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Income taxes
9 Months Ended
Jul. 31, 2012
Income taxes

Note 9 - Income taxes

 

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

 

 

The provision for income taxes was 33.5% of income before income taxes for the three months ended July 31, 2012. For the three-month period ended July 31, 2011, the Company had a tax benefit of $63,000. The tax benefit for the three-month period ended July 31, 2011 is primarily due to the Company’s recognition of onetime tax benefits. The provision for income taxes was 34.8% and 29.9% of income before income taxes for the nine months ended July 31, 2012 and 2011, respectively. The increase in the effective income tax rate from period to period for the three months and the increase in the effective income tax rate from period to period for the nine months was primarily driven by the following: a decrease in the rate due to the reversal of the unrecognized tax benefit treated as a discrete item in the three months ended July 31, 2012; a decrease in the rate for a true-up of deductible acquisition costs treated as a discrete item in the three months ended April 30, 2012; an increase in the rate due to a decrease in the amount of research credits resulting from the expiration of the credits on December 31, 2011; and an increase in the rate due to a true-up of research credits treated as a discrete item in the three months ended July 31, 2011. The Company expects its effective tax rate for the current fiscal year to be approximately 42% absent these discrete items.

 

The total amount of unrecognized tax benefits was $0 as of July 31, 2012 and $79,223 as of October 31, 2011, all of which would impact the effective tax rate if recognized. The $79,223 of unrecognized tax benefits was recorded as a discrete item in the three months ended July 31, 2012 due to the expiration of the Federal and California statute of limitations for the respective 2007 and 2008 tax returns.

 

The total balance of accrued interest and penalties related to uncertain tax positions was $0 as of July 31, 2012 and $21,106 October 31, 2011. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and other long-term liabilities in the Company's condensed consolidated balance sheets. There were no material interest or penalties included in income tax expense for each of the three and nine months ended July 31, 2012 and 2011, other than the release of accrued interest and penalties related to uncertain tax positions during the three months ended July 31, 2012.