INCOME TAXES

As of July 31, 2015, 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, 2015 is as follows (in thousands):



Balance as of October 31, 2014		$879
Increases related to current year tax positions	114
Increases related to prior year tax positions	14
Lapse of statute of limitations	(52		)
Balance as of July 31, 2015		$955

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, 2015. 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 2015 increased to 30.6% from 29.7% in the first nine months of fiscal 2014. The increase is principally due to the impact of a larger reduction in accrued contingent consideration in the first nine months of fiscal 2014 associated with a prior year acquisition acquired by means of a nontaxable stock transaction. This increase was partially offset by an income tax credit for qualified R&D activities for the last ten months of fiscal 2014 that was recognized in the first quarter of fiscal 2015 resulting from the retroactive extension of the U.S. federal R&D tax credit in December 2014 to cover calendar year 2014 and the benefit of recognizing additional foreign tax credits related to R&D activities at one of the Company's foreign subsidiaries inclusive of a prior year tax return amendment.

The Company’s effective tax rate in the third quarter of fiscal 2015 increased to 32.0% from 23.4% in the third quarter of fiscal 2014. The increase is principally due to the impact of a larger reduction in accrued contingent consideration in the third quarter of fiscal 2014 compared to fiscal 2015 associated with a prior year acquisition acquired by means of a nontaxable stock transaction.

The Company has not made a provision for U.S. income taxes on the undistributed earnings of a fiscal 2015 foreign acquisition as such earnings are considered permanently reinvested outside of the U.S. The amount of undistributed earnings is not material to the Company's condensed consolidated financial statements.