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, 2019. The October 31, 2019 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 nine months ended July 31, 2020 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.
The Company's results of operations for the nine and three months ended July 31, 2020 have been significantly affected by the COVID-19 outbreak, which is classified as a global pandemic (the “Outbreak”). The effects of the Outbreak and related actions by governments around the world to mitigate its spread have impacted the Company's employees, customers, suppliers and manufacturers. In response to the economic impact from the Outbreak, the Company has implemented certain cost reduction efforts, including layoffs, temporary reduced work hours and temporary pay reductions within various departments of its business, including within its executive management team and its Board of Directors. Additionally, the Company's response to the Outbreak has included the implementation of varying health and safety measures at its facilities, including: supplying and requiring the use of personal protective equipment; staggering work shifts; body temperature taking; increasing work-from-home capabilities; consistent and ongoing cleaning of work spaces and high-touch areas; and establishing processes aligned with the Centers for Disease and Control guidelines to work with any individual exposed to COVID-19 on their necessary quarantine period and the process for the individual to return to work.
With respect to the Company's results of operations, approximately half of its net sales are derived from defense, space and other industrial markets including electronics, medical and telecommunications. Demand for products in that half of the Company's business has not been fundamentally impacted and its operational results remain materially consistent with financial expectations prior to the Outbreak. However, the Company has experienced, and expects to continue experiencing, periodic operational disruptions resulting from supply chain disturbances, staffing challenges - including at some of its customers, temporary facility closures, transportation interruptions and other conditions which slow production and orders, or increase costs. While these issues have not yet been material overall, the Company has experienced disruptions in some orders and shipments during the third quarter of fiscal 2020.
The remaining portion of HEICO's net sales is derived from commercial aviation products and services. The Outbreak has caused significant volatility and a substantial decline in value across global markets. Most notably, the commercial aerospace industry experienced an ongoing substantial decline in demand resulting from a significant number of aircraft in the global fleet being grounded during HEICO's third quarter of fiscal 2020. The Company's businesses that operate within the commercial aerospace industry have been materially impacted by the significant decline in global commercial air travel that began in March 2020. Consolidated net sales for the Company's businesses that operate within the commercial aerospace industry decreased by approximately 54% during the third quarter of fiscal 2020. Once commercial air travel resumes, cost savings will most likely be a priority for HEICO's commercial aviation customers and the Company anticipates recovery in demand for its commercial aviation products, which frequently provide aircraft operators with significant savings. Furthermore, HEICO believes its cost-saving solutions and robust product development programs will enable it to potentially increase market share and emerge with a stronger presence within this market.
As a result of the Outbreak, HEICO has assessed various accounting estimates, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the Outbreak as of July 31, 2020 and through the date of filing this Quarterly Report. The accounting estimates assessed include, but were not limited to, the Company’s allowance for doubtful accounts, inventory reserves, contingent consideration arrangements, goodwill and other long-lived assets. Based on these assessments, no material impact was recorded to HEICO’s Condensed Consolidated Statement of Operations for the nine and three months ended July 31, 2020. Although not material, see Note 3, Selected Financial Statement Information - Accounts Receivable, for additional information pertaining to the increase in the Company's allowance for doubtful accounts principally due to bankruptcy filings by certain commercial aviation customers resulting from the financial impact of the Outbreak. Also, see Management's Discussion and Analysis of Financial Condition and Results of Operations for the related impact on bad debt expense.
New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, which, as amended, was codified as Accounting Standards Codification ("ASC") Topic 842, "Leases" ("ASC 842"). ASC 842 requires recognition of lease assets and lease liabilities on the balance sheet of lessees. The Company adopted ASC 842 as of November 1, 2019 using a modified retrospective transition approach with the election to apply the guidance as of the adoption date instead of at the beginning of the earliest comparative period presented. The adoption of this guidance resulted in an increase in the Company's assets and liabilities due to the recognition of right-of-use ("ROU") assets and corresponding lease liabilities for leases that are currently classified as operating leases.
Upon adoption, the Company elected the package of transitional practical expedients, which allowed the Company to not reassess its prior conclusions about lease identification, lease classification, and initial direct costs. In addition, the Company elected the short-term lease practical expedient, which allows HEICO to not record an ROU asset and lease liability for any lease with a term of twelve months or less, and also elected the single component practical expedient for all asset classes, which allows the Company to include both lease and non-lease components associated with a lease as a single lease component when determining the value of the ROU asset and lease liability.
The adoption of this guidance resulted in the Company recording ROU assets and corresponding lease liabilities of $63.4 million and $64.1 million, respectively, in the Company's Condensed Consolidated Balance Sheet. The adoption of ASC 842 did not have a material impact on the Company’s Condensed Consolidated Statement of Operations or Statement of Cash Flows. See Note 9, Leases, for additional information regarding the Company's accounting policy for leases and disclosures required by ASC 842.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which is intended to simplify the current test for goodwill impairment by eliminating the second step in which the implied value of a reporting unit is calculated when the carrying value of the reporting unit exceeds its fair value. Under ASU 2017-04, goodwill impairment should be recognized for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 must be applied prospectively and is effective for any annual or interim goodwill impairment test in fiscal years beginning after December 15, 2019, or in fiscal 2021 for HEICO. Early adoption is permitted. The Company is currently evaluating the effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.
2. ACQUISITIONS
In June 2020, the Company, through HEICO Flight Support Corp., acquired 70% of the membership interests of Rocky Mountain Hydrostatics, LLC ("Rocky Mountain"). Rocky Mountain overhauls industrial pumps, motors, and other hydraulic units with a focus on the support of legacy systems for the U.S. Navy. The remaining 30% continues to be owned by certain members of Rocky Mountain's management team (see Note 3, Selected Financial Statement Information - Redeemable Noncontrolling Interests, for additional information). The purchase price of this acquisition was paid in cash using cash on hand.
In May 2020, a subsidiary of HEICO Electronic obtained 100% ownership of the assets and liabilities of Freebird Semiconductor Corporation ("Freebird"), an entity in which the subsidiary held a controlling financial interest since November 2018. In June 2020, the HEICO Electronic subsidiary contributed the assets and liabilities of Freebird in exchange for a 49% equity interest in EPC Space LLC ("EPC”), which the Company accounts for under the equity method. As the fair value of the net assets contributed approximated the fair value of the equity interest received in EPC, no material gain or loss was recorded as a result of this transaction. EPC designs, develops, promotes, markets and sells radiation-hardened gallium nitride power solutions packaged for use in outer space and other high reliability applications.
In December 2019, the Company, through a subsidiary of HEICO Electronic, acquired 100% of the business and assets of the Human-Machine Interface ("HMI") product line of Spectralux Corporation. HMI designs, manufactures, and repairs flight deck annunciators, panels, indicators, and illuminated keyboards, as well as lighting controls, and flight deck lighting.
In December 2019, the Company, through HEICO Electronic, acquired 80.1% of the stock of Quell Corporation ("Quell"). Quell designs and manufactures electromagnetic interference (EMI)/radio-frequency interference (RFI) and transient protection solutions for a wide variety of connectors that principally serve customers within the aerospace and defense markets. The remaining 19.9% continues to be owned by certain members of Quell's management team (see Note 3, Selected Financial Statement Information - Redeemable Noncontrolling Interests, for additional information).
The purchase price of the HMI and Quell acquisitions were paid in cash, principally using proceeds from the Company's revolving credit facility, and is not material or significant to the Company's condensed consolidated financial statements. The allocation of the total consideration for the fiscal 2020 acquisitions to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed is preliminary until the Company obtains final information regarding their fair values. However, the Company does not expect any adjustment to such allocations to be material to the Company's consolidated financial statements. The operating results of the fiscal 2020 acquisitions were included in the Company’s results of operations from each of the effective acquisition dates. The amount of net sales and earnings of the fiscal 2020 acquisitions included in the Condensed Consolidated Statement of Operations for the nine and three months ended July 31, 2020 is not material. Had the fiscal 2020 acquisitions
occurred as of November 1, 2018, net sales, net income from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to HEICO shareholders on a pro forma basis for the nine and three months ended July 31, 2020 and 2019 would not have been materially different than the reported amounts.
3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
July 31, 2020
|
|
October 31, 2019
|
|
Accounts receivable
|
|
$193,173
|
|
|
$277,992
|
|
|
Less: Allowance for doubtful accounts
|
|
(12,039)
|
|
|
(3,666)
|
|
|
Accounts receivable, net
|
|
$181,134
|
|
|
$274,326
|
|
The $8.4 million increase in the Company’s allowance for doubtful accounts is principally due to potential collection difficulties from certain commercial aviation customers that filed for bankruptcy protection during the third quarter of fiscal 2020 as a result of the financial impact of the Outbreak.
Inventories
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
July 31, 2020
|
|
October 31, 2019
|
|
Finished products
|
|
$241,895
|
|
|
$199,880
|
|
|
Work in process
|
|
39,777
|
|
|
32,548
|
|
|
Materials, parts, assemblies and supplies
|
|
191,432
|
|
|
187,891
|
|
|
Inventories, net of valuation reserves
|
|
$473,104
|
|
|
$420,319
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
July 31, 2020
|
|
October 31, 2019
|
|
Land
|
|
$6,922
|
|
|
$6,820
|
|
|
Buildings and improvements
|
|
122,405
|
|
|
116,997
|
|
|
Machinery, equipment and tooling
|
|
264,900
|
|
|
253,127
|
|
|
Construction in progress
|
|
9,593
|
|
|
8,382
|
|
|
|
|
403,820
|
|
|
385,326
|
|
|
Less: Accumulated depreciation and amortization
|
|
(233,480)
|
|
|
(211,981)
|
|
|
Property, plant and equipment, net
|
|
$170,340
|
|
|
$173,345
|
|
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 $16.6 million as of July 31, 2020 and $18.0 million as of October 31, 2019. The total customer rebates and credits deducted within net sales for the nine months ended July 31, 2020
and 2019 was $4.3 million and $6.5 million, respectively. The total customer rebates and credits deducted within net sales for the three months ended July 31, 2020 and 2019 was $.5 million and $2.9 million, respectively.
Research and Development Expenses
The amount of new product research and development ("R&D") expenses included in cost of sales for the nine and three months ended July 31, 2020 and 2019 is as follows (in thousands):
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
Nine months ended July 31,
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|
Three months ended July 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
R&D expenses
|
$48,968
|
|
|
$48,697
|
|
|
$15,113
|
|
|
$16,648
|
|
Redeemable Noncontrolling Interests
The holders of equity interests in certain of the Company's subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal 2030. The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the "Redemption Amount") be at fair value or 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):
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|
|
|
|
|
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|
|
|
|
|
|
July 31, 2020
|
|
October 31, 2019
|
|
Redeemable at fair value
|
$154,074
|
|
|
$136,611
|
|
|
Redeemable based on a multiple of future earnings
|
50,065
|
|
|
51,653
|
|
|
Redeemable noncontrolling interests
|
$204,139
|
|
|
$188,264
|
|
As discussed in Note 2, Acquisitions, the Company, through HEICO Flight Support Corp., acquired 70% of the membership interests of Rocky Mountain in June 2020. As part of the operating agreement, the noncontrolling interest holders have the right to cause the Company to purchase their equity interest over a four-year period beginning in fiscal 2027, or sooner under certain conditions, and the Company has the right to purchase the same equity interest over the same period.
As discussed in Note 2, Acquisitions, the Company, through HEICO Electronic, acquired 80.1% of the stock of Quell in December 2019. 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 2025, or sooner under certain conditions, and the Company has the right to purchase the same equity interests over the same period.
During fiscal 2020, the holder of a 20% noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2015 exercised their option to cause the Company to
purchase one-fourth of their interest. The Company acquired the 5% noncontrolling interest in May 2020 which increased its ownership interest in the subsidiary to approximately 85%.
In May 2020, the Company obtained control of the 22% noncontrolling equity interest in a subsidiary of the ETG that was acquired in fiscal 2012, which increased the Company's ownership interest in the subsidiary to 100%.
During fiscal 2020, the holder of a 17.7% noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2008 exercised their option to cause the Company to purchase a portion of their noncontrolling interest over a two-year period ending in fiscal 2021. In June 2020, the Company acquired half of such interest, which increased the Company's ownership interest in the subsidiary to 86.2%.
The $7.5 million aggregate Redemption Amount for the redeemable noncontrolling interests acquired in fiscal 2020 was paid using cash provided by operating activities.
Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss for the nine months ended July 31, 2020 are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Defined Benefit Pension Plan
|
|
Accumulated
Other
Comprehensive Loss
|
|
Balances as of October 31, 2019
|
($14,989)
|
|
|
($1,750)
|
|
|
($16,739)
|
|
|
Unrealized gain
|
12,228
|
|
|
—
|
|
|
12,228
|
|
|
Amortization of unrealized loss
|
—
|
|
|
60
|
|
|
60
|
|
|
Balances as of July 31, 2020
|
($2,761)
|
|
|
($1,690)
|
|
|
($4,451)
|
|
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by operating segment for the nine months ended July 31, 2020 are as follows (in thousands):
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|
|
|
|
|
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|
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|
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|
|
|
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Segment
|
|
|
|
Consolidated Totals
|
|
|
FSG
|
|
ETG
|
|
|
|
Balances as of October 31, 2019
|
$410,044
|
|
|
$858,659
|
|
|
$1,268,703
|
|
|
Goodwill acquired
|
14,986
|
|
|
34,589
|
|
|
49,575
|
|
|
Foreign currency translation adjustments
|
3,425
|
|
|
2,878
|
|
|
6,303
|
|
|
Deconsolidation of subsidiary
|
—
|
|
|
(4,249)
|
|
|
(4,249)
|
|
|
Adjustments to goodwill
|
—
|
|
|
(285)
|
|
|
(285)
|
|
|
Balances as of July 31, 2020
|
$428,455
|
|
|
$891,592
|
|
|
$1,320,047
|
|
The goodwill acquired pertains to the fiscal 2020 acquisitions described in Note 2, Acquisitions, and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed. Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of Comprehensive Income. Deconsolidation of subsidiary reflects the value of goodwill associated with an entity that the Company previously consolidated but subsequently contributed the net assets of the former entity to a new entity in which the Company holds a noncontrolling interest and accounts for under the equity method (See Note 2, Acquisitions, for additional information). The adjustments to goodwill represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal 2019 acquisitions. The Company estimates that $20 million of the goodwill acquired in fiscal 2020 will be deductible for income tax purposes.
Identifiable intangible assets consist of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2020
|
|
|
|
|
|
As of October 31, 2019
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Amortizing Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$426,423
|
|
|
($189,469)
|
|
|
$236,954
|
|
|
$411,076
|
|
|
($162,722)
|
|
|
$248,354
|
|
|
Intellectual property
|
|
225,396
|
|
|
(80,220)
|
|
|
145,176
|
|
|
216,359
|
|
|
(70,169)
|
|
|
146,190
|
|
|
Licenses
|
|
6,559
|
|
|
(4,529)
|
|
|
2,030
|
|
|
6,559
|
|
|
(4,102)
|
|
|
2,457
|
|
|
Patents
|
|
1,048
|
|
|
(732)
|
|
|
316
|
|
|
986
|
|
|
(666)
|
|
|
320
|
|
|
Non-compete agreements
|
|
810
|
|
|
(810)
|
|
|
—
|
|
|
813
|
|
|
(813)
|
|
|
—
|
|
|
Trade names
|
|
450
|
|
|
(209)
|
|
|
241
|
|
|
450
|
|
|
(180)
|
|
|
270
|
|
|
|
|
660,686
|
|
|
(275,969)
|
|
|
384,717
|
|
|
636,243
|
|
|
(238,652)
|
|
|
397,591
|
|
|
Non-Amortizing Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
157,957
|
|
|
—
|
|
|
157,957
|
|
|
153,102
|
|
|
—
|
|
|
153,102
|
|
|
|
|
$818,643
|
|
|
($275,969)
|
|
|
$542,674
|
|
|
$789,345
|
|
|
($238,652)
|
|
|
$550,693
|
|
The increase in the gross carrying amount of customer relationships, intellectual property and trade names as of July 31, 2020 compared to October 31, 2019 principally relates to such intangible assets recognized in connection with the fiscal 2020 acquisitions (see Note 2, Acquisitions).
Amortization expense related to intangible assets for the nine months ended July 31, 2020 and 2019 was $41.8 million and $39.6 million, respectively. Amortization expense related to intangible assets for the three months ended July 31, 2020 and 2019 was $14.2 million and $13.7 million, respectively. Amortization expense related to intangible assets for the remainder of fiscal 2020 is estimated to be $14.3 million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $54.8 million in fiscal 2021, $48.0 million in fiscal 2022, $42.5 million in fiscal 2023, $37.8 million in fiscal 2024, $33.5 million in fiscal 2025, and $153.8 million thereafter.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020
|
|
October 31, 2019
|
|
Borrowings under revolving credit facility
|
$730,000
|
|
|
$553,000
|
|
|
Finance leases and note payable
|
10,089
|
|
|
8,955
|
|
|
|
740,089
|
|
|
561,955
|
|
|
Less: Current maturities of long-term debt
|
(1,073)
|
|
|
(906)
|
|
|
|
$739,016
|
|
|
$561,049
|
|
The Company's borrowings under its revolving credit facility mature in fiscal 2023. As of July 31, 2020 and October 31 2019, the weighted average interest rate on borrowings under the Company's revolving credit facility was 1.3% and 3.0%, respectively. The revolving credit facility contains both financial and non-financial covenants. As of July 31, 2020, the Company was in compliance with all such covenants.
6. REVENUE
Contract Balances
Contract assets (unbilled receivables) represent revenue recognized on contracts using an over-time recognition model in excess of amounts invoiced to the customer. Contract liabilities (deferred revenue) represent customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets.
Changes in the Company’s contract assets and liabilities for the nine months ended July 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020
|
|
October 31, 2019
|
|
Change
|
|
Contract assets
|
$59,113
|
|
|
$43,132
|
|
|
$15,981
|
|
|
Contract liabilities
|
22,863
|
|
|
23,809
|
|
|
(946)
|
|
|
Net contract assets
|
$36,250
|
|
|
$19,323
|
|
|
$16,927
|
|
The increase in the Company's contract assets during the first nine months of fiscal 2020 occurred within the ETG and principally reflects additional unbilled receivables on certain customer contracts using an over-time recognition model in excess of billings on certain customer contracts.
The amount of revenue that the Company recognized during the nine and three months ended July 31, 2020 that was included in contract liabilities as of the beginning of fiscal 2020 was $17.4 million and $.9 million, respectively.
Remaining Performance Obligations
As of July 31, 2020, the Company had $363.8 million of remaining performance obligations associated with contracts with an original duration of greater than one year pertaining to the majority of the products offered by the ETG as well as certain products of the FSG's specialty products and aftermarket replacement parts product lines. The Company will recognize net sales as these obligations are satisfied. The Company expects to recognize $84.3 million of this amount during the remainder of fiscal 2020 and $279.5 million thereafter, of which the majority is expected to occur in fiscal 2021.
Contract Estimates
Changes in estimates did not have a material effect on net income from consolidated operations for the nine and three months ended July 31, 2020.
Disaggregation of Revenue
The following table summarizes the Company’s net sales by product line for each operating segment (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended July 31,
|
|
|
|
Three months ended July 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Flight Support Group:
|
|
|
|
|
|
|
|
|
Aftermarket replacement parts (1)
|
$412,088
|
|
|
$500,714
|
|
|
$102,629
|
|
|
$173,992
|
|
|
Repair and overhaul parts and services (2)
|
154,517
|
|
|
216,887
|
|
|
32,601
|
|
|
76,270
|
|
|
Specialty products (3)
|
164,584
|
|
|
197,879
|
|
|
42,928
|
|
|
69,754
|
|
|
Total net sales
|
731,189
|
|
|
915,480
|
|
|
178,158
|
|
|
320,016
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Technologies Group:
|
|
|
|
|
|
|
|
|
Electronic component parts primarily for
defense, space and aerospace equipment (4)
|
494,864
|
|
|
459,445
|
|
|
165,189
|
|
|
160,031
|
|
|
Electronic component parts for equipment
in various other industries (5)
|
143,421
|
|
|
155,564
|
|
|
45,730
|
|
|
56,098
|
|
|
Total net sales
|
638,285
|
|
|
615,009
|
|
|
210,919
|
|
|
216,129
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
(8,643)
|
|
|
(16,371)
|
|
|
(2,667)
|
|
|
(3,821)
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net sales
|
$1,360,831
|
|
|
$1,514,118
|
|
|
$386,410
|
|
|
$532,324
|
|
|
|
|
|
|
|
|
|
|
(1) Includes various jet engine and aircraft component replacement parts.
(2) Includes primarily the sale of parts consumed in various repair and overhaul services on selected jet engine and aircraft components, avionics, instruments, composites and flight surfaces of commercial and military aircraft.
(3) Includes primarily the sale of specialty components such as thermal insulation blankets, renewable/reusable insulation systems, advanced niche components, complex composite assemblies, and expanded foil mesh.
(4) Includes various component parts such as electro-optical infrared simulation and test equipment, electro-optical laser products, electro-optical, microwave and other power equipment, high-speed interface products, power conversion products, underwater locator beacons, emergency locator transmission beacons, traveling wave tube amplifiers, microwave power modules, three-dimensional microelectronic and stacked memory products, crashworthy and ballistically self-sealing auxiliary fuel systems, radio frequency (RF) and microwave amplifiers, transmitters and receivers, high performance communications and electronic intercept receivers and tuners, high performance active antenna systems, and technical surveillance countermeasures equipment.
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended July 31,
|
|
|
|
Three months ended July 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Flight Support Group:
|
|
|
|
|
|
|
|
|
Aerospace
|
$543,205
|
|
|
$742,555
|
|
|
$114,627
|
|
|
$258,157
|
|
|
Defense and Space
|
157,664
|
|
|
137,272
|
|
|
53,269
|
|
|
49,769
|
|
|
Other (1)
|
30,320
|
|
|
35,653
|
|
|
10,262
|
|
|
12,090
|
|
|
Total net sales
|
731,189
|
|
|
915,480
|
|
|
178,158
|
|
|
320,016
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Technologies Group:
|
|
|
|
|
|
|
|
|
Defense and Space
|
413,883
|
|
|
390,046
|
|
|
141,282
|
|
|
138,875
|
|
|
Other (2)
|
167,861
|
|
|
162,063
|
|
|
55,155
|
|
|
56,525
|
|
|
Aerospace
|
56,541
|
|
|
62,900
|
|
|
14,482
|
|
|
20,729
|
|
|
Total net sales
|
638,285
|
|
|
615,009
|
|
|
210,919
|
|
|
216,129
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
(8,643)
|
|
|
(16,371)
|
|
|
(2,667)
|
|
|
(3,821)
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net sales
|
$1,360,831
|
|
|
$1,514,118
|
|
|
$386,410
|
|
|
$532,324
|
|
|
|
|
|
|
|
|
|
|
(1) Principally industrial products.
(2) Principally other electronics and medical products.
7. INCOME TAXES
The Company's effective tax rate in the first nine months of fiscal 2020 was 3.5%, as compared to 17.1% in the first nine months of fiscal 2019. The Company recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2020 and 2019 of $47.6 million and $16.6 million, respectively. The $31.0 million larger benefit from stock option exercises recognized in the first quarter of fiscal 2020 was the result of more stock options exercised and the strong appreciation in HEICO's stock price during the optionees' holding periods. Further, the decrease in the first nine months of fiscal 2020 reflects a larger deduction related to Foreign-Derived Intangible Income ("FDII") principally resulting from final tax regulations that were issued in the third quarter of fiscal 2020 as part of the Tax Cuts and Jobs Act that was enacted in December 2017, as well as a larger income tax credit for qualified R&D activities.
The Company's effective tax rate in the third quarter of fiscal 2020 was 13.4%, as compared to 22.0% in the third quarter of fiscal 2019. The decrease in the third quarter of fiscal 2020 principally reflects a larger deduction related to the previously mentioned FDII as well as a larger income tax credit for qualified R&D activities.
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 July 31, 2020
|
|
|
|
|
|
|
|
|
|
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 plan:
|
|
|
|
|
|
|
|
|
|
Corporate-owned life insurance
|
|
$—
|
|
|
$176,921
|
|
|
$—
|
|
|
$176,921
|
|
|
Money market funds
|
|
1,011
|
|
|
—
|
|
|
—
|
|
|
1,011
|
|
|
Total assets
|
|
$1,011
|
|
|
$176,921
|
|
|
$—
|
|
|
$177,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$—
|
|
|
$—
|
|
|
$18,015
|
|
|
$18,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2019
|
|
|
|
|
|
|
|
|
|
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 plan:
|
|
|
|
|
|
|
|
|
|
Corporate-owned life insurance
|
|
$—
|
|
|
$151,871
|
|
|
$—
|
|
|
$151,871
|
|
|
Money market funds
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
Total assets
|
|
$20
|
|
|
$151,871
|
|
|
$—
|
|
|
$151,891
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$—
|
|
|
$—
|
|
|
$18,326
|
|
|
$18,326
|
|
The Company maintains the HEICO Corporation Leadership Compensation Plan (the "LCP"), which is a non-qualified deferred compensation plan. The assets of the LCP principally represent cash surrender values of life insurance policies, which derive their fair values from investments in mutual funds that are managed by an insurance company, and are classified within Level 2 and valued using a market approach. Certain other assets of the LCP represent investments in money market funds that are classified within Level 1. The assets of the LCP are held within an irrevocable trust and classified within other assets in the Company’s Condensed Consolidated Balance Sheets. The related liabilities of the LCP are included within other long-term liabilities and accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of $177.1 million as of July 31, 2020 and $151.1 million as of October 31, 2019.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2019, the Company may be obligated to pay contingent consideration of $6.4 million in fiscal 2022 should the acquired entity meet a certain earnings objective during the second and third years following the acquisition. Based on lower actual than anticipated earnings as well as revised earnings estimates for the remainder of the earnout period, the $1.1 million estimated fair value of the contingent consideration as of October 31, 2019 was reversed during the third quarter of fiscal 2020.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017, the Company may be obligated to pay contingent consideration of $20.0 million in fiscal 2023 should the acquired entity meet a certain earnings objective during the first six years following the acquisition. As of July 31, 2020, the estimated fair value of the contingent consideration was $18.0 million.
The estimated fair value of the contingent consideration arrangements described above are classified within Level 3 and were determined using probability-based scenario analyses. Under this method, a set of discrete potential future subsidiary earnings was determined using internal estimates based on various revenue growth rate assumptions for each scenario. A probability of likelihood was assigned to each discrete potential future earnings estimate and the
resultant contingent consideration was calculated. The resulting probability-weighted contingent consideration amounts were discounted using a weighted average discount rate reflecting the credit risk of HEICO. Changes in either the revenue growth rates, related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued and such changes will be recorded in the Company's condensed consolidated statements of operations.
The Level 3 inputs used to derive the estimated fair value of the Company's contingent consideration liability as of July 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 Acquisition
|
|
|
|
Compound annual revenue growth rate range
|
|
|
|
|
(3
|
%)
|
-
|
10%
|
|
Weighted average discount rate
|
|
|
|
|
3.3%
|
|
|
Changes in the Company’s contingent consideration liability measured at fair value on a recurring basis using unobservable inputs (Level 3) for the nine months ended July 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
Balance as of October 31, 2019
|
|
$18,326
|
|
|
Increase in accrued contingent consideration, net
|
|
189
|
|
|
Payment of contingent consideration
|
|
(500)
|
|
|
Balance as of July 31, 2020
|
|
$18,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's contingent consideration liability is included in other long-term liabilities in its Condensed Consolidated Balance Sheets and the Company records changes in accrued contingent consideration within selling, general and administrative expenses in its Condensed Consolidated Statements of Operations.
The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the nine months ended July 31, 2020.
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 July 31, 2020 due to the relatively short maturity of the respective instruments. The carrying amount of long-term debt approximates fair value due to its variable interest rates.
9. LEASES
The Company’s lease arrangements primarily pertain to manufacturing facilities, office buildings, equipment, land and vehicles. The Company evaluates whether a contractual arrangement that provides it with control over the use of an asset is, or contains, a lease at the inception date. The term of a lease is inclusive of any option to renew, extend, or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company classifies a lease as operating or finance using the classification criteria set forth in ASC 842. Finance leases are not material to the Company's condensed consolidated financial statements. HEICO recognizes operating lease right-of-use (“ROU”) assets and corresponding lease liabilities as of the lease commencement date based on the present value of the lease payments over the lease term. The discount rate used to calculate the present value of the Company’s leases is based on HEICO’s incremental borrowing rate and considers credit risk, the lease term and other available information as of the commencement date since the leases do not provide a readily determinable implicit rate. Variable lease payments that depend on an index or a rate are included in the determination of operating ROU assets and lease liabilities using the index or rate at the lease commencement date. Variable lease payments that do not depend on an index or rate or resulting from changes in an index or rate subsequent to the lease commencement date, are recorded as lease expense in the period in which the obligation for the payment is incurred. The Company’s operating ROU assets are increased by any prepaid lease payments and initial direct costs and reduced by any lease incentives. The Company’s leases do not contain any material residual value guarantees or restrictive covenants.
HEICO’s operating lease ROU assets represent its right to use an underlying asset during the lease term and its operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. HEICO’s operating lease ROU assets are included within other assets and its operating lease liabilities are included within other long-term liabilities and accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheet. For additional information on the Company’s finance leases, see Note 5, Long-term Debt, of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report and Note 5, Long-term Debt, and Note 3, Selected Financial Statement Information - Property, Plant and Equipment, of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended October 31, 2019. The following table presents the Company’s operating lease ROU assets and lease liabilities as of July 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
July 31, 2020
|
|
Right-of-use assets
|
$57,752
|
|
|
|
|
|
Current lease liabilities
|
$13,587
|
|
|
Long-term lease liabilities
|
45,232
|
|
|
Total operating lease liabilities
|
$58,819
|
|
The Company’s operating lease expense is recorded as a component of cost of sales and/or selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. The following table presents the components of operating lease expense for the nine and three months ended July 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
Three months ended
|
|
|
|
July 31, 2020
|
|
July 31, 2020
|
|
Operating lease expense
|
|
$12,855
|
|
|
$4,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable lease expense
|
|
1,942
|
|
|
619
|
|
|
Total operating lease expense (1)
|
|
$14,797
|
|
|
$4,930
|
|
|
|
|
|
|
|
(1) Excludes short-term lease expense, which is not material.
The following table presents a maturity analysis of the Company's operating lease liabilities as of July 31, 2020 for the remainder of fiscal 2020 and the next five fiscal years and thereafter (in thousands):
|
|
|
|
|
|
|
|
Year ending October 31,
|
|
|
2020
|
$3,639
|
|
|
2021
|
16,377
|
|
|
2022
|
14,394
|
|
|
2023
|
8,952
|
|
|
2024
|
5,115
|
|
|
2025
|
4,243
|
|
|
Thereafter
|
18,566
|
|
|
Total minimum lease payments
|
71,286
|
|
|
Less: amount representing interest
|
(12,467)
|
|
|
Present value of minimum lease payments
|
$58,819
|
|
Prior to the adoption of ASC 842, the Company's future minimum lease payments under non-cancelable operating leases on an undiscounted basis as of October 31, 2019 were $15.5 million in fiscal 2020, $15.6 million in fiscal 2021, $13.8 million in fiscal 2022, $8.5 million in fiscal 2023, $4.7 million in fiscal 2024 and $18.8 million thereafter.
The Company does not have any material leases that have been signed but have yet to commence as of July 31, 2020.
The following table presents the weighted average remaining lease term and discount rate of the Company’s operating leases as of July 31, 2020:
|
|
|
|
|
|
|
|
|
July 31, 2020
|
|
Weighted average remaining lease term (years)
|
7.0
|
|
Weighted average discount rate
|
5.1
|
%
|
The following table presents supplemental disclosures of cash flow information associated with the Company's operating leases for the nine months ended July 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
July 31, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$12,652
|
|
|
Right-of-use assets obtained in exchange for new lease liabilities
|
7,423
|
|
|
|
|
10. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended July 31,
|
|
|
|
Three months ended July 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to HEICO
|
$251,657
|
|
|
$242,212
|
|
|
$54,316
|
|
|
$81,098
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
134,676
|
|
|
133,405
|
|
|
134,837
|
|
|
133,970
|
|
|
Effect of dilutive stock options
|
2,581
|
|
|
3,868
|
|
|
2,397
|
|
|
3,664
|
|
|
Weighted average common shares outstanding - diluted
|
137,257
|
|
|
137,273
|
|
|
137,234
|
|
|
137,634
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to HEICO shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
$1.87
|
|
|
$1.82
|
|
|
$.40
|
|
|
$.61
|
|
|
Diluted
|
$1.83
|
|
|
$1.76
|
|
|
$.40
|
|
|
$.59
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options excluded
|
272
|
|
|
439
|
|
|
250
|
|
|
88
|
|
11. OPERATING SEGMENTS
Information on the Company’s two operating segments, the FSG and the ETG, for the nine and three months ended July 31, 2020 and 2019, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other,
Primarily Corporate and
Intersegment (1)
|
|
Consolidated
Totals
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
|
FSG
|
|
ETG
|
|
|
|
|
|
Nine months ended July 31, 2020:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$731,189
|
|
|
$638,285
|
|
|
($8,643)
|
|
|
$1,360,831
|
|
|
Depreciation
|
|
10,835
|
|
|
8,681
|
|
|
760
|
|
|
20,276
|
|
|
Amortization
|
|
14,720
|
|
|
29,484
|
|
|
738
|
|
|
44,942
|
|
|
Operating income
|
|
121,597
|
|
|
184,948
|
|
|
(18,960)
|
|
|
287,585
|
|
|
Capital expenditures
|
|
8,389
|
|
|
9,066
|
|
|
17
|
|
|
17,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended July 31, 2019:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$915,480
|
|
|
$615,009
|
|
|
($16,371)
|
|
|
$1,514,118
|
|
|
Depreciation
|
|
10,225
|
|
|
8,117
|
|
|
754
|
|
|
19,096
|
|
|
Amortization
|
|
14,714
|
|
|
27,138
|
|
|
738
|
|
|
42,590
|
|
|
Operating income
|
|
179,843
|
|
|
181,160
|
|
|
(24,459)
|
|
|
336,544
|
|
|
Capital expenditures
|
|
12,600
|
|
|
9,008
|
|
|
63
|
|
|
21,671
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended July 31, 2020:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$178,158
|
|
|
$210,919
|
|
|
($2,667)
|
|
|
$386,410
|
|
|
Depreciation
|
|
3,590
|
|
|
2,872
|
|
|
249
|
|
|
6,711
|
|
|
Amortization
|
|
5,109
|
|
|
9,876
|
|
|
246
|
|
|
15,231
|
|
|
Operating income
|
|
12,021
|
|
|
61,931
|
|
|
(5,518)
|
|
|
68,434
|
|
|
Capital expenditures
|
|
1,624
|
|
|
3,401
|
|
|
12
|
|
|
5,037
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended July 31, 2019:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$320,016
|
|
|
$216,129
|
|
|
($3,821)
|
|
|
$532,324
|
|
|
Depreciation
|
|
3,467
|
|
|
2,722
|
|
|
251
|
|
|
6,440
|
|
|
Amortization
|
|
4,991
|
|
|
9,461
|
|
|
246
|
|
|
14,698
|
|
|
Operating income
|
|
64,797
|
|
|
62,206
|
|
|
(7,589)
|
|
|
119,414
|
|
|
Capital expenditures
|
|
6,024
|
|
|
2,996
|
|
|
55
|
|
|
9,075
|
|
|
|
|
|
|
|
|
|
|
|
(1) Intersegment activity principally consists of net sales from the ETG to the FSG.
Total assets by operating segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other,
Primarily Corporate
|
|
Consolidated
Totals
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
|
FSG
|
|
ETG
|
|
|
|
|
|
Total assets as of July 31, 2020
|
|
$1,153,879
|
|
|
$1,741,959
|
|
|
$527,412
|
|
|
$3,423,250
|
|
|
Total assets as of October 31, 2019
|
|
1,149,737
|
|
|
1,643,032
|
|
|
176,442
|
|
|
2,969,211
|
|
12. COMMITMENTS AND CONTINGENCIES
Guarantees
As of July 31, 2020, the Company has arranged for standby letters of credit aggregating $4.5 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.
Product Warranty
Changes in the Company’s product warranty liability for the nine months ended July 31, 2020 and 2019, respectively, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended July 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
Balances as of beginning of fiscal year
|
|
$2,810
|
|
|
$3,306
|
|
|
Accruals for warranties
|
|
1,472
|
|
|
1,652
|
|
|
Acquired warranty liabilities
|
|
50
|
|
|
—
|
|
|
Warranty claims settled
|
|
(1,259)
|
|
|
(1,974)
|
|
|
Balances as of July 31
|
|
$3,073
|
|
|
$2,984
|
|
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.
13. SUBSEQUENT EVENTS
In August 2020, the Company, through HEICO Electronic, acquired 75% of the equity interests of Intelligent Devices, Inc. ("ID") and Transformational Security, LLC ("TS"). ID and TS design, develop and manufacturer state-of-the-art Technical Surveillance Countermeasures (TSCM) equipment used to protect critical spaces from exploitation via wireless transmissions, technical surveillance and listening devices. The remaining 25% interest in ID and TS was acquired by the noncontrolling interest holders of a subsidiary in HEICO Electronic that is also a designer and manufacturer of TSCM equipment.
In August 2020, the Company, through HEICO Electronic, acquired 89.99% of the equity interests of Connect Tech Inc. ("Connect Tech"). Connect Tech designs and manufacturers rugged, small-form-factor embedded computing solutions. Connect Tech's components are designed for very harsh environments and are primarily used in rugged commercial and industrial, aerospace and defense, transportation, and smart energy applications. The remaining 10.01% interest continues to be owned by a certain member of Connect Tech's management team.
The purchase price of each August 2020 acquisition was paid in cash using cash on hand, and is not material or significant to the Company’s condensed consolidated financial statements.