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Income Tax Expense | 12 Months Ended
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Sep. 30, 2017
Income Tax Disclosure [Abstract] |
INCOME TAX EXPENSE |
7. | Income Tax Expense
Total income tax expense (benefit) for 2017, 2016 and 2015 was allocated to income tax expense as follows:
(Dollars in thousands) |  | 2017 |  | 2016 |  | 2015 |
Income tax expense from Continuing Operations |  | $ | 26,450 |  |  | 22,538 |  |  | 19,785 |
Income tax expense from Discontinued Operations |  |  | – |  |  | – |  |  | 390 |
Total income tax expense |  | $ | 26,450 |  |  | 22,538 |  |  | 20,175 |
The components of income from continuing operations before income taxes for 2017, 2016 and 2015 consisted of the following:
(Dollars in thousands) |  | 2017 |  | 2016 |  | 2015 |
United States |  | $ | 72,353 |  |  | 62,353 |  |  | 56,661 |
Foreign |  |  | 7,800 |  |  | 6,067 |  |  | 4,860 |
Total income before income taxes |  | $ | 80,153 |  |  | 68,420 |  |  | 61,521 |
The principal components of income tax expense (benefit) from continuing operations for 2017, 2016 and 2015 consist of:
(Dollars in thousands) |  | 2017 |  | 2016 |  | 2015 |
Federal: |  |  |  |  |  |  |  |  |  |
Current |  | $ | 21,448 |  |  | 19,236 |  |  | 11,906 |
Deferred |  |  | 628 |  |  | (909) |  |  | 5,406 |
State and local: |  |  |  |  |  |  |  |  |  |
Current |  |  | 1,795 |  |  | 1,674 |  |  | 867 |
Deferred |  |  | (49) |  |  | (222) |  |  | 16 |
Foreign: |  |  |  |  |  |  |  |  |  |
Current |  |  | 4,450 |  |  | 1,899 |  |  | 1,525 |
Deferred |  |  | (1,822) |  |  | 860 |  |  | 65 |
Total |  | $ | 26,450 |  |  | 22,538 |  |  | 19,785 |
The actual income tax expense (benefit) from continuing operations for 2017, 2016 and 2015 differs from the expected tax expense for those years (computed by applying the U.S. Federal corporate statutory rate) as follows:
|  | 2017 |  | 2016 |  | 2015 |
Federal corporate statutory rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local, net of Federal benefits |  |  | 2.4 |  |  | 2.0 |  |  | 1.2 |
Foreign |  |  | (0.1) |  |  | (1.0) |  |  | (1.5) |
Research credit |  |  | (1.1) |  |  | (2.5) |  |  | (1.8) |
Domestic production deduction |  |  | (2.7) |  |  | (2.8) |  |  | (2.6) |
Change in uncertain tax positions |  |  | – |  |  | – |  |  | (0.2) |
Executive compensation |  |  | (0.1) |  |  | 0.9 |  |  | 0.9 |
Valuation allowance |  |  | (0.3) |  |  | 1.8 |  |  | 1.0 |
Other, net |  |  | (0.1) |  |  | (0.5) |  |  | 0.2 |
Effective income tax rate |  |  | 33.0 | % |  | 32.9 | % |  | 32.2 | %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, 2017 and 2016 are presented below:
(Dollars in thousands) |  | 2017 |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |
Inventories |  | $ | 9,639 |  |  | 7,553 |
Pension and other postretirement benefits |  |  | 11,345 |  |  | 13,978 |
Net operating and capital loss carryforwards — domestic |  |  | 501 |  |  | 372 |
Net operating loss carryforward — foreign |  |  | 4,486 |  |  | 4,991 |
Other compensation-related costs and other cost accruals |  |  | 12,104 |  |  | 13,678 |
State credit carryforward |  |  | 2,098 |  |  | 1,944 |
Total deferred tax assets |  |  | 40,173 |  |  | 42,516 |
Deferred tax liabilities: |  |  |  |  |  |  |
Goodwill |  |  | (4,874) |  |  | (15,528) |
Acquisition assets |  |  | (91,752) |  |  | (69,934) |
Depreciation, software amortization |  |  | (24,092) |  |  | (20,285) |
Net deferred tax liabilities before valuation allowance |  |  | (80,545) |  |  | (63,231) |
Less valuation allowance |  |  | (4,440) |  |  | (5,711) |
Net deferred tax liabilities |  | $ | (84,985) |  |  | (68,942) |
The Company has a foreign net operating loss (NOL) carryforward of $18.2 million at September 30, 2017, which reflects tax loss carryforwards in Germany, India, Finland, China, South Africa, Japan, Canada and the United Kingdom. $15.0 million of the tax loss carryforwards have no expiration date while the remaining $3.2 million will expire between 2019 and 2038. The Company has deferred tax assets related to state NOL carryforwards of $0.5 million at September 30, 2017 which expire between 2025 and 2037. The Company also has net state research and other credit carryforwards of $2.1 million of which $1.7 million expires between 2025 and 2037. The remaining $0.4 million does not have an expiration date. The valuation allowance for deferred tax assets as of September 30, 2017 and 2016 was $4.4 million and $5.7 million, respectively. The net change in the total valuation allowance for each of the years ended September 30, 2017 and 2016 was a decrease of $1.3 million and an increase of $1.6 million, respectively. The Company has established a valuation allowance against state credit carryforwards of $0.4 million and $0.6 million at September 30, 2017 and 2016. In addition, the Company has established a valuation allowance against state NOL carryforwards that are not expected to be realized in future periods of $0.4 million and $0.3 million at September 30, 2017 and 2016. Lastly, the Company has established a valuation allowance against certain NOL carryforwards in foreign jurisdictions which may not be realized in future periods. The valuation allowance established against the foreign NOL carryforwards was $3.7 million and $4.8 million at September 30, 2017 and 2016, respectively. ETS-Lindgren Oy, Finland, has recorded a deferred tax asset of $0.3 million reflecting the benefit of $2.8 million in loss carryforwards, which expire in varying amounts between 2024 and 2027. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, Management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company’s foreign subsidiaries have accumulated unremitted earnings of $48.9 million and cash of $28.4 million at September 30, 2017. No deferred taxes have been provided on these accumulated unremitted earnings because these funds are not needed to meet the liquidity requirements of the Company’s U.S. operations and it is the Company’s intention to indefinitely reinvest these earnings in continuing international operations. In the event these foreign entities’ earnings were distributed, it is estimated that U.S. taxes, net of available foreign tax credits, of approximately $6.9 million would be due, which would correspondingly reduce the Company’s net earnings. No significant portion of the Company’s foreign subsidiaries’ earnings was taxed at a very low tax rate. The Company had $0.1 million of unrecognized benefits as of both September 30, 2017 and 2016, which, if recognized, would affect the Company’s effective tax rate. The Company does not anticipate a material change in the amount of unrecognized tax benefits in the next 12 months. The Company’s policy is to include interest related to unrecognized tax benefits in income tax expense and penalties in operating expense. As of September 30, 2017, 2016 and 2015, the Company had zero accrued interest related to uncertain tax positions on its Consolidated Balance Sheets. No significant penalties have been accrued. The principal jurisdictions for which the Company files income tax returns are U.S. Federal and the various city, state, and international locations where the Company has operations. The U.S. Federal tax years for the periods ended September 30, 2014 and forward remain subject to income tax examination. Various state tax years for the periods ended September 30, 2013 and forward remain subject to income tax examinations. The Company is subject to income tax in many jurisdictions outside the United States, none of which is individually significant.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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