INCOME TAXES

12 Months Ended

Oct. 31, 2020

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 12 - INCOME TAXES

Income before the income tax provisions consists of the following:

	Year Ended
	October 31, 2020			October 31, 2019			October 31, 2018
United States	$	(10,672	)	$	(8,379	)	$	(9,859	)
Foreign		72,273			59,080			78,430
	$	61,601		$	50,701		$	68,571

The income tax provisions consist of the following:

	Year Ended
	October 31, 2020			October 31, 2019			October 31, 2018
Current:
Federal	$	-		$	(3,916	)	$	(30	)
State		4			11			-
Foreign		21,698			17,777			11,584
Deferred:
Federal		-			3,673			(3,673	)
State		8			10			(24	)
Foreign		(452	)		(7,345	)		(522	)
Total	$	21,258		$	10,210		$	7,335

The income tax provisions differ from the amount computed by applying the statutory U.S. federal income tax rate to income before income taxes as a result of the following:

	Year Ended
	October 31, 2020			October 31, 2019			October 31, 2018
U.S. federal income tax at statutory rate	$	12,936		$	10,647		$	16,059
Changes in valuation allowances		6,942			2,673			4,554
Foreign tax rate differentials		1,718			218			(2,078	)
Tax credits		(1,562	)		(1,268	)		(1,530	)
Uncertain tax positions, including reserves, settlements and resolutions		1,637			134			(1,791	)
Employee stock option		-			-			(1,433	)
Income tax holiday		(318	)		(2,234	)		(2,648	)
Tax reform		-			-			(3,736	)
Distributions from foreign subsidiaries		-			-			-
Tax on foreign subsidiary earnings		-			-			-
Other, net		(95	)		40			(62	)
	$	21,258		$	10,210		$	7,335
Effective tax rate		34.5	%		20.1	%		10.7	%

The fiscal year 2020 effective tax rate differs from the U.S. statutory rate of 21% primarily due to loss jurisdiction pre-tax losses not being benefited due to valuation allowances, non-U.S. pre-tax income being taxed at higher statutory rates in the non-U.S. jurisdictions (partially offset by the benefits of a tax holiday), and investment credits in foreign jurisdictions.

The fiscal year 2019 effective tax rate differs from the U.S. statutory rate of 21% due to the recognition of a benefit related to previously unrecognized tax positions, loss jurisdiction pre-tax losses being benefited at higher statutory rates than pre-tax income in income jurisdictions was taxed, changes in deferred tax asset valuation allowance, the benefits of a tax holiday, and investment credits in foreign jurisdictions.

The fiscal year 2018 effective tax rate differs from the U.S. federal blended rate of 23.42% primarily due to the impact of the U.S. Tax Cuts and Jobs Act (discussed below) allowing for the refund of AMT credits that caused a corresponding reversal of the related valuation allowance, the recognition of a benefit related to previously unrecognized tax positions, earnings being taxed at lower statutory rates in foreign jurisdictions, the benefits of a tax holiday, and investment credits in foreign jurisdictions.

We were granted a five-year tax holiday in Taiwan  that expired on December 31, 2019. This tax holiday reduced foreign taxes by $0.1 million, $2.2 million and $2.6 million in fiscal years 2020, 2019 and 2018, respectively, with an $0.02 and $0.035 cents per share impact in fiscal 2019 and 2018, respectively, and an immaterial per share effect in fiscal 2020.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”), was signed into law, enacting significant changes to the United States Internal Revenue Code of 1986, as amended. Based on the enactment date, we accounted for the Act in our interim period ended January 28, 2018. In December 2017, the Securities and Exchange Commission released Staff Accounting Bulletin No. 118 (“SAB 118”) to address situations in which the accounting under Accounting Standards Codification Topic 740 – “Income Taxes” is incomplete for certain income tax effects of the Act. We adopted SAB 118 in our first quarter of fiscal year 2018, and finalized its effects in our fourth quarter of fiscal 2018. In the period ended January 28, 2018, we recognized the following effects in our provision for income taxes:

• The Act repealed the corporate alternative minimum tax (“AMT”) for tax years beginning after December 31, 2017, and provided that existing AMT credit carryforwards are fully refundable. We recognized a $3.9 million benefit on AMT credit carryforwards that we previously determined were not more likely than not going to be realized and reversed the previously recorded valuation allowance.

• As of January 1, 2018, the Act reduced the corporate income tax rate from a maximum 35% to a flat 21%, requiring us to revalue our deferred tax assets and liabilities utilizing the rate applicable to the period when a temporary difference will reverse. Our net deferred tax asset is fully offset by a valuation allowance, and the revaluation of the deferred tax assets and liabilities resulted in a net-zero impact for the period.

• The Act imposed a transition tax for a one-time deemed repatriation of the accumulated earnings of foreign subsidiaries. The entire amount of transition tax was fully offset by tax credits (including carryforwards) that resulted in a provisional net-zero impact on the period.

On January 18, 2018, the Taiwan Legislature Yuan approved amendments to the Income Tax Act, enacting an increase in the corporate tax rate from 17% to 20%, which required us to revalue our deferred tax assets and liabilities utilizing the rate applicable to the period when a temporary difference will reverse. Accordingly, a net benefit of $0.2 million is reflected in our tax provision in fiscal year 2018.

The net deferred income tax assets consist of the following:

	As of
	October 31, 2020			October 31, 2019
Deferred income tax assets:
Net operating losses	$	34,457		$	32,229
Reserves not currently deductible		6,287			5,013
Tax credit carryforwards		9,481			9,164
Share-based compensation		1,306			860
Property, plant and equipment		3,887			-
Other		398			434
		55,816			47,700
Valuation allowances		(33,973	)		(27,032	)
		21,843			20,668
Deferred income tax liabilities:
Property, plant and equipment		-			(251	)
Other		-			-
		-			(251	)
Net deferred income tax assets	$	21,843		$	20,417
Reported as:
Deferred income tax assets	$	22,070		$	20,779
Deferred income tax liabilities		(227	)		(362	)
	$	21,843		$	20,417

We have established a valuation allowance for a portion of our deferred tax assets because we believe, based on the weight of all available evidence, that it is more likely than not that a portion of our net operating loss carryforwards will expire prior to utilization. In fiscal 2020 the valuation allowance increased as a result of management’s determination that tax benefits on losses incurred in a non-U.S. jurisdiction would not more likely than not be realized and, therefore,  increased the valuation allowance to include these net operating losses. In fiscal 2019, the valuation allowance increased as a result of an increase in fully valued net operating losses.

Due to the Act, as of fiscal year end 2018, U.S. deferred taxes were no longer provided on the undistributed earnings of non-U.S. subsidiaries. Our policy to indefinitely reinvest these earnings in non-U.S. operations remains unchanged for the purpose of determining deferred tax liabilities for U.S. state and foreign withholding taxes. Therefore, should we elect in the future to repatriate the remaining foreign earnings deemed to be indefinitely reinvested, we may incur additional state and withholding tax expense on those foreign earnings, the amount of which is not practicable to compute.

The following tables present our available operating loss and credit carryforwards as of October 31, 2020, and their related expiration periods:

Operating Loss Carryforwards	Amount		Expiration Periods
Federal	$	90,125	2028-Indefinite
State		205,649		2020-2040
Foreign		14,895		2022-2030

Tax Credit Carryforwards	Amount		Expiration Period
Federal research and development	$	4,796		2024-2040
State		5,928		2020-2034

In September 2019, we entered into a Section 382 Rights Agreement with Computershare Trust Company, N.A., a federally chartered trust company, as rights agent. The purpose of the Rights Agreement is to deter trading of our common stock that would result in a change in control (as defined in Internal Revenue Control Section 382), thereby preserving our future ability to use our historical federal net operating losses and other Tax Attributes (as defined in the Rights Agreement). In connection with our entry into the Rights Agreement, our board of directors declared a dividend of one preferred stock purchase right, for each share of the Company’s common stock, par value $0.01 per share, outstanding on September 30, 2019, to the stockholders of record on that date.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:

	Year Ended
	October 31, 2020			October 31, 2019			October 31, 2018
Balance at beginning of year	$	1,758		$	1,775		$	3,384
Additions (reductions) for tax positions in prior years		227			(466	)		(44	)
Additions based on current year tax positions		1,576			1,286			498
Settlements		(992	)		(204	)		(56	)
Lapses of statutes of limitations		(19	)		(633	)		(2,007	)
Balance at end of year	$	2,550		$	1,758		$	1,775

At October 31, 2020, October 31, 2019 and October 31, 2018, unrecognized tax benefits, which are included in Other liabilities, include $2.0 million $1.9 million, and $1.9 million, respectively, that, if recognized, would impact the effective tax rates. Included in each of these amounts were interest and penalties of $0.1 million, $0.2 million, and $0.1 million, at the end of fiscal years 2020, 2019, and 2018, respectively. We include any applicable interest and penalties related to uncertain tax positions in our income tax provision. The amounts reflected in the table above include settlements of non-U.S. audits.

Although the timing of the expirations of statutes of limitations may be uncertain, as they can be dependent upon the settlement of tax audits, the Company believes that the amount of uncertain tax positions (including accrued interest and penalties, and net of tax benefits) that may be resolved over the next twelve months is $0.4 million. Resolution of these uncertain tax positions may result from either or both the lapses of statutes of limitations and/or tax settlements. The Company is no longer subject to tax authority examinations in the U.S., major foreign, or state tax jurisdictions for years prior to fiscal year 2015.

Income tax payments were $23.0 million, $15.9 million and $6.1 million in fiscal 2020, 2019 and 2018, respectively. Cash received as refunds of income taxes paid in prior years amounted to $4.3 million in fiscal 2020, $1.1 million in fiscal 2018, and an immaterial amount in fiscal 2019.