Income Tax Expense

12 Months Ended

Sep. 30, 2011

Income Tax Expense [Abstract]

Income Tax Expense

8. Income Tax Expense

Total income tax expense (benefit) for the years ended September 30, 2011, 2010 and 2009 was allocated as follows:

(Dollars in thousands)		2011	2010	2009
Income tax expense from
continuing operations	$	24,457	24,819	13,867
Discontinued operations		—	—	(1,473	)
Total income tax expense	$	24,457	24,819	12,394

The components of income from continuing operations before income taxes consisted of the following for the years ended September 30:

(Dollars in thousands)		2011	2010	2009
United States	$	73,275	66,639	60,477
Foreign		3,683	3,026	2,695
Total income before income taxes	$	76,958	69,665	63,172

The principal components of income tax expense (benefit) from continuing operations for the years ended September 30, 2011, 2010 and 2009 consist of:

(Dollars in thousands)		2011		2010		2009
Federal
Current	$	15,708		17,585		10,425
Deferred		5,578		4,199		(1,666	)
State and local:
Current		2,218		2,193		4,683
Deferred		580		230		(421	)
Foreign:
Current		3,104		1,130		1,179
Deferred		(2,731	)	(518	)	(333	)
Total	$	24,457		24,819		13,867

The actual income tax expense (benefit) from continuing operations for the years ended September 30, 2011, 2010 and 2009 differs from the expected tax expense for those years (computed by applying the U.S. Federal corporate statutory rate) as follows:

	2011		2010		2009
Federal corporate statutory rate	35.0	%	35.0	%	35.0	%
State and local, net of Federal benefits	3.6		3.1		4.4
Foreign	(2.2	)	(1.5	)	(0.2	)
Research credit	(2.0	)	0.3		(7.5	)
Domestic production deduction	(2.5	)	(1.9	)	(1.8	)
Change in uncertain tax positions	(0.5	)	0.1		(7.9	)
Other, net	0.4		0.5		—
Effective income tax rate	31.8	%	35.6	%	22.0	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, 2011, and 2010 are presented below.

(Dollars in thousands)		2011		2010
Deferred tax assets:
Inventories, long-term contract accounting,
contract cost reserves and other	$	6,029		3,331
Pension and other postretirement benefits		11,341		12,178
Net operating loss carryforward—domestic		687		813
Net operating loss carryforward—foreign		3,419		2,018
Capital loss carryforward		240		254
Other compensation-related costs
and other cost accruals		17,316		14,196
State credit carryforward		1,240		1,545
Total deferred tax assets		40,272		34,335
Deferred tax liabilities:
Plant and equipment, depreciation methods,
acquisition asset allocations, and other		(104,082	)	(96,300	)
Net deferred tax liabilities before
valuation allowance		(63,810	)	(61,965	)
Less valuation allowance		(873	)	(1,613	)
Net deferred tax liabilities	$	(64,683	)	(63,578	)

The Company has a foreign net operating loss carryforward of $11.4 million at September 30, 2011, which reflects tax loss carryovers in Brazil, Germany and the United Kingdom. These losses have no expiration date. The Company also has net state research and other credit carryforwards of $1.2 million of which $0.6 million expires between 2022 and 2026. The remaining $0.6 million does not have an expiration date.

At September 30, 2011, the Company has established a valuation allowance of $0.2 million against the capital loss carryforward generated in 2008, as such loss carryforward may not be realized in future periods. In addition, the Company has established a valuation allowance against certain net operating loss (NOL) carryforwards in foreign jurisdictions which may not be realized in future periods. The valuation allowance established against the foreign NOL carryforwards was $0.7 million and $1.4 million at September 30, 2011, and 2010, respectively. The Company classifies its valuation allowance related to deferred taxes on a pro rata basis.

The Company's foreign subsidiaries have accumulated unremitted earnings of $32.2 million and cash of $18.6 million at Sep-tember 30, 2011. No deferred taxes have been provided on the 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 reinvest these earnings indefinitely. In the event these foreign entities' earnings were distributed, it is estimated that U.S. taxes, net of available foreign tax credits, of approximately $5.2 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, 2011, the Company had $3.6 million of unrecognized benefits (see table below), of which $3.5 million, 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, 2011, and 2010 is presented in the table below:

(Dollars in millions)		2011		2010
Balance as of October 1,	$	3.2		3.3
Increases related to prior year tax positions		0.7		0.2
Decreases related to prior year tax positions		—		(0.2	)
Increases related to current year tax positions		0.2		0.1
Lapse of statute of limitations		(0.5	)	(0.2	)
Balance as of September 30,	$	3.6		3.2

The Company anticipates a $1.7 million reduction in the amount of unrecognized tax benefits in the next twelve months as a result of a lapse of the applicable statute of limitations. 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, 2011, 2010 and 2009, the Company had accrued interest related to uncertain tax positions

of $0.2 million, $0.1 million 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. Due to the timing of the utilization of the Company's net operating loss, the U.S. Federal tax years for the periods ended September 30, 1998, and forward remain subject to income tax examination. Various state tax years for the periods ended September 30, 2007, 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.