9.Income Taxes

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

(Dollars in Thousands)	2012		2011		2010
Pretax income:
U.S.	$	21,323	$	30,160	$	29,472
Foreign		6,817		6,575		6,561
Total pretax income	$	28,140	$	36,735	$	36,033

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

(Dollars in Thousands)	2012		2011		2010
Current:
U.S. Federal	$	1,857	$	5,512	$	5,426
State and local		194		511		314
Foreign		2,149		2,370		1,931
Current tax provision	$	4,200	$	8,393	$	7,671
Deferred:
U.S. Federal	$	3,927	$	2,360	$	4,002
State and local		388		107		221
Foreign		(475)		667		(1)
Deferred tax provision	$	3,840	$	3,134	$	4,222
Income tax provision	$	8,040	$	11,527	$	11,893

The effective tax rates for the fiscal years ended September 30, 2012, 2011 and 2010 were 28.6%, 31.4% and 33.0%, respectively. The fiscal 2012 effective tax rate decreased due primarily to an increased realization of the Foreign Tax Credit, and an increased research and development credit by a foreign affiliate. The following is a reconciliation of the U.S. federal statutory rate of 35% to the effective income tax rate:

	2012		2011		2010
U.S. Federal statutory rate		35.0%		35.0%		35.0%
State and local taxes net of Federal tax benefit		1.3%		0.9%		1.0%
Lower rates on Foreign operations		(3.9%)		(1.3%)		(1.0%)
Non-taxed equity earnings		(4.0%)		(2.1%)		(1.4%)
Foreign tax credit impact, net		(1.5%)		(0.6%)		(1.4%)
Other		1.7%		(0.5%)		0.8%
Effective income tax rate		28.6%		31.4%		33.0%

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)		2012		2011
Deferred tax assets:
Pension accrual	$	2,998	$	2,148
Compensation expense		2,794		2,581
Medical insurance claims		475		433
Retirement plans		2,251		1,979
Allowance for uncollectible accounts		339		196
Accruals not currently deductible		416		145
Other		1,565		954
	$	10,838	$	8,436
Deferred tax liabilities:
Depreciation	$	1,904	$	1,663
Software development		14,812		12,582
Intangible asset amortization		7,267		4,643
Accrued income		28		95
Other		51		50
	$	24,062	$	19,033
Net deferred tax liability	$	(13,224)	$	(10,597)

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 $28 on undistributed earnings not considered permanently reinvested in its non-U.S. subsidiaries. The Company has not provided for U.S. deferred income taxes or foreign withholding tax on the remainder of undistributed earnings from its non-U.S. subsidiaries because such earnings are considered to be permanently reinvested as it is the Company’s intention to reinvest accumulated cash balances, future cash flows and profits to make capital improvements, and grow and expand its foreign operations. In accordance with this plan, cash held by certain foreign subsidiaries will not be available for U.S. Company operations, and under current laws, will not be subject to U.S. taxation. As of September 30, 2012, 2011 and 2010, permanently reinvested cumulative undistributed earnings attributable to certain foreign operations were approximately $14,262, $13,047 and $23,526, respectively. The change in the permanently reinvested cumulative undistributed earnings from fiscal 2011 to fiscal 2012 is due primarily to translation and current year earnings. The Company has sufficient cash and cash equivalents available for use in the U.S. to fund current operations without drawing on the permanently reinvested funds held by its foreign operations. If in the future the Company decides to repatriate these permanently reinvested foreign earnings, it does not anticipate any significant incremental U.S. Federal and State income tax.

As of September 30, 2012, the Company's U.S. income tax returns for fiscal 2009 and subsequent years remained subject to examination by the Internal Revenue Service ("IRS"). The Company is not 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)	2012		2011		2010
Balance at beginning of year	$	770	$	714	$	532
Tax positions related to current year:
Gross increases		23		150		119
Tax positions related to prior periods:
Gross increases		127		167		405
Gross decreases		(182)		(50)		(133)
Decreases related to settlements		0		0		(110)
Decreases related to lapse of statute of limitations		(155)		(211)		(99)
Balance at end of year	$	583	$	770	$	714

The total amount of unrecognized tax benefits, net of federal benefit, that, if recognized, would affect the effective tax rate was $547, $666 and $675 as of September 30, 2012, 2011 and 2010, respectively.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of September 30, 2012 and 2011, the gross amount of interest and penalties recorded was $82 and $58, respectively. The Company does not expect that any change in the amount of unrecognized tax benefits in the next twelve months, with respect to items identified, will have a significant impact on the consolidated results of operations or the financial position of the Company. 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 $275.