Income Taxes

Income (loss) before income taxes consists of the following:




	Years Ended October 31,
	2011			2010
Domestic	$	13,719		$	6,640
Foreign	(638		)	(738		)

Total	$	13,081		$	5,902

The components of the provision for income taxes from continuing operations were as follows:




		Years Ended October 31,
		2011		2010
Current:
	Federal	$	2,336	$	4,929
	State and local	794		212
	Foreign	69		114

Total current		3,199		5,255
Deferred:
	Federal	1,784		(3,369		)
	State and local	188		147
	Foreign	65		8

Total deferred		2,037		(3,214)

		$	5,236	$	2,041

Temporary differences and carryforwards which give rise to deferred tax assets and liabilities were comprised of the following:



		Years Ended October 31,
		2011			2010
Deferred tax assets:
	Accrued compensation and benefits	$	783		$	949
	Inventory	569			718
	State income credits and loss carryforwards	1,080			1,220
	Pension obligations and post retirement benefits	9,555			9,685
	Foreign net operating loss	2,246			3,452
	Tax credits in foreign countries	786			901
	Other accruals and reserves	2,308			2,228
	Goodwill amortization	—			171

		17,327			19,324
Less: Valuation allowance		(4,263)			(4,499)

Total deferred tax assets		13,064			14,825
Deferred tax liabilities:
	Fixed assets	(9,551)			(10,361)
	Prepaid expenses and other	(367)			(401)


Net deferred tax asset		$	3,146		$	4,063

Change in net deferred tax asset:
	Provision for deferred taxes	$	(2,037	)	$	3,214
	Other	117			3
Components of other comprehensive income:
	Pension and post retirement benefits	1,003			(185		)
	Total change in net deferred tax asset	$	(917	)	$	3,032

As required by FASB ASC Topic 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Activities and balances of unrecognized tax benefits for 2011 and 2010 are summarized below:



	Years Ended October 31,
	2011			2010
Balance at beginning of year	$	851		$	826
Additions based on tax positions related to the current year	63			124
Reductions based on tax positions related to the current year	—			—
Additions for tax positions of prior years	120			8
Reductions for tax positions of prior years	(7		)	(4		)
Reductions as result of lapse of applicable statute of limitations	42			(103		)
Settlements	—			—

Balance at end of year	$	1,069		$	851

The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $695 at October 31, 2011 and $553 at October 31, 2010. The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. The Company recognized $173 of expense in 2011 and $77 of benefit in 2010 for interest and penalties. The Company had accrued $860 at October 31, 2011 and $687 at October 31, 2010, for the payment of interest and penalties.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for the years ending prior to October 31, 2008 and no longer subject to non-U.S. income tax examinations for calendar years ending prior to December 31, 2006. The Company does not anticipate that within the next 12 months the total unrecognized tax benefits will significantly change due to the settlement of examinations and the expiration of statute of limitations.

During October 2007, the Mexican Congress passed the Initiative to Amend the Tax Coordination Law and Income Tax Law. Effective January 1, 2008, a flat tax supplements the regular income tax. In conjunction with this law change, a deferred tax asset for Mexican tax credits in the amount of $1,037 was recorded as of October 31, 2008. While future projections for taxable income and ongoing prudent and feasible tax planning strategies have been considered in assessing the need for the valuation allowance, the Company believes that it is more likely than not that the tax credits will not be realized. Therefore, a valuation allowance in the amount of $1,037 was recorded in fiscal 2008. The comparable amount in fiscal 2011 and 2010 was $786 and $901, respectively.

A valuation allowance of approximately $4,263 remains at October 31, 2011 for deferred tax assets whose realization remains uncertain at this time. The comparable amount of the valuation allowance at October 31, 2010 was $4,499. The net decrease in the valuation allowance of $236 relates to a decrease of $115 for flat tax credits associated with foreign jurisdictions, a $111 decrease related to other foreign deferred tax assets and a decrease of $10 related to state and local operating loss carryforwards.

The Company assesses both negative and positive evidence when measuring the need for a valuation allowance. A valuation allowance has been established by the Company due to the uncertainty of realizing certain loss carryforwards and tax credits in Mexico and loss carryforwards in various state and local jurisdictions in the United States. The Company believes the remaining deferred tax assets will be realizable based on future reversals of existing taxable temporary differences that would generate ordinary income in the U.S. and available tax planning strategies that would be implemented to recognize the deferred tax assets. The Company intends to maintain the valuation allowance against certain deferred tax assets until such time that sufficient positive evidence exists to support realization of the deferred tax assets. In the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.

A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows:




	Years Ended October 31,
	2011		2010
Federal income tax at statutory rate	34.0	%	35.0	%
State and local income taxes, net of federal benefit	4.1		12.5
Valuation allowance change	(0.4	)	1.3
Net operating loss benefit and reversal of contingencies	(0.1	)	(1.6	)
Domestic production activities deduction	(2.4	)	(6.4	)
Foreign operations	2.2		4.4
Stock option expense	1.4		2.9
Adjustment of uncertain tax positions	2.1		(0.9	)
Adjustments of previous tax filings	(0.1	)	(12.9	)
Other	(0.8	)	0.3

Effective income tax rate	40.0	%	34.6	%

At October 31, 2011, the Company had foreign operating loss carryforward benefits of approximately $2,246 with a valuation allowance to the extent of their net deferred tax assets, which will expire between 2016 and 2020. At October 31, 2010, the Company had foreign operating loss carryforward benefits of approximately $3,452 with a valuation allowance to the extent of their net deferred tax assets. The Company has various state and local net operating loss and tax credit carryforward benefits. As of October 31, 2011 and 2010, the Company had state and local net operating loss carryforward benefits of $929 and $941 with a full valuation allowance, which will expire between 2012 and 2031. Additionally, the Company has state tax credit carryforward benefits of $0 as of October 31, 2011 and $416 as of October 31, 2010.

The Company paid income taxes, net of refunds, of $3,202 and $(285) in 2011 and 2010, respectively. U.S. income taxes and foreign withholding taxes are not provided on undistributed earnings of foreign subsidiaries because it is expected such earnings will be permanently reinvested in the operations of such subsidiaries. It is not practical to determine the amount of income tax liability that would result had such earnings been repatriated. As of October 31, 2011, there was $760 of undistributed foreign subsidiary earnings.