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Income Taxes
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
Year Ended September 30,
202120202019
Domestic$19,927 $81,276 $(9,140)
Foreign41,815 40,490 10,256 
Income before income taxes$61,742 $121,766 $1,116 
The components of income tax (expense) benefit were as follows:
Year Ended September 30,
202120202019
Current:
Federal$— $— $— 
State(1,233)(591)(400)
Foreign(11,210)(8,014)(7,239)
$(12,443)$(8,605)$(7,639)
Deferred:
Federal(2,153)115 (3,597)
State(630)401 196 
Foreign5,146 718 1,453 
$2,363 $1,234 $(1,948)
Total income tax (expense) benefit$(10,080)$(7,371)$(9,587)
For the years ended September 30, 2021, 2020 and 2019, the U.S. federal statutory rate was 21.0%.
A reconciliation of income tax (expense) benefit and the amount computed by applying the applicable statutory rate to income from operations before income taxes was as follows:
Year Ended September 30,
202120202019
Income tax (expense) benefit at the federal statutory rate of 21%$(12,966)$(25,571)$(234)
State and local income taxes, net of federal tax benefit(757)(74)(204)
Foreign tax rate differential (3,009)(1,129)(1,471)
Nondeductible interest expense(588)(1,032)(1,073)
Meals and entertainment expense(176)(760)(953)
U.S. tax on foreign earnings(5,687)(8,438)(1,421)
Nondeductible legal expenses— — (112)
Other nondeductible expenses(786)(479)(223)
Impact of tax rate changes819 286 (548)
Valuation allowances854 19,013 (3,886)
Share-based compensation11,598 4,931 475 
Non-taxable gain on sale of subsidiary— 4,789 — 
Return-to-provision adjustments(44)516 (655)
Non-controlling interest30 (466)221 
Net benefit of foreign R&D expenses— 18 191 
Transaction related contingent liabilities155 143 (58)
Contingent liabilities - warranty— — 93 
Foreign withholding taxes— — 369 
Non-deductible exchange gain or loss— — (587)
Deferred tax adjustments87 491 2,016 
Accrued tax adjustments27 (6)(1,348)
Tax benefits of other comprehensive income— — (154)
Other363 397 (25)
Total$(10,080)$(7,371)$(9,587)
Annual Tax (Expense) Benefit
For the year ended September 30, 2021, tax expense was $10,080 as compared to tax expense based on the U.S. statutory rate of $12,966. The actual tax expense was lower principally due to U.S. income not attracting U.S. tax due to the valuation allowance against U.S. deferred tax assets and the reversal of the valuation allowance with respect to the Company’s German operating company. These tax benefits were mostly offset by an increase in foreign tax expense due to improved profitability in certain jurisdictions with tax rates higher than the U.S. and the impact of a one-time state tax adjustment for prior periods.

Tax expense increased $2,709 to $10,080 for the year ended September 30, 2021 as compared to $7,371 in the prior year. The increase in tax expense was primarily attributable to an increase in foreign tax expense due to improved profitability in certain countries and the impact of a one-time state tax adjustment for prior periods. The increase in expense was partially offset by a one-time tax benefit for the reversal of the valuation allowance with respect to the Company’s German operating company.
For the year ended September 30, 2020, the Company provided tax expense of $7,371 as compared to expense of $9,587 in 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.
Significant components of deferred tax assets and liabilities were as follows:
September 30, 2021September 30, 2020
Deferred Tax Assets
Receivable allowances$885 $856 
Reserves and accruals24,913 24,141 
Inventory valuation and other assets3,141 4,617 
Investment in partnership1,977 1,592 
Unrealized foreign exchange gains (losses), including related hedges4,468 5,332 
Other deferred taxes2,811 3,474 
Net operating loss carryforwards48,605 29,407 
Gross deferred tax assets$86,800 $69,419 
Less: Valuation allowance(21,299)(23,298)
Deferred tax assets less valuation allowance$65,501 $46,121 
Deferred Tax Liabilities
Goodwill(9,849)(6,579)
Fixed assets(46,057)(32,136)
Intangibles(15,313)(15,509)
Other deferred tax liabilities(2,440)(1,427)
Gross deferred tax liabilities$(73,659)$(55,651)
Net deferred tax liabilities$(8,158)$(9,530)
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 is the cumulative income or loss incurred over recent years including the three‑year period ended September 30, 2021. The U.S. group was in a three-year cumulative loss at September 30, 2019 but was no longer in a three-year cumulative loss position at September 30, 2020, primarily due to the sale of the Memcor business. The Company believes the favorable evidence of no longer being in a three-year cumulative loss is outweighed by the losses of the U.S. group and the significant global economic uncertainty due to the COVID-19 health crisis. Our German operations have demonstrated strong profitability in the most recent three years, are cumulatively profitable, and have fully utilized their net operating loss carryforwards.
After considering all available evidence, both positive and negative, management determined that a valuation allowance was necessary in certain jurisdictions. As of September 30, 2021, the Company reversed the German valuation allowance and continues to maintain 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. and the UK. A partial valuation allowance continues to be maintained in the Netherlands related to a net operating loss generated prior to the Magneto acquisition as well as certain foreign tax credits.
A reconciliation of the valuation allowance on deferred tax assets is as follows:
Year Ended September 30,
202120202019
Valuation allowance beginning of period$23,298 $41,084 $36,683 
Change in assessment(6,140)1,650 (865)
Current year operations7,300 (19,856)3,495 
Foreign currency and other(3,219)3,012 2,254 
Acquisitions / Dispositions60 (2,592)(483)
Valuation allowance end of period$21,299 $23,298 $41,084 
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, 2021, 2020 and 2019, undistributed earnings of non-U.S. affiliates were approximately $77,709, $53,766, and $49,480, 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.
The Company utilizes the more-likely-than-not standard in recognizing a tax benefit in its financial statements. For the years ended September 30, 2021, 2020, and 2019, the Company had unrecognized tax benefits of $1,123, $1,050, and $1,075 respectively.
The following is a reconciliation of the Company’s total gross unrecognized tax benefits:
Year Ended September 30,
202120202019
Balance as of beginning of period$1,050 $1,075 $— 
Tax positions related to the current year
Additions— — — 
Tax positions related to prior years
Additions73 — 1,075 
Reductions— (25)— 
Expiration of statutes of limitations— — — 
Balance as of end of period$1,123 $1,050 $1,075 
At September 30, 2021, 2020, and 2019, the Company had $1,599, $1,288, and $1,170 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, 2021, 2020, and 2019, 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 would be approximately $1,599, $1,288, and $1,170 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, 2021, 2020, and 2019 the Company recognized approximately $(238), $(143), and $(95) of gross interest and penalties, respectively.
Tax attributes available to reduce future taxable income begin to expire as follows:
September 30, 2021
First year of Expiration
Federal net operating loss$190,386 September 30, 2035
State net operating loss106,687 September 30, 2019
Foreign net operating loss2,558 September 30, 2023
Foreign net operating loss8,107 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 years ending September 30, 2021 and 2020.

The Company may be subject to tax audits in the U.S. as well as various state and foreign jurisdictions. The following table summarizes the Company’s open years by major jurisdiction as of September 30, 2021:
Jurisdiction
Open Tax Years
United States2018-2021
Australia2017-2021
Canada2017-2021
China2016-2021
Germany2017-2021
Netherlands2016-2021
Singapore2017-2021
United Kingdom2019-2021