(6) Income Taxes

Income tax expense consisted of the following:


	Years ended April 30,
	2014		2013		2012
	(In thousands)
Current:
Federal	$	4,253	$	4,103	$	5,335
State		686		847		685

		4,939		4,950		6,020

Deferred:
Federal		557		131		(85	)
State		70		33		(7	)

		627		164		(92	)

	$	5,566	$	5,114	$	5,928

The Company’s actual income tax expense differs from the “expected” income tax expense calculated by applying the Federal statutory rate of 35% for fiscal years 2014, 2013 and 2012, to earnings before income taxes and noncontrolling interest as follows:


	Years ended April 30,
	2014			2013			2012
	(In thousands)
Computed “expected” income tax expense	$	5,564		$	5,434		$	6,045
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax effect		493			568			405
Research and development credits		(258	)		(584	)		(259	)
Change in valuation allowance for deferred tax assets		45			(187	)		34
Tax contingencies		(47	)		27			(59	)
Other, net, including permanent items		(231	)		(144	)		(238	)

	$	5,566		$	5,114		$	5,928

Our effective income tax rates were 35.0%, 32.9% and 34.3% in 2014, 2013 and 2012, respectively. Our effective income tax rate takes into account the source of taxable income, by state, and available income tax credits. The provision for income taxes in 2014, 2013 and 2012 excludes approximately $361,000, $160,000 and $881,000, respectively, of tax benefits realized from the recognition of stock option deductions, which have been recorded in additional paid-in capital.

The significant components of deferred income tax (benefit) expense attributable to income from continuing operations before income taxes for the years ended April 30, 2014, 2013, and 2012 are as follows:


	Years ended April 30,
	2014		2013			2012
	(In thousands)
Deferred tax expense (benefit)	$	582	$	351		$	(126	)
(Decrease) increase in the valuation allowance for deferred tax assets		45		(187	)		34

	$	627	$	164		$	(92	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 2014 and 2013 are presented as follows:


	2014			2013
	(In thousands)
Deferred tax assets:
Accruals and expenses not deducted for tax purposes	$	1,024		$	1,018
State net operating loss carryforwards		389			358
Intangible assets and fixed asset basis differences		1,347			1,191
Nonqualified stock options		1,154			1,287

Total gross deferred tax assets		3,914			3,854
Less valuation allowance		466			421

Net deferred tax assets		3,448			3,433

Deferred tax liabilities:
Capitalized computer software development costs		(4,109	)		(3,334	)
Net gains/losses on trading securities		(566	)		(458	)
Goodwill		(598	)		(511	)
Other		(529	)		(528	)

Total gross deferred tax liabilities		(5,802	)		(4,831	)

Net deferred tax liabilities	$	(2,354	)	$	(1,398	)

At April 30, 2014, the Company has approximately $11.8 million of various state net operating loss carryforwards which are available to offset future state taxable income, if any, through 2034.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon reversal of deferred tax liabilities and expected future profitability, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, at April 30, 2014.

The Company applies the accounting provisions which require us to prescribe a recognition threshold and measurement attribution for the financial statement recognition and measurement of a tax position taken or expected to be taken within an income tax return.

As of April 30, 2014, 2013 and 2012, we have recorded approximately $1.2 million, $1.2 million, and $1.1 million, respectively, of unrecognized tax benefits, inclusive of interest and penalties, all of which would impact our effective tax rate if recognized. The liability for unrecognized tax benefits is recorded net of any federal tax benefit that would result from payment.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. As of April 30, 2014 and 2013, we had recorded a liability for potential penalties and interest of approximately $160,000 and $191,000, respectively, related to uncertain tax positions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, excluding interest and penalties (in thousands):


	2014			2013
Balance at beginning of the period	$	981		$	984
Decreases as a result of positions taken during prior periods		(28	)		(25	)
Increases as a result of positions taken during the current period		—			22

Balance at April 30,	$	953		$	981

We conduct business globally and, as a result, file consolidated income tax returns in the United States Federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to state and local, or non-U.S. income tax examinations for years prior to 2000. We are no longer subject to U.S. Federal income tax examination for years prior to 2010. The Company’s 2009 and 2008 U.S. Federal returns were audited by the Internal Revenue Service, and the examinations were concluded in November 2011 and 2009, respectively, with no changes to the returns as originally filed. The Company’s 2012 U.S. Federal return is currently under audit examination by the Internal Revenue Service; however, we do not anticipate any changes to the returns as originally filed.

We anticipate that total unrecognized tax benefits will change by $899,000 in tax and $54,000 in interest in the next twelve months.