INCOME TAXES

12 Months Ended

Oct. 31, 2023

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,
	2023	2022	2021
Domestic	$479,990	$429,329	$345,733
Foreign	75,293	61,694	41,325
Income before taxes and noncontrolling interests	$555,283	$491,023	$387,058

    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,
	2023	2022	2021
Current:
Federal	$96,492	$63,861	$47,839
State	18,225	13,015	11,639
Foreign	22,714	14,648	13,457
	137,431	91,524	72,935
Deferred:
Federal	(19,049)	8,154	(10,097)
State	(4,311)	1,129	(3,251)
Foreign	(3,171)	(407)	(2,287)
	(26,531)	8,876	(15,635)
Total income tax expense	$110,900	$100,400	$57,300

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

	Year ended October 31,
	2023		2022		2021
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal income tax benefit	2.5	%	2.6	%	2.9	%
Tax benefit related to stock option exercises	(1.1	%)	(3.6	%)	(3.7	%)
Tax-exempt (gains) losses on corporate-owned life insurance policies	(.6	%)	2.8	%	(2.9	%)
Research and development tax credits	(1.9	%)	(1.5	%)	(2.5	%)
Foreign derived intangible income deduction	(1.9	%)	(1.9	%)	(1.9	%)
Nondeductible compensation	1.4	%	1.2	%	1.2	%
Other, net	.6	%	(.2	%)	.7	%
Effective tax rate	20.0	%	20.4	%	14.8	%

The Company's effective tax rate decreased to 20.0% in fiscal 2023, down from 20.4% in fiscal 2022. The decrease in the Company's effective tax rate principally reflects a favorable impact from tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan (the "LCP") in fiscal 2023 as compared to tax-exempt unrealized losses recognized in fiscal 2022. This was partially offset by a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2022 and the portion of acquisition costs associated with fiscal 2023 acquisitions that were not deductible for income tax purposes. The Company recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2023 and 2022 of $6.2 million and $17.8 million, respectively.

The Company's effective tax rate was 20.4% in fiscal 2022, 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 LCP recognized in fiscal 2022 as compared to the tax-exempt unrealized gains recognized on such policies in fiscal 2021.

    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 2019. 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,
	2023	2022
Deferred tax assets:
Inventories	$85,560	$51,505
Deferred compensation plan liability	44,882	42,285
Capitalized research and development costs	29,142	543
Operating lease liabilities	26,771	20,043
Interest expense limitation carryforward	24,770	24
Share-based compensation	10,665	9,177
Performance-based compensation accrual	6,632	4,482
Customer rebates accrual	4,145	3,323
Other	17,832	17,107
Total deferred tax assets	250,399	148,489
Deferred tax liabilities:
Goodwill and other intangible assets	(324,774)	(176,436)
Property, plant and equipment	(28,533)	(21,746)
Operating lease right-of-use assets	(25,620)	(19,344)
Other	(3,318)	(2,125)
Total deferred tax liabilities	(382,245)	(219,651)
Net deferred tax liability	($131,846)	($71,162)

The increases in the Company's deferred tax assets for inventories and the interest expense limitation carryforward and in the Company's deferred tax liabilities for intangible assets are principally related to such deferred tax assets and liabilities recognized in connection with the fiscal 2023 acquisitions (see Note 2, Acquisitions). Additionally, as a result of the Tax Cuts and Jobs Act, the Company began capitalizing research and development costs beginning in fiscal 2023, which are now amortized over five years for income tax purposes.

As of October 31, 2023 and 2022, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $4.4 million and $3.5 million, respectively, of which $3.4 million and $2.8 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 2023 and 2022 is as follows (in thousands):

	Year ended October 31,
	2023	2022
Balances as of beginning of year	$3,503	$4,072
Increases related to current year tax positions	1,356	870
Increases related to prior year tax positions	214	—
Decreases related to prior year tax positions	—	(286)
Settlements	—	(522)
Lapses of statutes of limitations	(710)	(631)
Balance as of end of year	$4,363	$3,503