| Income Taxes | Income Taxes Income (loss) before income taxes consists of the following: Years Ended October 31, 2019 2018 2017 Domestic $ (17,821 ) $ (3,635 ) $ 4,251 Foreign (2,737 ) 9,895 2,172 Total $ (20,558 ) $ 6,260 $ 6,423 The components of the provision (benefit) for income taxes from continuing operations were as follows: Years Ended October 31, 2019 2018 2017 Current: Federal $ — $ 1,998 $ 66 State and local 113 (157 ) 386 Foreign 2,289 2,710 2,494 Total current 2,402 4,551 2,946 Deferred: Federal (3,265 ) (10,692 ) 856 State and local 120 700 (329 ) Foreign 132 222 3,647 Total deferred (3,013 ) (9,770 ) 4,174 Provision (benefit) $ (611 ) $ (5,219 ) $ 7,120 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, 2019 2018 Deferred tax assets: Accrued compensation and benefits $ 1,515 $ 1,405 Inventory 329 424 State depreciation adjustments and loss carryforwards 4,722 5,309 Pension obligations and post retirement benefits 5,261 3,053 Net operating losses 29,230 26,695 Tax credit carryforwards 9,127 5,958 Other accruals and reserves 1,202 2,889 Goodwill and intangible amortization 2,455 3,331 Interest expense disallowance 3,056 — Foreign currency translation — 116 Interest rate swap 186 — Total deferred tax assets 57,083 49,180 Less: Valuation allowance (30,222 ) (24,051 ) Net deferred tax assets $ 26,861 $ 25,129 Deferred tax liabilities: Fixed assets $ (20,075 ) $ (20,631 ) Prepaid expenses and other (920 ) (1,727 ) Uncertain tax positions (1,405 ) — Foreign currency translation (90 ) — Net deferred tax (liability) asset $ 4,371 $ 2,771 Change in net deferred tax asset: Benefit (provision) for deferred taxes $ 3,013 $ 9,769 Acquisitions — (872 ) Uncertain tax positions (810 ) — Currency translation adjustment 74 (347 ) Components of other comprehensive income (loss): Defined benefit pension plans & other post-retirement benefits (217 ) (1,442 ) Marketable securities — 10 Derivatives and hedging 217 (588 ) Other adjustments (677 ) (931 ) Total change in net deferred tax asset $ 1,600 $ 5,599 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 2019 , 2018 and 2017 are summarized below: Years Ended October 31, 2019 2018 2017 Balance at beginning of year $ 2,186 $ 540 $ 561 Additions based on tax positions related to the current year — 747 88 Additions for tax positions of prior years 537 1,079 9 Reductions for tax positions of prior years (33 ) (68 ) — Reductions as a result of lapse of applicable statute of limitations — (112 ) (118 ) Balance at end of year $ 2,690 $ 2,186 $ 540 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, 2019 the total amounts related to the unreserved portion of the tax contingency, inclusive of any related interest is $8,076 . 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. We have assessed the likelihood that the majority of R&D credit unreserved portion ultimately resulting in a loss as remote. The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $2,621 at October 31, 2019 and $2,110 at October 31, 2018 . We recognize interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. We recognized $107 of expense in 2019 , $125 of expense in 2018 and $102 of benefit in 2017 for interest and penalties. We had accrued $643 at October 31, 2019 and $536 at October 31, 2018 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, 2013 and no longer subject to non-U.S. income tax examinations for calendar years ending before December 31, 2011. It is possible that within the next 12 months, the total unrecognized tax benefits could be reduced significantly due to the settlement of examinations. A valuation allowance of $30,222 is recorded as of October 31, 2019 for deferred tax assets whose realization remains uncertain. The comparable amount of the valuation allowance at October 31, 2018 was $24,051 . 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, 2019 2018 2017 Taxes at U.S. federal statutory rate $ (4,182 ) $ 1,461 $ 2,248 State and local income taxes, net of federal benefit (42 ) (321 ) (1,639 ) Valuation allowance change 3,995 674 5,749 Domestic tax credits (3,100 ) (3,308 ) (803 ) Domestic production activities deduction — — (455 ) Foreign operations 1,368 1,188 1,182 Adjustment of uncertain tax positions 595 1,886 (83 ) Provision to return adjustment 247 (3,355 ) 285 Adjustment for tax law change — (3,966 ) — Other 508 522 636 Total income tax expense (benefit) $ (611 ) $ (5,219 ) $ 7,120 At October 31, 2019, we had operating loss carry forwards of $ 201,227 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, 2019 and 2018 , we had a U.S. federal net operating loss carry forwards benefit of $5,568 and $4,878 . 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, 2019 and 2018 . October 31, 2019 October 31, 2018 Jurisdiction Gross NOL Carryforward NOL Tax Effected Valuation Allowance Gross NOL Carryforward NOL Tax Effected Valuation Allowance Netherlands $ 43,954 $ 10,988 $ 10,988 $ 42,712 $ 10,678 $ 10,678 Italy 22,520 5,405 5,405 17,996 4,319 4,319 Sweden 23,350 5,081 40 24,404 5,165 39 China 6,261 1,565 1,565 4,442 1,111 1,111 Hong Kong 240 40 40 221 36 36 Mexico 1,942 583 583 1,693 508 508 U.S. (State) 76,447 4,745 4,745 76,073 4,666 4,666 U.S. Federal 26,513 5,568 — 23,228 4,878 — Total $ 201,227 $ 33,975 $ 23,366 $ 190,769 $ 31,361 $ 21,357 We paid income taxes, net of refunds, of $3,951 in 2019 and $3,423 in 2018 . 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, the President 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% . Accounting for the income tax effects of the U.S. tax reform legislation was complete at October 31, 2018 . |
