10.Income Taxes

The components of pretax income for the years ended September 30 were as follows:



(Dollars in Thousands)	2014		2013 (As Restated)		2012
Pretax income:
U.S.	$	(46,061)	$	(4,481)	$	20,773
Foreign		5,563		7,557		6,807
Total pretax income	$	(40,498)	$	3,076	$	27,580

The components of the provision for income taxes for the years ended September 30 were as follows:



(Dollars in Thousands)	2014		2013 (As Restated)		2012
Current:
U.S. Federal	$	5,581	$	4,458	$	2,682
State and local		591		465		197
Foreign		1,858		1,970		1,818
Current tax provision	$	8,030	$	6,893	$	4,697
Deferred:
U.S. Federal	$	(22,261)	$	(6,848)	$	3,622
State and local		(1,320)		(372)		362
Foreign		(249)		(233)		(475)
Deferred tax provision	$	(23,830)	$	(7,453)	$	3,509
Income tax provision	$	(15,800)	$	(560)	$	8,206

The effective tax rates for the fiscal years ended September 30, 2014, 2013 and 2012 were 39.0%, (18.1%) and 29.8%, respectively. The fiscal 2014 effective tax rate increased due primarily to the mix of domestic and foreign earnings, permanently reinvested earnings, income from investments and permanent differences. The following is a reconciliation of the U.S. federal statutory rate of 35% to the effective income tax rate:



	2014		2013 (As Restated)		2012
U.S. Federal statutory rate		35.0%		35.0%		35.0%
State and local taxes net of Federal tax benefit		2.4%		-4.9%		1.3%
Effect on foreign affiliates		1.1%		-20.7%		-5.4%
Earnings of unconsolidated affiliates		1.9%		-26.4%		-4.2%
R&D credit		0.0%		-9.5%		-0.5%
Domestic production activity deduction		0.7%		-8.3%		-0.5%
Partnership income		-1.3%		14.9%		1.6%
Provision to return adjustments		-0.4%		-16.4%		-0.2%
Meals and entertainment		-0.3%		2.7%		0.3%
Change in deferred rate		0.1%		2.7%		0.7%
Uncertain tax positions		-0.3%		13.6%		0.8%
Other		0.1%		-0.8%		0.9%
Effective income tax rate		39.0%		-18.1%		29.8%

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at September 30:



(Dollars in Thousands)	2014		2013 (As Restated)
Deferred tax assets:
Pension accrual	$	3,073	$	1,391
Compensation expense		3,530		3,360
Transaction costs		1,040		1,133
Medical insurance claims		480		402
Retirement plans		2,248		1,896
Accruals not currently deductible		250		156
NOLs and attributes		272		189
Intangible asset amortization		21,888		436
Cumulative translation adjustment		1,218		255
Other		739		785
	$	34,738	$	10,003
Deferred tax liabilities:
Depreciation	$	1,411	$	1,745
Software development		12,957		14,402
Intangible asset amortization		-		-
Other		136		29
	$	14,504	$	16,176
Net deferred tax asset (liability)	$	20,234	$	(6,173)

The Company believes that the realization of deferred tax assets is more likely than not based upon the expectation the Company will generate the necessary taxable income in the future periods. Therefore, no valuation allowances have been provided.

The Company has provided for U.S. deferred income taxes and foreign withholding tax in the amount of $217 on undistributed earnings not considered permanently reinvested in its non-U.S. subsidiaries. The Company has no indefinite reinvested foreign earnings and profits. As of September 30, 2014, 2013 and 2012, permanently reinvested cumulative undistributed earnings attributable to certain foreign operations were approximately $0, $13,085, and $14,262, respectively. The change in the indefinitely reinvested cumulative undistributed earnings from fiscal 2013 to fiscal 2014 is due to the Company no longer asserting indefinite reinvestment of any foreign earnings and profits.

As of September 30, 2014, the Company's U.S. income tax returns for fiscal 2011 and subsequent years remained subject to examination by the Internal Revenue Service ("IRS"). The Company is currently under audit by the IRS. State income tax returns generally have statute of limitations for periods between three and four years from the date of filing. The Company is currently undergoing a state income tax audit. The Company does not expect the audit to have a material impact on its consolidated financial statements. The Company is not currently under audit in any foreign jurisdictions. The Company’s foreign operations have statute of limitations on the examination of tax returns for periods between two and six years.

The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various U.S. federal, state, local and foreign jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of the income tax laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments.

Accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on its tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

A reconciliation of gross unrecognized tax benefits, exclusive of interest and penalties, is as follows:



(Dollars in Thousands)	2014		2013 (As Restated)		2012
Balance at beginning of year	$	2,775	$	2,030	$	1,533
Tax positions related to current year:
Gross increases		358		832		707
Tax positions related to prior periods:
Gross increases		65		99		127
Gross decreases		-		-		(182)
Decreases related to settlements		-		-		-
Decreases related to lapse of statute of limitations		(281)		(186)		(155)
Balance at end of year	$	2,917	$	2,775	$	2,030

The total amount of unrecognized tax benefits, net of federal benefit that, if recognized, would affect the effective tax rate was $1,840, $1,362 and $1,083, as of September 30, 2014, 2013 and 2012, respectively.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of September 30, 2014 and 2013, the gross amount of interest and penalties recorded was $375 and $431, respectively. The Company’s unrecognized tax benefits are primarily due to intercompany allocations between jurisdictions. The amount of unrecognized tax benefits and the related interest and penalties expected to reverse within the next fiscal year is estimated to be approximately $981.