INCOME TAXES

12 Months Ended

Oct. 31, 2022

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,
	2022	2021	2020
Domestic	$429,329	$345,733	$327,754
Foreign	61,694	41,325	37,101
Income before taxes and noncontrolling interests	$491,023	$387,058	$364,855

    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,
	2022	2021	2020
Current:
Federal	$63,861	$47,839	$17,730
State	13,015	11,639	4,167
Foreign	14,648	13,457	13,101
	91,524	72,935	34,998
Deferred:
Federal	8,154	(10,097)	(3,364)
State	1,129	(3,251)	(55)
Foreign	(407)	(2,287)	(2,579)
	8,876	(15,635)	(5,998)
Total income tax expense	$100,400	$57,300	$29,000

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

	Year ended October 31,
	2022		2021		2020
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal income tax benefit	2.6	%	2.9	%	3.7	%
Tax benefit related to stock option exercises	(3.6	%)	(3.7	%)	(13.3	%)
Tax-exempt losses (gains) on corporate-owned life insurance policies	2.8	%	(2.9	%)	(0.7	%)
Research and development tax credits	(1.5	%)	(2.5	%)	(2.4	%)
Foreign derived intangible income deduction	(1.9	%)	(1.9	%)	(1.6	%)
Nondeductible compensation	1.2	%	1.2	%	.4	%
Other, net	(.2	%)	.7	%	.8	%
Effective tax rate	20.4	%	14.8	%	7.9	%

The Company's effective tax rate in fiscal 2022 was 20.4%, as compared to 14.8% in fiscal 2021. The increase in the Company's effective tax rate principally reflects a 5.7% unfavorable impact from tax-exempt unrealized losses in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan (the "LCP") recognized in fiscal 2022 as compared to the tax-exempt unrealized gains recognized on such policies in fiscal 2021.

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 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 2018. 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 2016 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,
	2022	2021
Deferred tax assets:
Inventories	$51,505	$41,354
Deferred compensation plan liability	42,285	54,726
Operating lease liabilities	20,043	16,483
Share-based compensation	9,177	8,759
Performance-based compensation accrual	4,482	4,615
Customer rebates accrual	3,323	2,236
Vacation accrual	2,127	1,910
Allowance for doubtful accounts receivable	1,598	2,532
Deferred payroll taxes	1,262	2,372
Other	12,687	9,102
Total deferred tax assets	148,489	144,089
Deferred tax liabilities:
Goodwill and other intangible assets	(176,436)	(145,024)
Property, plant and equipment	(21,746)	(19,580)
Operating lease right-of-use assets	(19,344)	(15,941)
Adoption of ASC 606 (revenue recognition)	(388)	(2,677)
Other	(1,737)	(1,628)
Total deferred tax liabilities	(219,651)	(184,850)
Net deferred tax liability	($71,162)	($40,761)

    As of October 31, 2022 and 2021, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $3.5 million and $4.1 million, respectively, of which $2.8 million and $3.2 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 2022 and 2021 is as follows (in thousands):

	Year ended October 31,
	2022	2021
Balances as of beginning of year	$4,072	$2,946
Increases related to current year tax positions	870	710
Increases related to prior year tax positions	—	839
Decreases related to prior year tax positions	(286)	—
Settlements	(522)	—
Lapses of statutes of limitations	(631)	(423)
Balances as of end of year	$3,503	$4,072