H. Income Taxes

The components of the income tax provision were as follows (in thousands):


	Year Ended September 30,
	2012	2011	2010
Current:
Federal	$ 18,156	$ 5,470	$ 18,126
State	1,512	939	1,750
Foreign	331	563	1,071
	19,999	6,972	20,947

Deferred:
Federal	(1,840)	(122)	(1,189)
State	25	(76)	23
Foreign	393	(62)	113
	(1,422)	(260)	(1,053)
Total income tax provision	$ 18,577	$ 6,712	$ 19,894

Income before income taxes and minority interest was as follows (in thousands):


	Year Ended September 30,
	2012	2011	2010
U.S.	$ 53,885	$ 19,850	$ 53,467
Other than U.S.	(5,651)	(15,853)	(8,406)
Income from continuing operations before provision for income taxes	$ 48,234	$ 3,997	$ 45,061

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,
	2012	2011	2010
Statutory rate	35%	35%	35%
State income taxes, net of federal benefit	2	14	3
International withholding tax	(1)	(9)	—
Other permanent tax items	—	5	—
Foreign rate differential	1	33	1
Domestic production activities deduction	(3)	(16)	(2)
Foreign valuation allowance and other	4	106	7
Effective rate	38%	168%	44%

Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 38% in fiscal year 2012 compared to 168% and 44% in fiscal years 2011 and 2010, respectively. The increase in the effective tax rate for fiscal year 2011 resulted from a valuation allowance against deferred tax assets in Canada.

We have not recorded deferred income taxes on $16 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 in Canada since December 15, 2009. For U.S. Federal income tax purposes, all years prior to 2009 are closed. We do not consider any state in which we do business to be a major tax jurisdiction. We remain open to examination in the U.K. for tax years 2008 to the present.

The net deferred income tax asset (liability) was comprised of the following (in thousands):


	September 30,
	2012	2011
Current deferred income taxes:
Gross assets	$ 7,053	$ 6,801
Gross liabilities	(2,455)	(3,221)
Net current deferred income tax asset	4,598	3,580
Noncurrent deferred income taxes:
Gross assets	2,422	2,133
Gross liabilities	—	(114)
Net noncurrent deferred income tax asset	2,422	2,019
Net deferred income tax asset	$ 7,020	$ 5,599

At September 30, 2012 and 2011, the noncurrent deferred income tax asset was included in other assets on the Consolidated Balance Sheets.

The tax effect of temporary differences between U.S. GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows (in thousands):


	September 30,
	2012	2011
Deferred Tax Assets:
Allowance for doubtful accounts	$ 367	$ 89
Workers compensation	360	39
Stock-based compensation	729	354
Reserve for accrued employee benefits	1,546	1,579
Warranty accrual	1,336	935
Depreciation and amortization	1,366	956
Deferred compensation	1,013	1,343
Postretirement benefits liability	373	460
Accrued legal	114	182
Uniform capitalization and inventory	3,683	4,667
Goodwill impairment	1,285	1,360
Other	14	41
Net operating loss	4,787	3,144
Gross deferred tax asset	16,973	15,149
Less: valuation allowance	7,498	6,215
Deferred tax assets	9,475	8,934

Deferred Tax Liabilities:
Uncompleted contracts	(2,455)	(3,221)
Other	—	(5)
Capital lease	—	(109)
Deferred tax liabilities	(2,455)	(3,335)

Net deferred tax asset	$ 7,020	$ 5,599

At September 30, 2012, we had $19.1 million of gross foreign operating loss carryforwards, which are subject to a 20-year carryforward period. As of September 30, 2012, we have recorded a net valuation allowance of $7.5 million against our Canadian deferred tax assets, which we expect cannot be realized through future reversals of existing taxable temporary differences and 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.

We previously adopted accounting guidance on the accounting for uncertainty in income taxes. Upon adoption of the guidance, we recorded a $0.3 million increase in our tax reserves, an offsetting decrease of $0.2 million to retained earnings for uncertain tax positions and an increase in deferred income tax assets of $0.1 million. As of the adoption date, we had total tax reserves of $1.2 million. This reserve includes an estimate of potential interest and penalties on estimated liabilities for uncertain tax positions, which were recorded as components of income tax expense, in the amount of $160,000 as of September 30, 2012. A reconciliation of the beginning and ending amount of the unrecognized tax liabilities follows (in thousands):


Balance as of September 30, 2011	$ 763
Increases related to tax positions taken during a prior period	43
Decreases related to settlements with taxing authorities	(32)
Decreases related to expirations of statute of limitations	(263)
Balance as of September 30, 2012	$ 511

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, 2012, was not material.

There was no material change in the net amount of unrecognized tax benefits in the year ended September 30, 2012. Management believes that it is reasonably possible that within the next 12 months, the total unrecognized tax benefits will decrease by approximately 39% 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.