Note 7.

Income Taxes

For the three months ended October 31, 2014 and 2013, our effective tax rates were 45.9% and 35.5%, respectively and for the nine months ended October 31, 2014 and 2013, our effective tax rates were 43.8% and 37.0%, respectively.. Our effective tax rate increased 10.4% and 6.8% during the three and nine months ended October 31, 2014, respectively, as compared to the same period in the prior fiscal year primarily due to the expiration of the federal research and development tax credit and a reduction of the domestic production activities deduction caused by the increased stock option activity during the period.

In July 2013, the FASB ratified ASU 2013-11 “Presenting an Unrecognized Tax Benefit (“UTB”) When a Net Operating Loss Carryforward Exists” (“ASU 2013-11”). ASU 2013-02 provides that an UTB, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. This ASU was effective for reporting periods beginning after December 15, 2013, and may be applied retrospectively. We adopted this ASU on February 1, 2014, and the impact was not significant on our condensed consolidated results of operations and financial position.