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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | | | | |
☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
| | For the quarterly period ended April 30, 2022 |
| | |
| | OR |
| | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
| | For the transition period from ______ to _______ |
Commission File Number: 001-04604
HEICO CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Florida | | 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)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| | | | |
Common Stock, $.01 par value per share | | HEI | | New York Stock Exchange |
Class A Common Stock, $.01 par value per share | | HEI.A | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ 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 ☒
The number of shares outstanding of each of the registrant’s classes of common stock as of May 23, 2022 is as follows:
| | | | | | | | |
Common Stock, $.01 par value | 54,503,703 | | shares |
Class A Common Stock, $.01 par value | 81,453,412 | | shares |
HEICO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
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Part I. | Financial Information | |
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| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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Part II. | Other Information | |
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| Item 6. | | |
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PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except per share data)
| | | | | | | | | | | | | | |
| | April 30, 2022 | | October 31, 2021 |
ASSETS |
Current assets: | | | | |
Cash and cash equivalents | | $117,318 | | | $108,298 | |
Accounts receivable, net | | 269,850 | | | 244,919 | |
Contract assets | | 79,598 | | | 80,073 | |
Inventories, net | | 519,498 | | | 478,050 | |
Prepaid expenses and other current assets | | 46,461 | | | 26,045 | |
Total current assets | | 1,032,725 | | | 937,385 | |
| | | | |
Property, plant and equipment, net | | 193,558 | | | 193,638 | |
Goodwill | | 1,511,466 | | | 1,450,395 | |
Intangible assets, net | | 624,917 | | | 582,307 | |
Other assets | | 322,667 | | | 334,682 | |
Total assets | | $3,685,333 | | | $3,498,407 | |
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LIABILITIES AND EQUITY |
Current liabilities: | | | | |
Current maturities of long-term debt | | $1,781 | | | $1,515 | |
Trade accounts payable | | 97,089 | | | 85,544 | |
Accrued expenses and other current liabilities | | 203,289 | | | 206,857 | |
Income taxes payable | | 2,033 | | | 964 | |
Total current liabilities | | 304,192 | | | 294,880 | |
| | | | |
Long-term debt, net of current maturities | | 264,095 | | | 234,983 | |
Deferred income taxes | | 42,629 | | | 40,761 | |
Other long-term liabilities | | 350,016 | | | 378,257 | |
Total liabilities | | 960,932 | | | 948,881 | |
| | | | |
Commitments and contingencies (Note 11) | | | | |
| | | | |
Redeemable noncontrolling interests (Note 3) | | 303,927 | | | 252,587 | |
| | | | |
Shareholders’ equity: | | | | |
Preferred Stock, $.01 par value per share; 10,000 shares authorized; none issued | | — | | | — | |
Common Stock, $.01 par value per share; 150,000 shares authorized; 54,504 and 54,264 shares issued and outstanding | | 545 | | | 543 | |
Class A Common Stock, $.01 par value per share; 150,000 shares authorized; 81,449 and 81,224 shares issued and outstanding | | 814 | | | 812 | |
Capital in excess of par value | | 311,053 | | | 320,747 | |
Deferred compensation obligation | | 5,297 | | | 5,297 | |
HEICO stock held by irrevocable trust | | (5,297) | | | (5,297) | |
Accumulated other comprehensive loss | | (30,554) | | | (8,552) | |
Retained earnings | | 2,100,178 | | | 1,949,521 | |
Total HEICO shareholders’ equity | | 2,382,036 | | | 2,263,071 | |
Noncontrolling interests | | 38,438 | | | 33,868 | |
Total shareholders’ equity | | 2,420,474 | | | 2,296,939 | |
Total liabilities and equity | | $3,685,333 | | | $3,498,407 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | Three months ended April 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Net sales | $1,029,156 | | | $884,553 | | | $538,813 | | | $466,651 | |
| | | | | | | |
Operating costs and expenses: | | | | | | | |
Cost of sales | 627,717 | | | 546,346 | | | 327,584 | | | 286,878 | |
Selling, general and administrative expenses | 179,840 | | | 161,174 | | | 88,452 | | | 83,025 | |
| | | | | | | |
Total operating costs and expenses | 807,557 | | | 707,520 | | | 416,036 | | | 369,903 | |
| | | | | | | |
Operating income | 221,599 | | | 177,033 | | | 122,777 | | | 96,748 | |
| | | | | | | |
Interest expense | (1,775) | | | (4,531) | | | (979) | | | (2,083) | |
Other income | 540 | | | 1,017 | | | 314 | | | 306 | |
| | | | | | | |
Income before income taxes and noncontrolling interests | 220,364 | | | 173,519 | | | 122,112 | | | 94,971 | |
| | | | | | | |
Income tax expense | 33,000 | | | 20,800 | | | 29,000 | | | 18,500 | |
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Net income from consolidated operations | 187,364 | | | 152,719 | | | 93,112 | | | 76,471 | |
| | | | | | | |
Less: Net income attributable to noncontrolling interests | 15,433 | | | 11,450 | | | 8,102 | | | 5,798 | |
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Net income attributable to HEICO | $171,931 | | | $141,269 | | | $85,010 | | | $70,673 | |
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Net income per share attributable to HEICO shareholders: | | | | | | | |
Basic | $1.27 | | | $1.04 | | | $.63 | | | $.52 | |
Diluted | $1.25 | | | $1.03 | | | $.62 | | | $.51 | |
| | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | |
Basic | 135,763 | | | 135,252 | | | 135,891 | | | 135,294 | |
Diluted | 137,916 | | | 137,778 | | | 137,867 | | | 137,814 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME – UNAUDITED
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | Three months ended April 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Net income from consolidated operations | $187,364 | | | $152,719 | | | $93,112 | | | $76,471 | |
Other comprehensive (loss) income: | | | | | | | |
Foreign currency translation adjustments | (23,028) | | | 11,109 | | | (14,277) | | | (539) | |
Amortization of unrealized loss on defined benefit pension plan, net of tax | 33 | | | 68 | | | 22 | | | 34 | |
Total other comprehensive (loss) income | (22,995) | | | 11,177 | | | (14,255) | | | (505) | |
Comprehensive income from consolidated operations | 164,369 | | | 163,896 | | | 78,857 | | | 75,966 | |
Net income attributable to noncontrolling interests | 15,433 | | | 11,450 | | | 8,102 | | | 5,798 | |
Foreign currency translation adjustments attributable to noncontrolling interests | (993) | | | 354 | | | (663) | | | (50) | |
Comprehensive income attributable to noncontrolling interests | 14,440 | | | 11,804 | | | 7,439 | | | 5,748 | |
Comprehensive income attributable to HEICO | $149,929 | | | $152,092 | | | $71,418 | | | $70,218 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
For the Six Months Ended April 30, 2022 and 2021
(in thousands, except per share data)
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| | | 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 |
Balances as of October 31, 2021 | $252,587 | | | $543 | | | $812 | | | $320,747 | | | $5,297 | | | ($5,297) | | | ($8,552) | | | $1,949,521 | | | $33,868 | | | $2,296,939 | |
Comprehensive income (loss) | 9,262 | | | — | | | — | | | — | | | — | | | — | | | (22,002) | | | 171,931 | | | 5,178 | | | 155,107 | |
Cash dividends ($.09 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12,227) | | | — | | | (12,227) | |
Issuance of common stock to HEICO Savings and Investment Plan | — | | | — | | | — | | | 7,739 | | | — | | | — | | | — | | | — | | | — | | | 7,739 | |
Share-based compensation expense | — | | | — | | | — | | | 6,855 | | | — | | | — | | | — | | | — | | | — | | | 6,855 | |
Proceeds from stock option exercises | — | | | 3 | | | 3 | | | 1,604 | | | — | | | — | | | — | | | — | | | — | | | 1,610 | |
Redemptions of common stock related to stock option exercises | — | | | (1) | | | (1) | | | (23,690) | | | — | | | — | | | — | | | — | | | — | | | (23,692) | |
Noncontrolling interests assumed related to acquisitions | 39,235 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Distributions to noncontrolling interests | (9,968) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (608) | | | (608) | |
Adjustments to redemption amount of redeemable noncontrolling interests | 9,047 | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,047) | | | — | | | (9,047) | |
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Other | 3,764 | | | — | | | — | | | (2,202) | | | — | | | — | | | — | | | — | | | — | | | (2,202) | |
Balances as of April 30, 2022 | $303,927 | | | $545 | | | $814 | | | $311,053 | | | $5,297 | | | ($5,297) | | | ($30,554) | | | $2,100,178 | | | $38,438 | | | $2,420,474 | |
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| | | 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 Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total Shareholders' Equity |
Balances as of October 31, 2020 | $221,208 | | | $542 | | | $809 | | | $299,930 | | | $4,886 | | | ($4,886) | | | ($9,149) | | | $1,688,045 | | | $30,430 | | | $2,010,607 | |
Comprehensive income | 9,061 | | | — | | | — | | | — | | | — | | | — | | | 10,823 | | | 141,269 | | | 2,743 | | | 154,835 | |
Cash dividends ($.08 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,818) | | | — | | | (10,818) | |
Issuance of common stock to HEICO Savings and Investment Plan | — | | | — | | | — | | | 7,440 | | | — | | | — | | | — | | | — | | | — | | | 7,440 | |
Share-based compensation expense | — | | | — | | | — | | | 4,271 | | | — | | | — | | | — | | | — | | | — | | | 4,271 | |
Proceeds from stock option exercises | — | | | — | | | 2 | | | 3,836 | | | — | | | — | | | — | | | — | | | — | | | 3,838 | |
Redemptions of common stock related to stock option exercises | — | | | — | | | — | | | (3,624) | | | — | | | — | | | — | | | — | | | — | | | (3,624) | |
Distributions to noncontrolling interests | (12,720) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,103) | | | (1,103) | |
Adjustments to redemption amount of redeemable noncontrolling interests | 5,698 | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,698) | | | — | | | (5,698) | |
Deferred compensation obligation | — | | | — | | | — | | | — | | | (109) | | | 109 | | | — | | | — | | | — | | | — | |
Other | 19 | | | — | | | — | | | 142 | | | — | | | — | | | — | | | — | | | — | | | 142 | |
Balances as of April 30, 2021 | $223,266 | | | $542 | | | $811 | | | $311,995 | | | $4,777 | | | ($4,777) | | | $1,674 | | | $1,812,798 | | | $32,070 | | | $2,159,890 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
For the Three Months Ended April 30, 2022 and 2021
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
Balances as of January 31, 2022 | $258,289 | | | $545 | | | $814 | | | $302,104 | | | $5,297 | | | ($5,297) | | | ($16,962) | | | $2,018,990 | | | $36,565 | | | $2,342,056 | |
Comprehensive income (loss) | 5,121 | | | — | | | — | | | — | | | — | | | — | | | (13,592) | | | 85,010 | | | 2,318 | | | 73,736 | |
Issuance of common stock to HEICO Savings and Investment Plan | — | | | — | | | — | | | 6,069 | | | — | | | — | | | — | | | — | | | — | | | 6,069 | |
Share-based compensation expense | — | | | — | | | — | | | 3,241 | | | — | | | — | | | — | | | — | | | — | | | 3,241 | |
Proceeds from stock option exercises | — | | | — | | | — | | | 841 | | | — | | | — | | | — | | | — | | | — | | | 841 | |
Redemptions of common stock related to stock option exercises | — | | | — | | | — | | | (69) | | | — | | | — | | | — | | | — | | | — | | | (69) | |
Noncontrolling interests assumed related to acquisitions | 39,063 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Distributions to noncontrolling interests | (4,085) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (445) | | | (445) | |
Adjustments to redemption amount of redeemable noncontrolling interests | 3,822 | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,822) | | | — | | | (3,822) | |
Other | 1,717 | | | — | | | — | | | (1,133) | | | — | | | — | | | — | | | — | | | — | | | (1,133) | |
Balances as of April 30, 2022 | $303,927 | | | $545 | | | $814 | | | $311,053 | | | $5,297 | | | ($5,297) | | | ($30,554) | | | $2,100,178 | | | $38,438 | | | $2,420,474 | |
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| | | 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 Income | | Retained Earnings | | Noncontrolling Interests | | Total Shareholders' Equity |
Balances as of January 31, 2021 | $222,225 | | | $542 | | | $811 | | | $301,107 | | | $4,777 | | | ($4,777) | | | $2,129 | | | $1,744,247 | | | $31,323 | | | $2,080,159 | |
Comprehensive income (loss) | 4,264 | | | — | | | — | | | — | | | — | | | — | | | (455) | | | 70,673 | | | 1,484 | | | 71,702 | |
Issuance of common stock to HEICO Savings and Investment Plan | — | | | — | | | — | | | 7,440 | | | — | | | — | | | — | | | — | | | — | | | 7,440 | |
Share-based compensation expense | — | | | — | | | — | | | 2,042 | | | — | | | — | | | — | | | — | | | — | | | 2,042 | |
Proceeds from stock option exercises | — | | | — | | | — | | | 1,388 | | | — | | | — | | | — | | | — | | | — | | | 1,388 | |
Redemptions of common stock related to stock option exercises | — | | | — | | | — | | | (53) | | | — | | | — | | | — | | | — | | | — | | | (53) | |
Distributions to noncontrolling interests | (5,342) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (737) | | | (737) | |
Adjustments to redemption amount of redeemable noncontrolling interests | 2,122 | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,122) | | | — | | | (2,122) | |
Other | (3) | | | — | | | — | | | 71 | | | — | | | — | | | — | | | — | | | — | | | 71 | |
Balances as of April 30, 2021 | $223,266 | | | $542 | | | $811 | | | $311,995 | | | $4,777 | | | ($4,777) | | | $1,674 | | | $1,812,798 | | | $32,070 | | | $2,159,890 | |
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)
| | | | | | | | | | | |
| Six months ended April 30, |
| 2022 | | 2021 |
Operating Activities: | | | |
Net income from consolidated operations | $187,364 | | | $152,719 | |
Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities: | | | |
Depreciation and amortization | 46,707 | | | 45,919 | |
Share-based compensation expense | 6,855 | | | 4,271 | |
Employer contributions to HEICO Savings and Investment Plan | 5,364 | | | 5,046 | |
Deferred income tax provision (benefit) | 2,080 | | | (8,487) | |
(Decrease) increase in accrued contingent consideration, net | (1,773) | | | 659 | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
Increase in accounts receivable | (20,263) | | | (3,795) | |
Decrease in contract assets | 1,778 | | | 596 | |
(Increase) decrease in inventories | (42,766) | | | 2,932 | |
Increase in prepaid expenses and other current assets | (8,974) | | | (12,032) | |
Increase in trade accounts payable | 8,137 | | | 10,843 | |
(Decrease) increase in accrued expenses and other current liabilities | (15,946) | | | 1,981 | |
Decrease in income taxes payable | (9,343) | | | (4,076) | |
Net changes in other long-term liabilities and assets related to HEICO Leadership Compensation Plan | 13,356 | | | 11,826 | |
Other | 2,177 | | | 1,710 | |
Net cash provided by operating activities | 174,753 | | | 210,112 | |
| | | |
Investing Activities: | | | |
Acquisitions, net of cash acquired | (105,533) | | | (20,226) | |
Capital expenditures | (16,211) | | | (21,938) | |
Investments related to HEICO Leadership Compensation Plan | (11,700) | | | (10,900) | |
Other | (10,511) | | | 1,017 | |
Net cash used in investing activities | (143,955) | | | (52,047) | |
| | | |
Financing Activities: | | | |
Borrowings on revolving credit facility | 93,000 | | | — | |
Payments on revolving credit facility | (65,000) | | | (155,000) | |
Redemptions of common stock related to stock option exercises | (23,692) | | | (3,624) | |
Cash dividends paid | (12,227) | | | (10,818) | |
Distributions to noncontrolling interests | (10,576) | | | (13,823) | |
Revolving credit facility issuance costs | (1,010) | | | (1,468) | |
Proceeds from stock option exercises | 1,610 | | | 3,838 | |
Other | (210) | | | (522) | |
Net cash used in financing activities | (18,105) | | | (181,417) | |
| | | |
Effect of exchange rate changes on cash | (3,673) | | | 1,944 | |
| | | |
Net increase (decrease) in cash and cash equivalents | 9,020 | | | (21,408) | |
Cash and cash equivalents at beginning of year | 108,298 | | | 406,852 | |
Cash and cash equivalents at end of period | $117,318 | | | $385,444 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2021. The October 31, 2021 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 six months ended April 30, 2022 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. ("HFSC") 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 in fiscal 2022 continue to reflect the adverse impact from the COVID-19 global pandemic (the “Pandemic”). Despite the aforementioned, the Company experienced continued improvement in operating results in the first six months and second quarter of fiscal 2022 as compared to the first six months and second quarter of fiscal 2021 principally reflecting improved demand for its commercial aerospace products. The Flight Support Group has reported seven consecutive quarters of improvement in net sales and operating income resulting from signs of commercial air travel recovery in certain domestic travel markets, moderated by a slower recovery in international travel markets.
New Accounting Pronouncement
In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022, or in fiscal 2024 for HEICO. Early adoption is permitted and ASU 2021-08 shall be applied on a prospective basis to business combinations that occur on or after the adoption date. The Company is currently evaluating the effect, if any, the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.
2. ACQUISITIONS
In March 2022, the Company, through a subsidiary of HFSC, acquired 74% of the membership interests of Pioneer Industries, LLC ("Pioneer"). Pioneer is a specialty distributor of spares for military aviation, marine, and ground platforms. The remaining 26% interest continues to be owned by certain members of Pioneer's management team (see Note 3, Selected Financial Statement Information - Redeemable Noncontrolling Interests, for additional information). The total consideration includes an accrual of $9.8 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may be obligated to pay should Pioneer meet a certain earnings objective following the acquisition. See Note 8, Fair Value Measurements, for additional information regarding the Company’s contingent consideration obligation. The purchase price of this acquisition was paid in cash, principally using proceeds from the Company's revolving credit facility.
In March 2022, the Company, through a subsidiary of HEICO Electronic, acquired 100% of the stock of Flight Microwave Corporation ("Flight Microwave"). Flight Microwave is a designer and manufacturer of custom high power filters and filter assemblies used in space and defense applications. The purchase price of this acquisition was paid in cash using cash provided by operating activities.
The purchase price of Pioneer and Flight Microwave is not material or significant to the Company's condensed consolidated financial statements. The allocation of the total consideration for the fiscal 2022 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 2022 acquisitions were included in the Company’s results of operations as of each effective acquisition date. The amount of net sales and earnings of the fiscal 2022 acquisitions included in the Condensed Consolidated Statements of Operations for the six and three months ended April 30, 2022 is not material. Had the fiscal 2022 acquisitions
occurred as of November 1, 2020, 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 six and three months ended April 30, 2022 and 2021 would not have been materially different than the reported amounts.
3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
| | | | | | | | | | | | | | |
(in thousands) | | April 30, 2022 | | October 31, 2021 |
Accounts receivable | | $282,088 | | | $255,793 | |
Less: Allowance for doubtful accounts | | (12,238) | | | (10,874) | |
Accounts receivable, net | | $269,850 | | | $244,919 | |
Inventories
| | | | | | | | | | | | | | |
(in thousands) | | April 30, 2022 | | October 31, 2021 |
Finished products | | $260,130 | | | $238,867 | |
Work in process | | 48,798 | | | 44,887 | |
Materials, parts, assemblies and supplies | | 210,570 | | | 194,296 | |
Inventories, net of valuation reserves | | $519,498 | | | $478,050 | |
Property, Plant and Equipment
| | | | | | | | | | | | | | |
(in thousands) | | April 30, 2022 | | October 31, 2021 |
Land | | $11,065 | | | $11,363 | |
Buildings and improvements | | 134,970 | | | 134,150 | |
Machinery, equipment and tooling | | 301,558 | | | 297,297 | |
Construction in progress | | 12,940 | | | 7,784 | |
| | 460,533 | | | 450,594 | |
Less: Accumulated depreciation and amortization | | (266,975) | | | (256,956) | |
Property, plant and equipment, net | | $193,558 | | | $193,638 | |
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 $15.9 million as of April 30, 2022 and $13.2 million as of October 31, 2021. The total customer rebates and credits deducted within net sales for the six months ended April 30, 2022 and 2021 was $3.7 million and $1.8 million, respectively. The total customer rebates and credits deducted within net sales for the three months ended April 30, 2022 and 2021 was $2.0 million and $1.0 million, respectively.
Research and Development Expenses
The amount of new product research and development ("R&D") expenses included in cost of sales for the six and three months ended April 30, 2022 and 2021 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | Three months ended April 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
R&D expenses | $37,147 | | | $34,203 | | | $18,751 | | | $18,022 | |
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 2032. The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the "Redemption Amount") be at fair value or 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):
| | | | | | | | | | | |
| April 30, 2022 | | October 31, 2021 |
Redeemable at fair value | $270,107 | | | $217,416 | |
Redeemable based on a multiple of future earnings | 33,820 | | | 35,171 | |
Redeemable noncontrolling interests | $303,927 | | | $252,587 | |
As discussed in Note 2, Acquisitions, the Company, through a subsidiary of HFSC, acquired 74% of the membership interests of Pioneer in March 2022. As part of the operating agreement, the noncontrolling interest holders have the right to cause the Company to purchase their membership interest over a four-year period beginning in fiscal 2029, or sooner under certain conditions, and the Company has the right to purchase the same membership interest over the same period.
During fiscal 2022, the Company sold a 3% equity interest in a subsidiary of the FSG that was acquired in fiscal 2015, which decreased the Company's ownership interest in the subsidiary to 82%. As part of the operating agreement, the noncontrolling interest holder has the right to cause the Company to purchase its equity interest over a five-year period beginning in fiscal 2028, or sooner under certain conditions, and the Company has the right to purchase the same equity interest over the same period.
During fiscal 2022, the Company sold 10% of the membership interests of a subsidiary of the FSG that was acquired in fiscal 2018, which decreased the Company's ownership interest in the subsidiary to 90%. As part of the operating agreement, the noncontrolling interest holder has the right to cause the Company to purchase its membership interest over a four-year period beginning in fiscal 2027, or sooner under certain conditions, and the Company has the right to purchase the same membership interest over the same period.
Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss for the six months ended April 30, 2022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Defined Benefit Pension Plan | | Accumulated Other Comprehensive Loss |
Balances as of October 31, 2021 | ($6,989) | | | ($1,563) | | | ($8,552) | |
Unrealized loss | (22,035) | | | — | | | (22,035) | |
Amortization of unrealized loss | — | | | 33 | | | 33 | |
Balances as of April 30, 2022 | ($29,024) | | | ($1,530) | | | ($30,554) | |
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by operating segment for the six months ended April 30, 2022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Segment | | Consolidated Totals |
| FSG | | ETG | |
Balances as of October 31, 2021 | $468,288 | | | $982,107 | | | $1,450,395 | |
Goodwill acquired | 69,130 | | | 2,565 | | | 71,695 | |
Foreign currency translation adjustments | (4,344) | | | (5,139) | | | (9,483) | |
Adjustments to goodwill | (266) | | | (875) | | | (1,141) | |
Balances as of April 30, 2022 | $532,808 | | | $978,658 | | | $1,511,466 | |
The goodwill acquired pertains to the fiscal 2022 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. The adjustments to goodwill principally represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal 2021 acquisitions. The Company estimates that $70 million of the goodwill acquired in fiscal 2022 will be deductible for income tax purposes.
Identifiable intangible assets consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of April 30, 2022 | | As of October 31, 2021 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortizing Assets: | | | | | | | | | | | | |
Customer relationships | | $470,592 | | | ($189,664) | | | $280,928 | | | $464,506 | | | ($221,098) | | | $243,408 | |
Intellectual property | | 253,133 | | | (101,736) | | | 151,397 | | | 255,011 | | | (94,313) | | | 160,698 | |
Licenses | | |