12. Income Taxes:

Components of income before income taxes were as follows (in thousands):


	YEAR ENDED SEPTEMBER 30,
	2011		2010			2009
United States	$	43,414	$	21,404		$	6,910
Foreign		1,205		(502	)		(3,599	)

	$	44,619	$	20,902		$	3,311

The provision (benefit) for income taxes consisted of the following (in thousands):


	YEAR ENDED SEPTEMBER 30,
	2011			2010			2009
Current:
Federal	$	15,281		$	8,131		$	958
Foreign		66			(109	)		47
State		279			214			95

		15,626			8,236			1,100

Deferred:
Federal		(1,228	)		(1,394	)		1,303
Foreign		510			(22	)		(852	)

		(718	)		(1,416	)		451

	$	14,908		$	6,820		$	1,551

Actual income tax expense (benefit) differs from income tax expense computed by applying the statutory federal tax rate of 35.0%, 35.0% and 34.0% for fiscal years ended September 30, 2011, 2010 and 2009, respectively, as follows (in thousands):


	YEAR ENDED SEPTEMBER 30,
	2011			2010			2009
Provision for U.S. federal income tax at statutory rate	$	15,617		$	7,313		$	1,126
Effect of foreign income taxes		(244	)		(19	)		415
Manufacturers'/producers' deduction		(921	)		(504	)		(89	)
Research and experimentation tax credits		(750	)		(27	)		(181	)
State income taxes, net of federal income tax benefit		181			139			61
Nondeductible expenses		504			197			92
Resolution of prior years' tax matters		(116	)		(121	)		(45	)
Contingency for uncertainty in income taxes		632			(123	)		49
Other items		5			(35	)		123

	$	14,908		$	6,820		$	1,551

		33.4	%		32.6	%		46.8	%

Deferred income taxes under the liability method reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred income tax asset were as follows (in thousands):


	AS OF SEPTEMBER 30, 2011									AS OF SEPTEMBER 30, 2010
	U. S.			Non U.S.			Total			U. S.			Non U.S.			Total
Deferred income tax assets:
Allowance for doubtful accounts	$	97		$	2		$	99		$	78		$	1		$	79
Inventories		4,335			—			4,335			2,930			108			3,038
Capitalized research and development costs		355			—			355			706			—			706
Property, plant and equipment and other		—			71			71			—			344			344
Intangible assets		—			—			—			28			—			28
Net operating loss carryforwards, tax credits and deferrals		—			433			433			—			410			410
Stock-based compensation		333			—			333			487			—			487
Accrued product warranty		723			11			734			468			8			476
Accrued compensated absences		408			—			408			350			—			350
Comprehensive income		—			—			—			81			—			81
Insurance and other reserves		788			31			819			602			88			690

		7,039			548			7,587			5,730			959			6,689
Deferred income tax liabilities:
Allowance for doubtful accounts		—			(120	)		(120	)		—			(92	)		(92	)
Intangible assets		(58	)		—			(58	)		—			—			—
Comprehensive income		(92	)		—			(92	)		—			—			—
Property, plant and equipment and other		(2,645	)		—			(2,645	)		(2,542	)		—			(2,542	)

Net deferred income tax asset	$	4,244		$	428		$	4,672		$	3,188		$	867		$	4,055

The Company has net operating losses at its Russian subsidiary that can be carried forward six years. Such net operating losses will expire beginning after fiscal year 2015.

Deferred income taxes are reported as follows in the accompanying consolidated balance sheet (in thousands):


	AS OF SEPTEMBER 30,
	2011			2010
Current deferred income tax asset	$	6,356		$	4,542
Noncurrent deferred income tax asset		505			754
Current deferred income tax liability		(82	)		—
Noncurrent deferred income tax liability		(2,107	)		(1,241	)

	$	4,672		$	4,055

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the Company's expectation that the deductible temporary differences will reverse during periods in which the Company generates net taxable income or during periods in which losses can be carried back to offset prior year taxes, management believes that the Company will realize the benefit of its net deferred income tax assets.

The financial reporting bases of investments in foreign subsidiaries exceed their tax bases. A deferred tax liability is not recorded for this temporary difference because the investment is essentially permanent. A reversal of the Company's plans to permanently invest in these foreign operations would cause the excess to become taxable. At September 30, 2011 and 2010, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $14.6 million and $14.0 million, respectively. The Company will need to reassess and reassert its ability and intent to indefinitely reinvest the remaining foreign earnings in order to continue the application of the exception under FASB guidelines.

From time to time the Company is the subject of audits by various tax authorities that can result in claims and assessments and additional tax payments, penalties and interest. The United States Internal Revenue Service ("IRS") is in the process of conducting an audit of the Company's United States Federal income tax returns for fiscal years 2009, 2008 and 2007. Management believes that the outcome of such audit will not have a material effect on the Company's financial position, results of operations or cash flows.

Effective October 1, 2007, the Company adopted the provisions of the FASB guidance for accounting for uncertainty in income taxes. The Company classifies interest and penalties associated with the payment of income taxes in the Other Income (Expense) section of its consolidated statement of operations. Tax return filings, which are subject to review by local tax authorities by major jurisdiction, are as follows:

•

United States – fiscal years ended September 2007, 2008, 2009, 2010 and 2011

•

State of Texas – fiscal years ended September 2007, 2008, 2009, 2010 and 2011

•

Russian Federation – calendar years 2008, 2009, 2010 and 2011

•

Canada – fiscal years ended September 2007, 2008, 2009, 2010 and 2011

•

United Kingdom – fiscal years 2007, 2008, 2009, 2010 and 2011

The following table is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):


Balance at October 1, 2008	$	192
Change in prior year tax positions		26
Current tax positions		23
Lapse of statute of limitations		—

Balance at September 30, 2009		241
Change in prior year tax positions		(73	)
Current tax positions		77
Lapse of statute of limitations		(25	)

Balance at September 30, 2010		220
Change in prior year tax positions		581
Current tax positions		61
Lapse of statute of limitations		(10	)

Balance at September 30, 2011	$	852

The Company believes that it is reasonably possible the unrecognized tax benefits could change within the next 12 months based on the resolution of on-going income tax audits. At this time it is not possible to determine the range of such changes.

These unrecognized tax benefits would favorably affect the Company's effective tax rate in future periods if they are favorably resolved.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.