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Income Taxes | 12 Months Ended
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Sep. 30, 2013
Income Taxes | H. Income Taxes At September 30, 2013, we had $15 million of gross foreign operating loss carryforwards which are subject to a 20-year carryforward period, the first of which expire in 2031. As of September 30, 2013, we have released a valuation allowance that was recorded against Canadian deferred tax assets, resulting in a $7 million tax benefit. We believe these deferred tax assets are more likely than not to be utilized by future taxable income. We believe that our deferred tax assets in other tax jurisdictions are more likely than not realizable through future reversals of existing taxable temporary differences and our estimate of future taxable income. The components of the income tax provision were as follows (in thousands):
| Year Ended September 30, |
--- | --- | ---
| 2013 |  |  | 2012 |  |  | 2011 |
Current: |  |  |  |  |  |  |  |  |  |  |
Federal | $ |  | 12,0 0 3 |  |  | $ |  | 18,156 |  |  | $ |  | 5,470 |
State |  | 1,813 |  |  |  | 1,512 |  |  |  | 939 |
Foreign |  | 1,562 |  |  |  | 331 |  |  |  | 563 |
|  | 15,378 |  |  |  | 19,999 |  |  |  | 6,972 |
Deferred: |  |  |  |  |  |  |  |  |  |  |
Federal |  | (447 | ) |  |  | (1,840 | ) |  |  | (122 | )
State |  | (105 | ) |  |  | 25 |  |  |  | (76 | )
Foreign |  | (6,17 0 | ) |  |  | 393 |  |  |  | (62 | )
|  | (6,722 | ) |  |  | (1,422 | ) |  |  | (260 | )
Total income tax provision | $ |  | 8,656 |  |  | $ |  | 18,577 |  |  | $ |  | 6,712 |
Income before income taxes was as follows (in thousands):
| Year Ended September 30, |
--- | --- | ---
| 2013 |  |  | 2012 |  |  | 2011 |
U.S. | $ |  | 46,905 |  |  | $ |  |  | 53,885 |  |  | $ |  |  | 19,850 |
Other than U.S. |  | 3,827 |  |  |  | (5,651 | ) |  |  | (15,853 | )
Income before income taxes | $ |  | 50,7 32 |  |  | $ |  |  | 48,234 |  |  | $ |  |  | 3,997 |
A reconciliation of the statutory U.S. income tax rate and the effective income tax rate, as computed on earnings before income tax provision in each of the three years presented in the Consolidated Statements of Operations, was as follows:
| Year Ended September 30, |
--- | --- | ---
| 2013 |  |  | 2012 |  |  | 2011 |
Statutory rate |  | 35 |  | % |  |  | 35 |  | % |  |  | 35 |  | %
State income taxes, net of federal benefit |  | 2 |  |  |  | 2 |  |  |  | 14 |
International withholding tax |  | (1 | ) |  |  | (1 | ) |  |  | (9 | )
Other permanent tax items |  | 1 |  |  |  | − |  |  |  | 5 |
Foreign rate differential |  | (1 | ) |  |  | 1 |  |  |  | 33 |
Domestic production activities deduction |  | (3 | ) |  |  | (3 | ) |  |  | (16 | )
Foreign valuation allowance and other |  | (16 | ) |  |  | 4 |  |  |  | 106 |
Effective rate |  | 17 |  | % |  |  | 38 |  | % |  |  | 168 |  | %
T he de crease in the effective tax rate for F iscal 201 3 resulted from the release of the valuation allowance against deferred tax assets in Canada. The effective tax rate for the F iscal 201 1 was negatively impacted by our inability to record a tax benefit related to pre-tax losses in Canada. We have not recorded deferred income taxes on $15 million of undistributed earnings of our foreign subsidiaries because of management’s intent to indefinitely reinvest such earnings. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual remittance of these earnings. We are subject to income tax in the U.S., multiple state jurisdictions and a few international jurisdictions, primarily the U.K. and Canada. We do not consider any state in which we do business to be a major tax jurisdiction. We remain open to examination in the other jurisdictions as follows: Canada 2010 – 2012, United Kingdom 2012 and the United States 2009 – 2012. The net deferred income tax asset (liability) was comprised of the following (in thousands):
| September 30, |
--- | --- | ---
| 2013 |  |  | 2012 |
Current deferred income taxes: |  |  |  |  |  |  |
Gross assets | $ |  | 5,561 |  |  | $ |  |  | 7,053 |
Gross liabilities |  | (84 5 | ) |  |  | (2,455 | )
Net current deferred income tax asset |  | 4,716 |  |  |  | 4,598 |
Noncurrent deferred income taxes: |  |  |  |  |  |  |
Gross assets |  | 9,02 5 |  |  |  | 2,42 3 |
Gross liabilities |  | − |  |  |  | − |
Net noncurrent deferred income tax asset |  | 9,02 5 |  |  |  | 2,42 3 |
Net deferred income tax asset | $ |  | 13,74 1 |  |  | $ |  |  | 7,02 1 |
The tax effect of temporary differences between U.S. GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities was as follows (in thousands):
| September 30, |
--- | --- | ---
| 201 3 |  |  | 201 2 |
Deferred Tax Assets: |  |  |  |  |  |  |
Net operating loss | $ |  | 3,892 |  |  | $ |  | 4,787 |
Uniform capitalization and inventory |  | 2,510 |  |  |  | 3,683 |
Reserve for accrued employee benefits |  | 1,517 |  |  |  | 1,546 |
Deferred compensation |  | 1,297 |  |  |  | 1,013 |
Goodwill |  | 1,198 |  |  |  | 1,285 |
Stock-based compensation |  | 1,291 |  |  |  | 729 |
Warranty accrual |  | 1,101 |  |  |  | 1,336 |
Workers’ compensation |  | 185 |  |  |  | 360 |
Depreciation and amortization |  | 953 |  |  |  | 1,366 |
Postretirement benefits liability |  | 396 |  |  |  | 373 |
Allowance for doubtful accounts |  | 209 |  |  |  | 367 |
Accrued legal |  | 57 |  |  |  | 114 |
Other |  | 11 5 |  |  |  | 1 5 |
Gross deferred tax asset |  | 14,72 1 |  |  |  | 16,974 |
Less: valuation allowance |  | (135 | ) |  |  | (7,498 | )
Deferred tax asset |  | 14,58 6 |  |  |  | 9,47 6 |
Deferred Tax Liabilities: |  |  |  |  |  |  |
Uncompleted contracts |  | (84 5 | ) |  |  | (2,455 | )
Deferred tax liabilities |  | (84 5 | ) |  |  | (2,455 | )
Net deferred tax asset | $ |  | 13,741 |  |  | $ |  | 7,021 |
A reconciliation of the beginning and ending amount of the unrecognized tax liabilities follows (in thousands):
Balance as of September 30, 2012 | $ |  | 511 |
Increases related to tax positions taken during the current period |  | 880 |
Increases related to tax positions taken during a prior period |  | 2,869 |
Decreases related to expirations of statute of limitations |  | (415 | )
Balance as of September 30, 2013 | $ |  | 3,845 |
Our continuing policy is to recognize interest and penalties related to income tax matters as tax expense. The amount of interest and penalty expense recorded for the year ended Septe mber 30, 2013 was not material. During Fiscal 2013, prior year U.S. federal income tax returns were amended to reflect increased research and development credits, and unrecognized tax benefits related to these refund claims were recorded. Management believes that it is reasonably possible that within the next 12 months, the total unrecognized tax benefits will decrease by approximately 1% due to the expiration of certain statutes of limitations in various state and local jurisdictions. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income tax in the period such resolution occurs. Although timing of the resolution and/or closure of audits is highly uncertain, we do not believe it is reasonably possible that our unrecognized tax benefits would materially change in the next 12 months.

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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 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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