Edgar Filing: HEICO CORP

Document

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, 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. Yes x 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 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 26, 2019 is as follows:



Common Stock, $.01 par value	53,362,618	shares
Class A Common Stock, $.01 par value	79,604,916	shares

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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, 2019 and October 31, 2018	2

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

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

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

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

		Notes to Condensed Consolidated Financial Statements (unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

	Item 4.	Controls and Procedures	36

Part II.	Other Information

	Item 6.	Exhibits	37

Signatures			38

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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)



	January 31, 2019			October 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		$57,856			$59,599
Accounts receivable, net	237,800			237,286
Contract assets	47,093			14,183
Inventories, net	406,348			401,553
Prepaid expenses and other current assets	30,328			21,187
Total current assets	779,425			733,808

Property, plant and equipment, net	169,279			154,739
Goodwill	1,170,401			1,114,832
Intangible assets, net	529,191			506,360
Other assets	148,718			143,657
Total assets		$2,797,014			$2,653,396

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt		$865			$859
Trade accounts payable	89,545			107,219
Accrued expenses and other current liabilities	133,705			171,514
Income taxes payable	—			2,837
Total current liabilities	224,115			282,429

Long-term debt, net of current maturities	607,656			531,611
Deferred income taxes	59,133			46,644
Other long-term liabilities	165,360			157,658
Total liabilities	1,056,264			1,018,342

Commitments and contingencies (Note 11)

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

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; 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	324,395			320,994
Deferred compensation obligation	4,043			3,928
HEICO stock held by irrevocable trust	(4,043		)	(3,928		)
Accumulated other comprehensive loss	(11,069		)	(15,256		)
Retained earnings	1,174,811			1,091,183
Total HEICO shareholders’ equity	1,489,467			1,398,251
Noncontrolling interests	112,288			104,757
Total shareholders’ equity	1,601,755			1,503,008
Total liabilities and equity		$2,797,014			$2,653,396

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

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HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

(in thousands, except per share data)



	Three months ended January 31,
	2019			2018

Net sales		$466,146			$404,410

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

Total operating costs and expenses	368,199			324,850

Operating income	97,947			79,560

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

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

Income tax expense	4,100			3,500

Net income from consolidated operations	88,026			71,695

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

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

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

Weighted average number of common shares outstanding:
Basic	132,933			132,048
Diluted	136,978			136,390

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

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HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME – UNAUDITED

(in thousands)



	Three months ended January 31,
	2019		2018

Net income from consolidated operations		$88,026		$71,695
Other comprehensive income:
Foreign currency translation adjustments	4,374		15,963
Amortization of unrealized loss on defined benefit pension plan, net of tax	6		4
Total other comprehensive income	4,380		15,967
Comprehensive income from consolidated operations	92,406		87,662
Net income attributable to noncontrolling interests	8,694		6,543
Foreign currency translation adjustments attributable to noncontrolling interests	193		994
Comprehensive income attributable to noncontrolling interests	8,887		7,537
Comprehensive income attributable to HEICO		$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
	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, 2018		$132,046			$534		$796		$320,994			$3,928		($3,928	)		($15,256	)		$1,091,183			$104,757			$1,503,008
Cumulative effect from adoption of ASC 606 (see Note 1)	819			—		—		—			—		—			—			13,373			326			13,699
Comprehensive income	3,639			—		—		—			—		—			4,187			79,332			5,248			88,767
Cash dividends ($.07 per share)	—			—		—		—			—		—			—			(9,305		)	—			(9,305		)
Issuance of common stock to HEICO Savings and Investment Plan	—			—		—		1,046			—		—			—			—			—			1,046
Share-based compensation expense	—			—		—		2,439			—		—			—			—			—			2,439
Proceeds from stock option exercises	—			—		—		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	(2,397		)	—		—		—			—		—			—			—			(398		)	(398		)
Adjustments to redemption amount of redeemable noncontrolling interests	(228		)	—		—		—			—		—			—			228			—			228
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
	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, 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	—			—		—		980			—		—			—			—			—			980
Share-based compensation expense	—			—		—		2,165			—		—			—			—			—			2,165
Proceeds from stock option exercises	—			—		1		1,424			—		—			—			—			—			1,425
Distributions to noncontrolling interests	(1,688		)	—		—		—			—		—			—			—			(194		)	(194		)
Adjustments to redemption amount of redeemable noncontrolling interests	(2,026		)	—		—		—			—		—			—			2,026			—			2,026
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,
	2019			2018
Operating Activities:
Net income from consolidated operations		$88,026			$71,695
Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities:
Depreciation and amortization	20,037			19,024
Share-based compensation expense	2,439			2,168
Employer contributions to HEICO Savings and Investment Plan	2,153			1,860
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	4,982			18,272
Decrease (increase) in contract assets	7,270			(3,809		)
Increase in inventories	(24,284		)	(18,301		)
Increase in prepaid expenses and other current assets	(7,921		)	(5,403		)
Decrease in trade accounts payable	(19,832		)	(9,734		)
Decrease in accrued expenses and other current liabilities	(34,537		)	(18,477		)
(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	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	(5,907		)	(7,577		)
Other	72			(2,790		)
Net cash used in investing activities	(115,574		)	(23,393		)

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

Effect of exchange rate changes on cash	703			2,443

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

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

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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, 2018. The October 31, 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, 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 Split

All applicable fiscal 2018 share and per share information has been adjusted retrospectively to reflect a 5-for-4 stock split effected in June 2018.

New Accounting Pronouncements

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

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new revenue recognition model that supersedes nearly all existing revenue recognition guidance. Under ASC 606, an entity 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 disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.

The Company adopted ASC 606 as of November 1, 2018 using the modified retrospective method and recognized the cumulative effect of initially applying ASC 606 to all uncompleted contracts on the date of adoption as an adjustment to the opening balance of retained earnings. The 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 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. ASC 606 also impacts the timing of revenue recognition for certain other contracts under which the Company creates or enhances customer-owned assets while performing repair and overhaul services. For these two types of contracts, the Company now recognizes revenue using an over-time recognition model as opposed to generally recognizing revenue at the time of shipment under previous guidance. See Note 6, Revenue, for additional information regarding the Company's revenue recognition policies and disclosures required by ASC 606.

The following table presents the cumulative effect of adopting ASC 606 on the Company's Condensed Consolidated Balance Sheet as of 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

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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, 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 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 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

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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 November 2018, the Company, through a subsidiary of HEICO Electronic, acquired an additional equity interest in Freebird Semiconductor Corporation ("Freebird"), which increased the Company's aggregate equity interest in Freebird to greater than 50%. Accordingly, the Company began consolidating the operating results of Freebird as of the acquisition date. Prior to this transaction, the Company accounted for its investment in Freebird under the equity method. Freebird is a fabless design and manufacturing company that offers advanced high-reliability wide-band gap power switching technology. The purchase price of this acquisition was paid in cash using cash provided by operating activities.

In November 2018, the Company, through HEICO Electronic, acquired 92.7% of the stock of Apex Microtechnology, Inc. ("Apex"). Apex designs and manufactures precision power analog monolithic, hybrid and open frame components for a certain wide range of aerospace, defense, industrial, measurement, medical and test applications. The remaining 7.3% interest continues to be owned by certain members of Apex's management team (see Note 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 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

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The following table summarizes the allocation of the aggregate total consideration for the Company's fiscal 2019 acquisitions to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed (in thousands):





Assets acquired:
Goodwill		$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 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 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

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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 the fiscal 2019 acquisitions were included in the Company’s results of operations from each of the effective acquisition dates. The amount of net sales and earnings of the fiscal 2019 acquisitions included in the Condensed Consolidated Statement of Operations for the three months ended January 31, 2019 is not material. Had the fiscal 2019 acquisitions occurred as of November 1, 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, 2019 and 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

Inventories



(in thousands)	January 31, 2019		October 31, 2018
Finished products		$196,224		$192,758
Work in process	35,692		49,315
Materials, parts, assemblies and supplies	174,432		158,039
Contracts in process	—		1,649
Less: Billings to date	—		(208		)
Inventories, net of valuation reserves		$406,348		$401,553

Prior to the adoption of ASC 606, contracts in process represented accumulated capitalized costs associated with fixed price contracts. Additionally, related progress billings and customer advances (“billings to date”) were classified as a reduction to contracts in process, if any, and any excess was 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.

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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

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, 2019 and $16.9 million as of October 31, 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 $2.5 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, 2019 and 2018 is as follows (in thousands):



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

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 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

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

Changes in the components of accumulated other comprehensive loss for the three months ended January 31, 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	)

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by operating segment for the three months ended January 31, 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

The goodwill acquired pertains to the fiscal 2019 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 represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal 2018 acquisitions. The Company estimates that $17 million of the goodwill acquired in fiscal 2019 will be deductible for income tax purposes.

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

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 was $12.8 million and $12.4 million, respectively. Amortization expense related to intangible assets for the remainder of fiscal 2019 is estimated to be $38.6 million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $48.7 million in fiscal 2020, $45.9 million in fiscal 2021, $39.5 million in fiscal 2022, $34.4 million in fiscal 2023, $30.2 million in fiscal 2024, and $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		)