Note 11. Income Taxes

The consolidated effective tax rate was 36.7% and 37.6% for the three months ended October 31, 2013 and 2012, respectively. The decrease in the consolidated effective tax rate was principally due to the geographic mix of pre-tax income and the impact of Federal tax legislation re-enacted in January 2013, as described below.

For the three months ended October 31, 2013 and 2012, approximately 96% and 98%, respectively, of our income before income taxes was generated from our United States operations, which had an overall effective tax rate of 37.3% and 37.9%, respectively. The lower overall effective tax rate for the three months ended October 31, 2013 was principally caused by Federal tax legislation that had expired in December 2011, but was re-enacted retroactively in January 2013, that enabled us to record the research and experimentation tax credit in the current period. Due to the timing of the expiration and re-enactment of this legislation, the research and experimentation tax credit was not recorded during the three months ended October 31, 2012.

For the three months ended October 31, 2013 and 2012, approximately 4% and 2%, respectively, of our income before income taxes was generated from our operations in Canada, Singapore and the Netherlands. Collectively, these operations had an overall effective tax rate of 23.0% and 21.5% for the three months ended October 31, 2013 and 2012, respectively. All three of these locations have lower statutory income tax rates compared to the United States.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Condensed Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Any adjustments upon resolution of income tax uncertainties are recognized in our results of operations. However, if our unrecognized tax benefits are recognized in our financial statements in future periods, there would not be a significant impact to our overall effective tax rate due to the size of the unrecognized tax benefits in relation to our income before income taxes. We do not expect such unrecognized tax benefits to significantly decrease or increase in the next twelve months.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

	Unrecognized
	Tax Benefits

Unrecognized tax benefits on July 31, 2012	$	124,000
Activity during fiscal 2013	—
Unrecognized tax benefits on July 31, 2013	124,000
Activity during the three months ended October 31, 2013	—
Unrecognized tax benefits on October 31, 2013	$	124,000

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2005.

Our policy is to record potential interest and penalties related to income tax positions in interest expense and general and administrative expense, respectively, in our Condensed Consolidated Financial Statements. However, such amounts have been relatively insignificant due to the amount of our unrecognized tax benefits relating to uncertain tax positions.