Income Taxes

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



	Years Ended October 31,
	2016			2015			2014
Domestic	$	3,917		$	17,063		$	26,417
Foreign	(5,400		)	(6,448		)	(2,365		)

Total	$	(1,483	)	$	10,615		$	24,052

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



		Years Ended October 31,
		2016			2015			2014
Current:
	Federal	$	(3,900	)	$	(545	)	$	3,067
	State and local	329			384			159
	Foreign	1,123			608			74

Total current		(2,448		)	447			3,300
Deferred:
	Federal	3,289			4,501			3,094
	State and local	156			208			59
	Foreign	(6,149		)	(446		)	(2,316		)

Total deferred		(2,704)			4,263			837

	Provision (benefit)	$	(5,152	)	$	4,710		$	4,137

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



		Years Ended October 31,
		2016			2015
Deferred tax assets:
	Accrued compensation and benefits	$	2,091		$	1,794
	Inventory	646			738
	State depreciation adjustments and loss carryforwards	2,664			1,803
	Pension obligations and post retirement benefits	10,229			6,020
	Foreign net operating loss	7,466			4,567
	Other accruals, reserves and tax credits	3,668			2,356
	Goodwill and intangible amortization	7,234			8,280
	Foreign currency translation	75			107
	Interest rate swap	1,922			1,811
Total deferred tax assets		35,995			27,476
Less: Valuation allowance		(2,782)			(4,986)
Net deferred tax assets		$	33,213		$	22,490
Deferred tax liabilities:
	Fixed assets	$	(26,800	)	$	(21,984	)
	Prepaid expenses and other	(1,173)			(891)
Net deferred tax asset		$	5,240		$	(385	)

Change in net deferred tax asset:
	Benefit (provision) for deferred taxes	$	2,704		$	(4,263	)
Purchase accounting adjustments		—			51
Unrecognized tax benefit adjustments		(207		)	(202		)
Components of other comprehensive income:
	Pension and post retirement benefits	2,986			(387		)
	Velocys investment	58			248
	Interest rate swap	111			861
	Other adjustments	(27		)	3
	Total change in net deferred tax asset	$	5,625		$	(3,689	)

During the fourth quarter of 2016, the Company early adopted ASU 2015-17, "Balance Sheet Classification of Deferred Taxes." ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the Company’s consolidated balance sheet starting in 2017 for each jurisdiction. The Company elected to apply this standard prospectively for 2016 financial statements. As a result, prior periods were not retrospectively adjusted.

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 2016, 2015, and 2014 are summarized below:



	Years Ended October 31,
	2016			2015			2014
Balance at beginning of year	$	731		$	1,068		$	1,183
Additions based on tax positions related to the current year	48			125			35
Additions for tax positions of prior years	—			27			—
Reductions based on tax positions related to the current year	—			(39		)	(5		)
Reductions for tax positions of prior years	(53		)	—			(3		)
Reductions as result of lapse of applicable statute of limitations	(165		)	(450		)	(142		)

Balance at end of year	$	561		$	731		$	1,068

The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $368 at October 31, 2016 and $480 at October 31, 2015. The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. The Company recognized $218 of benefit in 2016 and $163 of benefit in 2015 and an expense of $136 in 2014 for interest and penalties. The Company had accrued $513 at October 31, 2016 and $730 at October 31, 2015 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, 2009. 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.

A valuation allowance of $2,782 remains as of October 31, 2016 for deferred tax assets whose realization remains uncertain. The comparable amount of the valuation allowance at October 31, 2015 was $4,986. The net decrease in the valuation allowance of $2,204 relates to an increase of $622 related to state operating loss carry forwards, a decrease of $3,106 related to Swedish operating loss carry forwards during the current period, an decrease of $25 related to Netherlands operating loss carry forwards, an increase of $254 related to China operating loss carry forwards and an increase of $51 related to Hong Kong 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,
	2016		2015		2014
Federal income tax at statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	(4.4	)	4.7		0.6
Valuation allowance change	367.7		12.6		(7.4	)
Domestic tax credits	62.7		(2.1	)	(1.1	)
Domestic production activities deduction	26.4		(3.2	)	(2.9	)
Foreign operations	(151.1	)	13.2		0.7
Revisions to prior period research and research and development tax credit calculations	—		—		(10.2	)
Adjustment of uncertain tax positions	11.7		(3.2	)	(1.0	)
Provision to return adjustment for tax law extensions subsequent to year-end	(13.6	)	(13.0	)	(1.0	)
Change in legislation - Mexico	—		—		2.4
Other	13.1		0.4		2.1

Effective income tax rate	347.5	%	44.4	%	17.2	%

At October 31, 2016, the Company had operating loss carryforwards of $71,834 in Sweden, Netherlands, China, Hong Kong, Mexico and certain U.S. states. The Swedish foreign operating loss carry forward benefit is approximately $6,000 which can be carried forward indefinitely. The valuation allowance against the Swedish operating loss was released during the year. The foreign operating loss carry forward benefit for the Netherlands is $35 and has a full valuation allowance against it. This benefit can be carried forward for nine years. The Chinese operating loss carry forward benefit is $373 and has a full valuation allowance against it. This benefit can be carried forward for five years. The Hong Kong operating loss carry forward benefit is $51 and has a full valuation allowance against it. This benefit can be carried forward indefinitely.

In addition, the Company had Mexican foreign operating loss carry forwards of approximately $1,007 as of October 31, 2016, which will expire between 2019 - 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 carryforward benefits. As of October 31, 2016 and 2015, the Company had state net operating loss carry forward benefits of $2,138 and $1,475 with a valuation allowance of $2,075 and$1,452, respectively that will expire between 2017 and 2036. The following table summarizes the various country operating losses, credit carryforwards and associated valuation allowances as of October 31, 2016 and 2015:



	October 31, 2016						October 31, 2015
Jurisdiction	NOL Carryforward		NOL Tax Benefit		Valuation Allowance		NOL Carryforward		NOL Tax Benefit		Valuation Allowance
Netherlands	$	174	$	35	$	35	329		60		60
Sweden	27,271		6,000		—		14,172		3,118		3,106
China	1,494		373		373		478		120		120
Hong Kong	206		51		51		—		—		—
Mexico	3,358		1,007		—		4,234		1,270		—
U.S. (State)	39,331		2,138		2,075		33,368		1,475		1,452
Total before Foreign Tax Credit	$	71,834	$	9,604	$	2,534	$	52,581	$	6,043	$	4,738

U.S. Federal (Foreign Tax Credit)	—		—		248		—		—		248
Total	$	71,834	$	9,604	$	2,782	$	52,581	$	6,043	$	4,986

The Company had a net income tax refund of $5,855 in 2016 and paid income taxes, net of refunds, of $1,770 in 2015. U.S. income taxes and foreign withholding taxes are not provided on undistributed earnings of foreign subsidiaries because such earnings are permanently reinvested in the operations. As of October 31, 2016, there was approximately $7,581 of undistributed foreign subsidiary earnings. The income tax liability that would result had such earnings been repatriated is estimated at $2,653.