INCOME TAXES

As of July 31, 2014, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $1.0 million of which $.7 million would decrease the Company’s income tax expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross unrecognized tax benefits for the nine months ended July 31, 2014 is as follows (in thousands):



Balance as of October 31, 2013		$1,072
Increases related to current year tax positions	81
Settlements	(22		)
Lapse of statutes of limitations	(94		)
Balance as of July 31, 2014		$1,037

There were no material changes in the liability for unrecognized tax positions resulting from tax positions taken during the current or a prior year, settlements with other taxing authorities or a lapse of applicable statutes of limitations. The accrual of interest and penalties related to the unrecognized tax benefits was not material for the nine months ended July 31, 2014. Further, the Company does not expect the total amount of unrecognized tax benefits to materially change in the next twelve months.

The Company's effective tax rate in the first nine months of fiscal 2014 increased to 29.7% from 29.5% in the first nine months of fiscal 2013. The increase is principally due to an income tax credit for qualified research and development activities for the last ten months of fiscal 2012 that was recognized in the first quarter of fiscal 2013 resulting from the retroactive extension of the U.S research and development tax credit and its subsequent expiration on December 31, 2013 that limited the tax credit recognized in fiscal 2014 to just two months. Additionally, the increase reflects a larger income tax deduction recognized in the prior year for the special and extraordinary cash dividend paid to participants of the HEICO Savings and Investment Plan ("SIP") holding HEICO common stock and the benefit in the prior year from higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation Leadership Compensation Plan ("LCP"). These increases to the effective tax rate were partially offset by the impact of a nontaxable reduction in accrued contingent consideration during fiscal 2014 associated with a fiscal 2013 acquisition acquired by means of a stock transaction.

The Company's effective tax rate in the third quarter of fiscal 2014 decreased to 23.4% from 26.6% in the third quarter of fiscal 2013. The decrease is principally attributed to the previously mentioned reduction in accrued contingent consideration partially offset by the previously mentioned lower research and development tax credits recognized in fiscal 2014 due to expiration of the U.S. research and development tax credit, larger prior year income tax deduction for the cash dividends paid to participants of the HEICO SIP and higher tax-exempt unrealized gains in the prior year related to the LCP.