INCOME TAXES

12 Months Ended

Oct. 31, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

INCOME TAXES

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

	Year ended October 31,
	2020	2019	2018
Domestic	$327,754	$386,584	$309,123
Foreign	37,101	51,257	47,163
Income before taxes and noncontrolling interests	$364,855	$437,841	$356,286

    The components of the provision for income taxes on income before income taxes and noncontrolling interests are as follows (in thousands):

	Year ended October 31,
	2020	2019	2018
Current:
Federal	$17,730	$56,670	$61,548
State	4,167	12,795	9,420
Foreign	13,101	15,027	12,608
	34,998	84,492	83,576
Deferred:
Federal	(3,364)	(3,140)	(13,115)
State	(55)	(1,263)	1,578
Foreign	(2,579)	(1,989)	(1,439)
	(5,998)	(6,392)	(12,976)
Total income tax expense	$29,000	$78,100	$70,600

    A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

	Year ended October 31,
	2020		2019		2018
Federal statutory income tax rate (blended rate in fiscal 2018)	21.0	%	21.0	%	23.3	%
State taxes, net of federal income tax benefit	3.7	%	3.0	%	2.9	%
Tax benefit related to stock option exercises	(13.3	%)	(3.8	%)	(.5	%)
Discrete net tax benefit related to Tax Act	—	%	—	%	(3.4	%)
Research and development tax credits	(2.4	%)	(1.7	%)	(2.0	%)
Foreign derived intangible income deduction	(1.6	%)	(1.4	%)	—	%
Tax-exempt (gains) losses on corporate-owned life insurance policies	(.7	%)	(.6	%)	.1	%
Nondeductible compensation	.4	%	.8	%	.2	%
Domestic production activities tax deduction	—	%	—	%	(.8	%)
Other, net	.8	%	.5	%	—	%
Effective tax rate	7.9	%	17.8	%	19.8	%

The Company's effective tax rate in fiscal 2020 was 7.9%, as compared to 17.8% in fiscal 2019. The decrease in the Company's effective tax rate in fiscal 2020 is mainly attributable to a $31.8 million larger tax benefit recognized in fiscal 2020 from stock option exercises compared to fiscal 2019 as a result of more stock options exercised and the strong appreciation in HEICO's stock price during the optionees' holding periods.

The Company’s effective tax rate in fiscal 2019 was 17.8% as compared to 19.8% in fiscal 2018. The decrease in the Company's effective tax rate in fiscal 2019 is mainly attributable to a $14.3 million larger tax benefit recognized in fiscal 2019 from stock option exercises compared to fiscal 2018 and a reduction in the federal tax rate from a blended rate of 23.3% in fiscal 2018 to 21% in fiscal 2019. These decreases were partially offset by the net impact recognized in fiscal 2018 as a result of the Tax Cuts and Jobs Act from the remeasurement of the Company's U.S. federal net deferred tax liabilities using the reduced federal tax rate resulting in a discrete tax benefit of $16.5 million and recognition of a discrete tax expense of $4.4 million related to a one-time transition tax on the unremitted earnings of the Company’s foreign subsidiaries.

    The Company files income tax returns in the U.S. federal jurisdiction and in multiple state jurisdictions.  The Company is also subject to income taxes in certain jurisdictions outside the U.S., none of which are individually material to the accompanying consolidated financial statements.  Generally, the Company is no longer subject to U.S. federal, state or foreign examinations by tax authorities for years prior to fiscal 2016. One of the Company's foreign subsidiaries files income tax returns in The Netherlands and Thailand where the statute of limitations is open for its fiscal 2015 returns.     

    Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The Company believes that it is more likely than not that it will generate sufficient future taxable income to utilize all of its deferred tax assets and has therefore not recorded a valuation allowance on any such asset. 

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

	As of October 31,
	2020	2019
Deferred tax assets:
Deferred compensation plan liability	$41,744	$35,437
Inventories	36,414	23,858
Operating lease liabilities	12,980	—
Share-based compensation	8,746	10,206
Allowance for doubtful accounts receivable	2,966	724
Customer rebates accrual	2,667	2,324
Performance-based compensation accrual	2,539	6,463
Vacation accrual	1,840	1,452
Other	10,706	8,082
Total deferred tax assets	120,602	88,546
Deferred tax liabilities:
Goodwill and other intangible assets	(141,152)	(122,075)
Property, plant and equipment	(16,130)	(14,137)
Operating lease right-of-use assets	(12,327)	—
Adoption of ASC 606 (revenue recognition)	(4,733)	(3,277)
Other	(1,918)	(553)
Total deferred tax liabilities	(176,260)	(140,042)
Net deferred tax liability	($55,658)	($51,496)

    As of October 31, 2020 and 2019, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $2.9 million and $2.7 million, respectively, of which $2.3 million and $2.1 million, respectively, 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 during fiscal 2020 and 2019 is as follows (in thousands):

	Year ended October 31,
	2020	2019
Balances as of beginning of year	$2,670	$2,100
Increases related to current year tax positions	489	653
Increases related to prior year tax positions	32	45
Decreases related to prior year tax positions	(18)	—
Lapses of statutes of limitations	(227)	(128)
Balances as of end of year	$2,946	$2,670