INCOME TAXES

For the periods indicated, the provision (benefit) for income taxes consists of the following (in thousands):



	October 31,
	2010			2011			2012
Provision for income taxes:
Current:
Federal	$	(918	)	$	(194	)	$	—
State	223			(518		)	857
Foreign	1,936			8,202			8,465
Total current	1,241			7,490			9,322
Deferred:
Federal	700			160			—
State	—			23			—
Foreign	—			—			—
Total deferred	700			183			—
Provision for income taxes	$	1,941		$	7,673		$	9,322

For the periods indicated, income (loss) before provision for income taxes consists of the following (in thousands):



	October 31,
	2010			2011			2012
United States	$	(317,899	)	$	(240,244	)	$	(151,958	)
Foreign	(13,674		)	52,396			17,259
Total	$	(331,573	)	$	(187,848	)	$	(134,699	)

For the periods indicated, the tax provision (benefit) reconciles to the amount computed by multiplying income or loss before income taxes by the U.S. federal statutory rate of 35% as follows:



	October 31,
	2010		2011		2012
Provision at statutory rate	35.00	%	35.00	%	35.00	%
State taxes	(0.07	)%	0.27	%	(0.64	)%
Foreign taxes	(4.56	)%	2.32	%	(5.09	)%
Research and development credit	2.54	%	11.03	%	10.21	%
Non-deductible compensation and other	(1.43	)%	(3.96	)%	(4.92	)%
Valuation allowance	(32.07	)%	(48.74	)%	(41.48	)%
Effective income tax rate	(0.59	)%	(4.08	)%	(6.92	)%

The significant components of deferred tax assets and liabilities are as follows (in thousands):



	October 31,
	2011			2012
Deferred tax assets:
Reserves and accrued liabilities	$	30,637		$	44,128
Depreciation and amortization	259,899			276,710
NOL and credit carry forward	1,154,571			1,142,647
Other	22,304			25,509
Gross deferred tax assets	1,467,411			1,488,994
Valuation allowance	(1,467,411		)	(1,488,994		)
Net deferred tax asset	$	—		$	—

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):



Unrecognized tax benefits at October 31, 2009	$	6,189
Increase related to positions taken in prior period	26
Increase related to positions taken in current period	3,383
Reductions related to expiration of statute of limitations	(2,156		)
Unrecognized tax benefits at October 31, 2010	7,442
Increase related to positions taken in prior period	(450		)
Increase related to positions taken in current period	1,847
Reductions related to expiration of statute of limitations	(249		)
Unrecognized tax benefits at October 31, 2011	8,590
Increase related to positions taken in prior period	(12		)
Increase related to positions taken in current period	2,866
Reductions related to expiration of statute of limitations	(392		)
Unrecognized tax benefits at October 31, 2012	$	11,052

As of October 31, 2011 and 2012, Ciena had accrued $1.1 million and $1.4 million, respectively, of interest and some minor penalties related to unrecognized tax benefits within other long-term liabilities in the Consolidated Balance Sheets. A charge of $0.2 million, a benefit of $0.3 million, and a charge of $0.3 million of interest were recorded to the provision for income taxes during fiscal 2010, 2011 and 2012, respectively. 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 fiscal 2002, Ciena established a valuation allowance against its deferred tax assets. Ciena intends to maintain a valuation allowance until sufficient positive evidence exists to support a reversal. Any future release of the valuation allowance may be recorded as a tax benefit increasing net income or as an adjustment to paid-in capital, based on tax ordering requirements. The following table summarizes the activity in Ciena’s valuation allowance against its gross deferred tax assets (in thousands):



Year ended	Balance at beginning						Balance at end
October 31,	of period		Additions		Deductions		of period
2010	$	1,198,067	$	165,426	$	—	$	1,363,493
2011	$	1,363,493	$	103,918	$	—	$	1,467,411
2012	$	1,467,411	$	21,583	$	—	$	1,488,994

As of October 31, 2012, Ciena had a $2.8 billion net operating loss carry forward and a $0.1 billion income tax credit carry forward which begin to expire in fiscal year 2018 and 2013, respectively. Ciena’s ability to use net operating losses and credit carry forwards is subject to limitations pursuant to the ownership change rules of the Internal Revenue Code Section 382.

The income tax provision does not reflect the tax savings resulting from deductions associated with Ciena’s equity compensation and the call spread option associated with Ciena’s convertible debt. The cumulative tax benefit through October 31, 2012 of approximately $78.0 million will be credited to additional paid-in capital when realized. For deductions associated with Ciena’s equity compensation, credits to paid-in capital will be recorded when those tax benefits are used to reduce taxes payable.