2020
Annual Report
ON
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2020 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 001-04604
HEICO CORPORATION
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
3000 Taft Street, Hollywood, Florida
(Address of principal executive offices)
65-0341002
(I.R.S. Employer Identification No.)
33021
(Zip Code)
(954) 987-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value per share
Class A Common Stock, $.01 par value per share
HEI
HEI.A
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $9,754,365,000 based on
the closing price of HEICO Common Stock and Class A Common Stock as of April 30, 2020 as reported by the New York Stock Exchange.
The number of shares outstanding of each of the registrant’s classes of common stock as of December 22, 2020 is as follows:
Common Stock, $.01 par value
Class A Common Stock, $.01 par value
54,195,165 shares
81,026,674 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2021 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Index
HEICO CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2020
PART I
Item 1. Business
Information About Our Executive Officers
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and
Selected Financial Data
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Statements and Supplementary Data
Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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Item 1. BUSINESS
The Company
PART I
HEICO Corporation through its subsidiaries (collectively, “HEICO,” “we,” “us,” “our” or
the “Company”) believes it is the world’s largest manufacturer of Federal Aviation
Administration (“FAA”)-approved jet engine and aircraft component replacement parts, other
than the original equipment manufacturers (“OEMs”) and their subcontractors. HEICO also
believes it is a leading manufacturer of various types of electronic equipment for the aviation,
defense, space, medical, telecommunications and electronics industries.
The Company was originally organized in 1957 as a holding company known as HEICO
Corporation. As part of a reorganization completed in 1993, the original holding company
(formerly known as HEICO Corporation) was renamed as HEICO Aerospace Corporation and a
new holding corporation known as HEICO Corporation was created. The reorganization did not
result in any change in the business of the Company, its consolidated assets or liabilities or the
relative interests of its shareholders.
Our business is comprised of two operating segments:
The Flight Support Group. Our Flight Support Group (“FSG”), consisting of HEICO
Aerospace Holdings Corp. and HEICO Flight Support Corp. and their collective subsidiaries,
accounted for 52%, 60% and 62% of our net sales in fiscal 2020, 2019 and 2018,
respectively. The FSG uses proprietary technology to design and manufacture jet engine and
aircraft component replacement parts for sale at lower prices than those manufactured by
OEMs. These parts are approved by the FAA and are the functional equivalent of parts sold by
OEMs. In addition, the FSG repairs, overhauls and distributes jet engine and aircraft
components, avionics and instruments for domestic and foreign commercial air carriers and
aircraft repair companies as well as military and business aircraft operators. The FSG also
manufactures and sells specialty parts as a subcontractor for aerospace and industrial original
equipment manufacturers and the United States ("U.S.") government. Additionally, the FSG is a
leading supplier, distributor, and integrator of military aircraft parts and support services
primarily to foreign military organizations allied with the U.S. and a leading manufacturer of
advanced niche components and complex composite assemblies for commercial aviation, defense
and space applications. Further, the FSG engineers, designs and manufactures thermal insulation
blankets and parts as well as removable/reusable insulation systems for aerospace, defense,
commercial and industrial applications; manufactures expanded foil mesh for lightning strike
protection in fixed and rotary wing aircraft; distributes aviation electrical interconnect products
and electromechanical parts; and overhauls industrial pumps, motors, and other hydraulic units
with a focus on the support of legacy systems for the U.S. Navy.
The Electronic Technologies Group. Our Electronic Technologies Group (“ETG”),
consisting of HEICO Electronic Technologies Corp. and its subsidiaries, accounted for 48%,
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40% and 38% of our net sales in fiscal 2020, 2019 and 2018, respectively. The ETG derived
approximately 66%, 64% and 65% of its net sales in fiscal 2020, 2019 and 2018, respectively,
from the sale of products and services to U.S. and foreign military agencies, prime defense
contractors and both commercial and defense satellite and spacecraft manufacturers. The ETG
collectively designs, manufactures and sells various types of electronic, data and microwave, and
electro-optical products, including infrared simulation and test equipment, laser rangefinder
receivers, electrical power supplies, back-up power supplies, power conversion products,
underwater locator beacons, emergency locator transmission beacons, flight deck annunciators,
panels, and indicators, electromagnetic and radio frequency interference shielding and filters,
high power capacitor charging power supplies, amplifiers, traveling wave tube amplifiers,
photodetectors, amplifier modules, microwave power modules, flash lamp drivers, laser diode
drivers, arc lamp power supplies, custom power supply designs, cable assemblies, high voltage
power supplies, high voltage interconnection devices and wire, high voltage energy generators,
high frequency power delivery systems, three-dimensional microelectronic and stacked memory
products, harsh environment electronic connectors and other interconnect products, radio
frequency ("RF") and microwave amplifiers, transmitters and receivers; RF sources, detectors
and controllers, wireless cabin control systems, solid state power distribution and management
systems, crashworthy and ballistically self-sealing auxiliary fuel systems, nuclear radiation
detectors, communications and electronic intercept receivers and tuners, fuel level sensing
systems, high-speed interface products that link devices, high performance active antenna
systems for commercial aircraft, precision guided munitions, other defense applications and
commercial uses; silicone material for a variety of demanding applications; precision power
analog monolithic, hybrid and open frame components; high-reliability ceramic-to-metal
feedthroughs and connectors, technical surveillance countermeasures (TSCM) equipment to
detect devices used for espionage and information theft; and rugged small-form factor embedded
computing solutions.
HEICO has continuously operated in the aerospace industry for over 60 years. Since
assuming control in 1990, our current management has achieved significant sales and profit
growth through a broadened line of product offerings, an expanded customer base, increased
research and development expenditures and the completion of a number of acquisitions. As a
result of internal growth and acquisitions, our net sales from continuing operations have grown
from $26.2 million in fiscal 1990 to $1,787.0 million in fiscal 2020, representing a compound
annual growth rate of approximately 15%. During the same period, we improved our net income
from $2.0 million to $314.0 million, representing a compound annual growth rate of
approximately 18%.
Our results of operations in fiscal 2020 were significantly affected by the COVID-19
global pandemic (the “Pandemic”). The effects of the Pandemic and related actions by
governments around the world to mitigate its spread have impacted our employees, customers,
suppliers and manufacturers. See Item 7, Management's Discussion and Analysis, for additional
details on the effects of the Pandemic on the Company.
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Disciplined Acquisition Strategy
Acquisitions have been an important element of our growth strategy over the past thirty
years, supplementing our organic growth. Since 1990, we have completed approximately 82
acquisitions complementing the niche segments of the aviation, defense, space, medical,
telecommunications and electronics industries in which we operate. We typically target
acquisition opportunities that allow us to broaden our product offerings, services and
technologies while expanding our customer base and geographic presence. Even though we have
historically pursued an active acquisition policy, our disciplined acquisition strategy involves
limiting acquisition candidates to businesses that we believe will continue to grow, offer strong
cash flow and earnings potential, and are available at fair prices. See Note 2, Acquisitions, of the
Notes to Consolidated Financial Statements for further information regarding our recent
acquisitions.
Flight Support Group
The Flight Support Group serves a broad spectrum of the aviation industry, including (i)
commercial airlines and air cargo carriers; (ii) repair and overhaul facilities; (iii) OEMs; and (iv)
U.S. and foreign governments.
The FSG competes with the leading industry OEMs and, to a lesser extent, with a number
of smaller, independent parts distributors. Historically, the three principal jet engine OEMs,
General Electric (including CFM International), Pratt & Whitney and Rolls Royce, have been the
sole source of substantially all jet engine replacement parts for their jet engines. Other OEMs
have been the sole source of replacement parts for their aircraft component parts. While we
believe that we are the largest independent supplier of non-OEM jet engine and aircraft
component replacement parts, we have in recent years been adding new products to our line at a
rate of approximately 300 to 500 Parts Manufacturer Approvals (“PMA” or “PMAs”) per
year. We have developed for our customers approximately 11,500 parts for which PMAs have
been received from the FAA.
Jet engine and aircraft component replacement parts can be categorized by their ongoing
ability to be repaired and returned to service. The general categories in which we participate are
as follows: (i) rotable; (ii) repairable; and (iii) expendable. A rotable is a part which is removed
periodically as dictated by an operator’s maintenance procedures or on an as needed basis and is
typically repaired or overhauled and re-used an indefinite number of times. An important subset
of rotables is “life limited” parts. A life limited rotable has a designated number of allowable
flight hours and/or cycles (one take-off and landing generally constitutes one cycle) after which
it is rendered unusable. A repairable is similar to a rotable except that it can only be repaired a
limited number of times before it must be discarded. An expendable is generally a part which is
used and not thereafter repaired for further use.
Jet engine and aircraft component replacement parts are classified within the industry as
(i) factory-new; (ii) new surplus; (iii) overhauled; (iv) repairable; and (v) as removed. A factory-
new or new surplus part is one that has never been installed or used. Factory-new parts are
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purchased from FAA-approved manufacturers (such as HEICO or OEMs) or their authorized
distributors. New surplus parts are purchased from excess stock of airlines, repair facilities or
other redistributors. An overhauled part is one that has been completely repaired and inspected
by a licensed repair facility such as ours. An aircraft spare part is classified as “repairable” if it
can be repaired by a licensed repair facility under applicable regulations. A part may also be
classified as “repairable” if it can be removed by the operator from an aircraft or jet engine while
operating under an approved maintenance program and is airworthy and meets any manufacturer
or time and cycle restrictions applicable to the part. A “factory-new,” “new surplus” or
“overhauled” part designation indicates that the part can be immediately utilized on an
aircraft. A part in “as removed” or “repairable” condition requires inspection and possibly
functional testing, repair or overhaul by a licensed facility prior to being returned to service in an
aircraft.
Factory-New Jet Engine and Aircraft Component Replacement Parts. The FSG engages
in the research and development, design, manufacture and sale of FAA-approved replacement
parts that are sold to domestic and foreign commercial air carriers and aircraft repair and
overhaul companies. Our principal competitors are aircraft engine and aircraft component
manufacturers. The FSG's factory-new replacement parts include various jet engine and aircraft
component replacement parts. A key element of our growth strategy is the continued design and
development of an increasing number of PMA replacement parts in order to further penetrate our
existing customer base and obtain new customers. We select the jet engine and aircraft
component replacement parts to design and manufacture through a selection process which
analyzes industry information to determine which replacement parts are suitable candidates.
Repair and Overhaul Services. The FSG provides repair and overhaul services on
selected jet engine and aircraft component parts, as well as on avionics, instruments, composites
and flight surfaces of commercial aircraft operated by domestic and foreign commercial
airlines. The FSG also provides repair and overhaul services including avionics and navigation
systems as well as subcomponents and other instruments utilized on military aircraft operated by
the U.S. government and foreign military agencies and for aircraft repair and overhaul
companies. Our repair and overhaul operations require a high level of expertise, advanced
technology and sophisticated equipment. Services include the repair, refurbishment and overhaul
of numerous accessories and parts mounted on gas turbine engines and airframes. Components
overhauled include fuel pumps, generators, fuel controls, pneumatic valves, starters and
actuators, turbo compressors and constant speed drives, hydraulic pumps, valves and actuators,
wheels and brakes, composite flight controls, electro-mechanical equipment, auxiliary power unit
accessories and thrust reverse actuation systems. Some of the repair and overhaul services
provided by the FSG are proprietary repairs approved by an FAA-qualified designated
engineering representative (“DER”) and/or by the owner/operator. Such proprietary repairs
typically create cost savings or provide engineering flexibility. The FSG also provides
commercial airlines, regional operators, asset management companies and Maintenance, Repair
and Overhaul (“MRO”) providers with high quality and cost effective niche accessory
component exchange services as an alternative to OEMs’ spares services.
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Distribution. The FSG distributes FAA-approved parts including hydraulic, pneumatic,
structural, interconnect, mechanical and electro-mechanical components for the commercial,
regional and general aviation markets. The FSG also is a leading supplier, distributor, and
integrator of military aircraft parts and support services primarily to foreign military
organizations allied with the U.S. Further, we believe the FSG is a leading provider of products
and services necessary to maintain up-to-date F-16 fighter aircraft operational capabilities.
Manufacture of Specialty Aircraft/Defense Related Parts and Subcontracting for
OEMs. The FSG engineers, designs and manufactures thermal insulation blankets and parts as
well as renewable/reusable insulation systems primarily for aerospace, defense, commercial and
industrial applications. The FSG also manufactures specialty components for sale as a
subcontractor for aerospace and industrial original equipment manufacturers and the U.S.
government. Additionally, the FSG manufactures advanced niche components and complex
composite assemblies for commercial aviation, defense and space applications, and manufactures
expanded foil mesh, which is integrated into composite aerospace structures for lightning strike
protection in fixed and rotary wing aircraft.
FAA Approvals and Product Design. Non-OEM manufacturers of jet engine and aircraft
component replacement parts must receive a PMA from the FAA to sell the replacement
part. The PMA approval process includes the submission of sample parts, drawings and testing
data to one of the FAA’s Aircraft Certification Offices where the submitted data are
analyzed. We believe that an applicant’s ability to successfully complete the PMA process is
limited by several factors, including (i) the agency’s confidence level in the applicant; (ii) the
complexity of the part; (iii) the volume of PMAs being filed; and (iv) the resources available to
the FAA. We also believe that companies such as HEICO that have demonstrated their advanced
design engineering and manufacturing capabilities, including an established favorable track
record with the FAA, generally receive a faster turnaround time in the processing of PMA
applications. Finally, we believe that the PMA process creates a significant barrier to entry in
this market niche through both its technical demands and its limits on the rate at which
competitors can bring products to market.
As part of our growth strategy, we have continued to increase our research and
development activities. Research and development expenditures by the FSG, which were
approximately $.3 million in fiscal 1991, increased to approximately $19.1 million in fiscal 2020,
$23.8 million in fiscal 2019 and $21.3 million in fiscal 2018. We believe that our FSG's research
and development capabilities are a significant component of our historical success and an
integral part of our growth strategy. In recent years, the FAA granted us PMAs for
approximately 300 to 500 new parts and we develop approximately 250 to 350 new proprietary
repairs per year; however, no assurance can be given that the FAA will continue to grant PMAs
or DER-approved repairs or that we will achieve acceptable levels of net sales and gross profits
on such parts or repairs in the future.
We benefit from our proprietary rights relating to certain design, engineering and
manufacturing processes and repair and overhaul procedures. Customers often rely on us
to provide initial and additional components, as well as to redesign, re-engineer, replace or repair
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and provide overhaul services on such aircraft components at every stage of their useful lives. In
addition, for some products, our unique manufacturing capabilities are required by the
customer’s specifications or designs, thereby necessitating reliance on us for production of such
designed products.
We have no material patents for the proprietary techniques, including software and
manufacturing expertise, we have developed to manufacture jet engine and aircraft component
replacement parts and instead, we primarily rely on trade secret protection. Although our
proprietary techniques and software and manufacturing expertise are subject to misappropriation
or obsolescence, we believe that we take appropriate measures to prevent misappropriation or
obsolescence from occurring by developing new techniques and improving existing methods and
processes, which we will continue on an ongoing basis as dictated by the technological needs of
our business.
We believe that, based on our competitive pricing, reputation for high quality, short lead
time requirements, strong relationships with domestic and foreign commercial air carriers and
repair stations (companies that overhaul aircraft engines and/or components), and successful
track record of receiving PMAs and repair approvals from the FAA and commercial air carriers,
we are uniquely positioned to continue to increase the products and services offered and gain
market share.
Electronic Technologies Group
Our Electronic Technologies Group’s strategy is to design and manufacture highly-
engineered, mission-critical subcomponents that must successfully operate in the harshest
environments, for smaller, niche markets, but which are utilized in larger systems – systems like
power, targeting, tracking, identification, simulation, testing, communications, lighting, surgical,
medical imaging, baggage scanning, telecom and computer systems. These systems are, in turn,
often located on another platform, such as aircraft, rotorcraft, satellites, ships, spacecraft, land
vehicles, handheld devices and other platforms.
Electro-Optical Infrared Simulation and Test Equipment. The ETG is a designer and
manufacturer of niche state-of-the-art simulation, testing and calibration equipment used in the
development of missile seeking technology, airborne targeting and reconnaissance systems,
shipboard targeting and reconnaissance systems, space-based sensors as well as ground vehicle-
based systems. These products include infrared scene projector equipment, such as our
MIRAGE IR Scene Simulator, high precision blackbody sources, software and integrated
calibration systems.
Simulation equipment allows the U.S. government and allied foreign military to save
money on missile testing as it allows infrared-based missiles to be tested on a multi-axis, rotating
table instead of requiring the launch of a complete missile. In addition, several large military
prime contractors have elected to purchase such equipment from us instead of maintaining
internal staff to do so because we can offer a more cost-effective solution. Our customers
include major U.S. Department of Defense weapons laboratories and defense prime contractors.
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Electro-Optical Laser Products. The ETG is a designer and maker of laser rangefinder
receivers and other photodetectors used in airborne, vehicular and handheld targeting systems
manufactured by major prime military contractors. Most of our rangefinder receiver product
offering consists of complex and patented products which detect reflected light from laser
targeting systems and allow the systems to confirm target accuracy and calculate target distances
prior to discharging a weapon system. Some of these products are also used in laser eye surgery
systems for tracking ocular movement.
Electro-Optical, Microwave and Other Power Equipment. The ETG produces power
supplies, amplifiers and flash lamp drivers used in laser systems for military, medical and other
applications that are sometimes utilized with our rangefinder receivers. We also produce
emergency back-up power supplies and batteries used on commercial aircraft and business jets
for services such as emergency exit lighting, emergency fuel shut-off, power door assists, cockpit
voice recorders and flight computers. Additionally, we design, manufacture and repair flight
deck annunciators, panels and indicators. We design and manufacture next generation wireless
cabin control systems, solid state power distribution and management systems and fuel level
sensing systems for business jets and for general aviation, as well as for the military/defense
market. We offer custom or standard designs that solve challenging OEM requirements and
meet stringent safety and emissions requirements. Our power electronics products include
capacitor charger power supplies, laser diode drivers, arc lamp power supplies and custom power
supply designs.
Our microwave products are used in both commercial and military satellites, spacecraft
and in electronic warfare systems. These products, which include isolators, bias tees, circulators,
latching ferrite switches and waveguide adapters, are used in satellites and spacecraft to control
or direct energy according to operator needs. As satellites are frequently used as sensors for
stand-off warfare, we believe this product line further supports our goal of increasing our activity
in the stand-off market. Additionally, our microwave products include converters, receivers,
transmitters, amplifiers, frequency sources and related sub-systems that address the majority of
major satellite frequencies. We believe we are a leading supplier of the niche products which we
design and manufacture for this market, a market that includes commercial satellites. Our
customers for these products include satellite and spacecraft manufacturers.
Electromagnetic Interference (EMI) and Radio-Frequency Interference (RFI) Shielding
and Suppression Filters. The ETG designs and manufactures shielding used to prevent
electromagnetic energy and radio frequencies from interfering with other devices, such as
computers, telecommunication devices, avionics, weapons systems and other electronic
equipment. The ETG designs and manufactures EMI/RFI and transient protection solutions for a
wide variety of connectors that principally serve customers within the aerospace and defense
markets. Our products include a patented line of shielding applied directly to circuit boards and
a line of gasket-type shielding applied to computers and other electronic equipment. Our
customers consist essentially of medical, electronics, telecommunications and defense equipment
producers.
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High-Speed Interface Products. The ETG designs and manufactures advanced high-
technology, high-speed interface products utilized in homeland security, defense, medical
research, astronomical and other applications across numerous industries.
High Voltage Interconnection Devices. The ETG designs and manufactures high and
very high voltage interconnection devices, cable assemblies and wire for the medical equipment,
defense and other industrial markets. Among others, our products are utilized in aircraft missile
defense, fighter pilot helmet displays, avionic systems, medical applications, wireless
communications, and industrial applications including high voltage test equipment and
underwater monitoring systems.
High Voltage Advanced Power Electronics. The ETG designs and manufactures a
patented line of high voltage energy generators for medical, baggage inspection and industrial
imaging systems. We also produce high voltage power supplies found in satellite
communications, CT scanners and in medical and industrial x-ray systems.
Power Conversion Products. The ETG designs and provides innovative power
conversion products principally serving the high-reliability military, space and commercial
avionics end-markets. These high density, low profile and lightweight DC-to-DC converters and
electromagnetic interference filters, which include thick film hermetically sealed hybrids,
military commercial-off-the-shelf and custom designed and assembled products, have become
the primary specified components of their kind on a generation of complex military, space and
avionics equipment.
Underwater Locator Beacons and Emergency Locator Transmission Beacons. The ETG
designs and manufactures Underwater Locator Beacons (“ULBs”) used to locate aircraft Cockpit
Voice Recorders and Flight Data Recorders, marine ship Voyage Recorders and various other
devices which have been submerged under water. ULBs are required equipment on all U.S.
FAA and European Aviation Safety Agency (“EASA”) approved Flight Data and Cockpit Voice
Recorders used in aircraft and on similar systems utilized on large marine shipping vessels. The
ETG also designs and manufactures Emergency Locator Transmission Beacons for the
commercial aviation and defense markets. Upon activation, these safety-critical devices transmit
a distress signal to alert search and rescue operations of the aircraft's location.
Traveling Wave Tube Amplifiers (“TWTAs”) and Microwave Power Modules
(“MPMs”). The ETG designs and manufactures TWTAs and MPMs predominately used in
radar, electronic warfare, on-board jamming and countermeasure systems in aircraft, ships and
detection platforms deployed by U.S. and allied non-U.S. military forces.
Three-Dimensional Microelectronic and Stacked Memory Products. The ETG designs,
manufactures and markets three-dimensional microelectronic and stacked memory products
including memories, Point of Load (“POL”) voltage converters and peripherals, industrial
memories, and complex System-in-Package (“SiP”) solutions. The products’ patented designs
provide high reliability memory and circuitry in a unique and stacked form which saves space
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and weight. These products are principally integrated into larger subsystems equipping satellites
and spacecraft and are also utilized in medical equipment.
Harsh Environment Connectivity Products and Custom Molded Cable Assemblies. The
ETG designs and manufactures high performance, high reliability and harsh environment
electronic connectors and other interconnect products. These products include connectors, jacks
and plugs, cables, patch panels and switches utilized in aviation, broadcast/audio, defense,
industrial, medical and other equipment.
RF and Microwave Amplifiers, Transmitters and Receivers. The ETG designs and
manufactures RF and microwave amplifiers, transmitters and receivers to support military
communications on unmanned aerial systems, other aircraft, helicopters and ground-based data/
communications systems.
High Performance Communications and Electronic Intercept Receivers and Tuners. The
ETG designs and manufactures innovative, high performance receiver and radio frequency
digitizer products for military and intelligence applications.
Crashworthy and Ballistically Self-Sealing Auxiliary Fuel Systems. The ETG designs
and manufactures mission-extending, crashworthy and ballistically self-sealing auxiliary fuel
systems for military rotorcraft.
High Performance Active Antenna Systems. The ETG designs and produces high
performance active antenna systems for commercial aircraft, precision guided munitions, other
defense applications and commercial uses.
Nuclear Radiation Detectors. The ETG designs and manufactures highly sensitive,
reliable and easy-to-use nuclear radiation detectors for law enforcement, homeland security and
military applications.
Specialty Silicone Products. The ETG designs and manufactures silicone material for a
variety of demanding applications used in aerospace, defense, research, oil and gas, testing,
pharmaceuticals and other markets.
High-End Power Amplifiers. The ETG designs and manufactures precision power analog
monolithic, hybrid and open frame components for a certain wide range of defense, industrial,
measurement, medical and test applications.
High-Reliability Ceramic-to-Metal Feedthroughs and Connectors. The ETG designs and
manufactures high-reliability ceramic-to-metal feedthroughs and connectors for demanding
environments within the industrial, life science, medical, research, semiconductor, and other
markets.
Technical Surveillance Countermeasures ("TSCM") Equipment. The ETG designs and
manufactures TSCM equipment to detect devices used for espionage and information theft
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serving government agencies, law enforcement, corporate security personnel and TSCM
professionals worldwide.
High-end Radio Frequency Receivers and Sources. The ETG designs and manufactures
RF Sources, Detectors and Controllers for a certain wide range of aerospace and defense
applications.
Rugged, Small-Form-Factor Embedded Computing Solutions. The ETG designs and
manufactures rugged, small-form-factor embedded computing solutions that are primarily used
in rugged commercial and industrial, aerospace and defense, transportation, and smart energy
applications.
As part of our growth strategy, we have continued to invest in our research and
development activities. Research and development expenditures by the ETG were $46.5 million
in fiscal 2020, $42.8 million in fiscal 2019 and $36.2 million in fiscal 2018. We believe that our
ETG's research and development capabilities are a significant component of our historical
success and an integral part of our growth strategy.
Distribution, Sales, Marketing and Customers
Each of our operating segments independently conducts distribution, sales and marketing
efforts directed at their respective customers and industries and, in some cases, collaborates with
other operating divisions and subsidiaries within its group for cross-marketing efforts. Sales and
marketing efforts are conducted primarily by in-house personnel and, to a lesser extent, by
independent manufacturers’ representatives. Generally, our in-house sales personnel receive a
base salary plus commissions and manufacturers’ representatives receive a commission based on
sales.
We believe that direct relationships are crucial to establishing and maintaining a strong
customer base and, accordingly, our senior management is actively involved in our marketing
activities, particularly with established customers. We are also a member of various trade and
business organizations related to the commercial aviation industry, such as the Aerospace
Industries Association, which we refer to as AIA, the leading trade association representing the
nation’s manufacturers of commercial, military and business aircraft, aircraft engines and related
components and equipment. Due in large part to our established industry presence, we enjoy
strong customer relations, name recognition and repeat business.
We sell our products to a broad customer base consisting of domestic and foreign
commercial and cargo airlines, repair and overhaul facilities, other aftermarket suppliers of
aircraft engine and airframe materials, OEMs, domestic and foreign military units, electronic
manufacturing services companies, manufacturers for the defense industry as well as medical,
telecommunications, scientific, and industrial companies. No one customer accounted for sales
of 10% or more of total consolidated sales from continuing operations during any of the last
three fiscal years. Net sales to our five largest customers accounted for approximately 24%, 20%
and 20% of total net sales in fiscal 2020, 2019 and 2018, respectively.
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Competition
The aerospace product and service industry is characterized by intense competition.
Some of our competitors have substantially greater name recognition, inventories,
complementary product and service offerings, financial, marketing and other resources than we
do. As a result, such competitors may be able to respond more quickly to customer requirements
than we can. Moreover, smaller competitors may be in a position to offer more attractive pricing
as a result of lower labor costs and other factors.
Our jet engine and aircraft component replacement parts business competes primarily
with aircraft engine and aircraft component OEMs. The competition is principally based on
price and service to the extent that our parts are interchangeable. With respect to other aerospace
products and services sold by the Flight Support Group, we compete with both the leading jet
engine and aircraft component OEMs and a large number of machining, fabrication, distribution
and repair companies, some of which have greater financial and other resources than we
do. Competition is based mainly on price, product performance, service and technical capability.
Competition for the repair and overhaul of jet engine and aircraft components and
avionics and navigation systems as well as the manufacture of specialty aircraft and defense
related parts comes from three principal sources: OEMs, major commercial airlines and other
independent service companies. Some of these competitors have greater financial and other
resources than we do. Some major commercial airlines own and operate their own service
centers and sell repair and overhaul services to other aircraft operators. Foreign airlines that
provide repair and overhaul services typically provide these services for their own aircraft
components and for third parties. OEMs also maintain service centers that provide repair and
overhaul services for the components they manufacture. Other independent service
organizations also compete for the repair and overhaul business of other users of aircraft
components. We believe that the principal competitive factors in the repair and overhaul market
are quality, turnaround time, overall customer service and price.
Our Electronic Technologies Group competes with several large and small domestic and
foreign competitors, some of which have greater financial and other resources than we do. The
markets for our electronic, data and microwave, and electro-optical equipment products are niche
markets with several competitors where competition is based mainly on design, technology,
quality, price, service and customer satisfaction.
Raw Materials
We purchase a variety of raw materials, primarily consisting of high temperature alloy
sheet metal and castings, forgings, pre-plated metals and electrical components from various
vendors. The materials used by our operations are generally available from a number of sources
and in sufficient quantities to meet current requirements subject to normal lead times. We are
subject to rules promulgated by the Securities Exchange Commission pursuant to the Dodd-
Frank Wall Street Reform and Consumer Protection Act regarding the use of certain materials
(tantalum, tin, gold and tungsten), known as conflict minerals, which are mined from the
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Democratic Republic of the Congo and adjoining countries. These rules may impose additional
costs and may introduce new risks related to our ability to verify the origin of any conflict
minerals used in our products.
Backlog
Our total backlog was $844 million as of October 31, 2020 as compared to $900 million
as of October 31, 2019. The majority of our backlog of orders as of October 31, 2020 is
expected to be filled during fiscal 2021. The ETG’s backlog of unshipped orders was $559
million as of October 31, 2020 as compared to $575 million as of October 31, 2019. The FSG's
backlog of unshipped orders was $285 million as of October 31, 2020 as compared to $325
million as of October 31, 2019. This backlog excludes forecasted shipments for certain contracts
of the FSG pursuant to which customers provide only estimated annual usage and not firm
purchase orders. Our backlogs within the FSG are typically short-lead in nature with many
product orders being received within the month of shipment. The decrease in the FSG's backlog
mainly reflects lower demand for its commercial aviation products principally resulting from the
continued significant decline in global commercial air travel due to the ongoing Pandemic.
Government Regulation
The FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts
operated in the United States. Its regulations are designed to ensure that all aircraft and aviation
equipment are continuously maintained in proper condition to ensure safe operation of the
aircraft. Similar rules apply in other countries. All aircraft must be maintained under a
continuous condition monitoring program and must periodically undergo thorough
inspection and maintenance. The inspection, maintenance and repair procedures for the various
types of aircraft and equipment are prescribed by regulatory authorities and can be performed
only by certified repair facilities utilizing certified technicians. Certification and conformance is
required prior to installation of a part on an aircraft. Aircraft operators must maintain logs
concerning the utilization and condition of aircraft engines, life-limited engine parts and
airframes. In addition, the FAA requires that various maintenance routines be performed on
aircraft engines, some engine parts, and airframes at regular intervals based on cycles or flight
time. Engine maintenance must also be performed upon the occurrence of certain events, such as
foreign object damage in an aircraft engine or the replacement of life-limited engine parts. Such
maintenance usually requires that an aircraft engine be taken out of service. Our operations may
in the future be subject to new and more stringent regulatory requirements. In that regard, we
closely monitor the FAA and industry trade groups in an attempt to understand how possible
future regulations might impact us. Our businesses which sell defense products directly to the
U.S. Government or for use in systems delivered to the U.S. Government can be subject to
various laws and regulations governing pricing and other factors.
There has been no material adverse effect to our consolidated financial statements nor
competitive positions as a result of these government regulations.
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Environmental Regulation
Our operations are subject to extensive, and frequently changing, federal, state and local
environmental laws and substantial related regulation by government agencies, including the
Environmental Protection Agency. Among other matters, these regulatory authorities impose
requirements that regulate the operation, handling, transportation and disposal of hazardous
materials; protect the health and safety of workers; and require us to obtain and maintain licenses
and permits in connection with our operations. This extensive regulatory framework imposes
significant compliance burdens and risks on us. Notwithstanding these burdens, we believe that
we are in material compliance with all federal, state and local environmental laws and
regulations governing our operations.
There has been no material adverse effect to our consolidated financial statements nor
competitive positions as a result of these environmental regulations.
Other Regulation
We are also subject to a variety of other regulations including work-related and
community safety laws. The Occupational Safety and Health Act of 1970 mandates general
requirements for safe workplaces for all employees and established the Occupational Safety and
Health Administration (“OSHA”) in the Department of Labor. In particular, OSHA provides
special procedures and measures for the handling of certain hazardous and toxic substances. In
addition, specific safety standards have been promulgated for workplaces engaged in the
treatment, disposal or storage of hazardous waste. Requirements under state law, in some
circumstances, may mandate additional measures for facilities handling materials specified as
extremely dangerous. We believe that our operations are in material compliance with OSHA’s
health and safety requirements.
Insurance
We are a named insured under policies which include the following coverage: (i) product
liability, including grounding; (ii) personal property, inventory and business interruption at our
facilities; (iii) general liability coverage; (iv) employee benefit liability; (v) international liability
and automobile liability; (vi) umbrella liability coverage; and (vii) various other activities or
items, each subject to certain limits and deductibles. We believe that our insurance coverage is
adequate to insure against the various liability risks of our business.
Human Capital
We believe HEICO’s employees are directly responsible for its success through
dedication to their profession and craft. This talented group continues to deliver industry leading
growth and new product innovations, all while maintaining HEICO’s unique entrepreneurial
culture of excellence.
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As of October 31, 2020, we had approximately 5,200 full-time and part-time employees
including approximately 2,500 in the Flight Support Group and approximately 2,700 in the
Electronic Technologies Group. None of our employees are represented by a U.S. domestic
union. Our management believes that we have good relations with our employees.
Health and Safety
The health and safety of our workforce is fundamental to the success of our business. We
safeguard our people, projects and reputation by striving for zero employee injuries and illnesses,
while operating and delivering our work responsibly and sustainably. We provide our employees
upfront and ongoing safety training to ensure that safety policies and procedures are effectively
communicated and implemented. Personal protective equipment is provided to those employees
where needed for the employee to safely perform their job function.
Compensation and Benefits
As part of our compensation philosophy, we believe that we must offer and maintain
market competitive total rewards programs for our employees in order to attract and retain
superior talent. In addition to healthy base wages, additional programs include annual bonus
opportunities, a Company matched 401(k) Plan, healthcare and insurance benefits, health savings
and flexible spending accounts, paid time off, family leave, flexible work schedules, and
employee assistance programs.
Diversity and Inclusion
We are committed to our continued efforts to increase diversity and foster an inclusive
work environment that supports the global workforce and the communities we serve. We recruit
the best people for the job regardless of gender, ethnicity or other protected traits and it is our
policy to fully comply with all laws (domestic and foreign) applicable to discrimination in the
workplace. Our diversity, equity and inclusion principles are also reflected in our employee
training and policies. We continue to enhance our diversity, equity and inclusion policies which
are guided by our executive leadership team.
Available Information
Our Internet website address is http://www.heico.com. We make available free of
charge, through the Investors section of our website, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, specialized disclosure reports on Form SD
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). These
materials are also available free of charge on the SEC’s website at http://www.sec.gov. The
information on or obtainable through our website is not incorporated into this annual report on
Form 10-K.
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We have adopted a code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller and other persons performing similar
functions. Our Code of Ethics for Senior Financial Officers and Other Officers is part of our
Code of Business Conduct, which is located on our website at http://www.heico.com. Any
amendments to or waivers from a provision of this code of ethics will be posted on the
website. Also located on the website are our Corporate Governance Guidelines, Finance/Audit
Committee Charter, Nominating & Corporate Governance Committee Charter, and
Compensation Committee Charter.
Copies of the above referenced materials will be made available, free of charge, upon
written request to the Corporate Secretary at HEICO Corporation, 3000 Taft Street, Hollywood,
Florida 33021.
Information About Our Executive Officers
Our executive officers are appointed by the Board of Directors and serve at the discretion
of the Board. The following table sets forth the names, ages of, and positions and offices held by
our executive officers as of December 22, 2020:
Name
Laurans A. Mendelson
Age Position(s)
82 Chairman of the Board; Chief Executive Officer; and
Director
Eric A. Mendelson
55 Co-President and Director; President and Chief Executive
Officer of the HEICO Flight Support Group
Victor H. Mendelson
Thomas S. Irwin
Carlos L. Macau, Jr.
53 Co-President and Director; President and Chief Executive
Officer of the HEICO Electronic Technologies Group
Senior Executive Vice President
74
53 Executive Vice President - Chief Financial Officer and
Treasurer
Steven M. Walker
56 Chief Accounting Officer and Assistant Treasurer
Director
Since
1989
1992
1996
—
—
—
Laurans A. Mendelson has served as our Chairman of the Board since December
1990. He has also served as our Chief Executive Officer since February 1990 and served as our
President from September 1991 through September 2009. Mr. Mendelson is a member of the
Board of Governors of the Aerospace Industries Association (“AIA”) in Washington, D.C., of
which HEICO is a member. He is the former Chairman of the Board of Trustees, former
Chairman of the Executive Committee and a current member of the Society of Mount Sinai
Founders of Mount Sinai Medical Center in Miami Beach, Florida. In addition, Mr. Mendelson
is a Trustee Emeritus of Columbia University in the City of New York, where he previously
served as Trustee and Chairman of the Trustees’ Audit Committee. Laurans Mendelson is the
father of Eric Mendelson and Victor Mendelson.
Eric A. Mendelson has been associated with the Company since 1990, serving in various
capacities. Mr. Mendelson has served as our Co-President since October 2009 and served as our
Executive Vice President from 2001 through September 2009. Mr. Mendelson has also served as
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President and Chief Executive Officer of the HEICO Flight Support Group since its formation in
1993, as well as President of various Flight Support Group subsidiaries. Mr. Mendelson is a co-
founder, and, since 1987, has been Managing Director of Mendelson International Corporation, a
private investment company, which is a shareholder of HEICO. In addition, Mr. Mendelson is a
member of the Advisory Board of Trustees of Mount Sinai Medical Center in Miami Beach,
Florida, and a member of the Board of Trustees and a Past Chairman of Ransom Everglades
School in Coconut Grove, Florida, as well as a member of the Board of Visitors of Columbia
College in New York City. Eric Mendelson is the son of Laurans Mendelson and the brother of
Victor Mendelson.
Victor H. Mendelson has been associated with the Company since 1990, serving in
various capacities. Mr. Mendelson has served as our Co-President since October 2009 and
served as our Executive Vice President from 2001 through September 2009. Mr. Mendelson has
also served as President and Chief Executive Officer of the HEICO Electronic Technologies
Group since its formation in September 1996. He served as General Counsel of the Company
from 1993 to 2008 and Vice President of the Company from 1996 to 2001. In addition, Mr.
Mendelson was the Chief Operating Officer of the Company’s former MediTek Health
Corporation subsidiary from 1995 until its profitable sale in 1996. Mr. Mendelson is a co-
founder, and, since 1987, has been President of Mendelson International Corporation, a private
investment company, which is a shareholder of HEICO. Mr. Mendelson is a former Director and
Audit Committee member of NASDAQ-listed Terrapin 3 Acquisition Corp. Mr. Mendelson is a
Trustee of Columbia University in the City of New York, a Trustee of St. Thomas University in
Miami Gardens, Florida, a Director of Boys & Girls Clubs of Miami-Dade and is a Director and
Past President of the Board of Directors of the Florida Grand Opera. Victor Mendelson is the
son of Laurans Mendelson and the brother of Eric Mendelson.
Thomas S. Irwin has served as our Senior Executive Vice President since June 2012; our
Executive Vice President, Chief Financial Officer and Treasurer from September 1991 through
May 2012; Senior Vice President and Treasurer from 1986 to 1991; and our Vice President and
Treasurer from 1982 to 1986. Mr. Irwin is a Certified Public Accountant. He is a member of the
American and North Carolina Institutes of Certified Public Accountants and a member of
Financial Executives International.
Carlos L. Macau, Jr. has served as our Executive Vice President - Chief Financial Officer
and Treasurer since June 2012. Mr. Macau joined HEICO from the international public
accounting firm of Deloitte & Touche LLP where he worked from 2000 to 2012 as an Audit
Partner. Prior to joining HEICO, Mr. Macau accumulated 22 years of financial and accounting
experience serving a number of public and private manufacturing and service clients in a broad
range of industries. His client responsibilities included serving as HEICO's lead client services
partner for five years (2006 to 2010). Mr. Macau is a current member of the Mount Sinai
Founders of Mount Sinai Medical Center in Miami Beach, Florida. Mr. Macau is a Certified
Public Accountant, a Chartered Global Management Accountant, and a member of the American
and Florida Institutes of Certified Public Accountants.
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Steven M. Walker has served as our Chief Accounting Officer since June 2012 and served
as our Corporate Controller from 2002 through May 2012. He has also served as our Assistant
Treasurer since 2002. Mr. Walker is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants.
Item 1A. RISK FACTORS
Our business, financial condition, operating results and cash flows may be impacted by a
number of factors, many of which are beyond our control, including those set forth below and
elsewhere in this Annual Report on Form 10-K, any one of which may cause our actual results to
differ materially from anticipated results:
Strategic, Business and Operational Risks
We may not be able to effectively execute our acquisition strategy, which could slow our
growth.
A key element of our strategy is growth through the acquisition of additional
companies. Our acquisition strategy is affected by and poses a number of challenges and risks,
including the following:
• Availability of suitable acquisition candidates;
• Availability of capital;
• Diversion of management’s attention;
• Effective integration of the operations and personnel of acquired companies;
•
•
• Use of a significant portion of our available cash;
•
• Consummation of acquisitions on satisfactory terms.
Potential write downs of acquired intangible assets;
Potential loss of key employees of acquired companies;
Significant dilution to our shareholders for acquisitions made utilizing our securities; and
We may not be able to successfully execute our acquisition strategy, and the failure to do
so could have a material adverse effect on our business, financial condition and results of
operations.
Our success is dependent on the development and manufacture of new products,
equipment and services. Our inability to develop, manufacture and introduce new
products and services at profitable pricing levels could reduce our sales or sales growth.
The aviation, defense, space, medical, telecommunications and electronics industries are
constantly undergoing development and change and, accordingly, new products, equipment and
methods of repair and overhaul service are likely to be introduced in the future. In addition to
manufacturing electronic and electro-optical equipment and selected aerospace and defense
components for OEMs and the U.S. government and repairing jet engine and aircraft
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components, we re-design sophisticated aircraft replacement parts originally developed by OEMs
so that we can offer the replacement parts for sale at substantially lower prices than those
manufactured by the OEMs. Consequently, we devote substantial resources to research and
product development. Technological development poses a number of challenges and risks,
including the following:
• We may not be able to successfully protect the proprietary interests we have in various
aircraft parts, electronic and electro-optical equipment and our repair processes;
• As OEMs continue to develop and improve jet engines and aircraft components, we may
not be able to re-design and manufacture replacement parts that perform as well as those
offered by OEMs or we may not be able to profitably sell our replacement parts at lower
prices than the OEMs;
• We may need to expend significant capital to:
- purchase new equipment and machines,
- train employees in new methods of production and service, and
- fund the research and development of new products; and
• Development by our competitors of patents or methodologies that preclude us from the
design and manufacture of aircraft replacement parts or electrical and electro-optical
equipment could adversely affect our business, financial condition and results of
operations.
In addition, we may not be able to successfully develop new products, equipment or
methods of repair and overhaul service, and the failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
Intense competition from existing and new competitors may harm our business.
We face significant competition in each of our businesses.
Flight Support Group
•
•
For jet engine and aircraft component replacement parts, we compete with the industry’s
leading jet engine and aircraft component OEMs.
For the distribution, overhaul and repair of jet engine and aircraft components and
avionics and navigation systems as well as the manufacture of specialty aircraft and
defense related parts, we compete with:
- major commercial airlines, many of which operate their own maintenance and
overhaul units;
- OEMs, which manufacture, distribute, repair and overhaul their own and other OEM
parts; and
- other independent service companies.
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Electronic Technologies Group
•
For the design and manufacture of various types of electronic, data and microwave, and
electro-optical equipment products, we compete in a fragmented marketplace with a
number of companies, some of which are well capitalized.
The aviation aftermarket supply industry is highly fragmented, has several highly visible
leading companies, and is characterized by intense competition. Some of our OEM competitors
have greater name recognition than HEICO, as well as complementary lines of business and
financial, marketing and other resources that HEICO does not have. In addition, OEMs, aircraft
maintenance providers, leasing companies and FAA-certificated repair facilities may attempt to
bundle their services and product offerings in the supply industry, thereby significantly
increasing industry competition. Moreover, our smaller competitors may be able to offer more
attractive pricing of parts as a result of lower labor costs or other factors. A variety of potential
actions by any of our competitors, including a reduction of product prices or the establishment by
competitors of long-term relationships with new or existing customers, could have a material
adverse effect on our business, financial condition and results of operations. Competition
typically intensifies during cyclical downturns in the aviation industry, when supply may exceed
demand. We may not be able to continue to compete effectively against present or future
competitors, and competitive pressures may have a material adverse effect on our business,
financial condition and results of operations.
The inability to obtain certain components and raw materials from suppliers could harm
our business.
Our business is affected by the availability and price of the raw materials and component
parts that we use to manufacture our products. Our ability to manage inventory and meet
delivery requirements may be constrained by our suppliers’ ability to adjust delivery of long-lead
time products during times of volatile demand. The supply chains for our business could also be
disrupted by external events such as natural disasters, extreme weather events, pandemics, labor
disputes, governmental actions and legislative or regulatory changes. As a result, our suppliers
may fail to perform according to specifications when required and we may be unable to identify
alternate suppliers or to otherwise mitigate the consequences of their non-performance.
Transitions to new suppliers may result in significant costs and delays, including those related to
the required recertification of parts obtained from new suppliers with our customers and/or
regulatory agencies. Our inability to fill our supply needs could jeopardize our ability to fulfill
obligations under customer contracts, which could result in reduced revenues and profits,
contract penalties or terminations, and damage to customer relationships. Further, increased
costs of such raw materials or components could reduce our profits if we were unable to pass
along such price increases to our customers.
Product specification costs and requirements could cause an increase to our costs to
complete contracts.
The costs to meet customer specifications and requirements could result in us having to
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spend more to design or manufacture products and this could reduce our profit margins on
current contracts or those we obtain in the future.
We may incur damages or disruption to our business caused by natural disasters and other
factors that may not be covered by insurance.
Several of our facilities, as a result of their locations, could be subject to a catastrophic
loss caused by hurricanes, tornadoes, earthquakes, floods, fire, power loss, telecommunication
and information systems failure, political unrest or similar events. Our corporate headquarters
and facilities located in Florida are particularly susceptible to hurricanes, storms, tornadoes or
other natural disasters that could disrupt our operations, delay production and shipments, and
result in large expenses to repair or replace the facility or facilities. Should insurance or other
risk transfer mechanisms, such as our existing disaster recovery and business continuity plans, be
insufficient to recover all costs, we could experience a material adverse effect on our business,
financial condition and results of operations.
We are subject to the risks associated with sales to foreign customers, which could harm
our business.
We market our products and services to approximately 110 countries, with approximately
33% of our consolidated net sales in fiscal 2020 derived from sales to foreign customers. We
expect that sales to foreign customers will continue to account for a significant portion of our
revenues in the foreseeable future. As a result, we are subject to risks of doing business
internationally, including the following:
Fluctuations in currency exchange rates;
•
• Volatility in foreign political, regulatory, and economic environments;
• Ability to obtain required export licenses or approvals;
• Uncertainty of the ability of foreign customers to finance purchases;
• Uncertainties and restrictions concerning the availability of funding credit or guarantees;
•
Imposition of taxes, export controls, tariffs, embargoes and other trade restrictions; and
• Compliance with a variety of international laws, as well as U.S. laws affecting the
activities of U.S. companies abroad such as the U.S. Foreign Corrupt Practices Act.
While the impact of these factors is difficult to predict, any one or more of these factors
may have a material adverse effect on our business, financial condition and results of operations.
Cyber security events or other disruptions of our information technology systems could
adversely affect our business.
We rely on information technology systems, some of which are managed by third parties,
to process, transmit and store electronic information, and to manage or support a variety of
critical business processes and activities. We also collect and store sensitive data, including
confidential business information and personal data. These systems may be susceptible to
damage, disruptions or shutdowns due to attacks by computer hackers, computer viruses,
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employee error or malfeasance, power outages, hardware failures, telecommunication or utility
failures, catastrophes or other unforeseen events. In addition, security breaches of our systems
could result in the misappropriation or unauthorized disclosure of confidential information or
personal data belonging to us or to our employees, partners, customers or suppliers. Any such
events could disrupt our operations, delay production and shipments, result in defective products
or services, damage customer relationships and our reputation and result in legal claims or
proceedings that could have a material adverse effect on our business, financial condition and
results of operations.
We may not have the administrative, operational or financial resources to continue to grow
the company.
We have experienced rapid growth in recent periods and intend to continue to pursue an
aggressive growth strategy, both through acquisitions and internal expansion of products and
services. Our growth to date has placed, and could continue to place, significant demands on our
administrative, operational and financial resources. We may not be able to grow effectively or
manage our growth successfully, and the failure to do so could have a material adverse effect on
our business, financial condition and results of operations.
Goodwill and other intangible assets represent a significant portion of our total assets, and
we may never realize the full value of our intangible assets.
As a result of our acquisitions, goodwill and intangible assets represent a significant
portion of our total assets. As of October 31, 2020 and 2019, goodwill and intangible assets, net
of amortization, accounted for 55% and 61% of our total assets, respectively. We test our
goodwill and intangible assets for impairment on an annual basis, or more frequently if events or
changes in circumstances indicate that the carrying amount of such assets may not be fully
recoverable. We may not realize the full value of our goodwill and intangible assets, and to the
extent that impairment has occurred, we would be required to recognize the impaired portion of
such assets in our earnings. An impairment of a significant portion of such assets could have a
material adverse effect on our business, financial condition and results of operations.
We are dependent on key personnel and the loss of these key personnel could have a
material adverse effect on our success.
Our success substantially depends on the performance, contributions and expertise of our
senior management team led by Laurans A. Mendelson, our Chairman and Chief Executive
Officer, and Eric A. Mendelson and Victor H. Mendelson, our Co-Presidents. Technical
employees are also critical to our research and product development, as well as our ability to
continue to re-design sophisticated products of OEMs in order to sell competing replacement
parts at substantially lower prices than those manufactured by the OEMs. The loss of the
services of any of our executive officers or other key employees or our inability to continue to
attract or retain the necessary personnel could have a material adverse effect on our business,
financial condition and results of operations.
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Our executive officers and directors have significant influence over our management and
direction.
As of December 22, 2020, collectively our executive officers and entities controlled by
them, the HEICO Savings and Investment Plan (our 401(k) Plan) and members of the Board of
Directors beneficially owned approximately 19% of our outstanding Common Stock and
approximately 4% of our outstanding Class A Common Stock. Accordingly, they will be able to
substantially influence the election of the Board of Directors and control our business, policies
and affairs, including our position with respect to proposed business combinations and attempted
takeovers.
Industry and Macroeconomic Risks
Our success is highly dependent on the performance of the aviation industry, which could
be impacted by lower demand for commercial air travel or airline fleet changes causing
lower demand for our goods and services.
General global industry and economic conditions that affect the aviation industry also
affect our business. We are subject to macroeconomic cycles and when recessions occur, we
may experience reduced orders, payment delays, supply chain disruptions or other factors as a
result of the economic challenges faced by our customers, prospective customers and
suppliers. Further, the aviation industry has historically been subject to downward cycles from
time to time which reduce the overall demand for jet engine and aircraft component replacement
parts and repair and overhaul services, and such downward cycles result in lower sales and
greater credit risk. Demand for commercial air travel can be influenced by airline industry
profitability, world trade policies, government-to-government relations, terrorism, disease
outbreaks, environmental constraints imposed upon aircraft operations, technological changes,
price and other competitive factors. These global industry and economic conditions may have a
material adverse effect on our business, financial condition and results of operations.
The retirement or prolonged grounding of commercial aircraft could reduce our revenues.
Our Flight Support Group designs and manufactures jet engine and aircraft component
replacement parts and also repairs, overhauls and distributes jet engine and aircraft
components. If aircraft or engines for which we offer replacement parts or supply repair and
overhaul services are retired or grounded for prolonged periods of time and there are fewer
aircraft that require these parts or services, our revenues may decline.
Reductions in defense, space or homeland security spending by U.S. and/or foreign
customers could reduce our revenues.
In fiscal 2020, approximately 66% of the net sales of our Electronic Technologies Group
were derived from the sale of defense, commercial and defense satellite and spacecraft
components, and homeland security products. A decline in defense, space or homeland security
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budgets or additional restrictions imposed by the U.S. government on sales of products or
services to foreign military agencies could lower sales of our products and services.
We are subject to risks arising from the COVID-19 global pandemic (the "Pandemic").
Our results of operations in fiscal 2020 were significantly affected by the Pandemic. A
pandemic or other public health epidemic, poses the risk that we or our employees, customers,
suppliers, manufacturers and other commercial partners may be prevented from conducting
business activities for an indefinite period of time, including due to the spread of the disease or
shutdowns requested or mandated by governmental authorities.
With respect to our results of operations, approximately 59% of our net sales in fiscal
2020 were derived from defense, space and other industrial markets including electronics,
medical and telecommunications. Although demand for these products was slightly moderated in
fiscal 2020, our overall results from this portion of our business were not materially impacted by
the Pandemic. However, we experienced, and expect to continue experiencing, periodic
operational disruptions resulting from supply chain disturbances, staffing challenges - including
at some of our customers, temporary facility closures, transportation interruptions and other
conditions which slow production and orders, or increase costs.
The remaining portion of our net sales is derived from commercial aviation products and
services. Actions by U.S. federal, state and foreign governments to address the Pandemic,
including lockdowns, quarantines, border controls, travel restrictions and business venue
closures, as well as changes in the propensity for the general public to travel by air, have had and
are expected to continue to have, a significant adverse effect on the commercial aircraft markets
and the demand for certain products and services HEICO provides. Furthermore, payment
deferrals or defaults or bankruptcy of our customers has and may continue to adversely affect our
business, and may lead to additional charges, impairments and other adverse financial impacts.
The extent to which the Pandemic may have a material adverse effect on our future
business, financial condition and results of operations will depend on many factors that are not
within HEICO’s control, including but not limited to the duration, spread and severity of the
Pandemic, government responses and other actions to mitigate the spread of and to treat the
Pandemic, and when and to what extent normal business, economic and social activity and
conditions resume.
Regulatory and Legal Risks
We are subject to governmental regulation and our failure to comply with these regulations
could cause the government to withdraw or revoke our authorizations and approvals to do
business and could subject us to penalties and sanctions that could harm our business.
Governmental agencies throughout the world, including the FAA, highly regulate the
manufacture, repair and overhaul of aircraft parts and accessories. We include, with the
replacement parts that we sell to our customers, documentation certifying that each part complies
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with applicable regulatory requirements and meets applicable standards of airworthiness
established by the FAA or the equivalent regulatory agencies in other countries. In addition, our
repair and overhaul operations are subject to certification pursuant to regulations established by
the FAA. Specific regulations vary from country to country, although compliance with FAA
requirements generally satisfies regulatory requirements in other countries. The revocation or
suspension of any of our material authorizations or approvals would have an adverse effect on
our business, financial condition and results of operations. New and more stringent government
regulations, if adopted and enacted, could have an adverse effect on our business, financial
condition and results of operations. In addition, certain product sales to foreign countries of our
Electronic Technologies Group and Flight Support Group require approval or licensing from the
United States ("U.S.") government. Denial of export licenses could reduce our sales to those
countries and could have a material adverse effect on our business.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
Securities and Exchange Commission promulgated disclosure requirements regarding the use of
certain minerals (tantalum, tin, gold and tungsten), known as conflict minerals, which are mined
from the Democratic Republic of the Congo or one of its adjoining countries. There are costs
associated with complying with the disclosure requirements, such as costs related to determining
the source of certain minerals used in our products, as well as costs of possible changes to
products, processes, or sources of supply as a consequence of such verification activities. Given
the complexity of our supply chain, we may not be able to ascertain the origin of these minerals
used in our products in a timely manner, which could cause some of our customers to disqualify
us as a supplier to the extent we are unable to certify our products are conflict mineral free.
Additionally, the rule could affect sourcing at competitive prices and availability in sufficient
quantities of such minerals used in our manufacturing processes for certain products.
Tax changes could affect our effective tax rate and future profitability.
We file income tax returns in the U.S. federal jurisdiction, multiple state jurisdictions and
certain jurisdictions outside the U.S. In fiscal 2020, our effective tax rate was 7.9%. Our future
effective tax rate may be adversely affected by a number of factors, including the following:
• Changes in statutory tax rates in any of the various jurisdictions where we file tax returns;
• Changes in available tax credits or tax deductions;
• Changes in tax laws or the interpretation of such tax laws including interpretations,
amendments and technical corrections of the recently enacted Tax Cuts and Jobs Act;
• Changes to the accounting for income taxes in accordance with generally accepted
accounting principles;
• The amount of net income attributable to noncontrolling interests in our subsidiaries
structured as partnerships;
• Changes in the mix of earnings in jurisdictions with differing statutory tax rates;
• Adjustments to estimated taxes upon finalization of various tax returns;
• Resolution of issues arising from tax audits with various tax authorities; and
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• The reversal of any previously experienced tax-exempt unrealized gains in the cash
surrender values of life insurance policies related to the HEICO Corporation Leadership
Compensation Plan, a nonqualified deferred compensation plan.
Any significant increase in our future effective tax rates could have a material adverse
effect on net income for future periods.
We may incur product liability claims that are not fully insured and such insurance may
not be available at commercially reasonable rates.
Our jet engine and aircraft component replacement parts and repair and overhaul services
expose our business to potential liabilities for personal injury or death as a result of the failure of
an aircraft component that we have designed, manufactured or serviced. While we maintain
liability insurance to protect us from future product liability claims, an uninsured or partially
insured claim, or a claim for which third-party indemnification is not available, could have a
material adverse effect on our business, financial condition and results of operations.
Additionally, our customers typically require us to maintain substantial insurance coverage at
commercially reasonable rates and our inability to obtain insurance coverage at commercially
reasonable rates could have a material adverse effect on our business.
We may incur environmental liabilities and these liabilities may not be covered by
insurance.
Our operations and facilities are subject to a number of federal, state and local
environmental laws and regulations, which govern, among other things, the discharge of
hazardous materials into the air and water as well as the handling, storage and disposal of
hazardous materials. Pursuant to various environmental laws, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation of hazardous
materials. Environmental laws typically impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of hazardous materials. Although management
believes that our operations and facilities are in material compliance with environmental laws
and regulations, future changes in them or interpretations thereof or the nature of our operations
may require us to make significant additional capital expenditures to ensure compliance in the
future.
We carry limited specific environmental insurance, thus, losses could occur for
uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The
occurrence of an event that is not covered in full or in part by insurance could have a material
adverse effect on our business, financial condition and results of operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
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Item 2. PROPERTIES
We own or lease a number of facilities, which are utilized by our Flight Support Group
(“FSG”), Electronic Technologies Group (“ETG”) and corporate offices. As of October 31,
2020, all of the facilities listed below were in good operating condition, well maintained and in
regular use. We believe that our existing facilities are sufficient to meet our operational needs
for the foreseeable future. Summary information on the facilities utilized within the FSG, ETG
and our corporate offices to support their principal operating activities is as follows:
Flight Support Group
Location
United States facilities (12 states)
United States facilities (7 states)
International facilities (10 countries)
- China, France, Germany, India,
Laos, Netherlands, Singapore,
Thailand, United Arab Emirates
and United Kingdom
Electronic Technologies Group
Location
United States facilities (16 states)
International facilities (4 countries)
- Canada, France, South Korea and
United Kingdom
Corporate
Square Footage
Leased
828,000
Owned Description
218,000 Manufacturing, engineering and
216,000
122,000
distribution facilities, and corporate
headquarters
127,000 Repair and overhaul facilities
173,000 Manufacturing, engineering and
distribution facilities, and sales offices
Square Footage
Leased
791,000
98,000
Owned Description
414,000 Manufacturing and engineering facilities
70,000 Manufacturing and engineering facilities
Location
United States facilities (1 state)
Square Footage
Leased Owned (1) Description
—
7,000 Administrative offices
(1) Represents the square footage of our corporate offices in Miami, Florida. The square footage of our corporate
headquarters in Hollywood, Florida is included within Square Footage-Owned of the caption “United States
facilities (12 states)” under Flight Support Group.
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Item 3. LEGAL PROCEEDINGS
We are involved in various legal actions arising in the normal course of business. Based
upon the Company’s and our legal counsel’s evaluations of any claims or assessments,
management is of the opinion that the outcome of these matters will not have a material effect on
our results of operations, financial position or cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Our Class A Common Stock and Common Stock are listed and traded on the New York
Stock Exchange (“NYSE”) under the symbols “HEI.A” and “HEI,” respectively.
As of December 22, 2020, there were 300 holders of record of our Common Stock and
296 holders of record of our Class A Common Stock.
Performance Graphs
The following graph and table compare the total return on $100 invested in HEICO
Common Stock and HEICO Class A Common Stock with the total return on $100 invested in the
NYSE Composite Index and the Dow Jones U.S. Aerospace Index for the five-year period from
October 31, 2015 through October 31, 2020. The NYSE Composite Index measures the
performance of all common stocks listed on the NYSE. The Dow Jones U.S. Aerospace Index is
comprised of large companies which make aircraft, major weapons, radar and other defense
equipment and systems as well as providers of satellites and spacecraft used for defense
purposes. The total returns include the reinvestment of cash dividends.
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Cumulative Total Return as of October 31,
2015
$100.00
HEICO Common Stock
100.00
HEICO Class A Common Stock
NYSE Composite Index
100.00
Dow Jones U.S. Aerospace Index 100.00
2016
$134.31
137.82
100.20
106.29
2017
$225.84
219.06
117.97
158.89
2018
$326.76
300.42
116.70
190.92
2019
$481.43
430.11
125.91
210.83
2020
$410.65
422.90
118.82
126.38
The following graph and table compare the total return on $100 invested in HEICO
Common Stock since October 31, 1990 using the same indices shown on the five-year
performance graph above. October 31, 1990 was the end of the first fiscal year following the
date the current executive management team assumed leadership of the Company. No Class A
Common Stock was outstanding as of October 31, 1990. As with the five-year performance
graph, the total returns include the reinvestment of cash dividends.
28
DollarsComparison of Five-Year Cumulative Total ReturnHEICO Common StockHEICO Class A Common StockNYSE Composite IndexDow Jones U.S. Aerospace Index201520162017201820192020$80$120$160$200$240$280$320$360$400$440$480$520
Index
Cumulative Total Return as of October 31,
1990
1991
1992
1993
1994
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
$100.00
$141.49
$158.35
$173.88
$123.41
100.00
100.00
130.31
130.67
138.76
122.00
156.09
158.36
155.68
176.11
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
1995
1996
1997
1998
1999
$263.25
$430.02
$1,008.31
$1,448.99
$1,051.61
186.32
252.00
2000
$809.50
400.81
418.32
225.37
341.65
2001
$1,045.86
328.78
333.32
289.55
376.36
326.98
378.66
2002
2003
$670.39
284.59
343.88
$809.50
400.81
418.32
376.40
295.99
2004
$1,366.57
380.91
478.49
2005
2006
2007
2008
2009
$1,674.40
$2,846.48
$4,208.54
$2,872.01
$4,208.54
423.05
579.77
499.42
757.97
586.87
1,000.84
344.96
602.66
586.87
1,000.84
2010
2011
2012
2013
2014
$4,722.20
$6,557.88
$5,900.20
$10,457.14
$11,416.51
427.61
926.75
430.46
995.11
467.91
569.69
1,070.15
1,645.24
617.23
1,687.41
29
DollarsComparison of Thirty-Year Cumulative Total ReturnHEICO Common StockNYSE Composite IndexDow Jones U.S. Aerospace Index'90'91'92'93'94'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'19'20$0$10,000$20,000$30,000$40,000$50,000
Index
HEICO Common Stock
NYSE Composite Index
Cumulative Total Return as of October 31,
2015
2016
2017
2018
2019
$10,776.88
$14,652.37
$23,994.03
$33,876.95
$49,277.28
595.37
596.57
702.38
694.81
749.66
3,725.15
Dow Jones U.S. Aerospace Index
1,766.94
1,878.10
2,807.42
3,373.52
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
2020
$44,877.75
707.40
2,233.00
Issuer Purchases of Equity Securities
There were no issuer purchases of our equity securities during the fourth quarter of fiscal
2020.
Recent Sales of Unregistered Securities
There were no unregistered sales of our equity securities during fiscal 2020.
Dividend Policy
We have historically paid semi-annual cash dividends on both our Class A Common
Stock and Common Stock. In July 2020, we paid our 84th consecutive semi-annual cash
dividend since 1979 of $.08 per share. Additionally, our 83rd consecutive semi-annual cash
dividend paid in January 2020 represented a 14% increase over the $.07 per share semi-annual
cash dividend paid in July 2019. In December 2020, our Board of Directors declared a regular
semi-annual cash dividend of $.08 per share payable in January 2021.
Our Board of Directors will continue to review our dividend policy and will regularly
evaluate whether dividends should be paid in cash or stock, as well as what amounts should be
paid. Our ability to pay dividends could be affected by future business performance, liquidity,
capital needs, alternative investment opportunities and loan covenants under our revolving credit
facility.
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Item 6. SELECTED FINANCIAL DATA
Operating Data:
Net sales
Gross profit
Selling, general and administrative
expenses
Operating income
Interest expense
2020
2019
Year ended October 31, (1)
2018
2017
2016
(in thousands, except per share data)
$1,787,009
$2,055,647
$1,777,721
$1,524,813
$1,376,258
682,127
813,840
690,715
574,725
515,492
305,479
376,648
(13,159)
356,743
457,097
(21,695)
314,470
376,245
(19,901)
268,067
306,658
(9,790)
250,147
265,345
(8,272)
(23)
156,192
Other income (expense)
Net income attributable to HEICO
1,366
313,984 (2)
2,439
327,896 (3)
(58)
259,233 (4)(5)
1,092
185,985 (6)
Weighted average number of common
shares outstanding:
Basic
Diluted
Per Share Data:
Net income per share attributable to HEICO
shareholders:
Basic
Diluted
Cash dividends per share
Balance Sheet Data (as of October 31):
134,754
137,302
133,640
137,350
132,543
136,696
131,703
135,588
130,948
133,145
$2.33 (2)
2.29 (2)
.160
$2.45 (3)
2.39 (3)
.140
$1.96 (4)(5)
1.90 (4)(5)
.116
$1.41 (6)
1.37 (6)
.097
$1.19
1.17
.082
Cash and cash equivalents
$406,852
$57,001
$59,599
$52,066
$42,955
Total assets
3,547,711
2,969,211
2,653,396
2,512,431
1,998,412
Total debt (including current portion)
Redeemable noncontrolling interests
739,831
221,208
561,955
188,264
532,470
132,046
673,979
131,123
458,225
99,512
Total shareholders’ equity
2,010,607
1,694,660
1,503,008
1,248,292
1,047,705
__________________
(1) Results include the results of acquisitions from each respective effective date. See Note 2, Acquisitions, of the Notes to
Consolidated Financial Statements for more information.
(2) During fiscal 2020, the Company recognized a $48.3 million discrete tax benefit from stock option exercises, which, net of
noncontrolling interests, increased net income attributable to HEICO by $47.0 million, or $.35 per basic share and $.34 per
diluted share.
(3) During fiscal 2019, the Company recognized a $16.5 million discrete tax benefit from stock option exercises, which, net of
noncontrolling interests, increased net income attributable to HEICO by $15.0 million, or $.11 per basic and diluted share.
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(4) During fiscal 2018, the United States ("U.S.") government enacted significant changes to existing tax law resulting in HEICO
recording a discrete tax benefit from remeasuring its U.S. federal net deferred tax liabilities that was partially offset by a
provisional discrete tax expense related to a one-time transition tax on the unremitted earnings of HEICO's foreign subsidiaries.
The net impact of these amounts increased net income attributable to HEICO by $12.1 million, or $.09 per basic and diluted
share. See Note 7, Income Taxes, of the Notes to Consolidated Financial Statements for more information.
(5) During fiscal 2018, the Company recognized a net benefit from stock option exercises that increased net income attributable to
HEICO by $2.1 million, or $.02 per basic and diluted share.
(6) During fiscal 2017, the Company adopted Accounting Standards Update 2016-09, "Improvements to Employee Share-Based
Payment Accounting," resulting in the recognition of a $3.1 million discrete income tax benefit and a 1,220,000 increase in
HEICO's weighted average number of diluted common shares outstanding, which, net of noncontrolling interests, increased net
income attributable to HEICO by $2.6 million, or $.02 per basic and $.01 per diluted share.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Our business is comprised of two operating segments, the Flight Support Group (“FSG”)
and the Electronic Technologies Group (“ETG”).
The FSG consists of HEICO Aerospace Holdings Corp. (“HEICO Aerospace”), which is
80% owned, and HEICO Flight Support Corp., which is wholly owned, and their collective
subsidiaries, which primarily:
• Designs, Manufactures, Repairs, Overhauls and Distributes Jet Engine and Aircraft
Component Replacement Parts. The FSG designs and manufactures jet engine and aircraft
component replacement parts, which are approved by the Federal Aviation Administration
(“FAA”). In addition, the FSG repairs, overhauls and distributes jet engine and aircraft
components, avionics and instruments for domestic and foreign commercial air carriers and
aircraft repair companies as well as military and business aircraft operators. The FSG also
manufactures and sells specialty parts as a subcontractor for aerospace and industrial
original equipment manufacturers and the United States ("U.S.") government.
Additionally, the FSG is a leading supplier, distributor, and integrator of military aircraft
parts and support services primarily to foreign military organizations allied with the U.S.
and a leading manufacturer of advanced niche components and complex composite
assemblies for commercial aviation, defense and space applications. Further, the FSG
engineers, designs and manufactures thermal insulation blankets and parts as well as
removable/reusable insulation systems for aerospace, defense, commercial and industrial
applications; manufactures expanded foil mesh for lightning strike protection in fixed and
rotary wing aircraft; distributes aviation electrical interconnect products and
electromechanical parts; and overhauls industrial pumps, motors, and other hydraulic units
with a focus on the support of legacy systems for the U.S. Navy.
The ETG consists of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and
its subsidiaries, which primarily:
• Designs and Manufactures Electronic, Microwave and Electro-Optical Equipment, High-
Speed Interface Products, High Voltage Interconnection Devices, EMI and RFI Shielding
and Filters, High Voltage Advanced Power Electronics, Power Conversion Products,
Underwater Locator Beacons, Microelectronic Memory Products, Self-Sealing Auxiliary
Fuel Systems, Active Antenna Systems and TSCM Equipment. The ETG collectively
designs, manufactures and sells various types of electronic, data and microwave, and
electro-optical products, including infrared simulation and test equipment, laser rangefinder
receivers, electrical power supplies, back-up power supplies, power conversion products,
underwater locator beacons, emergency locator transmission beacons, flight deck
annunciators, panels and indicators, electromagnetic and radio frequency interference
shielding and filters, high power capacitor charging power supplies, amplifiers, traveling
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wave tube amplifiers, photodetectors, amplifier modules, microwave power modules, flash
lamp drivers, laser diode drivers, arc lamp power supplies, custom power supply designs,
cable assemblies, high voltage power supplies, high voltage interconnection devices and
wire, high voltage energy generators, high frequency power delivery systems, three-
dimensional microelectronic and stacked memory products, harsh environment electronic
connectors and other interconnect products, radio frequency ("RF") and microwave
amplifiers, transmitters and receivers; RF sources, detectors and controllers, wireless cabin
control systems, solid state power distribution and management systems, crashworthy and
ballistically self-sealing auxiliary fuel systems, nuclear radiation detectors, communications
and electronic intercept receivers and tuners, fuel level sensing systems, high-speed
interface products that link devices, high performance active antenna systems for
commercial aircraft, precision guided munitions, other defense applications and
commercial uses; silicone material for a variety of demanding applications; precision
power analog monolithic, hybrid and open frame components; high-reliability ceramic-to-
metal feedthroughs and connectors, technical surveillance countermeasures (TSCM)
equipment to detect devices used for espionage and information theft; and rugged small-
form factor embedded computing solutions.
Our results of operations in fiscal 2020 were significantly affected by the COVID-19
global pandemic (the “Pandemic”). The effects of the Pandemic and related actions by
governments around the world to mitigate its spread have impacted our employees, customers,
suppliers and manufacturers. In response to the economic impact from the Pandemic, we
implemented certain cost reduction efforts, including layoffs, temporary reduced work hours and
temporary pay reductions within various departments of our business, including within our
executive management team and our Board of Directors. Additionally, our response to the
Pandemic included the implementation of varying health and safety measures at our facilities,
including: supplying and requiring the use of personal protective equipment; staggering work
shifts; body temperature taking; increasing work-from-home capabilities; consistent and ongoing
cleaning of work spaces and high-touch areas; and establishing processes aligned with the
Centers for Disease and Control guidelines to work with any individual exposed to COVID-19
on their necessary quarantine period and the process for the individual to return to work.
With respect to our results of operations, approximately 59% of our net sales in fiscal
2020 were derived from defense, space and other industrial markets including electronics,
medical and telecommunications. Although demand for these products was slightly moderated
in fiscal 2020, our overall results from this portion of our business were not materially impacted
by the Pandemic. However, we experienced, and expect to continue experiencing, periodic
operational disruptions resulting from supply chain disturbances, staffing challenges - including
at some of our customers, temporary facility closures, transportation interruptions and other
conditions which slow production and orders, or increase costs.
The remaining portion of our fiscal 2020 net sales was derived from commercial aviation
products and services. The Pandemic has caused significant volatility and a substantial decline
in value across global markets. Most notably, the commercial aerospace industry experienced an
ongoing substantial decline in demand resulting from a significant number of aircraft in the
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global fleet being grounded during fiscal 2020. Our businesses that operate within the
commercial aerospace industry were materially impacted by the significant decline in global
commercial air travel that began in March 2020. Consolidated net sales for our businesses that
operate within the commercial aerospace industry decreased by approximately 32% during fiscal
2020.
As we look ahead to fiscal 2021, the extent to which the Pandemic may have a material
adverse effect on our future business, financial condition and results of operations will depend on
many factors that are not within HEICO’s control, including but not limited to the duration,
spread and severity of the Pandemic, government responses and other actions to mitigate the
spread of and to treat the Pandemic, and when and to what extent normal business, economic and
social activity and conditions resume. However, we are cautiously optimistic that the recent
vaccine progress may generate increased commercial air travel and result in a gradual recovery
in demand for our commercial aerospace parts and services commencing in fiscal 2021.
Additionally, our results of operations in fiscal 2020 have been affected by recent
acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial
Statements.
Presentation of Results of Operations and Liquidity and Capital Resources
The following discussion and analysis of our Results of Operations and Liquidity and
Capital Resources includes a comparison of fiscal 2020 to fiscal 2019. A similar discussion and
analysis that compares fiscal 2019 to fiscal 2018 may be found in Item 7, "Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” of our Form 10-K
for the fiscal year ended October 31, 2019.
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Results of Operations
The following table sets forth the results of our operations, net sales and operating
income by segment and the percentage of net sales represented by the respective items in our
Consolidated Statements of Operations (in thousands):
Net sales
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Operating income
Net sales by segment:
Flight Support Group
Electronic Technologies Group
Intersegment sales
Operating income by segment:
Flight Support Group
Electronic Technologies Group
Other, primarily corporate
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Other income
Income tax expense
Net income attributable to noncontrolling interests
Net income attributable to HEICO
Year ended October 31,
2019
2020
$2,055,647
$1,787,009
1,241,807
1,104,882
356,743
305,479
1,598,550
1,410,361
$457,097
$376,648
$924,812
874,987
(12,790)
$1,787,009
$1,240,183
834,522
(19,058)
$2,055,647
$143,051
258,814
(25,217)
$376,648
$242,029
245,743
(30,675)
$457,097
100.0%
38.2%
17.1%
21.1%
.7%
.1%
1.6%
1.2%
17.6%
100.0%
39.6%
17.4%
22.2%
1.1%
.1%
3.8%
1.5%
16.0%
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Comparison of Fiscal 2020 to Fiscal 2019
Net Sales
Our consolidated net sales in fiscal 2020 decreased by 13% to $1,787.0 million, as
compared to net sales of $2,055.6 million in fiscal 2019. The decrease in consolidated net sales
principally reflects a decrease of $315.4 million (a 25% decrease) to $924.8 million in net sales
within the FSG partially offset by an increase of $40.5 million (a 5% increase) to a record $875.0
million in net sales within the ETG. The net sales decrease in the FSG is principally organic and
reflects lower demand for the majority of our products and services resulting from the significant
decline in global commercial air travel beginning in March 2020 due to the Pandemic. As a
result, organic net sales of our aftermarket replacement parts, repair and overhaul parts and
services, and specialty products product lines decreased by $154.0 million, $106.2 million, and
$58.8 million, respectively. The net sales increase in the ETG principally reflects $52.8 million
contributed by our fiscal 2020 and 2019 acquisitions and higher demand for our defense products
resulting in an organic net sales increase of $13.6 million partially offset by lower demand for
our commercial aerospace and medical products resulting in organic net sales decreases of $12.9
million and $5.6 million, respectively, largely attributable to the Pandemic. Sales price changes
were not a significant contributing factor to the change in net sales of the FSG and ETG in the
fiscal 2020.
Our net sales in fiscal 2020 and 2019 by market consisted of approximately 41% and
52% from the commercial aviation industry, respectively, 44% and 35% from the defense and
space industries, respectively, and 15% and 13% from other industrial markets including
electronics, medical and telecommunications, respectively.
Gross Profit and Operating Expenses
Our consolidated gross profit margin was 38.2% in fiscal 2020 as compared to 39.6% in
2019, principally reflecting a decrease of 3.6% and 1.3% in the FSG's and ETG's gross profit
margin, respectively. The decrease in the FSG's gross profit margin principally reflects a 2.1%
impact, or an incremental increase of $18.1 million, from an increase in inventory obsolescence
expense mainly resulting from the announced retirement of certain aircraft types and engine
platforms by our commercial aerospace customers due to the Pandemic's financial impact.
Additionally, the FSG's lower gross profit margin reflects the impact from lower net sales within
our repair and overhaul parts and services and aftermarket replacement parts product lines. The
decrease in the ETG's gross profit margin principally reflects a decrease in net sales and a less
favorable product mix of certain commercial aerospace and medical products, partially offset by
increased net sales of certain defense products. Total new product research and development
("R&D") expenses included within our consolidated cost of sales were $65.6 million and $66.6
million in fiscal 2020 and 2019, respectively.
Our consolidated selling, general and administrative ("SG&A") expenses decreased by
14% to $305.5 million in fiscal 2020, as compared to $356.7 million in fiscal 2019. The
decrease in consolidated SG&A expenses reflects a $36.5 million decrease in performance-based
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compensation expense, a $20.7 million reduction in other general and administrative expenses
and a $16.5 million reduction in other selling expenses including outside sales commissions,
marketing and travel. These decreases were partially offset by $13.4 million attributable to the
fiscal 2019 and 2020 acquisitions and a $9.1 million increase in bad debt expense principally due
to potential collection difficulties from certain commercial aviation customers that filed for
bankruptcy protection during fiscal 2020 as a result of the Pandemic's financial impact.
Our consolidated SG&A expenses as a percentage of net sales decreased to 17.1% in
fiscal 2020, down from 17.4% in fiscal 2019. The decrease in consolidated SG&A expenses as a
percentage of net sales is due to a 1.6% impact from lower performance-based compensation
expense and a .2% decrease in other selling expenses, partially offset by a 1.0% impact from
higher other general and administrative expenses as a percentage of net sales and a .5% increase
in bad debt expense principally due to potential collection difficulties from certain commercial
aviation customers that filed for bankruptcy protection during fiscal 2020 as a result of the
Pandemic's financial impact.
Operating Income
Our consolidated operating income decreased by 18% to $376.6 million in fiscal 2020, as
compared to $457.1 million in fiscal 2019. The decrease in consolidated operating income
principally reflects a $99.0 million decrease (a 41% decrease) to $143.1 million in operating
income of the FSG partially offset by a $13.1 million increase (a 5% increase) to a record $258.8
million in operating income of the ETG. The decrease in operating income of the FSG
principally reflects the previously mentioned decrease in net sales, lower gross profit margin and
a $9.3 million increase in bad debt expense principally due to potential collection difficulties
from certain commercial aviation customers that filed for bankruptcy protection during fiscal
2020 as a result of the Pandemic's financial impact, partially offset by a $26.1 million decrease in
performance-based compensation expense. The increase in operating income of the ETG
principally reflects the previously mentioned net sales growth, a $5.4 million decrease in
performance-based compensation expense and a $2.5 million decrease in acquisition-related
expenses, partially offset by the previously mentioned decrease in gross profit margin. Further,
the decrease in consolidated operating income was partially offset by $5.4 million of lower
corporate expenses mainly attributable to a decrease in performance-based compensation
expense.
Our consolidated operating income as a percentage of net sales was 21.1% in fiscal 2020,
as compared to 22.2% in fiscal 2019. The decrease principally reflects a decrease in the FSG’s
operating income as a percentage of net sales to 15.5% in fiscal 2020, as compared to 19.5% in
fiscal 2019. The decrease in the FSG’s operating income as a percentage of net sales reflects the
previously mentioned lower gross profit margin and a .5% increase in SG&A expenses as a
percentage of net sales mainly from the previously mentioned higher bad debt expense and fixed
cost efficiencies lost resulting from the Pandemic's impact, partially offset by the previously
mentioned lower performance-based compensation expense. The ETG's operating income as a
percentage of net sales increased to 29.6% in fiscal 2020, up from 29.4% in fiscal 2019.
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Interest Expense
Interest expense decreased to $13.2 million in fiscal 2020, down from $21.7 million in
fiscal 2019. The decrease was principally due to a lower weighted average interest rate on
borrowings outstanding under our revolving credit facility.
Other Income
Other income in fiscal 2020 and 2019 was not material.
Income Tax Expense
Our effective tax rate in fiscal 2020 was 7.9%, as compared to 17.8% in fiscal 2019. The
decrease in our 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.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling
interest held by Lufthansa Technik AG ("LHT") in HEICO Aerospace Holdings Corp. and the
noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income
attributable to noncontrolling interests was $21.9 million in fiscal 2020, as compared to $31.8
million in fiscal 2019. The decrease in net income attributable to noncontrolling interests in
fiscal 2020 principally reflects a decrease in operating results of certain subsidiaries of the FSG
in which noncontrolling interests are held as well as the impact of a dividend paid by HEICO
Aerospace in June 2019 that effectively resulted in the transfer of the 20% noncontrolling
interest held by LHT in eight of our existing subsidiaries within HEICO Aerospace that are
principally part of the FSG's repair and overhaul parts and services product line to HEICO Flight
Support Corp., a wholly owned subsidiary of HEICO.
Net Income Attributable to HEICO
Net income attributable to HEICO was $314.0 million, or $2.29 per diluted share, in
fiscal 2020 as compared to $327.9 million, or $2.39 per diluted share, in fiscal 2019, principally
reflecting the previously mentioned lower operating income of the FSG, partially offset by lower
income tax expense, less net income attributable to noncontrolling interests and lower interest
expense.
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Outlook
As we look ahead to fiscal 2021, the Pandemic will likely continue to negatively impact
the commercial aerospace industry and HEICO. Given this uncertainty, HEICO cannot provide
fiscal 2021 net sales and earnings guidance at this time. However, we believe our ongoing fiscal
conservative policies, healthy balance sheet, and increased liquidity will permit us to invest in
new research and development and gain market share as the industry recovers. In addition, our
time-tested strategy of maintaining low debt and acquiring and operating high cash generating
businesses across a diverse base of industries beyond commercial aerospace, such as defense,
space and other high-end markets including electronics and medical, puts us in a good financial
position to weather this uncertain economic period. Further, we are cautiously optimistic that the
recent vaccine progress may generate increased commercial air travel and result in a gradual
recovery in demand for our commercial aerospace parts and services commencing in fiscal 2021.
Inflation
We have generally experienced increases in our costs of labor, materials and services
consistent with overall rates of inflation. The impact of such increases on net income attributable
to HEICO has been generally minimized by efforts to lower costs through manufacturing
efficiencies and cost reductions.
Liquidity and Capital Resources
The following table summarizes our capitalization (in thousands):
Cash and cash equivalents
Total debt (including current portion)
Shareholders’ equity
Total capitalization (debt plus equity)
Total debt to total capitalization
As of October 31,
2020
$406,852
739,831
2,010,607
2,750,438
27%
2019
$57,001
561,955
1,694,660
2,256,615
25%
Our principal uses of cash include acquisitions, capital expenditures, cash dividends,
distributions to noncontrolling interests and working capital needs. Capital expenditures in fiscal
2021 are anticipated to approximate $40 million. We finance our activities primarily from our
operating and financing activities, including borrowings under our revolving credit facility.
As of December 22, 2020, we had approximately $755 million of unused committed
availability under the terms of our revolving credit facility. Based on our current outlook, we
believe that net cash provided by operating activities and available borrowings under our
revolving credit facility will be sufficient to fund our cash requirements for at least the next
twelve months.
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Operating Activities
Net cash provided by operating activities was $409.1 million in fiscal 2020 and consisted
primarily of net income from consolidated operations of $335.9 million, depreciation and
amortization expense of $88.6 million (a non-cash item), net changes in other long-term
liabilities and assets related to the HEICO Leadership Compensation Plan (“LCP”) of $14.8
million (principally participant deferrals and employer contributions), $10.1 million in share-
based compensation expense (a non-cash item), and $9.6 million in employer contributions to the
HEICO Savings and Investment Plan (a non-cash item), partially offset by a $48.5 million
increase in working capital. The increase in working capital is inclusive of a $68.2 million
decrease in accrued expenses and other current liabilities and trade accounts payable mainly
reflecting lower accrued performance-based compensation as well as the timing of payments; a
$28.3 million increase in inventories as a result of certain inventory purchase commitments
based on pre-Pandemic net sales expectations and to support the backlog of certain of our
businesses; and a $16.4 million increase in contract assets, partially offset by a $71.5 million
decrease in accounts receivable resulting from lower net sales and strong cash collections. Net
cash provided by operating activities decreased by $28.3 million in fiscal 2020 from $437.4
million in fiscal 2019. The decrease is principally attributable to a $23.9 million decrease in net
income from consolidated operations and a $16.3 million increase in net working capital partially
offset by a $5.1 million increase in depreciation and amortization expense (a non-cash item).
Net cash provided by operating activities was $437.4 million in fiscal 2019 and consisted
primarily of net income from consolidated operations of $359.7 million, depreciation and
amortization expense of $83.5 million (a non-cash item), net changes in other long-term
liabilities and assets related to the HEICO LCP of $12.9 million (principally participant deferrals
and employer contributions) and $10.3 million in share-based compensation expense (a non-cash
item), partially offset by a $32.3 million increase in working capital.
Investing Activities
Net cash used in investing activities totaled $199.0 million in fiscal 2020 and related
primarily to acquisitions of $163.9 million (net of cash acquired), capital expenditures of $22.9
million and investments related to the HEICO LCP of $15.9 million. Further details on
acquisitions may be found in Note 2, Acquisitions, of the Notes to Consolidated Financial
Statements.
Net cash used in investing activities totaled $280.6 million in fiscal 2019 and related
primarily to acquisitions of $240.8 million (net of cash acquired), capital expenditures of $28.9
million and investments related to the HEICO LCP of $13.7 million. Further details on
acquisitions may be found in Note 2, Acquisitions, of the Notes to Consolidated Financial
Statements.
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Financing Activities
Net cash provided by financing activities in fiscal 2020 totaled $137.7 million. During
fiscal 2020, we borrowed $200.0 million under our revolving credit facility to provide a cushion
of liquidity during this period of economic uncertainty resulting from the Pandemic and $45.0
million to fund our fiscal 2020 acquisitions. We also received $14.3 million in capital
contributions from the noncontrolling interest holders of a subsidiary of HEICO Electronic
representing their share of the purchase price for a 25% interest in two acquisitions made by a
subsidiary of HEICO Electronic in August 2020. (See Note 2, Acquisitions, of the Notes to
Consolidated Financial Statements for further details). Additionally, we made $68.0 million in
payments on our revolving credit facility, paid $21.6 million in cash dividends on our common
stock, made $17.9 million of distributions to noncontrolling interests, redeemed common stock
related to stock option exercises aggregating $12.1 million, paid $7.5 million to acquire certain
noncontrolling interests and received $7.0 million in proceeds from stock option exercises.
Net cash used in financing activities in fiscal 2019 totaled $159.7 million. During fiscal
2019, we made $283.0 million in payments on our revolving credit facility, paid $110.9 million
in distributions to noncontrolling interests, redeemed common stock related to stock option
exercises aggregating $64.0 million and paid $18.7 million in cash dividends on our common
stock. Additionally, we borrowed $313.0 million under our revolving credit facility to fund
certain of our fiscal 2019 acquisitions and a certain distribution to a noncontrolling interest
holder.
In November 2017, we entered into a $1.3 billion Revolving Credit Facility Agreement
("Credit Facility") with a bank syndicate, which matures in November 2022. Under certain
circumstances, the maturity of the Credit Facility may be extended for two one-year periods.
The Credit Facility also includes a feature that will allow us to increase the capacity by $350
million to become a $1.65 billion facility through increased commitments from existing lenders
or the addition of new lenders. Borrowings under the Credit Facility may be used to finance
acquisitions and for working capital and other general corporate purposes, including capital
expenditures.
On December 11, 2020, we entered into an amendment to extend the maturity date of the
Credit Facility by one year to November 2023 and to increase the capacity by $200 million to
$1.5 billion. The Credit Facility continues to include a feature that will allow us to increase the
capacity by $350 million to become a $1.85 billion facility through increased commitments from
existing lenders or the addition of new lenders and can be extended for an additional one-year
period.
Borrowings under the Credit Facility accrue interest at our election of the Base Rate or
the Eurocurrency Rate, plus in each case, the Applicable Rate (based on our Total Leverage
Ratio). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (i) the
Prime Rate; (ii) the Federal Funds Rate plus .50%; and (iii) the Eurocurrency Rate for an Interest
Period of one month plus 100 basis points. The Eurocurrency Rate is the rate per annum
obtained by dividing LIBOR for the applicable Interest Period by a percentage equal to 1.00
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minus the daily average Eurocurrency Reserve Rate for such Interest Period, as such capitalized
terms are defined in the Credit Facility. The Applicable Rate for Eurocurrency Rate Loans
ranges from 1.00% to 2.00%. The Applicable Rate for Base Rate Loans ranges from 0% to
1.00%. A fee is charged on the amount of the unused commitment ranging from .125% to .30%
(depending on our Total Leverage Ratio). The Credit Facility also includes $100 million
sublimits for borrowings made in foreign currencies and for swingline borrowings, and a $50
million sublimit for letters of credit. Outstanding principal, accrued and unpaid interest and
other amounts payable under the Credit Facility may be accelerated upon an event of default, as
such events are described in the Credit Facility. The Credit Facility is unsecured and contains
covenants that require, among other things, the maintenance of a Total Leverage Ratio and an
Interest Coverage Ratio, as such capitalized terms are defined in the Credit Facility. We were in
compliance with all financial and nonfinancial covenants of the Credit Facility as of October 31,
2020.
Contractual Obligations
The following table summarizes our contractual obligations as of October 31, 2020
(in thousands):
Long-term debt obligations (1)
Estimated interest payments (1)
Finance lease obligations (2)
Operating lease obligations (3)
Purchase obligations (4) (5) (6)
Other long-term liabilities (7)
Total contractual obligations
__________________
Total
$730,264
28,395
12,144
70,778
46,164
14,209
$901,954
Payments due by fiscal period
2021
$11
9,422
1,436
16,549
3,631
2,582
$33,631
2022 - 2023 2024 - 2025 Thereafter
$45
$730,110
—
129
6,217
1,964
20,005
9,832
—
20,167
1,719
1,039
$27,306
$763,921
$98
18,844
2,527
24,392
22,366
8,869
$77,096
(1) Estimated interest payments assumes the $730.0 million outstanding balance under our revolving credit facility
and related interest rate of 1.3% as of October 31, 2020, will remain constant through the credit facility's maturity
date in fiscal 2024. Actual interest payments may vary significantly based on future borrowings, repayments and
interest rate fluctuations. As discussed in "Liquidity and Capital Resources," we entered into an amendment to
extend the maturity date of our revolving credit facility by one year to November 2023, which is reflected in the
table. See Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements and "Liquidity and
Capital Resources," above for additional information regarding our long-term debt obligations.
(2) Inclusive of $2.6 million of imputed interest. See Note 9, Leases, of the Notes to Consolidated Financial
Statements for additional information regarding our finance lease obligations.
(3) See Note 9, Leases, of the Notes to Consolidated Financial Statements for additional information regarding our
operating lease obligations.
(4) Includes contingent consideration aggregating $42.0 million related to a fiscal 2017 acquisition and certain fiscal
2020 acquisitions. See Note 8, Fair Value Measurements, of the Notes to Consolidated Financial Statements for
additional information.
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(5) Also includes an aggregate $1.4 million of commitments principally for capital expenditures and inventory. All
purchase obligations of inventory and supplies in the ordinary course of business (i.e., with deliveries scheduled
within the next year) are excluded from the table.
(6) The holders of equity interests in certain of our subsidiaries have rights (“Put Rights”) that may be exercised on
varying dates causing us to purchase their equity interests through fiscal 2030. The Put Rights provide that cash
consideration be paid for their equity interests (the “Redemption Amount”). As of October 31, 2020,
management’s estimate of the aggregate Redemption Amount of all Put Rights that we could be required to pay
is approximately $221.2 million, which is reflected within redeemable noncontrolling interests in our
Consolidated Balance Sheet. Of this amount, $2.3 million is included in the table as payable in fiscal 2021
pursuant to the past exercise of such Put Rights by the noncontrolling interest holder of one of our subsidiaries.
See Note 13, Redeemable Noncontrolling Interests, of the Notes to Consolidated Financial Statements for further
information.
(7) Includes $7.2 million of deferred payroll taxes related to the provisions of the Coronavirus Aid, Relief and
Economic Security Act, which allows the Company to defer its portion of certain calendar year 2020 payroll
taxes until fiscal 2022 and 2023. Also includes $3.5 million related to a one-time transition tax on the unremitted
earnings of the Company's foreign subsidiaries which will be paid over a remaining six-year period as permitted
by the Tax Cuts and Jobs Act. The amounts in the table do not include liabilities related to the HEICO LCP as
they are fully supported by assets held within irrevocable trusts. See Note 3, Selected Financial Statement
Information - Other Long-Term Assets and Liabilities, of the Notes to Consolidated Financial Statements for
further information about this deferred compensation plan.
Off-Balance Sheet Arrangements
Guarantees
As of October 31, 2020, we have arranged for standby letters of credit aggregating $14.6
million, which are supported by our revolving credit facility and principally pertain to
performance guarantees related to customer contracts entered into by certain of our subsidiaries
as well as payment guarantees related to potential workers' compensation claims and a facility
lease.
Critical Accounting Policies
We believe that the following are our most critical accounting policies, which require
management to make judgments about matters that are inherently uncertain.
Assumptions utilized to determine fair value in connection with business combinations,
contingent consideration arrangements and in goodwill and intangible assets impairment tests are
highly judgmental. If there is a material change in such assumptions or if there is a material
change in the conditions or circumstances influencing fair value, we could be required to
recognize a material impairment charge. See Item 1A., Risk Factors, for a list of factors which
may cause our actual results to differ materially from anticipated results.
Revenue Recognition
During fiscal 2019, we adopted Accounting Standard Codification ("ASC") Topic 606,
"Revenue from Contracts with Customers" ("ASC 606"). Pursuant to ASC 606, HEICO
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recognizes revenue when it transfers control of a promised good or service to a customer in an
amount that reflects the consideration it expects to receive in exchange for the good or service.
Our performance obligations are satisfied and control is transferred either at a point-in-time or
over-time. The majority of our revenue is recognized at a point-in-time when control is
transferred, which is generally evidenced by the shipment or delivery of the product to the
customer, a transfer of title, a transfer of the significant risks and rewards of ownership, and
customer acceptance. For certain contracts under which we produce products with no alternative
use and for which we have an enforceable right to recover costs incurred plus a reasonable profit
margin for work completed to date and for certain other contracts under which we create or
enhance a customer-owned asset while performing repair and overhaul services, control is
transferred to the customer over-time. HEICO recognizes revenue using an over-time
recognition model for these types of contracts.
We utilize the cost-to-cost method as a measure of progress for performance obligations
that are satisfied over-time as we believe this input method best represents the transfer of control
to the customer. Under this method, revenue for the current period is recorded at an amount
equal to the ratio of costs incurred to date divided by total estimated contract costs multiplied by
(i) the transaction price, less (ii) cumulative revenue recognized in prior periods. Contract costs
include all direct material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs and depreciation.
Under the cost-to-cost method, the extent of progress toward completion is measured
based on the proportion of costs incurred to date to the total estimated costs at completion of the
performance obligation. These projections require management to make numerous assumptions
and estimates relating to items such as the complexity of design and related development costs,
performance of subcontractors, availability and cost of materials, labor productivity and cost,
overhead, capital costs, and manufacturing efficiency. We review our cost estimates on a
periodic basis, or when circumstances change and warrant a modification to a previous estimate.
Cost estimates are largely based on negotiated or estimated purchase contract terms, historical
performance trends and other economic projections.
For certain contracts with similar characteristics and for which revenue is recognized
using an over-time model, we use a portfolio approach to estimate the amount of revenue to
recognize. For each portfolio of contracts, the respective work in process and/or finished goods
inventory balances are identified and the portfolio-specific margin is applied to estimate the pro
rata portion of the transaction price to recognize in relation to the costs incurred. This approach
is utilized only when the resulting revenue recognition is not expected to be materially different
than if the accounting was applied to the individual contracts.
Certain of our contracts give rise to variable consideration when they contain items such
as customer rebates, credits, volume purchase discounts, penalties and other provisions that may
impact the total consideration we will receive. We include variable consideration in the
transaction price generally by applying the most likely amount method of the consideration that
we expect to be entitled to receive based on an assessment of all available information (i.e.,
historical experience, current and forecasted performance) and only to the extent it is probable
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that a significant reversal of revenue recognized will not occur when the uncertainty is resolved.
We estimate variable consideration by applying the most likely amount method when there are a
limited number of outcomes related to the resolution of the variable consideration.
Changes in estimates that result in adjustments to net sales and cost of sales are
recognized as necessary in the period they become known on a cumulative catch-up basis.
Changes in estimates did not have a material effect on net income from consolidated operations
in fiscal 2020, 2019 and 2018.
Valuation of Inventory
Inventory is stated at the lower of cost or net realizable value, with cost being determined
on the first-in, first-out or the average cost basis. Losses, if any, are recognized fully in the
period when identified.
We periodically evaluate the carrying value of inventory, giving consideration to factors
such as its physical condition, sales patterns and expected future demand in order to estimate
the amount necessary to write down any slow moving, obsolete or damaged inventory. These
estimates could vary significantly from actual amounts based upon future economic conditions,
customer inventory levels, or competitive factors that were not foreseen or did not exist when the
estimated write-downs were made.
In accordance with industry practice, all inventories are classified as a current asset
including portions with long production cycles, some of which may not be realized within one
year.
Business Combinations
We allocate the purchase price of acquired entities to the underlying tangible and
identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed
based on their estimated fair values, with any excess recorded as goodwill. Determining the fair
value of assets acquired and liabilities and noncontrolling interests assumed requires
management’s judgment and often involves the use of significant estimates and assumptions,
including assumptions with respect to future cash inflows and outflows, discount rates, asset
lives and market multiples, among other items. We determine the fair values of intangible assets
acquired generally in consultation with third-party valuation advisors.
As part of the agreement to acquire certain subsidiaries, we may be obligated to pay
contingent consideration should the acquired entity meet certain earnings objectives subsequent
to the date of acquisition. As of the acquisition date, contingent consideration is recorded at fair
value as determined through the use of a probability-based scenario analysis approach. Under
this method, a set of discrete potential future subsidiary earnings is determined using internal
estimates based on various revenue growth rate assumptions for each scenario. A probability of
likelihood is then assigned to each discrete potential future earnings estimate and the resultant
contingent consideration is calculated and discounted using a weighted average discount rate
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reflecting the credit risk of HEICO. Subsequent to the acquisition date, the fair value of such
contingent consideration is measured each reporting period and any changes are recorded to
SG&A expenses within our Consolidated Statements of Operations. Changes in either the
revenue growth rates, related earnings or the discount rate could result in a material change to the
amount of contingent consideration accrued. As of October 31, 2020, 2019 and 2018, $42.0
million, $18.3 million and $20.9 million of contingent consideration was accrued within our
Consolidated Balance Sheets, respectively. During fiscal 2020, 2019 and 2018, such fair value
measurement adjustments resulted in net increases (decreases) to SG&A expenses of $.5 million,
$2.6 million and ($1.4) million, respectively. For further information regarding our contingent
consideration arrangements, see Note 8, Fair Value Measurements, of the Notes to Consolidated
Financial Statements.
Valuation of Goodwill and Other Intangible Assets
We test goodwill for impairment annually as of October 31, or more frequently if events
or changes in circumstances indicate that the carrying amount of goodwill may not be fully
recoverable. In evaluating the recoverability of goodwill, we compare the fair value of each of
our reporting units to its carrying value to determine potential impairment. If the carrying value
of a reporting unit exceeds its fair value, the implied fair value of that reporting unit’s goodwill is
to be calculated and an impairment loss is recognized in the amount by which the carrying value
of the reporting unit’s goodwill exceeds its implied fair value, if any. The fair values of our
reporting units were determined using a weighted average of a market approach and an income
approach. Under the market approach, fair values are estimated using published market
multiples for comparable companies. We calculate fair values under the income approach by
taking estimated future cash flows that are based on internal projections and other assumptions
deemed reasonable by management and discounting them using an estimated weighted average
cost of capital. Based on the annual goodwill impairment test as of October 31, 2020, 2019 and
2018, we determined there was no impairment of our goodwill. The fair value of each of our
reporting units as of October 31, 2020 significantly exceeded its carrying value.
We test each non-amortizing intangible asset (principally trade names) for impairment
annually as of October 31, or more frequently if events or changes in circumstances indicate that
the asset might be impaired. To derive the fair value of our trade names, we utilize an income
approach, which relies upon management's assumptions of royalty rates, projected revenues and
discount rates. We also test each amortizing intangible asset for impairment if events or
circumstances indicate that the asset might be impaired. The test consists of determining
whether the carrying value of such assets will be recovered through undiscounted expected future
cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of
those assets, we recognize an impairment loss based on the excess of the carrying amount over
the fair value of the assets. The determination of fair value requires us to make a number of
estimates, assumptions and judgments of underlying factors such as projected revenues and
related earnings as well as discount rates. Based on the intangible asset impairment tests
conducted, we did not recognize any impairment losses in fiscal 2020, 2019 and 2018.
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New Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies - New Accounting
Pronouncements, of the Notes to Consolidated Financial Statements for additional information.
Forward-Looking Statements
Certain statements in this report constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. All statements contained
herein that are not clearly historical in nature may be forward-looking and the words
“anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to
identify forward-looking statements. Any forward-looking statement contained herein, in press
releases, written statements or other documents filed with the Securities and Exchange
Commission or in communications and discussions with investors and analysts in the normal
course of business through meetings, phone calls and conference calls, concerning our
operations, economic performance and financial condition are subject to risks, uncertainties and
contingencies. We have based these forward-looking statements on our current expectations and
projections about future events. All forward-looking statements involve risks and uncertainties,
many of which are beyond our control, which may cause actual results, performance or
achievements to differ materially from anticipated results, performance or achievements. Also,
forward-looking statements are based upon management’s estimates of fair values and of future
costs, using currently available information. Therefore, actual results may differ materially from
those expressed in or implied by those forward-looking statements. Factors that could cause
such differences include:
• The severity, magnitude and duration of the Pandemic;
• Our liquidity and the amount and timing of cash generation;
• Lower commercial air travel caused by the Pandemic and its aftermath, airline fleet
changes or airline purchasing decisions, which could cause lower demand for our goods
and services;
•
Product specification costs and requirements, which could cause an increase to our costs
to complete contracts;
• Governmental and regulatory demands, export policies and restrictions, reductions in
defense, space or homeland security spending by U.S. and/or foreign customers or
competition from existing and new competitors, which could reduce our sales;
• Our ability to introduce new products and services at profitable pricing levels, which
could reduce our sales or sales growth;
•
Product development or manufacturing difficulties, which could increase our product
development and manufacturing costs and delay sales;
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• Our ability to make acquisitions and achieve operating synergies from acquired
businesses; customer credit risk; interest, foreign currency exchange and income tax
rates; economic conditions within and outside of the aviation, defense, space, medical,
telecommunications and electronics industries, which could negatively impact our costs
and revenues; and
• Defense spending or budget cuts, which could reduce our defense-related revenue.
For further information on these and other factors that potentially could materially affect
our financial results, see Item 1A, Risk Factors. We undertake no obligation to publicly update
or revise any forward-looking statement, whether as a result of new information, future events or
otherwise, except to the extent required by applicable law.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have exposure to interest rate risk, mainly related to our revolving credit facility,
which has variable interest rates. Interest rate risk associated with our variable rate debt is the
potential increase in interest expense from an increase in interest rates. Based on our aggregate
outstanding variable rate debt balance of $730.0 million as of October 31, 2020, a hypothetical
10% increase in interest rates would not have a material effect on our results of operations,
financial position or cash flows. We also maintain a portion of our cash and cash equivalents in
financial instruments with original maturities of three months or less. These financial
instruments are subject to interest rate risk and will decline in value if interest rates
increase. Due to the short duration of these financial instruments, a hypothetical 10% increase in
interest rates as of October 31, 2020 would not have a material effect on our results of
operations, financial position or cash flows.
Foreign Currency Risk
We have several foreign subsidiaries that utilize a functional currency other than the U.S.
dollar, or principally the Euro. Accordingly, changes in exchange rates between such foreign
currencies and the U.S. dollar will affect the translation of the financial results of our foreign
subsidiaries into the U.S. dollar for purposes of reporting our consolidated financial results. A
hypothetical 10% weakening in the exchange rate of the Euro to the U.S. dollar as of October 31,
2020 would not have a material effect on our results of operations, financial position or cash
flows.
49
Index
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEICO CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of October 31, 2020 and 2019
Consolidated Statements of Operations for the years ended
October 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended
October 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the years ended
October 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended
October 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
51
54
55
56
57
59
60
Financial Statement Schedule II - Valuation and Qualifying Accounts for the
years ended October 31, 2020, 2019 and 2018
116
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Index
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
HEICO Corporation
Hollywood, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HEICO Corporation and
subsidiaries (the "Company") as of October 31, 2020 and 2019, the related consolidated statements of
operations, comprehensive income, shareholders' equity, and cash flows, for each of the three years in
the period ended October 31, 2020, and the related notes and the schedule listed in the Index at Item 15
(collectively referred to as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019,
and the results of its operations and its cash flows for each of the three years in the period ended
October 31, 2020, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company's internal control over financial reporting as of October
31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated December
23, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the
financial statements that was communicated or required to be communicated to the Finance/Audit
Committee and that (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of
51
Index
critical audit matters does not alter in any way our opinion on the financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
Inventories, net - Refer to Notes 1 and 3 to the Financial Statements
Critical Audit Matter Description
Inventory is stated at the lower of cost or net realizable value. The Company periodically evaluates the
carrying value of inventory, which requires management to make significant estimates and assumptions
related to sales patterns and expected future demand in order to estimate the amount necessary to write
down any slow moving or obsolete inventory. Changes in the assumptions related to future demand
and sales patterns could have a significant impact on the valuation of finished goods inventory for
certain of the Company’s aftermarket replacement parts and repair and overhaul parts and services
business units in the Flight Support Group operating segment.
Given the magnitude of the inventory balances at these business units, coupled with the judgments
necessary to project sales patterns and expected future demand within these aftermarket replacement
parts and repair and overhaul parts and services business units, auditing such estimates required a high
degree of auditor judgment and an increased extent of effort when performing audit procedures and
evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the expected future demand and sales patterns used by management to
estimate the valuation reserve on inventory included the following, among others:
• We tested the effectiveness of controls, including those related to evaluating the reasonableness
of expected future demand and sales patterns.
• We evaluated the reasonableness of management’s assumptions of future demand and sales
patterns by performing the following:
◦ Utilized historical inventory usage data to analyze the relationship between the
inventory valuation reserve calculated, the inventory on hand, and the sales trends over
time.
◦ Compared management’s assumptions to available external market data for certain
inventory items.
◦
Evaluated the accuracy and completeness of the valuation reserve by selecting a sample
of inventory items and obtaining supporting documentation regarding current and
historical sales patterns.
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Index
• We tested declines in the inventory valuation reserve and evaluated whether such declines were
the result of the sale or write off of inventory parts or the result of changes in the significant
assumptions used to develop the valuation reserve.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
December 23, 2020
We have served as the Company's auditor since 1990.
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Index
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Contract assets
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt
Trade accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Long-term debt, net of current maturities
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 17)
As of October 31,
2020
2019
$406,852
210,433
60,429
463,205
24,706
1,165,625
$57,001
274,326
43,132
420,319
18,953
813,731
168,848
1,383,167
579,041
251,030
$3,547,711
173,345
1,268,703
550,693
162,739
$2,969,211
$1,045
76,237
162,232
1,647
241,161
738,786
55,658
280,291
1,315,896
$906
106,225
178,957
3,050
289,138
561,049
51,496
184,604
1,086,287
Redeemable noncontrolling interests (Note 13)
221,208
188,264
Shareholders’ equity:
Preferred Stock, $.01 par value per share; 10,000 shares authorized; none issued
Common Stock, $.01 par value per share; 150,000 shares authorized;
54,195 and 54,143 shares issued and outstanding
Class A Common Stock, $.01 par value per share; 150,000 shares authorized;
80,923 and 80,353 shares issued and outstanding
Capital in excess of par value
Deferred compensation obligation
HEICO stock held by irrevocable trust
Accumulated other comprehensive loss
Retained earnings
Total HEICO shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and equity
—
542
—
541
809
299,930
4,886
(4,886)
(9,149)
1,688,045
1,980,177
30,430
2,010,607
$3,547,711
804
284,609
4,232
(4,232)
(16,739)
1,397,327
1,666,542
28,118
1,694,660
$2,969,211
The accompanying notes are an integral part of these consolidated financial statements.
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Index
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year ended October 31,
2019
2020
2018
Net sales
$1,787,009
$2,055,647
$1,777,721
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
1,104,882
1,241,807
1,087,006
305,479
356,743
314,470
Total operating costs and expenses
1,410,361
1,598,550
1,401,476
Operating income
Interest expense
Other income (expense)
376,648
457,097
376,245
(13,159)
(21,695)
(19,901)
1,366
2,439
(58)
Income before income taxes and noncontrolling interests
364,855
437,841
356,286
Income tax expense
29,000
78,100
70,600
Net income from consolidated operations
335,855
359,741
285,686
Less: Net income attributable to noncontrolling interests
21,871
31,845
26,453
Net income attributable to HEICO
$313,984
$327,896
$259,233
Net income per share attributable to HEICO shareholders:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
$2.33
$2.29
$2.45
$2.39
$1.96
$1.90
134,754
137,302
133,640
137,350
132,543
136,696
The accompanying notes are an integral part of these consolidated financial statements.
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Index
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year ended October 31,
2019
2018
2020
Net income from consolidated operations
Other comprehensive income (loss):
Foreign currency translation adjustments
Unrealized loss on defined benefit pension plan, net of tax
Amortization of unrealized loss on defined benefit pension plan, net of tax
Total other comprehensive income (loss)
Comprehensive income from consolidated operations
Net income attributable to noncontrolling interests
$335,855
$359,741
$285,686
8,876
(1,012)
73
(844)
(889)
25
(5,243)
(97)
13
7,937
(1,708)
(5,327)
343,792
358,033
280,359
21,871
31,845
26,453
Foreign currency translation adjustments attributable to noncontrolling interests
347
(225)
(406)
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to HEICO
22,218
31,620
26,047
$321,574
$326,413
$254,312
The accompanying notes are an integral part of these consolidated financial statements.
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Index
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share data)
Redeemable
Noncontrolling
Interests
Common
Stock
Class A
Common
Stock
Capital in
Excess of
Par Value
Deferred
Compensation
Obligation
HEICO Stock
Held by
Irrevocable
Trust
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interests
Total
Shareholders'
Equity
HEICO Shareholders' Equity
Balances as of October 31, 2019
$188,264
$541
$804
$284,609
$4,232
($4,232)
($16,739)
$1,397,327
$28,118
$1,694,660
Comprehensive income
16,932
Cash dividends ($.16 per share)
Issuance of common stock to
HEICO Savings and
Investment Plan
Share-based compensation
expense
Proceeds from stock option
exercises
Redemptions of common stock
related to stock option
exercises
Noncontrolling interests assumed
related to acquisitions
Capital contributions from
noncontrolling interests
Distributions to noncontrolling
interests
Acquisitions of noncontrolling
interests
Adjustments to redemption
amount of redeemable
noncontrolling interests
Deferred compensation obligation
Other
—
—
—
—
—
22,204
14,329
(16,176)
(7,475)
1,714
—
1,416
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6
—
—
9,723
10,134
6,949
(1)
(12,119)
—
—
—
—
—
—
—
—
—
—
—
—
—
634
—
—
—
—
—
—
—
—
—
—
—
654
—
—
—
—
—
—
—
—
—
—
—
—
(654)
—
7,590
313,984
—
(21,552)
5,286
—
326,860
(21,552)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,714)
—
—
—
—
—
—
—
—
9,724
10,134
6,955
(12,120)
—
—
(1,732)
(1,732)
—
—
—
(1,242)
—
(1,714)
—
(608)
Balances as of October 31, 2020
$221,208
$542
$809
$299,930
$4,886
($4,886)
($9,149)
$1,688,045
$30,430
$2,010,607
Redeemable
Noncontrolling
Interests
Common
Stock
Class A
Common
Stock
Capital in
Excess of
Par Value
Deferred
Compensation
Obligation
HEICO Stock
Held by
Irrevocable
Trust
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interests
Total
Shareholders'
Equity
HEICO Shareholders' Equity
Balances as of October 31, 2018
$132,046
$534
$796
$320,994
$3,928
($3,928)
($15,256)
$1,091,183
$104,757
$1,503,008
Cumulative effect from adoption
of ASC 606
Comprehensive income
Cash dividends ($.14 per share)
Issuance of common stock to
HEICO Savings and
Investment Plan
Share-based compensation
expense
Proceeds from stock option
exercises
Redemptions of common stock
related to stock option
exercises
Noncontrolling interests assumed
related to acquisitions
Distributions to noncontrolling
interests
Adjustments to redemption
amount of redeemable
noncontrolling interests
Deferred compensation obligation
Other
819
18,116
—
—
—
—
—
38,696
(17,847)
16,434
—
—
—
—
—
—
—
12
(5)
—
—
—
—
—
—
—
—
—
—
8
—
—
—
8,666
10,334
8,527
(1)
(64,008)
—
—
—
—
1
—
—
—
—
96
—
—
—
—
—
—
—
—
—
—
304
—
—
—
—
—
—
—
—
—
—
—
(304)
—
—
13,373
(1,483)
327,896
—
(18,691)
326
13,504
—
—
—
—
—
13,699
339,917
(18,691)
8,666
10,334
8,547
(64,014)
2,551
2,551
(93,022)
(93,022)
—
—
—
—
—
—
(16,434)
—
—
—
—
2
(16,434)
—
99
—
—
—
—
—
—
—
—
—
Balances as of October 31, 2019
$188,264
$541
$804
$284,609
$4,232
($4,232)
($16,739)
$1,397,327
$28,118
$1,694,660
The accompanying notes are an integral part of these consolidated financial statements.
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Index
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share data)
Redeemable
Noncontrolling
Interests
Common
Stock
Class A
Common
Stock
Capital in
Excess of
Par Value
Deferred
Compensation
Obligation
HEICO Stock
Held by
Irrevocable
Trust
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interests
Total
Shareholders'
Equity
HEICO Shareholders' Equity
Balances as of October 31, 2017
$131,123
$338
$507
$326,544
$3,118
($3,118)
($10,556)
$844,247
$87,212
$1,248,292
(4,921)
259,233
12,977
Comprehensive income
13,070
Cash dividends ($.116 per share)
Five-for-four common stock splits
Issuance of common stock to
HEICO Savings and
Investment Plan
Share-based compensation
expense
Proceeds from stock option
exercises
Redemptions of common stock
related to stock option
exercises
Noncontrolling interests assumed
related to acquisitions
Distributions to noncontrolling
interests
Adjustments to redemption
amount of redeemable
noncontrolling interests
Deferred compensation obligation
Other
—
—
—
—
—
—
2,491
(12,005)
(3,627)
—
994
—
—
191
—
—
286
1
—
7
(3)
—
—
—
—
—
1
—
2
—
—
—
—
—
—
—
—
(477)
7,868
9,283
4,022
(24,980)
—
—
—
—
(1,266)
—
—
—
—
—
—
—
—
—
—
810
—
—
—
—
—
—
—
—
—
—
—
(810)
—
(15,363)
(28)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
221
267,289
(15,363)
(28)
7,870
9,283
4,031
(24,983)
—
—
—
—
—
—
5,350
5,350
(1,054)
(1,054)
3,627
—
(533)
—
—
272
3,627
—
(1,306)
Balances as of October 31, 2018
$132,046
$534
$796
$320,994
$3,928
($3,928)
($15,256)
$1,091,183
$104,757
$1,503,008
The accompanying notes are an integral part of these consolidated financial statements.
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Index
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended October 31,
2019
2018
2020
Operating Activities:
Net income from consolidated operations
Adjustments to reconcile net income from consolidated operations
to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation expense
Employer contributions to HEICO Savings and Investment Plan
Deferred income tax benefit
Increase (decrease) in accrued contingent consideration, net
Payment of contingent consideration
Changes in operating assets and liabilities, net of acquisitions:
$335,855
$359,741
$285,686
88,561
10,134
9,576
(5,998)
515
(175)
77,191
83,497
9,283
10,334
9,528
8,019
(6,392) (12,977)
(1,365)
2,630
—
(3,105)
Decrease (increase) in accounts receivable
(Increase) decrease in contract assets
Increase in inventories
Decrease in prepaid expenses and other current assets
(Decrease) increase in trade accounts payable
(Decrease) increase in accrued expenses and other current liabilities (37,905) 17,151
1,296
(Decrease) increase in income taxes payable
Net changes in other long-term liabilities and assets related to
(28,976) (23,763)
71,515
(16,398) 11,583
(4,806)
(28,315) (30,077) (49,455)
401
(3,851) 17,403
22,121
(12,530)
2,471
(30,327)
(9,586)
609
HEICO Leadership Compensation Plan
Other
Net cash provided by operating activities
14,836
4,366
409,125
12,920
490
437,378
11,610
1,669
328,487
Investing Activities:
Acquisitions, net of cash acquired
Capital expenditures
Investments related to HEICO Leadership Compensation Plan, net
Other
Net cash used in investing activities
Financing Activities:
Borrowings on revolving credit facility
Payments on revolving credit facility
Capital contributions from noncontrolling interests
Proceeds from stock option exercises
Cash dividends paid
Distributions to noncontrolling interests
Redemptions of common stock related to stock option exercises
Acquisitions of noncontrolling interests
Payment of contingent consideration
Revolving credit facility issuance costs
Other
Net cash provided by (used in) financing activities
(163,939) (240,841) (59,775)
(22,940) (28,938) (41,871)
(15,900) (13,701) (11,500)
(365)
(199,043) (280,646) (113,511)
2,834
3,736
—
8,547
245,000
56,000
313,000
(68,000) (283,000) (204,000)
—
14,329
4,031
6,955
(21,552) (18,691) (15,363)
(17,908) (110,869) (13,059)
(12,120) (64,014) (24,983)
—
(5,425)
(4,067)
(669)
(159,720) (207,535)
(7,475)
(325)
—
(1,161)
—
(4,073)
—
(620)
137,743
Effect of exchange rate changes on cash
2,026
390
92
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
349,851
57,001
$406,852
(2,598)
59,599
$57,001
7,533
52,066
$59,599
The accompanying notes are an integral part of these consolidated financial statements.
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Index
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
HEICO Corporation, through its principal subsidiaries consisting of HEICO Aerospace
Holdings Corp. (“HEICO Aerospace”), HEICO Flight Support Corp. and HEICO Electronic
Technologies Corp. (“HEICO Electronic”) and their respective subsidiaries (collectively, the
“Company”), is principally engaged in the design, manufacture and sale of aerospace, defense
and electronic related products and services throughout the United States ("U.S.") and
internationally. The Company’s customer base is primarily the aviation, defense, space, medical,
telecommunications and electronics industries.
Basis of Presentation
The Company has two operating segments: the Flight Support Group (“FSG”),
consisting of HEICO Aerospace and HEICO Flight Support Corp. and their respective
subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic
and its subsidiaries.
The consolidated financial statements include the financial accounts of HEICO
Corporation and its direct subsidiaries, all of which are wholly owned except for HEICO
Aerospace, which is 20% owned by Lufthansa Technik AG ("LHT"), the technical services
subsidiary of Lufthansa German Airlines. HEICO Flight Support Corp. consolidates four
subsidiaries which are 70%, 84%, 85% and 86.2%, owned, respectively, and six subsidiaries that
are each 80.1% owned. In addition, HEICO Aerospace consolidates a joint venture, which is
84% owned. HEICO Electronic consolidates three subsidiaries that are each 80.1% owned, two
subsidiaries that are each 75% owned, and five subsidiaries which are 82.5%, 85%, 90.0%,
92.7% and 95.9% owned, respectively. Certain subsidiaries of HEICO Electronic consolidate
subsidiaries that are less than wholly owned. See Note 13, Redeemable Noncontrolling Interests.
All intercompany balances and transactions are eliminated.
The Company’s results of operations in fiscal 2020 were significantly affected by the
COVID-19 global pandemic (the “Pandemic”). The effects of the Pandemic and related actions
by governments around the world to mitigate its spread have impacted our employees,
customers, suppliers and manufacturers. In response to the economic impact from the Pandemic,
the Company implemented certain cost reduction efforts, including layoffs, temporary reduced
work hours and temporary pay reductions within various departments of our business, including
within our executive management team and our Board of Directors. Additionally, the
Company’s response to the Pandemic included the implementation of varying health and safety
measures at our facilities, including: supplying and requiring the use of personal protective
equipment; staggering work shifts; body temperature taking; increasing work-from-home
capabilities; consistent and ongoing cleaning of work spaces and high-touch areas; and
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establishing processes aligned with the Centers for Disease and Control guidelines to work with
any individual exposed to COVID-19 on their necessary quarantine period and the process for
the individual to return to work.
With respect to the Company’s results of operations, approximately 59% of its net sales
in fiscal 2020 were derived from defense, space and other industrial markets including
electronics, medical and telecommunications. Although demand for these products was slightly
moderated in fiscal 2020, the Company’s overall results from this portion of its business were
not materially impacted by the Pandemic. However, the Company experienced, and expects to
continue experiencing, periodic operational disruptions resulting from supply chain disturbances,
staffing challenges - including at some of our customers, temporary facility closures,
transportation interruptions and other conditions which slow production and orders, or increase
costs.
The remaining portion of the Company’s fiscal 2020 net sales was derived from
commercial aviation products and services. The Pandemic has caused significant volatility and a
substantial decline in value across global markets. Most notably, the commercial aerospace
industry experienced an ongoing substantial decline in demand resulting from a significant
number of aircraft in the global fleet being grounded during fiscal 2020. The Company’s
businesses that operate within the commercial aerospace industry were materially impacted by
the significant decline in global commercial air travel that began in March 2020. Consolidated
net sales for its businesses that operate within the commercial aerospace industry decreased by
approximately 32% during fiscal 2020.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of the consolidated financial statements, the Company considers all highly
liquid investments such as U.S. Treasury bills and money market funds with an original maturity
of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable
Accounts receivable consist of amounts billed and currently due from customers. The
valuation of accounts receivable requires that the Company set up an allowance for estimated
uncollectible accounts and record a corresponding charge to bad debt expense. The Company
estimates uncollectible receivables based on such factors as its prior experience, its appraisal of a
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customer’s ability to pay, age of receivables outstanding and economic conditions within and
outside of the aviation, defense, space, medical, telecommunications and electronics industries.
Contract Assets
Contract assets (unbilled receivables) represent revenue recognized on contracts using an
over-time recognition model in excess of amounts invoiced to the customer. See Note 6,
Revenue, for additional information regarding the Company's contract assets.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit
risk consist principally of temporary cash investments and trade accounts receivable. The
Company places its temporary cash investments with high credit quality financial institutions and
limits the amount of credit exposure to any one financial institution. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of customers
comprising the Company’s customer base and their dispersion across many different
geographical regions. The Company performs ongoing credit evaluations of its customers, but
does not generally require collateral to support customer receivables.
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost being determined
on the first-in, first-out or the average cost basis. Losses, if any, are recognized fully in the
period when identified. The Company periodically evaluates the carrying value of inventory,
giving consideration to factors such as its physical condition, sales patterns and expected future
demand in order to estimate the amount necessary to write down any slow moving, obsolete or
damaged inventory. These estimates could vary significantly from actual amounts based upon
future economic conditions, customer inventory levels or competitive factors that were not
foreseen or did not exist when the estimated write-downs were made. In accordance with
industry practice, all inventories are classified as a current asset including portions with long
production cycles, some of which may not be realized within one year.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation and amortization is
generally provided on the straight-line method over the estimated useful lives of the various
assets. The Company’s property, plant and equipment is generally depreciated over the
following estimated useful lives:
Buildings and improvements
Machinery and equipment
Leasehold improvements
Tooling
10 to 40 years
3 to 10 years
2 to 20 years
5 years
2 to
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The costs of major additions and improvements are capitalized. Leasehold improvements
are amortized over the shorter of the leasehold improvement’s useful life or the lease term.
Repairs and maintenance costs are expensed as incurred. Upon an asset's disposition, its cost and
related accumulated depreciation are removed from the financial accounts and any resulting gain
or loss is reflected within earnings.
Leases
During fiscal 2020, the Company adopted Accounting Standards Update (“ASU”)
2016-02, which, as amended, was codified as Accounting Standards Codification (“ASC”) Topic
842, “Leases” (“ASC 842”). Pursuant to ASC 842, the Company classifies a lease as operating
or finance using the classification criteria set forth in ASC 842. Further, the Company
recognizes a lease right-of-use (“ROU”) asset and corresponding lease liability on its balance
sheet as of the lease commencement date based on the present value of the lease payments over
the lease term. The discount rate used to calculate the present value of the Company’s leases is
based on HEICO’s incremental borrowing rate and considers credit risk, the lease term and other
available information as of the commencement date since the leases do not provide a readily
determinable implicit rate. The term of a lease is inclusive of any option to renew, extend, or
terminate the lease when it is reasonably certain that the Company will exercise such option. For
operating leases, lease expense is recognized on a straight-line basis over the lease term. For
finance leases, ROU assets are amortized on a straight-line basis over the shorter of the lease
term or the estimated useful life of the leased asset. See Note 1, Summary of Significant
Accounting Policies – New Accounting Pronouncements, and Note 9, Leases, for additional
information regarding the Company's accounting policy for leases.
Business Combinations
The Company allocates the purchase price of acquired entities to the underlying tangible
and identifiable intangible assets acquired and liabilities and any noncontrolling interests
assumed based on their estimated fair values, with any excess recorded as goodwill. The
operating results of acquired businesses are included in the Company’s results of operations
beginning as of their effective acquisition dates. Acquisition costs are expensed as incurred and
totaled $3.2 million in fiscal 2019. Acquisition costs were not material in fiscal 2020 or 2018.
For contingent consideration arrangements, a liability is recognized at fair value as of the
acquisition date with subsequent fair value adjustments recorded in operations. Additional
information regarding the Company's contingent consideration arrangements may be found in
Note 2, Acquisitions, and Note 8, Fair Value Measurements.
Goodwill and Other Intangible Assets
The Company tests goodwill for impairment annually as of October 31, or more
frequently if events or changes in circumstances indicate that the carrying amount of goodwill
may not be fully recoverable. In evaluating the recoverability of goodwill, the Company
compares the fair value of each of its reporting units to its carrying value to determine potential
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impairment. If the carrying value of a reporting unit exceeds its fair value, the implied fair value
of that reporting unit’s goodwill is to be calculated and an impairment loss is recognized in the
amount by which the carrying value of the reporting unit’s goodwill exceeds its implied fair
value, if any. The fair values of the Company's reporting units are determined by using a
weighted average of a market approach and an income approach. Under the market approach,
fair values are estimated using published market multiples for comparable companies. The
Company calculates fair values under the income approach by taking estimated future cash flows
that are based on internal projections and other assumptions deemed reasonable by management
and discounting them using an estimated weighted average cost of capital.
The Company’s intangible assets not subject to amortization consist principally of its
trade names. The Company’s intangible assets subject to amortization are amortized on the
straight-line method (except for certain customer relationships amortized on an accelerated
method) over the following estimated useful lives:
Customer relationships
Intellectual property
Licenses
Patents
Trade names
4 to 15 years
4 to 22 years
10 to 11 years
5 to 20 years
8 to 15 years
Amortization expense of intellectual property, licenses and patents is recorded as a
component of cost of sales, and amortization expense of customer relationships, non-compete
agreements and trade names is recorded as a component of selling, general and administrative
("SG&A") expenses in the Company’s Consolidated Statements of Operations. The Company
tests each non-amortizing intangible asset for impairment annually as of October 31, or more
frequently if events or changes in circumstances indicate that the asset might be impaired. To
derive the fair value of its trade names, the Company utilizes an income approach, which relies
upon management's assumptions of royalty rates, projected revenues and discount rates. The
Company also tests each amortizing intangible asset for impairment if events or circumstances
indicate that the asset might be impaired. The test consists of determining whether the carrying
value of such assets will be recovered through undiscounted expected future cash flows. If the
total of the undiscounted future cash flows is less than the carrying amount of those assets, the
Company recognizes an impairment loss based on the excess of the carrying amount over the fair
value of the assets. The determination of fair value requires management to make a number of
estimates, assumptions and judgments of such factors as projected revenues and earnings and
discount rates.
Customer Rebates and Credits
The Company records accrued customer rebates and credits as a component of accrued
expenses and other current liabilities in its Consolidated Balance Sheets. These amounts
generally relate to discounts negotiated with customers as part of certain sales contracts that are
usually tied to sales volume thresholds. The Company accrues customer rebates and credits as a
reduction within net sales as the revenue is recognized based on the estimated level of discount
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rate expected to be earned by each customer over the life of the contractual rebate period
(generally one year). Accrued customer rebates and credits are monitored by management and
discount levels are updated at least quarterly.
Product Warranties
Product warranty liabilities are estimated at the time of shipment and recorded as a
component of accrued expenses and other current liabilities in the Company’s Consolidated
Balance Sheets. The amount recognized is based on historical claims experience.
Defined Benefit Pension Plan
In connection with a prior year acquisition, the Company assumed a frozen qualified
defined benefit pension plan (the "Plan"). The Plan's benefits are based on employee
compensation and years of service; however, the accrued benefit for Plan participants was fixed
as of the date of acquisition. The Company uses an actuarial valuation to determine the projected
benefit obligation of the Plan and records the difference between the fair value of the Plan's
assets and the projected benefit obligation as of October 31 in other long-term liabilities in its
Consolidated Balance Sheets. Additionally, any actuarial gain or loss that arises during a fiscal
year that is not recognized as a component of net periodic pension income or expense is recorded
as a component of other comprehensive income or (loss), net of tax. The following table
presents the fair value of the Plan's assets and projected benefit obligation as of October 31, for
each of the last two fiscal years (in thousands):
Fair value of plan assets
Projected benefit obligation
Funded status
Revenue Recognition
As of October 31,
2020
2019
$11,581
14,519
($2,938)
$11,311
13,943
($2,632)
During fiscal 2019, the Company adopted ASC Topic 606, "Revenue from Contracts with
Customers" ("ASC 606"). Pursuant to ASC 606, the Company recognizes revenue when it
transfers control of a promised good or service to a customer in an amount that reflects the
consideration it expects to receive in exchange for the good or service. The Company’s
performance obligations are satisfied and control is transferred either at a point-in-time or over-
time. The majority of the Company’s revenue is recognized at a point-in-time when control is
transferred, which is generally evidenced by the shipment or delivery of the product to the
customer, a transfer of title, a transfer of the significant risks and rewards of ownership, and
customer acceptance. For certain contracts under which the Company produces products with no
alternative use and for which it has an enforceable right to recover costs incurred plus a
reasonable profit margin for work completed to date and for certain other contracts under which
the Company creates or enhances a customer-owned asset while performing repair and overhaul
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services, control is transferred to the customer over-time. The Company recognizes revenue
using an over-time recognition model for these types of contracts.
The Company accounts for a contract with a customer when it has approval and
commitment from both parties, the rights of the parties are identified, the payment terms are
identified, the contract has commercial substance, and it is probable that the Company will
collect the consideration to which it is entitled to receive. Customer payment terms related to the
sale of products and the rendering of services vary by Company subsidiary and product line. The
time between receipt of payment and recognition of revenue for satisfaction of the related
performance obligation is not significant.
A performance obligation is a promise within a contract to transfer a distinct good or
service to the customer in exchange for payment and is the unit of account for recognizing
revenue. A contract’s transaction price is allocated to each distinct performance obligation and
recognized as revenue when or as the performance obligation is satisfied. The majority of the
Company’s contracts have a single performance obligation to transfer goods or services. For
contracts with more than one performance obligation, the Company allocates the transaction
price to each performance obligation based on its estimated standalone selling price. When
standalone selling prices are not available, the transaction price is allocated using an expected
cost plus margin approach as pricing for such contracts is typically negotiated on the basis of
cost.
The Company accounts for contract modifications prospectively when the remaining
goods or services are distinct and on a cumulative catch-up basis when the remaining goods or
services are not distinct.
The Company provides assurance type warranties on many of its products and services.
Since customers cannot purchase such warranties independently of the products or services under
contract and they are not priced separately, warranties are not separate performance obligations.
The Company utilizes the cost-to-cost method as a measure of progress for performance
obligations that are satisfied over-time as it believes this input method best represents the transfer
of control to the customer. Under this method, revenue for the current period is recorded at an
amount equal to the ratio of costs incurred to date divided by total estimated contract costs
multiplied by (i) the transaction price, less (ii) cumulative revenue recognized in prior periods.
Contract costs include all direct material and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and depreciation.
Under the cost-to-cost method, the extent of progress toward completion is measured
based on the proportion of costs incurred to date to the total estimated costs at completion of the
performance obligation. These projections require the Company to make numerous assumptions
and estimates relating to items such as the complexity of design and related development costs,
performance of subcontractors, availability and cost of materials, labor productivity and cost,
overhead, capital costs, and manufacturing efficiency. The Company reviews its cost estimates
on a periodic basis, or when circumstances change and warrant a modification to a previous
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estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms,
historical performance trends and other economic projections.
For certain contracts with similar characteristics and for which revenue is recognized
using an over-time model, the Company uses a portfolio approach to estimate the amount of
revenue to recognize. For each portfolio of contracts, the respective work in process and/or
finished goods inventory balances are identified and the portfolio-specific margin is applied to
estimate the pro rata portion of the transaction price to recognize in relation to the costs incurred.
This approach is utilized only when the resulting revenue recognition is not expected to be
materially different than if the accounting was applied to the individual contracts.
Certain of the Company’s contracts give rise to variable consideration when they contain
items such as customer rebates, credits, volume purchase discounts, penalties and other
provisions that may impact the total consideration the Company will receive. The Company
includes variable consideration in the transaction price generally by applying the most likely
amount method of the consideration that it expects to be entitled to receive based on an
assessment of all available information (i.e., historical experience, current and forecasted
performance) and only to the extent it is probable that a significant reversal of revenue
recognized will not occur when the uncertainty is resolved. The Company estimates variable
consideration by applying the most likely amount method when there are a limited number of
outcomes related to the resolution of the variable consideration. See Note 6, Revenue, for
additional information regarding the Company’s revenue recognition policy.
Changes in estimates that result in adjustments to net sales and cost of sales are
recognized as necessary in the period they become known on a cumulative catch-up basis.
Changes in estimates did not have a material effect on net income from consolidated operations
in fiscal 2020, 2019 and 2018.
Stock-Based Compensation
The Company records compensation expense associated with stock options in its
Consolidated Statements of Operations based on the grant date fair value of those awards. The
fair value of each stock option on the date of grant is estimated using the Black-Scholes pricing
model based on certain valuation assumptions. Expected stock price volatility is based on the
Company’s historical stock prices over the contractual term of the option grant and other
factors. The risk-free interest rate used is based on the published U.S. Treasury yield curve in
effect at the time of the option grant for instruments with a similar life. The dividend yield
reflects the Company’s expected dividend yield at the date of grant. The expected option life
represents the period of time that the stock options are expected to be outstanding, taking into
consideration the contractual term of the option grant and employee historical exercise
behavior. The Company’s historical rate of forfeiture is nominal and therefore not included
when estimating the grant date fair value of stock option awards. As such, the Company
recognizes the impact of forfeitures when they occur. The Company generally recognizes stock
option compensation expense ratably over the award’s vesting period.
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Income Taxes
Income tax expense includes U.S. and foreign income taxes. Deferred income taxes are
provided on elements of income that are recognized for financial reporting purposes in periods
different from when recognized for income tax purposes. Deferred tax assets and liabilities are
recognized for the tax effects of temporary differences between the financial reporting and
income tax bases of assets and liabilities and are measured using enacted tax rates in effect for
the year in which the differences are expected to reverse. Tax law and rate changes are reflected
in income in the period such changes are enacted. The Company's policy is to recognize interest
and penalties related to income tax matters as a component of income tax expense and to treat
any tax on Global Intangible Low-Taxed Income ("GILTI") as a current period income tax
expense. Further information regarding income taxes can be found in Note 7, Income Taxes.
Redeemable Noncontrolling Interests
As further detailed in Note 13, Redeemable Noncontrolling Interests, the holders of
equity interests in certain of the Company’s subsidiaries have rights (“Put Rights”) that require
the Company to provide cash consideration for their equity interests (the “Redemption Amount”)
at fair value or at a formula that management intended to reasonably approximate fair value
based solely on a multiple of future earnings over a measurement period. The Put Rights are
embedded in the shares owned by the noncontrolling interest holders and are not freestanding.
The Company tracks the carrying cost of such redeemable noncontrolling interests at historical
cost plus an allocation of subsidiary earnings based on ownership interest, less dividends paid to
the noncontrolling interest holders. Redeemable noncontrolling interests are recorded outside of
permanent equity at the higher of their carrying cost or management’s estimate of the
Redemption Amount. The initial adjustment to record redeemable noncontrolling interests at the
Redemption Amount results in a corresponding decrease to retained earnings. Subsequent
adjustments to the Redemption Amount of redeemable noncontrolling interests may result in
corresponding decreases or increases to retained earnings, provided any increases to retained
earnings may only be recorded to the extent of decreases previously recorded. Adjustments to
Redemption Amounts based on fair value will have no effect on net income per share attributable
to HEICO shareholders whereas the portion of periodic adjustments to the carrying amount of
redeemable noncontrolling interests based solely on a multiple of future earnings that reflect a
redemption amount in excess of fair value will affect net income per share attributable to HEICO
shareholders. Acquisitions of redeemable noncontrolling interests are treated as equity
transactions.
Net Income per Share Attributable to HEICO Shareholders
Basic net income per share attributable to HEICO shareholders is computed by dividing
net income attributable to HEICO by the weighted average number of common shares
outstanding during the period. Diluted net income per share attributable to HEICO shareholders
is computed by dividing net income attributable to HEICO by the weighted average number of
common shares outstanding during the period plus potentially dilutive common shares arising
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from the assumed exercise of stock options, if dilutive. The dilutive impact of potentially
dilutive common shares is determined by applying the treasury stock method.
Foreign Currency
All assets and liabilities of foreign subsidiaries that do not utilize the U.S. dollar as its
functional currency are translated at period-end exchange rates, while revenue and expenses are
translated using average exchange rates for the period. Unrealized translation gains or losses are
reported as foreign currency translation adjustments through other comprehensive income or
(loss) in shareholders’ equity. Transaction gains or losses related to monetary balances
denominated in a currency other than the functional currency are recorded in the Company's
Consolidated Statements of Operations.
Contingencies
Losses for contingencies such as product warranties, litigation and environmental matters
are recognized in income when they are probable and can be reasonably estimated. Gain
contingencies are not recognized in income until they have been realized.
New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU
2016-02, which, as amended, was codified as ASC 842. ASC 842 requires recognition of lease
assets and lease liabilities on the balance sheet of lessees. The Company adopted ASC 842 as of
November 1, 2019 using a modified retrospective transition approach with the election to apply
the guidance as of the adoption date instead of at the beginning of the earliest comparative period
presented. The adoption of this guidance resulted in an increase in the Company's assets and
liabilities due to the recognition of ROU assets and corresponding lease liabilities for leases that
are currently classified as operating leases.
Upon adoption, the Company elected the package of transitional practical expedients,
which allowed the Company to not reassess its prior conclusions about lease identification, lease
classification, and initial direct costs. In addition, the Company elected the short-term lease
practical expedient, which allows HEICO to not record an ROU asset and lease liability for any
lease with a term of twelve months or less, and also elected the single component practical
expedient for all asset classes, which allows the Company to include both lease and non-lease
components associated with a lease as a single lease component when determining the value of
the ROU asset and lease liability.
The adoption of this guidance resulted in the Company recording ROU assets and
corresponding lease liabilities of $63.4 million and $64.1 million, respectively, in the Company's
Consolidated Balance Sheet. The adoption of ASC 842 did not have a material impact on the
Company’s Consolidated Statement of Operations or Statement of Cash Flows. See Note 9,
Leases, for additional information regarding the Company's accounting policy for leases and
disclosures required by ASC 842.
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In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill
Impairment," which is intended to simplify the current test for goodwill impairment by
eliminating the second step in which the implied value of a reporting unit is calculated when the
carrying value of the reporting unit exceeds its fair value. Under ASU 2017-04, goodwill
impairment should be recognized for the amount by which a reporting unit’s carrying value
exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 must be
applied prospectively and is effective for any annual or interim goodwill impairment test in fiscal
years beginning after December 15, 2019, or in fiscal 2021 for HEICO. Early adoption is
permitted. The Company is currently evaluating the effect the adoption of this guidance will
have on its consolidated results of operations, financial position and cash flows.
2. ACQUISITIONS
In August 2020, the Company, through HEICO Electronic, acquired 89.99% of the equity
interests of Connect Tech Inc. ("Connect Tech"). Connect Tech designs and manufacturers
rugged, small-form-factor embedded computing solutions. Connect Tech's components are
designed for very harsh environments and are primarily used in rugged commercial and
industrial, aerospace and defense, transportation, and smart energy applications. The remaining
10.01% interest continues to be owned by a certain member of Connect Tech's management team
(see Note 13, Redeemable Noncontrolling Interests, for additional information). The total
consideration includes an accrual of $9.7 million as of the acquisition date representing the
estimated fair value of contingent consideration the Company may be obligated to pay should
Connect Tech meet certain earnings objectives following the acquisition. See Note 8, Fair Value
Measurements, for additional information regarding the Company’s contingent consideration
obligation.
In August 2020, the Company, through a newly formed subsidiary of HEICO Electronic,
acquired all of the equity interests of Transformational Security, LLC and Intelligent Devices,
Inc. (collectively, "TSID"). TSID develops and manufactures state-of-the-art Technical
Surveillance Countermeasures ("TSCM") equipment used to protect critical spaces from
exploitation via wireless transmissions, technical surveillance and listening devices. The
subsidiary of HEICO Electronic that completed the acquisition is 75% owned by HEICO
Electronic and 25% owned by the noncontrolling interest holders of a subsidiary of HEICO
Electronic that is also a designer and manufacturer of TSCM equipment (see Note 13,
Redeemable Noncontrolling Interests, for additional information). The total consideration
includes an accrual of $14.0 million as of the acquisition date representing the estimated fair
value of contingent consideration the Company may be obligated to pay should TSID meet
certain earnings objectives following the acquisition. See Note 8, Fair Value Measurements, for
additional information regarding the Company’s contingent consideration obligation.
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In June 2020, the Company, through HEICO Flight Support Corp., acquired 70% of the
membership interests of Rocky Mountain Hydrostatics, LLC ("Rocky Mountain"). Rocky
Mountain overhauls industrial pumps, motors, and other hydraulic units with a focus on the
support of legacy systems for the U.S. Navy. The remaining 30% continues to be owned by
certain members of Rocky Mountain's management team (see Note 13, Redeemable
Noncontrolling Interests, for additional information).
In May 2020, a subsidiary of HEICO Electronic obtained 100% ownership of the assets
and liabilities of Freebird Semiconductor Corporation ("Freebird"), an entity in which the
subsidiary held a controlling financial interest since November 2018. In June 2020, the HEICO
Electronic subsidiary contributed the assets and liabilities of Freebird in exchange for a 49%
equity interest in EPC Space LLC ("EPC”), which the Company accounts for under the equity
method. As the fair value of the net assets contributed approximated the fair value of the equity
interest received in EPC, no material gain or loss was recorded as a result of this transaction.
EPC designs, develops, promotes, markets and sells radiation-hardened gallium nitride power
solutions packaged for use in outer space and other high reliability applications.
In December 2019, the Company, through a subsidiary of HEICO Electronic, acquired
100% of the business and assets of the Human-Machine Interface ("HMI") product line of
Spectralux Corporation. HMI designs, manufactures, and repairs flight deck annunciators,
panels, indicators, and illuminated keyboards, as well as lighting controls, and flight deck
lighting.
In December 2019, the Company, through HEICO Electronic, acquired 80.1% of the
stock of Quell Corporation ("Quell"). Quell designs and manufactures electromagnetic
interference (EMI)/radio-frequency interference (RFI) and transient protection solutions for a
wide variety of connectors that principally serve customers within the aerospace and defense
markets. The remaining 19.9% continues to be owned by certain members of Quell's
management team (see Note 13, Redeemable Noncontrolling Interests, for additional
information).
In September 2019, the Company, through a subsidiary of HEICO Electronic, acquired
all of the outstanding stock of TTT-Cubed, Inc. ("TTT"). TTT is a designer and manufacturer of
Radio Frequency (RF) Sources, Detectors, and Controllers for a certain wide range of aerospace
and defense applications. The purchase price of this acquisition was paid in cash using cash
provided by operating activities.
In July 2019, the Company, jointly through HEICO Electronic and one of its subsidiaries,
acquired substantially all of the assets and business of a France-based company and transferred
the assets to a newly created subsidiary, Bernier Connect SAS ("Bernier"). The acquisition is
inclusive of Bernier's 70% equity interest in Moulages Plastiques Industriels de L'essonne SARL,
a plastics manufacturer. Bernier is a designer and manufacturer of interconnect products used in
demanding defense, aerospace and industrial applications, primarily for communications-related
purposes. The purchase price of this acquisition was paid in cash using cash provided by
operating activities.
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In June 2019, the Company, through HEICO Electronic, acquired 75% of the
membership interests of Research Electronics International, LLC ("REI"). REI is a designer and
manufacturer of TSCM equipment to detect devices used for espionage and information theft.
The remaining 25% interest continues to be owned by certain members of REI's management
team (see Note 13, Redeemable Noncontrolling Interests, for additional information).
In February 2019, the Company, through HEICO Flight Support Corp., acquired 80.1%
of the membership interests of Decavo LLC ("Decavo"). Decavo designs and produces complex
composite parts and assemblies incorporated into camera and related sensor assemblies and
unmanned aerial vehicle ("UAV") airframes used in demanding defense and civilian
applications. The remaining 19.9% interest continues to be owned by certain members of
Decavo's management team (see Note 13, Redeemable Noncontrolling Interests, for additional
information). The total consideration includes an accrual of $2.1 million as of the acquisition
date representing the estimated fair value of contingent consideration the Company may be
obligated to pay should Decavo meet a certain earnings objective during the second and third
years following the acquisition. See Note 8, Fair Value Measurements, for additional
information regarding the Company's contingent consideration obligation. The purchase price of
this acquisition was paid in cash principally using cash provided by operating activities.
In February 2019, the Company, through HEICO Electronic, acquired 85% of the stock
of Solid Sealing Technology, Inc. ("SST"). SST designs and manufactures high-reliability
ceramic-to-metal feedthroughs and connectors for demanding environments within the defense,
industrial, life science, medical, research, semiconductor, and other markets. The remaining
15% interest continues to be owned by certain members of SST's management team (see Note
13, Redeemable Noncontrolling Interests, for additional information).
In November 2018, the Company, through a subsidiary of HEICO Electronic, acquired an
additional equity interest in Freebird, which increased the Company's aggregate equity interest in
Freebird to greater than 50%. Accordingly, the Company began consolidating the operating
results of Freebird as of the acquisition date. Prior to this transaction, the Company accounted
for its investment in Freebird under the equity method. Freebird is a fabless design and
manufacturing company that offers advanced high-reliability wide-band gap power switching
technology. The purchase price of this acquisition was paid in cash using cash provided by
operating activities.
In November 2018, the Company, through HEICO Electronic, acquired 92.7% of the
stock of Apex Microtechnology, Inc. ("Apex"). Apex designs and manufactures precision power
analog monolithic, hybrid and open frame components for a certain wide range of aerospace,
defense, industrial, measurement, medical and test applications. The remaining 7.3% interest
continues to be owned by certain members of Apex's management team (see Note 13,
Redeemable Noncontrolling Interests, for additional information).
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In November 2018, the Company, through HEICO Electronic, acquired all of the stock of
Specialty Silicone Products, Inc. ("SSP"). SSP designs and manufactures silicone material for a
variety of demanding applications used in aerospace, defense, research, oil and gas, testing,
pharmaceuticals and other markets.
In September 2018, the Company, through a subsidiary of HEICO Electronic, obtained
control over 53.1% of the equity interests of SST Components, Inc. (“SST Components”). SST
Components manufactures discrete semiconductor components, tests electronic components, and
custom assembles a wide variety of prototype and off the shelf components into desired package
styles for military, space and commercial uses. The purchase price of this acquisition was paid
using cash provided by operating activities.
In August 2018, the Company, through a subsidiary of HEICO Flight Support Corp.,
acquired all of the business and assets of Optical Display Engineering ("ODE"). ODE is a
Federal Aviation Administration ("FAA")-authorized Part 145 Repair Station focusing on the
repair of LCD screens and display modules for aviation displays used in civilian and military
aircraft. ODE also holds FAA-Parts Manufacturer Approval authority to supply products that it
repairs. The purchase price of this acquisition was paid in cash, principally using cash provided
by operating activities.
In April 2018, the Company, through a subsidiary of HEICO Electronic, acquired all of
the assets and business of the Emergency Locator Transmitter Beacon product line ("ELT
Product Line") of Instrumar Limited. The ELT Product Line designs and manufactures
Emergency Locator Transmitter Beacons for the commercial aviation and defense markets that
upon activation, transmit a distress signal to alert search and rescue operations of the aircraft's
location. The purchase price of this acquisition was paid using cash provided by operating
activities.
In February 2018, the Company, through a subsidiary of HEICO Electronic, acquired
85% of the assets and business of Sensor Technology Engineering, Inc. ("Sensor Technology").
Sensor Technology designs and manufactures sophisticated nuclear radiation detectors for law
enforcement, homeland security and military applications. The remaining 15% continues to be
owned by certain members of Sensor Technology's management team (see Note 13, Redeemable
Noncontrolling Interests, for additional information).
In November 2017, the Company, through a subsidiary of HEICO Electronic, acquired
all of the stock of Interface Displays & Controls, Inc. ("IDC"). IDC designs and manufactures
electronic products for aviation, marine, military fighting vehicles, and embedded computing
markets. The purchase price of this acquisition was paid using cash provided by operating
activities.
Unless otherwise noted, the purchase price of each of the above referenced acquisitions
was paid in cash, principally using proceeds from the Company's revolving credit facility, and is
not material or significant to the Company's consolidated financial statements.
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The following table summarizes the aggregate total consideration for the Company's
acquisitions (in thousands):
Cash paid
Less: cash acquired
Cash paid, net
Contingent consideration
Fair value of existing equity interest
Additional purchase consideration
Total consideration
Year ended October 31,
2019
$243,550
2020
$165,290
(1,351)
(2,466)
163,939
23,719
—
283
$187,941
241,084
2,107
1,417
—
$244,608
2018
$61,931
(4,000)
57,931
—
—
(243)
$57,688
The following table summarizes the allocation of the aggregate total consideration for the
Company's acquisitions to the estimated fair values of the tangible and identifiable intangible
assets acquired and liabilities and noncontrolling interests assumed (in thousands):
Assets acquired:
Goodwill
Customer relationships
Intellectual property
Trade names
Inventories
Accounts receivable
Property, plant and equipment
Other assets (including contract assets)
Total assets acquired, excluding cash
Liabilities assumed:
Deferred income taxes
Accrued expenses
Accounts payable
Other liabilities
Total liabilities assumed
Year ended October 31,
2019
2018
2020
$114,380
44,740
27,120
12,410
12,777
7,124
3,546
1,891
223,988
10,232
2,688
726
197
13,843
$155,892
47,553
31,459
19,216
18,046
8,673
18,013
907
299,759
7,427
2,971
2,879
627
13,904
$38,359
11,620
6,970
760
6,307
1,480
1,777
126
67,399
—
1,522
671
—
2,193
Noncontrolling interests in consolidated subsidiaries
22,204
41,247
7,518
Net assets acquired, excluding cash
$187,941
$244,608
$57,688
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The following table summarizes the weighted average amortization period of the definite-
lived intangible assets acquired in connection with the Company's fiscal 2020, 2019 and 2018
acquisitions (in years):
Customer relationships
Intellectual property
Year ended October 31,
2019
11
15
2018
7
10
2020
10
11
The allocation of the total consideration for the fiscal 2020 acquisitions to the tangible
and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed is
preliminary until the Company obtains final information regarding their fair values. However,
the Company does not expect any adjustment to such allocations to be material to the Company's
consolidated financial statements. The primary items that generated the goodwill recognized
were the premiums paid by the Company for the future earnings potential of the businesses
acquired and the value of their assembled workforces that do not qualify for separate recognition,
which, in the case of Connect Tech, Rocky Mountain, Quell, Bernier, REI, Decavo, SST, Apex,
SST Components and Sensor Technology benefit both the Company and the noncontrolling
interest holders. The fair value of the noncontrolling interests in Connect Tech, Rocky
Mountain, Quell, Bernier, REI, Decavo, SST, Apex, SST Components and Sensor Technology
was determined based on the consideration paid by the Company for its controlling ownership
interest adjusted for a lack of control that a market participant would consider when estimating
the fair value of the noncontrolling interest.
The operating results of the fiscal 2020 acquisitions were included in the Company’s
results of operations from each of the effective acquisition dates. The amount of net sales and
earnings of the fiscal 2020 acquisitions included in the Consolidated Statement of Operations for
the fiscal year ended October 31, 2020 is not material. Had the fiscal 2020 acquisitions occurred
as of November 1, 2018, net sales, net income from consolidated operations, net income
attributable to HEICO, and basic and diluted net income per share attributable to HEICO
shareholders on a pro forma basis for fiscal 2020 and 2019 would not have been materially
different than the reported amounts.
The operating results of the Company's fiscal 2019 acquisitions were included in the
Company’s results of operations from each of the effective acquisition dates. The amount of net
sales and earnings of the fiscal 2019 acquisitions included in the Consolidated Statement of
Operations for the fiscal year ended October 31, 2019 is not material. Had the fiscal 2019
acquisitions occurred as of November 1, 2017, net sales on a pro forma basis for fiscal 2019
would not have been materially different than the reported amounts and net sales on a pro forma
basis for fiscal 2018 would have been $1,879.7 million. Net income from consolidated
operations, net income attributable to HEICO, and basic and diluted net income per share
attributable to HEICO shareholders on a pro forma basis for fiscal 2019 and 2018 would not
have been materially different than the reported amounts. The pro forma financial information is
presented for comparative purposes only and is not necessarily indicative of the results of
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operations that actually would have been achieved if the acquisitions had taken place as of
November 1, 2017.
The operating results of the Company's fiscal 2018 acquisitions were included in the
Company's results of operations from each of the effective acquisition dates. The amount of net
sales and earnings of the fiscal 2018 acquisitions included in the Consolidated Statement of
Operations for the fiscal year ended October 31, 2018 is not material. Had the fiscal 2018
acquisitions occurred as of November 1, 2016, net sales, net income from consolidated
operations, net income attributable to HEICO, and basic and diluted net income per share
attributable to HEICO shareholders on a pro forma basis for fiscal 2018 would not have been
materially different than the reported amounts.
3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
(in thousands)
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
As of October 31,
2019
2020
$277,992
$223,171
(3,666)
$274,326
(12,738)
$210,433
The $9.1 million increase in the Company’s allowance for doubtful accounts is
principally due to potential collection difficulties from certain commercial aviation customers
that filed for bankruptcy protection in fiscal 2020 as a result of the Pandemic's financial impact.
Inventories
(in thousands)
Finished products
Work in process
Materials, parts, assemblies and supplies
Inventories, net of valuation reserves
As of October 31,
2019
2020
$199,880
$235,501
32,548
37,957
187,891
189,747
$420,319
$463,205
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Property, Plant and Equipment
(in thousands)
Land
Buildings and improvements
Machinery, equipment and tooling
Construction in progress
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
As of October 31,
2019
2020
$6,678
120,769
265,408
8,487
401,342
(232,494)
$168,848
$6,820
116,997
253,127
8,382
385,326
(211,981)
$173,345
The amounts set forth above include tooling costs having a net book value of $8.3 million
and $8.8 million as of October 31, 2020 and 2019, respectively. Amortization expense on
capitalized tooling was $3.2 million, $3.1 million and $2.8 million in fiscal 2020, 2019 and 2018,
respectively.
As of October 31, 2019, the amounts set forth above include $11.7 million of assets under
capital leases and $2.1 million of accumulated depreciation associated with such assets. See
Note 9, Leases, for additional information pertaining to the Company’s finance lease disclosures
made in accordance with the adoption of ASC 842 in fiscal 2020.
Depreciation and amortization expense, exclusive of tooling, on property, plant and
equipment was $27.1 million, $25.8 million and $23.2 million in fiscal 2020, 2019 and 2018,
respectively.
Accrued Expenses and Other Current Liabilities
(in thousands)
Accrued employee compensation and related payroll taxes
Contract liabilities
Accrued customer rebates and credits
Current operating lease liabilities
Other
Accrued expenses and other current liabilities
As of October 31,
2019
2020
$112,602
$83,055
23,809
25,631
17,978
15,813
—
14,180
24,568
23,553
$178,957
$162,232
The decrease in accrued employee compensation and related payroll taxes principally
reflects a lower level of accrued performance-based compensation expense resulting from lower
consolidated operating results mainly attributable to the Pandemic. The increase in current
operating lease liabilities is the result of adopting ASC 842 during fiscal 2020. See Note 1,
Summary of Significant Accounting Policies, and Note 9, Leases, for additional information.
The total customer rebates and credits deducted within net sales in fiscal 2020, 2019 and 2018
was $4.6 million, $9.0 million and $9.9 million, respectively. The decrease in total customer
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Index
rebates and credits deducted within net sales in fiscal 2020 principally reflects a decrease in the
net sales volume of certain commercial aerospace customers eligible for rebates mainly resulting
from the Pandemic's impact.
Other Long-Term Assets and Liabilities
The Company provides eligible employees, officers and directors of the Company the
opportunity to voluntarily defer base salary, bonus payments, commissions, long-term incentive
awards and directors fees, as applicable, on a pre-tax basis through the HEICO Corporation
Leadership Compensation Plan (“LCP”), a nonqualified deferred compensation plan that
conforms to Section 409A of the Internal Revenue Code. The Company matches 50% of the first
6% of base salary deferred by each participant. Director fees that would otherwise be payable in
Company common stock may be deferred into the LCP, and, when distributable, are distributed
in actual shares of Company common stock. The LCP does not provide for diversification of a
director’s assets allocated to Company common stock. The deferred compensation obligation
associated with Company common stock is recorded as a component of shareholders’ equity at
cost and subsequent changes in fair value are not reflected in operations or shareholders’ equity
of the Company. Further, while the Company has no obligation to do so, the LCP also provides
the Company the opportunity to make discretionary contributions. The Company’s matching
contributions and any discretionary contributions are subject to vesting and forfeiture provisions
set forth in the LCP. Company contributions to the LCP charged to income in fiscal 2020, 2019
and 2018 totaled $4.7 million, $6.1 million and $5.9 million, respectively. The aggregate
liabilities of the LCP were $178.3 million and $151.1 million as of October 31, 2020 and 2019,
respectively, and are classified within other long-term liabilities and accrued expenses and other
current liabilities in the Company’s Consolidated Balance Sheets. The assets of the LCP,
totaling $180.1 million and $151.9 million as of October 31, 2020 and 2019, respectively, are
classified within other assets in the Company's Consolidated Balance Sheets and principally
represent cash surrender values of life insurance policies that are held within an irrevocable trust
that may be used to satisfy the obligations of the LCP. Additional information regarding the
assets of the LCP may be found in Note 8, Fair Value Measurements.
Research and Development Expenses
The amount of new product research and development ("R&D") expenses included in
cost of sales is as follows (in thousands):
R&D expenses
Year ended October 31,
2019
2018
2020
$65,559
$66,630
$57,450
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Index
Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss during fiscal 2020
and 2019 are as follows (in thousands):
Balances as of October 31, 2018
Unrealized loss
Amortization of unrealized loss
Balances as of October 31, 2019
Unrealized gain (loss)
Amortization of unrealized loss
Balances as of October 31, 2020
Foreign Currency
Translation
Defined Benefit
Pension Plan
Accumulated
Other
Comprehensive
Loss
($14,370)
(619)
—
(14,989)
8,529
—
($6,460)
($886)
(889)
25
(1,750)
(1,012)
73
($2,689)
($15,256)
(1,508)
25
(16,739)
7,517
73
($9,149)
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by operating segment during fiscal 2020 and
2019 are as follows (in thousands):
Balances as of October 31, 2018
Goodwill acquired
Foreign currency translation adjustments
Adjustments to goodwill
Balances as of October 31, 2019
Goodwill acquired
Foreign currency translation adjustments
Deconsolidation of subsidiary
Adjustments to goodwill
Balances as of October 31, 2020
Segment
FSG
$398,694
12,891
(1,580)
39
410,044
14,979
2,542
—
—
$427,565
ETG
$716,138
143,286
(765)
—
858,659
99,401
2,076
(4,249)
(285)
$955,602
Consolidated
Totals
$1,114,832
156,177
(2,345)
39
1,268,703
114,380
4,618
(4,249)
(285)
$1,383,167
The goodwill acquired during fiscal 2020 and 2019 pertains to the acquisitions
consummated in those respective years as described in Note 2, Acquisitions, and represents the
residual value after the allocation of the total consideration to the tangible and identifiable
intangible assets acquired and liabilities and noncontrolling interests assumed. Foreign currency
translation adjustments are included in other comprehensive income (loss) in the Company's
Consolidated Statements of Comprehensive Income. Deconsolidation of subsidiary reflects the
value of goodwill associated with an entity that the Company previously consolidated but
subsequently contributed the net assets of the former entity to a new entity in which the
Company holds a noncontrolling interest and accounts for under the equity method (See Note 2,
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Acquisitions, for additional information). The adjustments to goodwill represent immaterial
measurement period adjustments to the purchase price allocation of certain fiscal 2019 and 2018
acquisitions. The Company estimates that $46 million and $92 million of the goodwill acquired
in fiscal 2020 and 2019, respectively, will be deductible for income tax purposes. Based on the
annual test for goodwill impairment as of October 31, 2020, the Company determined there is no
impairment of its goodwill and the fair value of each of the Company’s reporting units
significantly exceeded their carrying value.
Identifiable intangible assets consist of the following (in thousands):
Amortizing Assets:
Customer relationships
Intellectual property
Licenses
Patents
Non-compete agreements
Trade names
Non-Amortizing Assets:
Trade names
As of October 31, 2020
As of October 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$443,143
240,725
6,559
1,071
811
450
692,759
($188,919) $254,224
(84,686) 156,039
1,889
(4,670)
$411,076
216,359
6,559
($162,722) $248,354
(70,169) 146,190
2,457
(4,102)
(746)
325
986
(666)
320
(811)
(219)
—
231
(280,051) 412,708
813
450
636,243
(813)
(180)
—
270
(238,652) 397,591
166,333
$859,092
—
166,333
($280,051) $579,041
153,102
$789,345
—
153,102
($238,652) $550,693
The increase in the gross carrying amount of customer relationships, intellectual property
and trade names as of October 31, 2020 compared to October 31, 2019 principally relates to such
intangible assets recognized in connection with the fiscal 2020 acquisitions (see Note 2,
Acquisitions).
Amortization expense related to intangible assets was $57.4 million, $53.7 million and
$50.1 million in fiscal 2020, 2019 and 2018, respectively. Amortization expense for each of the
next five fiscal years and thereafter is estimated to be $59.7 million in fiscal 2021, $52.9 million
in fiscal 2022, $47.3 million in fiscal 2023, $42.5 million in fiscal 2024, $38.0 million in fiscal
2025 and $172.3 million thereafter.
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5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
Borrowings under revolving credit facility
Finance leases and note payable (1)
Less: Current maturities of long-term debt
As of October 31,
2020
$730,000
9,831
739,831
(1,045)
$738,786
2019
$553,000
8,955
561,955
(906)
$561,049
(1) See Note 9, Leases, for additional information regarding the Company's finance leases.
The Company's borrowings under its revolving credit facility mature in fiscal 2024 as
discussed further below. As of October 31, 2020 and 2019, the weighted average interest rate on
borrowings under the Company's revolving credit facility was 1.3% and 3.0%, respectively. The
revolving credit facility contains both financial and non-financial covenants. As of October 31,
2020, the Company was in compliance with all such covenants.
Revolving Credit Facility
In November 2017, the Company entered into a $1.3 billion Revolving Credit Facility
Agreement ("Credit Facility") with a bank syndicate, which matures in November 2022. Under
certain circumstances, the maturity of the Credit Facility may be extended for two one-year
periods. The Credit Facility also includes a feature that will allow the Company to increase the
capacity by $350 million to become a $1.65 billion facility through increased commitments from
existing lenders or the addition of new lenders. Borrowings under the Credit Facility may be
used to finance acquisitions and for working capital and other general corporate purposes,
including capital expenditures.
On December 11, 2020, the Company entered into an amendment to extend the maturity
date of the Credit Facility by one year to November 2023 and to increase the capacity by
$200 million to $1.5 billion. The Credit Facility continues to include a feature that will allow the
Company to increase the capacity by $350 million to become a $1.85 billion facility through
increased commitments from existing lenders or the addition of new lenders and can be extended
for an additional one-year period.
Borrowings under the Credit Facility accrue interest at the Company’s election of the
Base Rate or the Eurocurrency Rate, plus in each case, the Applicable Rate (based on the
Company’s Total Leverage Ratio). The Base Rate for any day is a fluctuating rate per annum
equal to the highest of (i) the Prime Rate; (ii) the Federal Funds Rate plus .50%; and (iii) the
Eurocurrency Rate for an Interest Period of one month plus 100 basis points. The Eurocurrency
Rate is the rate per annum obtained by dividing LIBOR for the applicable Interest Period by a
percentage equal to 1.00 minus the daily average Eurocurrency Reserve Rate for such Interest
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Index
Period, as such capitalized terms are defined in the Credit Facility. The Applicable Rate for
Eurocurrency Rate Loans ranges from 1.00% to 2.00%. The Applicable Rate for Base Rate
Loans ranges from 0% to 1.00%. A fee is charged on the amount of the unused commitment
ranging from .125% to .30% (depending on the Company’s Total Leverage Ratio). The Credit
Facility also includes $100 million sublimits for borrowings made in foreign currencies and for
swingline borrowings, and a $50 million sublimit for letters of credit. Outstanding principal,
accrued and unpaid interest and other amounts payable under the Credit Facility may be
accelerated upon an event of default, as such events are described in the Credit Facility. The
Credit Facility is unsecured and contains covenants that require, among other things, the
maintenance of a Total Leverage Ratio and an Interest Coverage Ratio, as such capitalized terms
are defined in the Credit Facility.
6. REVENUE
Contract Balances
Contract assets (unbilled receivables) represent revenue recognized on contracts using an
over-time recognition model in excess of amounts invoiced to the customer. Contract liabilities
(deferred revenue) represent customer advances and billings in excess of revenue recognized and
are included within accrued expenses and other current liabilities in the Company’s Consolidated
Balance Sheet.
Changes in the Company’s contract assets and liabilities during fiscal 2020 and 2019 are
as follows (in thousands):
Contract assets
Contract liabilities
Net contract assets
October 31, 2020
$60,429
25,631
$34,798
October 31, 2019
Change
$43,132
23,809
$19,323
$17,297
1,822
$15,475
The increase in the Company's contract assets during fiscal 2020 occurred within the
ETG and principally reflects additional unbilled receivables on certain customer contracts using
an over-time recognition model in excess of billings on certain customer contracts.
The amount of revenue that the Company recognized during fiscal 2020 that was
included in contract liabilities as of the beginning of fiscal 2020 was $18.7 million.
Remaining Performance Obligations
As of October 31, 2020, the Company had $439.5 million of remaining performance
obligations associated with contracts with an original duration of greater than one year pertaining
to the majority of the products offered by the ETG as well as certain products of the FSG's
specialty products and aftermarket replacement parts product lines. The Company will recognize
net sales as these obligations are satisfied. The Company expects to recognize $309.1 million of
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Index
this amount during fiscal 2021 and $130.4 million thereafter, of which the majority is expected to
occur in fiscal 2022.
Disaggregation of Revenue
The following table summarizes the Company’s net sales by product line for each
operating segment (in thousands):
Flight Support Group:
Aftermarket replacement parts (1)
Repair and overhaul parts and services (2)
Specialty products (3)
Total net sales
Electronic Technologies Group:
Electronic component parts primarily for
defense, space and aerospace equipment (4)
Electronic component parts for equipment
in various other industries (5)
Total net sales
Intersegment sales
Year Ended October 31,
2020
2019
2018
$525,636
193,164
206,012
924,812
$678,001
299,323
262,859
1,240,183
$582,562
286,454
228,921
1,097,937
679,901
633,685
547,088
195,086
874,987
200,837
834,522
154,739
701,827
(12,790)
(19,058)
(22,043)
Total consolidated net sales
$1,787,009
$2,055,647
$1,777,721
(1) Includes various jet engine and aircraft component replacement parts.
(2) Includes primarily the sale of parts consumed in various repair and overhaul services on selected jet
engine and aircraft components, avionics, instruments, composites and flight surfaces of commercial
and military aircraft.
(3) Includes primarily the sale of specialty components such as thermal insulation blankets, renewable/
reusable insulation systems, advanced niche components, complex composite assemblies, and
expanded foil mesh.
(4) Includes various component parts such as electro-optical infrared simulation and test equipment,
electro-optical laser products, electro-optical, microwave and other power equipment, high-speed
interface products, power conversion products, underwater locator beacons, emergency locator
transmission beacons, traveling wave tube amplifiers, microwave power modules, three-dimensional
microelectronic and stacked memory products, crashworthy and ballistically self-sealing auxiliary fuel
systems, radio frequency (RF) and microwave amplifiers, transmitters and receivers, high performance
communications and electronic intercept receivers and tuners, high performance active antenna
systems and technical surveillance countermeasures (TSCM) equipment.
(5) Includes various component parts such as electromagnetic and radio frequency interference shielding,
high voltage interconnection devices, high voltage advanced power electronics, harsh environment
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connectivity products, custom molded cable assemblies, silicone material for a variety of demanding
applications and rugged small form-factor embedded computing solutions.
The following table summarizes the Company’s net sales by industry for each operating
segment (in thousands):
Flight Support Group:
Aerospace
Defense and Space
Other (1)
Total net sales
Electronic Technologies Group:
Defense and Space
Other (2)
Aerospace
Total net sales
Year ended October 31,
2020
2019
2018
$669,194
213,273
42,345
924,812
$1,004,088
190,076
46,019
1,240,183
$890,059
163,330
44,548
1,097,937
577,581
225,749
71,657
874,987
531,029
217,889
85,604
834,522
452,714
177,878
71,235
701,827
Intersegment sales
(12,790)
(19,058)
(22,043)
Total consolidated net sales
$1,787,009
$2,055,647
$1,777,721
(1) Principally industrial products.
(2) Principally other electronics and medical products.
7. INCOME TAXES
The components of income before income taxes and noncontrolling interests are as
follows (in thousands):
Domestic
Foreign
Income before taxes and noncontrolling interests
Year ended October 31,
2019
$386,584
51,257
$437,841
2020
$327,754
37,101
$364,855
2018
$309,123
47,163
$356,286
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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,
2019
2018
2020
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
$17,730
4,167
13,101
34,998
$56,670
12,795
15,027
84,492
(3,364)
(55)
(2,579)
(5,998)
(3,140)
(1,263)
(1,989)
(6,392)
Total income tax expense
$29,000
$78,100
$61,548
9,420
12,608
83,576
(13,115)
1,578
(1,439)
(12,976)
$70,600
A reconciliation of the federal statutory income tax rate to the Company’s effective tax
rate is as follows:
Federal statutory income tax rate (blended rate in fiscal 2018)
State taxes, net of federal income tax benefit
Tax benefit related to stock option exercises
Discrete net tax benefit related to Tax Act
Research and development tax credits
Foreign derived intangible income deduction
Tax-exempt (gains) losses on corporate-owned life insurance policies
Nondeductible compensation
Domestic production activities tax deduction
Other, net
Effective tax rate
Year ended October 31,
2018
2019
2020
23.3%
21.0%
21.0%
2.9%
3.0%
3.7%
(.5%)
(3.8%)
(13.3%)
(3.4%)
—%
—%
(2.0%)
(1.7%)
(2.4%)
—%
(1.4%)
(1.6%)
.1%
(.6%)
(.7%)
.2%
.8%
.4%
(.8%)
—%
—%
—%
.5%
.8%
19.8%
17.8%
7.9%
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Index
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.
86
Index
Significant components of the Company’s deferred tax assets and liabilities are as follows
(in thousands):
Deferred tax assets:
Deferred compensation plan liability
Inventories
Operating lease liabilities
Share-based compensation
Allowance for doubtful accounts receivable
Customer rebates accrual
Performance-based compensation accrual
Vacation accrual
Other
Total deferred tax assets
Deferred tax liabilities:
Goodwill and other intangible assets
Property, plant and equipment
Operating lease right-of-use assets
Adoption of ASC 606 (revenue recognition)
Other
Total deferred tax liabilities
Net deferred tax liability
As of October 31,
2020
2019
$41,744
36,414
12,980
8,746
2,966
2,667
2,539
1,840
10,706
120,602
$35,437
23,858
—
10,206
724
2,324
6,463
1,452
8,082
88,546
(141,152)
(16,130)
(12,327)
(4,733)
(1,918)
(176,260)
($55,658)
(122,075)
(14,137)
—
(3,277)
(553)
(140,042)
($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):
Balances as of beginning of year
Increases related to current year tax positions
Increases related to prior year tax positions
Decreases related to prior year tax positions
Lapses of statutes of limitations
Balances as of end of year
Year ended October 31,
2020
2019
$2,670
489
32
(18)
(227)
$2,946
$2,100
653
45
—
(128)
$2,670
87
Index
8. FAIR VALUE MEASUREMENTS
The Company's assets and liabilities that were measured at fair value on a recurring basis
are set forth by level within the fair value hierarchy in the following tables (in thousands):
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
As of October 31, 2020
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$—
11
$11
$—
$180,128
—
$180,128
$—
$180,128
—
11
$—
$180,139
$—
$41,974
$41,974
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
As of October 31, 2019
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$—
20
$20
$—
$151,871
—
$151,871
$—
$151,871
—
20
$—
$151,891
$—
$18,326
$18,326
Assets:
Deferred compensation plan:
Corporate-owned life insurance
Money market funds
Total assets
Liabilities:
Contingent consideration
Assets:
Deferred compensation plan:
Corporate-owned life insurance
Money market funds
Total assets
Liabilities:
Contingent consideration
The Company maintains the HEICO Corporation Leadership Compensation Plan (the
"LCP"), which is a non-qualified deferred compensation plan. The assets of the LCP principally
represent cash surrender values of life insurance policies, which derive their fair values from
investments in mutual funds that are managed by an insurance company, and are classified
within Level 2 and valued using a market approach. Certain other assets of the LCP represent
investments in money market funds that are classified within Level 1. The assets of the LCP are
held within an irrevocable trust and classified within other assets in the Company’s Consolidated
Balance Sheets.
88
Index
As part of the agreement to acquire 89.99% of the equity interests of a subsidiary by the
ETG in fiscal 2020, the Company may be obligated to pay contingent consideration of up to
CAD $27.0 million, or $20.3 million, in fiscal 2025 should the acquired entity meet certain
earnings objectives during fiscal 2023 and 2024. However, should the acquired entity achieve a
certain earnings objective over any two consecutive fiscal years beginning in fiscal 2021 and
ending in fiscal 2023, half of the contingent consideration obligation, or CAD $13.5 million,
would be payable in the following year. As of October 31, 2020, the estimated fair value of the
contingent consideration was CAD $12.9 million, or $9.7 million.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2020, the Company
may be obligated to pay contingent consideration of up to $35.0 million in fiscal 2025 based on
the earnings of the acquired entity during calendar years 2023 and 2024 provided the entity
meets certain earnings objectives during each of calendar years 2021 to 2024. As of October 31,
2020, the estimated fair value of the contingent consideration was $14.2 million. The obligation
to pay any contingent consideration would be payable by a consolidated subsidiary of HEICO
that is 75% owned by HEICO Electronic.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2019, the Company
may be obligated to pay contingent consideration of $6.4 million in fiscal 2022 should the
acquired entity meet a certain earnings objective during the second and third years following the
acquisition. Based on lower actual than anticipated earnings as well as revised earnings
estimates for the remainder of the earnout period, the $1.1 million estimated fair value of the
contingent consideration as of October 31, 2019 was reversed during fiscal 2020.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017, the Company
may be obligated to pay contingent consideration of $20.0 million in fiscal 2023 should the
acquired entity meet a certain earnings objective during the first six years following the
acquisition. As of October 31, 2020, the estimated fair value of the contingent consideration was
$18.1 million.
The estimated fair value of the contingent consideration arrangements described above
are classified within Level 3 and were determined using probability-based scenario analyses.
Under this method, a set of discrete potential future subsidiary earnings was determined using
internal estimates based on various revenue growth rate assumptions for each scenario. A
probability of likelihood was assigned to each discrete potential future earnings estimate and the
resultant contingent consideration was calculated. The resulting probability-weighted contingent
consideration amounts were discounted using a weighted average discount rate reflecting the
credit risk of HEICO. Changes in either the revenue growth rates, related earnings or the
discount rate could result in a material change to the amount of contingent consideration accrued
and such changes will be recorded in the Company's consolidated statements of operations.
89
Index
The Level 3 inputs used to derive the estimated fair value of the Company's contingent
consideration liability as of October 31, 2020 are as follows:
Compound annual revenue growth rate range
Weighted average discount rate
8-18-2020
0% - 18%
4.4%
Acquisition Date
8-11-2020
4% - 18%
4.5%
9-15-2017
(3%) - 10%
3.4%
Changes in the Company’s contingent consideration liability measured at fair value on a
recurring basis using unobservable inputs (Level 3) during fiscal 2020 and 2019 are as follows
(in thousands):
Balance as of October 31, 2018
Increase in accrued contingent consideration, net
Contingent consideration related to acquisition
Payment of contingent consideration
Foreign currency transaction adjustments
Balance as of October 31, 2019
Contingent consideration related to acquisitions
Increase in accrued contingent consideration, net
Payment of contingent consideration
Foreign currency transaction adjustments
Balance as of October 31, 2020
Liabilities
$20,875
2,630
2,107
(7,178)
(108)
18,326
23,719
515
(500)
(86)
$41,974
The Company's contingent consideration liability as of October 31, 2020 is included in
other long-term liabilities in its Consolidated Balance Sheet and the Company records changes in
accrued contingent consideration and foreign currency transaction adjustments within SG&A
expenses in its Consolidated Statements of Operations.
The Company did not have any transfers between Level 1 and Level 2 fair value
measurements during fiscal 2020 and 2019.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable,
trade accounts payable and accrued expenses and other current liabilities approximate fair value
as of October 31, 2020 due to the relatively short maturity of the respective instruments. The
carrying amount of long-term debt approximates fair value due to its variable interest rates.
90
Index
9. LEASES
The Company adopted ASC 842, Leases, as of November 1, 2019 using a modified
transition approach as described in Note 1, Summary of Significant Accounting Policies - New
Accounting Pronouncements, and did not adjust the prior comparative periods.
The Company’s lease arrangements primarily pertain to manufacturing facilities, office
buildings, equipment, land and vehicles. The Company evaluates whether a contractual
arrangement that provides it with control over the use of an asset is, or contains, a lease at the
inception date. The term of a lease is inclusive of any option to renew, extend, or terminate the
lease when it is reasonably certain that the Company will exercise such option. The Company
classifies a lease as operating or finance using the classification criteria set forth in ASC 842.
HEICO recognizes lease right-of-use (“ROU”) assets and corresponding lease liabilities as of the
lease commencement date based on the present value of the lease payments over the lease term.
The discount rate used to calculate the present value of the Company’s leases is based on
HEICO’s incremental borrowing rate and considers credit risk, the lease term and other available
information as of the commencement date since the leases do not provide a readily determinable
implicit rate. Variable lease payments that depend on an index or a rate are included in the
determination of ROU assets and lease liabilities using the index or rate at the lease
commencement date. Variable lease payments that do not depend on an index or rate or resulting
from changes in an index or rate subsequent to the lease commencement date, are recorded as
lease expense in the period in which the obligation for the payment is incurred. The Company’s
ROU assets are increased by any prepaid lease payments and initial direct costs and reduced by
any lease incentives. The Company’s leases do not contain any material residual value
guarantees or restrictive covenants.
HEICO’s lease ROU assets represent its right to use an underlying asset during the lease
term and its lease liabilities represent the Company’s obligation to make lease payments arising
from the lease. HEICO’s operating lease ROU assets are included within other assets and its
operating lease liabilities are included within other long-term liabilities and accrued expenses
and other current liabilities in the Company’s Consolidated Balance Sheet. HEICO's finance
lease ROU assets are included within property, plant and equipment and its finance lease
liabilities are included within long-term debt, net of current maturities and current maturities of
long-term debt within the Company's Consolidated Balance Sheet. The following table presents
the Company’s lease ROU assets and lease liabilities (in thousands):
Right-of-use assets
Current lease liabilities
Long-term lease liabilities
Total lease liabilities
As of October 31, 2020
Operating Leases
Finance Leases
$57,103
$14,180
44,114
$58,294
$10,512
$1,034
8,533
$9,567
91
Index
The Company’s operating lease expense is recorded within cost of sales and/or selling,
general, and administrative ("SG&A") expenses in the Company’s Consolidated Statements of
Operations. The Company's finance lease expense consists of amortization of ROU assets and
interest on lease liabilities, which are included within cost of sales and/or SG&A expenses, and
interest expense, respectively, in the Company's Consolidated Statements of Operations.
Further, interest expense on finance leases is recognized using the effective interest method
based on the discount rate determined at lease commencement. The following table presents the
components of lease expense for fiscal 2020 (in thousands):
Operating Leases:
Operating lease expense
Variable lease expense
Total operating lease expense (1)
Finance Leases:
Amortization on finance lease ROU assets
Interest on finance lease liabilities
Total finance lease expense
Year ended
October 31, 2020
$17,317
3,225
$20,542
$874
416
$1,290
(1) Excludes short-term lease expense, which is not material.
The following table presents a maturity analysis of the Company's lease liabilities as of
October 31, 2020 for the next five fiscal years and thereafter (in thousands):
Operating Leases
Finance Leases
Year ending October 31,
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: imputed interest
Present value of minimum lease payments
$16,549
15,228
9,164
5,326
4,506
20,005
70,778
(12,484)
$58,294
$1,436
1,429
1,098
1,005
959
6,217
12,144
(2,577)
$9,567
92
Index
The Company does not have any material leases that have been signed but have yet to
commence as of October 31, 2020.
The following table presents the weighted average remaining lease term and discount rate
of the Company’s leases as of October 31, 2020:
Weighted average remaining lease term (years)
Weighted average discount rate
As of October 31, 2020
Operating Leases
7
5.1%
Finance Leases
10.8
4.5%
The following table presents supplemental disclosures of cash flow information
associated with the Company's leases for fiscal 2020 (in thousands):
Cash paid for amounts included in the measurement of lease
liabilities
Operating cash flows
Financing cash flows
Right-of-use assets obtained in exchange for new lease
liabilities
Year ended October 31, 2020
Operating Leases Finance Leases
$16,965
—
$416
921
$8,648
$1,808
As previously disclosed in the Company's audited financial statements for the fiscal year
ended October 31, 2019, and under the previous lease accounting standard, the following table
presents the future minimum lease payments under non-cancellable operating leases and capital
leases for the next five fiscal years and thereafter as of October 31, 2019 (in thousands):
Operating Leases
Capital Leases
Year ending October 31,
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less: imputed interest
Present value of minimum lease payments
$15,508
15,563
13,808
8,515
4,741
18,812
$76,947
$1,213
1,212
1,203
906
832
5,596
10,962
(2,327)
$8,635
93
Index
Prior to the adoption of ASC 842, total rent expense charged to operations for operating
leases in fiscal 2019 and 2018 amounted to $20.0 million and $17.5 million, respectively.
Prior to the adoption of ASC 842, property, plant and equipment acquired through capital
lease obligations totaled $.1 million and $7.2 million in fiscal 2019 and 2018, respectively.
10. SHAREHOLDERS’ EQUITY
Common Stock and Class A Common Stock
The Company has two classes of common stock that are virtually identical in all
economic respects except voting rights. Each share of Common Stock is entitled to one vote per
share. Each share of Class A Common Stock is entitled to a 1/10 vote per share. Holders of the
Company’s common stock are entitled to receive dividends and other distributions payable in
cash, property, stock or otherwise, when and if declared by the Board of Directors. In the event
of liquidation, after payment of debts and other liabilities of the Company, the remaining assets
of the Company will be distributable ratably among the holders of both classes of common stock.
Share Repurchases
In 1990, the Company's Board of Directors authorized a share repurchase program, which
allows the Company to repurchase shares of Company common stock in the open market or in
privately negotiated transactions at the Company's discretion, subject to certain restrictions
included in the Company's revolving credit agreement. As of October 31, 2020, the maximum
number of shares that may yet be purchased under this program was 4,886,353 of either or both
of the Company's Class A Common Stock and the Company's Common Stock. The repurchase
program does not have a fixed termination date. During fiscal 2020, 2019 and 2018, the
Company did not repurchase any shares of Company common stock under this program.
During fiscal 2020, the Company repurchased an aggregate 127,851 shares of Class A
Common Stock at a total cost of $12.1 million. During fiscal 2019, the Company repurchased
an aggregate 476,586 shares and 111,730 shares of Common Stock and Class A Common Stock,
respectively, at a total cost of $53.1 million and $10.9 million, respectively. During fiscal 2018,
the Company repurchased an aggregate 332,140 shares and 18,145 shares of Common Stock and
Class A Common Stock, respectively, at a total cost of $23.9 million and $1.1 million,
respectively. The shares repurchased represent shares tendered as payments to satisfy employee
withholding taxes due upon exercises of stock option awards. The shares repurchased in fiscal
2020, 2019 and 2018 did not impact the number of shares authorized for future purchase under
the Company’s share repurchase program and are reflected as redemptions of common stock
related to stock option exercises in the Company's Consolidated Statements of Shareholders'
Equity and Consolidated Statements of Cash Flows.
94
Index
Noncontrolling Interests
Consistent with the Company’s past practice of increasing its ownership in certain non-
wholly owned subsidiaries, on June 28, 2019, HEICO Aerospace paid dividends to HEICO and
Lufthansa Technik AG (“LHT”) in proportion to their ownership interest in HEICO Aerospace
of 80% and 20%, respectively (the “Transaction”). LHT received a cash dividend of
$91.5 million that was funded principally using proceeds from the Company’s revolving credit
facility. HEICO effectively received as its dividend the 20% noncontrolling interest held by
LHT in eight of the Company’s existing subsidiaries within its HEICO Aerospace subsidiary that
are principally part of the FSG’s repair and overhaul parts and services product line. HEICO did
not record any gain or loss in connection with the Transaction. Immediately following the
Transaction, HEICO transferred the eight businesses to HEICO Flight Support Corp., a wholly
owned subsidiary of HEICO. LHT remains a 20% owner in HEICO Aerospace, a designer and
manufacturer of jet engine and aircraft component replacement parts.
11. SHARE-BASED COMPENSATION
The Company currently has one stock option plan, the HEICO Corporation 2018
Incentive Compensation Plan ("2018 Plan"), which enables the Company to grant various forms
of share-based compensation awards including stock options, restricted stock, restricted stock
awards and stock appreciation rights. The 2018 Plan became effective in fiscal 2018 and
replaced the Company's 2012 Incentive Compensation Plan (“2012 Plan”). Options outstanding
under the Company's 2012 Plan, 2002 Stock Option Plan and Non-Qualified Stock Option Plan
may be exercised pursuant to their terms. The total number of shares approved by the
shareholders of the Company for the 2018 Plan is 5.0 million plus any options outstanding under
the 2012 Plan as of the 2018 Plan's effective date that are subsequently forfeited or expire. A
total of approximately 8.1 million shares of the Company's common stock are reserved for
issuance to employees, directors, officers and consultants as of October 31, 2020, including 4.0
million shares currently under option and 4.1 million shares available for future grants.
Stock options granted pursuant to the 2018 Plan may be designated as Common Stock
and/or Class A Common Stock in such proportions as shall be determined by the Board of
Directors or the Stock Option Plan Committee at its sole discretion. The exercise price per share
of a stock option granted under the 2018 Plan may not be less than the fair market value of the
designated class of Company common stock as of the date of grant and stock option grants vest
ratably over a period specified as of the date of grant (generally five years) and expire ten years
after the date of grant. Options issued under the 2018 Plan may be designated as incentive stock
options or non-qualified stock options, but only employees are eligible to receive incentive stock
options and no incentive stock options were outstanding as of October 31, 2020. The 2018 Plan
will terminate no later than the tenth anniversary of its effective date.
95
Index
Information concerning share-based activity for each of the last three fiscal years ended
October 31 is as follows (in thousands, except per share data):
Shares Under Option
Outstanding as of October 31, 2017
Shares approved by the Company's shareholders
for the 2018 Incentive Compensation Plan
Cancelled unissued shares under the 2012
Incentive Compensation Plan
Granted
Exercised
Cancelled
Outstanding as of October 31, 2018
Granted
Exercised
Cancelled
Outstanding as of October 31, 2019
Granted
Exercised
Cancelled
Outstanding as of October 31, 2020
Shares
Available For
Grant
Shares
830
5,000
(830)
(412)
—
24
4,612
(538)
—
11
4,085
(29)
—
8
4,064
7,297
—
—
412
(1,285)
(24)
6,400
538
(2,235)
(11)
4,692
29
(720)
(8)
3,993
Weighted
Average
Exercise Price
$18.58
$—
$—
$65.64
$10.54
$28.85
$23.19
$73.30
$12.98
$49.79
$33.73
$97.00
$19.32
$55.61
$36.75
Information concerning stock options outstanding (all of which are vested or expected to
vest) and stock options exercisable by class of common stock as of October 31, 2020 is as
follows (in thousands, except per share and contractual life data):
Common Stock
Class A Common Stock
Common Stock
Class A Common Stock
Options Outstanding
Number
Outstanding
1,681
2,312
3,993
Weighted
Average
Exercise Price
$35.91
$37.36
$36.75
Weighted Average
Remaining Contractual
Life (Years)
4.7
5.5
5.2
Options Exercisable
Weighted
Average
Exercise Price
$27.46
$27.57
$27.52
Weighted Average
Remaining Contractual
Life (Years)
4.0
4.4
4.2
Number
Exercisable
1,256
1,458
2,714
Aggregate
Intrinsic
Value
$116,257
129,929
$246,186
Aggregate
Intrinsic
Value
$97,467
96,137
$193,604
96
Index
Information concerning stock options exercised is as follows (in thousands):
Cash proceeds from stock option exercises
Tax benefit realized from stock option exercises
Intrinsic value of stock option exercises
Year ended October 31,
2019
2018
2020
$6,955
48,326
53,384
$8,547
16,490
204,901
$4,031
2,162
75,152
Net income from consolidated operations for the fiscal years ended October 31, 2020,
2019 and 2018 includes compensation expense of $10.1 million, $10.3 million and $9.3 million,
respectively, and an income tax benefit of $1.9 million, $2.0 million and $2.2 million,
respectively, related to the Company’s stock options. Substantially all of the stock option
compensation expense was recorded as a component of SG&A expenses in the Company’s
Consolidated Statements of Operations. As of October 31, 2020, there was $18.9 million of pre-
tax unrecognized compensation expense related to nonvested stock options, which is expected to
be recognized over a weighted average period of approximately 2.5 years. The total fair value of
stock options that vested in fiscal 2020, 2019 and 2018 was $10.5 million, $8.9 million and $8.5
million, respectively. If there were a change in control of the Company, all of the unvested
options outstanding as of October 31, 2020 would become immediately exercisable.
The fair value of each stock option grant in fiscal 2020, 2019 and 2018 was estimated on
the date of grant using the Black-Scholes option-pricing model based on the following weighted
average assumptions:
2020
Class A
Common
Stock
24.94%
1.72%
.21%
.00%
6
$26.86
Year ended October 31,
2019
2018
Common
Stock
Class A
Common
Stock
Common
Stock
Class A
Common
Stock
28.52%
2.52%
.22%
.00%
8
$33.88
24.81%
2.69%
.22%
.00%
6
$19.64
31.00%
2.83%
.24%
.00%
9
$30.00
27.69%
2.81%
.29%
.00%
8
$20.93
Expected stock price volatility
Risk-free interest rate
Dividend yield
Forfeiture rate
Expected option life (years)
Weighted average fair value
97
Index
12. EMPLOYEE RETIREMENT PLANS
The HEICO Savings and Investment Plan (the “401(k) Plan”) is a qualified defined
contribution retirement plan under which eligible employees of the Company and its
participating subsidiaries may make Elective Deferral Contributions up to the limitations set
forth in Section 402(g) of the Internal Revenue Code. The Company generally makes a 50%
Employer Matching Contribution, as determined by the Board of Directors, based on a
participant’s Elective Deferral Contribution up to 6% of the participant’s Compensation for the
Elective Deferral Contribution period. The 401(k) Plan also provides that the Company may
make additional Employer Contributions. Employer Contributions may be contributed in the
form of the Company’s common stock or cash, as determined by the Company. Employer
Contributions awarded in the form of Company common stock are valued based on the fair value
of the underlying shares as of the effective date of contribution. Employer Contributions may be
diversified by a participant into any of the participant-directed investment options of the 401(k)
Plan; however, Employee Contributions may not be invested in Company common stock.
Unless specified otherwise, all capitalized terms herein are defined in the 401(k) Plan document.
Participants receive 100% vesting in Employee Contributions and on cash dividends
received on Company common stock. Vesting in Employer Contributions is based on a
participant’s number of Years of Service. Employer Contributions to the 401(k) Plan charged to
income in fiscal 2020, 2019 and 2018 totaled $9.6 million, $9.5 million and $8.0 million,
respectively, and were made through the issuance of new shares of Company common stock and
the use of forfeited shares within the 401(k) Plan.
Information concerning share-based activity pertaining to the 401(k) Plan for each of the
last three fiscal years ended October 31 is as follows (in thousands):
Shares available for issuance as of October 31, 2017
Issuance of common stock to the 401(k) Plan
Shares available for issuance as of October 31, 2018
Issuance of common stock to the 401(k) Plan
Shares available for issuance as of October 31, 2019
Issuance of common stock to the 401(k) Plan
Shares available for issuance as of October 31, 2020
Common Stock
398
(65)
333
(53)
280
(52)
228
Class A
Common Stock
398
(65)
333
(53)
280
(52)
228
98
Index
13. REDEEMABLE NONCONTROLLING INTERESTS
The holders of equity interests in certain of the Company’s subsidiaries have rights (“Put
Rights”) that may be exercised on varying dates causing the Company to purchase their equity
interests through fiscal 2030. The Put Rights, all of which relate either to common shares or
membership interests in limited liability companies, provide that the cash consideration to be
paid for their equity interests (the “Redemption Amount”) be at fair value or at a formula that
management intended to reasonably approximate fair value based solely on a multiple of future
earnings over a measurement period. The Redemption Amounts were determined using
probability-adjusted internal estimates of future subsidiary earnings while considering the
earliest exercise date, the measurement period and any applicable fair value adjustments.
Management's estimate of the aggregate Redemption Amount of all Put Rights that the Company
could be required to pay is as follows (in thousands):
Redeemable at fair value
Redeemable based on a multiple of future earnings
Redeemable noncontrolling interests
As of October 31,
2020
2019
$179,415
41,793
$221,208
$136,611
51,653
$188,264
99
Index
A summary of the Put Rights associated with the redeemable noncontrolling interests in
certain of the Company’s subsidiaries as of October 31, 2020 is as follows:
Subsidiary
Acquisition
Year
2005
2006
2008
2009
2012
2012
2015
2015
2015
2015
2017
2018
2019
2019
2019
2019
2020
2020
2020
2020
Operating
Segment
ETG
FSG
FSG
ETG
FSG
FSG
FSG
FSG
FSG
ETG
FSG
ETG
ETG
ETG
FSG
ETG
ETG
FSG
ETG
ETG
Company
Ownership
Interest
95.9%
80.1%
86.2%
82.5%
84.0%
80.1%
85.0%
80.1%
80.1%
80.1%
80.1%
85.0%
92.7%
85.0%
80.1%
75.0%
80.1%
70.0%
75.0%
90.0%
Earliest
Put Right
Year
2021 (1)
2021 (1)
2024
2021 (1)
2021 (1)
2021 (1)
2021
2021 (1)
2022
2021 (1)
2022
2021
2023
2024
2026
2024
2025
2027
2024
2025
Purchase
Period
(Years)
4 (2)
4
4 (3)
1
4
4
3 (4)
4
4
2
2 (5)
1
4
4
4
4 (6)
4
4
4 (6)
4
(1) Currently puttable.
(2) A portion is to be purchased in a lump sum.
(3) Based on the Put Right exercised in fiscal 2020, 3.8% of the noncontrolling interest will be acquired
by the Company in fiscal 2021 and the Put Right for the remaining 10% interest may be exercised no
earlier than fiscal 2024 to cause the Company to purchase the noncontrolling interest over a four-year
period.
(4) The Put Right for the remaining 15% noncontrolling interest may be exercised in 5% increments
annually beginning in fiscal 2021.
(5) Half of the 19.9% noncontrolling interest will be purchased in the year the Put Right is exercised and
the other half will be purchased two years later.
(6) The exercise of the Put Right for either entity will automatically trigger a Put Right exercise for the
other entity.
The estimated aggregate Redemption Amount of the Put Rights that are currently puttable
or becoming puttable during fiscal 2021 is approximately $82.0 million, of which approximately
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$50.9 million would be payable in fiscal 2021 should all of the eligible associated noncontrolling
interest holders elect to exercise their Put Rights during fiscal 2021. Additionally, the Company
has call rights to purchase the equity interests of the noncontrolling holders over the same
purchase period as the Put Rights.
During fiscal 2020, the holder of a 20% noncontrolling equity interest in a subsidiary of
the FSG that was acquired in fiscal 2015 exercised their option to cause the Company to
purchase one-fourth of their interest. The Company acquired the 5% noncontrolling interest in
May 2020, which increased its ownership interest in the subsidiary to approximately 85%.
In May 2020, the Company obtained control of the 22% noncontrolling equity interest in
a subsidiary of the ETG that was acquired in fiscal 2012, which increased the Company's
ownership interest in the subsidiary to 100%.
During fiscal 2020, the holder of a 17.7% noncontrolling equity interest in a subsidiary of
the FSG that was acquired in fiscal 2008 exercised their option to cause the Company to
purchase a portion of their noncontrolling interest over a two-year period ending in fiscal 2021.
In June 2020, the Company acquired half of such interest, which increased the Company's
ownership interest in the subsidiary to 86.2%.
The $7.5 million aggregate Redemption Amount for the redeemable noncontrolling
interests acquired in fiscal 2020 was paid using cash provided by operating activities.
14. NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS
The computation of basic and diluted net income per share attributable to HEICO
shareholders is as follows (in thousands, except per share data):
Year ended October 31,
2019
2018
2020
Numerator:
Net income attributable to HEICO
$313,984
$327,896
$259,233
Denominator:
Weighted average common shares outstanding - basic
Effect of dilutive stock options
Weighted average common shares outstanding - diluted
134,754
2,548
137,302
133,640
3,710
137,350
132,543
4,153
136,696
Net income per share attributable to HEICO shareholders:
Basic
Diluted
$2.33
$2.29
$2.45
$2.39
$1.96
$1.90
Anti-dilutive stock options excluded
258
330
512
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15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)
Net sales:
2020
2019
Gross profit:
2020
2019
Net income from consolidated operations:
2020
2019
Net income attributable to HEICO:
2020
2019
Net income per share attributable to HEICO:
Basic:
2020
2019
Diluted:
2020
2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$506,275
$466,146
$468,146
$515,648
$386,410
$532,324
$426,178
$541,529
$198,047
$182,237
$178,890
$209,387
$143,483
$212,831
$161,707
$209,385
$129,802
$88,026
$80,909
$90,083
$57,564
$89,059
$67,580
$92,573
$121,888
$79,332
$75,453
$81,782
$54,316
$81,098
$62,327
$85,684
$.91
$.60
$.89
$.58
$.56
$.61
$.55
$.60
$.40
$.61
$.40
$.59
$.46
$.64
$.45
$.62
During the first quarter of fiscal 2020, the Company recognized a $47.6 million discrete
tax benefit from stock option exercises, which, net of noncontrolling interests, increased net
income attributable to HEICO by $46.3 million, or $.34 per basic and diluted share. During the
first quarter of fiscal 2019, the Company recognized a $16.6 million discrete tax benefit from
stock option exercises, which, net of noncontrolling interests, increased net income attributable
to HEICO by $15.1 million, or $.11 per basic and diluted share.
Due to changes in the average number of common shares outstanding, net income per
share attributable to HEICO for the full fiscal year may not equal the sum of the four individual
quarters.
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16. OPERATING SEGMENTS
The Company has two operating segments: the Flight Support Group (“FSG”), consisting
of HEICO Aerospace and HEICO Flight Support Corp. and their collective subsidiaries; and the
Electronic Technologies Group (“ETG”), consisting of HEICO Electronic and its subsidiaries.
The Company's operating segment reporting structure is consistent with how management
reviews the business, makes investing and resource decisions and assesses operating
performance. Additionally, characteristics such as similarity of products, customers, economic
characteristics and various other factors are considered when identifying the Company's
operating segments.
The FSG designs and manufactures jet engine and aircraft component replacement parts,
which are approved by the FAA. In addition, the FSG repairs, overhauls and distributes jet
engine and aircraft components, avionics and instruments for domestic and foreign commercial
air carriers and aircraft repair companies as well as military and business aircraft operators. The
FSG also manufactures and sells specialty parts as a subcontractor for aerospace and industrial
original equipment manufacturers and the U.S government. Additionally, the FSG is a leading
supplier, distributor, and integrator of military aircraft parts and support services primarily to
foreign military organizations allied with the U.S. and a leading manufacturer of advanced niche
components and complex composite assemblies for commercial aviation, defense and space
applications. Further, the FSG engineers, designs and manufactures thermal insulation blankets
and parts as well as removable/reusable insulation systems for aerospace, defense, commercial
and industrial applications; manufactures expanded foil mesh for lightning strike protection in
fixed and rotary wing aircraft; distributes aviation electrical interconnect products and
electromechanical parts; and overhauls industrial pumps, motors, and other hydraulic units with a
focus on the support of legacy systems for the U.S. Navy.
The ETG collectively designs, manufactures and sells various types of electronic, data
and microwave, and electro-optical products, including infrared simulation and test equipment,
laser rangefinder receivers, electrical power supplies, back-up power supplies, power conversion
products, underwater locator beacons, emergency locator transmission beacons, flight deck
annunciators, panels and indicators, electromagnetic and radio frequency interference shielding
and filters, high power capacitor charging power supplies, amplifiers, traveling wave tube
amplifiers, photodetectors, amplifier modules, microwave power modules, flash lamp drivers,
laser diode drivers, arc lamp power supplies, custom power supply designs, cable assemblies,
high voltage power supplies, high voltage interconnection devices and wire, high voltage energy
generators, high frequency power delivery systems, three-dimensional microelectronic and
stacked memory products, harsh environment electronic connectors and other interconnect
products, RF and microwave amplifiers, transmitters and receivers; RF sources, detectors and
controllers, wireless cabin control systems, solid state power distribution and management
systems, crashworthy and ballistically self-sealing auxiliary fuel systems, nuclear radiation
detectors, communications and electronic intercept receivers and tuners, fuel level sensing
systems, high-speed interface products that link devices, high performance active antenna
systems for commercial aircraft, precision guided munitions, other defense applications and
commercial uses; silicone material for a variety of demanding applications; precision power
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Index
analog monolithic, hybrid and open frame components; high-reliability ceramic-to-metal
feedthroughs and connectors, technical surveillance countermeasures (TSCM) equipment to
detect devices used for espionage and information theft; and rugged small-form factor embedded
computing solutions.
The Company’s reportable operating segments offer distinctive products and services that
are marketed through different channels. They are managed separately because of their unique
technology and service requirements.
Segment Profit or Loss
The accounting policies of the Company’s operating segments are the same as those
described in Note 1, Summary of Significant Accounting Policies. Management evaluates
segment performance based on segment operating income.
Information on the Company’s two operating segments, the FSG and the ETG, for each
of the last three fiscal years ended October 31 is as follows (in thousands):
Year ended October 31, 2020:
Net sales
Depreciation
Amortization
Operating income
Capital expenditures
Year ended October 31, 2019:
Net sales
Depreciation
Amortization
Operating income
Capital expenditures
Year ended October 31, 2018:
Net sales
Depreciation
Amortization
Operating income
Capital expenditures
Segment
FSG
ETG
Other,
Primarily
Corporate and
Intersegment (1)
Consolidated
Totals
$924,812
14,339
19,957
143,051
10,843
$1,240,183
13,793
19,624
242,029
17,036
$1,097,937
13,322
19,530
206,623
13,074
$874,987
11,722
40,553
258,814
12,025
$834,522
10,957
37,131
245,743
11,826
$701,827
9,225
33,339
204,508
9,531
($12,790)
1,006
984
(25,217)
72
$1,787,009
27,067
61,494
376,648
22,940
($19,058)
1,008
984
(30,675)
76
$2,055,647
25,758
57,739
457,097
28,938
($22,043)
692
1,083
(34,886)
19,266
$1,777,721
23,239
53,952
376,245
41,871
(1) Intersegment activity principally consists of net sales from the ETG to the FSG.
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Index
Total assets by operating segment are as follows (in thousands):
As of October 31,
2020
2019
Segment
FSG
$1,127,666
1,149,737
ETG
$1,896,671
1,643,032
Other,
Primarily
Corporate
$523,374
176,442
Consolidated
Totals
$3,547,711
2,969,211
Major Customer and Geographic Information
The Company markets its products and services in approximately 110 countries. The
following table summarizes the Company’s net sales to customers located in the United States
and to those in other countries for each of the last three fiscal years ended October 31 (in
thousands). Net sales are attributed to countries based on the location of the customer. Net sales
to any one customer or originating from any one foreign country did not account for 10% or
more of the Company’s consolidated net sales during any of the last three fiscal years. The
following table also summarizes the Company’s long-lived assets held within and outside of the
United States as of October 31 for each of the last three fiscal years (in thousands). Long-lived
assets consist of net property, plant and equipment.
Net sales:
United States of America
Other countries
Total net sales
Long-lived assets:
United States of America
Other countries
Total long-lived assets
2020
2019
2018
$1,193,497
593,512
$1,787,009
$1,308,943
746,704
$2,055,647
$1,127,998
649,723
$1,777,721
$139,197
29,651
$168,848
$143,350
29,995
$173,345
$124,225
30,514
$154,739
17. COMMITMENTS AND CONTINGENCIES
Guarantees
As of October 31, 2020, the Company has arranged for standby letters of credit
aggregating $14.6 million, which are supported by its revolving credit facility and principally
pertain to performance guarantees related to customer contracts entered into by certain of the
Company's subsidiaries as well as payment guarantees related to potential workers' compensation
claims and a facility lease.
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Index
Product Warranty
Changes in the Company’s product warranty liability in fiscal 2020 and 2019 are as
follows (in thousands):
Balances as of beginning of year
Accruals for warranties
Acquired warranty liabilities
Warranty claims settled
Balances as of end of year
Litigation
Year ended October 31,
2020
2019
$2,810
1,749
150
(1,694)
$3,015
$3,306
2,061
—
(2,557)
$2,810
The Company is involved in various legal actions arising in the normal course of
business. Based upon the Company’s and its legal counsel’s evaluations of any claims or
assessments, management is of the opinion that the outcome of these matters will not have a
material adverse effect on the Company’s results of operations, financial position or cash flows.
18. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following table presents supplemental disclosures of cash flow information and non-
cash investing activities for fiscal 2020, 2019 and 2018 (in thousands):
Cash paid for income taxes
Cash received from income tax refunds
Cash paid for interest
Contingent consideration
Additional purchase consideration
Year ended October 31,
2019
2018
2020
$42,552
$82,211
(1,371)
13,418
23,719
283
(578)
22,158
2,107
—
$90,488
(1,510)
19,233
—
(407)
See Note 9, Leases, for additional information regarding supplemental disclosures of cash
flow information.
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Index
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive
Officer and its Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the
end of the period covered by this annual report. Based upon that evaluation, the Company’s
Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure
controls and procedures are effective as of the end of the period covered by this annual report.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of HEICO Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risks that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision of and with the participation of the Company’s Chief
Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Company’s
internal control over financial reporting based on the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated
Framework (2013). Based on its assessment, management concluded that the Company’s
internal control over financial reporting is effective as of October 31, 2020.
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Index
As permitted by the Securities and Exchange Commission, companies are allowed to
exclude acquisitions from their assessment of internal control over financial reporting during the
first year of an acquisition and management elected to exclude Connect Tech Inc.,
Transformational Security, LLC, Intelligent Devices, Inc., Rocky Mountain Hydrostatics, LLC,
the Human-Machine Interface product line of Spectralux Corporation and Quell Corporation,
(collectively, the "Excluded Acquisitions") from its assessment of internal control over financial
reporting as of October 31, 2020. See Note 2, Acquisitions, of the Notes to Consolidated
Financial Statements for additional information. The aggregate assets and net sales of the
Excluded Acquisitions constituted 6.6% and 1.5% of the Company's consolidated total assets and
net sales as of and for the year ended October 31, 2020, respectively.
Deloitte & Touche LLP, an independent registered public accounting firm, audited the
Company’s consolidated financial statements and financial statement schedule included in this
Annual Report on Form 10-K for the year ended October 31, 2020. A copy of their report is
included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on
Form 10-K. Deloitte & Touche LLP has issued their attestation report on management’s internal
control over financial reporting, which is set forth below.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting
during the fourth quarter ended October 31, 2020 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
As described in Management's Annual Report on Internal Control Over Financial
Reporting, the Company made several acquisitions during fiscal 2020 and is in the process of
integrating each one into its overall internal control over financial reporting process.
Attestation Report of the Company's Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
HEICO Corporation
Hollywood, Florida
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of HEICO Corporation and
subsidiaries (the "Company") as of October 31, 2020, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of October 31, 2020, based on
criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
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Index
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated financial statements and financial
statement schedule as of and for the year ended October 31, 2020 of the Company and our report
dated December 23, 2020 expressed an unqualified opinion on those financial statements and
financial statement schedule.
Basis for Opinion
As described in Management's Annual Report on Internal Control Over Financial Reporting,
management excluded from its assessment the internal control over financial reporting at
Connect Tech Inc., Transformational Security, LLC, Intelligent Devices, Inc., Rocky Mountain
Hydrostatics, LLC, the Human-Machine Interface product line of Spectralux Corporation and
Quell Corporation, (collectively, the "Excluded Acquisitions") which were acquired during the
year ended October 31, 2020, and whose financial statements constitute 6.6% of total assets and
1.5% of net sales of the Company's consolidated financial statement amounts as of and for the
year ended October 31, 2020, respectively. Accordingly, our audit did not include the internal
control over financial reporting of the Excluded Acquisitions. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of
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Index
the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
December 23, 2020
Item 9B. OTHER INFORMATION
As previously disclosed, on April 15, 2020, the Company announced certain cost
reduction efforts in light of the Pandemic, including temporarily reducing the salaries of
executive officers and the compensation of directors by 20%. On December 18, 2020, the
Compensation Committee of the Board of Directors approved terminating the reductions and
restoring the full salaries of executive officers and the full compensation of directors, effective
February 1, 2021.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning the members of the Board of Directors of the Company,
including the Finance/Audit Committee of the Board of Directors, the independence of its
members and the "audit committee financial expert" as defined by the Securities and Exchange
Commission ("Commission"), as well as information concerning other corporate governance
matters and compliance with Section 16(a) of the Securities Exchange Act of 1934 is hereby
incorporated by reference to the Company’s definitive proxy statement, which will be filed with
the Commission within 120 days after the close of fiscal 2020.
Information concerning the Executive Officers of the Company is set forth in Item 1 of
Part I hereof under the caption “Information About Our Executive Officers.”
The Company has adopted a code of ethics that applies to its principal executive officer,
principal financial officer, principal accounting officer or controller and persons performing
similar functions. The code of ethics is located on the Company’s Internet website at http://
www.heico.com. Any amendments to or waivers from a provision of this code of ethics will be
posted on the Company’s website.
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Index
Item 11. EXECUTIVE COMPENSATION
Information concerning executive compensation required by this item is hereby
incorporated by reference to the Company’s definitive proxy statement, which will be filed with
the Commission within 120 days after the close of fiscal 2020.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information concerning security ownership of certain beneficial owners and management
and related stockholder matters required by this item is hereby incorporated by reference to the
Company’s definitive proxy statement, which will be filed with the Commission within 120 days
after the close of fiscal 2020.
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of
October 31, 2020 (in thousands, except per share data):
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c) (2)
3,993
—
3,993
$36.75
—
$36.75
4,064
—
4,064
Plan Category
Equity compensation plans
approved by security holders (1)
Equity compensation plans not
approved by security holders
Total
__________________
(1) Represents aggregated information pertaining to our four equity compensation plans: the HEICO Corporation
2018 Incentive Compensation Plan, the 2012 Incentive Compensation Plan, the 2002 Stock Option Plan and
the Non-Qualified Stock Option Plan. See Note 11, Share-Based Compensation, of the Notes to Consolidated
Financial Statements for further information regarding these plans.
(2) Shares are available for future grant in column (c) solely under the HEICO Corporation 2018 Incentive
Compensation Plan, under a formula that counts one share against the available share reserve for each one
share subject to a stock option or stock appreciation right, and counts 2.5 shares against the available share
reserve for each one share subject to a restricted stock award, a restricted stock unit award, a free-standing
dividend equivalent award, or any other stock-based award or a performance award denominated in shares.
Additionally, the 4,064 remaining number of securities available for future issuance may be designated as
Common Stock and/or Class A Common Stock in such proportions as shall be determined by the Board of
Directors or the Stock Option Plan Committee at its sole discretion.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions and director
independence required by this item is hereby incorporated by reference to the Company’s
definitive proxy statement, which will be filed with the Commission within 120 days after the
close of fiscal 2020.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning fees and services by the principal accountant required by this
item is hereby incorporated by reference to the Company’s definitive proxy statement, which
will be filed with the Commission within 120 days after the close of fiscal 2020.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following consolidated financial statements of the Company and subsidiaries and
report of independent registered public accounting firm are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of October 31, 2020 and 2019
Consolidated Statements of Operations for the years ended
October 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended
October 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the years ended
October 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended
October 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Page
51
54
55
56
57
59
60
The following financial statement schedule of the Company and subsidiaries is included
herein:
Schedule II – Valuation and Qualifying Accounts
116
All other schedules have been omitted because the required information is not applicable
or the information is included in the consolidated financial statements or notes thereto presented
in Part II, Item 8.
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(a)(3) Exhibits
Exhibit
Description
2.1 — Amended and Restated Agreement of Merger and Plan of Reorganization, dated
as of March 22, 1993, by and among HEICO Corporation, HEICO Industries,
Corp. and New HEICO, Inc. is incorporated by reference to Exhibit 2.1 to the
Registrant’s Registration Statement on Form S-4 (Registration No. 33-57624)
Amendment No. 1 filed on March 19, 1993. *
3.1 — Articles of Incorporation of the Registrant are incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-4 (Registration
No. 33-57624) Amendment No. 1 filed on March 19, 1993. *
3.2 — Articles of Amendment of the Articles of Incorporation of the Registrant, dated
April 27, 1993, are incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form 8-B dated April 29, 1993. *
3.3 — Articles of Amendment of the Articles of Incorporation of the Registrant, dated
November 3, 1993, are incorporated by reference to Exhibit 3.3 to the Form 10-K
for the year ended October 31, 1993. *
3.4 — Articles of Amendment of the Articles of Incorporation of the Registrant, dated
March 19, 1998, are incorporated by reference to Exhibit 3.4 to the Company’s
Registration Statement on Form S-3 (Registration No. 333-48439) filed on March
23, 1998. *
3.5 — Articles of Amendment of the Articles of Incorporation of the Registrant, dated as
of November 2, 2003, are incorporated by reference to Exhibit 3.5 to the Form
10-K for the year ended October 31, 2003. *
3.6 — Articles of Amendment of the Articles of Incorporation of the Registrant, dated
March 26, 2012, are incorporated by reference to Exhibit 3.1 to the Form 8-K
filed on March 29, 2012. *
3.7 — Articles of Amendment of the Articles of Incorporation of the Registrant, dated
March 16, 2018, are incorporated by reference to Exhibit 3.1 to the Form 8-K
filed on March 20, 2018. *
3.8 — Amended and Restated Bylaws of the Registrant, effective as of September 22,
2014, are incorporated by reference to Exhibit 3.1 to the Form 8-K filed on
September 25, 2014. *
4.1 — Description of HEICO Corporation Capital Stock is incorporated by reference to
Exhibit 4.1 to the Form 10-K for the year ended October 31, 2019. *
10.1# — HEICO Savings and Investment Plan, as amended and restated effective as of
January 1, 2012 is incorporated by reference to Exhibit 10.3 to the Form 10-Q for
the quarterly period ended January 31, 2013. *
10.2# — First Amendment, effective January 1, 2020, to the HEICO Savings and
Investment Plan. **
10.3# — Non-Qualified Stock Option Agreement for Directors, Officers and Employees is
incorporated by reference to Exhibit 10.8 to the Form 10-K for the year ended
October 31, 1985. *
113
Index
Exhibit
Description
10.4# — HEICO Corporation Amended and Restated 2002 Stock Option Plan, effective
March 28, 2008, is incorporated by reference to Appendix A to the Form
DEF-14A filed on February 28, 2008. *
10.5# — HEICO Corporation 2012 Incentive Compensation Plan is incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on March 29, 2012. *
10.6# — HEICO Corporation 2018 Incentive Compensation Plan is incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on March 20, 2018. *
10.7# — HEICO Corporation Directors’ Retirement Plan, as amended, dated as of May 31,
1991, is incorporated by reference to Exhibit 10.19 to the Form 10-K for the year
ended October 31, 1992. *
10.8# — HEICO Corporation Leadership Compensation Plan, effective October 1, 2006, as
Re-Amended and Restated effective January 1, 2017, is incorporated by reference
to Exhibit 10.7 to the Form 10-K for the year ended October 31, 2016. *
10.9# — Employment Agreement and Non-Competition and Non-Solicitation Agreement,
effective June 1, 2012, by and between HEICO Corporation and Carlos Macau is
incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 1, 2012. *
10.10# — Shareholders Agreement, dated October 30, 1997, by and between HEICO
Aerospace Holdings Corp., HEICO Aerospace Corporation and all of the
shareholders of HEICO Aerospace Holdings Corp. and Lufthansa Technik AG is
incorporated by reference to Exhibit 10.32 to the Form 10-K/A for the year ended
October 31, 1997. *
10.11 — Revolving Credit Agreement, dated as of November 6, 2017, among HEICO
Corporation, as Borrower, the Lenders from time to time party hereto, SunTrust
Bank, as Administrative Agent, L/C Issuer and Swingline Lender; Wells Fargo
Bank, National Association and Bank of America, N.A., as Co-Syndication
Agents; and PNC Bank, National Association, Branch Banking and Trust
Company, Capital One, National Association, Fifth Third Bank, JPMorgan Chase
Bank, N.A., TD Bank N.A. and U.S. Bank National Association, as Co-
Documentation Agents, is incorporated by reference to Exhibit 10.1 to the Form
8-K filed on November 8, 2017. *
10.12 — First Amendment to Revolving Credit Agreement, effective as of December 11,
2020, among HEICO Corporation, as Borrower, the Lenders from time to time
party thereto and Truist Bank (as successor by merger to SunTrust Bank), as
Administrative Agent is incorporated by reference to Exhibit 10.1 to the Form 8-
K filed on December 14, 2020. *
10.13 — Stock Purchase Agreement Between and Among HEICO Electronic Technologies
Corp., AeroAntenna Technology, Inc., Yosef (Joseph) Klein, Carmela Klein,
Carmela Klein, Trustee of the Carmela Klein Exempt Trust under the Yosef Klein
2008 Irrevocable Delaware Trust, dated September 5, 2008 and Yosef Klein,
Trustee of the Carmela Klein 2010 Irrevocable Delaware Trust, dated April 1,
2010; dated as of August 17, 2017, is incorporated by reference to Exhibit 2.1 to
the Form 10-Q for the quarterly period ended July 31, 2017. *
114
Index
Exhibit
Description
21 — Subsidiaries of HEICO Corporation. **
23 — Consent of Independent Registered Public Accounting Firm. **
31.1 — Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. **
31.2 — Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. **
32.1 — Section 1350 Certification of Chief Executive Officer. ***
32.2 — Section 1350 Certification of Chief Financial Officer. ***
101.INS — Inline XBRL Instance Document - The instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL Document. **
101.SCH — Inline XBRL Taxonomy Extension Schema Document. **
101.CAL — Inline XBRL Taxonomy Extension Calculation Linkbase Document. **
101.DEF — Inline XBRL Taxonomy Extension Definition Linkbase Document. **
101.LAB — Inline XBRL Taxonomy Extension Labels Linkbase Document. **
101.PRE — Inline XBRL Taxonomy Extension Presentation Linkbase Document. **
104 — Cover Page Interactive Data File (formatted as inline XBRL and contained in
Exhibit 101). **
# Management contract or compensatory plan or arrangement required to be filed as an
exhibit.
Previously filed.
*
**
Filed herewith.
*** Furnished herewith.
Item 16. FORM 10-K SUMMARY
None
115
Index
HEICO CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Year ended October 31,
2019
2018
2020
Allowance for doubtful accounts (in thousands):
Allowance as of beginning of year
Additions charged to costs and expenses (a)
Additions charged (credited) to other accounts (b)
Deductions (c)
Allowance as of end of year
$3,666
9,834
128
(890)
$3,258
638
10
(240)
$12,738
$3,666
$3,006
492
(13)
(227)
$3,258
(a) Additions charged to costs and expenses were higher in fiscal 2020 as compared to fiscal 2019 and
fiscal 2018 principally due to potential collection difficulties from certain commercial aviation
customers that filed for bankruptcy protection in fiscal 2020 as a result of the financial impact from
the COVID-19 global pandemic (the "Pandemic").
(b) Principally additions from acquisitions and foreign currency translation adjustments.
(c) Principally write-offs of uncollectible accounts receivables.
Year ended October 31,
2019
2018
2020
Inventory valuation reserves (in thousands):
Reserves as of beginning of year
Additions charged to costs and expenses (a)
(Deductions) additions charged to other accounts (b)
Deductions (c)
Reserves as of end of year
$103,821
27,030
(63)
(3,855)
$95,391
10,148
1,885
(3,603)
$92,148
9,227
1,270
(7,254)
$95,391
$126,933
$103,821
(a) Additions charged to costs and expenses were higher in fiscal 2020 as compared to fiscal 2019 and
2018 principally due to the significant decline in global commercial air travel due to the ongoing
Pandemic resulting in lower demand for the Company's commercial aviation products and services
and certain specific obsolescence reserves following the accelerated retirement of certain older
aircraft by major U.S. carriers.
(b) Principally additions from acquisitions and foreign currency translation adjustments.
(c) Principally write-offs of slow-moving, obsolete or damaged inventory.
116
Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: December 23, 2020
By: /s/ CARLOS L. MACAU, JR.
HEICO CORPORATION
Carlos L. Macau, Jr.
Executive Vice President - Chief
Financial Officer and Treasurer
(Principal Financial Officer)
By: /s/ STEVEN M. WALKER
Steven M. Walker
Chief Accounting Officer
and Assistant Treasurer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name
Position(s)
Date
/s/ LAURANS A. MENDELSON
Laurans A. Mendelson
Chairman of the Board; Chief
Executive Officer; and Director
(Principal Executive Officer)
December 23, 2020
/s/ THOMAS M. CULLIGAN
Thomas M. Culligan
/s/ ADOLFO HENRIQUES
Adolfo Henriques
/s/ MARK H. HILDEBRANDT
Mark H. Hildebrandt
/s/ ERIC A. MENDELSON
Eric A. Mendelson
/s/ VICTOR H. MENDELSON
Victor H. Mendelson
/s/ JULIE NEITZEL
Julie Neitzel
/s/ ALAN SCHRIESHEIM
Alan Schriesheim
/s/ FRANK J. SCHWITTER
Frank J. Schwitter
Director
Director
Director
December 23, 2020
December 23, 2020
December 23, 2020
Co-President and Director
December 23, 2020
Co-President and Director
December 23, 2020
December 23, 2020
December 23, 2020
December 23, 2020
Director
Director
Director
117
EXHIBIT 10.2
FIRST AMENDMENT TO THE
HEICO SAVINGS AND INVESTMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2012)
THIS FIRST AMENDMENT (the “Amendment”) to the HEICO Savings and Investment
Plan, as amended and restated effective January 1, 2012 (the “Plan”) is made by HEICO
Corporation, a Florida corporation (the “Company”) as follows.
W I T N E S S E T H:
WHEREAS, the Company maintains the Plan for the sole and exclusive benefit of its
eligible participants and their respective beneficiaries under the terms and provisions of the
Internal Revenue Code of 1986, as amended; and
WHEREAS, pursuant to Section 15.01 of the Plan, the Company has the power to
amend the Plan; and
WHEREAS, the Company wishes to amend the Plan to bring the Plan up to date with the
changes in the law made by the hardship distribution provisions in amended Treas. Reg.
§1.401(k)-1, the “Setting Every Community Up for Retirement Enhancement” Act (SECURE
Act), part of the Further Consolidated Appropriations Act, 2020 (H.R. 1865, P.L. 116-94), the
Coronavirus Aid, Relief and Economic Security (CARES) Act, P.L. 116-136; H.R. 748, and to
also clarify when Matching Contributions do not apply to Catch-Up Contributions;
NOW, THEREFORE, unless as otherwise specified the Plan shall be amended effective
as of effective January 1, 2020 as follows:
1. Section 2.21 definition of “Eligible Employee” is amended effective January 1, 2021 by
adding a new subsection (e) as follows:
(e)
Notwithstanding the foregoing, any Employee, including any temporary,
seasonal or occasional employee of an Employer, who completes 3
consecutive 12-month periods, beginning on or after January 1, 2021,
during each of which the Employee has at least 500 Hours of Service,
shall be an Eligible Employee solely for purposes of making Elective
Deferral Contributions and Catch-Up Contributions.
Each such
Employee must meet the other rules of this Section in order to be an
Eligible Employee for purposes of receiving Employer Contributions.
However, each 12-month period for which such Employee has at least
500 Hours of Service shall be treated as a Year of Service for vesting
purposes of Employer Contributions made to the Participant’s Employer
Accounts in the future.
2. Subsection (d) “Classification; No Matching Contributions.” of Section 4.03
“Catch-Up Contributions.” is hereby amended effective immediately to clarify no
Matching Contributions are made on Catch-Up Contributions so that it reads as
follows:
(d)
Classification; No Matching Contributions. For purposes of this Plan,
except as provided in this Section 4.03, Catch-Up Contributions shall be
considered Elective Deferral Contributions and shall be allocated to a
Participant’s Elective Deferral Account. Notwithstanding the foregoing,
Catch-Up Contributions shall not be considered Elective Deferral
Contributions
for purposes of allocating Employer Matching
Contributions as provided in Section 4.04(a) of this Plan to the extent
that such Elective Deferrals exceeds an applicable limit that is the
statutory limit, as that term is defined in Treasury Regulation Section
1.414(v)-1(b)(i).
3. Section 9.01 “Hardship Withdrawals.” is hereby amended in its entirety to read as
follows:
9.01 Hardship Withdrawals.
A Participant may apply in writing to the
Administrator for a hardship withdrawal of part or all of his Elective Deferral Contributions
Account (other than earnings credited to his Elective Deferral Contributions Account on or after
January 1, 1989). The Administrator, in its discretion, and in accordance with the provisions of
this Section 9.01, shall determine whether a withdrawal of part or all of such account is necessary
to alleviate the hardship. For purposes of Section 9.01(a), a distribution is on account of hardship
only if the distribution both is made on account of an immediate and heavy financial need of the
participant as determined in accordance with Section 9.01(a) below, and is necessary to satisfy
such financial need as determined in accordance with Section 9.01(b) below. Effective for
distributions made on or after January 1, 2020, the Participant must represent (in writing or by an
electronic medium) that the Participant has insufficient cash or other liquid assets to satisfy the
financial need. The determination by the Administrator of the existence of an immediate and
heavy financial need and of the amount necessary to meet the need shall be made in a non-
discriminatory and consistent manner. The determination of hardship by the Administrator shall
be final and binding.
(a)
A distribution will be deemed to be made on account of an immediate
and heavy financial need of the participant only if the distribution is on
account of the financial needs described in this Section 9.01(a), in which
case the Administrator may reasonably rely upon the participant’s
representation that the financial need is on account of:
(1)
Expenses for (or necessary to obtain) medical care that would be
deductible under Code Section 213(d) (determined without
regard to whether the expenses exceed 7.5% of adjusted gross
income);
2
(2)
(3)
(4)
(5)
(6)
(7)
Costs directly related to the purchase of a principal residence for
the Participant (excluding mortgage payments);
Payment of tuition, related educational fees, and room and board
expenses, for up to the next twelve (12) months of post-
secondary education for the Participant, the Participant’s spouse,
children, or dependents (as defined in Code Section 152, without
regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)) and
such expenses of the Participant’s primary beneficiary under the
Plan (as defined below);
Payments necessary to prevent the eviction of the Participant
from the Participant’s principal residence or foreclosure on the
mortgage on that residence;
Payments for burial or funeral expenses for the Participant’s
deceased parent, spouse, children or dependents (as defined in
Code Section 152, and without regard to Code Section
152(d)(1)(B)) and such expenses of the Participant’s primary
beneficiary under the Plan (as defined below);
Expenses for the repair of damage to the Employee’s principal
residence that would qualify for the casualty deduction under
Code Section 165 (determined without regard to whether the loss
exceeds 10% of adjusted gross income); or
Expenses and losses (including loss of income) incurred by the
employee on account of a disaster declared by the Federal
Emergency Management Agency (FEMA) under the Robert T.
Stafford Disaster Relief and Emergency Assistance Act, Public
Law 100-707, provided that the Employee's principal residence
or principal place of employment at the time of the disaster was
located in an area designated by FEMA for individual assistance
with respect to the disaster, effective for distributions made on or
after January 1, 2021.
A financial need shall not fail to qualify as immediate and heavy merely
because such need was reasonably foreseeable or voluntarily incurred by
the Participant. There shall be no reduction in the maximum amount of
Elective Deferral Contributions that a Participant may make pursuant to
Code Section 402(g) solely because of a hardship distribution made by
this Plan or any other plan of the Employer. A Participant’s “primary
beneficiary under the Plan” is an individual who is named as a
beneficiary under the Plan and has an unconditional right to all or a
portion of the Participant’s account balance under the Plan upon the
Participant’s death.
3
(b)
A distribution will be deemed to be necessary to satisfy an immediate
and heavy financial need of a Participant if all of the following
requirements are satisfied:
(1) the distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant,
including any amounts necessary to satisfy applicable
federal, state and local income taxes, excise taxes and
penalty taxes which may be reasonably anticipated to
result from the distribution;
(2) the Participant has obtained all distributions (including
distributions currently available to the Participant as
provided for in Section 12.09), other than hardship
distributions, and for distributions made prior to January
1, 2019 all non-taxable loans currently available under
all plans maintained by the Employer; and
(3) for distributions made prior to January 1, 2019, the
Participant does not make a contribution to this Plan or
to any other plan of deferred compensation contrary to
the provisions of Section 9.02.
4. Section 9.02 “Suspension of Contributions Due to Hardship Withdrawal.” is
hereby amended in its entirety to read as follows:
9.02
Suspension of Contributions Due
to Hardship Withdrawal. For
distributions made prior to January 1, 2019, if a Participant receives a hardship withdrawal, such
Participant shall not be permitted to make:
(a)
(b)
Elective Deferrals for the six-month period following the date of receipt
of the hardship withdrawal; and
Contributions to any other qualified or nonqualified plan of deferred
compensation maintained by the Employer including, but not limited to,
stock option plans and stock purchase plans for the six-month period
following the date of receipt of the hardship withdrawal.
The Plan will discontinue any remaining portion of the suspension period for hardship
distributions made prior to January 1, 2019.
4
5. Article 9 “IN-SERVICE WITHDRAWALS” is hereby amended effective as of
April 1, 2020 by adding a new Section 9.03 called “CARES Act” to read as
follows:
9.03
CARES Act.
(a)
(b)
(c)
Coronavirus-Related Distributions. Effective as of April 1, 2020, a
Qualified Individual may take one or more Coronavirus-Related
Distributions. A “Coronavirus-Related Distribution” means a distribution
to a Qualified Individual during the period beginning January 1, 2020
and ending December 30, 2020. The total amount of Coronavirus-
Related Distributions to a Qualified Individual from all plans maintained
by the Employer, or any related employer described in Code Sections
414(b), (c), (m), or (o), shall not exceed $100,000. The Coronavirus-
Related Distributions from the Plan to a Qualified Individual will not
exceed the amount of the individual’s vested account balance or the
present value of the individual’s vested accrued benefit.
Repayment of distribution. A Participant who receives a Coronavirus-
Related Distribution (from this Plan and/or another eligible retirement
plan as defined in Code Section 402(c)(8)(B)), at any time during the 3-
year period beginning on the day after receipt of the distribution, may
make one or more contributions to the Plan, as Rollover Contributions, in
an aggregate amount not to exceed the amount of such distribution.
Qualified Individual. For purposes of this Section and Section 11.05, a
“Qualified Individual” means any individual who meets one or more of
the criteria described in paragraphs (1), (2), (3), or (4). Participants,
alternate payees and beneficiaries of deceased participants can be treated
as Qualified Individuals. The Plan Administrator may rely on an
individual's certification that the individual satisfies a condition to be a
Qualified Individual unless the Plan Administrator has actual knowledge
to the contrary. In applying the criteria, "COVID-19" means either the
virus SARS-CoV-2 or coronavirus disease 2019; "an approved test"
means a test approved by the Centers for Disease Control and Prevention
(including a test authorized under the Federal Food, Drug, and Cosmetic
Act); and a "member of the individual's household" means someone who
shares the individual's principal residence. The criteria are as follows:
(1) The individual was diagnosed with COVID-19 by an
approved test;
(2) The individual's spouse or dependent (as defined in Code
Section 152) was diagnosed with COVID-19 by an approved
test;
5
(3) The
(b)
the
adverse
individual,
experienced
to COVID-19;
individual has
financial
consequences because: (a) the individual or the individual's
spouse, or a member of the individual's household was
quarantined, furloughed or laid off, or had work hours
the
reduced due
individual's spouse, or a member of the individual's
household was unable to work due to lack of childcare due to
COVID-19; (c) A business owned or operated by the
individual, the individual's spouse, or a member of the
individual's household closed or reduced hours due to
COVID-19; or (d) the individual, the individual's spouse, or
a member of the individual's household had a reduction in
pay (or self-employment income) due to COVID-19 or had a
job offer rescinded or start date for a job delayed due to
COVID-19; or
(4) The individual satisfies any other criteria determined by the
Treasury or the IRS.
6. Section 10.06 “Minimum Distribution Requirements” is hereby amended in its
entirety to read as follows:
10.06 Minimum Distribution Requirements.
(a)
General Rules
(1)
(2)
Requirements of Treasury Regulations Incorporated. All
this Section 10.06 will be
distributions required under
determined and made
the Treasury
Regulations under Code Section 401(a)(9).
in accordance with
TEFRA Section 242(b)(2) Elections. Notwithstanding the
other provisions of this Section 10.06, distributions may be made
under a designation made before January 1, 1984, in accordance
with Section 242(b)(2) of
the Tax Equity and Fiscal
Responsibility Act (TEFRA) and the provisions of the Plan that
relate to Section 242(b)(2) of TEFRA.
(b)
Time and Manner of Distribution.
(1)
Required Beginning Date. The Participant’s entire interest will
be distributed, or begin to be distributed, to the Participant no
later than the Participant’s required beginning date. For
purposes of this Section:
(i)
The term “required beginning date” of a Participant is
the later of the first day of April of the calendar year
following: (A) the calendar year in which the Participant
6
attains age 70½ (for Participants born before July 1,
1949) or age 72 (for Participants born after June 30,
1949), or (B) the calendar year in which the Participant
retires if the Participant is not a 5–percent owner of the
Employer.
(ii)
The “required beginning date” for a Participant who is a
5-percent Owner (as defined in Code Section 401(a)(9))
shall not be later than April 1 of the calendar year
following the calendar year in which the participant
attains age 70½ (for Participants born before July 1,
1949) or age 72 (for Participants born after June 30,
1949).
(iii)
Once distributions have begun to a 5–percent owner
under this Section, they must continue to be distributed,
even if the Participant ceases to be a 5–percent owner in
a subsequent year.
(2)
Death of Participant Before Distributions Begin. If the
Participant dies before distributions begin, the Participant’s
entire interest will be distributed, or begin to be distributed, no
later than as follows:
(i)
(ii)
(iii)
If the Participant’s surviving spouse is the Participant’s
sole designated beneficiary, then distributions to the
surviving spouse will begin by December 31 of the
calendar year immediately following the calendar year in
which the Participant died, or by December 31 of the
calendar year in which the Participant would have
attained age 70½ (for Participants born before July 1,
1949) or age 72 (for Participants born after June 30,
1949), if later.
sole
the Participant’s surviving spouse
If
the
then
designated
Participant’s
distributions to the designated beneficiary will begin by
December 31 of the calendar year immediately following
the calendar year in which the Participant died.
beneficiary,
is not
If there is no designated beneficiary as of September 30
of the year following the year of the Participant’s death,
the Participant’s entire interest will be distributed by
December 31 of the calendar year containing the fifth
anniversary of the Participant’s death.
7
(iv)
If the Participant’s surviving spouse is the Participant’s
sole designated beneficiary and the surviving spouse dies
after the Participant but before distributions to the
surviving spouse begin, this Section 10.06(b)(2), other
than Section 10.06(b)(2)(i), will apply as if the surviving
spouse was the Participant.
For purposes of this Section 10.06(b) and Section 10.06(d) unless
Section 10.06(b)(2)(iv) applies, distributions are considered to begin on
the Participant’s required beginning date. If Section 10.06(b)(2)(iv)
applies, distributions are considered to begin on the date distributions are
required to begin to the surviving spouse under Section 10.06(b)(2)(i). If
distributions under an annuity purchased from an insurance company
irrevocably commence to the Participant before the Participant’s
required beginning date (or to the Participant’s surviving spouse before
the date distributions are required to begin to the surviving spouse under
Section 10.06(b)(2)(i)), the date distributions are considered to begin is
the date distributions actually commence.
(3)
Forms of Distribution. Unless the Participant’s interest is
distributed in the form of an annuity purchased from an
insurance company or in a single sum on or before the required
beginning date, as of the first distribution calendar year
distributions will be made in accordance with Sections 10.06(c)
and 10.06(d) of the Plan. If the Participant’s interest is
distributed in the form of an annuity purchased from an
insurance company, distributions thereunder will be made in
accordance with the requirements of Code Section 401(a)(9) and
the Treasury Regulations.
(c)
Required Minimum Distributions During Participant’s Lifetime.
(1)
Amount of Required Minimum Distribution for Each
Distribution Calendar Year. During the Participant’s lifetime,
the minimum amount
that will be distributed for each
distribution calendar year is the lesser of:
(i)
(ii)
the quotient obtained by dividing the Participant’s
account balance by the distribution period in the
in Section
Uniform Lifetime Table
1.401(a)(9)-9 of the Treasury Regulations, using the
Participant’s age as of the Participant’s birthday in the
distribution calendar year; or
forth
set
if the Participant’s sole designated beneficiary for the
distribution calendar year is the Participant’s spouse, the
quotient obtained by dividing the Participant’s account
balance by the number in the Joint and Last Survivor
Table set forth in Section 1.401(a)(9)-9 of the Treasury
8
the Participant’s and spouse’s
Regulations, using
attained ages as of the Participant’s and spouse’s
birthdays in the distribution calendar year.
(2)
Lifetime Required Minimum Distributions Continue
Through Year of Participant’s Death. Required minimum
distributions will be determined under this Section 10.06(c)
beginning with the first distribution calendar year and up to and
including the distribution calendar year that includes the
Participant’s date of death.
(d)
Required Minimum Distributions After Participant’s Death. For
distributions with respect to Participants who die before January 1, 2020:
(1)
Death On or After Date Distributions Begin.
(i)
Participant Survived by Designated Beneficiary. If
the Participant dies on or after the date distributions
begin and there is a designated beneficiary, the minimum
amount that will be distributed for each distribution
calendar year after the year of the Participant’s death is
the quotient obtained by dividing the Participant’s
account balance by the longer of the remaining life
expectancy of the Participant or the remaining life
expectancy of the Participant’s designated beneficiary,
determined as follows:
(A)
(B)
The Participant’s remaining life expectancy is
calculated using the age of the Participant in the
year of death, reduced by one for each
subsequent year.
is calculated
If the Participant’s surviving spouse is the
Participant’s sole designated beneficiary, the
remaining life expectancy of the surviving
for each distribution
spouse
calendar year after the year of the Participant’s
death using the surviving spouse’s age as of the
spouse’s birthday in that year. For distribution
calendar years after the year of the surviving
spouse’s death, the remaining life expectancy of
the surviving spouse is calculated using the age
of the surviving spouse as of the spouse’s
birthday in the calendar year of the spouse’s
death, reduced by one for each subsequent
calendar year.
9
(C)
beneficiary’s
If the Participant’s surviving spouse is not the
Participant’s sole designated beneficiary, the
designated
life
expectancy is calculated using the age of the
beneficiary in the year following the year of the
Participant’s death, reduced by one for each
subsequent year.
remaining
(ii)
No Designated Beneficiary. If the Participant dies on
or after the date distributions begin and there is no
designated beneficiary as of September 30 of the year
after the year of the Participant’s death, the minimum
amount that will be distributed for each distribution
calendar year after the year of the Participant’s death is
the quotient obtained by dividing the Participant’s
account balance by the Participant’s remaining life
expectancy calculated using the age of the Participant in
the year of death, reduced by one for each subsequent
year.
(e)
Death Before Date Distributions Begin. For distributions with respect
to Participants who die before January 1, 2020:
(1)
(2)
(3)
Participant Survived by Designated Beneficiary. If the
Participant dies before the date distributions begin and there is a
designated beneficiary, the minimum amount that will be
distributed for each distribution calendar year after the year of
the Participant’s death is the quotient obtained by dividing the
Participant’s account balance by the remaining life expectancy
of the Participant’s designated beneficiary, determined as
provided in Section 10.06(d)(1).
No Designated Beneficiary. If the Participant dies before the
date distributions begin and there is no designated beneficiary as
of September 30 of the year following the year of the
Participant’s death, distribution of the Participant’s entire
interest will be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant’s death.
Death of Surviving Spouse Before Distributions to Surviving
Spouse Are Required to Begin. If the Participant dies before
the date distributions begin, the Participant’s surviving spouse is
the Participant’s sole designated beneficiary, and the surviving
spouse dies before distributions are required to begin to the
surviving spouse under Section 10.06(b)(2),
this Section
10.06(e)(3) will apply as if the surviving spouse were the
Participant.
10
(f)
(g)
(h)
(i)
Notwithstanding the foregoing provisions of this Section 10.06, if the
total value of a Participant’s vested Accounts to be distributed is less
than or equal to $1,000, determined any time on or after the Participant’s
Termination Date, the Participant’s vested Account balance shall be
distributed in a lump sum payment as soon as administratively feasible in
accordance with Section 10.02(c)(1).
Notwithstanding
2009 Required Minimum Distributions.
the
foregoing provisions of this Section 10.06, a Participant or Beneficiary
who would have been required to receive required minimum distributions
for 2009 but for the enactment of Code Section 401(a)(9)(H) (the “2009
required minimum distributions”), and who would have satisfied that
requirement by receiving distributions that are (1) equal to the 2009
required minimum distributions or (2) one or more payments in a series
of substantially equal distributions (that include the 2009 required
minimum distributions) made at least annually and expected to last for
the life (or life expectancy) of the Participant, the joint lives (or joint life
expectancy) of
the Participant’s Designated
Beneficiary, or for a period of at least 10 years, will not receive those
distributions for 2009 unless the Participant or Beneficiary chooses to
receive such distributions.
the Participant and
Notwithstanding
2020 Required Minimum Distributions.
the
foregoing provisions of Section 10.06, a Participant or Beneficiary who
would have been required to receive required minimum distributions in
2020 (or paid in 2021 for the 2020 calendar year for a participant with a
required beginning date of April 1, 2021) but for the enactment of section
401(a)(9)(I) of the Code (2020 RMDs), and who would have satisfied
that requirement by receiving distributions that are either (1) equal to the
2020 RMDs, or (2) one or more payments (that include the 2020 RMDs)
in a series of substantially equal periodic payments made at least
annually and expected to last for the life (or life expectancy) of the
participant, the joint lives (or joint life expectancies) of the Participant
and the Participant's designated beneficiary, or for a period of at least 10
years (Extended 2020 RMDs), will not receive those distributions unless
the Participant or Beneficiary chooses to receive the distribution. In
addition, and solely for purposes of applying the direct rollover
provisions of the plan, the 2020 RMDs and Extended 2020 RMDs will
be treated as eligible rollover distributions.
Distribution on Account of Death. Notwithstanding the foregoing
provisions of Section 10.06(d) and Section 10.06(e), for distributions
with respect to Participants who die after December 31, 2019, regardless
of whether before or after distribution has begun, a Participant's entire
interest will be distributed to the designated beneficiary by December 31
of the calendar year containing the tenth anniversary of the Participant's
death unless the designated beneficiary meets the requirements of an
"eligible designated beneficiary". An "eligible designated beneficiary"
may receive distributions over the life of such designated beneficiary. If
11
there is no designated beneficiary as of September 30 of the year
following the year of the Participant's death, the Participant's entire
interest will be distributed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death. An "eligible
designated beneficiary" is defined as any designated beneficiary who is:
(i) the surviving spouse of the Participant; (ii) a minor child of the
Participant; (iii) disabled; (iv) a chronically ill individual; or (v) an
individual who is not more than 10 years younger than the Participant.
The determination of whether a designated beneficiary is an "eligible
designated beneficiary" shall be made as of the date of death of the
Participant. If an "eligible designated beneficiary" dies before the portion
of the Participant's interest is entirely distributed, the remainder of such
portion shall be distributed within 10 years after the death of such
"eligible designated beneficiary".
7. Article 11 “LOANS” is hereby amended effective as of April 17, 2020 by adding
a new Section 11.05 called “CARES Act Loan Provisions” to read as follows:
11.05 CARES Act Loan Provisions.
(a)
(b)
Increased loan limit. Notwithstanding the loan limitation that otherwise
would apply, the Plan will determine the loan limit under Code Section
72(p)(2)(A) for a loan to a Qualified Individual (as defined in Section
9.03(c)), made during the period beginning April 17, 2020 and ending
September 22, 2020, by substituting “$100,000” for “$50,000,” and by
substituting “100% of the present value of the nonforfeitable accrued
benefit of the employee under the Plan” for “50% of the combined
current value of the Participant’s Elective Deferral Account, Rollover
Contributions Account and the vested portion of Employer Accounts”. A
Participant may take one additional loan under this provision regardless
of the number of existing loans the Participant has outstanding.
Extension of certain repayments. If a Qualified Individual has an
outstanding loan from the Plan on or after April 17, 2020, then: (1) if the
date for any repayment of such loan occurs during the Suspension
Period, the due date is extended for the Extension Period; (2) the due
date of the loan will be extended by the Extension Period; (3) the Plan
will adjust any subsequent repayments to reflect the extension of the due
date and any interest accrued during the Suspension Period; and (4) the
Plan will disregard the Extension Period in determining the 5-year period
and the loan term under Code Sections 72(p)(2)(B) or (C). The
Suspension Period will begin April 17, 2020 and end December 31,
2020. The Extension Period will be one year. The provisions of this
Section will be applied in accordance with Section 5.B. of IRS Notice
12
2050-50, or any subsequent applicable guidance, and the adjustment
described in (3) may reflect the “safe harbor” described therein.
8.
In all other respects, the Plan shall remain unchanged by the Amendment.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed on the 10th day of December, 2020.
HEICO Corporation, a Florida corporation
By: /s/ CARLOS L. MACAU, JR.
Name: Carlos L. Macau, Jr.
Title: Executive Vice President / CFO / Treasurer
13
SUBSIDIARIES OF HEICO CORPORATION
Exhibit 21
Name
HEICO Aerospace Holdings Corp.
HEICO Aerospace Corporation
Jet Avion Corporation
LPI Industries Corporation
Parts Advantage, LLC
HNW Building Corp.
HNW2 Building Corp.
McClain International, Inc.
McClain Property Corp.
Rogers-Dierks, Inc.
Turbine Kinetics, Inc.
ATK Acquisition Corp.
AD HEICO Acquisition Corp.
AeroDesign, Inc.
Battery Shop, L.L.C.
Aviation Facilities, Inc.
JA Engineering I Corp.
JA Engineering II Corp.
Jetavi Engineering Private Limited
DEC Technologies, Inc.
Meridian Industrial, Inc.
Dynatech Acquisition Corp.
HEICO Parts Group, Inc.
State or Other
Jurisdiction of Incorporation
Florida
Florida
Florida
Florida
Delaware
Florida
Florida
Georgia
Florida
Florida
Florida
Florida
Florida
Tennessee
Tennessee
Florida
Florida
Florida
India
Florida
Florida
Florida
Florida
Name
HEICO Flight Support Corp.
HEICO Repair, LLC
Aircraft Technology, Inc.
Northwings Accessories Corp.
Aviation Engineered Services Corp.
HB Fuel Systems LLC
HEICO Repair Group Aerostructures, LLC
Future Aviation, Inc.
Inertial Airline Services, Inc.
HEICO Aerospace Parts Corp.
Niacc-Avitech Technologies Inc.
Prime Air, LLC
Avisource Limited
Prime Air Europe Limited
Sunshine Avionics LLC
CSI Aerospace, Inc.
Action Research Corporation
Reinhold Holdings, Inc.
Reinhold Industries, Inc.
Carbon by Design Corporation
Carbon by Design LLC
Optical Display Engineering, Inc.
Thermal Structures, Inc.
Thermal Energy Products, Inc.
Jetseal, Inc.
Seal Dynamics LLC
Seal Dynamics LLC (Singapore Branch)
Seal Dynamics Limited
Seal Q Corp.
Blue Aerospace LLC
State or Other
Jurisdiction of Incorporation
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Ohio
Florida
Florida
Florida
United Kingdom
United Kingdom
Florida
Florida
Florida
Delaware
Delaware
Florida
California
Florida
California
California
Delaware
Florida
Singapore
United Kingdom
Florida
Florida
Name
HEICO International Holdings B.V.
Aeroworks International Holding B.V.
Aeroworks Europe B.V.
Aeroworks (Lao) Co., Ltd.
DIRI Co., Ltd.
Aeroworks Lao II Co., Ltd.
Aeroworks Special Products B.V.
Aeroworks (Asia) Ltd.
Aeroworks Manufacturing Services (Asia) Ltd.
Aeroworks Composites B.V.
Aeroworks Composites (Asia) Ltd.
HFSC III Corp.
Harter Aerospace, LLC
Aerospace & Commercial Technologies, LLC
Astroseal Products Mfg. Corporation
Astro Property, LLC
HFSC IV Corp.
LLP Enterprises, LLC
Air Cost Control US, LLC
Air Cost Control PTE, Ltd.
A2C Air Cost Control SAS
Air Cost Control Germany GmbH
60 Sequin LLC
HFSC V, LLC
Decavo LLC
HFSC VI, LLC
HFSC VII, LLC
Rocky Mountain Hydrostatics, LLC
State or Other
Jurisdiction of Incorporation
Netherlands
Netherlands
Netherlands
Laos
Laos
Laos
Netherlands
Thailand
Thailand
Netherlands
Thailand
Florida
Florida
Florida
Connecticut
Connecticut
Florida
Florida
Florida
Singapore
France
Germany
Connecticut
Florida
Oregon
Florida
Florida
Colorado
Name
HEICO Electronic Technologies Corp.
Radiant Power Corp.
Radiant-Seacom Repairs Corp.
HETC IV, LLC
Radiant Power IDC, LLC
Interface Displays & Controls, Inc.
Leader Tech, Inc.
FerriShield, Inc.
Santa Barbara Infrared, Inc.
IRCameras LLC
Sensor Technology Engineering, LLC
Analog Modules, Inc.
Sierra Microwave Technology, LLC
Connectronics Corp.
Lumina Power, Inc.
De-Icing Investment Holdings Corp.
HVT Group, Inc.
Dielectric Sciences, Inc.
Essex X-Ray & Medical Equipment LTD
High Voltage Technology Limited
Engineering Design Team, Inc.
EMD Acquisition Corp.
EMD Technologies Incorporated
VPT, Inc.
SI-REL, Inc.
SST Components, Inc.
VPT GaN, LLC
Dukane Seacom, Inc.
AeroELT, LLC
dB Control Corp.
TTT-Cubed, Inc.
3D Acquisition Corp.
3D Plus SAS
Bernier Connect SAS
Moulages Plastiques Industriels de L'essonne SARL
3D Plus U.S.A., Inc.
State or Other
Jurisdiction of Incorporation
Florida
Florida
Florida
Florida
Florida
California
Florida
Pennsylvania
California
Florida
Florida
Florida
Delaware
Florida
Florida
Florida
Delaware
Massachusetts
United Kingdom
United Kingdom
Oregon
Florida
Canada
Virginia
Delaware
Delaware
Virginia
Florida
Florida
Florida
California
Florida
France
France
France
Delaware
Name
Switchcraft Holdco, Inc.
Switchcraft, Inc.
Conxall Corporation
Switchcraft Far East Company, Ltd.
Ramona Research, Inc.
Lucix Corporation
Midwest Microwave Solutions, Inc.
Robertson Fuel Systems, L.L.C.
AeroAntenna Technology, Inc.
HETC I, LLC
Research Electronics International, L.L.C.
Specialty Silicone Products, Inc.
3 McCrea Property Company, LLC
HETC II Corp.
Apex Holding Corp.
Apex Microtechnology, Inc.
HETC III, LLC
Solid Sealing Technology, Inc.
Quell Corporation
HETC V, LLC
TSID Holdings, LLC
Transformational Security, LLC
Intelligent Devices, LLC
1260041 B.C. LTD.
Connect Tech Inc.
HEICO East Corporation
16-1741 Property, Inc.
Bay Equipment Corp.
State or Other
Jurisdiction of Incorporation
Delaware
Illinois
Illinois
Republic of South Korea
California
California
Iowa
Arizona
California
Florida
Tennessee
New York
Florida
Florida
Delaware
Arizona
Florida
New York
Colorado
Florida
Florida
Maryland
Delaware
Canada
Canada
Florida
Florida
Delaware
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 33-4945,
333-108471, 333-161956, 333-180454, 333-210043 and 333-223790 on Forms S-8 of our reports
dated December 23, 2020, relating to the consolidated financial statements and financial
statement schedule of HEICO Corporation and subsidiaries and the effectiveness of HEICO
Corporation and subsidiaries’ internal control over financial reporting, appearing in this Annual
Report on Form 10-K of HEICO Corporation for the year ended October 31, 2020.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
December 23, 2020
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Laurans A. Mendelson, certify that:
(1) I have reviewed this Annual Report on Form 10-K of HEICO Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: December 23, 2020
/s/ LAURANS A. MENDELSON
Laurans A. Mendelson
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Carlos L. Macau, Jr., certify that:
(1) I have reviewed this Annual Report on Form 10-K of HEICO Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: December 23, 2020
/s/ CARLOS L. MACAU, JR.
Carlos L. Macau, Jr.
Chief Financial Officer
(Principal Financial Officer)
SECTION 1350 CERTIFICATION
Exhibit 32.1
In connection with the Annual Report of HEICO Corporation (the “Company”) on Form 10-K
for the period ended October 31, 2020 as filed with the Securities and Exchange Commission on
the date hereof (the “Report”), I, Laurans A. Mendelson, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: December 23, 2020
/s/ LAURANS A. MENDELSON
Laurans A. Mendelson
Chief Executive Officer
(Principal Executive Officer)
SECTION 1350 CERTIFICATION
Exhibit 32.2
In connection with the Annual Report of HEICO Corporation (the “Company”) on Form 10-K
for the period ended October 31, 2020 as filed with the Securities and Exchange Commission on
the date hereof (the “Report”), I, Carlos L. Macau, Jr., certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: December 23, 2020
/s/ CARLOS L. MACAU, JR.
Carlos L. Macau, Jr.
Chief Financial Officer
(Principal Financial Officer)