14.          Income Taxes

 

The components of income before income taxes are as follows (in thousands):

 

 

The Company expects any foreign earnings to be reinvested in such foreign jurisdictions and, therefore, no deferred tax liabilities for U.S. income taxes on undistributed earnings are recorded.  The foreign subsidiaries do not have any undistributed earnings.

 

A reconciliation of income tax expense computed using the U.S. federal statutory rates to actual income tax (benefit) expense is as follows:

 

 

The components of the (benefit) provision for income taxes are as follows (in thousands):

 

 

Significant components of the Company’s deferred income tax assets and liabilities are as follows (in thousands):

 

 

At April 30, 2017 and 2016 the Company recorded a valuation allowance of $5,416,000 and $4,511,000, respectively, against state R&D credits as the Company is currently generating more tax credits than it will utilize in future years and against foreign net operating losses that are not more likely than not to be utilized.  The valuation allowance increased by $905,000 and $1,383,000 for April 30, 2017 and April 30, 2016, respectively.

 

At April 30, 2017 the Company had state credit carryforwards of $18,173,000 that do not expire and federal tax credit carryforwards of $7,003,000 that expire in 2035.

 

At April 30, 2017, the Company had multiple state net operating loss carryforwards and had foreign losses of approximately $57,000 and $1,144,000, respectively. The state net operating loss carryforwards begin to expire in 2023. $1,017,000 of the foreign loss carryforwards begin to expire in 2019 with the remainder having an indefinite carryforward.

 

At April 30, 2017 and 2016, the Company had approximately $9,856,000 and $9,905,000, respectively, of unrecognized tax benefits all of which would impact the Company’s effective tax rate if recognized. The Company estimates that none of its unrecognized tax benefits will decrease in the next twelve months due to statute of limitation expiration.

 

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended April 30, 2017 and 2016 (in thousands):

 

 

The Company records interest and penalties on uncertain tax positions to income tax expense. As of April 30, 2017 and 2016, the Company had accrued approximately $16,000 and $55,000, respectively, of interest and penalties related to uncertain tax positions. The Company is currently under audit by various state jurisdictions but does not anticipate any material adjustments from these examinations. The tax years 2014 to 2017 remain open to examination by the IRS for federal income taxes. The tax years 2010 to 2017 remain open for major state taxing jurisdictions.

 

During the fiscal year ended April 30, 2017, the Company recorded a reversal of a $968,000 reserve, including the related interest, for uncertain tax positions due to the settlement of prior fiscal year audits.