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INCOME TAXES | 12 Months Ended
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Oct. 30, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES For the periods indicated, the provision (benefit) for income taxes consists of the following (in thousands):
| Year Ended
| October 30, 2021 |  | October 31, 2020 |  | November 2, 2019
Provision (benefit) for income taxes: |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 72,603 |  |  | $ | 4,363 |  |  | $ | 13,143 |
State | 21,400 |  |  | 13,328 |  |  | 16,945 |
Foreign | 25,021 |  |  | 12,640 |  |  | 9,816 |
Total current | 119,024 |  |  | 30,331 |  |  | 39,904 |
Deferred: |  |  |  |  |
Federal | (21,942) |  |  | 60,679 |  |  | 31,872 |
State | (11,546) |  |  | 4,607 |  |  | (9,159) |
Foreign | (122,981) |  |  | (947) |  |  | (2,861) |
Total deferred | (156,469) |  |  | 64,339 |  |  | 19,852 |
Provision (benefit) for income taxes | $ | (37,445) |  |  | $ | 94,670 |  |  | $ | 59,756 |
For the periods indicated, income before provision (benefit) for income taxes consists of the following (in thousands):
| Year Ended
| October 30, 2021 |  | October 31, 2020 |  | November 2, 2019
United States | $ | 298,514 |  |  | $ | 387,697 |  |  | $ | 256,461 |
Foreign | 164,237 |  |  | 68,264 |  |  | 56,729 |
Total | $ | 462,751 |  |  | $ | 455,961 |  |  | $ | 313,190 |
Ciena’s foreign income tax as a percentage of foreign income may appear disproportionate compared to the expected tax based on the U.S. federal statutory rate and is dependent on the mix of earnings and tax rates in foreign jurisdictions. For the periods indicated, the tax provision reconciles to the amount computed by multiplying income before income taxes by the U.S. federal statutory rate of 21% for fiscal 2021, fiscal 2020 and fiscal 2019 as follows:
| Year Ended
| October 30, 2021 |  | October 31, 2020 |  | November 2, 2019
Provision at statutory rate | 21.00 | % |  | 21.00 | % |  | 21.00 | %
Intercompany IP Restructuring Transaction | (25.85) | % |  | — | % |  | — | %
Base Erosion and Anti-Abuse Tax | — | % |  | (1.02) | % |  | 3.60 | %
State taxes | 3.73 | % |  | 2.21 | % |  | 2.18 | %
Foreign taxes | 2.76 | % |  | 0.51 | % |  | (0.37) | %
Research and development credit | (7.99) | % |  | (7.74) | % |  | (7.53) | %
Non-deductible compensation | 1.68 | % |  | 1.79 | % |  | 1.01 | %
Foreign Derived Intangible Income | (1.82) | % |  | (2.07) | % |  | — | %
Transition tax | — | % |  | 0.02 | % |  | 0.29 | %
Rate Change | (4.33) | % |  | 3.04 | % |  | (0.41) | %
Valuation allowance | 1.77 | % |  | 3.58 | % |  | (2.13) | %
Other | 0.96 | % |  | (0.56) | % |  | 1.44 | %
Effective income tax rate | (8.09) | % |  | 20.76 | % |  | 19.08 | %
Our future income tax provisions and deferred tax balances may be affected by the amount of pre-tax income, the jurisdictions where it is earned, the existence and utilizability of tax attributes and changes in tax laws and business reorganizations. Ciena continues to monitor these items and will adopt strategies to address their impact as appropriate. In fiscal 2021, Ciena began implementing a plan to reorganize its global supply chain and distribution structure more substantially, which includes a legal entity reorganization and related system upgrade. Ciena completed the first phase of this plan in fiscal 2021, and expects to continue to implement the plan during the first half of fiscal 2022. As part of this reorganization, Ciena completed an internal transfer of certain of its non-U.S. intangible assets, which created amortizable tax basis resulting in the discrete recognition of a $119.3 million deferred tax asset with a corresponding tax benefit. The impact of this transfer is reflected in Ciena’s effective tax rate for the year ended October 30, 2021, which had a significant, one-time impact on its net income for the period. Ciena is also required to make accounting policy elections as a result of the Tax Act. These include whether a valuation allowance is recorded for the estimated effect of the application of GILTI and BEAT or if these will be treated as period costs when incurred. Ciena had made the incremental cash tax cost policy election with respect to analyzing the impact of GILTI on the assessment of the realizability of net operating losses. The realizability of U.S. tax carryforwards is not impacted by the BEAT, and the BEAT is a period cost when incurred. Ciena is also required to elect to treat taxes due on future GILTI inclusions in U.S. taxable income either as a current period expense when incurred or reflect such portion of the future GILTI inclusions in U.S. taxable income that relate to existing basis differences in Ciena’s current measurement of deferred taxes. Ciena’s accounting policy election is to treat the taxes due on future U.S. inclusions in taxable income under GILTI as a period cost when incurred. The significant components of DTA are as follows (in thousands):
| Year Ended
| October 30, 2021 |  | October 31, 2020
Deferred tax assets: |  |  |
Reserves and accrued liabilities | $ | 69,950 |  |  | $ | 73,825 |
Depreciation and amortization | 677,729 |  |  | 504,233 |
NOL and credit carry forward | 165,087 |  |  | 188,157 |
Other | 47,048 |  |  | 33,017 |
Gross deferred tax assets | 959,814 |  |  | 799,232 |
Valuation allowance | (159,634) |  |  | (151,427) |
Deferred tax asset, net of valuation allowance | $ | 800,180 |  |  | $ | 647,805 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
| Amount
Unrecognized tax benefits at November 3, 2018 | $ | 96,363 |
Increase related to positions taken in current period | 1,959 |
Reductions related to settlements with taxing authorities | (1,224) |
Reductions related to expiration of statute of limitations | (2,494) |
Unrecognized tax benefits at November 2, 2019 | 94,604 |
Increase related to positions taken in prior period | 653 |
Increase related to positions taken in current period | 1,151 |
Reductions related to expiration of statute of limitations | (660) |
Unrecognized tax benefits at October 31, 2020 | 95,748 |
Decrease related to positions taken in prior period | (22,854) |
Reductions related to settlements with taxing authorities | (654) |
Increase related to positions taken in current period | 5,510 |
Reductions related to expiration of statute of limitations | (659) |
Unrecognized tax benefits at October 30, 2021 | $ | 77,091 |
As of October 30, 2021 and October 31, 2020, Ciena had accrued $3.8 million and $3.9 million of interest and penalties, respectively, related to unrecognized tax benefits included in other long-term obligations in the Consolidated Balance Sheets. Interest and penalties of $0.1 million and $1.0 million were recorded as a net benefit to the provision for income taxes during fiscal 2021 and fiscal 2019, respectively. During fiscal 2020, Ciena recorded a provision for interest and penalties in its provision for income taxes of $0.9 million. If recognized, the entire balance of unrecognized tax benefits would impact the effective tax rate. Over the next 12 months, Ciena does not estimate any material changes in unrecognized income tax benefits. 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 these foreign earnings outside the U.S. As of October 30, 2021, the cumulative amount of such temporary differences for which a deferred tax liability has not been recognized is an estimated $475.0 million. If these earnings were distributed to the U.S., Ciena would be subject to additional foreign withholding taxes of approximately $32.0 million. Additionally, there are no other significant temporary differences for which a deferred tax liability has not been recognized. As of October 30, 2021, Ciena continues to maintain a valuation allowance of $159.6 million against its against gross deferred tax assets primarily. The valuation allowance is primarily related to state and foreign net operating losses and credits that Ciena estimates it will not be able to use. The following table summarizes the activity in Ciena’s valuation allowance against its gross deferred tax assets (in thousands):
Year Ended |  | Beginning Balance |  | Additions |  | Deductions |  | Ending Balance
November 2, 2019 |  | $ | 142,650 |  |  | $ | 27,459 |  |  | $ | 34,131 |  |  | $ | 135,978 |
October 31, 2020 |  | $ | 135,978 |  |  | $ | 25,749 |  |  | $ | 10,300 |  |  | $ | 151,427 |
October 30, 2021 |  | $ | 151,427 |  |  | $ | 17,897 |  |  | $ | 9,690 |  |  | $ | 159,634 |

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