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Income Taxes | 12 Months Ended
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Sep. 30, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | H. Income Taxes The components of the income tax provision were as follows (in thousands):
| Year Ended September 30, |
| 2015 |  |  | 2014 |  |  | 2013 |
Current: |  |  |  |  |  |  |  |  |  |  |
Federal | $ | 2,638 |  |  | $ | 12,184 |  |  | $ | 10,919 |
State |  | 699 |  |  |  | 2,226 |  |  |  | 1,757 |
Foreign |  | (306 | ) |  |  | (130 | ) |  |  | 1,575 |
|  | 3,031 |  |  |  | 14,280 |  |  |  | 14,251 |
Deferred: |  |  |  |  |  |  |  |  |  |  |
Federal |  | 3,296 |  |  |  | (1,798 | ) |  |  | (580 | )
State |  | 420 |  |  |  | (311 | ) |  |  | (114 | )
Foreign |  | 6,805 |  |  |  | (1,103 | ) |  |  | (6,170 | )
|  | 10,521 |  |  |  | (3,212 | ) |  |  | (6,864 | )
Total income tax provision | $ | 13,552 |  |  | $ | 11,068 |  |  | $ | 7,387 |
Income before income taxes was as follows (in thousands):
| Year Ended September 30, |
| 2015 |  |  | 2014 |  |  | 2013 |
U.S. | $ | 33,549 |  |  | $ | 35,131 |  |  | $ | 43,299 |
Other than U.S. |  | (10,558 | ) |  |  | (4,443 | ) |  |  | 3,827 |
Income before income taxes | $ | 22,991 |  |  | $ | 30,688 |  |  | $ | 47,126 |
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, |
| 2015 |  |  | 2014 |  |  | 2013 |
Statutory rate |  | 35 | % |  |  | 35 | % |  |  | 35 | %
State income taxes, net of federal benefit |  | 3 |  |  |  | 3 |  |  |  | 2 |
Research and development credit |  | (21 | ) |  |  | — |  |  |  | — |
International withholding tax |  | — |  |  |  | — |  |  |  | (1 | )
Other permanent tax items |  | 2 |  |  |  | 1 |  |  |  | 1 |
Foreign rate differential |  | 4 |  |  |  | 1 |  |  |  | (1 | )
Domestic production activities deduction |  | (3 | ) |  |  | (3 | ) |  |  | (3 | )
Foreign valuation allowance and other |  | 39 |  |  |  | (1 | ) |  |  | (17 | )
Effective rate |  | 59 | % |  |  | 36 | % |  |  | 16 | %
Our provision for income taxes reflects an effective tax rate on pre-tax earnings of 59% in Fiscal 2015 compared to 36% and 16% in Fiscal 2014 and 2013, respectively. The effective tax rate for Fiscal 2015 was adversely impacted by the establishment of a valuation allowance against the Canadian net deferred assets. The effective tax rate for Fiscal 2015 was favorably impacted by the resolution of an IRS audit that resulted in a $4.1 million release of uncertain tax benefits as well as the retroactive reinstatement of the Federal Research and Development Tax Credit (R&D Credit) for the second through fourth quarters of Fiscal 2014 which gave rise to a $0.6 million tax benefit. The effective tax rate for Fiscal 2014 approximated the combined U.S. federal and state statutory rate, while the effective tax rate in Fiscal 2013 was favorably impacted by the release of a valuation allowance that was recorded against Canadian deferred tax assets. We have not recorded deferred income taxes on $18.4 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 certain 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 – 2014, United Kingdom 2013-2014 and the United States 2013 – 2014. The net deferred income tax asset (liability) was comprised of the following (in thousands):
| September 30, |
| 2015 |  |  | 2014 |
Current deferred income taxes: |  |  |  |  |  |  |
Gross assets | $ | 3,910 |  |  | $ | 5,297 |
Gross liabilities |  | — |  |  |  | — |
Net current deferred income tax asset |  | 3,910 |  |  |  | 5,297 |
Noncurrent deferred income taxes: |  |  |  |  |  |  |
Gross assets |  | 5,005 |  |  |  | 11,532 |
Gross liabilities |  | (2,717 | ) |  |  | (110 | )
Net noncurrent deferred income tax asset |  | 2,288 |  |  |  | 11,422 |
Net deferred income tax asset | $ | 6,198 |  |  | $ | 16,719 |
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, |
| 2015 |  |  | 2014 |
Deferred Tax Assets: |  |  |  |  |  |  |
Net operating loss | $ | 9,877 |  |  | $ | 6,236 |
Uniform capitalization and inventory |  | 1,895 |  |  |  | 2,529 |
Deferred compensation |  | 1,848 |  |  |  | 1,611 |
Stock-based compensation |  | 993 |  |  |  | 1,529 |
Reserve for accrued employee benefits |  | 1,482 |  |  |  | 1,444 |
Depreciation and amortization |  | — |  |  |  | 1,217 |
Warranty accrual |  | 915 |  |  |  | 643 |
Goodwill |  | 398 |  |  |  | 474 |
Postretirement benefits liability |  | — |  |  |  | 252 |
Allowance for doubtful accounts |  | 166 |  |  |  | 495 |
Workers’ compensation |  | 8 |  |  |  | 128 |
Accrued legal |  | 60 |  |  |  | 65 |
Credit carryforwards and other |  | 1,329 |  |  |  | 1,109 |
Deferred tax assets |  | 18,971 |  |  |  | 17,732 |
Deferred Tax Liabilities: |  |  |  |  |  |  |
Depreciation and amortization |  | (2,705 | ) |  |  | — |
Other |  | (12 | ) |  |  | (110 | )
Deferred tax liabilities |  | (2,717 | ) |  |  | (110 | )
Less: valuation allowance |  | (10,056 | ) |  |  | (903 | )
Net deferred tax asset | $ | 6,198 |  |  | $ | 16,719 |
At September 30, 2015, we had $37 million of gross foreign net operating loss carryforwards, the majority of which are subject to a 20-year carryforward period and will begin to expire in 2031. During Fiscal 2015, we established a valuation allowance in the amount of $9.3 million against Canadian net deferred tax assets. In assessing the realizability of net deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the net deferred tax assets may not be realized. The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. In light of the historical Canadian losses, and projected losses in the near term, we are required under the more-likely-than-not accounting standard to record a valuation allowance against the Canadian net deferred assets because we may not be able to realize the benefits of the net operating loss carryforwards and other deductible differences. A rollforward of the valuation allowance for the past three years is summarized below:
Balance at September 30, 2012 | $ | 7,498 |  |
Charged to cost and expenses |  | (6,318 | ) |
Charged to other accounts |  | (1,045 | ) |
Balance at September 30, 2013 | $ | 135 |  |
Charged to cost and expenses |  | 80 |  |
Charged to other accounts |  | 688 |  |
Balance at September 30, 2014 | $ | 903 |  |
Charged to cost and expenses |  | 10,048 |  |
Charged to other accounts |  | (895 | ) |
Balance at September 30, 2015 | $ | 10,056 |  |
A reconciliation of the beginning and ending amount of the unrecognized tax liabilities follows (in thousands):
| Year Ended September 30, |
| 2015 |  |  | 2014 |  |  | 2013 |
Balance at beginning of period | $ | 4,026 |  |  | $ | 3,845 |  |  | $ | 511 |
Increases related to tax positions taken during the current period |  | 954 |  |  |  | 225 |  |  |  | 880 |
Increases related to tax positions taken during a prior period |  | 2 |  |  |  | 14 |  |  |  | 2,869 |
Decreases related to expiration of statute of limitations |  | (49 | ) |  |  | (58 | ) |  |  | (415 | )
Decreases related to settlement with taxing authorities |  | (4,149 | ) |  |  | — |  |  |  | — |
Balance at end of period | $ | 784 |  |  | $ | 4,026 |  |  | $ | 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 September 30, 2015 was not material. During Fiscal 2013, prior year U.S. federal income tax returns were amended to reflect increased R&D Credits and unrecognized tax benefits related to these refund claims were recorded. These amended returns, along with the refund claims, were subject to an Internal Revenue Service audit which was closed during the second quarter of Fiscal 2015 resulting in a $4.1 million tax benefit. Due to the expiration of certain state statutes of limitations, management believes that, within the next 12 months, it is reasonably possible to recognize a nominal amount from a decrease in unrecognized tax benefits. 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 could 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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: 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 3: 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 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 + Details
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