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	$	12,003		$	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		(6,170	)		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	$	50,732	$		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		%

The decrease in the effective tax rate for Fiscal 2013 resulted from the release of the valuation allowance against deferred tax assets in Canada. The effective tax rate for the Fiscal 2011 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		(845	)			(2,455	)
Net current deferred income tax asset		4,716				4,598
Noncurrent deferred income taxes:
Gross assets		9,025				2,423
Gross liabilities		−				−
Net noncurrent deferred income tax asset		9,025				2,423
Net deferred income tax asset	$	13,741		$		7,021

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,
	2013			2012
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		115			15
Gross deferred tax asset		14,721			16,974
Less: valuation allowance		(135	)		(7,498	)
Deferred tax asset		14,586			9,476
Deferred Tax Liabilities:
Uncompleted contracts		(845	)		(2,455	)
Deferred tax liabilities		(845	)		(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 September 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.