INCOME TAXES

12 Months Ended

Oct. 31, 2021

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,
	2021	2020	2019
Domestic	$345,733	$327,754	$386,584
Foreign	41,325	37,101	51,257
Income before taxes and noncontrolling interests	$387,058	$364,855	$437,841

    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,
	2021	2020	2019
Current:
Federal	$47,839	$17,730	$56,670
State	11,639	4,167	12,795
Foreign	13,457	13,101	15,027
	72,935	34,998	84,492
Deferred:
Federal	(10,097)	(3,364)	(3,140)
State	(3,251)	(55)	(1,263)
Foreign	(2,287)	(2,579)	(1,989)
	(15,635)	(5,998)	(6,392)
Total income tax expense	$57,300	$29,000	$78,100

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

	Year ended October 31,
	2021		2020		2019
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal income tax benefit	2.9	%	3.7	%	3.0	%
Tax benefit related to stock option exercises	(3.7	%)	(13.3	%)	(3.8	%)
Tax-exempt gains on corporate-owned life insurance policies	(2.9	%)	(0.7	%)	(0.6	%)
Research and development tax credits	(2.5	%)	(2.4	%)	(1.7	%)
Foreign derived intangible income deduction	(1.9	%)	(1.6	%)	(1.4	%)
Nondeductible compensation	1.2	%	.4	%	.8	%
Other, net	.7	%	.8	%	.5	%
Effective tax rate	14.8	%	7.9	%	17.8	%

The Company's effective tax rate in fiscal 2021 was 14.8%, as compared to 7.9% in fiscal 2020. The Company recognized a discrete tax benefit from stock option exercises in fiscal 2021 and 2020 of $14.2 million and $48.3 million, respectively. The tax benefit from stock option exercises in both years was the result of strong appreciation in HEICO's stock price during the optionees' holding periods and the $34.1 million larger benefit recognized in fiscal 2020 was the result of more stock options exercised. Additionally, the effective tax rate in fiscal 2021 reflects the favorable impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP.

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 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 2017. 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,
	2021	2020
Deferred tax assets:
Deferred compensation plan liability	$54,726	$41,744
Inventories	41,354	36,414
Operating lease liabilities	16,483	12,980
Share-based compensation	8,759	8,746
Performance-based compensation accrual	4,615	2,539
Allowance for doubtful accounts receivable	2,532	2,966
Deferred payroll taxes	2,372	1,754
Customer rebates accrual	2,236	2,667
Vacation accrual	1,910	1,840
Other	9,102	8,952
Total deferred tax assets	144,089	120,602
Deferred tax liabilities:
Goodwill and other intangible assets	(145,024)	(141,152)
Property, plant and equipment	(19,580)	(16,130)
Operating lease right-of-use assets	(15,941)	(12,327)
Adoption of ASC 606 (revenue recognition)	(2,677)	(4,733)
Other	(1,628)	(1,918)
Total deferred tax liabilities	(184,850)	(176,260)
Net deferred tax liability	($40,761)	($55,658)

    As of October 31, 2021 and 2020, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $4.1 million and $2.9 million, respectively, of which $3.2 million and $2.3 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 2021 and 2020 is as follows (in thousands):

	Year ended October 31,
	2021	2020
Balances as of beginning of year	$2,946	$2,670
Increases related to current year tax positions	710	489
Increases related to prior year tax positions	839	32
Decreases related to prior year tax positions	—	(18)
Lapses of statutes of limitations	(423)	(227)
Balances as of end of year	$4,072	$2,946