INCOME TAXES

12 Months Ended

Oct. 29, 2022

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 29, 2022		October 30, 2021		October 31, 2020
Provision (benefit) for income taxes:
Current:
Federal	$	27,479	$	72,603	$	4,363
State	10,289		21,400		13,328
Foreign	19,337		25,021		12,640
Total current	57,105		119,024		30,331
Deferred:
Federal	(30,032)		(21,942)		60,679
State	520		(11,546)		4,607
Foreign	2,010		(122,981)		(947)
Total deferred	(27,502)		(156,469)		64,339
Provision (benefit) for income taxes	$	29,603	$	(37,445)	$	94,670

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

	Year Ended
	October 29, 2022		October 30, 2021		October 31, 2020
United States	$	28,784	$	298,514	$	387,697
Foreign	153,721		164,237		68,264
Total	$	182,505	$	462,751	$	455,961

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 2022, fiscal 2021 and fiscal 2020 as follows:

	Year Ended
	October 29, 2022		October 30, 2021		October 31, 2020
Provision at statutory rate	21.00	%	21.00	%	21.00	%
Intercompany IP Restructuring Transaction	—	%	(25.85)	%	—	%
Base Erosion and Anti-Abuse Tax	—	%	—	%	(1.02)	%
State taxes	2.31	%	3.73	%	2.21	%
Foreign taxes	(1.37)	%	2.76	%	0.51	%
Research and development credit	(23.66)	%	(7.99)	%	(7.74)	%
Non-deductible compensation	5.26	%	1.68	%	1.79	%
Foreign derived intangible income	—	%	(1.82)	%	(2.07)	%
Global intangible low taxed income	1.73	%	—	%	—	%
Foreign Nontaxable interest	(1.90)	%	—	%	—	%
Taxation on foreign inflation	1.41	%	0.16	%	(0.01)	%
Transition tax	—	%	—	%	0.02	%
Rate change	1.27	%	(4.33)	%	3.04	%
Valuation allowance	8.35	%	1.77	%	3.58	%
Other	1.82	%	0.80	%	(0.55)	%
Effective income tax rate	16.22	%	(8.09)	%	20.76	%

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.

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 29, 2022		October 30, 2021
Deferred tax assets:
Reserves and accrued liabilities	$	76,839	$	69,950
Depreciation and amortization	690,636		677,729
NOL and credit carry forward	154,707		165,087
Other	63,902		47,048
Gross deferred tax assets	986,084		959,814
Valuation allowance	(162,076)		(159,634)
Deferred tax asset, net of valuation allowance	$	824,008	$	800,180

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 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
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

As of October 29, 2022 and October 30, 2021, Ciena had accrued $5.2 million and $3.8 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 $1.7 million and $0.9 million were recorded as a net expense to the provision for income taxes during fiscal 2022 and 2020, 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.

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 29, 2022, the cumulative amount of such temporary differences for which a deferred tax liability has not been recognized is an estimated $477.0 million. If these earnings were distributed to the U.S., Ciena would be subject to additional foreign withholding taxes of approximately $33.0 million. Additionally, there are no other significant temporary differences for which a deferred tax liability has not been recognized.

As of October 29, 2022, Ciena continues to maintain a valuation allowance of $162.1 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 31, 2020	$	135,978	$	25,749	$	10,300	$	151,427
October 30, 2021	$	151,427	$	17,897	$	9,690	$	159,634
October 29, 2022	$	159,634	$	15,245	$	12,803	$	162,076