INCOME TAXES

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



	October 31,
	2012		2013		2014
Provision for income taxes:
Current:
Federal	$	—	$	—	$	—
State	857		906		1,831
Foreign	8,465		4,334		12,133
Total current	9,322		5,240		13,964
Deferred:
Federal	—		—		—
State	—		—		—
Foreign	—		—		—
Total deferred	—		—		—
Provision for income taxes	$	9,322	$	5,240	$	13,964

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



	October 31,
	2012			2013			2014
United States	$	(151,958	)	$	(59,594	)	$	(42,742	)
Foreign	17,259			(20,597		)	16,069
Total	$	(134,699	)	$	(80,191	)	$	(26,673	)

For the periods indicated, the tax provision 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,
	2012		2013		2014
Provision at statutory rate	35.00	%	35.00	%	35.00	%
State taxes	(0.64	)%	(1.13	)%	(6.87	)%
Foreign taxes	(5.09	)%	(12.70	)%	(70.25	)%
Research and development credit	10.21	%	17.39	%	32.07	%
Non-deductible loss on debt extinguishment	—	%	(11.21	)%	—	%
Non-deductible compensation and other	(4.92	)%	(8.78	)%	(29.59	)%
Valuation allowance	(41.48	)%	(25.10	)%	(12.71	)%
Effective income tax rate	(6.92	)%	(6.53	)%	(52.35	)%

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



	October 31,
	2013			2014
Deferred tax assets:
Reserves and accrued liabilities	$	44,515		$	59,707
Depreciation and amortization	274,468			268,783
NOL and credit carry forward	1,159,494			1,155,389
Other	8,822			12,956
Gross deferred tax assets	1,487,299			1,496,835
Valuation allowance	(1,487,299		)	(1,496,835		)
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, 2011	$	8,590
Decrease 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
Decrease related to positions taken in prior period	(3,925		)
Increase related to positions taken in current period	2,146
Reductions related to expiration of statute of limitations	(994		)
Unrecognized tax benefits at October 31, 2013	8,279
Increase related to positions taken in prior period	2,479
Increase related to positions taken in current period	5,241
Reductions related to expiration of statute of limitations	(899		)
Unrecognized tax benefits at October 31, 2014	$	15,100

As of October 31, 2013 and 2014, Ciena had accrued $1.4 million and $3.4 million of interest and penalties, respectively, related to unrecognized tax benefits within other long-term liabilities in the Consolidated Balance Sheets. Interest and penalties of $0.3 million and $2.0 million were recorded to the provision for income taxes during fiscal 2012 and fiscal 2014 respectively, and no such charges or benefits were recorded for fiscal 2013. 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 fiscal year		Additions		Deductions		of fiscal year
2012	$	1,467,411	$	21,583	$	—	$	1,488,994
2013	$	1,488,994	$	—	$	1,695	$	1,487,299
2014	$	1,487,299	$	9,536	$	—	$	1,496,835

As of October 31, 2014, 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 2019, 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, 2014 of approximately $81.0 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.