Income Tax Expense

12 Months Ended

Sep. 30, 2020

Income Tax Expense

Income Tax Expense

8.      Income Tax Expense

Total income tax expense (benefit) for the years ended September 30, 2020, 2019 and 2018 was allocated to income tax expense as follows:

(Dollars in thousands)	2020		2019	2018
Income tax expense (benefit) from continuing operations	$	14,278	20,388	(5,170)
Income tax expense from discontinued operations		23,501	789	1,060
Total income tax expense (benefit)	$	37,779	21,177	(4,110)

The components of income from continuing operations before income taxes for 2020, 2019 and 2018 consisted of the following:

(Dollars in thousands)	2020		2019	2018
United States	$	27,288	87,150	74,028
Foreign		12,455	10,727	7,063
Total income before income taxes	$	39,743	97,877	81,091

The principal components of income tax expense (benefit) from continuing operations for 2020, 2019 and 2018 consist of:

(Dollars in thousands)	2020		2019	2018
Federal:
Current	$	10,982	13,888	7,663
Deferred		1,507	250	(22,329)
State and local:
Current		2,042	3,039	1,885
Deferred		(905)	98	2,899
Foreign:
Current		2,875	2,439	2,208
Deferred		(2,223)	674	2,504
Total	$	14,278	20,388	(5,170)

The actual income tax expense (benefit) from continuing operations for 2020, 2019 and 2018 differs from the expected tax expense for those years (computed by applying the U.S. Federal corporate statutory rate) as follows:

	2020		2019		2018
Federal corporate statutory rate	21.0	%	21.0	%	24.5	%
State and local, net of Federal benefits	2.3		3.2		2.9
Foreign	(1.1)		0.6		0.8
Research credit	(3.4)		(0.8)		(1.6)
Domestic production deduction	—		—		(1.1)
Change in uncertain tax positions	—		(0.1)		(0.1)
Executive compensation	1.5		0.3		(0.1)
Valuation allowance	(6.3)		(2.4)		3.0
GILTI and FDII	0.4		(0.6)		—
Tax reform – impact on U.S. deferred tax assets and liabilities	—		(0.3)		(39.3)
Tax reform – transition tax	—		(0.1)		1.6
Tax reform – taxes related to foreign unremitted earnings	—		—		3.0
Pension plan termination charge	21.4		—		—
Other, net	0.1		—		—
Effective income tax rate	35.9	%	20.8	%	(6.4)	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, 2020 and 2019 are presented below:

(Dollars in thousands)	2020		2019
Deferred tax assets:
Inventories	$	4,998	4,800
Pension and other postretirement benefits		842	5,533
Timing differences related to revenue recognition		4,722	—
Lease liabilities		5,220	—
Net operating and capital loss carryforwards — domestic		563	602
Net operating loss carryforward — foreign		3,678	3,766
Other compensation-related costs and other cost accruals		8,953	7,764
State credit carryforward		2,366	1,914
Total deferred tax assets		31,342	24,379
Deferred tax liabilities:
Timing differences related to revenue recognition		—	(1,805)
ROU assets		(5,220)	—
Goodwill		(7,878)	(1,450)
Acquisition assets		(52,682)	(58,547)
Depreciation, software amortization		(21,283)	(18,288)
Net deferred tax liabilities before valuation allowance		(55,721)	(55,711)
Less valuation allowance		(1,932)	(4,504)
Net deferred tax liabilities	$	(57,653)	(60,215)

The Company has a foreign net operating loss (NOL) carryforward of $14.0 million at September 30, 2020, which reflects tax loss carryforwards in Germany, South Africa, Canada, India and the United Kingdom. Approximately $13.8 million of the tax loss carryforwards have no expiration date while the remaining $0.2 million will expire between 2028 and 2038. The Company has deferred tax assets related to state NOL carryforwards of $0.6 million at September 30, 2020 which expire between 2025 and 2040. The Company also has net state research and other credit carryforwards of $2.4 million of which $1.7 million expires between 2023 and 2035. The remaining $0.7 million does not have an expiration date.

The valuation allowance for deferred tax assets as of September 30, 2020 and 2019 was $1.9 million and $4.5 million, respectively. The net change in the total valuation allowance for each of the years ended September 30, 2020 and 2019 was a decrease of $2.6 million and a decrease of $2.6 million, respectively.The Company has established a valuation allowance against state credit carryforwards of $0.6 million and $0.4 million at September 30, 2020 and 2019, respectively. In addition, the Company has established a valuation allowance against state NOL carryforwards that are not expected to be realized in future periods of $0.5 million and $0.6 million at September 30, 2020 and 2019, respectively. Lastly, the Company has established a valuation allowance against certain NOL carryforwards in foreign jurisdictions which may not be realized in future periods of $0.8 million and $3.6 million at September 30, 2020 and 2019, respectively.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act, which made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S. federal income tax. No provision is made for foreign withholding or any applicable U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries where these earnings are considered indefinitely invested or otherwise retained for continuing international operations. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable.