

	Year Ended September 30,
	2020			2019			2018
Current:
Federal	$	—		$	—		$	—
State	(591		)	(400		)	(911		)
Foreign	(8,014		)	(7,239		)	(6,703		)
	$	(8,605	)	$	(7,639	)	$	(7,614	)
Deferred:
Federal	115			(3,597		)	6,311
State	401			196			(209		)
Foreign	718			1,453			130
	$	1,234		$	(1,948	)	$	6,232
Total income tax expense	$	(7,371	)	$	(9,587	)	$	(1,382	)

For the years ended September 30, 2020 and September 30, 2019, the U.S. federal statutory rate was 21.0% and for the year ended September 30, 2018, the U.S. federal statutory rate was 24.5% a blended rate based upon the number of days in fiscal 2018 that the company was taxed at the former statutory rate of 35.0% and the number of days that it was taxed at the new rate of 21.0%.



	Year Ended September 30,
	2020			2019			2018
Income tax (expense) benefit at the federal statutory rate of 21%	$	(25,571	)	$	(234	)	$	(2,270	)
State and local income taxes, net of federal tax benefit	(74		)	(204		)	(1,053		)
Foreign tax rate differential	(1,129		)	(1,471		)	(2,389		)
Nondeductible transaction costs	—			—			(1,489		)
Nondeductible interest expense	(1,032		)	(1,073		)	(853		)
Meals and entertainment expense	(760		)	(953		)	(553		)
U.S. tax on foreign earnings	(8,438		)	(1,421		)	—
Nondeductible legal expenses	—			(112		)	—
Other nondeductible expenses	(479		)	(223		)	(47		)
Impact of tax rate changes	286			(548		)	3,626
Valuation allowances	19,013			(3,886		)	(4,218		)
Share-based compensation in excess of accounting	4,931			475			5,156
Non-taxable gain on sale of subsidiary	4,789			—			1,131
Return-to-provision adjustments	516			(655		)	449
Non-controlling interest	(466		)	221			428
Net benefit of foreign R&D expenses	18			191			336
Transaction related contingent liabilities	143			(58		)	89
Contingent liabilities - warranty	—			93			—
Foreign withholding taxes	—			369			—
Non-deductible exchange gain or loss	—			(587		)	—
Deferred tax adjustments	491			2,016			—
Accrued tax adjustments	(6		)	(1,348		)	—
Tax benefits of other comprehensive income	—			(154		)	—
Other	397			(25		)	275
Total	$	(7,371	)	$	(9,587	)	$	(1,382	)

For the year ended September 30, 2020, actual tax expense differed from tax expense based on the U.S. federal statutory tax rate principally due to; the impact of the gain on the sale of the Memcor product line, which did not generate significant tax expense due to the combination of the U.S. valuation allowance and favorable foreign tax regimes; U.S. income not attracting net tax due to the valuation allowance; and the favorable impact of the reversal of a portion of the deferred tax liabilities related to indefinite lived intangibles.

For the year ended September 30, 2020, the Company provided tax expense of $7,371 as compared to expense of $9,587 for the fiscal year ended September 30, 2019. The decrease in expense was primarily the result of the favorable impact on deferred tax liabilities related to indefinite lived intangibles, a portion of which were reversed in relation to the sale of the Memcor product line.

For the year ended September 30, 2019, the Company provided tax expense of $9,587 as compared to expense of $1,382 in the fiscal year ended September 30, 2018. This increase in expense was primarily the result of the favorable impact included in the prior year of the reduction of the U.S. federal tax rate, which required the remeasurement of U.S. deferred

tax liabilities associated with indefinite lived intangible assets, and the favorable impact of acquisitions for which the acquired deferred tax liabilities generated a reduction in the amount of valuation allowance required against the Company’s existing U.S. and state deferred tax assets.



	September 30, 2020			September 30, 2019
Deferred Tax Assets
Receivable allowances	$	856		$	1,018
Reserves and accruals	24,141			24,473
Inventory valuation and other assets	4,617			4,989
Investment in partnership	1,592			2,569
Unrealized foreign exchange gains (losses), including related hedges	5,332			6,730
Other deferred taxes	3,474			897
Disallowed interest	—			7,096
Net operating loss carryforwards	29,407			49,786
Gross deferred tax assets	$	69,419		$	97,558
Less: Valuation allowance	(23,298		)	(41,084		)
Deferred tax assets less valuation allowance	$	46,121		$	56,474
Deferred Tax Liabilities
Goodwill	(6,579		)	(9,801		)
Fixed assets	(32,136		)	(38,293		)
Intangibles	(15,509		)	(15,720		)
Other deferred tax liabilities	(1,427		)	(3,418		)
Gross deferred tax liabilities	$	(55,651	)	$	(67,232	)
Net deferred tax liabilities	$	(9,530	)	$	(10,758	)

Accounting standards require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This assessment requires significant judgment, and in making this evaluation, the Company considers all available positive and negative evidence, including the potential to carryback net operating losses and credits, the future reversal of certain taxable temporary differences, actual and forecasted results, and tax planning strategies that are both prudent and feasible. A significant piece of objective evidence evaluated was the cumulative income or loss incurred over the three‑year period ended September 30, 2020. The Company was in a three-year cumulative loss at September 30, 2019 but is no longer in a three-year cumulative loss position at September 30, 2020, primarily due to the sale of the Memcor business. Emerging from a three-year cumulative loss is positive evidence. However, the Company believes the favorable evidence of the first year not in a three-year cumulative loss is outweighed by the significant global economic uncertainty due to the COVID-19 health crisis.

After considering all available evidence, both positive and negative, management determined that a valuation allowance was necessary in certain jurisdictions. As of September 30, 2020, the company maintains a full valuation allowance against its deferred tax assets (excluding certain deferred tax liabilities including those related to indefinite lived intangibles) in the U.S., Germany, and the UK. A partial valuation allowance is maintained in the Netherlands related to deferred tax assets generated prior to the Magneto acquisition as well as certain credits that are not expected to be realized.



	Year Ended September 30,
	2020			2019			2018
Valuation allowance beginning of period	$	41,084		$	36,683		$	48,573
Change in assessment	1,650			(865		)	—
Current year operations	(19,856		)	3,495			(1,435		)
Foreign currency and other	3,012			2,254			71
Acquisitions / Dispositions	(2,592		)	(483		)	(10,526		)
Valuation allowance end of period	$	23,298		$	41,084		$	36,683

The Company does not anticipate that it will dispose any of its foreign subsidiaries in the foreseeable future and as such has not recorded a U.S. deferred tax asset where the tax basis exceeds the financial reporting basis of these investments. Additionally, the Company has not provided a U.S. deferred tax liability on the excess of financial reporting over tax basis of its investments.

As of September 30, 2020, 2019 and 2018, undistributed earnings of non-U.S. affiliates were approximately $53,766, $49,480 and $36,879, respectively, which are considered to be indefinitely reinvested. Upon distribution of these earnings the Company may be subject to U.S. income taxes and foreign withholding taxes. The amount of taxes that may be payable on remittance of these earnings is dependent on the tax laws and profile of the Company at that time and the availability of foreign tax credits in the year in which such earnings are remitted. Therefore, it is not practicable to estimate the amount of taxes that may be payable when these earnings are remitted in the future.



	Year Ended September 30,
	2020			2019		2018
Balance as of beginning of period	$	1,075		$	—	$	—
Tax positions related to the current year
Additions	—			—		—
Tax positions related to prior years
Additions	—			1,075		—
Reductions	(25		)	—		—
Expiration of statutes of limitations	—			—		—
Balance as of end of period	$	1,050		$	1,075	$	—

At September 30, 2020, 2019, and 2018, the Company had $1,288, $1,170, and $0 classified as a current liability respectively. The amount of unrecognized tax benefits is not expected to change significantly during the next 12 months. At September 30, 2020, 2019, and 2018, if the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the amount that would affect the Company’s effective tax rate was approximately $1,288, $1,170, and $0 respectively.

The Company classifies interest expense and, if applicable, penalties which could be assessed related to unrecognized tax benefits as component of income tax (expense) benefit. For the years ended September 30, 2020, 2019, and 2018 the Company recognized approximately $(143), $(95), and $0 of gross interest and penalties, respectively.



	September 30, 2020		First year of Expiration
Federal net operating loss	$	105,828	September 30, 2035
State net operating loss	66,206		September 30, 2019
Foreign net operating loss	1,770		September 30, 2023
Foreign net operating loss (Germany, Singapore, and the UK)	18,467		Indefinite

During the fourth quarter of the year ending September 30, 2020 the Company undertook a secondary offering. As a result of that offering, the Company experienced an ownership change for purposes of I.R.C. Section 382. There was no impact to current or deferred tax expense resulting from the ownership change for the year ending September 30, 2020.

The Tax Cuts and Jobs Act (the Tax Act) introduced new provisions that were effective January 1, 2018 and changed how certain provisions are calculated beginning with the year ended September 30, 2018. These provisions included additional limitations on the deduction of certain expenses, a limitation on the current deductibility of net interest expense in excess of 30% of adjusted taxable income, a limitation on the use of net operating losses generated after fiscal 2018 to 80% taxable income, and an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties. These new provisions did not have a material impact to the Company’s tax expense. Amounts recorded where accounting is complete principally related to the reduction of the U.S. Corporate income tax rate to 21% which resulted in the Company reporting income tax benefit of $3,641 to remeasure deferred tax liabilities associated with indefinite lived intangible assets that will reverse at the new 21% rate. Absent this deferred tax liability, the Company is in a net deferred tax asset position that is fully offset by a valuation allowance. Though the tax effected net deferred tax asset changed, the movement was offset by movement in the valuation allowance with a net tax effect of $0.

The Tax Act also created a provision known as GILTI that imposes a tax on certain earnings of foreign subsidiaries. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore, has no provided any deferred tax impacts of GILTI in its Consolidated Financial Statements for the year ended September 30, 2018.