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INCOME TAXES | 12 Months Ended
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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 |

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