Income Tax Expense

Total income tax expense (benefit) for 2015, 2014 and 2013 was allocated to income tax expense as follows:

(Dollars in thousands)	2015		2014		2013
Income tax expense from Continuing Operations	$	19,785		19,594		18,335
Income tax (benefit) expense from Discontinued Operations		390		(6,034)		(5,215)
Total income tax expense	$	20,175		13,560		13,120

The components of income from continuing operations before income taxes for 2015, 2014 and 2013 consisted of the following:

(Dollars in thousands)	2015		2014		2013
United States	$	56,661		56,196		43,159
Foreign		4,860		6,011		6,436
Total income before income taxes	$	61,521		62,207		49,595

The principal components of income tax expense (benefit) from continuing operations for 2015, 2014 and 2013 consist of:

(Dollars in thousands)	2015		2014		2013
Federal:
Current	$	11,906		18,756		10,723
Deferred		5,406		(2,442)		2,942
State and local:
Current		867		1,397		896
Deferred		16		(245)		642
Foreign:
Current		1,525		2,044		2,033
Deferred		65		84		1,099
Total	$	19,785		19,594		18,335

The actual income tax expense (benefit) from continuing operations for 2015, 2014 and 2013 differs from the expected tax expense for those years (computed by applying the U.S. Federal corporate statutory rate) as follows:

	2015			2014		2013
Federal corporate statutory rate		35.0	%	35.0	%	35.0	%
State and local, net of Federal benefits		1.2		2.0		2.7
Foreign		(1.5)		(1.7)		(1.9)
Research credit		(1.8)		(1.0)		(2.5)
Domestic production deduction		(2.6)		(2.9)		(2.5)
Change in uncertain tax positions		(0.2)		(2.9)		0.1
Executive compensation		0.9		1.3		1.8
Valuation allowance		1.0		1.3		4.0
Other, net		0.2		0.4		0.3
Effective income tax rate		32.2	%	31.5	%	37.0	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, 2015 and 2014 are presented below:

(Dollars in thousands)	2015		2014
Deferred tax assets:
Inventories	$	6,336		7,710
Pension and other postretirement benefits		11,663		6,974
Net operating loss carryforward — domestic		520		658
Net operating loss carryforward — foreign		4,135		4,702
Other compensation-related costs and other cost accruals		11,785		13,996
State credit carryforward		1,704		1,276
Total deferred tax assets		36,143		35,316

Deferred tax liabilities:
Goodwill		(14,829)		(14,338)
Acquisition assets		(57,415)		(57,795)
Depreciation, software amortization		(18,681)		(16,380)
Net deferred tax liabilities before valuation allowance		(54,782)		(53,197)
Less valuation allowance		(4,129)		(4,297)
Net deferred tax liabilities	$	(58,911)		(57,494)

The Company has a foreign net operating loss carryforward of $16.5 million at September 30, 2015, which reflects tax loss carryforwards in Brazil, Germany, India, Finland, China and the United Kingdom. $15.1 million of the tax loss carryforwards have no expiration date while the remaining $1.4 million will expire between 2017 and 2025. The Company has state net operating loss carryforwards of $0.3 million at September 30, 2015 which expire between 2020 and 2033. The Company also has net state research and other credit carryforwards of $1.7 million of which $1.3 million expires between 2025 and 2035. The remaining $0.4 million does not have an expiration date.

The valuation allowance for deferred tax assets as of September 30, 2015 and 2014 was $4.1 million and $4.3 million, respectively. The net change in the total valuation allowance for each of the years ended September 30, 2015 and 2014 was a decrease of $0.2 million and an increase of $0.5 million, respectively. The Company has established a valuation allowance against state credit carryforwards of $0.5 million and $0.4 million at September 30, 2015 and 2014. In addition, the Company has established a valuation allowance against state net operating loss (NOL) carryforwards that are not expected to be realized in future periods of $0.3 million at both September 30, 2015 and 2014, respectively. Lastly, the Company has established a valuation allowance against certain NOL carryforwards in foreign jurisdictions which may not be realized in future periods. The valuation allowance established against the foreign NOL carryforwards was $3.3 million and $3.6 million at September 30, 2015, and 2014, respectively. The Company classifies its valuation allowance related to deferred taxes on a pro rata basis by taxing jurisdiction.

The Company’s foreign subsidiaries have accumulated unremitted earnings of $35.3 million and cash of $31.5 million at September 30, 2015. No deferred taxes have been provided on these accumulated unremitted earnings because these funds are not needed to meet the liquidity requirements of the Company’s U.S. operations and it is the Company’s intention to indefinitely reinvest these earnings in continuing international operations. In the event these foreign entities’ earnings were distributed, it is estimated that U.S. taxes, net of available foreign tax credits, of approximately $4.9 million would be due, which would correspondingly reduce the Company’s net earnings. No significant portion of the Company’s foreign subsidiaries’ earnings was taxed at a very low tax rate.

As of September 30, 2015, the Company had $0.1 million of unrecognized benefits (see table below), which, net of Federal benefit, if recognized, would affect the Company’s effective tax rate.

A reconciliation of the Company’s unrecognized tax benefits for the years ended September 30, 2015 and 2014 is presented in the table below:

(Dollars in millions)	2015		2014
Balance as of October 1,	$	0.5		2.2
Decreases related to prior year tax positions		(0.1)		(0.7)
Decreases related to settlements with taxing authorities		(0.2)		—
Lapse of statute of limitations		(0.1)		(1.0)
Balance as of September 30,	$	0.1		0.5

The Company does not anticipate a material change in the amount of unrecognized tax benefits in the next 12 months. The Company’s policy is to include interest related to unrecognized tax benefits in income tax expense and penalties in operating expense. As of September 30, 2015, 2014 and 2013, the Company had accrued interest related to uncertain tax positions of zero, zero and $0.1 million, respectively, net of Federal income tax benefit, on its Consolidated Balance Sheet. No significant penalties have been accrued.

The principal jurisdictions for which the Company files income tax returns are U.S. Federal and the various city, state, and international locations where the Company has operations. The U.S. Federal tax years for the periods ended September 30, 2012 and forward remain subject to income tax examination. Various state tax years for the periods ended September 30, 2011 and forward remain subject to income tax examinations. The Company is subject to income tax in many jurisdictions outside the United States, none of which is individually material to the Company’s financial position, statements of cash flows, or results of operations.