INCOME TAXES

12 Months Ended

Oct. 31, 2023

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 13 - INCOME TAXES

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. The Company is continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries.

Income before the income tax provisions consists of the following:

	Year Ended
	October 31, 2023			October 31, 2022		October 31, 2021
United States	$	(1,737	)	$	1,813	$	(19,447	)
Foreign		271,683			237,220		121,453
	$	269,946		$	239,033	$	102,006

Income Tax Provision

The components of our income tax provisions are presented below.

	Year Ended
	October 31, 2023			October 31, 2022		October 31, 2021
Current:
Federal	$	-		$	-	$	-
State		14			1		4
Foreign		71,225			58,981		25,296
		71,239			58,982		25,300
Deferred:
Federal		-			-		-
State		12			10		103
Foreign		(939	)		799		(2,213	)
		(927	)		809		(2,110	)
Total	$	70,312		$	59,791	$	23,190

The table below presents a reconciliation of income taxes calculated by applying the statutory U.S. federal income tax rate to our income tax provisions of the reporting periods.

	Year Ended
	October 31, 2023			October 31, 2022			October 31, 2021
U.S. federal income tax at statutory rate	$	56,689		$	50,197		$	21,421
Changes in valuation allowances		(256	)		(1,462	)		364
Foreign tax rate differentials		11,394			7,941			3,244
Tax credits		(2,425	)		(1,368	)		(3,942	)
Uncertain tax positions, including reserves, settlements and resolutions		3,328			3,214			1,037
Other, net		1,582			1,269			1,066
Income tax provision	$	70,312		$	59,791		$	23,190

Reporting Period	U.S. Statutory Tax Rates			Photronics Effective Tax Rates			Primary Reasons for Differences
2023		21.0	%		26.0	%	Non-U.S. pre-tax income being taxed at higher statutory rates in non-U.S. jurisdictions, the establishment of uncertain tax positions in non-U.S. jurisdiction and loss jurisdiction pre-tax losses not being benefited due to valuation allowances.
2022		21.0	%		25.0	%	Non-U.S. pre-tax income being taxed at higher statutory rates in non-U.S. jurisdictions; and the establishment of uncertain tax positions in non-U.S. jurisdiction.
2021		21.0	%		22.7	%	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, and investment credits in foreign jurisdictions.

Deferred Income Tax Assets and Liabilities

The net deferred income tax assets consist of the following:

	As of
	October 31, 2023			October 31, 2022
Deferred income tax assets
Net operating losses	$	26,377		$	29,410
Reserves not currently deductible		8,776			8,528
Tax credit carryforwards		10,442			9,660
Share-based compensation		1,892			1,560
Property, plant and equipment		9,844			6,591
Lease liabilities		5,743			7,367
		63,074			63,116
Valuation allowances		(32,619	)		(32,895	)
		30,455			30,221
Deferred income tax liabilities
ROU assets		(8,193	)		(8,930	)
Other		(1,200	)		(1,722	)
		(9,393	)		(10,652	)
Net deferred income tax assets	$	21,062		$	19,569
Classification
Deferred income tax assets	$	21,297		$	19,816
Other liabilities		(235	)		(247	)
	$	21,062		$	19,569

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 deferred tax assets will expire prior to utilization. In 2023 the valuation allowance decreased as a result of management’s determination that tax benefits on deferred tax assets would more likely than not be realized and, therefore, decreased the valuation allowance to include these deferred tax assets.

Due to the Tax Cuts and Jobs Act, which was signed into law in December 2017, 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 foreign withholding tax expense on those earnings, the amount of which is not practicable to compute.

Tax Credits and Carryforwards

The following tables present our available operating loss and credit carryforwards as of October 31, 2023, and their related expiration periods.

Operating Loss Carryforwards	Amount		Expiration Period
Federal	$	86,765	2029-Indefinite
State	$	148,934		2024-Indefinite
Foreign	$	435		2024-Indefinite

Tax Credit Carryforwards	Amount		Expiration Period
Federal research and development	$	5,806		2024-2043
State	$	5,042		2024-2037

Uncertain Tax Positions

We include unrecognized tax benefits in Other liabilities, and we include any applicable interest and penalties related to uncertain tax positions in our income tax provision.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is presented below. The amounts in the table include settlements of non-U.S. audits.

	Year Ended
	October 31, 2023			October 31, 2022			October 31, 2021
Balance at beginning of year before interest and penalties	$	5,204		$	3,534		$	2,550
(Reductions) additions of tax positions in prior years		209			(355	)		181
Additions based on current year tax positions		3,361			2,892			1,313
Settlements		(423	)		(848	)		(489	)
Lapses of statutes of limitations		(19	)		(19	)		(21	)
Balance at end of year before interest and penalties		8,332			5,204			3,534
Interest and penalties		576			395			223
Balance at end of year including interest and penalties	$	8,908		$	5,599		$	3,757

The following table presents additional information on our uncertain tax positions, as of the balance sheet dates.

	October 31, 2023		October 31, 2022
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	8,908	$	5,599
Accrued interest and penalties related to uncertain tax positions	$	576	$	395

Although the timing of the reversal of uncertain tax positions may be uncertain, as they can be dependent upon the settlement of tax audits or expirations of statutes of limitations, 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 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 2018.

Income Tax Payments and Refunds

The table below presents income taxes paid and refunds of income taxes received during the reporting periods.

	Year Ended
	October 31, 2023		October 31, 2022		October 31, 2021
Income taxes paid	$	70,362	$	37,770	$	22,684
Income tax refunds received	$	485	$	388	$	713