| Income Taxes | Income Taxes Income (loss) before income taxes consists of the following: Years Ended October 31, 2018 2017 2016 Domestic $ (3,635 ) $ 4,251 $ 3,917 Foreign 9,895 2,172 (5,400 ) Total $ 6,260 $ 6,423 $ (1,483 ) The components of the provision (benefit) for income taxes from continuing operations were as follows: Years Ended October 31, 2018 2017 2016 Current: Federal $ 1,998 $ 66 $ (3,900 ) State and local (157 ) 386 329 Foreign 2,710 2,494 1,123 Total current 4,551 2,946 (2,448) Deferred: Federal (10,692 ) 856 3,289 State and local 700 (329 ) 156 Foreign 222 3,647 (6,149 ) Total deferred (9,770) 4,174 (2,704) Provision (benefit) $ (5,219 ) $ 7,120 $ (5,152 ) Net deferred income tax assets (liabilities) included in the consolidated balance sheet consist of the tax effects of temporary differences related to the following: Years Ended October 31, 2018 2017 Deferred tax assets: Accrued compensation and benefits $ 1,405 $ 1,793 Inventory 424 1,721 State depreciation adjustments and loss carryforwards 5,309 4,213 Pension obligations and post retirement benefits 3,053 7,432 Net operating losses 26,695 8,851 Tax credit carryforwards 5,958 248 Other accruals and reserves 2,889 2,822 Goodwill and intangible amortization 3,331 6,269 Foreign currency translation 116 30 Interest rate swap — 771 Total deferred tax assets 49,180 34,150 Less: Valuation allowance (24,051) (9,401) Net deferred tax assets $ 25,129 $ 24,749 Deferred tax liabilities: Fixed assets $ (20,631 ) $ (26,742 ) Prepaid expenses and other (1,727) (835) Net deferred tax (liability) asset $ 2,771 $ (2,828 ) Change in net deferred tax asset: Benefit (provision) for deferred taxes $ 9,769 $ (4,174 ) Acquisitions (872 ) — Currency translation adjustment (347 ) 453 Components of other comprehensive income (loss): Defined benefit pension plans & other post-retirement benefits (1,442 ) (3,001 ) Marketable securities 10 (250) Derivatives and hedging (588 ) (1,151 ) Other adjustments (931 ) 55 Total change in net deferred tax asset $ 5,599 $ (8,068 ) As required by FASB ASC Topic 740, we recognize 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 2018 , 2017 and 2016 are summarized below: Years Ended October 31, 2018 2017 2016 Balance at beginning of year $ 540 $ 561 $ 731 Additions based on tax positions related to the current year 747 88 48 Additions for tax positions of prior years 1,079 9 — Reductions for tax positions of prior years (68 ) — (53 ) Reductions as result of lapse of applicable statute of limitations (112 ) (118 ) (165 ) Balance at end of year $ 2,186 $ 540 $ 561 The U.S. Internal Revenue Service ("IRS") has challenged the Company’s application of the U.S. R&D credit qualification rules and proposed disallowances of the majority of fiscal year 2012 and fiscal year 2013 credits claimed. This tax credit matter is principally related to what types of activities and related expenses qualify for the credit. We filed a petition in the U.S. Tax Court on October 22, 2018, disputing the R&D credit adjustments proposed by the IRS. Although the current reserves for the matter recognize the probability of a loss, we believe we will substantially prevail such that the ultimate resolution of the matter will not materially impact our financial position, results of operations or cash flows. With any tax controversy and litigation, however, there is a chance of unforeseen loss which, due to the number of years involved could materially impact our results, financial position and cash flows. As of October 31, 2018 the total amounts related to the unreserved portion of the tax contingency, inclusive of any related interest is $6,565 . We have assessed the likelihood that the majority of such amount would ultimately result in a loss as remote. We routinely assess tax matters as to the probability of incurring a loss and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable. During the year, the company changed its estimate of the amount for fiscal 2017 and 2018 U.S. credits. It was eligible to make a claim for qualified incremental Research & Development ("R&D") activities. Due to the analysis of extensive detailed documentation regarding the qualification rules of U.S. activities and related expenses, the amounts eligible for the credit in fiscal 2017 and expenses expected to qualify in fiscal 2018 increased. As a result, the increase in credits claimed resulted in an increased tax benefit. The result of this change in estimate for the twelve months ended October 31, 2018 was a tax benefit of $4,873 . The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $2,110 at October 31, 2018 and $355 at October 31, 2017 . We recognize interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. We recognized $125 of expense in 2018 , $102 of benefit in 2017 and $218 of benefit in 2016 for interest and penalties. We had accrued $536 at October 31, 2018 and $411 at October 31, 2017 for the payment of interest and penalties. We are 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, we are 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, 2011. Due to the current U.S. controversy and litigation mentioned above, we are not able to anticipate the amount of unrecognized tax benefits that within the next 12 months is likely to change. A valuation allowance of $24,051 is recorded as of October 31, 2018 for deferred tax assets whose realization remains uncertain. The comparable amount of the valuation allowance at October 31, 2017 was $9,401 . The net increase in the valuation allowance of $14,650 relates primarily to the Brabant acquisitions. We assess both positive and negative evidence when measuring the need for a valuation allowance. A valuation allowance is established when there is uncertainty of realizing certain loss carry forwards, other deferred tax assets and foreign tax credits in the United States and various foreign jurisdictions. We believe 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 realize the deferred tax assets. We intend to maintain a 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 we would be able to realize these 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 the determination was made. Conversely, should we determine that we would not be able to realize all or part of the 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 income tax expense / (benefit) is as follows: Years Ended October 31, 2018 2017 2016 Taxes at U.S. federal statutory rate $ 1,461 $ 2,248 $ (519 ) State and local income taxes, net of federal benefit (321 ) (1,639 ) 65 Valuation allowance change 674 5,749 (5,452 ) Domestic tax credits (3,308 ) (803 ) (930 ) Domestic production activities deduction — (455 ) (391 ) Foreign operations 1,188 1,182 2,240 Adjustment of uncertain tax positions 1,886 (83 ) (173 ) Provision to return adjustment (3,355 ) 285 202 Adjustment for tax law change (3,966 ) — — Other 522 636 (194 ) Total income tax expense (benefit) $ (5,219 ) $ 7,120 $ (5,152 ) At October 31, 2018, we had operating loss carry forwards of $ 190,769 in Sweden, Netherlands, Italy, China, Hong Kong, Mexico, the U.S. and certain U.S. states. Domestically, we had federal and state net operating loss carry forward benefits. As of October 31, 2018 and 2017 , we had U.S. federal net operating loss carry forwards benefit of $4,878 and $0 . The state and federal net operating loss carry forwards will expire between 2019 and 2038. The table below summarizes the various state and country operating losses, credit carry forwards and associated valuation allowances as of October 31, 2018 and 2017 . October 31, 2018 October 31, 2017 Jurisdiction Gross NOL Carryforward NOL Tax Effected Valuation Allowance Gross NOL Carryforward NOL Tax Effected Valuation Allowance Netherlands $ 42,712 $ 10,678 $ 10,678 $ 3,711 $ 742 $ 742 Italy 17,996 4,319 4,319 — — — Sweden 24,404 5,165 39 26,811 5,898 43 China 4,442 1,111 1,111 2,968 742 742 Hong Kong 221 36 36 338 85 85 Mexico 1,693 508 508 4,614 1,384 1,384 U.S. (State) 76,073 4,666 4,666 65,247 3,711 3,711 U.S. Federal 23,228 4,878 — — — — Total $ 190,769 $ 31,361 $ 21,357 $ 103,689 $ 12,562 $ 6,707 We paid income taxes, net of refunds, of $3,423 in 2018 and $1,780 in 2017 . Foreign withholding taxes are not provided on undistributed earnings of foreign subsidiaries because such earnings are not planned to be distributed. On December 22, 2017, President Trump signed U.S. tax reform legislation. The legislation had many provisions including a change in the U.S. corporate income tax rate from 35% to 21% . The effect of the U.S. income tax rate change was a net tax benefit of $3,966 . Accounting for the income tax effects of the U.S. tax reform legislation were complete at October 31, 2018 . |
