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INCOME TAXES | 12 Months Ended
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Oct. 28, 2023
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 28, 2023 |  | October 29, 2022 |  | October 30, 2021
Provision (benefit) for income taxes: |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 36,537 |  |  | $ | 27,479 |  |  | $ | 72,603 |
State | 18,860 |  |  | 10,289 |  |  | 21,400 |
Foreign | 28,281 |  |  | 19,337 |  |  | 25,021 |
Total current | 83,678 |  |  | 57,105 |  |  | 119,024 |
Deferred: |  |  |  |  |
Federal | (8,010) |  |  | (30,032) |  |  | (21,942) |
State | (17,354) |  |  | 520 |  |  | (11,546) |
Foreign | 10,512 |  |  | 2,010 |  |  | (122,981) |
Total deferred | (14,852) |  |  | (27,502) |  |  | (156,469) |
Provision (benefit) for income taxes | $ | 68,826 |  |  | $ | 29,603 |  |  | $ | (37,445) |
For the periods indicated, income before provision (benefit) for income taxes consists of the following (in thousands):
| Year Ended
| October 28, 2023 |  | October 29, 2022 |  | October 30, 2021
United States | $ | 93,682 |  |  | $ | 28,784 |  |  | $ | 298,514 |
Foreign | 229,971 |  |  | 153,721 |  |  | 164,237 |
Total | $ | 323,653 |  |  | $ | 182,505 |  |  | $ | 462,751 |
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 2023, fiscal 2022 and fiscal 2021 as follows:
| Year Ended
| October 28, 2023 |  | October 29, 2022 |  | October 30, 2021
Provision at statutory rate | 21.00 | % |  | 21.00 | % |  | 21.00 | %
Intercompany IP Restructuring Transaction | — | % |  | — | % |  | (25.85) | %
State taxes | 1.65 | % |  | 2.31 | % |  | 3.73 | %
Withholding and other foreign taxes | (0.09) | % |  | (1.37) | % |  | 2.76 | %
Research and development credit | (16.78) | % |  | (23.66) | % |  | (7.99) | %
Non-deductible compensation | 5.29 | % |  | 5.26 | % |  | 1.68 | %
Foreign derived intangible income | — | % |  | — | % |  | (1.82) | %
US Taxation on foreign activity | 5.08 | % |  | 1.73 | % |  | — | %
Foreign Nontaxable interest | (1.06) | % |  | (1.90) | % |  | — | %
Taxation on foreign inflation | 1.34 | % |  | 1.41 | % |  | 0.16 | %
Rate change | (3.71) | % |  | 1.27 | % |  | (4.33) | %
Valuation allowance | 9.44 | % |  | 8.35 | % |  | 1.77 | %
Loss on equity transactions | (1.72) | % |  | — | % |  | — | %
Uncertain tax positions | 1.72 | % |  | 1.62 | % |  | 0.63 | %
Other | (0.89) | % |  | 0.20 | % |  | 0.17 | %
Effective income tax rate | 21.27 | % |  | 16.22 | % |  | (8.09) | %
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 ability to utilize tax attributes and changes in tax laws and business reorganizations. In fiscal 2021, Ciena began implementation of a plan to reorganize its global supply chain and distribution structure more substantially, which included a legal entity reorganization and related system upgrade. Ciena completed the first phase of this plan in fiscal 2021, and substantially completed the reorganization during 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 deferred tax assets are as follows (in thousands):
| Year Ended
| October 28, 2023 |  | October 29, 2022
Deferred tax assets: |  |  |
Reserves and accrued liabilities | $ | 82,160 |  |  | $ | 76,839 |
Depreciation and amortization | 712,098 |  |  | 690,636 |
NOL and credit carry forward | 197,984 |  |  | 154,707 |
Other | 6,934 |  |  | 63,902 |
Gross deferred tax assets | 999,176 |  |  | 986,084 |
Valuation allowance | (189,870) |  |  | (162,076) |
Deferred tax asset, net of valuation allowance | $ | 809,306 |  |  | $ | 824,008 |
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 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 |
Increase related to positions taken in prior period | 4,732 |
Reductions related to settlements with taxing authorities | (3,229) |
Increase related to positions taken in current period | 2,959 |
Reductions related to expiration of statute of limitations | (1,039) |
Unrecognized tax benefits at October 29, 2022 | 80,514 |
Increase related to positions taken in prior period | 9,940 |
Reductions related to settlements with taxing authorities | (625) |
Increase related to positions taken in current period | 4,960 |
Reductions related to expiration of statute of limitations | (869) |
Unrecognized tax benefits at October 28, 2023 | $ | 93,920 |
As of October 28, 2023 and October 29, 2022, Ciena had accrued $7.9 million and $5.2 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 $2.7 million and $1.7 million were recorded as a net expense to the provision for income taxes during fiscal 2023 and 2022, respectively. During fiscal 2021, Ciena recorded a net benefit to the provision for interest and penalties in its provision for income taxes of $0.1 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. During the fourth quarter of fiscal 2023, Ciena evaluated the undistributed earnings of its foreign subsidiaries and identified approximately $222.0 million in earnings that are no longer considered to be indefinitely reinvested. Ciena recorded a provision of $2.5 million that reflects the income tax effects of the repatriation of these earnings. No additional income tax expense has been provided for any remaining undistributed foreign earnings, or any additional outside basis difference from investments in the foreign subsidiaries, as these amounts continue to be indefinitely reinvested. If the remaining undistributed foreign earnings and profits of $381.0 million were repatriated to the U.S., the provisional amount of unrecognized deferred tax liability, which is primarily related to foreign withholding taxes, is an estimated $30.0 million; however, the amount may be lower depending on Ciena’s ability to utilize tax credits associated with the distribution. Additionally, there are no other significant temporary differences for which a deferred tax liability or asset has not been recognized. As of October 28, 2023, Ciena continues to maintain a valuation allowance of $189.9 million against its 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
October 30, 2021 |  | $ | 151,427 |  |  | $ | 17,897 |  |  | $ | 9,690 |  |  | $ | 159,634 |
October 29, 2022 |  | $ | 159,634 |  |  | $ | 15,245 |  |  | $ | 12,803 |  |  | $ | 162,076 |
October 28, 2023 |  | $ | 162,076 |  |  | $ | 28,746 |  |  | $ | 952 |  |  | $ | 189,870 |

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