Income Taxes

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



	Years Ended October 31,
	2015			2014			2013
Domestic	$	16,774		$	28,200		$	30,814
Foreign	(5,260		)	(1,009		)	1,361

Total	$	11,514		$	27,191		$	32,175

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



		Years Ended October 31,
		2015			2014			2013
Current:
	Federal	$	(455	)	$	3,684		$	8,427
	State and local	367			210			1,338
	Foreign	491			74			261

Total current		403			3,968			10,026
Deferred:
	Federal	4,501			3,069			427
	State and local	208			58			152
	Foreign	(1,862		)	(2,348		)	—

Total deferred		2,847			779			579

	Provision	$	3,250		$	4,747		$	10,605

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



		Years Ended October 31,
		2015			2014
Deferred tax assets:
	Accrued compensation and benefits	$	1,794		$	1,524
	Inventory	738			886
	State depreciation adjustments and loss carryforwards	2,167			1,739
	Pension obligations and post retirement benefits	6,020			7,766
	Foreign net operating loss	4,548			2,626
	Other accruals, reserves and tax credits	2,567			3,032
	Goodwill and intangible amortization	8,280			9,414
	Foreign currency translation	107			24
	Interest rate swap	1,811			952

Total deferred tax assets		28,032			27,963
Less: Valuation allowance		(5,350)			(3,630)

Total deferred tax assets		22,682			24,333
Deferred tax liabilities:
	Fixed assets	(20,694)			(20,193)
	Prepaid expenses and other	(900)			(778)

Net deferred tax asset		$	1,088		$	3,362

Change in net deferred tax asset:
	Provision for deferred taxes	$	(2,847	)	$	(779	)
Purchase accounting adjustments		51			663
Unrecognized tax benefit adjustments		(200		)	(64		)
Components of other comprehensive income:
	Pension and post retirement benefits	(387		)	783
	Velocys investment	248			(53		)
	Interest rate swap	861			952
	Total change in net deferred tax asset	$	(2,274	)	$	1,502

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 2015, 2014, and 2013 are summarized below:



	Years Ended October 31,
	2015			2014			2013
Balance at beginning of year	$	1,068		$	1,183		$	1,247
Additions based on tax positions related to the current year	48			35			54
Additions for tax positions of prior years	36			—			—
Reductions based on tax positions related to the current year	(60		)	(5		)	—
Reductions for tax positions of prior years	(9		)	(3		)	(61		)
Reductions as result of lapse of applicable statute of limitations	(450		)	(142		)	(57		)

Balance at end of year	$	633		$	1,068		$	1,183

The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $416 at October 31, 2015 and $700 at October 31, 2014. The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. The Company recognized $224 of benefit in 2015 and $136 of expense in 2014 for interest and penalties. The Company had accrued $669 at October 31, 2015 and $893 at October 31, 2014 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, 2012 and no longer subject to non-U.S. income tax examinations for calendar years ending prior to December 31, 2010. 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 and August 2014, 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 assessed the impact of the regulations and does not expect they will have a material impact on the Company's financial statements.

A valuation allowance of $5,350 remains as of October 31, 2015 for deferred tax assets whose realization remains uncertain at this time. The comparable amount of the valuation allowance at October 31, 2014 was $3,630. The net increase in the valuation allowance of $1,720 relates to an increase of $404 related to state operating loss carry forwards, an increase of $1,136 related to Swedish operating loss carry forwards during the current period, an increase of $60 related to Netherlands operating loss carry forwards and an increase of $120 related to China operating loss carry forwards.

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 carry forwards, other deferred tax assets and foreign tax credits in the United States and various foreign jurisdictions. The Company believes the remaining deferred tax assets will be realizable based on projected book income, the reversals of existing taxable temporary differences and available tax planning strategies that would be implemented and generate ordinary income in the United States or foreign jurisdictions 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,
	2015		2014		2013
Federal income tax at statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	0.6		0.7		3.5
Valuation allowance change	15.3		(6.6	)	(1.7	)
Domestic tax credits	(1.9	)	(0.8	)	(0.8	)
Domestic production activities deduction	(3.1	)	(2.8	)	(2.9	)
Foreign operations	(5.1	)	(1.8	)	0.9
Stock option expense	—		—		0.2
Adjustment of uncertain tax positions	(3.3	)	(0.7	)	(0.1	)
Provision to return adjustment for tax law extensions subsequent to year-end	(9.6	)	(9.1	)	—
Change in legislation - Mexico	—		2.1		(1.4	)
Other	0.3		1.5		0.3

Effective income tax rate	28.2	%	17.5	%	33.0	%

At October 31, 2015, the Company had foreign operating loss carryforward benefits in Sweden, Netherlands, China and Mexico. The Swedish foreign operating loss carry forward benefit is approximately $3,118 with a valuation allowance of $3,106, which can be carried forward indefinitely. The Company established full valuation allowances against the Netherlands operating loss carry forward benefit of $60 which has a nine year carry forward period and a full valuation allowance against the China operating loss carry forward benefit of $120, which has a five year carry forward period.

In addition, the Company had Mexican foreign operating loss carry forward benefits of approximately $1,251 as of October 31, 2015, which will expire between 2018 - 2025. There is no valuation allowance against the Mexican operating loss as the Company expects to fully utilize the benefit within the carry forward period.

Domestically, the Company has various state net operating loss carry forward benefits. As of October 31, 2015 and 2014, the Company had state net operating loss carry forward benefits of $1,839 and $1,413 with a valuation allowance of $1,817 and $1,413, respectively, which will expire between 2016 and 2035. The table below summarizes the various country operating losses and associated valuation allowances.



Jurisdiction	NOL Carryforward		NOL Tax Benefit		Valuation Allowance		Expiration
Netherlands	$	329	$	60	$	60	2024
Sweden	14,172		3,118		3,106		Indefinite
China	478		120		120		2020
Mexico	4,171		1,251		0		2018-2025
U.S. (State)	23,149		1,839		1,817		2016-2035
Total before Foreign Tax Credit	$	42,299	$	6,388	$	5,103

U.S. Federal (Foreign Tax Credit)	—		—		247
Total	$	42,299	$	6,388	$	5,350

The Company paid income taxes, net of refunds, of $1,770 and $7,995 in 2015 and 2014, 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 or pay down European debt. As of October 31, 2015, there was approximately $3,384 of undistributed foreign subsidiary earnings. The income tax liability that would result had such earnings been repatriated is estimated at $1,184.