Income Taxes

Income before income taxes consists of the following:




	Years Ended October 31,
	2013		2012
Domestic	$	30,814	$	23,139
Foreign	1,361		(632		)

Total	$	32,175	$	22,507

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




		Years Ended October 31,
		2013		2012
Current:
	Federal	$	8,427	$	5,733
	State and local	1,338		1,114
	Foreign	261		150

Total current		10,026		6,997
Deferred:
	Federal	427		1,885
	State and local	152		97
	Foreign	—		2

Total deferred		579		1,984

	Provision	$	10,605	$	8,981

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



		Years Ended October 31,
		2013			2012
Deferred tax assets:
	Accrued compensation and benefits	$	1,255		$	936
	Inventory	662			558
	State income credits and loss carryforwards	1,266			1,115
	Pension obligations and post retirement benefits	8,255			12,365
	Foreign net operating loss	1,153			2,033
	Tax credits in foreign countries	573			677
	Other accruals and reserves	2,806			2,206
	Goodwill and intangible amortization	3,304			0

Total deferred tax assets		19,274			19,890
Less: Valuation allowance		(4,014)			(4,401)

Total deferred tax assets		15,260			15,489
Deferred tax liabilities:
	Fixed assets	(12,828)			(9,690)
	Prepaid expenses and other	(572)			(352)

Net deferred tax asset		$	1,860		$	5,447

Change in net deferred tax asset:
	Provision for deferred taxes	$	(579	)	$	(1,984	)
	Other	(10		)	86
Components of other comprehensive income:
	Pension and post retirement benefits	(2,998		)	4,199
	Total change in net deferred tax asset	$	(3,587	)	$	2,301

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 2013 and 2012 are summarized below:



	Years Ended October 31,
	2013			2012
Balance at beginning of year	$	1,247		$	1,069
Additions based on tax positions related to the current year	54			126
Additions for tax positions of prior years	—			89
Reductions for tax positions of prior years	(61		)	(13		)
Reductions as result of lapse of applicable statute of limitations	(57		)	(24		)

Balance at end of year	$	1,183		$	1,247

The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $777 at October 31, 2013 and $820 at October 31, 2012. The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. The Company recognized $21 and $148 of expense in 2013 and 2012 for interest and penalties. The Company had accrued $1,029 at October 31, 2013 and $1,008 at October 31, 2012, 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, 2011 and no longer subject to non-U.S. income tax examinations for calendar years ending prior to December 31, 2008. 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.

In September 2013, the Internal Revenue Service issued final regulations governing the income tax treatment of acquisitions, dispositions, and repairs of tangible property. Taxpayers are required to follow the new regulations in taxable years beginning on or after January 1, 2014. Management is currently assessing the impact of the regulations and does not expect they will have a material impact on the Company's financial statements.

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 2013 and 2012 was $572 and $677, respectively.

A valuation allowance of $4,014 remains as of October 31, 2013 for deferred tax assets whose realization remains uncertain at this time. The comparable amount of the valuation allowance at October 31, 2012 was $4,401. The net decrease in the valuation allowance of $387 relates to an increase of $26 for the future utilization of foreign tax credits in the United States, a decrease of $104 for flat tax credits associated with foreign jurisdictions, a decrease of $424 related to other foreign deferred tax assets and an increase of $115 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,
	2013		2012
Federal income tax at statutory rate	35.0	%	34.9	%
State and local income taxes, net of federal benefit	3.5		3.0
Valuation allowance change	(1.7	)	0.4
Domestic tax credits	(0.8	)	0.3
Domestic production activities deduction	(2.9	)	(2.7	)
Foreign operations	0.9		1.6
Stock option expense	0.2		0.8
Adjustment of uncertain tax positions	(0.1	)	1.0
Revisions to prior period estimated income tax calculations	(1.4	)	0.5
Other	0.3		0.1

Effective income tax rate	33.0	%	39.9	%

At October 31, 2013, the Company had foreign operating loss carryforward benefits of approximately $1,153 with a valuation allowance to the extent of their net deferred tax assets, which will expire between 2017 and 2019. At October 31, 2012, the Company had foreign operating loss carryforward benefits of approximately $2,032 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, 2013 and 2012, the Company had state and local net operating loss carryforward benefits of $985 and $870, respectively with a full valuation allowance, which will expire between 2014 and 2033.

The Company paid income taxes, net of refunds, of $7,111 and $6,306 in 2013 and 2012, 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, 2013, there was $849 of undistributed foreign subsidiary earnings.