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INCOME TAXES | 12 Months Ended
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Oct. 31, 2019
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 11 - INCOME TAXES Income before the income tax provisions consists of the following:
|  | Year Ended |
|  | October 31, 2019 |  |  | October 31, 2018 |  |  | October 29, 2017 |
United States |  | $ | (8,379 | ) |  | $ | (9,859 | ) |  | $ | (11,544 | )
Foreign |  |  | 59,080 |  |  |  | 78,430 |  |  |  | 38,109 |
|  | $ | 50,701 |  |  | $ | 68,571 |  |  | $ | 26,565 |
The income tax provisions consist of the following:
|  | Year Ended |
|  | October 31, 2019 |  |  | October 31, 2018 |  |  | October 29, 2017 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (3,916 | ) |  | $ | (30 | ) |  | $ | 173 |
State |  |  | 11 |  |  |  | - |  |  |  | (4 | )
Foreign |  |  | 17,777 |  |  |  | 11,584 |  |  |  | 3,474 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 3,673 |  |  |  | (3,673 | ) |  |  | - |
State |  |  | 10 |  |  |  | (24 | ) |  |  | 15 |
Foreign |  |  | (7,345 | ) |  |  | (522 | ) |  |  | 1,618 |
Total |  | $ | 10,210 |  |  | $ | 7,335 |  |  | $ | 5,276 |
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, 2019 |  |  | October 31, 2018 |  |  | October 29, 2017 |
U.S. federal income tax at statutory rate |  | $ | 10,647 |  |  | $ | 16,059 |  |  | $ | 9,298 |
Changes in valuation allowances |  |  | 2,673 |  |  |  | 4,554 |  |  |  | (3,632 | )
Foreign tax rate differentials |  |  | 218 |  |  |  | (2,078 | ) |  |  | (5,230 | )
Tax credits |  |  | (1,268 | ) |  |  | (1,530 | ) |  |  | (1,925 | )
Uncertain tax positions, including reserves, settlements and resolutions |  |  | 134 |  |  |  | (1,791 | ) |  |  | (932 | )
Employee stock option |  |  | 232 |  |  |  | (1,433 | ) |  |  | 512 |
Income tax holiday |  |  | (2,234 | ) |  |  | (2,648 | ) |  |  | (743 | )
Tax reform |  |  | - |  |  |  | (3,736 | ) |  |  | - |
Distributions from foreign subsidiaries |  |  | - |  |  |  | - |  |  |  | 6,471 |
Tax on foreign subsidiary earnings |  |  | - |  |  |  | - |  |  |  | 1,712 |
Other, net |  |  | (192 | ) |  |  | (62 | ) |  |  | (255 | )
|  | $ | 10,210 |  |  | $ | 7,335 |  |  | $ | 5,276 |
Effective tax rate |  |  | 20.1 | % |  |  | 10.7 | % |  |  | 19.8 | %
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. The fiscal year 2017 effective tax rate differs from the U.S. statutory rate of 35% primarily due to earnings being taxed at lower statutory rates in foreign jurisdictions, changes in deferred tax asset valuation allowances, including the reversals noted below, together with the benefit of various investment credits in a foreign jurisdiction. We were granted two five-year tax holidays in Taiwan, one that expired unused in 2017 and the other that expires at the end of calendar year 2019. The latter tax holiday reduced foreign taxes by $2.2 million, $2.6 million and $0.7 million in fiscal years 2019, 2018 and 2017, respectively, with an $0.02 and $0.035 cents per share impact in fiscal 2019 and 2018, respectively, and a de minimis per share effect in the fiscal 2017. 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, 2019 |  |  | October 31, 2018 |
Deferred income tax assets: |  |  |  |  |  |
Net operating losses |  | $ | 32,229 |  |  | $ | 30,805 |
Reserves not currently deductible |  |  | 5,013 |  |  |  | 4,703 |
Tax credit carryforwards |  |  | 9,164 |  |  |  | 9,159 |
Share-based compensation |  |  | 860 |  |  |  | 767 |
Alternative minimum tax credits |  |  | - |  |  |  | 3,673 |
Other |  |  | 434 |  |  |  | 1,210 |
|  |  | 47,700 |  |  |  | 50,317 |
Valuation allowances |  |  | (27,032 | ) |  |  | (24,383 | )
|  |  | 20,668 |  |  |  | 25,934 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Property, plant and equipment |  |  | (251 | ) |  |  | (8,020 | )
Other |  |  | - |  |  |  | (448 | )
|  |  | (251 | ) |  |  | (8,468 | )
Net deferred income tax assets |  | $ | 20,417 |  |  | $ | 17,466 |
Reported as: |  |  |  |  |  |  |  |
Deferred income tax assets |  | $ | 20,779 |  |  | $ | 18,109 |
Deferred income tax liabilities |  |  | (362 | ) |  |  | (643 | )
|  | $ | 20,417 |  |  | $ | 17,466 |
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 year 2019, the valuation allowance increased as a result of increase in fully valued net operating losses. During fiscal year 2018, the valuation allowance decrease primarily resulted from the reversal of the valuation allowance related to alternative minimum tax credits of $(3.9) million (as a consequence of the Act), prior year additional NOL utilization of $(1.8) million, credit utilizations of $(1.3) million, changes in the deferred tax liability of $2.8 million, $1.8 million from the adoption of ASU 2016-09 related to stock compensation, $1.6 million from the corporate tax rate reduction, and other impacts of $(0.4) million. 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, 2019, and their related expiration periods:
Operating Loss Carryforwards |  | Amount |  |  | Expiration Periods |
Federal |  | $ | 85,949 |  |  | 2028-Indefinite |
State |  |  | 206,513 |  |  |  | 2019-2039 |
Foreign |  |  | 9,177 |  |  |  | 2022-2029 |
Tax Credit Carryforwards |  | Amount |  |  | Expiration Period |
Federal research and development |  | $ | 4,522 |  |  |  | 2019-2039 |
State |  |  | 5,870 |  |  |  | 2020-2029 |
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, payable on or about October 1, 2019, for each share of common stock, par value $0.01 per share, of the Company’s 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, 2019 |  |  | October 31, 2018 |  |  | October 29, 2017 |
Balance at beginning of year |  | $ | 1,775 |  |  | $ | 3,384 |  |  | $ | 4,606 |
Additions (reductions) for tax positions in prior years |  |  | (466 | ) |  |  | (44 | ) |  |  | 207 |
Additions based on current year tax positions |  |  | 1,286 |  |  |  | 498 |  |  |  | 323 |
Settlements |  |  | (204 | ) |  |  | (56 | ) |  |  | (922 | )
Lapses of statutes of limitations |  |  | (633 | ) |  |  | (2,007 | ) |  |  | (830 | )
Balance at end of year |  | $ | 1,758 |  |  | $ | 1,775 |  |  | $ | 3,384 |
As of October 31, 2019, October 31, 2018 and October 29, 2017, the balance of unrecognized tax benefits, which are included in Other liabilities, includes $1.9 million, $1.9 million, and $3.4 million, respectively, that, if recognized, would impact the effective tax rates. Included in each of these amounts were interest and penalties of $0.2 million, $0.1 million, and $0.1 million, at the end of fiscal year 2019, 2018, and 2017, 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 immaterial. 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 2014. Income tax payments were $15.9 million, $6.1 million and $9.3 million in fiscal years 2019, 2018 and 2017, respectively. Cash received as refunds of income taxes paid in prior years amounted to $1.1 million and $0.1 million in fiscal years 2018 and 2017, respectively, with an immaterial amount being received in fiscal year 2019. Adoption of New Accounting Standard In the first quarter of 2019, the Company adopted Accounting Standards Update No. 2016-16 – “Intra-Entity Transfers Other Than Inventory”, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. In connection therewith, we recorded a transition adjustment of $1.1 million that reduced prepaid income taxes (included in Other current assets in the consolidated balance sheets) against beginning retained earnings.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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