13. Taxes:

The following table presents the provision for income taxes and the effective income tax rates for the three months ended October 31, 2011 and 2010:


	Three Months Ended October 31,
	2011		2010
Provision for income taxes	$	1,869	$	759
Effective tax rate		32%		35%

The effective income tax rate on continuing operations is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.

The effective tax rate for the three months ended October 31, 2011 of 32% was lower than the federal statutory rate due primarily to lower foreign tax rates and the federal research and experimentation credit.

The effective tax rate of 35% for the three months ended October 31, 2010 was higher due to the expiration of the federal research and experimentation credit on December 31, 2009 and from losses in the Company’s recently established subsidiary in Shanghai, China that are currently subject to a valuation allowance. These items were offset by lower foreign taxes.

The total amounts of gross unrecognized tax benefits, which excludes interest and penalties discussed below, were as follows for the dates indicated:


October 31, 2011				July 31, 2011
$16,361				$16,250

These unrecognized tax benefits, if recognized in a future period, the timing of which is not estimable except as described below, would impact the Company’s effective tax rate.

The Company is subject to U.S. Federal income tax as well as the income tax of multiple state and foreign jurisdictions. As of October 31, 2011, the Company has concluded all U.S. Federal income tax matters through the year ended July 31, 2002 and for the years ended July 31, 2004 through 2007. Subsequent to October 31, 2011, the Company was informed by the Internal Revenue Service (“IRS”) that its audit of federal income tax returns for the fiscal years ended July 31, 2003, 2005, and 2008 had been completed and that the Company should expect to receive a refund of Federal research and experimentation credits that carryover from the fiscal years 1991 through 2000. The benefit, including interest, is expected to be approximately $10,000. Once the refund is realized, the Company expects to recognize the tax benefit of approximately $10,000, less related contingent professional fees of approximately $2,700, which will be recorded in general and administrative expenses. In connection with the conclusion of the IRS audit, the Company also expects to record a reversal of related tax reserves of approximately $2,100.

The Company accrues interest and, if applicable, penalties for any uncertain tax positions. This interest and penalty expense is treated as a component of income tax expense. At October 31, 2011 and July 31, 2011, the Company had approximately $1,525 and $1,485, respectively, accrued for interest and penalties on unrecognized tax benefits.