Income Taxes

3 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes [Text Block]

H. Income Taxes

The effective tax rate for the first three months of fiscal 2012 is 35.3%, which is slightly lower than the prior year's 36.6%.  The fiscal 2012 rate benefited from an increased Section 199 (domestic production activities) deduction due to increased activity at the Company's Racine operation driven by increased demand in the oil and gas market.  The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized.  In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.  Due to recent operating losses in certain foreign jurisdictions, the Company has evaluated the realizability of the net deferred tax assets related to these jurisdictions.  This evaluation concluded that, based primarily upon recent losses in this jurisdiction and failure to achieve targeted levels of improvement, a full valuation allowance continues to be necessary.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate.  Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.  The impact of the Company's operations in certain foreign locations is removed from the overall effective tax rate methodology and recorded discretely based upon year-to-date results as these operations anticipate net operating losses for the year for which no tax benefit can be recognized.

The Company has approximately $874,000 of unrecognized tax benefits, excluding related interest and penalties, as of September 30, 2011, which, if recognized, would favorably impact the effective tax rate. The Company has negotiated a proposed settlement in the U.S. for fiscal years 2003 through 2007.  The Company does anticipate that upon final settlement, the net amount of unrecognized tax benefits will decrease by approximately $350,000 during the next twelve months.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the quarter ended September 30, 2011, total accrued interest and penalties with respect to income taxes was approximately $139,000 that would favorably affect the effective tax rate if recognized.

There was no significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of statutes of limitations or for other items during the quarter ended September 30, 2011.

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States.  In general, the tax years that remain subject to examination are 2006 through 2010 for the major operations in the U.S., Italy, Belgium, and Japan.  The tax years open to examination in the U.S. are for years subsequent to fiscal 2007.  Other audits currently underway include those in Italy and Canada.  It is reasonably possible that at least one of these audit cycles will be completed during fiscal 2012.