UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended January 31, ~~2018~~2019

		OR

¨		TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ______ to _______

Commission File Number: 001-04604

HEICO CORPORATION

(Exact name of registrant as specified in its charter)



Florida		65-0341002
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3000 Taft Street, Hollywood, Florida		33021
(Address of principal executive offices)		(Zip Code)

(954) 987-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of each of the registrant’s classes of common stock as of February ~~27, 2018~~26, 2019 is as follows:



Common Stock, $.01 par value	~~42,227,721~~53,362,618	shares
Class A Common Stock, $.01 par value	~~63,477,941~~79,604,916	shares

Index

HEICO CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q



			Page
Part I.	Financial Information

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets (unaudited) as of January 31, ~~2018~~2019 and October 31, ~~2017~~2018	2

		Condensed Consolidated Statements of Operations (unaudited) for the three months ended January 31, ~~2018~~2019 and ~~2017~~2018	3

		Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended January 31, ~~2018~~2019 and ~~2017~~2018	4

		Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the three months ended January 31, ~~2018~~2019 and ~~2017~~2018	5

		Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended January 31, ~~2018~~2019 and ~~2017~~2018	6

		Notes to Condensed Consolidated Financial Statements (unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2128

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3036

	Item 4.	Controls and Procedures	3036

Part II.	Other Information

	Item 6.	Exhibits	3137

Signatures			3238

Index

PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except per share data)


	January 31, 2018			October 31, 2017			January 31, 2019			October 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		$65,688			$52,066			$57,856			$59,599
Accounts receivable, net	210,278			222,456			237,800			237,286
Contract assets							47,093			14,183
Inventories, net	367,395			343,628			406,348			401,553
Prepaid expenses and other current assets	19,071			13,742			30,328			21,187
Total current assets	662,432			631,892			779,425			733,808

Property, plant and equipment, net	133,115			129,883			169,279			154,739
Goodwill	1,090,864			1,081,306			1,170,401			1,114,832
Intangible assets, net	530,987			538,081			529,191			506,360
Other assets	153,044			131,269			148,718			143,657
Total assets		$2,570,442			$2,512,431			$2,797,014			$2,653,396

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt		$485			$451			$865			$859
Trade accounts payable	81,129			89,724			89,545			107,219
Accrued expenses and other current liabilities	132,570			147,612			133,705			171,514
Income taxes payable	14,872			11,650			—			2,837
Total current liabilities	229,056			249,437			224,115			282,429

Long-term debt, net of current maturities	668,527			673,528			607,656			531,611
Deferred income taxes	42,526			59,026			59,133			46,644
Other long-term liabilities	167,964			151,025			165,360			157,658
Total liabilities	1,108,073			1,133,016			1,056,264			1,018,342

Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 3)	132,355			131,123			138,995			132,046

Shareholders’ equity:
Common Stock, $.01 par value per share; 75,000 shares authorized; 42,228 and 42,221 shares issued and outstanding	422			338
Class A Common Stock, $.01 par value per share; 75,000 shares authorized; 63,455 and 63,381 shares issued and outstanding	635			507
Preferred Stock, $.01 par value per share; 10,000 shares authorized; none issued							—			—
Common Stock, $.01 par value per share; 150,000 shares authorized; 53,363 and 53,355 shares issued and outstanding							534			534
Class A Common Stock, $.01 par value per share; 150,000 shares authorized; 79,593 and 79,576 shares issued and outstanding							796			796
Capital in excess of par value	329,908			326,544			324,395			320,994
Deferred compensation obligation	3,118			3,118			4,043			3,928
HEICO stock held by irrevocable trust	(3,118		)	(3,118		)	(4,043		)	(3,928		)
Accumulated other comprehensive income (loss)	4,417			(10,556		)
Accumulated other comprehensive loss							(11,069		)	(15,256		)
Retained earnings	904,030			844,247			1,174,811			1,091,183
Total HEICO shareholders’ equity	1,239,412			1,161,080			1,489,467			1,398,251
Noncontrolling interests	90,602			87,212			112,288			104,757
Total shareholders’ equity	1,330,014			1,248,292			1,601,755			1,503,008
Total liabilities and equity		$2,570,442			$2,512,431			$2,797,014			$2,653,396

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

(in thousands, except per share data)


	Three months ended January 31,						Three months ended January 31,
	2018			2017			2019			2018

Net sales		$404,410			$343,432			$466,146			$404,410

Operating costs and expenses:
Cost of sales	249,619			218,015			283,909			249,619
Selling, general and administrative expenses	75,231			60,867			84,290			75,231

Total operating costs and expenses	324,850			278,882			368,199			324,850

Operating income	79,560			64,550			97,947			79,560

Interest expense	(4,725		)	(1,969		)	(5,489		)	(4,725		)
Other income	360			484
Other (expense) income							(332		)	360

Income before income taxes and noncontrolling interests	75,195			63,065			92,126			75,195

Income tax expense	3,500			16,800			4,100			3,500

Net income from consolidated operations	71,695			46,265			88,026			71,695

Less: Net income attributable to noncontrolling interests	6,543			5,338			8,694			6,543

Net income attributable to HEICO		$65,152			$40,927			$79,332			$65,152

Net income per share attributable to HEICO shareholders:
Basic		$.62			$.39			$.60			$.49
Diluted		$.60			$.38			$.58			$.48

Weighted average number of common shares outstanding:
Basic	105,639			105,178			132,933			132,048
Diluted	109,112			108,005			136,978			136,390

Cash dividends per share		$.070			$.058

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME – UNAUDITED

(in thousands)


	Three months ended January 31,					Three months ended January 31,
	2018		2017			2019		2018

Net income from consolidated operations		$71,695		$46,265			$88,026		$71,695
Other comprehensive income (loss):
Other comprehensive income:
Foreign currency translation adjustments	15,963		(1,524		)	4,374		15,963
Amortization of unrealized loss on defined benefit pension plan, net of tax	4		7			6		4
Total other comprehensive income (loss)	15,967		(1,517		)
Total other comprehensive income						4,380		15,967
Comprehensive income from consolidated operations	87,662		44,748			92,406		87,662
Net income attributable to noncontrolling interests	6,543		5,338			8,694		6,543
Foreign currency translation adjustments attributable to noncontrolling interests	994		(296		)	193		994
Comprehensive income attributable to noncontrolling interests	7,537		5,042			8,887		7,537
Comprehensive income attributable to HEICO		$80,125		$39,706			$83,519		$80,125

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED

(in thousands, except per share data)


				HEICO Shareholders' Equity																											HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests			Common Stock		Class A Common Stock		Capital in Excess of Par Value			Deferred Compensation Obligation		HEICO Stock Held by Irrevocable Trust			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Noncontrolling Interests			Total Shareholders' Equity			Redeemable Noncontrolling Interests			Common Stock		Class A Common Stock		Capital in Excess of Par Value			Deferred Compensation Obligation		HEICO Stock Held by Irrevocable Trust			Accumulated Other Comprehensive Loss			Retained Earnings			Noncontrolling Interests			Total Shareholders' Equity
Balances as of October 31, 2017		$131,123			$338		$507		$326,544			$3,118		($3,118	)		($10,556	)		$844,247			$87,212			$1,248,292
Balances as of October 31, 2018																													$132,046			$534		$796		$320,994			$3,928		($3,928	)		($15,256	)		$1,091,183			$104,757			$1,503,008
Cumulative effect from adoption of ASC 606 (see Note 1)																												819			—		—		—			—		—			—			13,373			326			13,699
Comprehensive income	3,952			—		—		—			—		—			14,973			65,152			3,585			83,710			3,639			—		—		—			—		—			4,187			79,332			5,248			88,767
Cash dividends ($.070 per share)	—			—		—		—			—		—			—			(7,395		)	—			(7,395		)
Five-for-four common stock split	—			84		127		(211		)	—		—			—			—			—			—
Cash dividends ($.07 per share)																												—			—		—		—			—		—			—			(9,305		)	—			(9,305		)
Issuance of common stock to HEICO Savings and Investment Plan	—			—		—		980			—		—			—			—			—			980			—			—		—		1,046			—		—			—			—			—			1,046
Share-based compensation expense	—			—		—		2,165			—		—			—			—			—			2,165			—			—		—		2,439			—		—			—			—			—			2,439
Proceeds from stock option exercises	—			—		1		1,424			—		—			—			—			—			1,425			—			—		—		66			—		—			—			—			—			66
Redemptions of common stock related to share-based compensation																												—			—		—		(150		)	—		—			—			—			—			(150		)
Noncontrolling interests assumed related to acquisitions																												5,116			—		—		—			—		—			—			—			2,355			2,355
Distributions to noncontrolling interests	(1,688		)	—		—		—			—		—			—			—			(194		)	(194		)	(2,397		)	—		—		—			—		—			—			—			(398		)	(398		)
Adjustments to redemption amount of redeemable noncontrolling interests	(2,026		)	—		—		—			—		—			—			2,026			—			2,026			(228		)	—		—		—			—		—			—			228			—			228
Other	994			—		—		(994		)	—		—			—			—			(1		)	(995		)
Balances as of January 31, 2018		$132,355			$422		$635		$329,908			$3,118		($3,118	)		$4,417			$904,030			$90,602			$1,330,014
Deferred compensation obligation																												—			—		—		—			115		(115		)	—			—			—			—
Balances as of January 31, 2019																													$138,995			$534		$796		$324,395			$4,043		($4,043	)		($11,069	)		$1,174,811			$112,288			$1,601,755


				HEICO Shareholders' Equity																											HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests			Common Stock		Class A Common Stock		Capital in Excess of Par Value		Deferred Compensation Obligation			HEICO Stock Held by Irrevocable Trust			Accumulated Other Comprehensive Loss			Retained Earnings			Noncontrolling Interests			Total Shareholders' Equity			Redeemable Noncontrolling Interests			Common Stock		Class A Common Stock		Capital in Excess of Par Value			Deferred Compensation Obligation		HEICO Stock Held by Irrevocable Trust			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Noncontrolling Interests			Total Shareholders' Equity
Balances as of October 31, 2016		$99,512			$270		$403		$306,328		$2,460			($2,460	)		($25,326	)		$681,704			$84,326			$1,047,705
Comprehensive income (loss)	2,294			—		—		—		—			—			(1,221		)	40,927			2,748			42,454
Cash dividends ($.058 per share)	—			—		—		—		—			—			—			(6,059		)	—			(6,059		)
Balances as of October 31, 2017																													$131,123			$338		$507		$326,544			$3,118		($3,118	)		($10,556	)		$844,247			$87,212			$1,248,292
Comprehensive income																												3,952			—		—		—			—		—			14,973			65,152			3,585			83,710
Cash dividends ($.056 per share)																												—			—		—		—			—		—			—			(7,395		)	—			(7,395		)
Five-for-four common stock split																												—			84		127		(211		)	—		—			—			—			—			—
Issuance of common stock to HEICO Savings and Investment Plan	—			—		—		893		—			—			—			—			—			893			—			—		—		980			—		—			—			—			—			980
Share-based compensation expense	—			—		—		1,451		—			—			—			—			—			1,451			—			—		—		2,165			—		—			—			—			—			2,165
Proceeds from stock option exercises	—			—		1		1,229		—			—			—			—			—			1,230			—			—		1		1,424			—		—			—			—			—			1,425
Distributions to noncontrolling interests	(1,712		)	—		—		—		—			—			—			—			(274		)	(274		)	(1,688		)	—		—		—			—		—			—			—			(194		)	(194		)
Adjustments to redemption amount of redeemable noncontrolling interests	(1,192		)	—		—		—		—			—			—			1,192			—			1,192			(2,026		)	—		—		—			—		—			—			2,026			—			2,026
Deferred compensation obligation	—			—		—		—		(140		)	140			—			—			—			—
Balances as of January 31, 2017		$98,902			$270		$404		$309,901		$2,320			($2,320	)		($26,547	)		$717,764			$86,800			$1,088,592
Other																												994			—		—		(994		)	—		—			—			—			(1		)	(995		)
Balances as of January 31, 2018																													$132,355			$422		$635		$329,908			$3,118		($3,118	)		$4,417			$904,030			$90,602			$1,330,014

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)


	Three months ended January 31,						Three months ended January 31,
	2018			2017			2019			2018
Operating Activities:
Net income from consolidated operations		$71,695			$46,265			$88,026			$71,695
Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities:
Depreciation and amortization	19,024			15,248			20,037			19,024
Share-based compensation expense							2,439			2,168
Employer contributions to HEICO Savings and Investment Plan	1,860			1,714			2,153			1,860
Share-based compensation expense	2,168			1,451
(Decrease) increase in accrued contingent consideration	(3,195		)	537
Foreign currency transaction adjustments, net	75			(956		)
Deferred income tax benefit	(17,292		)	(346		)
Increase (decrease) in accrued contingent consideration							1,862			(3,195		)
Deferred income tax provision (benefit)							3,798			(17,292		)
Payment of contingent consideration							(67		)	—
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable	14,463			25,998			4,982			18,272
Decrease (increase) in contract assets							7,270			(3,809		)
Increase in inventories	(18,301		)	(14,989		)	(24,284		)	(18,301		)
Increase in prepaid expenses and other current assets	(5,403		)	(1,563		)	(7,921		)	(5,403		)
Decrease in trade accounts payable	(9,734		)	(6,322		)	(19,832		)	(9,734		)
Decrease in accrued expenses and other current liabilities	(18,477		)	(18,908		)	(34,537		)	(18,477		)
Increase in income taxes payable	7,630			7,230
Other long-term assets and liabilities, net	492			616
(Decrease) increase in income taxes payable							(3,636		)	7,630
Net changes in other long-term liabilities and assets related to HEICO Leadership Compensation Plan							9,143			6,696
Other							133			771
Net cash provided by operating activities	45,005			55,975			49,566			51,905

Investing Activities:
Acquisitions, net of cash acquired							(101,039		)	(6,126		)
Investments related to HEICO Leadership Compensation Plan							(8,700		)	(6,900		)
Capital expenditures	(7,577		)	(6,422		)	(5,907		)	(7,577		)
Acquisitions, net of cash acquired	(6,126		)	—
Other	(2,790		)	419			72			(2,790		)
Net cash used in investing activities	(16,493		)	(6,003		)	(115,574		)	(23,393		)

Financing Activities:
Borrowings on revolving credit facility							93,000			—
Payments on revolving credit facility	(5,000		)	(40,000		)	(17,000		)	(5,000		)
Cash dividends paid	(7,395		)	(6,059		)	(9,305		)	(7,395		)
Revolving credit facility issuance costs	(4,067		)	—			—			(4,067		)
Distributions to noncontrolling interests	(1,882		)	(1,986		)	(2,795		)	(1,882		)
Payment of contingent consideration	(300		)	—			(283		)	(300		)
Redemptions of common stock related to stock option exercises							(150		)	—
Proceeds from stock option exercises	1,425			1,230			66			1,425
Other	(114		)	(108		)	29			(114		)
Net cash used in financing activities	(17,333		)	(46,923		)
Net cash provided by (used in) financing activities							63,562			(17,333		)

Effect of exchange rate changes on cash	2,443			(99		)	703			2,443

Net increase in cash and cash equivalents	13,622			2,950
Net (decrease) increase in cash and cash equivalents							(1,743		)	13,622
Cash and cash equivalents at beginning of year	52,066			42,955			59,599			52,066
Cash and cash equivalents at end of period		$65,688			$45,905			$57,856			$65,688

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of HEICO Corporation and its subsidiaries (collectively, “HEICO,” or the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Therefore, the condensed consolidated financial statements do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, ~~2017.~~2018. The October 31, ~~2017~~2018 Condensed Consolidated Balance Sheet has been derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statements of shareholders' equity and statements of cash flows for such interim periods presented. The results of operations for the three months ended January 31, ~~2018~~2019 are not necessarily indicative of the results which may be expected for the entire fiscal year.

The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and its subsidiaries.

Certain prior year amounts have been reclassified to conform to the current year presentation principally to reflect the adoption of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers," in the first quarter of fiscal 2019 and the adoption of ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," in the fourth quarter of fiscal 2018.

Stock ~~Splits~~Split

In March 2017, the Company's Board of Directors declared a 5-for-4 stock split on both classes of the Company's common stock. The stock split was effected as of April 19, 2017 in the form of a 25% stock dividend distributed to shareholders of record as of April 7, 2017. In December 2017, the Company's Board of Directors declared a 5-for-4 stock split on both classes of the Company's common stock. The stock split was effected as of January 18, 2018 in the form of a 25% stock dividend distributed to shareholders of record as of January 3, 2018. All applicable fiscal 2018 share and per share information has been adjusted retrospectively to ~~give effect to the~~reflect a 5-for-4 stock ~~splits.~~split effected in June 2018.

~~Index~~

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, which, as amended, was codified as Accounting Standards ~~Update ("ASU"~~Codification (“ASC”) ~~2014-09, “Revenue~~Topic 606, "Revenue from Contracts with ~~Customers,” which~~Customers" (“ASC 606”). ASC 606 provides a comprehensive

Index

new revenue recognition model that ~~will supersede~~supersedes nearly all existing revenue recognition guidance. Under ~~ASU 2014-09,~~ASC 606, an entity ~~will recognize~~recognizes revenue when it transfers promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional ~~disclosure~~disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ~~ASU 2014-09,~~

The Company adopted ASC 606 as ~~amended, is effective for fiscal years~~of November 1, 2018 using the modified retrospective method and interim reporting periods within those years beginning after December 15, 2017, or in fiscal 2019 for HEICO. Early adoption in the year preceding the effective date is permitted. ASU 2014-09 shall be applied either retrospectively to each prior reporting period presented or retrospectively withrecognized the cumulative effect of initially applying ~~ASU 2014-09 recognized at~~ASC 606 to all uncompleted contracts on the date of ~~initial application.~~adoption as an adjustment to the opening balance of retained earnings. The ~~Company is currently evaluating~~comparative information has not been restated and remains as previously reported in accordance with ASC Topic 605, "Revenue Recognition."

ASC 606 impacts the timing of revenue recognition for certain contracts under which ~~transition method it will elect. In addition,~~ the Company ~~is currently identifying its various~~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. ASC 606 also impacts the timing of revenue ~~streams~~recognition for certain other contracts under which the Company creates or enhances customer-owned assets while performing repair and ~~reviewing certain underlying customer~~overhaul services. For these two types of contracts, the Company now recognizes revenue using an over-time recognition model as opposed to ~~determine~~generally recognizing revenue at the ~~effect~~time of shipment under previous guidance. See Note 6, Revenue, for additional information regarding the ~~adoption of this guidance will have on its consolidated results of operations, financial position~~Company's revenue recognition policies and ~~cash flows.~~disclosures required by ASC 606.

~~In July 2015,~~The following table presents the ~~FASB issued ASU 2015-11, "Simplifying the Measurement~~cumulative effect of Inventory,” which requires entities to measure inventories at the lower of cost or net realizable value. Previously, inventories were measured at the lower of cost or market. The Company adopted ASU 2015-11 in the first quarter of fiscal 2018, resulting in no material effectadopting ASC 606 on the Company's ~~consolidated results~~Condensed Consolidated Balance Sheet as of ~~operations, financial position or cash flows.~~November 1, 2018 (in thousands):



	As Reported		Impact of			As Adjusted
	Under ASC 605		ASC 606			Under ASC 606
	October 31, 2018		Adoption			November 1, 2018
Assets
Contract assets		$14,183		$40,089			$54,272
Inventories, net	401,553		(29,412		)	372,141
Prepaid expenses and other current assets	21,187		(489		)	20,698

Liabilities
Accrued expenses and other current liabilities		$171,514		($8,588	)		$162,926
Deferred income taxes	46,644		4,258			50,902

Redeemable noncontrolling interests		$132,046		$819			$132,865

Shareholders' equity
Retained earnings		$1,091,183		$13,373			$1,104,556
Noncontrolling interests	104,757		326			105,083

Index

The following table presents the impact of adopting ASC 606 on the Company's Condensed Consolidated Balance Sheet as of January 31, 2019 (in thousands):



	As of January 31, 2019
	As Reported		Effect of			As Adjusted
	Under ASC 606		ASC 606			Under ASC 605
Assets
Contract assets		$47,093		($39,757	)		$7,336
Inventories, net	406,348		30,292			436,640
Prepaid expenses and other current assets	30,328		323			30,651

Liabilities
Accrued expenses and other current liabilities		$133,705		$8,263			$141,968
Deferred income taxes	59,133		(3,988		)	55,145

Redeemable noncontrolling interests		$138,995		($797	)		$138,198

Shareholders' equity
Retained earnings		$1,174,811		($12,203	)		$1,162,608
Noncontrolling interests	112,288		(417		)	111,871

The impact of adopting ASC 606 on the Company's Condensed Consolidated Statement of Operations was not material for the three months ended January 31, 2019.

In February 2016, the FASB issued ASU 2016-02, “Leases," which requires recognition of lease assets and lease liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2018, or in fiscal 2020 for HEICO. Early adoption is permitted. ASU 2016-02, ~~requires~~as amended, provides certain optional transition relief and shall be applied either at the beginning of the earliest comparative period presented in the year of adoption using a modified retrospective transition approach ~~and provides certain optional transition relief.~~or by recognizing a cumulative effect adjustment at the date of adoption. The Company is currently evaluating the effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which clarifies how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 provides guidance on eight specific cash flow classification issues including contingent consideration payments made after a business combination, proceeds from corporate-owned life insurance policies and distributions received from equity method investees. ASU 2016-15 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2017, or in fiscal 2019 for HEICO. Early adoption is permitted. ASU 2016-15 requires a retrospective transition approach for all periods presented. The Company is currently evaluating the effect the adoption of this guidance will have on its consolidated statement of cash flows.

~~Index~~

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which is intended to simplify the current test for goodwill impairment by eliminating the second step in which the implied value of a reporting unit is calculated when the carrying value of the reporting unit exceeds its fair value. Under ASU 2017-04, goodwill impairment should be recognized for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 must be applied prospectively and is effective for any annual or interim goodwill impairment test in fiscal years beginning after December 15, 2019, or in fiscal 2021 for HEICO. Early adoption is

Index

permitted. The Company is currently evaluating the effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.

2. ~~ACQUISITION~~ACQUISITIONS

In November ~~2017,~~2018, the Company, through a subsidiary of HEICO Electronic, acquired ~~all~~an additional equity interest in Freebird Semiconductor Corporation ("Freebird"), which increased the ~~stock~~Company's aggregate equity interest in Freebird to greater than 50%. Accordingly, the Company began consolidating the operating results of ~~Interface Displays & Controls, Inc. ("IDC"). IDC designs~~Freebird as of the acquisition date. Prior to this transaction, the Company accounted for its investment in Freebird under the equity method. Freebird is a fabless design and ~~manufactures electronic products for aviation, marine, military fighting vehicles, and embedded computing markets.~~manufacturing company that offers advanced high-reliability wide-band gap power switching technology. The purchase price of this acquisition was paid in cash using cash provided by operating activities.

In November 2018, the Company, through HEICO Electronic, acquired 92.7% of the stock of Apex Microtechnology, Inc. ("Apex"). Apex designs and manufactures precision power analog monolithic, hybrid and open frame components for a certain wide range of aerospace, defense, industrial, measurement, medical and test applications. The remaining 7.3% interest continues to be owned by certain members of Apex's management team (see Note 3, Redeemable Noncontrolling Interests, for additional information). The purchase price of this acquisition was paid in cash using proceeds from the Company's revolving credit facility.

In November 2018, the Company, through HEICO Electronic, acquired all of the stock of Specialty Silicone Products, Inc. ("SSP"). SSP designs and manufactures silicone material for a variety of demanding applications used in aerospace, defense, research, oil and gas, testing, pharmaceuticals and other markets. The purchase price of this acquisition was paid in cash principally using proceeds from the Company's revolving credit facility.

The following table summarizes the aggregate total consideration for the ~~acquisition~~Company's fiscal 2019 acquisitions (in thousands):



Cash paid		$102,491
Less: cash acquired	(1,452		)
Cash paid, net	101,039
Fair value of existing equity interest	1,443
Additional purchase consideration	(134		)
Total consideration		$102,348

Index

The following table summarizes the allocation of ~~IDC is not material or significant~~the aggregate total consideration for the Company's fiscal 2019 acquisitions to the ~~Company’s condensed consolidated financial statements~~estimated fair values of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed (in thousands):





Assets acquired:
Goodwill		$55,020
Customer relationships	15,710
Property, plant and equipment	14,905
Intellectual property	11,923
Inventories	8,403
Trade names	7,190
Accounts receivable	5,176
Other assets	296
Total assets acquired, excluding cash	118,623

Liabilities assumed:
Deferred income taxes	4,284
Accrued expenses	2,173
Accounts payable	1,840
Other liabilities	506
Total liabilities assumed	8,803

Noncontrolling interests in consolidated subsidiaries	7,472

Net assets acquired, excluding cash		$102,348

The following table summarizes the ~~related~~weighted average amortization period of the definite-lived intangible assets acquired in connection with the Company's fiscal 2019 acquisitions (in years):




Customer relationships	11
Intellectual property	17

The allocation of the total consideration for the Company's fiscal 2019 acquisitions to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed is preliminary until the ~~company~~Company obtains final information regarding their fair values. However, the Company does not expect any adjustments to such allocations to be material to the Company's consolidated financial statements. The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of the businesses acquired and the value of their assembled workforces that do not qualify for separate

Index

recognition, which, in the case of Apex and Freebird benefit both the Company and the noncontrolling interest holders. The fair value of the noncontrolling interest in Apex and Freebird 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 ~~IDC~~the fiscal 2019 acquisitions were included in the Company’s results of operations from each of the effective acquisition ~~date.~~dates. The amount of net sales and earnings of ~~IDC~~the fiscal 2019 acquisitions included in the Condensed Consolidated Statement of Operations for the three months ended January 31, ~~2018~~2019 is not material. Had the ~~IDC acquisition been consummated~~fiscal 2019 acquisitions occurred as of November 1, ~~2016,~~2017, net sales, net income from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to HEICO shareholders on a pro forma basis for the three months ended January 31, ~~2018~~2019 and ~~2017~~2018 would not have been materially different than the reported amounts.

3. SELECTED FINANCIAL STATEMENT INFORMATION

Accounts Receivable



(in thousands)	January 31, 2019			October 31, 2018
Accounts receivable		$241,739			$240,544
Less: Allowance for doubtful accounts	(3,939		)	(3,258		)
Accounts receivable, net		$237,800			$237,286

(in thousands) January 31, 2018 October 31, 2017
Accounts receivable
$214,361

$225,462
Less: Allowance for doubtful accounts (4,083 ) (3,006 )
Accounts receivable, net
$210,278

$222,456

~~Index~~

~~Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts~~

(in thousands) January 31, 2018 October 31, 2017
Costs incurred on uncompleted contracts
$31,275

$29,491
Estimated earnings 19,743
19,902
51,018
49,393
Less: Billings to date (39,267 ) (41,262 )

$11,751

$8,131
Included in the accompanying Condensed Consolidated Balance Sheets under the following captions:
Accounts receivable, net (costs and estimated earnings in excess of billings)
$13,186

$9,377
Accrued expenses and other current liabilities (billings in excess of costs and estimated earnings) (1,435 ) (1,246 )

$11,751

$8,131

~~Changes in estimates pertaining to percentage-of-completion contracts did not have a material effect on net income from consolidated operations for the three months ended January 31, 2018 and 2017.~~

Inventories


(in thousands)	January 31, 2018			October 31, 2017			January 31, 2019		October 31, 2018
Finished products		$181,435			$173,559			$196,224		$192,758
Work in process	44,397			39,986			35,692		49,315
Materials, parts, assemblies and supplies	139,669			128,031			174,432		158,039
Contracts in process	1,985			2,415			—		1,649
Less: Billings to date	(91		)	(363		)	—		(208		)
Inventories, net of valuation reserves		$367,395			$343,628			$406,348		$401,553

~~Contracts~~Prior to the adoption of ASC 606, contracts in process ~~represents~~represented accumulated capitalized costs associated with fixed price contracts. ~~Related~~Additionally, related progress billings and customer advances (“billings to date”) ~~are~~were classified as a reduction to contracts in process, if any, and any excess iswas included in accrued expenses and other liabilities. See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, and Note 6, Revenue, for additional information pertaining to the adoption of ASC 606.

1012

Index

Property, Plant and Equipment



(in thousands)	January 31, 2019			October 31, 2018
Land		$7,297			$5,864
Buildings and improvements	110,860			101,424
Machinery, equipment and tooling	236,337			230,108
Construction in progress	6,821			5,044
	361,315			342,440
Less: Accumulated depreciation and amortization	(192,036		)	(187,701		)
Property, plant and equipment, net		$169,279			$154,739

(in thousands) January 31, 2018 October 31, 2017
Land
$5,443

$5,435
Buildings and improvements 93,280
91,916
Machinery, equipment and tooling 196,686
191,298
Construction in progress 8,193
5,553
303,602
294,202
Less: Accumulated depreciation and amortization (170,487 ) (164,319 )
Property, plant and equipment, net
$133,115

$129,883

Accrued Customer Rebates and Credits

The aggregate amount of accrued customer rebates and credits included within accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets was $14.2 million as of January 31, ~~2018~~2019 and ~~$12.9~~$16.9 million as of October 31, ~~2017.~~2018. The total customer rebates and credits deducted within net sales for the three months ended January 31, 2019 and 2018 was $1.4 million and ~~2017 was~~ $2.5 million, ~~and $2.4 million,~~ respectively.

Research and Development Expenses

The amount of new product research and development ("R&D") expenses included in cost of sales for the three months ended January 31, ~~2018~~2019 and ~~2017~~2018 is as follows (in thousands):



	Three months ended January 31,
	2019		2018
R&D expenses		$15,200		$12,707

Three months ended January 31,
2018 2017
R&D expenses
$12,707

$11,246

Redeemable Noncontrolling Interests

The holders of equity interests in certain of the Company's subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal ~~2025.~~2026. 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 a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period. 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):



	January 31, 2019		October 31, 2018
Redeemable at fair value		$90,473		$83,524
Redeemable based on a multiple of future earnings	48,522		48,522
Redeemable noncontrolling interests		$138,995		$132,046

January 31, 2018 October 31, 2017
Redeemable at fair value
$83,360

$82,128
Redeemable based on a multiple of future earnings 48,995
48,995
Redeemable noncontrolling interests
$132,355

$131,123

1113

Index

As discussed in Note 2, Acquisitions, the Company, through a subsidiary of HEICO Electronic, acquired 92.7% of the stock of Apex in November 2018. As part of the shareholders' agreement, the noncontrolling interest holders have the right to cause the Company to purchase their equity interests over a four-year period beginning in fiscal 2023, or sooner under certain conditions, and the Company has the right to purchase the same equity interests over the same period.

Accumulated Other Comprehensive ~~(Loss) Income~~Loss

Changes in the components of accumulated other comprehensive ~~(loss) income~~loss for the three months ended January 31, ~~2018~~2019 are as follows (in thousands):



	Foreign Currency Translation			Pension Benefit Obligation			Accumulated Other Comprehensive Loss
Balances as of October 31, 2018		($14,370	)		($886	)		($15,256	)
Unrealized gain	4,181			—			4,181
Amortization of unrealized loss	—			6			6
Balances as of January 31, 2019		($10,189	)		($880	)		($11,069	)

Foreign Currency Translation Pension Benefit Obligation
Accumulated
Other
Comprehensive (Loss) Income
Balances as of October 31, 2017
($9,533 )
($1,023 )
($10,556 )
Unrealized gain 14,969
—
14,969
Amortization of unrealized loss —
4
4
Balances as of January 31, 2018
$5,436

($1,019 )
$4,417

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by operating segment for the three months ended January 31, ~~2018~~2019 are as follows (in thousands):



	Segment					Consolidated Totals
	FSG			ETG		Consolidated Totals
Balances as of October 31, 2018		$398,694			$716,138		$1,114,832
Goodwill acquired	—			55,020		55,020
Foreign currency translation adjustments	186			488		674
Adjustments to goodwill	(125		)	—		(125		)
Balances as of January 31, 2019		$398,755			$771,646		$1,170,401

Segment Consolidated Totals
FSG ETG
Balances as of October 31, 2017
$388,606

$692,700

$1,081,306
Foreign currency translation adjustments 3,065
3,202
6,267
Goodwill acquired —
3,078
3,078
Adjustments to goodwill 185
28
213
Balances as of January 31, 2018
$391,856

$699,008

$1,090,864

~~Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of Comprehensive Income.~~ The goodwill acquired pertains to the fiscal ~~2018 acquisition~~2019 acquisitions described in Note 2, ~~Acquisition,~~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. ~~The Company estimates that all~~Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of ~~the goodwill acquired in fiscal 2018 will be deductible for income tax purposes.~~Comprehensive Income. The adjustments to goodwill represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal ~~2017~~2018 acquisitions. The Company estimates that $17 million of the goodwill acquired in fiscal 2019 will be deductible for income tax purposes.

1214

Index

Identifiable intangible assets consist of the following (in thousands):



	As of January 31, 2019							As of October 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizing Assets:
Customer relationships		$390,027		($144,444	)		$245,583		$373,946		($135,359	)		$238,587
Intellectual property	198,400		(59,982		)	138,418		185,983		(56,055		)	129,928
Licenses	6,559		(3,669		)	2,890		6,559		(3,522		)	3,037
Patents	1,027		(628		)	399		927		(609		)	318
Non-compete agreements	814		(814		)	—		814		(814		)	—
Trade names	466		(167		)	299		466		(157		)	309
	597,293		(209,704		)	387,589		568,695		(196,516		)	372,179
Non-Amortizing Assets:
Trade names	141,602		—			141,602		134,181		—			134,181
		$738,895		($209,704	)		$529,191		$702,876		($196,516	)		$506,360

As of January 31, 2018 As of October 31, 2017
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Amortizing Assets:
Customer relationships
$383,294

($126,803 )
$256,491

$379,966

($117,069 )
$262,897
Intellectual property 183,997
(48,888 ) 135,109
181,811
(44,861 ) 136,950
Licenses 6,559
(3,078 ) 3,481
6,559
(2,928 ) 3,631
Patents 912
(580 ) 332
870
(551 ) 319
Non-compete agreements 824
(824 ) —
817
(817 ) —
Trade names 466
(128 ) 338
466
(118 ) 348
576,052
(180,301 ) 395,751
570,489
(166,344 ) 404,145
Non-Amortizing Assets:
Trade names 135,236
—
135,236
133,936
—
133,936

$711,288

($180,301 )
$530,987

$704,425

($166,344 )
$538,081

The increase in the gross carrying amount of customer relationships, intellectual property and trade names as of January 31, 2019 compared to October 31, 2018 principally relates to such intangible assets recognized in connection with the fiscal 2019 acquisitions (see Note 2, Acquisitions).

Amortization expense related to intangible assets for the three months ended January 31, 2019 and 2018 ~~and 2017~~ was ~~$12.4~~$12.8 million and ~~$9.2~~$12.4 million, respectively. Amortization expense related to intangible assets for the remainder of fiscal ~~2018~~2019 is estimated to be $~~36.4~~38.6 million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $~~46.5~~48.7 million ~~in fiscal 2019,~~ ~~$43.6 million~~ in fiscal 2020, $~~40.9~~45.9 million in fiscal 2021, $~~35.5~~39.5 million in fiscal 2022, $~~31.3~~34.4 million in fiscal 2023, $30.2 million in fiscal 2024, and $~~161.6~~150.3 million thereafter.

5. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):



	January 31, 2019			October 31, 2018
Borrowings under revolving credit facility		$599,000			$523,000
Capital leases and note payable	9,521			9,470
	608,521			532,470
Less: Current maturities of long-term debt	(865		)	(859		)
		$607,656			$531,611

Index

January 31, 2018 October 31, 2017
Borrowings under revolving credit facility
$666,000

$671,000
Capital leases and note payable 3,012
2,979
669,012
673,979
Less: Current maturities of long-term debt (485 ) (451 )

$668,527

$673,528

The Company's borrowings under its revolving credit facility mature in fiscal 2023. As of January 31, ~~2018~~2019 and October 31 ~~2017,~~2018, the weighted average interest rate on borrowings under the Company's revolving credit facility was ~~2.9%~~3.6% and ~~2.4%~~3.4%, respectively. The revolving credit facility contains both financial and non-financial covenants. As of January 31, ~~2018,~~2019, the Company was in compliance with all such covenants.

6. REVENUE

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.

Details of the products and services provided by the Company can be found within Disaggregation of Revenue which follows within this Note 6.

Contracts with Customers and Performance Obligations

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.

Index

The Company accounts for contract modifications prospectively when the remaining goods or services are distinct and on a cumulative catch-up basis when the remaining goods or services are not distinct.

The Company provides assurance type warranties on many of its products and services. Since customers cannot purchase such warranties independently of the products or services under contract and they are not priced separately, warranties are not separate performance obligations.

Contract Estimates

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.

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.

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 for the three months ended January 31, 2019.

Practical Expedients and Optional Exemptions

The Company has elected the following practical expedients and optional exemptions allowed under ASC 606:

The majority of the Company’s performance obligations related to customer contracts are satisfied within one year. As such, the Company has elected to disclose remaining performance obligations only for contracts with an original duration of greater than one year.

Index

The Company has elected to record all shipping and handling activities as fulfillment activities. When revenue is recognized in advance of incurring shipping and handling costs, the costs related to the shipping and handling activities are accrued.

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.

The Company does not adjust the amount of revenue to be recognized under a customer contract for the effects of the time value of money when the timing difference between receipt of payment and recognition of revenue for satisfaction of the related performance obligation is less than one year.

Sales commissions and any other costs of obtaining a customer contract with a duration of one year or less are expensed as incurred.

Contract Balances

Contract assets (unbilled receivables) represent revenue recognized on contracts using an over-time recognition model in excess of amounts invoiced to the customer. Contract liabilities (deferred revenue) represent customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The Company’s contract assets and liabilities consisted of the following:



	January 31, 2019		November 1, 2018		Change

Contract assets		$47,093		$54,272		($7,179	)
Contract liabilities	26,715		19,674		7,041
Net contract assets		$20,378		$34,598		($14,220	)

The decrease in the Company's contract assets during the first quarter of fiscal 2019 mainly occurred within the ETG and principally reflects billings on certain customer contracts made during the quarter in excess of the amounts recorded as additional unbilled receivables for contracts using an over-time recognition model.

The increase in the Company's contract liabilities during the first quarter of fiscal 2019 mainly occurred within the ETG and principally reflects the receipt during the quarter of new

Index

customer deposits on certain customer contracts in excess of reductions to contract liabilities from customer deposits recognized as revenue.

The amount of revenue that the Company recognized during the first quarter of fiscal 2019 that was included in contract liabilities as of the beginning of fiscal 2019 was not material.

Remaining Performance Obligations

As of January 31, 2019, the Company had $308.2 million of remaining performance obligations pertaining to contracts with an original duration of greater than one year. The Company will recognize net sales as these obligations are satisfied. The Company expects to recognize $183.7 million of this amount during the remainder of fiscal 2019 and $124.5 million thereafter, of which the majority is expected to occur in fiscal 2020. As of January 31, 2019, the remaining performance obligations under contracts with an original duration of one year or less pertain to the majority of the products offered by the Electronic Technologies Group and the Flight Support Group's specialty products product line and repair and overhaul parts and services product line.

Disaggregation of Revenue

The following table summarizes the Company’s net sales by product line for each operating segment (in thousands):



	Three months ended January 31,
	2019			2018
Flight Support Group:
Aftermarket replacement parts ⁽¹⁾		$159,497			$134,288
Repair and overhaul parts and services ⁽²⁾	67,163			68,324
Specialty products ⁽³⁾	60,553			52,109
Total net sales	287,213			254,721

Electronic Technologies Group:
Electronic component parts for defense, space and aerospace equipment ⁽⁴⁾	137,750			117,341
Electronic component parts for equipment in various other industries ⁽⁵⁾	46,679			38,317
Total net sales	184,429			155,658

Other, primarily corporate and intersegment	(5,496		)	(5,969		)

Total consolidated net sales		$466,146			$404,410


⁽¹⁾	Includes various jet engine and aircraft component replacement parts.

Index


⁽²⁾	Includes primarily the sale of parts consumed in various repair and overhaul services on selected jet engine and aircraft components, avionics, instruments, composites and flight surfaces of commercial and military aircraft.


⁽³⁾	Includes primarily the sale of specialty components such as thermal insulation blankets, renewable/reusable insulation systems, advanced niche components, complex composite assemblies, and expanded foil mesh.

⁽⁴⁾

Includes various component parts such as electro-optical infrared simulation and test equipment, electro-optical laser products, electro-optical, microwave and other power equipment, high-speed interface products, power conversion products, underwater locator beacons, emergency locator transmission beacons, traveling wave tube amplifiers, microwave power modules, three-dimensional microelectronic and stacked memory products, crashworthy and ballistically self-sealing auxiliary fuel systems, radio frequency (RF) and microwave amplifiers, transmitters and receivers, high performance communications and electronic intercept receivers and tuners and high performance active antenna systems.


⁽⁵⁾	Includes various component parts such as electromagnetic and radio interference shielding, high voltage interconnection devices, high voltage advanced power electronics, harsh environment connectivity products, custom molded cable assemblies and silicone material for a variety of demanding applications.

The following table summarizes the Company’s net sales by industry for each operating segment (in thousands):



	Three months ended January 31,
	2019			2018
Flight Support Group:
Aerospace		$235,173			$209,591
Defense and Space	41,534			34,782
Other ⁽¹⁾	10,506			10,348
Total net sales	287,213			254,721

Electronic Technologies Group:
Defense and Space	115,219			97,082
Other ⁽²⁾	49,915			43,053
Aerospace	19,295			15,523
Total net sales	184,429			155,658

Other, primarily corporate and intersegment	(5,496		)	(5,969		)

Total consolidated net sales		$466,146			$404,410


⁽¹⁾	Principally industrial products.


⁽²⁾	Principally other electronics and medical products.

Index

6.7. INCOME TAXES

OnIn December ~~22,~~ 2017, the United States ~~(U.S.~~("U.S.") government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act contains significant changes to ~~existing~~previous tax law, some of which became immediately effective in fiscal 2018 including, among other things, a reduction in the U.S. federal statutory tax rate from 35% to 21% and the implementation of a territorial tax system resulting in a one-time transition tax on the unremitted earnings of the Company’s foreign subsidiaries. ~~The~~Certain other provisions of the Tax Act ~~also contains additional provisions that will become~~became effective for HEICO in fiscal 2019 including a new tax on Global Intangible Low-Taxed Income (“GILTI”), a new deduction for Foreign-Derived Intangible Income (“FDII”), the repeal of the domestic production activity deduction and increased limitations on the deductibility of certain executive compensation. The ~~Company has not yet determined the impact of the~~ provisions of the Tax Act ~~which do not become~~that became effective ~~for HEICO until fiscal 2019.~~

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on the accounting for the tax effects of the Tax Act. This guidance provides companies with a measurement period not to exceed one year from the enactment of the Tax Act to complete their accounting for the related tax effects. SAB 118 further states that during the measurement period, companies who are able to make reasonable estimates of the tax effects of the Tax Act should include those amounts in their financial statements as provisional amounts and reflect any adjustments in subsequent periods as they refine their estimates or complete their accounting of such tax effects.

As a result of the Tax Act, the Company has revised its estimated annual effective federal statutory income tax rate to reflect a reduction in the rate from 35% to 21% effective January 1, 2018, which results in a blended rate of 23.3% for HEICO in fiscal ~~2018. Additionally,~~2019 did not have a material effect on the ~~Company remeasured its U.S. federal net deferred~~Company's income tax ~~liabilities and recorded a provisional discrete tax benefit of $16.6 million in~~expense for the first quarter of fiscal 2018. Further, the Company recorded a provisional discrete tax expense of $4.7 million in the first quarter of fiscal 2018 related to a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. The Company intends to pay this tax over the eight-year period allowed for in the Tax Act.2019.

The Company’s effective tax rate in the first quarter of fiscal ~~2018 decreased~~2019 was 4.5% as compared to 4.7% ~~from 26.6%~~ in the first quarter of fiscal ~~2017.~~2018. Income tax expense in both the first quarter of fiscal 2019 and fiscal 2018 was favorably impacted as a result of discrete tax benefits. The ~~decrease principally reflects~~tax benefit from stock option exercises recognized in the ~~previously mentioned~~first quarter of fiscal 2019 increased by $14.4 million compared to the first quarter of fiscal 2018. During the first quarter of fiscal 2018, the Company recognized a discrete tax benefit from the remeasurement of ~~the Company’s~~its U.S. federal net deferred tax liabilities ~~and the benefit of a lower federal statutory income tax rate, which were~~that was partially offset by ~~the aforementioned~~a discrete tax expense related to a one-time transition tax ~~expense.~~on the unremitted earnings of its foreign subsidiaries that resulted in an $11.9 million net discrete tax benefit.

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Index

7.8. FAIR VALUE MEASUREMENTS

The Company's assets and liabilities that were measured at fair value on a recurring basis are set forth by level within the fair value hierarchy in the following tables (in thousands):


	As of January 31, 2018								As of January 31, 2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Deferred compensation plans:
Corporate-owned life insurance		$—		$126,715		$—		$126,715		$—		$125,750		$—		$125,750
Money market funds	4,890		—		—		4,890		12,287		—		—		12,287
Equity securities	3,167		—		—		3,167		736		—		—		736
Mutual funds	1,683		—		—		1,683		92		—		—		92
Other	1,379		—		—		1,379		443		—		—		443
Total assets		$11,119		$126,715		$—		$137,834		$13,558		$125,750		$—		$139,308

Liabilities:
Contingent consideration		$—		$—		$24,931		$24,931		$—		$—		$22,462		$22,462



	As of October 31, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Deferred compensation plans:
Corporate-owned life insurance		$—		$123,255		$—		$123,255
Money market funds	3,560		—		—		3,560
Equity securities	3,179		—		—		3,179
Mutual funds	1,437		—		—		1,437
Other	1,306		—		—		1,306
Total assets		$9,482		$123,255		$—		$132,737

Liabilities:
Contingent consideration		$—		$—		$20,875		$20,875

As of October 31, 2017

Quoted Prices
in Active Markets for Identical Assets (Level 1)

Significant
Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Total
Assets:
Deferred compensation plans:
Corporate-owned life insurance
$—

$113,220

$—

$113,220
Money market funds 3,972
—
—
3,972
Equity securities 2,895
—
—
2,895
Mutual funds 1,541
—
—
1,541
Other 1,246
—
—
1,246
Total assets
$9,654

$113,220

$—

$122,874

Liabilities:
Contingent consideration
$—

$—

$27,573

$27,573

The Company maintains two non-qualified deferred compensation plans. The assets of the HEICO Corporation Leadership Compensation Plan ~~(the "LCP"~~("HEICO 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 HEICO LCP represent investments in money market funds that are classified within Level 1. The assets of the Company’s other deferred compensation plan are principally invested in equity securities and mutual funds that are classified within Level 1. The assets of both plans are held within irrevocable trusts and

1522

Index

classified within other assets in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of ~~$137.8~~$139.3 million as of January 31, ~~2018~~2019 and $~~122.9~~132.7 million as of October 31, ~~2017,~~2018, of which the LCP related assets were ~~$131.6~~$138.0 million and $~~117.2~~126.8 million as of January 31, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively. The related liabilities of the two deferred compensation plans are included within other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of ~~$136.5~~$138.7 million as of January 31, ~~2018~~2019 and $~~121.7~~131.7 million as of October 31, ~~2017,~~2018, of which the LCP related liability was ~~$130.3~~$137.4 million and $~~116.0~~125.8 million as of January 31, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively.

As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017, the Company may be obligated to pay contingent consideration of $20.0 million in fiscal 2023 should the acquired entity meet certain earnings objectives during the first six years following the acquisition. As of January 31, ~~2018,~~2019, the estimated fair value of the contingent consideration was ~~$13.2~~$14.5 million.

As part of the agreement to acquire certain assets of a company by the ETG in fiscal 2016, the Company may be obligated to pay contingent consideration of up to ~~$1.7~~$1.4 million in aggregate during the first ~~four~~three years following the ~~first~~second anniversary of the ~~acquisition.~~acquisition should the acquired entity meet certain earnings objectives during this same time period. During fiscal ~~2018,~~2019, the Company paid $.3 million of contingent consideration based on the actual financial performance of the acquired entity during the ~~second~~third year following the acquisition. As of January 31, ~~2018,~~2019, the estimated fair value of the remaining contingent consideration was ~~$1.1~~$.9 million.

As part of the agreement to acquire a subsidiary by the FSG in fiscal 2015, the Company ~~may be~~is obligated to pay contingent consideration of ~~up to~~ €6.1 million, ~~per year,~~ or ~~€12.2~~$7.0 million, ~~in aggregate, should~~based on the actual operating results of the acquired entity ~~meet certain earnings objectives~~ during ~~each of~~ the ~~first two years~~fourth year following the acquisition, which it expects to pay in the second ~~anniversary~~quarter of the acquisition. As of January 31, 2018, the estimated fair value of the contingent consideration was €8.6 million, or $10.7 million, as compared to €10.8 million, or $12.6 million, as of October 31, 2017.fiscal 2019. The ~~decrease~~increase in the fair value of the contingent consideration as of January 31, 2019 as compared to the €5.1 million, or $5.8 million, accrued as of October 31, 2018 is ~~principally attributed to revised~~based on the higher actual than anticipated earnings ~~estimates for the second year~~ of the ~~earnout period that reflect less favorable projected market conditions.~~acquired entity.

The estimated fair value of the contingent consideration arrangements described above are classified within Level 3 and were determined using a probability-based scenario analysis approach. Under this method, a set of discrete potential future subsidiary earnings was determined using internal estimates based on various revenue growth rate assumptions for each scenario. A probability of likelihood was assigned to each discrete potential future earnings estimate and the resultant contingent consideration was calculated. The resulting probability-weighted contingent consideration amounts were discounted using a weighted average discount rate reflecting the credit risk of HEICO. Changes in either the revenue growth rates, related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued and such changes will be recorded in the Company's condensed consolidated statements of operations.

1623

Index

The Level 3 inputs used to derive the estimated fair value of the Company's contingent consideration liability as of January 31, ~~2018~~2019 were as follows:



	Fiscal 2017 Acquisition				Fiscal 2016 Acquisition
Compound annual revenue growth rate range	(4	%)	-	7%	4	%	-	13%
Weighted average discount rate	5.7%				4.9%

Fiscal 2017 Acquisition Fiscal 2016 Acquisition Fiscal 2015 Acquisition
Compound annual revenue growth rate range (8 %) - 4% 4 % - 12% 9 % - 13%
Weighted average discount rate 5.5% 4.7% .8%

Changes in the Company’s contingent consideration liability measured at fair value on a recurring basis using unobservable inputs (Level 3) for the three months ended January 31, ~~2018~~2019 are as follows (in thousands):



	Liabilities
Balance as of October 31, ~~2017~~2018		$~~27,573~~20,875
~~Decrease~~Increase in accrued contingent consideration	~~(3,195~~1,862		)
Payment of contingent consideration	(~~300~~350		)
Foreign currency transaction adjustments	~~853~~75
Balance as of January 31, ~~2018~~2019		$~~24,931~~22,462

Included in the accompanying Condensed Consolidated Balance Sheet under the following captions:
Accrued expenses and other current liabilities		$~~7,262~~7,489
Other long-term liabilities	~~17,669~~14,973
		$~~24,931~~22,462

The Company recorded the ~~decrease~~increase in accrued contingent consideration and foreign currency transaction adjustments set forth in the table above within selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations.

The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the three months ended January 31, ~~2018.~~2019.

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, trade accounts payable and accrued expenses and other current liabilities approximate fair value as of January 31, ~~2018~~2019 due to the relatively short maturity of the respective instruments. The carrying amount of long-term debt approximates fair value due to its variable interest rates.

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Index

8.9. NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS

The computation of basic and diluted net income per share attributable to HEICO shareholders is as follows (in thousands, except per share data):



	Three months ended January 31,
	2019		2018
Numerator:
Net income attributable to HEICO		$79,332		$65,152

Denominator:
Weighted average common shares outstanding - basic	132,933		132,048
Effect of dilutive stock options	4,045		4,342
Weighted average common shares outstanding - diluted	136,978		136,390

Net income per share attributable to HEICO shareholders:
Basic		$.60		$.49
Diluted		$.58		$.48

Anti-dilutive stock options excluded	760		770

Three months ended January 31,
2018 2017
Numerator:
Net income attributable to HEICO
$65,152

$40,927

Denominator:
Weighted average common shares outstanding - basic 105,639
105,178
Effect of dilutive stock options 3,473
2,827
Weighted average common shares outstanding - diluted 109,112
108,005

Net income per share attributable to HEICO shareholders:
Basic
$.62

$.39
Diluted
$.60

$.38

Anti-dilutive stock options excluded 616
213

1825

Index

9.10. OPERATING SEGMENTS

Information on the Company’s two operating segments, the FSG and the ETG, for the three months ended January 31, ~~2018~~2019 and ~~2017,~~2018, respectively, is as follows (in thousands):



					Other, Primarily Corporate and Intersegment ⁽¹⁾			Consolidated Totals
	Segment
	FSG		ETG
Three months ended January 31, 2019:
Net sales		$287,213		$184,429		($5,496	)		$466,146
Depreciation	3,355		2,606		251			6,212
Amortization	4,803		8,776		246			13,825
Operating income	52,880		51,602		(6,535		)	97,947
Capital expenditures	2,849		3,058		—			5,907

Three months ended January 31, 2018:
Net sales		$254,721		$155,658		($5,969	)		$404,410
Depreciation	3,292		2,274		62			5,628
Amortization	4,947		8,104		345			13,396
Operating income	45,869		43,220		(9,529		)	79,560
Capital expenditures	2,297		1,743		3,537			7,577

Other,
Primarily Corporate and
Intersegment ⁽¹⁾
Consolidated
Totals
Segment
FSG ETG
Three months ended January 31, 2018:
Net sales
$254,721

$155,658

($5,969 )
$404,410
Depreciation 3,292
2,274
62
5,628
Amortization 4,947
8,104
345
13,396
Operating income 45,869
43,220
(9,529 ) 79,560
Capital expenditures 2,297
1,743
3,537
7,577

Three months ended January 31, 2017:
Net sales
$220,901

$126,165

($3,634 )
$343,432
Depreciation 3,148
2,043
53
5,244
Amortization 4,104
5,735
165
10,004
Operating income 41,363
29,084
(5,897 ) 64,550
Capital expenditures 3,872
2,504
46
6,422

⁽¹⁾ Intersegment activity principally consists of net sales from the ETG to the FSG.

Total assets by operating segment as of January 31, ~~2018~~2019 and October 31, ~~2017~~2018 are as follows (in thousands):



					Other, Primarily Corporate		Consolidated Totals
	Segment
	FSG		ETG
Total assets as of January 31, 2019		$1,098,267		$1,522,291		$176,456		$2,797,014
Total assets as of October 31, 2018	1,093,858		1,391,997		167,541		2,653,396

Other,
Primarily Corporate Consolidated
Totals
Segment
FSG ETG
Total assets as of January 31, 2018
$1,051,527

$1,357,992

$160,923

$2,570,442
Total assets as of October 31, 2017 1,042,925
1,339,363
130,143
2,512,431

~~10.~~11. COMMITMENTS AND CONTINGENCIES

Guarantees

As of January 31, ~~2018,~~2019, the Company has arranged for standby letters of credit aggregating $4.3 million, which are supported by its revolving credit facility and pertain to payment guarantees related to potential workers' compensation claims and a facility lease as well as performance guarantees related to customer contracts entered into by certain of the Company's subsidiaries.

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Index

Product Warranty

Changes in the Company’s product warranty liability for the three months ended January 31, ~~2018~~2019 and ~~2017,~~2018, respectively, are as follows (in thousands):



	Three months ended January 31,
	2019			2018
Balances as of beginning of fiscal year		$3,306			$2,921
Accruals for warranties	694			798
Acquired warranty liabilities	—			280
Warranty claims settled	(829		)	(832		)
Balances as of January 31		$3,171			$3,167

Three months ended January 31,
2018 2017
Balances as of beginning of fiscal year
$2,921

$3,351
Accruals for warranties 798
782
Acquired warranty liabilities 280
—
Warranty claims settled (832 ) (619 )
Balances as of January 31
$3,167

$3,514

Litigation

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.

~~11.~~12. SUBSEQUENT ~~EVENT~~EVENTS

In February ~~2018,~~2019, the Company, through ~~a subsidiary of~~ HEICO Electronic, acquired 85% of the ~~assets and business~~stock of ~~Sensor~~Solid Sealing Technology, ~~Engineering,~~ Inc. ("~~Sensor Technology"~~SST"). ~~Sensor Technology~~SST designs and manufactures ~~sophisticated nuclear radiation detectors~~high-reliability ceramic-to-metal feedthroughs and connectors for ~~law enforcement, homeland security~~demanding environments within the defense, industrial, life science, medical, research, semiconductor, and ~~military applications. The remaining 15% continues to be owned by certain members of Sensory Technology's management team.~~other markets. The purchase price of this acquisition was paid in cash principally using proceeds from the Company's revolving credit facility and the total consideration for the acquisition is not material or significant to the Company’s condensed consolidated financial statements.

In February 2019, the Company through the Flight Support Group, acquired 80.1% of the stock of Decavo, LLC ("Decavo"). Decavo designs and produces complex composite parts and assemblies incorporated into camera and related sensor assemblies and UAV airframes used in demanding defense and civilian applications. The purchase price of this acquisition was paid in cash principally using cash provided by operating activities and the total consideration for the acquisition is not material or significant to the Company’s condensed consolidated financial statements.

2027

Index


Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.

Our critical accounting policies, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended October 31, ~~2017.~~2018. There have been no material changes to our critical accounting policies during the three months ended January 31, ~~2018.~~2019 other than the adoption of Accounting Standards Update 2014-09, which, as amended, was codified as Accounting Standards Codification (“ASC”) Topic 606, "Revenue from Contracts with Customers" (“ASC 606”). ASC 606 principally impacts the timing of revenue recognition for two types of our customer contracts. See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, and Note 6, Revenue, of the Notes to Condensed Consolidated Financial Statements for additional information.

Our business is comprised of two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.

Our results of operations for the three months ended January 31, ~~2018~~2019 have been affected by the ~~Tax Cuts and Jobs Act as further detailed within~~ ~~Income Tax Expense~~ ~~of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this quarterly report for the period ended January 31, 2018 and by the~~ fiscal ~~2017~~2019 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements of ~~our Annual Report on Form 10-K for the year ended October 31, 2017.~~this quarterly report.

All applicable fiscal 2018 share and per share information has been adjusted retrospectively to reflect a 5-for-4 stock ~~splits~~split effected in ~~April 2017 and January~~June 2018. ~~See Note 1, Summary of Significant Accounting Policies – Stock Splits, of the Notes to Condensed Consolidated Financial Statements for additional information regarding these stock splits.~~

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Index

Results of Operations

The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations (in thousands):


	Three months ended January 31,						Three months ended January 31,
	2018			2017			2019			2018
Net sales		$404,410			$343,432			$466,146			$404,410
Cost of sales	249,619			218,015			283,909			249,619
Selling, general and administrative expenses	75,231			60,867			84,290			75,231
Total operating costs and expenses	324,850			278,882			368,199			324,850
Operating income		$79,560			$64,550			$97,947			$79,560

Net sales by segment:
Flight Support Group		$254,721			$220,901			$287,213			$254,721
Electronic Technologies Group	155,658			126,165			184,429			155,658
Intersegment sales	(5,969		)	(3,634		)	(5,496		)	(5,969		)
		$404,410			$343,432			$466,146			$404,410

Operating income by segment:
Flight Support Group		$45,869			$41,363			$52,880			$45,869
Electronic Technologies Group	43,220			29,084			51,602			43,220
Other, primarily corporate	(9,529		)	(5,897		)	(6,535		)	(9,529		)
		$79,560			$64,550			$97,947			$79,560

Net sales	100.0		%	100.0		%	100.0		%	100.0		%
Gross profit	38.3		%	36.5		%	39.1		%	38.3		%
Selling, general and administrative expenses	18.6		%	17.7		%	18.1		%	18.6		%
Operating income	19.7		%	18.8		%	21.0		%	19.7		%
Interest expense	(1.2		%)	(.6		%)	(1.2		%)	(1.2		%)
Other income	.1		%	.1		%
Other (expense) income							(.1		%)	.1		%
Income tax expense	.9		%	4.9		%	.9		%	.9		%
Net income attributable to noncontrolling interests	1.6		%	1.6		%	1.9		%	1.6		%
Net income attributable to HEICO	16.1		%	11.9		%	17.0		%	16.1		%

2229

Index

Comparison of First Quarter of Fiscal ~~2018~~2019 to First Quarter of Fiscal ~~2017~~2018

Net Sales

Our consolidated net sales in the first quarter of fiscal ~~2018~~2019 increased by ~~18%~~15% to ~~$404.4~~$466.1 million, ~~as compared to~~up from net sales of ~~$343.4~~$404.4 million in the first quarter of fiscal ~~2017.~~2018. The increase in consolidated net sales principally reflects an increase of ~~$29.5~~$28.8 million ~~(a 23%~~(an 18% increase) to ~~$155.7~~$184.4 million in net sales within the ETG as well as an increase of ~~$33.8~~$32.5 million (a ~~15%~~13% increase) to ~~$254.7~~$287.2 million in net sales within the FSG. The net sales increase in the ETG reflects ~~$19.8~~organic growth of 12% and $10.8 million ~~of aggregate~~in net sales contributed by aour fiscal ~~2017~~2019 and ~~a fiscal~~ 2018 ~~acquisition, and organic growth of 6%.~~acquisitions. The ETG's organic growth is mainly attributable to increased demand for our ~~space~~defense, aerospace and ~~defense~~space products resulting in net sales increases of ~~$4.6~~$14.1 million, $3.2 million and $2.3 million, respectively. The net sales increase in the FSG principally reflects ~~net sales of $25.5 million contributed by our fiscal 2017 acquisitions as well as~~ organic growth of 4%13%. The FSG's organic growth is mainly attributable to increased demand and new product offerings within our aftermarket replacement parts and ~~repair and overhaul parts and services~~specialty products product lines resulting in net sales increases of ~~$7.3~~$25.2 million and ~~$3.0~~$8.4 million, respectively. These increases were partially offset by lower net sales of $2.0 million within our specialty products product line principally related to certain defense products. Excluding the net sales decrease in our specialty products product line, the FSG experienced organic growth of 6%, principally in our aftermarket replacement parts product line. Sales price changes were not a significant contributing factor to the ETG and FSG net sales growth in the first quarter of fiscal ~~2018.~~2019.

Gross Profit and Operating Expenses

Our consolidated gross profit margin increased to 39.1% in the first quarter of fiscal 2019, up from 38.3% in the first quarter of fiscal 2018, ~~up from 36.5% in the first quarter of fiscal 2017,~~ principally reflecting an increase of ~~3.9%~~.7% in the ~~ETG's~~FSG's gross profit margin. The increase in the ~~ETG’s~~FSG's gross profit margin is principally attributable to ~~increased net sales and~~ a more favorable product mix ~~for certain of~~within our ~~defense~~specialty products ~~partially offset by a less favorable~~ product ~~mix for certain of our space products.~~line. Total new product research and development expenses included within our consolidated cost of sales were $15.2 million in the first quarter of fiscal 2019 compared to $12.7 million in the first quarter of fiscal ~~2018 compared to $11.2 million in the first quarter of fiscal 2017.~~2018.

Our consolidated selling, general and administrative ("SG&A") expenses were ~~$75.2~~$84.3 million and ~~$60.9~~$75.2 million in the first quarter of fiscal ~~2018~~2019 and ~~2017,~~2018, respectively. The increase in consolidated SG&A expenses principally reflects ~~$8.9~~$4.3 million attributable to changes in the estimated fair value of accrued contingent consideration associated with prior year acquisitions, $3.5 million attributable to the fiscal ~~2017~~2019 and 2018 acquisitions and ~~$2.2~~$1.7 million of higher performance-based compensation expense.

Our consolidated SG&A expenses as a percentage of net sales ~~were 18.6% and 17.7%~~decreased to 18.1% in the first quarter of fiscal ~~2018 and 2017, respectively.~~2019, down from 18.6% in the first quarter of fiscal 2018. The ~~increase~~decrease in consolidated SG&A expenses as a percentage of net sales principally reflects efficiencies realized from the net sales growth partially offset by a ~~.3%~~1.0% impact from ~~higher performance-based compensation expense and a .3% impact from an increase~~the previously mentioned changes in ~~intangible asset amortization expense mainly resulting from our fiscal 2017 acquisitions.~~the estimated fair value of accrued contingent consideration.

2330

Index

Operating Income

Our consolidated operating income increased by 23% to $97.9 million in the first quarter of fiscal 2019, up from $79.6 million in the first quarter of fiscal ~~2018, up from $64.6 million in the first quarter of fiscal 2017.~~2018. The increase in consolidated operating income principally reflects ~~a $14.1~~an $8.4 million increase (a ~~49%~~19% increase) to ~~$43.2~~$51.6 million in operating income of the ETG as well as a ~~$4.5~~$7.0 million increase ~~(an 11%~~(a 15% increase) to ~~$45.9~~$52.9 million in operating income of the FSG. The increase in operating income of the ETG and FSG mainly reflects the previously mentioned net sales ~~growth and improved gross profit margin.~~growth. The increase in operating income of the FSG ~~is principally attributed to~~also reflects the previously mentioned net sales growth partially offset by $1.0 million of higher performance-based compensation expense and a $.8 million increase in intangible asset amortization expense mainly resulting from the fiscal 2017 acquisitions. Additionally, our corporate expenses increased by $2.9 million principally due to a $1.7 million increase in accrued performance-based compensation expense and higher operating costs in support of the overall growth of our business.improved gross profit margin.

Our consolidated operating income as a percentage of net sales improved to 21.0% in the first quarter of fiscal 2019, up from 19.7% in the first quarter of fiscal ~~2018, up from 18.8%~~2018. The increase principally reflects an increase in the FSG’s operating income as a percentage of net sales to 18.4% in the first quarter of fiscal ~~2017. The increase principally reflects~~2019, up from 18.0% in the first quarter of fiscal 2018 and an increase in the ETG’s operating income as a percentage of net sales to 28.0% in the first quarter of fiscal 2019, up slightly from 27.8% in the first quarter of fiscal 2018, up from 23.1% in the first quarter of fiscal 2017, partially offset by a decrease in the FSG’s operating income as a percentage of net sales to 18.0% in the first quarter of fiscal 2018 from 18.7% in the first quarter of fiscal 2017.2018. The increase in the ~~ETG’s~~FSG’s operating income as a percentage of net sales principally reflects the previously mentioned improved gross profit ~~margin. The decrease~~margin and SG&A efficiencies, partially offset by a 1.2% impact from changes in the ~~FSG’s operating income as a percentage~~estimated fair value of ~~net sales principally reflects a .4% and .3% impact from the previously mentioned higher performance-based compensation expense and increase in intangible amortization expense, respectively.~~accrued contingent consideration.

Interest Expense

Interest expense increased to $5.5 million in the first quarter of fiscal 2019, up from $4.7 million in the first quarter of fiscal ~~2018, up from $2.0 million in the first quarter of fiscal 2017.~~2018. The increase was principally due to higher interest rates ~~as well as~~partially offset by a ~~higher~~lower weighted average balance outstanding under our revolving credit ~~facility associated with our fiscal 2017 acquisitions.~~facility.

Other (Expense) Income

Other (expense) income in the first quarter of fiscal ~~2018~~2019 and ~~2017~~2018 was not material.

Income Tax Expense

~~Index~~

subsidiaries. ~~The~~Certain other provisions of the Tax Act ~~also contains additional provisions that will become~~became effective for HEICO in fiscal 2019 including a new tax on Global Intangible Low-Taxed Income (“GILTI”), a new deduction for Foreign-Derived Intangible Income (“FDII”), the repeal of the domestic production activity deduction and increased limitations on the deductibility of certain executive compensation. ~~We have not yet determined the impact of the~~The provisions of the Tax Act ~~which do not become~~that became effective ~~for HEICO until fiscal 2019.~~

As a result of the Tax Act, we have revised our estimated annual effective federal statutory income tax rate to reflect a reduction in the rate from 35% to 21% effective January 1, 2018, which results in a blended rate of 23.3% for HEICO in fiscal ~~2018. Additionally, we remeasured~~2019 did not have a material effect on our ~~U.S. federal net deferred~~income tax ~~liabilities and recorded a provisional discrete tax benefit of $16.6 million in~~expense for the first quarter of fiscal 2018. Further, we recorded a provisional discrete tax expense of $4.7 million in the first quarter of fiscal 2018 related to a one-time transition tax on the unremitted earnings of our foreign subsidiaries. We intend to pay this tax over the eight-year period allowed for in the Tax Act.2019.

Index

Our effective tax rate in the first quarter of fiscal ~~2018 decreased~~2019 was 4.5% as compared to 4.7% ~~from 26.6%~~ in the first quarter of fiscal ~~2017.~~2018. Income tax expense in both the first quarter of fiscal 2019 and fiscal 2018 was favorably impacted as a result of discrete tax benefits. The ~~decrease principally reflects~~tax benefit from stock option exercises recognized in the ~~previously mentioned~~first quarter of fiscal 2019 increased by $14.4 million compared to the first quarter of fiscal 2018. During the first quarter of fiscal 2018, we recognized a discrete tax benefit from the remeasurement of our U.S. federal net deferred tax liabilities ~~and the benefit of a lower federal statutory income tax rate, which were~~that was partially offset by ~~the aforementioned~~a discrete tax expense related to a one-time transition tax ~~expense.~~on the unremitted earnings of our foreign subsidiaries that resulted in an $11.9 million net discrete tax benefit.

Net Income Attributable to Noncontrolling Interests

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 ~~$6.5~~$8.7 million in first quarter of fiscal ~~2018 as~~2019 and inclusive of a tax benefit from stock option exercises recognized in the first quarter of fiscal 2019 that increased by $1.4 million compared to ~~$5.3~~the first quarter of fiscal 2018. Net income attributable to noncontrolling interests was $6.5 million in the first quarter of fiscal ~~2017.~~2018. The increase in net income attributable to noncontrolling interests in the first quarter of fiscal ~~2018~~2019 principally reflects the ~~impact of the Tax Act~~larger aforementioned tax benefit as well as improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held.

~~Index~~

Net Income Attributable to HEICO

Net income attributable to HEICO increased to a record $79.3 million, or $.58 per diluted share, in the first quarter of fiscal 2019, up from $65.2 million, or ~~$.60~~$.48 per diluted share, in the first quarter of fiscal 2018 ~~up from $40.9 million, or $.38 per diluted share, in the first quarter of fiscal 2017~~ principally reflecting the previously mentioned ~~decrease in our effective tax rate and~~ increased net sales and operating income.

Outlook

As we look ahead to the remainder of fiscal ~~2018,~~2019, we anticipate net sales growth within the FSG's commercial aviation and defense product lines. We also expect growth within the ETG, principally driven by demand for the majority of our products. Also, we ~~will~~plan to continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility. Based on our current economic visibility, we are increasing our estimated consolidated fiscal ~~2018~~2019 year-over-year growth in net sales to ~~12%~~be 9% - ~~14%~~11% and in net income to ~~30%~~be 11% - ~~32%~~13%, up from our prior growth estimates in net sales of 8% - 10% and in net income of approximately 10% ~~- 12%~~.

Index

Liquidity and Capital Resources

Our principal uses of cash include acquisitions, capital expenditures, cash dividends, distributions to noncontrolling interests and working capital needs. Capital expenditures in fiscal ~~2018~~2019 are now anticipated to be approximately ~~$50~~$43 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility. The revolving credit facility contains both financial and non-financial covenants. As of January 31, ~~2018,~~2019, we were in compliance with all such covenants. As of January 31, ~~2018,~~2019, our total debt to shareholders’ equity ratio was ~~50.3%~~38.0%.

In November 2017, we entered into a new $1.3 billion revolving credit facility agreement, which matures in November 2022 and replaced our previous revolving credit agreement. Additional information about the new and previous revolving credit agreements may be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading, "Liquidity and Capital Resources" in our Annual Report on Form 10-K for the year ended October 31, 2017.

Based on our current outlook, we believe that our net cash provided by operating activities and available borrowings under our revolving credit facility will be sufficient to fund cash requirements for at least the next twelve months.

Operating Activities

Net cash provided by operating activities was ~~$45.0~~$49.6 million in the first quarter of fiscal ~~2018~~2019 and consisted primarily of net income from consolidated operations of ~~$71.7~~$88.0 million, ~~and~~ depreciation and amortization expense of ~~$19.0~~$20.0 million (a non-cash item), net changes in other long-term liabilities and assets related to the HEICO Leadership Compensation Plan ("LCP") of $9.1 million (principally participant deferrals and employer contributions), a $3.8 million deferred income tax provision, $2.4 million in share-based compensation expense (a non-cash item) and $2.2 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), partially offset by a ~~$29.8~~$78.0 million increase in working ~~capital and a deferred income tax benefit of $17.3 million.~~

~~Index~~

capital. The increase in working capital is inclusive of ~~an $18.5~~a $34.5 million decrease in accrued expenses and other current liabilities mainly reflecting the payment of fiscal ~~2017~~2018 accrued performance-based compensation, ~~and an $18.3~~a $24.3 million increase in ~~inventory~~inventories to support the growth of our businesses and anticipated higher demand during the remainder of fiscal ~~2018, partially offset by~~2019 and a ~~$4.7~~$19.8 million ~~net impact from decreases~~decrease in ~~both accounts receivable and~~ trade accounts ~~payable. The deferred income tax benefit principally reflects~~payable reflecting the ~~impact from the remeasurement~~timing of ~~our U.S. federal net deferred tax liabilities.~~payments.

Net cash provided by operating activities decreased by ~~$11.0~~$2.3 million in the first quarter of fiscal ~~2018~~2019 from ~~$56.0~~$51.9 million in the first quarter of fiscal ~~2017.~~2018. The decrease is principally attributable to a ~~$21.3~~$48.1 million increase in net working capital partially offset by ~~higher net income from consolidated operations excluding the non-cash increase~~a decrease of ~~$16.9~~$21.1 million in deferred income tax benefits, as a ~~result of~~$16.3 million increase in net income from consolidated operations, a $5.1 million increase in accrued contingent consideration, a $2.4 million increase in net changes in other long-term liabilities and assets related to the ~~Tax Act.~~HEICO LCP and a $1.0 million increase in depreciation and amortization expense. The increase in net working capital primarily resulted from the timing associated with the payments of accrued expenses and other current liabilities, the collection of accounts receivable and the payment of income taxes and trade accounts ~~payable as well as~~payable. The decrease in deferred income tax benefits is principally attributable to the ~~aforementioned increase~~remeasurement of our U.S. federal net deferred tax liabilities under the Tax Act in ~~inventories.~~the first quarter of fiscal 2018.

Index

Investing Activities

Net cash used in investing activities totaled ~~$16.5~~$115.6 million in the first quarter of fiscal ~~2018~~2019 and related primarily to acquisitions of $101.0 million (net of cash acquired), investments related to the HEICO LCP of $8.7 million and capital expenditures of ~~$7.6 million as well as acquisitions, net of cash acquired of $6.1~~$5.9 million. Further details regarding our fiscal ~~2018 acquisition~~2019 acquisitions may be found in Note 2, ~~Acquisition,~~Acquisitions, of the Notes to Condensed Consolidated Financial Statements.

Financing Activities

Net cash ~~used in~~provided by financing activities in the first quarter of fiscal ~~2018~~2019 totaled ~~$17.3~~$63.6 million. During the first quarter of fiscal ~~2018,~~2019, we borrowed $93.0 million under our revolving credit facility to fund certain of our fiscal 2019 acquisitions. Additionally, we made $17.0 million in payments on our revolving credit facility, paid ~~$7.4~~$9.3 million in cash dividends on our common stock, and made ~~$5.0~~$2.8 million ~~in payments on our revolving credit facility and incurred $4.1 million in issuance costs associated with our new revolving credit facility.~~of distributions to noncontrolling interests.

Contractual Obligations

There have not been any material changes to the amounts presented in the table of contractual obligations that was included in our Annual Report on Form 10-K for the year ended October 31, ~~2017.~~2018.

Off-Balance Sheet Arrangements

Guarantees

As of January 31, ~~2018,~~2019, we have arranged for standby letters of credit aggregating $4.3 million, which are supported by our revolving credit facility and pertain to payment guarantees related to potential workers' compensation claims and a facility lease as well as performance guarantees related to customer contracts entered into by certain of our subsidiaries.

2734

Index

New Accounting Pronouncements

~~In May 2014, the Financial~~See Note 1, Summary of Significant Accounting ~~Standards Board ("FASB") issued~~Policies - New Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers,” which provides a comprehensive new revenue recognition model that will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09, as amended, is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2017, or in fiscal 2019 for HEICO. Early adoption in the year preceding the effective date is permitted. ASU 2014-09 shall be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. We are currently evaluating which transition method we will elect. In addition, we are currently identifying our various revenue streams and reviewing certain underlying customer contracts to determine the effect the adoption of this guidance will have on our consolidated results of operations, financial position and cash flows.

In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory,” which requires entities to measure inventories at the lower of cost or net realizable value. Previously, inventories were measured at the lower of cost or market. We adopted ASU 2015-11 in the first quarter of fiscal 2018, resulting in no material effect on our consolidated results of operations, financial position or cash flows.

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which clarifies how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 provides guidance on eight specific cash flow classification issues including contingent consideration payments made after a business combination, proceeds from corporate-owned life insurance policies and distributions received from equity method investees. ASU 2016-15 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2017, or in fiscal 2019 for HEICO. Early adoption is permitted. ASU 2016-15 requires a retrospective transition approach for all periods presented. We are currently evaluating the effect the adoption of this guidance will have on our consolidated statement of cash flows.

~~Index~~

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which is intended to simplify the current test for goodwill impairment by eliminating the second step in which the implied value of a reporting unit is calculated when the carrying valuePronouncements, of the ~~reporting unit exceeds its fair value. Under ASU 2017-04, goodwill impairment should be recognized~~Notes to Condensed Consolidated Financial Statements for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 must be applied prospectively and is effective for any annual or interim goodwill impairment test in fiscal years beginning after December 15, 2019, or in fiscal 2021 for HEICO. Early adoption is permitted. We are currently evaluating the effect the adoption of this guidance will have on our consolidated results of operations, financial position and cash flows.additional information.

Forward-Looking Statements

Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include: lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase to our costs to complete contracts; governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth; product development or manufacturing difficulties, which could increase our product development costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest, foreign currency exchange and income tax rates; economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues; and defense spending or budget cuts, which could reduce our defense-related revenue. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

2935

Index

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have not been any material changes in our assessment of HEICO’s sensitivity to market risk that was disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended October 31, ~~2017.~~2018.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our 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 quarterly report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that HEICO’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

Changes in Internal Control Over Financial Reporting

~~There have been no changes in our internal control over financial reporting during~~During the first quarter ended January 31, ~~2018 that~~2019, we adopted Accounting Standards Update 2014-09, which as amended, was codified as Accounting Standards Codification (“ASC”) Topic 606, "Revenue from Contracts with Customers" (“ASC 606”). See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, and Note 6, Revenue, of the Notes to Condensed Consolidated Financial Statements for additional information. While the adoption of ASC 606 was not material to our Condensed Consolidated Statement of Operations, the future impact of ASC 606 is dependent on the mix and nature of specific customer contracts. As such, we have ~~materially affected, or are reasonably likely~~implemented certain changes to ~~materially affect, HEICO's~~our internal controls over financial reporting to support the recognition and disclosure requirements under ASC 606, including changes to our accounting policies and internal control ~~over financial reporting.~~procedures.

3036

Index

PART II. OTHER INFORMATION

Item 6. EXHIBITS



Exhibit		Description
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. *

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. *

32.1		Section 1350 Certification of Chief Executive Officer. **

32.2		Section 1350 Certification of Chief Financial Officer. **

101.INS		The Instance Document Does Not Appear in the Interactive Data File Because its XBRL ~~Instance~~Tags Are Embedded Within the Inline XBRL Document. *

101.SCH		XBRL Taxonomy Extension Schema Document. *

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. *

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. *

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document. *

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. *


*	Filed herewith.

** Furnished herewith.

3137

Index

SIGNATURES

Pursuant to the requirements 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.



		HEICO CORPORATION

Date:	~~March 1, 2018~~February 28, 2019	By:	/s/ CARLOS L. MACAU, JR.
			Carlos L. Macau, Jr. Executive Vice President - Chief Financial Officer and Treasurer (Principal Financial Officer)

		By:	/s/ STEVEN M. WALKER
			Steven M. Walker Chief Accounting Officer and Assistant Treasurer (Principal Accounting Officer)

3238



	Foreign Currency Translation			Pension Benefit Obligation			Accumulated Other Comprehensive (Loss) Income
Balances as of October 31, 2017		($9,533	)		($1,023	)		($10,556	)
Unrealized gain	14,969			—			14,969
Amortization of unrealized loss	—			4			4
Balances as of January 31, 2018		$5,436			($1,019	)		$4,417



	As of January 31, 2018							As of October 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizing Assets:
Customer relationships		$383,294		($126,803	)		$256,491		$379,966		($117,069	)		$262,897
Intellectual property	183,997		(48,888		)	135,109		181,811		(44,861		)	136,950
Licenses	6,559		(3,078		)	3,481		6,559		(2,928		)	3,631
Patents	912		(580		)	332		870		(551		)	319
Non-compete agreements	824		(824		)	—		817		(817		)	—
Trade names	466		(128		)	338		466		(118		)	348
	576,052		(180,301		)	395,751		570,489		(166,344		)	404,145
Non-Amortizing Assets:
Trade names	135,236		—			135,236		133,936		—			133,936
		$711,288		($180,301	)		$530,987		$704,425		($166,344	)		$538,081



	Fiscal 2017 Acquisition				Fiscal 2016 Acquisition				Fiscal 2015 Acquisition
Compound annual revenue growth rate range	(8	%)	-	4%	4	%	-	12%	9	%	-	13%
Weighted average discount rate	5.5%				4.7%				.8%