INCOME TAXES

12 Months Ended

Oct. 31, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

6.      INCOME TAXES

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

	Year ended October 31,
	2011		2010		2009
Current:
Federal	$	38,002,000	$	29,180,000	$	25,920,000
State		4,008,000		4,659,000		3,890,000
Foreign		861,000		1,044,000		841,000
		42,871,000		34,883,000		30,651,000
Deferred		29,000		1,817,000		(2,651,000	)
Total income tax expense	$	42,900,000	$	36,700,000	$	28,000,000

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

	Year ended October 31,
	2011			2010			2009
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
State taxes, less applicable federal income tax reduction		1.8			3.2			2.5
Net tax benefit on noncontrolling interests’ share of income		(2.5	)		(2.6	)		(2.7	)
Net tax benefit on qualified research and development activities		(2.7	)		(1.0	)		(2.9	)
Net tax benefit on qualified domestic production activities		(1.0	)		(.8	)		(.6	)
Other, net		.4			(.1	)		.6
Effective tax rate		31.0	%		33.7	%		31.9	%

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:

	As of October 31,
	2011			2010
Deferred tax assets:
Inventories	$	15,581,000		$	14,196,000
Deferred compensation liability		11,708,000			9,969,000
Foreign R&D carryforward and credit		3,277,000			2,788,000
Bonus accrual		2,373,000			1,568,000
Stock option compensation		1,947,000			1,068,000
Capital lease obligation		1,354,000			—
Allowance for doubtful accounts receivable		973,000			896,000
Vacation accrual		877,000			769,000
Warranty reserve		793,000			541,000
Net operating loss carryforward of acquired business		661,000			1,395,000
Customer rebates accrual		616,000			558,000
Other		2,325,000			1,323,000
Total deferred tax assets		42,485,000			35,071,000
Deferred tax liabilities:
Intangible asset amortization		68,601,000			55,750,000
Accelerated depreciation		4,942,000			3,044,000
Software development costs		2,127,000			1,905,000
Other		1,054,000			773,000
Total deferred tax liabilities		76,724,000			61,472,000
Net deferred tax liability	$	(34,239,000	)	$	(26,401,000	)

The net deferred tax liability is classified in the Company’s Consolidated Balance Sheets as follows:

	As of October 31,
	2011			2010
Current asset	$	22,286,000		$	18,907,000
Long-term asset		2,374,000			—
Long-term liability		58,899,000			45,308,000
Net deferred tax liability	$	(34,239,000	)	$	(26,401,000	)

The increase in the Company’s net deferred tax liability from $26.4 million as of October 31, 2010 to $34.2 million as of October 31, 2011 is principally related to the deferred tax liabilities recognized in connection with the acquisition of 3D (see Note 2, Acquisitions).

As of October 31, 2011 and 2010, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $1,834,000 and $2,306,000, respectively, of which $1,491,000 and $1,927,000, 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 the fiscal years ended October 31, 2011 and 2010 is as follows:

	Year ended October 31,
	2011			2010
Balances as of beginning of year	$	2,306,000		$	3,328,000
Increases related to prior year tax positions		50,000			46,000
Decreases related to prior year tax positions		(482,000	)		(1,229,000	)
Increases related to current year tax positions		393,000			551,000
Settlements		(56,000	)		(31,000	)
Lapse of statutes of limitations		(377,000	)		(359,000	)
Balances as of end of year	$	1,834,000		$	2,306,000

The Company’s net liability for unrecognized tax benefits was $1,784,000 as of October 31, 2011, including $217,000 of interest and $152,000 of penalties and net of $419,000 in related deferred tax assets.  During the fiscal year ended October 31, 2011, the Company accrued interest of $21,000 and penalties of $18,000 related to the unrecognized tax benefits noted above.

In December 2010, Section 41 of the Internal Revenue Code, “Credit for Increasing Research Activities,” was retroactively extended for two years to cover the period from January 1, 2010 to December 31, 2011.  As a result, the Company recognized an income tax credit for qualified research and development activities for the last ten months of fiscal 2010 in the first quarter of fiscal 2011.  The tax credit, net of expenses, increased net income attributable to HEICO by approximately $.8 million in fiscal 2011.  The Company also filed its fiscal 2010 U.S. federal and state tax returns and amended certain prior year state tax returns during the third quarter of fiscal 2011.  As a result, the Company recognized an aggregate benefit from tax related items, which increased net income attributable to HEICO by approximately $2.0 million, net of expenses, in fiscal 2011 principally from state income apportionment updates ($.9 million), higher research and development tax credits ($.9 million) and other prior year tax return to accrual adjustments ($.2 million).  The state income apportionment related benefit principally reflects a change to the applicable methodology for apportioning income to certain states in the fiscal 2010 and amended returns.  The higher research and development tax credits reflect the finalization of a study of qualifying fiscal 2010 research and development activities and reduction in the liability for gross unrecognized research and development related tax positions due to both lapses of statutes of limitations and the conclusion of a foreign research and development tax credit audit.

The $1,022,000 decrease in the liability during fiscal 2010 was principally related to the finalization of a study of qualifying research and development activities used to prepare the Company’s fiscal 2009 U.S. federal and state income tax returns and the settlement of the California Franchise Tax Board examination of the income tax credit claimed for qualified research and development activities on the Company’s state of California filings for fiscal years 2001 through 2005.  The decrease in the liability reduced the Company’s income tax expense by $932,000.

The Company files income tax returns in the United States (“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 or state examinations by tax authorities for fiscal years prior to 2008.

The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, lapse of applicable statutes of limitations and the recognition and measurement criteria under the guidance related to accounting for uncertainty in income taxes.  The Company is unable to estimate what this change could be within the next twelve months, but does not believe it would be material to its consolidated financial statements.