax	(2,520		)	(4,513		)
Change in unrealized loss on forward starting interest rate swap, net of tax	(329		)	(2,565		)
Change in cumulative translation adjustment	(2,823		)	(12,248		)
Other comprehensive loss	(5,650		)	(19,290		)
Total comprehensive loss	$	(17,196	)	$	(38,069	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



	January 31, 2016			October 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	660,321		$	790,971
Short-term investments	210,010			135,107
Accounts receivable, net	480,382			550,792
Inventories	205,664			191,162
Prepaid expenses and other	194,643			196,178
Total current assets	1,751,020			1,864,210
Long-term investments	125,060			95,105
Equipment, building, furniture and fixtures, net	199,561			191,973
Goodwill	256,434			256,434
Other intangible assets, net	182,167			202,673
Other long-term assets	75,073			84,656
Total assets	$	2,589,315		$	2,695,051
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	183,852		$	222,140
Accrued liabilities	262,213			316,283
Deferred revenue	106,664			126,111
Current portion of long-term debt	2,500			2,500
Total current liabilities	555,229			667,034
Long-term deferred revenue	67,027			62,962
Other long-term obligations	81,716			72,540
Long-term debt, net	1,258,316			1,271,639
Total liabilities	$	1,962,288		$	2,074,175
Commitments and contingencies (Note 21)
Stockholders’ equity (deficit):
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding	—			—
Common stock – par value $0.01; 290,000,000 shares authorized; 137,436,562 and 135,612,217 shares issued and outstanding	1,374			1,356
Additional paid-in capital	6,663,765			6,640,436
Accumulated other comprehensive loss	(27,776		)	(22,126		)
Accumulated deficit	(6,010,336		)	(5,998,790		)
Total stockholders’ equity	627,027			620,876
Total liabilities and stockholders’ equity	$	2,589,315		$	2,695,051

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended January 31,
	2016			2015
Cash flows provided by operating activities:
Net loss	$	(11,546	)	$	(18,779	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements	14,449			13,772
Share-based compensation costs	14,477			10,807
Amortization of intangible assets	20,506			13,219
Provision for inventory excess and obsolescence	7,016			5,787
Provision for warranty	4,971			2,293
Other	11,087			(10,598		)
Changes in assets and liabilities:
Accounts receivable	63,332			(1,218		)
Inventories	(22,134		)	7,097
Prepaid expenses and other	6,761			(11,536		)
Accounts payable, accruals and other obligations	(80,014		)	2,210
Deferred revenue	(13,925		)	9,084
Net cash provided by operating activities	14,980			22,138
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property	(28,873		)	(11,194		)
Purchase of available for sale securities	(134,869		)	(50,085		)
Proceeds from maturities of available for sale securities	30,000			40,000
Settlement of foreign currency forward contracts, net	(295		)	9,314
Net cash used in investing activities	(134,037		)	(11,965		)
Cash flows provided by (used in) financing activities:
Payment of long term debt	(14,639		)	(625		)
Payment for debt and equity issuance costs	(797		)	(60		)
Payment of capital lease obligations	(1,627		)	(2,993		)
Proceeds from issuance of common stock	8,870			8,302
Net cash provided by (used in) financing activities	(8,193		)	4,624
Effect of exchange rate changes on cash and cash equivalents	(3,400		)	(2,794		)
Net increase (decrease) in cash and cash equivalents	(130,650		)	12,003
Cash and cash equivalents at beginning of period	790,971			586,720
Cash and cash equivalents at end of period	$	660,321		$	598,723
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	9,556		$	8,754
Cash paid during the period for income taxes, net	$	3,702		$	2,894
Non-cash investing activities
Purchase of equipment in accounts payable	$	8,782		$	3,270
Debt issuance costs in accrued liabilities	$	190		$	187
Equipment acquired under capital lease	$	1,219		$	—
Construction in progress subject to build-to-suit lease	$	11,522		$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


(1)	INTERIM FINANCIAL STATEMENTS

The interim financial statements included herein for Ciena Corporation and its wholly owned subsidiaries (“Ciena”) have been prepared by Ciena, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management, the financial statements included in this report reflect all normal recurring adjustments that Ciena considers necessary for the fair statement of the results of operations for the interim periods covered and of the financial position of Ciena at the date of the interim balance sheets. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. The Condensed Consolidated Balance Sheet as of October 31, 2015 was derived from audited financial statements, but does not include all disclosures required by GAAP. However, Ciena believes that the disclosures are adequate to understand the information presented herein. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with Ciena’s audited consolidated financial statements and the notes thereto included in Ciena’s annual report on Form 10-K for the fiscal year ended October 31, 2015.

Ciena has a 52 or 53-week fiscal year, which ends on the Saturday nearest to the last day of October of each year. Fiscal 2015 and 2016 are 52-week fiscal years. For purposes of financial statement presentation, each fiscal year is described as having ended on October 31, and the fiscal quarters are described as having ended on January 31, April 30 and July 31 of each fiscal year.

Ciena previously identified prior period errors in the classification of foreign currency differences on changes in operating assets and liabilities for each quarterly period during the nine months ended July 31, 2015. The matters identified had no impact on any of the cash flow statement sub totals in any of the quarters, and were limited to equal and offsetting errors within the subtotal of cash provided by operations. Ciena concluded that the errors were not material to any of its previously issued financial statements. Ciena has revised the affected periods as they are presented in fiscal 2016 on a comparable basis to reflect the correction. The revisions resulted in net reclassifications within the cash flows from operating activities section of the cash flow from "Other" to “Changes in operating assets and liabilities” of $0.1 million for the three month period ending January 31, 2015.


(2)	SIGNIFICANT ACCOUNTING POLICIES

Business Combinations

Ciena records acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration are recognized at their fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and net intangible assets acquired is recorded as goodwill. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. These assumptions and estimates include a market participant's use of the asset and the appropriate discount rates for a market participant. Ciena's estimates are based on historical experience, information obtained from the management of the acquired companies and, when appropriate, includes assistance from independent third-party appraisal firms. Our significant assumptions and estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.

Use of Estimates

The preparation of the financial statements and related disclosures in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for selling prices for multiple element arrangements, shared-based compensation, convertible notes payable valuations, bad debts, valuation of inventories and investments, recoverability of intangible assets, other long-lived assets and goodwill, income taxes, warranty obligations, restructuring liabilities, derivatives, incentive compensation, contingencies and litigation. Ciena bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results may differ materially from management’s estimates.

Cash and Cash Equivalents

Ciena considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Any restricted cash collateralizing letters of credit is included in other current assets and other long-term assets depending upon the duration of the restriction.

Investments

Ciena's investments are classified as available-for-sale and are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss). Ciena recognizes losses in the income statement when it determines that declines in the fair value of its investments below their cost basis are other-than-temporary. In determining whether a decline in fair value is other-than-temporary, Ciena considers various factors, including market price (when available), investment ratings, the financial condition and near-term prospects of the investee, the length of time and the extent to which the fair value has been less than Ciena's cost basis, and Ciena's intent and ability to hold the investment until maturity or for a period of time sufficient to allow for any anticipated recovery in market value. Ciena considers all marketable debt securities that it expects to convert to cash within one year or less to be short-term investments, with all others considered to be long-term investments.

Ciena has a minority equity investment in a privately held technology company that is classified in other long-term assets. This investment is carried at cost because Ciena owns less than 20% of the voting equity and does not have the ability to exercise significant influence over the company. Ciena monitors this investment for impairment and makes appropriate reductions to the carrying value when necessary. As of January 31, 2016, the carrying value of this investment was $2.0 million. Ciena has not estimated the fair value of this cost method investment because determining the fair value is not practicable. Ciena has not evaluated this investment for impairment as there have not been any events or changes in circumstances that Ciena believes would have had a significant adverse effect on the fair value of this investment.

Inventories

Inventories are stated at the lower of cost or market, with cost computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Ciena records a provision for excess and obsolete inventory when an impairment has been identified.

Segment Reporting

Ciena's chief operating decision maker, its chief executive officer, evaluates the company's performance and allocates resources based on multiple factors, including measures of segment profit (loss). Operating segments are defined as components of an enterprise that engage in business activities that may earn revenue and incur expense, for which discrete financial information is available, and for which such information is evaluated regularly by the chief operating decision maker for purposes of allocating resources and assessing performance. As of the first quarter of fiscal 2016, Ciena considers the following to be its operating segments for reporting purposes: (i) Networking Platforms, (ii) Software and Software-Related Services, and (iii) Global Services. See Note 20 below.

Goodwill

Goodwill is the excess of the purchase price over the fair values assigned to the net assets acquired in a business combination. Ciena tests goodwill for impairment on an annual basis, which we have determined to be the last business day of fiscal September each year. Ciena also tests goodwill for impairment between annual tests if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.

The first step in the process of assessing goodwill impairment is to compare the fair value of the reporting unit with the unit’s carrying amount, including goodwill. If this test indicates that the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. A non-cash goodwill impairment charge would have the effect of decreasing our earnings or increasing our losses in such period. If we are required to take a substantial impairment charge, our operating results would be materially adversely affected in such period.

Long-lived Assets

Long-lived assets include: equipment, building, furniture and fixtures; intangible assets; and maintenance spares. Ciena tests long-lived assets for impairment whenever triggering events or changes in circumstances indicate that the asset's carrying amount is not recoverable from its undiscounted cash flows. An impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds its fair value. Ciena's long-lived assets are assigned to asset groups that represent the lowest level for which cash flows can be identified.

Equipment, Building, Furniture and Fixtures and Internal Use Software

Equipment, building, furniture and fixtures are recorded at cost. Depreciation and amortization are computed using the straight-line method over useful lives of two to five years for equipment and furniture and fixtures and the shorter of useful life or lease term for leasehold improvements. During fiscal 2015, Ciena gained partial access to an office building in Ottawa, Canada pursuant to a lease arrangement accounted for as a capital lease, which is depreciated over the lease term. The leased building is part of Ciena's new campus facility that will replace the "Lab 10" research and development center on the former Nortel Carling campus. See Note 10 below.

Ciena establishes assets and liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to the extent that Ciena is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease. See Notes 10 and 13 below.

Qualifying internal use software and website development costs incurred during the application development stage, which consist primarily of outside services and purchased software license costs, are capitalized and amortized straight-line over the estimated useful lives of two to five years.

Intangible Assets

Ciena has recorded finite-lived intangible assets as a result of several acquisitions. Finite-lived intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the expected economic lives of the respective assets, up to seven years, which approximates the use of intangible assets.

Maintenance Spares

Maintenance spares are recorded at cost. Spares usage cost is expensed ratably over four years.

Concentrations

Substantially all of Ciena's cash and cash equivalents are maintained at a small number of major U.S. financial institutions. The majority of Ciena's cash equivalents consist of money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. Because these deposits generally may be redeemed upon demand, management believes that they bear minimal risk.

Historically, a significant percentage of Ciena's revenue has been concentrated among sales to a small number of large communications service providers. Consolidation among Ciena's customers has increased this concentration. Consequently, Ciena's accounts receivable are concentrated among these customers. See Note 20 below.

Additionally, Ciena's access to certain materials or components is dependent upon sole or limited source suppliers. The inability of any of these suppliers to fulfill Ciena's supply requirements, or significant changes in supply cost, could affect future results. Ciena relies on a small number of contract manufacturers to perform the majority of the manufacturing for its products. If Ciena cannot effectively manage these manufacturers or forecast future demand, or if these manufacturers fail to deliver products or components on time, Ciena's business and results of operations may suffer.

Revenue Recognition

Ciena recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectibility is reasonably assured. Customer purchase agreements and customer purchase orders are generally used to determine the existence of an arrangement. Shipping documents and evidence of customer acceptance, when applicable, are used to verify delivery or services rendered. Ciena assesses whether the price is fixed or determinable based on the payment terms associated with the

transaction and whether the sales price is subject to refund or adjustment. Ciena assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer's payment history. Revenue for maintenance services is deferred and recognized ratably over the period during which the services are performed. Shipping and handling fees billed to customers are included in revenue, with the associated expenses included in product cost of goods sold.

Ciena applies the percentage-of-completion method to long-term arrangements where Ciena is required to undertake significant production, customization or modification engineering, and reasonable and reliable estimates of revenue and cost are available. Utilizing the percentage-of-completion method, Ciena recognizes revenue based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred. In instances that do not meet the percentage-of-completion method criteria, recognition of revenue is deferred until there are no uncertainties regarding customer acceptance. Unbilled percentage-of-completion revenues recognized are included in accounts receivable, net. Billings in excess of revenues recognized on these contracts are recorded within deferred revenue. The percentage of total revenue recognized using the percentage-of-completion method for the three months ended January 31, 2015 and January 31, 2016 was 1.0% and 0.6%, respectively.

Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. In instances where final acceptance criteria of the software are specified by the customer, revenue is deferred until there are no uncertainties regarding customer acceptance.

Ciena limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.

Revenue for multiple element arrangements is allocated to each unit of accounting based on the relative selling price of each delivered element, with revenue recognized for each delivered element when the revenue recognition criteria are met. Ciena determines the selling price for each deliverable based upon the selling price hierarchy for multiple-deliverable arrangements. Under this hierarchy, Ciena uses vendor-specific objective evidence ("VSOE") of selling price, if it exists, or third party evidence ("TPE") of selling price if VSOE does not exist. If neither VSOE nor TPE of selling price exists for a deliverable, Ciena uses its best estimate of selling price ("BESP") for that deliverable. For multiple element software arrangements where VSOE of undelivered maintenance does not exist, revenue for the entire arrangement is recognized over the maintenance term.

VSOE, when determinable, is established based on Ciena's pricing and discounting practices for the specific product or service when sold separately. In determining whether VSOE exists, Ciena requires that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range. Ciena has been unable to establish TPE of selling price because its go-to-market strategy differs from that of others in its markets, and the extent of customization and differentiated features and functions varies among comparable products or services from its peers. Ciena determines BESP based upon management-approved pricing guidelines, which consider multiple factors including the type of product or service, gross margin objectives, competitive and market conditions, and the go-to-market strategy, all of which can affect pricing practices.

Warranty Accruals

Ciena provides for the estimated costs to fulfill customer warranty obligations upon recognition of the related revenue. Estimated warranty costs include estimates for material costs, technical support labor costs and associated overhead. Warranty is included in cost of goods sold and is determined based upon actual warranty cost experience, estimates of component failure rates and management's industry experience. Ciena's sales contracts do not permit the right of return of the product by the customer after the product has been accepted.

Accounts Receivable, Net

Ciena's allowance for doubtful accounts is based on its assessment, on a specific identification basis, of the collectibility of customer accounts. Ciena performs ongoing credit evaluations of its customers and generally has not required collateral or other forms of security from them. In determining the appropriate balance for Ciena's allowance for doubtful accounts, management considers each individual customer account receivable in order to determine collectibility. In doing so, management considers creditworthiness, payment history, account activity and communication with the customer. If a customer's financial condition changes, Ciena may be required to record an allowance for doubtful accounts for that customer, which could negatively affect its results of operations.

Research and Development

Ciena charges all research and development costs to expense as incurred. Types of expense incurred in research and development include employee compensation, cost of prototype equipment, consulting and third party services, depreciation, facility costs and information technology.

Government Grants

Ciena accounts for proceeds from government grants as a reduction of operating expense when there is reasonable assurance that Ciena has complied with the conditions attached to the grant and that the grant proceeds will be received. Grant benefits are recorded to the line item in the Condensed Consolidated Statement of Operations to which the grant activity relates.

Advertising Costs

Ciena expenses all advertising costs as incurred.

Legal Costs

Ciena expenses legal costs associated with litigation defense as incurred.

Share-Based Compensation Expense

Ciena measures and recognizes compensation expense for share-based awards based on estimated fair values on the date of grant. Ciena estimates the fair value of each option-based award on the date of grant using the Black-Scholes option-pricing model. This model is affected by Ciena's stock price as well as estimates regarding a number of variables, including expected stock price volatility over the expected term of the award and projected employee stock option exercise behaviors. Ciena estimates the fair value of each restricted stock unit award based on the fair value of the underlying common stock on the date of grant. In each case, Ciena only recognizes expense in its Condensed Consolidated Statement of Operations for those stock options or restricted stock units that are expected ultimately to vest. Ciena recognizes the estimated fair value of performance-based awards, net of estimated forfeitures, as share-based expense over the performance period, using graded vesting, which considers each performance period or tranche separately, based upon Ciena's determination of whether it is probable that the performance targets will be achieved. At each reporting period, Ciena reassesses the probability of achieving the performance targets and the performance period required to meet those targets and the expense is adjusted accordingly. Ciena uses the straight-line method to record expense for share-based awards with only service-based vesting. See Note 19 below.

Income Taxes

Ciena accounts for income taxes using an asset and liability approach that recognizes deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carryforwards. In estimating future tax consequences, Ciena considers all expected future events other than the enactment of changes in tax laws or rates. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. In addition, tax authorities periodically audit Ciena's income tax returns. These audits examine significant tax filing positions, including the timing and amounts of deductions and the allocation of income tax expenses among tax jurisdictions. Ciena is currently under audit in India for 2010 and 2012 through 2014 and in Canada for 2010 through 2013. Management does not expect the outcome of these audits to have a material adverse effect on Ciena's consolidated financial position, results of operations or cash flows. Ciena's major tax jurisdictions and the earliest open tax years are as follows: United States (2012), United Kingdom (2013), Canada (2010) and India (2010). Limited adjustments can be made to Federal U.S. tax returns in earlier years in order to reduce net operating loss carryforwards. Ciena classifies interest and penalties related to uncertain tax positions as a component of income tax expense.

Ciena has not provided for U.S. deferred income taxes on the cumulative unremitted earnings of its non-U.S. affiliates, as it plans to indefinitely reinvest cumulative unremitted foreign earnings outside the U.S., and it is not practicable to determine the unrecognized deferred income taxes. These cumulative unremitted foreign earnings relate to ongoing operations in foreign jurisdictions and are required to fund foreign operations, capital expenditures and any expansion requirements.

Ciena recognizes windfall tax benefits associated with the exercise of stock options or release of restricted stock units directly to stockholders' equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by Ciena upon an employee's disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that Ciena had recorded. When assessing whether a tax benefit relating to share-based compensation has been realized, Ciena follows the “with-and-without” method. Under the with-and-without method, the windfall is considered realized and recognized for financial statement purposes only when an incremental benefit is provided after considering all other tax benefits including Ciena's net operating losses. The with-and-without method results in the windfall from share-based compensation awards always being effectively the last tax benefit to be considered. Consequently, the windfall attributable to share-based compensation will not be considered realized in instances where Ciena's net operating loss carryover (that is unrelated to windfalls) is sufficient to offset the current year's taxable income before considering the effects of current-year windfalls.

Loss Contingencies

Ciena is subject to the possibility of various losses arising in the ordinary course of business. These may relate to disputes, litigation and other legal actions. Ciena considers the likelihood of loss or the incurrence of a liability, as well as Ciena's ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Ciena regularly evaluates current information available to it in order to determine whether any accruals should be adjusted and whether new accruals are required.

Fair Value of Financial Instruments

The carrying value of Ciena's cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair market value due to the relatively short period of time to maturity. For information related to the fair value of Ciena's convertible notes and Term Loan, see Note 16 below.

Fair value for the measurement of financial assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Ciena utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows:


•	Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities;


•	Level 2 inputs are quoted prices for identical or similar assets or liabilities in less active markets or model-derived valuations in which significant inputs are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and


•	Level 3 inputs are unobservable inputs based on Ciena's assumptions used to measure assets and liabilities at fair value.

By distinguishing between inputs that are observable in the marketplace, and therefore more objective, and those that are unobservable and therefore more subjective, the hierarchy is designed to indicate the relative reliability of the fair value measurements. A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Restructuring

From time to time, Ciena takes actions to better align its workforce, facilities and operating costs with perceived market opportunities, business strategies and changes in market and business conditions. Ciena recognizes a liability for the cost associated with an exit or disposal activity in the period in which the liability is incurred, except for one-time employee termination benefits related to a service period, typically of more than 60 days, which are accrued over the service period. See Note 3 below.

Foreign Currency

Certain of Ciena's foreign branch offices and subsidiaries use the U.S. dollar as their functional currency because Ciena Corporation, as the U.S. parent entity, exclusively funds the operations of these branch offices and subsidiaries. For those

subsidiaries using the local currency as their functional currency, assets and liabilities are translated at exchange rates in effect at the balance sheet date, and the statement of operations is translated at a monthly average rate. Resulting translation adjustments are recorded directly to a separate component of stockholders' equity. Where the monetary assets and liabilities are transacted in a currency other than the entity's functional currency, re-measurement adjustments are recorded in interest and other income (loss), net on the Condensed Consolidated Statement of Operations. See Note 4 below.

Derivatives

From time to time, Ciena uses foreign currency forward contracts to reduce variability in certain forecasted non-U.S. dollar denominated cash flows. Generally, these derivatives have maturities of 12 months or less. During fiscal 2014, Ciena also entered into interest rate hedge arrangements to reduce variability in certain forecasted interest expense associated with its Term Loan. All of these derivatives are designated as cash flow hedges. At the inception of the cash flow hedge, and on an ongoing basis, Ciena assesses whether the derivative has been effective in offsetting changes in cash flows attributable to the hedged risk during the hedging period. The effective portion of the derivative's net gain or loss is initially reported as a component of accumulated other comprehensive income (loss), and, upon occurrence of the forecasted transaction, is subsequently reclassified to the line item in the Condensed Consolidated Statement of Operations to which the hedged transaction relates. Any net gain or loss associated with the ineffectiveness of the hedging instrument is reported in interest and other income (loss), net. To date, no ineffectiveness has occurred.

From time to time, Ciena uses foreign currency forward contracts to hedge certain balance sheet exposures. These forward contracts are not designated as hedges for accounting purposes, and any net gain or loss associated with these derivatives is reported in interest and other income (loss), net on the Condensed Consolidated Statement of Operations.

Ciena records derivative instruments in the Condensed Consolidated Statements of Cash Flows within operating, investing, or financing activities consistent with the cash flows of the hedged items.

See Notes 6 and 14 below.

Computation of Net Income (Loss) per Share

Ciena calculates basic earnings per share ("EPS") by dividing earnings attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted EPS includes other potential dilutive shares that would be outstanding if securities or other contracts to issue common stock were exercised or converted into common stock. Ciena uses a dual presentation of basic and diluted EPS on the face of its income statement. A reconciliation of the numerator and denominator used for the basic and diluted EPS computations is set forth in Note 18 below.

Software Development Costs

Ciena develops software for sale to its customers. GAAP requires the capitalization of certain software development costs that are incurred subsequent to the date technological feasibility is established and prior to the date the product is generally available for sale. The capitalized cost is then amortized straight-line over the estimated life of the product. Ciena defines technological feasibility as being attained at the time a working model is completed. To date, the period between Ciena achieving technological feasibility and the general availability of such software has been short, and software development costs qualifying for capitalization have been insignificant. Accordingly, Ciena has not capitalized any software development costs.

Newly Issued Accounting Standards - Not Yet Effective

In May 2014, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued an amendment to defer the effective date by one year and allow entities to early adopt no earlier than the original effective date. Based on this amendment, the standard will be effective for Ciena beginning in the first quarter of fiscal 2019. Ciena is currently evaluating the impact of the adoption of this ASU on its Consolidated Financial Statements and disclosures.

In April 2015, FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the

carrying value of that debt liability, consistent with debt discounts. The guidance is effective retrospectively for fiscal years, and interim periods within those years, and will be effective for Ciena beginning in the first quarter of fiscal 2017. Early adoption is permitted for financial statements that have not been previously issued. Ciena does not expect that the impact of adopting this guidance will be material to its Consolidated Financial Statements or disclosures.

In February 2016, FASB issued ASU No. 2016-02, Leases, which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 is effective for Ciena beginning in the first quarter of fiscal 2020, and, at that time, Ciena will adopt the new standard using a modified retrospective approach. Ciena is currently evaluating the impact of the adoption of this ASU on its Consolidated Financial Statements and disclosures.


(3)	RESTRUCTURING COSTS

Ciena has undertaken a number of restructuring activities intended to reduce expense and better align its workforce and costs with market opportunities, product development and business strategies. The following table sets forth the restructuring activity and balance of the restructuring liability accounts for the three months ended January 31, 2016 (in thousands):



	Workforce reduction			Consolidation of excess facilities			Total
Balance at October 31, 2015	$	591		$	688		$	1,279
Additional liability recorded	393			—			393
Adjustments to previous estimates	—			(9		)	(9		)
Cash payments	(613		)	(148		)	(761		)
Balance at January 31, 2016	$	371		$	531		$	902
Current restructuring liabilities	$	371		$	336		$	707
Non-current restructuring liabilities	$	—		$	195		$	195

The following table sets forth the restructuring activity and balance of the restructuring liability accounts for the three months ended January 31, 2015 (in thousands):



	Workforce reduction				Consolidation of excess facilities			Total
Balance at October 31, 2014	$	181			$	1,134		$	1,315
Additional liability recorded	8,081			(a)	4			8,085
Cash payments	(4,768		)		(206		)	(4,974		)
Balance at January 31, 2015	$	3,494			$	932		$	4,426
Current restructuring liabilities	$	3,494			$	446		$	3,940
Non-current restructuring liabilities	$	—			$	486		$	486

(a) During the fiscal quarter ended January 31, 2015, Ciena recorded a charge of $8.1 million of severance and other employee-related costs associated with a global workforce reduction of approximately 125 employees.

(4) INTEREST AND OTHER INCOME (LOSS), NET

The components of interest and other income (loss), net, are as follows (in thousands):



	Quarter Ended January 31,
	2016			2015
Interest income	$	686		$	218
Loss on non-hedge designated foreign currency forward contracts	(4,614		)	(4,350		)
Foreign currency exchange loss	(4,377		)	(3,652		)
Other	(471		)	(449		)
Interest and other income (loss), net	$	(8,776	)	$	(8,233	)

Ciena Corporation, as the U.S. parent entity, uses the U.S. dollar as its functional currency; however, some of its foreign branch offices and subsidiaries use the local currency as their functional currency. During the first three months of fiscal 2015 and fiscal 2016, Ciena recorded $3.7 million and $4.4 million in foreign currency exchange losses, respectively, as a result of monetary assets and liabilities that were transacted in a currency other than the entity's functional currency, and the re-measurement adjustments were recorded in interest and other income (loss), net on the Condensed Consolidated Statement of Operations. From time to time, Ciena uses foreign currency forwards to hedge these balance sheet exposures. These forwards are not designated as hedges for accounting purposes and any net gain or loss associated with these derivatives is reported in interest and other income (loss), net on the Condensed Consolidated Statement of Operations. During the first three months of fiscal 2015 and fiscal 2016, Ciena recorded losses of $4.4 million and $4.6 million, respectively, from non-hedge designated foreign currency forward contracts.


(5)	SHORT-TERM AND LONG-TERM INVESTMENTS

As of the dates indicated, investments are comprised of the following (in thousands):



	January 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government obligations:
Included in short-term investments	$	180,087	$	30	(83		)	$	180,034
Included in long-term investments	125,041		117		(98		)	125,060
	$	305,128	$	147	$	(181	)	$	305,094

Commercial paper:
Included in short-term investments	$	29,976	—		—			$	29,976
	$	29,976	$	—	$	—		$	29,976



	October 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government obligations:
Included in short-term investments	$	110,108	$	10	$	—		$	110,118
Included in long-term investments	95,171		—		(66		)	95,105
	$	205,279	$	10	$	(66	)	$	205,223

Commercial paper:
Included in short-term investments	24,989		—		—			24,989
	$	24,989	$	—	$	—		$	24,989

The following table summarizes the final legal maturities of debt investments at January 31, 2016 (in thousands):



	Amortized Cost		Estimated Fair Value
Less than one year	$	210,063	$	210,010
Due in 1-2 years	125,041		125,060
	$	335,104	$	335,070


(6)	FAIR VALUE MEASUREMENTS

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



	January 31, 2016
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	509,365	$	—	$	—	$	509,365
U.S. government obligations	—		305,094		—		305,094
Commercial paper	—		74,958		—		74,958
Foreign currency forward contracts	—		15		—		15
Total assets measured at fair value	$	509,365	$	380,067	$	—	$	889,432

Liabilities:
Foreign currency forward contracts	$	—	$	3,607	$	—	$	3,607
Forward starting interest rate swap	—		5,851		—		5,851
Total liabilities measured at fair value	$	—	$	9,458	$	—	$	9,458



	October 31, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	642,073	$	—	$	—	$	642,073
U.S. government obligations	—		205,223		—		205,223
Commercial paper	—		74,983		—		74,983
Foreign currency forward contracts	—		89		—		89
Total assets measured at fair value	$	642,073	$	280,295	$	—	$	922,368

Liabilities:
Foreign currency forward contracts	$	—	$	512	$	—	$	512
Forward starting interest rate swap	—		5,522		—		5,522
Total liabilities measured at fair value	$	—	$	6,034	$	—	$	6,034

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



	January 31, 2016
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	509,365	$	44,982	$	—	$	554,347
Short-term investments	—		210,010		—		210,010
Prepaid expenses and other	—		15		—		15
Long-term investments	—		125,060		—		125,060
Total assets measured at fair value	$	509,365	$	380,067	$	—	$	889,432

Liabilities:
Accrued liabilities	$	—	$	3,607	$	—	$	3,607
Other long-term obligations	—		5,851		—		5,851
Total liabilities measured at fair value	$	—	$	9,458	$	—	$	9,458



	October 31, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	642,073	$	49,994	$	—	$	692,067
Short-term investments	—		135,107		—		135,107
Prepaid expenses and other	—		89		—		89
Long-term investments	—		95,105		—		95,105
Total assets measured at fair value	$	642,073	$	280,295	$	—	$	922,368

Liabilities:
Accrued liabilities	$	—	$	512	$	—	$	512
Other long-term obligations	—		5,522		—		5,522
Total liabilities measured at fair value	$	—	$	6,034	$	—	$	6,034

Ciena did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.


(7)	ACCOUNTS RECEIVABLE

As of October 31, 2015, there was one customer that accounted for 10.4% of net accounts receivable. As of January 31, 2016, there was one customer that accounted for 13.2% of net accounts receivable. Ciena has not historically experienced a significant amount of bad debt expense. Allowance for doubtful accounts was $3.0 million and $3.2 million as of October 31, 2015 and January 31, 2016, respectively.


(8)	INVENTORIES

As of the dates indicated, inventories are comprised of the following (in thousands):



	January 31, 2016			October 31, 2015
Raw materials	$	51,925		$	53,082
Work-in-process	13,448			9,120
Finished goods	117,878			125,966
Deferred cost of goods sold	76,371			55,995
	259,622			244,163
Provision for excess and obsolescence	(53,958		)	(53,001		)
	$	205,664		$	191,162

Ciena writes down its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market conditions. During the first three months of fiscal 2016, Ciena recorded a provision for excess and obsolescence of $7.0 million, primarily related to a decrease in the forecasted demand for certain Converged Packet Optical and Optical Transport products. Deductions from the provision for excess and obsolete inventory relate primarily to disposal activities.


(9)	PREPAID EXPENSES AND OTHER

As of the dates indicated, prepaid expenses and other are comprised of the following (in thousands):



	January 31, 2016		October 31, 2015
Prepaid VAT and other taxes	$	68,881	$	74,754
Product demonstration equipment, net	48,167		41,611
Deferred deployment expense	27,085		26,193
Prepaid expenses	24,113		25,074
Financing receivable	20,016		19,869
Other non-trade receivables	6,366		8,588
Derivative assets	15		89
	$	194,643	$	196,178

Depreciation of product demonstration equipment was $2.5 million for each of the first three months of fiscal 2015 and 2016.


(10)	EQUIPMENT, BUILDING, FURNITURE AND FIXTURES

As of the dates indicated, equipment, building, furniture and fixtures are comprised of the following (in thousands):



	January 31, 2016			October 31, 2015
Equipment, furniture and fixtures	$	404,844		$	404,935
Building subject to capital lease	12,598			13,459
Construction in progress subject to build-to-suit lease	28,989			18,663
Leasehold improvements	49,948			49,196
	496,379			486,253
Accumulated depreciation and amortization	(296,818		)	(294,280		)
	$	199,561		$	191,973

During fiscal 2014, Ciena entered into a lease agreement to lease an office building located in Ottawa, Canada. During fiscal 2015, Ciena gained access to a portion of the building and recorded a capital lease asset and liability.

Ciena capitalizes construction in progress and records a corresponding long-term liability for build-to-suit lease agreements where Ciena is considered the owner, for accounting purposes, during the construction period. On April 15, 2015,

Ciena entered into a build-to-suit lease arrangement pursuant to which the landlord will construct, and Ciena will subsequently lease two new office buildings at its new Ottawa, Canada campus. The landlord will construct the buildings and contribute up to a maximum of CAD$290.00 per rentable square foot in total construction costs plus certain allowances for tenant improvements, and Ciena will be responsible for any additional construction costs. As of January 31, 2016, there were $29.0 million in costs incurred under this build-to-suit lease arrangement. Upon occupancy of the facilities, Ciena expects this arrangement to qualify as a capital lease. As a result, the facilities will be depreciated over the shorter of their useful life or the lease term.

The total of depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements, was $11.3 million and $11.9 million for the first three months of fiscal 2015 and 2016, respectively.


(11)	OTHER INTANGIBLE ASSETS

As of the dates indicated, other intangible assets are comprised of the following (in thousands):



	January 31, 2016							October 31, 2015
	Gross Intangible		Accumulated Amortization			Net Intangible		Gross Intangible		Accumulated Amortization			Net Intangible
Developed technology	$	506,647	$	(392,081	)	$	114,566	$	506,647	$	(382,130	)	$	124,517
Patents and licenses	46,538		(46,113		)	425		46,538		(46,072		)	466
Customer relationships, covenants not to compete, outstanding purchase orders and contracts	388,621		(321,445		)	67,176		388,621		(310,931		)	77,690
Total other intangible assets	$	941,806	$	(759,639	)	$	182,167	$	941,806	$	(739,133	)	$	202,673

The aggregate amortization expense of intangible assets was $13.2 million and $20.5 million for the first three months of fiscal 2015 and 2016, respectively. Expected future amortization of intangible assets for the fiscal years indicated is as follows (in thousands):



Period ended October 31,
2016 (remaining nine months)	$	55,120
2017	41,773
2018	19,092
2019	18,545
2020	17,518
Thereafter	30,119
	$	182,167


(12)	GOODWILL

Ciena's goodwill was generated from the acquisition of Cyan, Inc. ("Cyan") and is primarily related to expected synergies. The following table presents the goodwill allocated to Ciena's reportable segments as of the dates indicated (in thousands):



	Balance at October 31, 2015		Acquisitions		Impairments		Balance at January 31, 2016
Software and Software-Related Services	$	201,428	$	—	$	—	$	201,428
Networking Platforms	55,006		—		—		55,006
Total	$	256,434	$	—	$	—	$	256,434


(13)	OTHER BALANCE SHEET DETAILS

As of the dates indicated, other long-term assets are comprised of the following (in thousands):



	January 31, 2016		October 31, 2015
Maintenance spares, net	$	56,217	$	55,259
Deferred debt issuance costs, net	10,722		10,820
Financing receivable	—		10,107
Other	8,134		8,470
	$	75,073	$	84,656

Deferred debt issuance costs relate to Ciena's convertible notes payable (described in Note 16 below), Term Loan (described in Note 16 below) and ABL Credit Facility (described in Note 17 below). Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate method, through the maturity of the related debt. The amortization of deferred debt issuance costs is included in interest expense, and was $1.3 million and $1.1 million during the first three months of fiscal 2015 and fiscal 2016, respectively.

As of the dates indicated, accrued liabilities and other short-term obligations are comprised of the following (in thousands):



	January 31, 2016		October 31, 2015
Compensation, payroll related tax and benefits	$	63,860	$	109,466
Warranty	56,636		56,654
Vacation	32,963		34,189
Capital lease obligations	3,784		4,923
Interest payable	5,656		5,389
Other	99,314		105,662
	$	262,213	$	316,283

The following table summarizes the activity in Ciena’s accrued warranty for the fiscal periods indicated (in thousands):



Three months ended	Beginning					Ending
January 31,	Balance		Provisions	Settlements		Balance
2015	$	55,997	2,293	(4,908	)	$	53,382
2016	$	56,654	4,971	(4,989	)	$	56,636

As of the dates indicated, deferred revenue is comprised of the following (in thousands):



	January 31, 2016			October 31, 2015
Products	$	54,177		$	66,527
Services	119,514			122,546
	173,691			189,073
Less current portion	(106,664		)	(126,111		)
Long-term deferred revenue	$	67,027		$	62,962

As of the dates indicated, other long-term obligations are comprised of the following (in thousands):



	January 31, 2016		October 31, 2015
Construction liability	$	28,989	$	18,663
Capital lease obligations	13,639		13,794
Income tax liability	12,164		13,308
Deferred tenant allowance	9,557		9,807
Straight-line rent	6,479		6,237
Forward starting interest rate swap	5,851		5,522
Other	5,037		5,209
	$	81,716	$	72,540

Ciena capitalizes construction in progress and records a corresponding long-term liability for build-to-suit lease agreements where Ciena is considered the owner during the construction period for accounting purposes.

The following is a schedule by fiscal years of future minimum lease payments under capital leases and the present value of minimum lease payments as of January 31, 2016 (in thousands):



Period ended October 31,
2016 (remaining nine months)	$	4,328
2017	1,884
2018	1,547
2019	1,547
2020	1,357
Thereafter	17,263
Net minimum capital lease payments	27,926
Less: Amount representing interest	(10,503		)
Present value of minimum lease payments	17,423
Less: Current portion of present value of minimum lease payments	(3,784		)
Long-term portion of present value of minimum lease payments	$	13,639


(14)	DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives

As of January 31, 2016 and October 31, 2015, Ciena had forward contracts in place to reduce the variability in its Canadian Dollar and Indian Rupee denominated expense, which principally related to its research and development activities. The notional amount of these contracts was approximately $50.0 million and $68.1 million as of January 31, 2016 and October 31, 2015, respectively. These foreign exchange contracts have maturities of 12 months or less and have been designated as cash flow hedges.

During the first three months of fiscal 2016 and fiscal 2015, in order to hedge certain balance sheet exposures, Ciena entered into forward contracts to mitigate risk due to volatility in the Brazilian Real, Canadian Dollar and Mexican Peso versus the U.S. Dollar. The notional amount of these contracts was approximately $86.9 million and $146.5 million as of January 31, 2016 and October 31, 2015, respectively. These foreign exchange contracts have maturities of 12 months or less and have not been designated as hedges for accounting purposes.

Interest Rate Derivatives

During fiscal 2014, Ciena entered into floating interest rate to fixed interest rate swap arrangements ("interest rate swap") that fix the interest rate under the Term Loan at 5.004% for the period commencing on July 20, 2015 through July 19, 2018.

The total notional amount of these derivatives as of January 31, 2016 and October 31, 2015 was $246.3 million and $246.9 million, respectively.

Ciena expects the variable rate payments to be received under the terms of the interest rate swap to exactly offset 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 Note 4 and Note 6 above.

(15) ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated balances of other comprehensive income (AOCI) for the three months ending January 31, 2016:



	Unrealized			Unrealized			Unrealized			Cumulative
	Gain/(Loss) on			Gain/(Loss) on			Gain/(Loss) on Forward			Foreign Currency
	Marketable Securities			Foreign Currency Contracts			Starting Interest Rate Swap			Translation Adjustment			Total
Balance at October 31, 2015	$	(78	)	$	(268	)	$	(5,522	)	$	(16,258	)	$	(22,126	)
Other comprehensive income (loss) before reclassifications	22			(3,191		)	(1,120		)	(2,823		)	(7,112		)
Amounts reclassified from AOCI	—			671			791			—			1,462
Balance at January 31, 2016	$	(56	)	$	(2,788	)	$	(5,851	)	$	(19,081	)	$	(27,776	)

The following table summarizes the changes in accumulated balances of other comprehensive income AOCI for the three months ending January 31, 2015:



	Unrealized		Unrealized			Unrealized			Cumulative
	Gain/(Loss) on		Gain/(Loss) on			Gain/(Loss) on Forward			Foreign Currency
	Marketable Securities		Foreign Currency Contracts			Starting Interest Rate Swap			Translation Adjustment			Total
Balance at October 31, 2014	$	71	$	(173	)	(2,083		)	$	(12,483	)	$	(14,668	)
Other comprehensive income (loss) before reclassifications	36		(5,315		)	(2,565		)	(12,248		)	(20,092		)
Amounts reclassified from AOCI	—		802			—			—			802
Balance at January 31, 2015	$	107	$	(4,686	)	$	(4,648	)	$	(24,731	)	$	(33,958	)

All amounts reclassified from accumulated other comprehensive income related to settlement (gains) losses on foreign currency forward contracts designated as cash flow hedges impacted "research and development" on the Condensed Consolidated Statements of Operations. All amounts reclassified from accumulated other comprehensive income related to settlement (gains) losses on forward starting interest swaps designated as cash flow hedges impacted "interest and other income (loss), net" on the Condensed Consolidated Statements of Operations.


(16)	SHORT-TERM AND LONG-TERM DEBT

Term Loan

On July 15, 2014, Ciena entered into a Credit Agreement providing for senior secured term loans in an aggregate principal amount of $250 million (the “Term Loan”) with a maturity date of July 15, 2019. The Term Loan requires Ciena to make installment payments of approximately $0.6 million on a quarterly basis. The principal balance, unamortized discount and net carrying amount of the Term Loan were as follows as of January 31, 2016 (in thousands):



	Principal Balance		Unamortized Discount		Net Carrying Amount
Term Loan Payable due July 15, 2019	$	246,250	$	1,002	$	245,248

The following table sets forth, in thousands, the carrying value and the estimated fair value of the Term Loan:



	January 31, 2016
	Carrying Value		Fair Value⁽²⁾
Term Loan Payable due July 15, 2019⁽¹⁾	$	245,248	$	245,019


(1)	Includes unamortized bond discount.


(2)	The Term Loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its Term Loan using a market approach based upon observable inputs, such as current market transactions involving comparable securities.

Outstanding Convertible Notes Payable

During the first quarter of fiscal 2016, Ciena entered into certain private transactions to repurchase $14.1 million of the 0.875% Convertible Senior Notes due June 15,2017, for cash slightly below par.

The principal balance, unamortized discount and net carrying amount of the liability and equity components of Ciena's 4.0% convertible senior notes due December 15, 2020 are as follows as of January 31, 2016:



	Liability Component						Equity Component
	Principal Balance		Unamortized Discount		Net Carrying Amount		Net Carrying Amount
4.0% Convertible Senior Notes due December 15, 2020	$	198,489	$	12,906	$	185,583	$	43,131

The following table sets forth, in thousands, the carrying value and the estimated fair value of Ciena’s outstanding issues of convertible notes:



	January 31, 2016
	Carrying Value		Fair Value⁽¹⁾
0.875% Convertible Senior Notes due June 15, 2017	479,985		471,285
3.75% Convertible Senior Notes due October 15, 2018	350,000		401,188
4.0% Convertible Senior Notes due December 15, 2020 ⁽²⁾	185,583		225,938
	$	1,015,568	$	1,098,411


(1)	The convertible notes are categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its outstanding convertible notes using a market approach based upon observable inputs, such as current market transactions involving comparable securities.


(2)	Includes unamortized discount and accretion of principal.


(17)	ABL CREDIT FACILITY

Ciena Corporation and certain of its subsidiaries are parties to a senior secured asset-based revolving credit facility (the “ABL Credit Facility”). Ciena principally uses the ABL Credit Facility to support the issuance of letters of credit that arise in the ordinary course of its business and thereby to reduce its use of cash required to collateralize these instruments.

On January 8, 2016, Ciena amended the ABL Credit Facility to, among other things:


•	increase the total commitment from $200 million to $250 million, of which $200 million is available for issuances of letters of credit;


•	extend the maturity date from December 31, 2016 to December 31, 2020, provided an earlier maturity date would apply in the event that Ciena and its subsidiaries are unable to satisfy a minimum liquidity test 90 days prior to the maturity date of any debt equal to $100 million or greater;


•	reduce the minimum aggregate amount of unrestricted cash and cash equivalents that Ciena and its domestic subsidiaries are required to maintain at all times from $150 million to $100 million; and


•	reduce the interest rate by 25 basis points on borrowings to either (a) LIBOR plus a margin ranging from 125 to 175 basis points (instead of the previous 150 to 200 basis points) or (b) a base rate plus a margin ranging from 25 to 75 basis points (instead of the previous 50 to 100 basis points), in each case with the actual margin determined according to the Ciena’s utilization of the facility.

As of January 31, 2016, letters of credit totaling $64.5 million were collateralized by the ABL Credit Facility. There were no borrowings outstanding under the ABL Credit Facility as of January 31, 2016.


(18)	EARNINGS (LOSS) PER SHARE CALCULATION

The following table (in thousands except per share amounts) is a reconciliation of the numerator and denominator of the basic net income (loss) per common share (“Basic EPS”) and the diluted net income (loss) per potential common share (“Diluted EPS”). Basic EPS is computed using the weighted average number of common shares outstanding. Diluted EPS is computed using the weighted average number of the following, in each case, to the extent the effect is not anti-dilutive: (i) common shares outstanding, (ii) shares issuable upon vesting of restricted stock units, (iii) shares issuable under Ciena’s employee stock purchase plan and upon exercise of outstanding stock options, using the treasury stock method, and (iv) shares underlying Ciena’s outstanding convertible notes.



	Quarter Ended January 31,
Numerator	2016			2015
Net loss	$	(11,546	)	$	(18,779	)



	Quarter Ended January 31,
Denominator	2016	2015
Basic weighted average shares outstanding	136,675	107,773
Dilutive weighted average shares outstanding	136,675	107,773



	Quarter Ended January 31,
EPS	2016			2015
Basic EPS	$	(0.08	)	$	(0.17	)
Diluted EPS	$	(0.08	)	$	(0.17	)

The following table summarizes the weighted average shares excluded from the calculation of the denominator for Diluted EPS due to their anti-dilutive effect for the periods indicated (in thousands):



	Quarter Ended January 31,
	2016	2015
Shares underlying stock options and restricted stock units	3,565	3,899
4.0% Convertible Senior Notes due March 15, 2015	—	9,198
0.875% Convertible Senior Notes due June 15, 2017	12,912	13,108
3.75% Convertible Senior Notes due October 15, 2018	17,355	17,355
4.0% Convertible Senior Notes due December 15, 2020	9,198	9,198
Total shares excluded due to anti-dilutive effect	43,030	52,758


(19)	SHARE-BASED COMPENSATION EXPENSE

Ciena has outstanding equity awards issued under its 2008 Omnibus Incentive Plan, as well as certain legacy equity plans and equity plans assumed as a result of previous acquisitions. In connection with its acquisition of Cyan during the fourth quarter of fiscal 2015, Ciena assumed the Cyan, Inc. 2006 Stock Plan and Cyan, Inc. 2013 Equity Incentive Plan and exchanged Cyan stock options and unvested restricted stock unit awards outstanding thereunder at closing for options to acquire approximately 2.4 million shares of Ciena common stock and 1.0 million Ciena restricted stock units. Ciena grants equity awards under its 2008 Omnibus Incentive Plan (the "2008 Plan") and makes shares of its common stock available for purchase under its Amended and Restated Employee Stock Purchase Plan (the “ESPP”). These plans were approved by stockholders and are described below.

2008 Plan

The 2008 Plan authorizes the issuance of awards including stock options, restricted stock units (RSUs), restricted stock, unrestricted stock, stock appreciation rights (SARs) and other equity and/or cash performance incentive awards to employees, directors and consultants of Ciena. Subject to certain restrictions, the Compensation Committee of the Board of Directors has broad discretion to establish the terms and conditions for awards under the 2008 Plan, including the number of shares, vesting conditions, and the required service or performance criteria. Options and SARs have a maximum term of ten years, and their exercise price may not be less than 100% of fair market value on the date of grant. Repricing of stock options and SARs is prohibited without stockholder approval. Certain change in control transactions may cause awards granted under the 2008 Plan to vest, unless the awards are continued or substituted for in connection with the transaction. The total number of shares authorized for issuance under the 2008 Plan is 25.1 million shares. As of January 31, 2016, approximately 4.1 million shares remained available for issuance under the 2008 Plan.

Stock Options

Outstanding stock option awards to employees are generally subject to service-based vesting conditions and vest incrementally over a four-year period. The following table is a summary of Ciena’s stock option activity for the period indicated (shares in thousands):



	Shares Underlying Options Outstanding		Weighted Average Exercise Price
Balance at October 31, 2015	2,293		$	24.45
Exercised	(140	)	8.42
Canceled	(69	)	36.67
Balance at January 31, 2016	2,084		$	25.13

The total intrinsic value of options exercised during the first three months of fiscal 2015 and fiscal 2016 was $0.1 million and $1.7 million, respectively. Ciena did not grant any stock options during the first three months of fiscal 2015 or fiscal 2016.

The following table summarizes information with respect to stock options outstanding at January 31, 2016, based on Ciena’s closing stock price on the last trading day of Ciena’s first fiscal quarter of 2016 (shares and intrinsic value in thousands):



					Options Outstanding at						Vested Options at
					January 31, 2016						January 31, 2016
					Number	Weighted Average Remaining	Weighted				Number	Weighted Average Remaining	Weighted
Range of					of	Contractual	Average		Aggregate		of	Contractual	Average		Aggregate
Exercise					Underlying	Life	Exercise		Intrinsic		Underlying	Life	Exercise		Intrinsic
Price					Shares	(Years)	Price		Value		Shares	(Years)	Price		Value
$	0.05	—	$	11.16	315	3.33	$	6.65	$	3,506	314	3.30	$	6.63	$	3,492
$	11.34	—	$	17.24	563	5.59	13.55		2,378		486	5.35	13.41		2,121
$	17.43	—	$	24.50	70	5.24	19.50		2		43	3.40	20.31		—
$	24.69	—	$	28.28	265	1.18	27.38		—		263	1.11	27.40		—
$	28.61	—	$	31.43	88	1.59	29.81		—		88	1.59	29.81		—
$	31.71	—	$	32.55	46	5.77	32.03		—		37	5.59	32.03		—
$	33.00	—	$	37.10	380	2.22	35.90		—		364	2.00	35.85		—
$	37.31	—	$	55.63	357	4.04	45.64		—		295	3.34	45.60		—
$	0.05	—	$	55.63	2,084	3.63	$	25.13	$	5,886	1,890	3.25	$	24.86	$	5,613

Assumptions for Option-Based Awards

Ciena recognizes the fair value of service-based options as share-based compensation expense on a straight-line basis over the requisite service period.

Restricted Stock Units

A restricted stock unit is a stock award that entitles the holder to receive shares of Ciena common stock as the unit vests. Ciena's outstanding restricted stock unit awards are subject to service-based vesting conditions and/or performance-based vesting conditions. Awards subject to service-based conditions typically vest in increments over a three or four-year period. Awards with performance-based vesting conditions require the achievement of certain operational, financial or other performance criteria or targets as a condition of vesting, or the acceleration of vesting, of such awards. Ciena recognizes the estimated fair value of performance-based awards, net of estimated forfeitures, as share-based compensation expense over the performance period, using graded vesting, which considers each performance period or tranche separately, based upon Ciena's determination of whether it is probable that the performance targets will be achieved. At each reporting period, Ciena reassesses the probability of achieving the performance targets and the performance period required to meet those targets.

The following table is a summary of Ciena's restricted stock unit activity for the period indicated, with the aggregate fair value of the balance outstanding at the end of each period, based on Ciena's closing stock price on the last trading day of the relevant period (shares and aggregate fair value in thousands):



	Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value Per Share		Aggregate Fair Value
Balance at October 31, 2015	4,886		$	20.02	$	117,951
Granted	1,762
Vested	(1,188	)
Canceled or forfeited	(96	)
Balance at January 31, 2016	5,364		$	19.96	$	95,324

The total fair value of restricted stock units that vested and were converted into common stock during the first three months of fiscal 2015 and fiscal 2016 was $14.0 million and $23.9 million, respectively. The weighted average fair value of each restricted stock unit granted by Ciena during the first three months of fiscal 2015 and fiscal 2016 was $18.49 and $19.84 respectively.

Assumptions for Restricted Stock Unit Awards

The fair value of each restricted stock unit award is based on the closing price on the date of grant. Share-based expense for service-based restricted stock unit awards is recognized, net of estimated forfeitures, ratably over the vesting period on a straight-line basis.

Share-based expense for performance-based restricted stock unit awards, net of estimated forfeitures, is recognized ratably over the performance period based upon Ciena's determination of whether it is probable that the performance targets will be achieved. At each reporting period, Ciena reassesses the probability of achieving the performance targets and the performance period required to meet those targets. The estimation of whether the performance targets will be achieved involves judgment, and the estimate of expense is revised periodically based on the probability of achieving the performance targets. Revisions are reflected in the period in which the estimate is changed. If any performance goals are not met, no compensation cost is ultimately recognized against that goal and, to the extent previously recognized, compensation expense is reversed.

Because share-based compensation expense is recognized only for those awards that are ultimately expected to vest, the amount of share-based compensation expense recognized reflects a reduction for estimated forfeitures. Ciena estimates forfeitures at the time of grant and revises those estimates in subsequent periods based upon new or changed information.

Amended and Restated Employee Stock Purchase Plan (ESPP)

Under the ESPP, eligible employees may enroll in a twelve-month offer period that begins in December and June of each year. Each offer period includes two six-month purchase periods. Employees may purchase a limited number of shares of Ciena common stock at 85% of the fair market value on either the day immediately preceding the offer date or the purchase date, whichever is lower. The ESPP is considered compensatory for purposes of share-based compensation expense. Pursuant to the ESPP's “evergreen” provision, on December 31 of each year, the number of shares available under the ESPP increases by up to approximately 0.6 million shares, provided that the total number of shares available at that time shall not exceed 8.2 million shares. Unless earlier terminated, the ESPP will terminate on January 24, 2023.

During the first three months of fiscal 2016, Ciena issued 0.5 million shares under the ESPP. At January 31, 2016, 6.5 million shares remained available for issuance under the ESPP.

Share-Based Compensation Expense for Periods Reported

The following table summarizes share-based compensation expense for the periods indicated (in thousands):



	Quarter Ended January 31,
	2016		2015
Product costs	$	571	$	487
Service costs	592		519
Share-based compensation expense included in cost of sales	1,163		1,006
Research and development	3,428		2,167
Sales and marketing	4,735		3,659
General and administrative	5,129		3,919
Acquisition and integration costs	17		—
Share-based compensation expense included in operating expense	13,309		9,745
Share-based compensation expense capitalized in inventory, net	5		56
Total share-based compensation	$	14,477	$	10,807

As of January 31, 2016, total unrecognized share-based compensation expense related was approximately $93.9 million: (i) $1.8 million, which related to unvested stock options and is expected to be recognized over a weighted-average period of 1.4 years; and (ii) $92.1 million which relates to unvested restricted stock units and is expected to be recognized over a weighted-average period of 1.6 years.


(20)	SEGMENTS AND ENTITY WIDE DISCLOSURES

Segment Reporting

During the first quarter of fiscal 2016, in connection with the creation of a new Chief Operating Officer organization, Ciena reorganized its internal organizational structure, the management of its business, and the reporting of its operating segments. This resulted in three new operating segments: Networking Platforms, Software and Software-Related Services, and Global Services. Ciena’s previous Converged Packet-Optical, Packet Networking and Optical Transport segments were realigned to form the Networking Platforms segment under a single operating segment manager. Ciena's previous Software and Services operating segment was reorganized into two separate operating segments; (i) Software and Software-Related Services, and (ii) Global Services. Ciena's segment revenue and segment profit (loss) for fiscal 2015 have been restated to reflect the new operating segments adopted in fiscal 2016. The following describes each of the newly reorganized operating segments:


•	Networking Platforms reflects sales of Ciena’s Converged Packet Optical, Packet Networking and Optical Transport product lines.

◦

Converged Packet Optical — includes the 6500 Packet-Optical Platform and the 5430 Reconfigurable Switching System, which feature Ciena's WaveLogic coherent optical processors. Products also include the Waveserver stackable interconnect system, the family of CoreDirector® Multiservice Optical Switches and the OTN configuration for the 5410 Reconfigurable Switching System. This product line also includes sales of the Z-Series Packet-Optical Platform acquired from Cyan.


◦	Packet Networking — includes the 3000 family of service delivery switches and service aggregation switches and the 5000 family of service aggregation switches. This product line also includes the 8700 Packetwave Platform and the Ethernet packet configuration for the 5410 Service Aggregation Switch.

◦

Optical Transport — includes the 4200 Advanced Services Platform, 5100/5200 Advanced Services Platform, Common Photonic Layer (CPL) and 6100 Multiservice Optical Platform. Ciena's Optical Transport products have either been previously discontinued, or, are expected to be discontinued during fiscal 2016, reflecting network operators' transition toward next-generation converged network architectures.

The Networking Platforms segment also includes sales of operating system software and enhanced software features embedded in each of the product lines above. Revenue from this segment is included in product revenue on the Condensed Consolidated Statement of Operations.


•	Software and Software-Related Services reflects sales of Ciena’s network virtualization, management, control and orchestration software solutions and software-related services, including subscription, installation, support, and consulting services.


◦	This segment includes Ciena’s element and network management solutions and planning tools, including the OneControl Unified Management System, ON-Center® Network & Service Management Suite, Ethernet Services Manager, Optical Suite Release and Planet Operate.


◦	This segment includes Ciena's Blue Planet network virtualization, service orchestration and network management software platform, including the multi-domain service orchestration (MDSO), network function virtualization (NFV) management and orchestration (NFV MANO), and Management and Control Platform (MCP), and Ciena's SDN Multilayer WAN Controller and its related applications.

Revenue from the software platforms portion of this segment is included in product revenue on the Condensed Consolidated Statement of Operations. Revenue from software-related services is included in services revenue on the Condensed Consolidated Statement of Operations.


•	Global Services reflects sales of a broad range of Ciena’s services for consulting and network design, installation and deployment, maintenance support and training activities. Revenue from this segment is included in services revenue on the Condensed Consolidated Statement of Operations.

Ciena's long-lived assets, including equipment, building, furniture and fixtures, finite-lived intangible assets and maintenance spares, are not reviewed by the chief operating decision maker for purposes of evaluating performance and allocating resources. As of January 31, 2016, equipment, building, furniture and fixtures totaling $199.6 million primarily supported asset groups within Ciena's Networking Platforms and Software and Software-Related Services segments and supported Ciena's unallocated selling and general and administrative activities. As of January 31, 2016, $94.5 million of Ciena's intangible assets were assigned to Ciena's Networking Platforms segment and $87.7 million of Ciena's intangible assets were assigned to asset groups within Ciena's Software and Software-Related Services segment. As of January 31, 2016, all of the maintenance spares, totaling $56.2 million, were assigned to asset groups within Ciena's Global Services segment.

Segment Revenue

The table below (in thousands) sets forth Ciena’s segment revenue for the respective periods:



	Quarter Ended January 31,
	2016		2015
Revenue:
Networking Platforms	$	449,510	$	413,882
Software and Software-Related Services	25,426		23,528
Global Services	98,179		91,752
Consolidated revenue	$	573,115	$	529,162

Segment Profit (Loss)

Segment profit (loss) is determined based on internal performance measures used by the chief executive officer to assess the performance of each operating segment in a given period. In connection with that assessment, the chief executive officer excludes the following items: selling and marketing costs; general and administrative costs; acquisition and integration costs; amortization of intangible assets; restructuring costs; interest and other income (loss), net; interest expense; and provisions for income taxes.

The table below (in thousands) sets forth Ciena’s segment profit (loss) and the reconciliation to consolidated net loss during the respective periods indicated:



	Quarter Ended January 31,
	2016			2015
Segment profit (loss):
Networking Platforms	$	106,982		$	95,074
Software and Software-Related Services	(3,574		)	2,588
Global Services	39,996			31,872
Total segment profit	143,404			129,534
Less: Non-performance operating expenses
Selling and marketing	82,478			76,712
General and administrative	31,142			29,553
Acquisition and integration costs	1,299			—
Amortization of intangible assets	16,862			11,019
Restructuring costs	384			8,085
Add: Other non-performance financial items
Interest expense and other income (loss), net	(21,486		)	(21,894		)
Less: Provision for income taxes	1,299			1,050
Consolidated net loss	$	(11,546	)	$	(18,779	)

Entity Wide Reporting

Ciena's operating segments each engage in business across four geographic regions: North America; Europe, Middle East and Africa (“EMEA”); Asia Pacific (“APAC”); and Caribbean and Latin America ("CALA"). North America includes only activities in the United States and Canada. The following table reflects Ciena’s geographic distribution of revenue principally based on the relevant location for Ciena's delivery of products and performance of services. For the periods below, Ciena’s geographic distribution of revenue was as follows (in thousands):



	Quarter Ended January 31,
	2016		2015
North America	$	392,704	$	331,535
EMEA	80,722		111,006
CALA	43,810		42,742
APAC	55,879		43,879
Total	$	573,115	$	529,162

North America includes $297.7 million and $365.2 million of United States revenue for fiscal quarters ended January 31, 2015 and 2016, respectively. No other country accounted for at least 10% of total revenue for the periods presented above.

The following table reflects Ciena's geographic distribution of equipment, building, furniture and fixtures, net, with any country accounting for at least 10% of total equipment, building, furniture and fixtures, net, specifically identified. Equipment, building, furniture and fixtures, net, attributable to geographic regions outside of the United States and Canada are reflected as “Other International.” For the periods below, Ciena's geographic distribution of equipment, building, furniture and fixtures was as follows (in thousands):



	January 31, 2016		October 31, 2015
United States	$	92,052	$	96,292
Canada	96,665		84,318
Other International	10,844		11,363
Total	$	199,561	$	191,973

AT&T accounted for greater than 10% of Ciena's revenue in Ciena's fiscal quarters ended January 31, 2015 and 2016 with total revenue of $116.6 million and $126.6 million, respectively. AT&T purchases products and services from each of Ciena's operating segments.


(21)	COMMITMENTS AND CONTINGENCIES

Foreign Tax Contingencies

Ciena is subject to various tax liabilities arising in the ordinary course of business. Ciena does not expect that the ultimate settlement of these liabilities will have a material effect on its results of operations, financial position or cash flows.

Litigation

From May 15 through June 3, 2015, five separate putative class action lawsuits in connection with Ciena’s then-pending acquisition of Cyan, Inc. (“Cyan”) were filed in the Court of Chancery of the State of Delaware:


•	Luvishis v. Cyan, Inc., et al., C.A. No. 11027-CB, filed May 15, 2015


•	Poll v. Cyan, Inc., et al., C.A. No. 11028-CB, filed May 15, 2015


•	Canzano v. Floyd, et al., C.A. No. 11052-CB, filed May 20, 2015


•	Kassis v. Cyan, Inc., et al., C.A. No. 11069-CB, filed May 27, 2015


•	Fenske v. Cyan, Inc., et al., C.A. No. 11090-CB, filed June 3, 2015

Each of the complaints named Cyan (except for the Canzano complaint), Ciena, Neptune Acquisition Subsidiary, Inc., a Ciena subsidiary created solely for the purpose of effecting the acquisition (“Merger Sub”), and the members of Cyan’s board of directors as defendants. On June 23, 2015, each of these lawsuits was consolidated into a single case captioned In Re Cyan, Inc. Shareholder Litigation, Consol. C.A. No. 11027-CB. On July 9, 2015, the plaintiffs filed a verified amended class action complaint, which named as defendants Ciena, Merger Sub, and the members of Cyan’s board of directors. On August 5, 2015, the defendants filed motions to dismiss the amended complaint. On October 1, 2015, the plaintiffs filed a second amended complaint which named as defendants the members of Cyan’s board of directors. Cyan, Ciena, and Merger Sub were not named as defendants. The second amended complaint generally alleges that the Cyan board members breached their fiduciary duties by engaging in a conflicted and unfair sales process, failing to maximize stockholder value in the acquisition, taking steps to preclude competitive bidding, and failing to disclose material information necessary for stockholders to make an informed

decision regarding the acquisition. The second amended complaint seeks (i) a declaration that the plaintiffs are entitled to a quasi-appraisal remedy, (ii) rescissory damages, (iii) recovery through an accounting of all damages caused as a result of the alleged breaches of fiduciary duties, (iv) compensatory damages, and (v) costs including attorneys’ fees and experts’ fees. On October 15, 2015, the defendants filed a renewed motion to dismiss. A briefing schedule for these motions has been set, with briefing to be completed in March 2016.

As a result of our acquisition of Cyan in August 2015, we became a defendant in a securities class action lawsuit. On April 1, 2014, a purported stockholder class action lawsuit was filed in the Superior Court of California, County of San Francisco, against Cyan, the members of Cyan’s board of directors, Cyan’s former Chief Financial Officer, and the underwriters of Cyan’s initial public offering. On April 30, 2014, a substantially similar lawsuit was filed in the same court against the same defendants. The two cases have been consolidated as Beaver County Employees Retirement Fund, et al. v. Cyan, Inc. et al., Case No. CGC-14-538355. The consolidated complaint alleges violations of federal securities laws on behalf of a purported class consisting of purchasers of Cyan’s common stock pursuant or traceable to the registration statement and prospectus for Cyan’s initial public offering in April 2013, and seeks unspecified compensatory damages and other relief. In July 2014, the defendants filed a demurrer to the consolidated complaint, which the court overruled in October 2014 and allowed the case to proceed. On May 19, 2015, the proposed class was certified. On August 25, 2015, the defendants filed a motion for judgment on the pleadings based on an alleged lack of subject matter jurisdiction over the case, which motion was denied on October 23, 2015. Ciena believes that the consolidated lawsuit is without merit and intends to defend it vigorously.

On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the Northern District of Georgia against Ciena and four other defendants, alleging, among other things, that certain of the parties' products infringe U.S. Patent 6,542,673 (the “'673 Patent”), relating to an identifier system and components for optical assemblies. The complaint seeks injunctive relief and damages. In July 2009, upon request of Ciena and certain other defendants, the U.S. Patent and Trademark Office (“PTO”) granted the defendants' inter partes application for reexamination with respect to certain claims of the '673 Patent, and the district court granted the defendants' motion to stay the case pending reexamination of all of the patents-in-suit. In December 2010, the PTO confirmed the validity of some claims and rejected the validity of other claims of the '673 Patent, to which Ciena and other defendants filed an appeal. On March 16, 2012, the PTO on appeal rejected multiple claims of the '673 Patent, including the two claims on which Ciena is alleged to infringe. Subsequently, the plaintiff requested a reopening of the prosecution of the '673 Patent, which request was denied by the PTO on April 29, 2013. Thereafter, on May 28, 2013, the plaintiff filed an amendment with the PTO in which it canceled the claims of the '673 Patent on which Ciena is alleged to infringe. The case currently remains stayed, and there can be no assurance as to whether or when the stay will be lifted.

In addition to the matters described above, Ciena is subject to various legal proceedings and claims arising in the ordinary course of business, including claims against third parties that may involve contractual indemnification obligations on the part of Ciena. Ciena does not expect that the ultimate costs to resolve these matters will have a material effect on its results of operations, financial position or cash flows.


(22)	SUBSEQUENT EVENTS

On January 19, 2016, a wholly-owned subsidiary of Ciena Corporation entered into a definitive agreement with TeraXion, Inc. and its wholly-owned subsidiary to acquire certain high-speed photonics components (HSPC) assets for approximately $32 million in cash. The asset purchase includes, among other things, TeraXion’s high-speed indium phosphide and silicon photonics technologies, as well as certain underlying intellectual property. Ciena completed its acquisition of these assets on February 1, 2016.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report contains statements that discuss future events or expectations, projections of results of operations or financial condition, changes in the markets for our products and services, trends in our business, business prospects and strategies and other “forward-looking” information. In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of those words and other comparable words. These statements may relate to, among other things, adoption of next-generation network technology and software programmability and control of networks; our competitive landscape; market conditions and growth opportunities; factors impacting our industry; factors impacting the businesses of network operators and their network architectures; our corporate strategy, including our research and development, supply chain and go-to-market initiatives; efforts to increase application of our solutions in customer networks and to increase the reach of our business into new or growing customer and geographic markets; our backlog and seasonality in our business; our acquisition of Cyan, Inc. and its impact on our business and results of operations; expectations for our financial results, revenue, gross margin, operating expense and key operating measures in future periods; the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements; business initiatives including real estate and IT transitions or initiatives; and market risks associated with financial instruments and foreign currency exchange rates. These statements are subject to known and unknown risks, uncertainties and other factors, and actual events or results may differ materially due to factors such as: