15. INCOME TAXES

The income taxes provision for continuing operations consists of the following components for each of the years ended October 31, 2012, 2011 and 2010:


(in thousands)	2012			2011		2010
Current
Federal	$	9,700		$	5,539	$	14,394
State		10,459			7,147		8,072
Foreign		—			67		83
Deferred
Federal		11,047			21,642		17,341
State		(1,275	)		2,585		319
Foreign		—			—		(6	)

	$	29,931		$	36,980	$	40,203

Income tax expense attributable to income from continuing operations differs from the amounts computed by applying the U.S. statutory rates to pre-tax income from continuing operations as a result of the following for the years ended October 31, 2012, 2011 and 2010:


	2012			2011			2010
Statutory rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal tax benefit		6.5	%		6.3	%		6.5	%
Federal and state tax credits		(5.5	)%		(5.1	)%		(4.6	)%
Impact of change in state tax rate		1.2	%		(0.4	)%		(0.1	)%
Tax liabilities no longer required		(7.2	)%		(4.0	)%		(0.5	)%
Nondeductible expenses and other, net		2.3	%		3.2	%		2.3	%

		32.3	%		35.0	%		38.6	%

The effective tax rate for the year ended October 31, 2012 is lower than the effective tax rate for the year ended October 31, 2011, primarily due to net nonrecurring favorable federal and state tax benefits recorded in the year ended October 31, 2012. These tax benefits included a $6.9 million re-measurement of certain unrecognized tax benefits and $1.9 million of additional employment based tax credits. Additionally, the effective tax rate decrease for the current year was offset by the expiration of employment based tax credits as of December 31, 2011 and an increase in certain state tax rates in jurisdictions where the Company operates.

The effective tax rate for the year ended October 31, 2011 is lower than the effective tax rate for the year ended October 31, 2010, primarily due to net nonrecurring favorable federal and state tax benefits recorded in the year ended October 31, 2011. These tax benefits included a $4.7 million re-measurement of certain unrecognized tax benefits based on new information available, which were partially offset by other discrete tax costs of $1.9 million, primarily related to the true-up of prior year estimated tax balances (including a reduction in previously anticipated employment based tax credits).

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at October 31, 2012 and 2011 are presented below:


(in thousands)	2012			2011
Deferred tax assets:
Self-insurance claims (net of recoverables)	$	109,516		$	103,125
Deferred and other compensation		30,221			28,897
Accounts receivable allowances		3,967			3,822
Settlement liabilities		3,288			1,999
State taxes		727			908
Federal net operating loss carryforwards		—			15,485
State net operating loss carryforwards		8,596			8,348
Tax credits		7,802			6,480
Other		7,758			8,220

		171,875			177,284
Less: Valuation allowance		6,026			5,784

Total deferred tax assets		165,849			171,500

Deferred tax liabilities:
Property, plant and equipment		(2,767	)		(8,579	)
Goodwill and other acquired intangibles		(101,801	)		(91,408	)

Total deferred tax liabilities		(104,568	)		(99,987	)

Net deferred tax assets	$	61,281		$	71,513

State net operating loss carryforwards will expire between the years 2013 and 2032.

The Company reviews its deferred tax assets for recoverability quarterly. The valuation allowance represents the amount of tax benefits related to state net operating loss carryforwards that management believes are not likely to be realized. The Company believes the remaining net deferred tax assets are more likely than not to be realizable based on estimates of future taxable income.

Changes to the deferred tax asset valuation allowance for the years ended October 31, 2012, 2011 and 2010 are as follows:


(in thousands)	2012		2011			2010
Valuation allowance at the beginning of the year	$	5,784	$	6,290		$	6,147
Acquisition of Linc		—		290			—
Other, net		242		(796	)		143

Valuation allowance at the end of the year	$	6,026	$	5,784		$	6,290

In the year ended October 31, 2012, the valuation allowance increased through an increase of the tax provision by $0.5 million for state net operating losses that were not expected to be ultimately realized and decreased by $0.3 million on the write-off of acquired federal net operating loss carryforwards of a liquidated subsidiary. In the year ended October 31, 2011, the valuation allowance decreased through a reduction of the tax provision by $0.8 million for state net operating losses that became more-likely-than-not realizable based on updated assessments of future taxable income and increased by a goodwill adjustment of $0.3 million as a result of the acquisition of Linc. In the year ended October 31, 2010, $0.1 million of the increase in valuation allowance was charged to income tax expense for deferred tax assets that were not expected to be ultimately realized.

At October 31, 2012, we had unrecognized tax benefits of $88.4 million, all of which, if recognized in the future, would impact the Company’s effective tax rate. The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of October 31, 2012, the Company had accrued interest and penalties related to uncertain tax positions of $1.1 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


(in thousands)	2012			2011
Balance at beginning of year	$	95,956		$	101,681
Additions for tax positions related to the current year		590			760
Additions for tax positions related to prior years		865			—
Reductions for tax positions related to prior years		(7,328	)		(5,743	)
Reductions for expiration of statute of limitations		(66	)		(356	)
Settlements		(1,569	)		(386	)

Balance as of October 31	$	88,448		$	95,956

The Company’s major tax jurisdiction is the United States. The U.S. federal income tax returns for ABM, OneSource Services Inc., and Linc entities that are taxable as corporations remain open for examination for the periods ending October 31, 2006 through October 31, 2012, March 31, 2000 through November 14, 2007, and December 31, 2009 through December 31, 2010, respectively. The examination by the Internal Revenue Service for the tax years 2006-2008 was completed during the year. The Company does business in all 50 states, significantly in California, Texas and New York, as well as in various foreign jurisdictions. In major state jurisdictions, the tax years 2008-2012 remain open and subject to examination by the appropriate tax authorities. The Company is currently being examined by the state taxing authorities in Illinois, Utah, New Jersey, and by the Commonwealth of Puerto Rico. The Company estimates that a decrease in unrecognized tax benefits of up to approximately $0.5 million is reasonably possible over the next 12 months.