FinanceLooker

Excrept from filing document 2024-10-31

The aggregate market value of the voting and non voting common equity held by non affiliates of the registrant was 23 273 324 000 based on the closing price of HEICO Common Stock and Class A Common Stock as of April 30 2024 as reported by the New York Stock Exchange
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 Flight Support Group FSG consisting of HEICO Aerospace Holdings Corp and HEICO Flight Support Corp and their collective subsidiaries accounted for 68 60 and 57 of our net sales in fiscal 2024 2023 and 2022 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 the U S Department of Defense defense prime contractors and foreign military organizations allied with the U S Further the FSG is a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation defense and space applications The FSG also 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 overhauls industrial pumps motors and other hydraulic units with a focus on the support of legacy systems for the U S Navy performs tight tolerance machining brazing fabricating and welding services for aerospace defense and other industrial applications and manufactures emergency descent devices EDDs and personnel and cargo parachute products
Our Electronic Technologies Group ETG consisting of HEICO Electronic Technologies Corp and its subsidiaries accounted for 32 40 and 43 of our net sales in fiscal 2024 2023 and 2022 respectively The ETG derived approximately 51 49 and 56 of its net sales in fiscal 2024 2023 and 2022 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 memory products including three dimensional microelectronic and stacked memory static random access memory SRAM and electronically erasable programmable read only memory EEPROM harsh environment electronic connectors and other interconnect products radio frequency RF and microwave amplifiers transmitters and receivers and integrated assemblies sub assemblies and components RF sources detectors and controllers wireless cabin control systems solid state power distribution and management systems proprietary in cabin power and entertainment components and subsystems 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 and airborne antennas for commercial and military 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 rugged small form factor embedded computing solutions custom high power filters and filter assemblies test sockets and adapters for both engineering and production use of semiconductor devices radiation assurance services and products and high reliability Hi Rel complex passive electronic components and rotary joint assemblies for mostly aerospace and defense applications in addition to other high end applications such as medical and energy uses including emerging clean energy and electrification applications
HEICO has continuously operated in the aerospace industry for over 65 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 3 857 7 million in fiscal 2024 representing a compound annual growth rate of approximately 16 During the same period we improved our net income
Acquisitions have been an important element of our growth strategy over the past thirty four years supplementing our organic growth Since 1990 we have completed approximately 103 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
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 We believe that we are the largest independent supplier of non OEM jet engine and aircraft component replacement parts and in recent years and inclusive of acquisitions we are now adding new products to our line at a rate of approximately 350 to 550 Parts Manufacturer Approvals PMA or PMAs per year We have developed for our customers approximately 20 000 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 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
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
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
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
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 the U S Department of Defense defense prime contractors and 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
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 and assemblies 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 manufactures expanded foil mesh which is integrated into composite aerospace structures for lightning strike protection in fixed and rotary wing aircraft performs tight tolerance machining brazing fabricating and welding services for aerospace defense and other industrial applications and designs manufactures and distributes emergency descent devices EDDs personnel and cargo parachute products heavy airdrop platforms and other highly engineered products
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 36 7 million in fiscal 2024 26 4 million in fiscal 2023 and 22 2 million in fiscal 2022 We believe that the 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 350 to 550 new parts and we develop numerous new proprietary repairs per year however no assurance can be given that the FAA will continue to grant PMAs or DER approved
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 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 DER 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
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
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
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
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 fuel level sensing systems power distribution solutions and proprietary in cabin power and entertainment components and subsystems primarily for business jets general aviation and 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 custom high power filters and filter assemblies 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
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
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
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 avionics systems medical applications wireless communications and industrial applications including high voltage test equipment and underwater monitoring systems
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
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
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
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 and weight These products are principally integrated into larger subsystems equipping satellites and spacecraft and are also utilized in medical equipment Additionally the ETG designs and manufactures specialty semiconductors and offers a well developed line of processors as well as static random access memory SRAM and electronically erasable programmable read only memory EEPROM products utilized on a diverse array of military space and medical platforms
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
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 The ETG designs and manufactures state of the art RF and microwave integrated assemblies sub assemblies and components used in a broad range of demanding defense applications operating in harsh environments including space
The ETG designs and produces high performance active antenna systems and airborne antennas for commercial and military aircraft precision guided munitions and other defense applications and commercial uses
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
The ETG designs and manufactures TSCM equipment to detect devices used for espionage and information theft serving government agencies law enforcement corporate security personnel and TSCM professionals worldwide
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
The ETG offers Hi Rel complex passive electronic components and rotary joint assemblies for mostly aerospace and defense applications in addition to other high end applications such as medical and energy uses including emerging clean energy and electrification 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 74 5 million in fiscal 2024 69 4 million in fiscal 2023 and 53 9 million in fiscal 2022 We believe that the ETG s research and development capabilities are a significant component of our historical success and an integral part of our growth strategy
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 19 18 and 21 of total net sales in fiscal 2024 2023 and 2022 respectively
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
We purchase a variety of raw materials primarily consisting of high temperature alloy sheet metal and castings forgings pre plated metals electrical components and advanced composite materials 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 and 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 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
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
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
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
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
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
As of October 31 2024 we had approximately 10 000 full time and part time employees including approximately 5 100 in the Flight Support Group of whom approximately 1 000 were employed by foreign subsidiaries and approximately 4 900 in the Electronic Technologies Group of whom approximately 2 000 were employed by foreign subsidiaries None of our employees are represented by a U S domestic union Our management believes that we have good relations with our employees
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
As part of our compensation philosophy we believe that offering and maintaining market competitive total rewards programs is essential to attract and retain superior talent In addition to paying healthy base wages our 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 Equity compensation is also a key component of our compensation strategy with all domestic team members receiving an annual 401 k employer contribution in HEICO stock based on Company performance and employer 401 k matching contributions are also made using HEICO stock Additionally certain team member are granted stock options further aligning their success with HEICO s growth
We are committed to remaining a diverse and inclusive work environment that supports our 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 and inclusion principles are also reflected in our employee training and policies
Our Internet website address is https 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
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 and Other Officers is part of our Code of Business Conduct which is located on our website at https 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
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 18 2024
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 former Chairman and present member of the Board of Trustees former Chairman and present member 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 Mr Mendelson was awarded the honor of Chevalier in France s Légion d honneur Mr Mendelson was previously named Best CEO in the Aerospace Defense Electronics Sector by
Early in his career Mr Mendelson was a licensed and practicing Certified Public Accountant in the states of Florida and New York though he no longer practices and his license is inactive Laurans Mendelson is the father of Eric Mendelson and Victor 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 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 He is a member of the Board of Governors and has previously served as an Ex Officio Member of the Executive Committee and Chair of the Civil Aviation Leadership Council of the Aerospace Industries Association AIA in Washington D C of which HEICO is a member In addition Mr Mendelson is a member of the Board of Directors of Partnership for Miami a member of the Advisory Board of Trustees of Mount Sinai Medical Center in Miami Beach Florida a Past Chairman of Ransom Everglades
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 founding it in September 1996 He served as the Company s General Counsel from 1993 to 2008 and the Company s Vice President 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 Vice Chair of the Board of Trustees 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
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
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
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
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
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 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
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
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
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
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
Many of the industries serviced by our operating segments are highly fragmented have several highly visible leading companies and are 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
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
The costs to meet customer specifications and requirements could result in us having to spend more to design or manufacture products and this could reduce our profit margins on current contracts or those we obtain in the future
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 market our products and services to approximately 135 countries with approximately 37 of our consolidated net sales in fiscal 2024 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
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 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 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
As a result of our acquisitions goodwill and intangible assets represent a significant portion of our total assets As of October 31 2024 and 2023 goodwill and intangible assets net of amortization accounted for 62 and 64 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
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
As of December 18 2024 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 3 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
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
Furthermore disruptions within the aviation industry such as production delays or regulatory challenges affecting major manufacturers can reduce demand for our products and services and strain our supply chain Historically the aviation industry has 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 Lower commercial air travel caused by risks arising from public health threats such as the COVID 19 global pandemic and their aftermath airline fleet changes or airline purchasing decisions could cause lower demand for our goods and services These global industry and economic conditions may have a material adverse effect on our business financial condition and results of operations
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 as well as the value of any related inventory
In fiscal 2024 approximately 32 of our net sales 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 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
Our results of operations may continue to reflect the adverse impact from the COVID 19 pandemic including its impact on our supply chain and inflationary pressures Health Emergencies pose a 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
The extent to which Health Emergencies 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 path and effect of Health Emergencies including factors like new variants and vaccination rates potential supply chain disruptions and inflation which can impact our key markets
We are subject to governmental regulation and our failure to comply with these regulations could cause the government to withdraw suspend 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 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 export 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 another Covered Country 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
Also in foreign countries in which we have operations or business a risk exists that our associates contractors or agents could in contravention of our policies and compliance programs engage in business practices prohibited by U S laws and regulations applicable to us such as the Foreign Corrupt Practices Act FCPA or the laws and regulations of other countries such as the United Kingdom Bribery Act Additionally we are subject to regulations such as the Canadian Forced and Child Labour Act which prohibits the importation of goods produced wholly or in part by forced or child labor Any such violations could have a material adverse effect on our business
We file income tax returns in the U S federal jurisdiction multiple state jurisdictions and certain jurisdictions outside the U S In fiscal 2024 our effective tax rate was 17 5 Our future effective tax rate may be adversely affected by a number of factors including the following
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 and
The Organization of Economic Cooperation and Development OECD has issued Pillar Two model rules to ensure large corporations pay a global minimum tax of 15 which will begin to be effective for our operations in fiscal 2025 The OECD has issued administrative guidance and safe harbor rules around the implementation of Pillar Two We currently do not expect Pillar Two will have a significant impact on our fiscal 2025 consolidated financial statements but will continue to monitor the potential impact of future legislation and guidance
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
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 in the environment 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
The Company prioritizes cybersecurity as a strategic pillar integral to its business strategy risk management and governance frameworks The Board of Directors and executive management play an active role in evaluating the effectiveness of our cybersecurity policies practices and procedures Regular updates are provided by the Chief Information Officer to ensure cybersecurity risks are continuously monitored and addressed across all business functions Our cybersecurity program incorporates policies procedures systems and controls designed to safeguard the accessibility confidentiality and integrity of our data and systems These processes are shaped by industry trends and the evolving cybersecurity landscape
Our cybersecurity program is an integral part of our overall risk management framework and is aligned with recognized industry standards such as the National Institute of Standards and Technology NIST Cybersecurity Framework CSF The cybersecurity program is designed to identify detect protect against respond to and recover from cyber threats Our program safeguards the confidentiality integrity and availability of our systems and data through a comprehensive and multi layered approach
We deploy robust controls including firewalls anti malware systems intrusion detection and prevention encryption and access controls These measures are supplemented by continuous monitoring vulnerability assessments and penetration testing conducted both internally and by third party assessors Insights from these assessments inform the enhancement of our security controls and help us mitigate emerging threats effectively We also actively engage with key consultants as part of our continuing efforts to evaluate and enhance the effectiveness of our cybersecurity program
Our governance and oversight framework for cybersecurity risks operates at multiple levels within the organization The Board of Directors has final oversight responsibility for cybersecurity related matters and receives regular updates from the Chief Information Officer and senior management on the status of the cybersecurity program vulnerability assessments strategic initiatives and any significant incident response activities
The Chief Information Officer has over 27 years of experience in cybersecurity and is responsible for designing and implementing the organization s cybersecurity strategy The cybersecurity program and the Information Security Team are led by the Senior IT Director who reports to the Chief Information Officer The Senior IT Director has over 20 years of experience in cybersecurity The Information Security Team is responsible for security operations cybersecurity monitoring application security audits and responding to incidents through a structured Incident Response Plan
We have experienced cybersecurity incidents in the ordinary course of business and recognize that such incidents are an inherent risk to any organization While prior incidents have not materially impacted our business strategy financial condition or results of operations we remain vigilant in anticipating and mitigating future threats
Our cybersecurity program is designed to address and minimize the risks posed by evolving threats However no system can completely eliminate the possibility of a significant cybersecurity incident Therefore we continuously assess and enhance our cybersecurity measures to adapt to the changing threat landscape and ensure organizational resilience
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 2024 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
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 18 states under Flight Support Group
We are involved in various legal actions arising in the normal course of business Based upon our 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 adverse effect on our results of operations financial position or cash flows
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 2019 through October 31 2024 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
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
We have historically paid semi annual cash dividends on both our Class A Common Stock and Common Stock In July 2024 we paid our 92nd consecutive semi annual cash dividend since 1979 of 11 per share which represented a 10 increase over the semiannual cash dividend of 10 per share paid in January 2024 In December 2024 our Board of Directors declared a semi annual cash dividend of 11 per share payable in January 2025
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
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 the U S Department of Defense defense prime contractors and foreign military organizations allied with the U S Further the FSG is a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation defense and space applications The FSG also 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 overhauls industrial pumps motors and other hydraulic units with a focus on the support of legacy systems for the U S Navy performs tight tolerance machining brazing fabricating and welding services for aerospace defense and other industrial applications and manufactures emergency descent devices EDDs and personnel and cargo parachute products
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 Memory Products Self Sealing Auxiliary Fuel Systems Active Antenna Systems Airborne Antennas TSCM Equipment and High Reliability Hi Rel Electronic Components
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 memory products including three dimensional microelectronic and stacked memory static random access memory SRAM and electronically erasable programmable read only memory EEPROM harsh environment electronic connectors and other interconnect products RF and microwave amplifiers transmitters and receivers and integrated assemblies sub assemblies and components RF sources detectors and controllers wireless cabin control systems solid state power distribution and management systems proprietary in cabin power and entertainment components and subsystems 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 and airborne antennas for commercial and military 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 rugged small form factor embedded computing solutions custom high power filters and filter assemblies test sockets and adapters for both engineering and production use of semiconductor devices and radiation assurance services and products and Hi Rel complex passive electronic components and rotary joint assemblies for mostly aerospace and defense applications in addition to other high end applications such as medical and energy uses including emerging clean energy and electrification applications
The following discussion and analysis of our Results of Operations and Liquidity and Capital Resources includes a comparison of fiscal 2024 to fiscal 2023 A similar discussion and analysis that compares fiscal 2023 to fiscal 2022 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 2023
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
Our consolidated net sales in fiscal 2024 increased by 30 to a record 3 857 7 million up from net sales of 2 968 1 million in fiscal 2023 The increase in consolidated net sales principally reflects an increase of 869 2 million a 49 increase to a record 2 639 4 million in net sales of the FSG and an increase of 38 4 million a 3 increase to a record 1 263 6 million in net sales of the ETG The net sales increase in the FSG reflects 643 5 million contributed by fiscal 2023 and 2024 acquisitions as well as strong organic growth of 13 The FSG s organic net sales growth reflects increased demand within its aftermarket replacement parts repair and overhaul parts and services and specialty products product lines resulting in net sales increases of 172 1 million 33 5 million and 20 1 million respectively The net sales increase in the ETG includes 40 7 million contributed by fiscal 2023 and 2024 acquisitions partially offset by a 2 organic net sales decline The ETG s organic net sales decline is mainly attributable to decreased demand for its other electronics and medical products resulting in net sales decreases of 45 0 million and 14 0 million respectively partially offset by increased demand for its defense and aerospace products resulting in net sales increases of 24 4 million and 12 9 million respectively Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in fiscal 2024
Our net sales in fiscal 2024 and 2023 by market consisted of approximately 56 and 48 from the commercial aviation industry respectively 32 and 35 from the defense and space industries respectively and 12 and 17 from other industrial markets including electronics medical and telecommunications respectively
Our consolidated gross profit margin was 38 9 in both fiscal 2024 and 2023 and reflects increases of 5 in both the FSG s and ETG s gross profit margin The increase in the FSG s gross profit margin principally reflects the previously mentioned higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines The increase in the ETG s gross profit margin principally reflects the previously mentioned higher net sales of defense and aerospace products partially offset by the previously mentioned decrease in net sales of other electronics and medical products Total new product research and development expenses included within our consolidated cost of sales were 111 3 million in fiscal 2024 up from 95 8 million in fiscal 2023
Our consolidated selling general and administrative SG A expenses were 677 3 million in fiscal 2024 as compared to 528 1 million in fiscal 2023 The increase in consolidated SG A expenses principally reflects 118 4 million attributable to our fiscal 2023 and 2024 acquisitions inclusive of 32 9 million of intangible asset amortization expense Additionally the increase in consolidated SG A expenses includes costs incurred to support the previously mentioned net sales growth resulting in increases of 23 7 million and 10 2 million in other general and administrative expenses and other selling expenses respectively a 9 1
million prior year impact from the amendment and termination of a contingent consideration agreement pertaining to a fiscal 2021 acquisition and a 7 6 million increase in performance based compensation expense partially offset by a 19 8 million decrease in acquisition costs
Our consolidated SG A expenses as a percentage of net sales decreased to 17 6 in fiscal 2024 down from 17 8 in fiscal 2023 The decrease in consolidated SG A expenses as a percentage of net sales principally reflects a 7 impact from the previously mentioned lower acquisition costs partially offset by a 3 impact from both the previously mentioned higher intangible asset amortization expense and amendment and termination of a contingent consideration agreement
Our consolidated operating income increased by 32 to a record 824 5 million in fiscal 2024 up from 625 3 million in fiscal 2023 The increase in consolidated operating income principally reflects a 205 8 million increase a 53 increase to a record 593 1 million in operating income of the FSG and a 3 1 million increase a 1 increase to a record 288 2 million in operating income of the ETG The increase in operating income of the FSG principally reflects the previously mentioned net sales growth a 15 0 million decrease in acquisition costs and the previously mentioned improved gross profit margin partially offset by a 36 6 million increase in intangible asset amortization expense a 15 9 million increase in performance based compensation expense and a 9 1 million prior year impact from the previously mentioned termination of a contingent consideration agreement The increase in operating income of the ETG principally reflects the previously mentioned net sales growth and improved gross profit margin partially offset by a lower level of SG A efficiencies
Our consolidated operating income as a percentage of net sales improved to 21 4 in fiscal 2024 up from 21 1 in fiscal 2023 The increase in consolidated operating income as a percentage of net sales principally reflects an increase in the FSG s operating income as a percentage of net sales to 22 5 in fiscal 2024 up from 21 9 in fiscal 2023 partially offset by a decrease in the ETG s operating income as a percentage of net sales to 22 8 in fiscal 2024 as compared to 23 3 in fiscal 2023 The increase in the FSG s operating income as a percentage of net sales principally reflects a 9 impact from lower acquisition costs a 5 impact from the previously mentioned improved gross profit margin and a 4 impact from lower performance based compensation expense as a percentage of net sales partially offset by a 7 impact from the previously mentioned higher intangible asset amortization expense and a 5 prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement The decrease in the ETG s operating income as a percentage of net sales principally reflects a 1 0 impact from an increase in SG A expenses as a percentage of net sales principally reflecting the previously mentioned lower level of efficiencies which was partially offset by the previously mentioned improved gross profit margin
Interest expense increased to 149 3 million in fiscal 2024 as compared to 73 0 million in fiscal 2023 The increase in interest expense was principally due to an increase in the amount of outstanding debt related to fiscal 2023 acquisitions
Our effective tax rate decreased to 17 5 in fiscal 2024 down from 20 0 in fiscal 2023 The decrease in our effective tax rate reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024 We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of 13 6 million and 6 2 million respectively Additionally the decrease in our effective tax rate reflects a larger favorable impact from tax exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan the LCP in fiscal 2024 net of the nondeductible portion of the related gains in the LCP accounts of certain executive officers as well as increased foreign derived intangible income which is subject to a lower tax rate
Net income attributable to noncontrolling interests relates to the 20 noncontrolling interest held by Lufthansa Technik AG 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 45 0 million in fiscal 2024 as compared to 40 8 million in fiscal 2023 The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held
Net income attributable to HEICO increased by 27 to a record 514 1 million or 3 67 per diluted share in fiscal 2024 up from 403 6 million or 2 91 per diluted share in fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income partially offset by the previously mentioned higher interest expense
As we look ahead to fiscal 2025 we anticipate net sales growth in both the FSG and ETG driven primarily by organic growth supported by strong demand for the majority of our products Additionally we plan to drive growth through our recently completed acquisitions while positioning ourselves to capitalize on potential opportunities from future acquisitions Our
priorities include advancing the development of new products and services further expanding market penetration and maintaining our financial strength and flexibility all with a strong emphasis on delivering long term value to our shareholders
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 as well as selective price increases
Our principal uses of cash include acquisitions capital expenditures interest payments cash dividends distributions to noncontrolling interests and working capital needs Capital expenditures in fiscal 2025 are anticipated to be approximately 65 to 70 million We finance our activities primarily from our operating and financing activities including borrowings under our revolving credit facility
As of December 18 2024 we had approximately 995 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
Net cash provided by operating activities was 672 4 million in fiscal 2024 and consisted primarily of net income from consolidated operations of 559 1 million depreciation and amortization expense of 175 3 million a non cash item net changes of 53 5 million included in the Other caption principally the receipt of advance deposits on certain long term customer contracts net changes in other long term liabilities and assets related to the HEICO Corporation Leadership Compensation Plan the LCP of 21 6 million principally participant deferrals and employer contributions and 7 5 million of intangible asset impairment expense a non
cash item partially offset by a 143 0 million increase in net working capital The increase in net working capital principally reflects a 132 9 million increase in inventories to support an increase in consolidated backlog
Net cash provided by operating activities increased by 223 6 million a 50 increase in fiscal 2024 up from 448 7 million in fiscal 2023 The increase is principally attributable to a 114 7 million increase in net income from consolidated operations a 63 5 million increase in the Other caption mainly from the previously mentioned receipt of advance long term customer deposits in fiscal 2024 a 45 3 million increase in depreciation and amortization expense a 9 1 million prior year impact from the amendment and termination of a contingent consideration agreement an 8 1 million increase in net changes in other long term liabilities and assets related to the LCP and a 7 5 million impact from intangible asset impairment expense partially offset by a 25 6 million increase in net working capital mainly reflecting a 50 5 million increase in accrued expenses and other current liabilities and a 28 6 million increase in prepaid expenses and other current assets partially offset by a 44 8 million decrease in accounts receivable
Net cash provided by operating activities was 448 7 million in fiscal 2023 and consisted primarily of net income from consolidated operations of 444 4 million depreciation and amortization expense of 130 0 million a non cash item 15 5 million in share based compensation expense a non cash item and 15 3 million in employer contributions to the HEICO Savings and Investment Plan a non cash item partially offset by a 117 4 million increase in net working capital a 26 5 million deferred income tax benefit a non cash item and a 9 1 million impact from the amendment and termination of a contingent consideration agreement a non cash item The increase in net working capital is inclusive of a 124 8 million increase in inventories to support an increase in consolidated backlog and a 65 6 million increase in accounts receivable resulting from the previously mentioned higher net sales and the timing of collections partially offset by a 72 6 million increase in accrued expenses and other current liabilities principally from a higher level of accrued performance based compensation due to the improved operating results and an increase in contract liabilities
Net cash used in investing activities totaled 293 2 million in fiscal 2024 and related primarily to acquisitions of 219 3 million capital expenditures of 58 3 million and LCP funding of 19 9 million Further details regarding our acquisitions may be found in Note 2 Acquisitions of the Notes to Consolidated Financial Statements
Net cash used in investing activities totaled 2 484 5 million in fiscal 2023 and related primarily to acquisitions of 2 421 8 million capital expenditures of 49 4 million and LCP funding of 18 9 million
Net cash used in financing activities in fiscal 2024 totaled 389 4 million During fiscal 2024 we made 365 0 million of payments on our revolving credit facility and 34 3 million of distributions to noncontrolling interests redeemed 29 9 million of common stock related to stock option exercises paid 29 1 million of cash dividends on our common stock and 26 6 million to acquire certain noncontrolling interests and made 24 8 million of contingent consideration payments and 13 9 million of net payments on short term debt partially offset by 130 0 million of borrowings on our revolving credit facility to fund certain fiscal 2024 acquisitions
Net cash provided by financing activities in fiscal 2023 totaled 2 065 0 million During fiscal 2023 we borrowed 1 964 0 million under our revolving credit facility and received 1 189 5 million in proceeds from the issuance of senior unsecured notes which were partially offset by 989 0 million in payments made on our revolving credit facility 36 6 million of distributions to noncontrolling interests 27 4 million of cash dividends on our common stock redemptions of common stock related to stock option exercises aggregating 14 8 million 12 6 million of contingent consideration payments and 10 1 million paid of debt issuance costs
In November 2017 we entered into a 1 3 billion Revolving Credit Facility Agreement Credit Facility with a bank syndicate The Credit Facility may be used to finance acquisitions and for working capital and other general corporate purposes including capital expenditures In December 2020 we entered into an amendment to increase the capacity by 200 million to 1 5 billion In April 2022 we entered into an amendment to extend the maturity date of our Credit Facility by one year to November 2024 and to replace the Eurocurrency Rate with Adjusted Term SOFR as an election in which borrowings under the Credit Facility accrue interest as such capitalized terms are defined in the Credit Facility In July 2023 we entered into a third amendment to our Credit Facility to among other things i increase the capacity by 500 million to 2 0 billion ii extend the maturity date to July 2028 and iii increase the applicable rate with respect to certain total leverage ratio tiers in the pricing grid The Credit Facility includes a feature that will allow us to increase the capacity by 750 million to become a 2 75 billion facility through increased commitments from existing lenders
Borrowings under the Credit Facility accrue interest at our election of the Base Rate or Adjusted Term SOFR plus in each case the Applicable Rate based on the Company s Total Leverage Ratio as such capitalized terms are defined in the Credit Facility 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 Adjusted Term SOFR for an Interest Period of one month plus 100 basis points Adjusted Term SOFR is the rate per annum equal to Term SOFR plus a Term SOFR Adjustment of 10 provided that Adjusted Term SOFR as so determined shall never be less than 0 The Applicable Rate for SOFR Loans ranges from 1 125 to 2 00 The Applicable Rate for Base Rate Loans ranges from 125 to 1 00 A fee is charged on the amount of the unused commitment ranging from 15 to 35 depending on the Company s
Total Leverage Ratio The Credit Facility also includes a 200 million sublimit for swingline borrowings and 100 million sublimits for borrowings made in foreign currencies and 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 2024
On July 27 2023 we completed the public offer and sale of senior unsecured notes which consisted of 600 million principal amount of 5 25 Senior Notes due August 1 2028 the 2028 Notes and 600 million principal amount of 5 35 Senior Notes due August 1 2033 the 2033 Notes and collectively with the 2028 Notes the Notes Interest on the Notes is payable semi annually in arrears on February 1 and August 1 of each year and commenced on February 1 2024 The 2028 Notes and 2033 Notes each have an effective interest rate of 5 5 The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our existing and future subsidiaries that guarantee our obligations under the Credit Facility the Guarantor Group
The holders of equity interests in certain of our subsidiaries have rights Put Rights that require us 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 As of October 31 2024 management s estimate of the aggregate Redemption Amount of all Put Rights that we could be required to pay is approximately 366 2 million which is included within redeemable noncontrolling interests in our Consolidated Balance Sheet The estimated aggregate Redemption Amount of the Put Rights that are currently puttable previously put or becoming puttable during fiscal 2025 is approximately 194 2 million of which approximately 91 0 million would be payable in fiscal 2025 should all of the eligible associated noncontrolling interest holders elect to exercise their Put Rights during fiscal 2025 See Note 13 Redeemable Noncontrolling Interests of the Notes to Consolidated Financial Statements for further information
See Note 8 Fair Value Measurements of the Notes to Consolidated Financial Statements for information pertaining to contingent consideration obligations As of October 31 2024 the estimated fair value of contingent consideration payable in fiscal 2025 was 8 4 million
The Notes were issued pursuant to an Indenture dated as of July 27 2023 the Base Indenture between HEICO and certain of its subsidiaries collectively the Subsidiary Guarantors and Truist Bank as trustee the Trustee as supplemented by a First Supplemental Indenture dated as of July 27 2023 the First Supplemental Indenture and together with the Base Indenture the Indenture between us the Subsidiary Guarantors and the Trustee The Notes are direct unsecured senior obligations of HEICO and rank equally in right of payment with all of our existing and future senior unsecured indebtedness Each Subsidiary Guarantor is owned either directly or indirectly by the Company and jointly and severally guarantee our obligations under the Notes None of the Subsidiary Guarantors are organized outside of the U S A list of the Subsidiary Guarantors is set forth in Exhibit 22 to this Annual Report on Form 10 K
Under the Indenture holders of the Notes will be deemed to have consented to the release of a subsidiary guarantee provided by a subsidiary guarantor without any action required on the part of the Trustee or any holder of the Notes upon such subsidiary guarantor ceasing to guarantee or to be an obligor with respect to the Credit Facility Accordingly if the lenders under the Credit Facility release a subsidiary guarantor from its guarantee of or obligations as a borrower under the Credit Facility the obligations of the subsidiary guarantors to guarantee the Notes will immediately terminate If any of our future subsidiaries incur obligations under the Credit Facility while the Notes are outstanding then such subsidiary will be required to guarantee the Notes
upon the sale or other disposition including by way of consolidation or merger in one transaction or a series of related transactions of a majority of the total voting stock of such subsidiary guarantor other than to us or any of our affiliates or
provided however that in each case such transaction is permitted by the Credit Facility and after giving effect to such transaction such subsidiary guarantor is no longer liable for any subsidiary guarantee or other obligations in respect of the Credit Facility The subsidiary guarantee of a subsidiary guarantor also will be released if we exercise our legal defeasance covenant defeasance option or discharge the Indenture
We conduct our operations almost entirely through our subsidiaries Accordingly the Guarantor Group s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Guarantor Group including the earnings of the non guarantor subsidiaries whether by dividends loans or otherwise Holders of the guaranteed registered debt securities will have a direct claim only against the Guarantor Group
The following tables include summarized financial information for the Guarantor Group in thousands The information for the Guarantor Group is presented on a combined basis excluding intercompany balances and transactions between us and the Guarantor Group and excluding investments in and equity in the earnings of non guarantor subsidiaries The Guarantor Group s amounts due from amounts due to and transactions with non guarantor subsidiaries have been presented in separate line items The consolidating schedules are provided in accordance with the reporting requirements of Rule 13 01 under SEC Regulation S X for the issuer and guarantor subsidiaries
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
We regularly assess the carrying value of inventory considering factors such as its physical condition sales trends and anticipated future demand to estimate provisions for slow moving obsolete or damaged inventory
Our inventory valuation reserves are established through analysis and estimates that consider many factors such as current order levels forecasted demand market conditions and expected product life cycles
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 For example the fair value of intangible assets acquired considers forecasts of future cash flows revenue earnings royalty rates discount rates and asset lives 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 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 As of October 31 2024 and 2023 30 2 million and 71 1 million of contingent consideration was accrued within our Consolidated Balance Sheets respectively During fiscal 2024 2023 and 2022 such fair value measurement adjustments resulted in net decreases to SG A expenses of 9 9 million 7 million and 7 6 million respectively For further information regarding our contingent consideration arrangements see Note 8 Fair Value Measurements of the Notes to Consolidated Financial Statements
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 exceed its fair value When testing goodwill for impairment we may perform a qualitative assessment as the initial step for all or selected reporting units We are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired
When performing the qualitative test we consider factors including but not limited to macroeconomic conditions industry conditions the competitive environment changes in the market for our products and services regulatory and political developments entity specific factors such as strategy and changes in key personnel and overall financial performance If after completing this assessment it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value we proceed to a quantitative impairment test When performing the quantitative impairment test we compare the fair value of each of our reporting units to its carrying value to determine potential impairment and an impairment loss is recognized in the amount by which the carrying value of a reporting unit s goodwill exceeds its fair value The fair values of our reporting units are determined using a weighted average of a market approach and an income approach The market approach estimates the value of reporting units by comparing to guideline public companies or guideline transactions Various valuation multiples are calculated utilizing financial data of companies that are economically and operationally similar resulting in ranges of multiples Judgmental adjustments are often necessary to ensure comparability The selection of the appropriate multiple within a range requires judgement considering various qualitative and quantitative factors Changes in assumptions or estimates could materially affect the estimated fair value of our reporting units and the potential for impairment The income approach estimates fair value 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 Assumptions used in the analysis include estimated future revenues and expenses the weighted average cost of working capital capital expenditures and other variables The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business Based on the annual goodwill impairment test as of October 31
2024 2023 and 2022 we determined there was no impairment of our goodwill The fair value of each of our reporting units calculated as part of our quantitative impairment test significantly exceeded its carrying value as of October 31 2024
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 impairment tests conducted we recognized an aggregate impairment loss of 7 5 million during fiscal 2024 an immaterial impairment loss in fiscal 2023 and no impairment loss in fiscal 2022 The impairment loss we recognized in fiscal 2024 related to the write down of trade names at two ETG subsidiaries due to a reduction in the expected future cash flows associated with such intangible assets The impairment loss was recorded as a component of SG A expenses in the Company s Consolidated Statement of Operations See Note 8 Fair Value Measurements for additional information regarding the Company s fiscal 2024 impairment loss
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
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 make acquisitions including obtaining any applicable domestic and or foreign governmental approvals and achieve operating synergies from acquired businesses customer credit risk interest foreign currency exchange and income tax rates and economic conditions including the effects of inflation within and outside of the aviation defense space medical telecommunications and electronics industries which could negatively impact our costs and revenues
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 1 015 0 million as of October 31 2024 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 2024 would not have a material effect on our results of operations financial position or cash flows
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 2024 would not have a material effect on our results of operations financial position or cash flows
We have audited the accompanying consolidated balance sheets of HEICO Corporation and subsidiaries the Company as of October 31 2024 and 2023 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 2024 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 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended October 31 2024 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 2024 based on criteria established in
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 19 2024 expressed an unqualified opinion on the Company s internal control over financial reporting
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
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 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
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 distribution and aftermarket parts 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 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
We tested changes in the inventory valuation reserve and evaluated whether such changes 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
HEICO Corporation through its principal subsidiaries consisting of HEICO Aerospace Holdings Corp HEICO Aerospace HEICO Flight Support Corp HFSC 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
The Company has two operating segments the Flight Support Group FSG consisting of HEICO Aerospace and HFSC and their respective subsidiaries and the Electronic Technologies Group ETG consisting of HEICO Electronic and its subsidiaries
In Note 15 Operating Segments the Company s long lived asset amounts for fiscal years 2023 and 2022 have been adjusted to align with the current year presentation and now include the Company s operating lease right of use assets for those periods
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 HFSC consolidates six subsidiaries which are 74 82 84 90 1 89 and 96 owned respectively two subsidiaries that are each 90 owned and five subsidiaries that are each 80 1 owned In addition HEICO Aerospace consolidates a joint venture which is 84 owned HEICO Electronic consolidates four subsidiaries that are each 80 1 owned two subsidiaries that are each 75 owned and nine subsidiaries which are 80 4 82 5 87 9 88 8 90 90 7 92 5 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 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
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 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 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 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 and other long term liabilities in the Company s Consolidated Balance Sheets See Note 6 Revenue for additional information regarding the Company s contract assets and contract liabilities
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 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 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
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
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 Accounting Standards Codification ASC Topic 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
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 were not material in fiscal 2024 and 2022 Acquisition costs totaled 25 4 million in fiscal 2023 of which 21 6 million was recorded as a component of selling general and administrative SG A expenses and 3 8 million was recorded to interest expense in the Company s Consolidated Statement of Operations See Note 2 Acquisitions for additional information regarding the Company s fiscal 2023 acquisition costs
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
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 exceed its fair value When testing goodwill for impairment the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount If the Company elects to perform a qualitative assessment and determine that an impairment is more likely than not the Company is then required to perform a quantitative impairment test otherwise no further analysis is required The Company may also may elect not to perform a qualitative assessment and instead proceed directly to a quantitative impairment test When performing the quantitative impairment test the Company compares the fair value of each of its reporting units to its carrying value to determine potential impairment and an impairment loss is recognized in the amount by which the carrying value of a reporting unit s goodwill exceeds its fair value 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
Amortization expense of intellectual property is recorded as a component of cost of sales and amortization expense of customer relationships is recorded as a component of 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
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 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 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
In connection with a prior 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 but reclassifies any excess funded amounts to other long term assets 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
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 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 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 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 2024 2023 and 2022
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 expected life 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
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
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
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 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
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
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
In November 2023 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which expands reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker CODM and included within each reported measure of a segment s profit or loss The ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment s profit or loss in assessing segment performance and deciding how to allocate resources Additionally ASU 2023 07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis ASU 2023 07 is effective for fiscal years beginning after December 15 2023 or in fiscal 2025 for HEICO and interim reporting periods within fiscal years beginning one year later Early adoption is permitted The adoption of this guidance will not affect the Company s consolidated results of operations financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures which requires disclosure of specific categories in the annual effective tax rate reconciliation table and further disaggregation for reconciling items that meet a quantitative threshold The ASU also requires the disaggregation of income taxes paid by jurisdiction ASU 2023 09 may be applied either prospectively or retrospectively and is effective for fiscal years beginning after December 15 2024 or in fiscal 2026 for HEICO Early adoption is permitted The adoption of this guidance will not affect the Company s consolidated results of operations financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures
In November 2024 the FASB issued ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses which requires more detailed disclosures about specified categories of expenses including purchases of inventory employee compensation intangible asset amortization and depreciation included in certain expense captions presented on the face of the income statement such as cost of sales and SG A expenses ASU 2024 03 is effective for fiscal years beginning after December 15 2026 or in fiscal 2028 for HEICO and interim reporting periods within fiscal years beginning one year later Early adoption is permitted The adoption of this guidance will not affect the Company s consolidated results of operations financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures
On August 4 2023 the Company acquired Wencor Group Wencor from affiliates of Warburg Pincus LLC and Wencor s management the Wencor Acquisition The Wencor Acquisition was completed pursuant to an Agreement and Plan of Merger the Merger Agreement by and among the Company its newly formed wholly owned subsidiary Magnolia MergeCo Inc Merger Sub Jazz Parent Inc the owner of Wencor Target and Jazz Topco GP LLC solely in its capacity as representative for purposes of certain provisions of the Merger Agreement Pursuant to the Merger Agreement Merger Sub merged with and into the Target and the Target continued as the surviving entity and a wholly owned subsidiary of the Company Subsequent to the acquisition date the Company integrated Wencor into the FSG Wencor is a large commercial and military aircraft aftermarket company offering factory new FAA approved aircraft replacement parts value added distribution of high use commercial and military aftermarket parts and aircraft and engine accessory component repair and overhaul services Wencor expands the Company s aftermarket product offerings enabling the combined company to offer even greater savings and capabilities to its customers while expanding its new products and services development capacity The aggregate purchase price consisted of 1 9 billion in cash subject to certain working capital debt and other customary adjustments and 1 137 628 shares of HEICO Class A Common Stock The cash consideration was paid using proceeds from the Company s revolving credit facility and from the sale of senior unsecured notes See Note 5 Short Term and Long Term Debt for additional information
The total consideration included an accrual of 17 0 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may have been obligated to pay in accordance with an agreement it assumed related to an acquisition Wencor consummated in fiscal 2023 prior to the Wencor Acquisition See Note 8 Fair Value Measurements for additional information regarding the Company s contingent consideration obligation
The following table summarizes the allocation of the total consideration for the acquisition of Wencor to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities assumed in thousands
The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of Wencor and the value of its assembled workforce that do not qualify for separate recognition The weighted average amortization periods of the customer relationships intellectual property and trade names acquired are 13 years 14 years and indefinite respectively Acquisition costs associated with the purchase of Wencor totaled 20 0 million in fiscal 2023 and were expensed in the Company s Consolidated Statement of Operations The acquisition costs were recorded to SG A expenses with the exception of a 3 8 million fee paid in August 2023 and charged to interest expense upon the termination of the May 14 2023 commitment letter with Truist Bank and Truist Securities Inc as amended related to a bridge financing to finance a portion of the Wencor Acquisition as such financing was no longer necessary The operating results of Wencor were included in the Company s results of operations from the effective acquisition date The Company s consolidated net sales and net income attributable to HEICO for the fiscal year ended October 31 2023 includes approximately 185 7 million and 22 6 million respectively from the acquisition of Wencor
Had the acquisition of Wencor occurred as of November 1 2021 net sales on a pro forma basis for fiscal 2023 would have been 3 476 3 million and net income from consolidated operations net income attributable to HEICO and basic and diluted net income per share
The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place as of November 1 2021 The unaudited pro forma financial information includes adjustments to historical amounts such as increased interest expense associated with debt used to finance the acquisition the reclassification of acquisition costs associated with the purchase of Wencor from fiscal 2023 to fiscal 2022 and additional amortization expense related to the intangible assets acquired
On January 5 2023 the Company through HEICO Electronic acquired 93 69 of the outstanding common stock and all of the preferred stock of Exxelia International SAS Exxelia Exxelia designs manufactures and sells high reliability Hi Rel complex passive electronic components and rotary joint assemblies for mostly aerospace and defense applications in addition to other high end applications such as medical and energy uses including emerging clean energy and electrification applications The Company believes that this acquisition will further HEICO s strategy of expanding its already wide range of mission critical and Hi Rel components for the most demanding applications as well as provide HEICO with added broad geographic and product diversity including in the important European market The majority of the remaining 6 31 interest is owned by certain members of Exxelia s management team Additionally as a result of this acquisition the Company also obtained a 90 ownership interest in Alcon Electronics Pvt Ltd Alcon which is an existing subsidiary of Exxelia The remaining 10 interest continues to be owned by a certain member of Alcon s management team See Note 13 Redeemable Noncontrolling Interests for additional information The purchase price of this acquisition was paid in cash using proceeds from the
The following table summarizes the allocation of the total consideration for the acquisition of Exxelia to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed in thousands
The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of Exxelia and the value of its assembled workforce that do not qualify for separate recognition however benefit both the Company and the noncontrolling interest holders The fair value of the noncontrolling interests were 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 weighted average amortization periods of the customer relationships intellectual property and trade names acquired are 15 years 15 years and indefinite respectively Acquisition costs associated with the purchase of Exxelia totaled 5 5 million of which 5 1 million was incurred in fiscal 2023 and were recorded to SG A expenses in the Company s Consolidated Statement of Operations The operating results of Exxelia were included in the Company s results of operations from the effective acquisition date The Company s consolidated net sales for the fiscal year ended October 31 2023 includes approximately 179 0 million from the acquisition of Exxelia Net income attributable to HEICO for the fiscal year ended October 31 2023 was not materially impacted by the acquisition of Exxelia
Had the acquisition of Exxelia occurred as of November 1 2021 net sales on a pro forma basis for fiscal 2023 would not have been materially different than the reported amount and net sales on a pro forma basis for fiscal 2022 would have been 2 402 5 million Additionally 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 2023 and 2022 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 operations that actually would have been achieved if the acquisition had taken place as of November 1 2021 The unaudited pro forma financial information includes adjustments to historical amounts such as increased interest expense associated with borrowings to finance the acquisition the reclassification of acquisition costs associated with the purchase of Exxelia from fiscal 2023 to fiscal 2022 additional amortization expense related to the intangible assets acquired and inventory purchase accounting adjustments charged to cost of sales as the inventory is sold
In October 2024 the Company through a subsidiary of HEICO Electronic acquired 87 9 of the stock of Mid Continent Controls Inc MC2 The remaining 12 1 interest continues to be owned by certain members of MC2 s management team See Note 13 Redeemable Noncontrolling Interests for additional information MC2 designs and manufacturers proprietary in cabin power and entertainment components and subsystems for business jets The purchase price of this acquisition was paid in cash using cash provided by operating activities
In September 2024 the Company through a subsidiary of HEICO Electronic acquired 92 5 of the stock of Marway Power Solutions Inc Marway The remaining 7 5 interest continues to be owned by certain members of Marway s management team See Note 13 Redeemable Noncontrolling Interests for additional information Marway designs and manufacturers power distribution solutions for mission critical systems deployed in defense aerospace communications test measurement and industrial applications on land air and
In August 2024 the Company through a subsidiary of HFSC acquired the Aerial Delivery and Descent Devices divisions of Capewell Aerial Systems Capewell Capewell designs manufactures and distributes emergency descent devices EDDs personnel and cargo
In December 2023 the Company through a subsidiary of HFSC entered into an exclusive license and acquired certain assets from Honeywell International for the capability to support the Boeing 737NG 777 Cockpit Display and Legacy Displays product lines The transaction provides the HFSC subsidiary with the exclusive capability to produce sell and repair Boeing 737NG 777 Cockpit Displays as well as other Legacy Displays for the Boeing 717 ATR and select business and general aviation aircraft As part of this transaction in May 2024 the same HFSC subsidiary completed an additional arrangement with Honeywell International under which it acquired licenses and certain assets to further enhance the manufacturing of new products including screens for a military variant of the Boeing 737NG 777 Cockpit Display and Legacy Displays The purchase price of the May 2024 transaction was paid in cash using cash provided by operating activities
In March 2023 the Company through a subsidiary of HEICO Electronic entered into an exclusive license and acquired certain assets for the Aircraft Emergency Locator Transmitter ELT product line from Honeywell International ELTs provide critical emergency transmission signals in the event of aircraft impact on land or water to enable first responders to locate the aircraft The transaction provides the HEICO Electronic subsidiary with all rights to produce sell and repair both fixed and portable Honeywell ELTs as well as various support equipment The purchase price of this acquisition was paid in cash using cash provided by operating activities
In September 2022 the Company through a subsidiary of HEICO Electronic acquired 100 of the stock of TRAD Tests Radiations SAS TRAD TRAD specializes in radiation engineering including test and simulation of radiation effects on electronic components and materials developing and providing software for radiation testing and effects modeling and sourcing screening radiation tolerant and radiation hardened components The purchase price of this acquisition was paid in cash using cash provided by operating activities
In September 2022 the Company through a subsidiary of HEICO Electronic acquired 80 36 of the stock of Ironwood Electronics Inc Ironwood Ironwood designs and manufactures high performance test sockets and adapters for both engineering and production use of semiconductor devices The remaining 19 64 interest continues to be owned by certain members of Ironwood s management team See Note 13 Redeemable Noncontrolling Interests for additional information The total consideration includes an accrual of 6 4 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may have been obligated to pay if Ironwood met certain earnings objectives following the
In August 2022 the Company through HEICO Electronic acquired 100 of the stock of Sensor Systems Inc Sensor Sensor designs and manufactures airborne antennas for commercial and military applications The purchase price of this acquisition was paid for with a proportional combination of cash using proceeds from the Company s revolving credit facility and 576 338 shares of HEICO Class A Common Stock
In August 2022 the Company through a subsidiary of HEICO Electronic acquired 100 of the stock of Charter Engineering Inc Charter Charter designs and manufactures a complete line of RF and Microwave coaxial switches for the aerospace defense commercial Automated Test Equipment ATE and instrumentation markets The purchase price of this acquisition was paid in cash using cash provided by operating activities
In July 2022 the Company through a subsidiary of HFSC acquired 96 of the stock of Accurate Metal Machining Inc Accurate Accurate is a manufacturer of high reliability components and assemblies The remaining 4 interest continues to be owned by certain members of Accurate s management team See Note 13 Redeemable Noncontrolling Interests for additional information The total consideration includes an accrual of 13 1 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may be obligated to pay should Accurate meet certain earnings objectives following the acquisition See Note 8 Fair Value Measurements for additional information regarding the Company s contingent consideration obligation
In March 2022 the Company through a subsidiary of HFSC acquired 74 of the membership interests of Pioneer Industries LLC Pioneer Pioneer is a specialty distributor of spares for military aviation marine and ground platforms The remaining 26 interest continues to be owned by certain members of Pioneer s management team See Note 13 Redeemable Noncontrolling Interests for additional information The total consideration includes an accrual of 9 8 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may be obligated to pay should Pioneer meet a certain earnings objective following the acquisition See Note 8 Fair Value Measurements for additional information regarding the Company s contingent consideration obligation
In March 2022 the Company through a subsidiary of HEICO Electronic acquired 100 of the stock of Flight Microwave Corporation Flight Microwave Flight Microwave is a designer and manufacturer of custom high power filters and filter assemblies used in space and defense applications The purchase price of this acquisition was paid in cash using cash provided by operating activities
Unless otherwise noted the purchase price of each of the above referenced other 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
The following table summarizes the allocation of the aggregate total consideration for the Company s other acquisitions to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed in thousands and based on the year of acquisition
The following table summarizes the weighted average amortization period of the definite lived intangible assets acquired in connection with the Company s other fiscal 2024 2023 and 2022 acquisitions in years
The allocation of the total consideration for the fiscal 2024 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 allocation of the total consideration for the other fiscal 2023 and fiscal 2022 acquisitions to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed is final and inclusive of any measurement period adjustments made during the respective subsequent fiscal year which were immaterial 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 MC2 Marway Ironwood Accurate and Pioneer benefit both the Company and the noncontrolling interest holders The fair value of the noncontrolling interests in these entities 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 2024 other fiscal 2023 and fiscal 2022 acquisitions were included in the Company s results of operations as of each effective acquisition date The amount of net sales and earnings of the fiscal 2024 other fiscal 2023 and fiscal 2022 acquisitions included in the Consolidated Statement of Operations for the respective acquisition fiscal year is not material Had the fiscal 2024 acquisitions occurred as of November 1 2022 net sales net income from consolidated operations net income attributable to HEICO and basic and diluted net income per share attributable to HEICO on a pro forma basis for fiscal 2024 and 2023 would not have been materially different than the reported amounts Had the other fiscal 2023 acquisition occurred as of November 1 2021 net sales net income from consolidated operations net income attributable to HEICO and basic and diluted net income per share attributable to HEICO on a pro forma basis for fiscal 2023 and 2022 would not have been materially different than the reported amounts Had the fiscal 2022 acquisitions occurred as of November 1 2020 net sales on a pro forma basis for fiscal 2022 would have been 2 325 2 million and 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 2022 would not have been materially different than the reported amounts
The amounts set forth above include tooling costs having a net book value of 7 0 million and 6 5 million as of October 31 2024 and 2023 respectively Amortization expense on capitalized tooling was 2 3 million 2 3 million and 2 5 million in fiscal 2024 2023 and 2022 respectively
The increase in accrued employee compensation and related payroll taxes principally reflects a higher level of accrued performance based compensation resulting from the improved consolidated operating results See Note 8 Fair Value Measurements for additional information regarding the Company s contingent consideration obligations The total customer rebates and credits deducted within net sales in fiscal 2024 2023 and 2022 was 12 0 million 9 4 million and 7 6 million respectively
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 the 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 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 2024 2023 and 2022 totaled 11 1 million 9 2 million and 7 2 million respectively The aggregate liabilities of the LCP were 315 0 million and 226 2 million as of October 31 2024 and 2023 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 317 2 million and 233 5 million as of October 31 2024 and 2023 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
The goodwill acquired during fiscal 2024 and 2023 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 The adjustments to goodwill in fiscal 2024 and 2023 represent immaterial measurement period adjustments to the allocation of the purchase consideration of the respective prior year acquisitions The Company estimates that 80 million and 131 million of the goodwill acquired in fiscal 2024 and 2023 respectively will be deductible for income tax purposes Based on the annual test for goodwill impairment as of October 31 2024 the Company determined there was no impairment of its goodwill
During fiscal 2024 the Company recognized impairment losses aggregating 7 5 million from the write down of trade names at two ETG subsidiaries due to a reduction in the expected future cash flows associated with each such intangible asset The impairment losses were recorded as a component of SG A expenses in the Company s Consolidated Statement of Operations See Note 8 Fair Value Measurements for additional information regarding the Company s impairment losses
As further disclosed in Note 2 Acquisitions the following table summarizes the weighted average amortization period of the definite lived intangible assets acquired in total and by major asset class in connection with the Company s fiscal 2024 2023 and 2022 acquisitions in years
Amortization expense related to intangible assets was 122 3 million 85 9 million and 62 5 million in fiscal 2024 2023 and 2022 respectively Amortization expense for each of the next five fiscal years and thereafter is estimated to be 122 5 million in fiscal 2025 116 8 million in fiscal 2026 112 0 million in fiscal 2027 106 0 million in fiscal 2028 100 5 million in fiscal 2029 and 483 7 million thereafter
The Company s borrowings under its revolving credit facility Credit Facility mature in fiscal 2028 As of October 31 2024 and 2023 the weighted average interest rate on borrowings under the Company s Credit Facility was 6 3 and 6 7 respectively The Credit Facility contains both financial and non financial covenants As of October 31 2024 the Company was in compliance with all such covenants
In November 2017 the Company entered into a 1 3 billion Credit Facility with a bank syndicate The Credit Facility may be used to finance acquisitions and for working capital and other general corporate purposes including capital expenditures In December 2020 the Company entered into an amendment to increase the capacity by 200 million to 1 5 billion In April 2022 the Company entered into an amendment to extend the maturity date of its Credit Facility by one year to November 2024 and to replace the Eurocurrency Rate with Adjusted Term SOFR as an election in which borrowings under the Credit Facility accrue interest as such capitalized terms are defined in the Credit Facility In July 2023 the Company entered into a third amendment to its Credit Facility to among other things i increase the capacity by 500 million to 2 0 billion ii extend the maturity date to July 2028 and iii increase the applicable rate with respect to certain total leverage ratio tiers in the pricing grid The Credit Facility includes a feature that will allow the Company to increase the capacity by 750 million to become a 2 75 billion facility through increased commitments from existing lenders The Company incurred 6 7 million of debt issuance costs in fiscal 2023 related to the third amendment of the Credit Facility which were classified as other assets in the Company s Consolidated Balance Sheet and are being amortized to SG A expenses in the Company s Consolidated Statement of Operations over the remaining term of the Credit Facility
Borrowings under the Credit Facility accrue interest at the Company s election of the Base Rate or Adjusted Term SOFR plus in each case the Applicable Rate based on the Company s Total Leverage Ratio as such capitalized terms are defined in the Credit Facility 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 Adjusted Term SOFR for an Interest Period of one month plus 100 basis points Adjusted Term SOFR is the rate per annum equal to Term SOFR plus a Term SOFR Adjustment of 10 provided that Adjusted Term SOFR as so determined shall never be less than 0 The Applicable Rate for SOFR Loans ranges from 1 125 to 2 00 The Applicable Rate for Base Rate Loans ranges from 125 to 1 00 A fee is charged on the amount of the unused commitment ranging from 15 to 35 depending on the Company s Total Leverage Ratio The Credit Facility also includes a 200 million sublimit for swingline borrowings and 100 million sublimits for borrowings made in foreign currencies and 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
On July 27 2023 the Company completed the public offer and sale of senior unsecured notes which consisted of 600 million principal amount of 5 25 Senior Notes due August 1 2028 the 2028 Notes and 600 million principal amount of 5 35 Senior Notes due August 1 2033 the 2033 Notes and collectively with the 2028 Notes the Notes The Company used the net proceeds from the sale of the Notes to repay the outstanding borrowings under its Credit Facility and to fund a portion of the purchase price of the Wencor Acquisition See Note 2 Acquisitions for additional information Interest on the Notes is payable semi annually in arrears on February 1 and August 1 of each year and commenced on February 1 2024 The 2028 Notes and 2033 Notes each have an effective interest rate of 5 5
The Notes were issued pursuant to an Indenture dated as of July 27 2023 the Base Indenture between the Company and certain of its subsidiaries collectively the Subsidiary Guarantors and Truist Bank as trustee the Trustee as supplemented by a First Supplemental Indenture dated as of July 27 2023 the First Supplemental Indenture and together with the Base Indenture the Indenture between the Company Subsidiary Guarantors and the Trustee The Notes are direct unsecured senior obligations of the Company and rank equally in right of payment with all of the Company s existing and future senior unsecured indebtedness
The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company s existing and future subsidiaries that guarantee the Company s obligations under the Credit Facility the Guarantor Group The Company may redeem the Notes at any time in whole or from time to time in part prior to the applicable par call date at the applicable redemption price described in the Indenture On or after the applicable par call date the Notes will be redeemable at the Company s option at any time in whole or from time to time in part at a redemption price equal to 100 of the principal amount of the Notes to be redeemed plus accrued and unpaid interest on the Notes to be redeemed to but excluding the date of redemption The Company may be required to make an offer to purchase the Notes upon the occurrence of a change of control triggering event as described in the Indenture
The Indenture includes certain customary covenants that among other things limit the Company s and its restricted subsidiaries ability to grant liens to secure indebtedness or engage in sale and leaseback transactions and the Company s ability to merge or consolidate with or convey transfer or lease all or substantially all of its assets to a third party as further described in the Indenture Each of these limitations is subject to certain important qualifications and exceptions The Indenture also includes certain customary events of default The occurrence of an event of default will either automatically in certain instances or upon declaration by the Trustee or the holders of at least 25 in aggregate principal amount of the Notes at the time outstanding in other instances cause the acceleration of the amounts due under the Notes As of October 31 2024 the Company was in compliance with all such covenants
additional 3 4 million of debt issuance fees related to the Notes The aggregate debt discount and debt issuance costs of 13 9 million are classified as a contra liability within long term debt in the Company s Consolidated Balance Sheet and are being amortized to interest expense in the Company s Consolidated Statement of Operations over the respective term of each senior note using the effective interest method
The following table sets forth the carrying value and estimated fair value of the Company s Notes which are classified as Level 1 financial instruments in the fair value hierarchy in thousands The Company estimated the fair value of the Notes by taking the weighted average of market quotes for the exact security that was actively traded on October 31 2024 and October 31 2023
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 and other long term liabilities in the Company s Consolidated Balance Sheets
Backlog which the Company believes to be the equivalent of its remaining performance obligations represents contractually committed or firm customer orders As of October 31 2024 the Company had 1 924 5 million of remaining performance obligations associated with firm contracts pertaining to many of the products offered by the FSG and ETG The Company will recognize net sales as these obligations are satisfied The Company expects to recognize 1 178 1 million of this amount during fiscal 2025 and 746 4 million thereafter of which a little more than half is expected to occur in fiscal 2026
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
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 power distribution solutions underwater locator beacons emergency locator transmission beacons traveling wave tube amplifiers microwave power modules a wide variety of memory products and radio frequency RF and microwave products crashworthy and ballistically self sealing auxiliary fuel systems high performance communications and electronic intercept receivers and tuners high performance active antenna systems and airborne antennas technical surveillance countermeasures TSCM equipment custom high power filters and filter assemblies radiation assurance services and products and high reliability complex passive electronic components and rotary joint assemblies and proprietary in cabin power and entertainment components and subsystems
Includes various component parts such as electromagnetic and radio frequency interference shielding high voltage interconnection devices high voltage advanced power electronics harsh environment connectivity products custom molded cable assemblies silicone material for a variety of demanding applications and rugged small form factor embedded computing solutions and high performance test sockets and adaptors
The Company s effective tax rate decreased to 17 5 in fiscal 2024 down from 20 0 in fiscal 2023 The decrease in the Company s effective tax rate reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024 The Company recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of 13 6 million and 6 2 million respectively Additionally the decrease in the Company s effective tax rate reflects a larger favorable impact from tax exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan the LCP in fiscal 2024 net of the nondeductible portion of the related gains in the LCP accounts of certain executive officers as well as increased foreign derived intangible income which is subject to a lower tax rate
The Company s effective tax rate decreased to 20 0 in fiscal 2023 down from 20 4 in fiscal 2022 The decrease in the Company s effective tax rate principally reflects a favorable impact from tax exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP in fiscal 2023 as compared to tax exempt unrealized losses recognized in fiscal 2022 This was partially offset by a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2022 and the portion of acquisition costs associated with fiscal 2023 acquisitions that were not deductible for income tax purposes The Company recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2023 and 2022 of 6 2 million and 17 8 million respectively
The Company 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 2020 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
As of October 31 2024 and 2023 the Company s liability for gross unrecognized tax benefits related to uncertain tax positions was 6 5 million and 4 4 million respectively of which 5 1 million and 3 4 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 2024 and 2023 is as follows in thousands
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 an investment in a money market fund that is 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
In connection with a fiscal 2023 acquisition that is part of the FSG the Company assumed an agreement which may have obligated it to pay contingent consideration of 17 5 million if certain operating entities of the acquired company met a calendar year 2023 earnings objective and obtained a certain level of new orders with deliveries scheduled in calendar year 2024 of which both targets were tied to a specific customer contract Both requirements were met as of October 31 2023 However payment of the earnout was also predicated on no indication of a significant change with respect to the underlying customer agreement In the second quarter of fiscal 2024 the customer notified the Company that it intends to reduce its future orders As a result the parties to this agreement agreed to settle on a specific contingent consideration amount of 11 0 million Accordingly the 17 3 million estimated fair value of the contingent consideration as of October 31 2023 was reduced to 11 0 million as of April 30 2024 and paid in the third quarter of fiscal 2024
As part of the agreement to acquire 80 36 of the stock of a subsidiary by the ETG in fiscal 2022 the Company may be obligated to pay contingent consideration of up to 12 1 million in fiscal 2027 based on the earnings of the acquired entity during fiscal years 2025 and 2026 provided the entity meets a certain earnings objective during each of fiscal years 2024 to 2026 The acquired entity did not achieve the required fiscal 2024 earnings objective The 5 5 million estimated fair value of the contingent consideration as of October 31 2023 was reversed in the third quarter of fiscal 2024
As part of the agreement to acquire 96 of the stock of a subsidiary by the FSG in fiscal 2022 the Company may be obligated to pay contingent consideration of up to 27 4 million in fiscal 2027 based on the earnings of the acquired entity during fiscal years 2025 and 2026 provided the entity meets certain earnings objectives during each of fiscal years 2022 to 2024 As of October 31 2024 the estimated fair value of the contingent consideration was 21 8 million
As part of the agreement to acquire 74 of the membership interests of a subsidiary by the FSG in fiscal 2022 the Company would be obligated to pay contingent consideration of 14 1 million in fiscal 2027 only if the acquired entity met a certain earnings objective during the five year period following the acquisition Based on the actual earnings of the acquired entity subsequent to the acquisition and forecasted earnings over the remainder of the earnout period the Company does not expect that the required earnings objective will be met Accordingly as of October 31 2024 and October 31 2023 the Company did not accrue any contingent consideration for this agreement
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 13 5 million or 9 7 million should the acquired entity meet certain earnings objectives during fiscal years 2023 and 2024 Based on the actual results of the acquired entity during those years the Company is obligated to pay additional contingent consideration of CAD 11 7 million or 8 4 million which was fully accrued as of October 31 2024 and expected to be paid in the first quarter of fiscal 2025
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017 the Company paid contingent consideration of 20 0 million in December 2023 as the acquired entity met a certain earnings objective during the first six years following the acquisition
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 2024 due to the relatively short maturity of the respective instruments The carrying amount of borrowings under the Company s credit facility approximates fair value due to its variable interest rate See Note 5 Short Term and Long Term Debt for the estimated fair value of the Company s senior unsecured notes
During fiscal 2024 two non amortizing trade names within the ETG were measured at fair value on a nonrecurring basis resulting in the recognition of impairment losses aggregating 7 5 million see Note 4 Goodwill and Other Intangible Assets The aggregate fair value of these nonfinancial assets which are classified within Level 3 and the related impairment loss recognized in fiscal 2024 are as follows in thousands
The fair value of each trade name was determined using the relief from royalty method which is an income approach This method involves applying an asset specific discount rate to a forecast of cash flows specific to the asset The following unobservable inputs were used to derive the estimated fair value of the Level 3 trade names as of July 31 2024 and October 31 2024
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 Sheets HEICO s finance lease ROU assets are included within property plant and equipment net and its finance lease liabilities are included within long term debt net of current maturities and short term debt and current maturities of long term debt within the Company s Consolidated Balance Sheets The following table presents the Company s lease ROU assets and lease liabilities in thousands
The Company s operating lease expenses are recorded within cost of sales and or SG A expenses in the Company s Consolidated Statements of Operations The Company s finance lease expenses consist 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 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
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 2024 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 2024 2023 and 2022 the Company did not repurchase any shares of Company common stock under this program
During fiscal 2024 the Company redeemed an aggregate 68 494 shares and 62 215 shares of Common Stock and Class A Common Stock respectively at a total cost of 18 2 million and 11 8 million respectively During fiscal 2023 the Company redeemed an aggregate 61 658 shares and 33 992 shares of Common Stock and Class A Common Stock respectively at a total cost of 10 4 million and 4 4 million respectively During fiscal 2022 the Company redeemed an aggregate 87 593 shares and 104 867 shares of Common Stock and Class A Common Stock respectively at a total cost of 12 7 million and 13 3 million respectively The shares redeemed represent shares tendered as payments to satisfy employee withholding taxes due upon exercises of stock option awards The shares redeemed in fiscal 2024 2023 and 2022 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
On August 4 2023 the Company acquired Wencor The purchase price of this acquisition consisted of a combination of cash and 1 137 628 shares of HEICO Class A Common Stock 1 054 606 shares of HEICO Class A Common Stock issued in connection with this acquisition were registered for resale pursuant to a Registration Statement on Form S 3 declared effective on August 4 2023 See Note 2 Acquisitions for additional information
In August 2022 the Company acquired 100 of the stock of Sensor The purchase price of this acquisition was paid for with a proportional combination of cash using proceeds from the Company s revolving credit facility and 576 338 shares of HEICO Class A Common Stock The shares of Class A Common Stock issued in connection with this acquisition were registered for resale pursuant to a Registration Statement on Form S 3 declared effective on August 31 2022 See Note 2 Acquisitions for additional information
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 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 5 7 million shares of the Company s common stock are reserved for issuance to employees directors officers and consultants as of October 31 2024 including 3 4 million shares currently under option and approximately 2 3 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 2024 The 2018 Plan will terminate no later than the tenth anniversary of its effective date
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 2024 is as follows in thousands except per share and contractual life data
Net income from consolidated operations for the fiscal years ended October 31 2024 2023 and 2022 includes compensation expense of 18 8 million 15 5 million and 12 6 million respectively and an income tax benefit of 2 4 million 2 0 million and 1 7 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 2024 there was 55 2 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 3 2 years The total fair value of stock options that vested in fiscal 2024 2023 and 2022 was 20 1 million 11 1 million and 14 3 million respectively If there were a change in control of the Company all of the unvested options outstanding as of October 31 2024 would become immediately exercisable
The fair value of each stock option grant in fiscal 2024 2023 and 2022 was estimated on the date of grant using the Black Scholes option pricing model based on the following weighted average assumptions
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 2024 2023 and 2022 totaled 17 6 million 15 3 million and 12 2 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
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 2032 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
The Put Right for a 15 noncontrolling interest may be exercised in 5 increments annually and the first increment is currently puttable The Put Right for the remaining 3 noncontrolling interest may be exercised in one fifth increments beginning in fiscal 2028
The exercise of a Put Right for either entity will automatically trigger a Put Right exercise for the other entity The Put Rights for a 10 noncontrolling interest are currently puttable and the remaining 15 interest may be exercised beginning in 2025 with each purchase over a four year period
The Put Rights for an aggregate 13 5 noncontrolling interest is currently puttable with the purchase over a three year period The Put Right for the remaining 6 4 noncontrolling interest may be exercised beginning in fiscal 2028 with the purchase over a four year period
The estimated aggregate Redemption Amount of the Put Rights that are currently puttable previously put or becoming puttable during fiscal 2025 is approximately 194 2 million of which approximately 91 0 million would be payable in fiscal 2025 should all of the eligible associated noncontrolling interest holders elect to exercise their Put Rights during fiscal 2025 Additionally the Company has call rights to purchase the equity interests of the noncontrolling holders over the same purchase period as the Put Rights
acquired 93 69 of the common stock of Exxelia in January 2023 During fiscal 2023 and 2024 a few nominal transactions between the Company and certain existing noncontrolling interest holders and members of Exxelia s management team resulted in a net decrease in the Company s ownership interest in the subsidiary to 90 69
During fiscal 2022 the holder of a 19 9 noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2017 exercised their option to cause the Company to purchase one half of the noncontrolling interest in fiscal 2022 and the remaining one half in fiscal 2024 Accordingly the Company acquired an additional 9 95 equity interest in May 2022 and the remaining 9 95 equity interest in May 2024
During fiscal 2024 the holders of a 15 noncontrolling equity interest in a subsidiary of the ETG that was acquired in fiscal 2019 exercised their option to cause the Company to purchase their noncontrolling interest over a four year period ending in fiscal 2027 Accordingly the Company acquired one fourth of such interest in March 2024 which increased the Company s ownership interest in the subsidiary to 88 75
During fiscal 2022 the holder of a 19 9 noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2015 exercised their option to cause the Company to purchase their noncontrolling interest over a four year period ending in fiscal 2026
During fiscal 2022 the Company sold 10 of the membership interests of a subsidiary of the FSG that was acquired in fiscal 2018 which decreased the Company s ownership interest in the subsidiary to 90 As part of the operating agreement the noncontrolling interest holder has the right to cause the Company to purchase its membership interest over a four year period beginning in fiscal 2027 or sooner under certain conditions and the Company has the right to purchase the same membership interest over the same period
The 26 6 million 2 7 million and 8 7 million aggregate Redemption Amounts for the redeemable noncontrolling interests acquired in fiscal 2024 2023 and 2022 respectively were paid using cash provided by operating activities
The Company has two operating segments the Flight Support Group FSG consisting of HEICO Aerospace and HFSC 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 the U S Department of Defense defense prime contractors and foreign military organizations allied with the U S Further the FSG is a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation defense and space applications The FSG also 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 overhauls industrial pumps motors and other hydraulic units with a focus on the support of legacy systems for the U S Navy performs tight tolerance machining brazing fabricating and welding services for aerospace defense and other industrial applications and designs manufactures and distributes emergency descent devices EDDs and personnel and cargo parachute products
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 memory products including three dimensional microelectronic and stacked memory static random access memory SRAM and electronically erasable programmable read only memory EEPROM harsh environment electronic connectors and other interconnect products RF and microwave amplifiers transmitters and receivers and integrated assemblies sub assemblies and components RF sources detectors and controllers wireless cabin control systems solid state power distribution
and management systems proprietary in cabin power and entertainment components and subsystems 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 and airborne antennas for commercial and military 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 Hi Rel ceramic to metal feedthroughs and connectors technical surveillance countermeasures TSCM equipment to detect devices used for espionage and information theft rugged small form factor embedded computing solutions custom high power filters and filter assemblies test sockets and adapters for both engineering and production use of semiconductor devices and radiation assurance services and products and Hi Rel complex passive electronic components and rotary joint assemblies for mostly aerospace and defense applications
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
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
The Company markets its products and services in approximately 135 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 and operating lease ROU assets
As a result of our acquisition of Exxelia in fiscal 2023 and ongoing investments in our French operations France was the only foreign country where long lived assets exceeded 10 of the Company s total long lived assets Long lived assets held in France totaled 54 2 million and 53 3 million as of October 31 2024 and 2023 respectively
As of October 31 2024 the Company has arranged for standby letters of credit aggregating 10 2 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
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
In November 2024 the Company through HEICO Electronic acquired 70 of the stock of SVM Private Limited SVM SVM designs and manufactures high performance electronic passive components and subsystems including critical magnetic components and busbars that serve the healthcare and industrial end markets The remaining 30 interest continues to be owned by certain members of SVM s management team The purchase price of this acquisition was paid in cash using cash provided by operating activities and is not material or significant to the Company s consolidated financial statements
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 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
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
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 Mid Continent Controls Inc Marway Power Solutions Inc and Capewell Aerial Systems collectively the Excluded Acquisitions from its assessment of internal control over financial reporting as of October 31 2024 See Note 2 Acquisitions of the Notes to Consolidated Financial Statements for additional information The aggregate assets excluding goodwill and intangible assets net and net sales of the Excluded Acquisitions constitute 4 and 2 of the Company s consolidated total assets and net sales as of and for the year ended October 31 2024 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 2024 A copy of their report is included in Item 8
There have been no changes in the Company s internal control over financial reporting during the fourth quarter ended October 31 2024 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
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 2024 based on criteria established in
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 2024 of the Company and our report dated December 19 2024 expressed an unqualified opinion on those financial statements and financial statement schedule
management excluded from its assessment the internal control over financial reporting at Mid Continent Controls Inc Marway Power Solutions Inc and Capewell Aerial Systems collectively the Excluded Acquisitions which were acquired during the year ended October 31 2024 and whose financial statements excluding goodwill and intangible assets net constitute 4 of total assets and 2 of net sales of the Company s consolidated financial statement amounts as of and for the year ended October 31 2024 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
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
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
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 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
None of our directors or officers adopted modified or terminated a Rule 10b5 1 trading arrangement or a non rule 10b5 1 trading arrangement as each item is defined in Item 408 a of Regulation S K during the fourth quarter ended October 31 2024
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 SEC 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 SEC within 120 days after the close of fiscal 2024
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
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 SEC within 120 days after the close of fiscal 2024
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 SEC within 120 days after the close of fiscal 2024
Represents aggregated information pertaining to our three equity compensation plans the HEICO Corporation 2018 Incentive Compensation Plan the 2012 Incentive Compensation 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
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 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
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 SEC within 120 days after the close of fiscal 2024
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 SEC within 120 days after the close of fiscal 2024
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
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
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
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
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
First Supplemental Indenture dated July 27 2023 between HEICO Corporation and certain of its subsidiaries and Truist Bank as trustee is incorporated by reference to Exhibit 4 2 to the Form 8 K filed on July 27 2023
Form of 5 250 Notes due 2028 form included as Exhibit A to the First Supplemental Indenture filed therein as Exhibit 4 2 is incorporated by reference to Exhibit 4 3 to the Form 8 K filed on July 27 2023
Form of 5 350 Notes due 2033 form included as Exhibit B to the First Supplemental Indenture filed therein as Exhibit 4 2 is incorporated by reference to Exhibit 4 4 to the Form 8 K filed on July 27 2023
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
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
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
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
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
Second Amendment to Revolving Credit Agreement effective as of April 7 2022 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 April 14 2022
Third Amendment to Revolving Credit Agreement effective as of July 14 2023 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 July 17 2023
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
Put Option Agreement dated July 26 2022 by and among HEICO Electronic Technologies Corp EGEE International 2 SA Faraday Management 1 Faraday Management 2 and Mr Paul Maisonner is incorporated by reference to Exhibit 10 1 to the Form 8 K filed on July 29 2022
Securities Purchase Agreement dated August 5 2022 by and between HEICO Electronic Technologies Corporation HEICO Corporation on the one hand and the Sellers Identified Herein on the other hand with respect to Exxelia International Faraday Management 1 and Faraday Management 2 is incorporated by reference to Exhibit 10 1 to the Form 8 K filed on August 9 2022
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
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

Company Name	HEICO CORP Vist SEC web-site
Category	AIRCRAFT ENGINES & ENGINE PARTS
Trading Symbol	HEI