HEI 10-K Fiscal year ended Oct. 31, 2018

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•	Fluctuations in currency exchange rates;

•	Volatility in foreign political, regulatory, and economic environments;

•	Ability to obtain required export licenses or approvals;

•	Uncertainty of the ability of foreign customers to finance purchases;

•	Uncertainties and restrictions concerning the availability of funding credit or guarantees;

•	Imposition of taxes, export controls, tariffs, embargoes and other trade restrictions; and

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•	Compliance with a variety of international laws, as well as U.S. laws affecting the activities of U.S. companies abroad such as the U.S. Foreign Corrupt Practices Act.

•	For jet engine and aircraft component replacement parts, we compete with the industry’s leading jet engine and aircraft component OEMs.

•	For the distribution, overhaul and repair of jet engine and aircraft components as well as avionics and navigation systems, we compete with:

-	major commercial airlines, many of which operate their own maintenance and overhaul units;

-	OEMs, which manufacture, distribute, repair and overhaul their own and other OEM parts; and

-	other independent service companies.

•	For the design and manufacture of various types of electronic and electro-optical equipment as well as high voltage interconnection devices and high speed interface products, we compete in a fragmented marketplace with a number of companies, some of which are well capitalized.

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•	We may not be able to successfully protect the proprietary interests we have in various aircraft parts, electronic and electro-optical equipment and our repair processes;

•	As OEMs continue to develop and improve jet engines and aircraft components, we may not be able to re-design and manufacture replacement parts that perform as well as those offered by OEMs or we may not be able to profitably sell our replacement parts at lower prices than the OEMs;

•	We may need to expend significant capital to:

-	purchase new equipment and machines,

-	train employees in new methods of production and service, and

-	fund the research and development of new products; and

•	Development by our competitors of patents or methodologies that preclude us from the design and manufacture of aircraft replacement parts or electrical and electro-optical equipment could adversely affect our business, financial condition and results of operations.

•	Availability of suitable acquisition candidates;

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•	Availability of capital;

•	Diversion of management’s attention;

•	Effective integration of the operations and personnel of acquired companies;

•	Potential write downs of acquired intangible assets;

•	Potential loss of key employees of acquired companies;

•	Use of a significant portion of our available cash;

•	Significant dilution to our shareholders for acquisitions made utilizing our securities; and

•	Consummation of acquisitions on satisfactory terms.

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•	Changes in available tax credits or tax deductions;

•	Changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles;

•	The amount of net income attributable to noncontrolling interests in our subsidiaries structured as partnerships;

•	Changes in the mix of earnings in jurisdictions with differing statutory tax rates;

•	Adjustments to estimated taxes upon finalization of various tax returns;

•	Resolution of issues arising from tax audits with various tax authorities;

•	Changes in statutory tax rates in any of the various jurisdictions where we file tax returns; and

•	The reversal of any previously experienced tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation Leadership Compensation Plan, a nonqualified deferred compensation plan.

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(1)	Represents the square footage of our corporate offices in Miami, Florida.  The square footage of our corporate headquarters in Hollywood, Florida is included within the square footage under the caption “United States facilities (13 states)” under Flight Support Group.

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Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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(1)	Results include the results of acquisitions from each respective effective date.  See Note 2, Acquisitions, of the Notes to Consolidated Financial Statements for more information.

(2)	All share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock splits effected in June 2018, January 2018 and April 2017.

(3)

During fiscal 2018, the United States ("U.S.") government enacted significant changes to existing tax law resulting in HEICO recording a discrete tax benefit from remeasuring its U.S. federal net deferred tax liabilities that was partially offset by a provisional discrete tax expense related to a one-time transition tax on the unremitted earnings of HEICO's foreign subsidiaries. The net impact of these amounts increased net income attributable to HEICO by $12.1 million, or $.09 per basic and diluted share. See Note 6, Income Taxes, of the Notes to Consolidated Financial Statements for more information.

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(4)

During fiscal 2017, we adopted Accounting Standards Update ("ASU") 2016-09, "Improvements to Employee Share-Based Payment Accounting," resulting in the recognition of a $3.1 million discrete income tax benefit and a 1,220,000 increase in our weighted average number of diluted common shares outstanding, which, net of noncontrolling interests, increased net income attributable to HEICO by $2.6 million, or $.02 per basic and $.01 per diluted share.

(5)	Includes $3.1 million of acquisition costs incurred in connection with a fiscal 2016 acquisition within the Electronic Technologies Group ("ETG"). These expenses, net of tax, decreased net income attributable to HEICO by $2.0 million, or $.02 per basic and $.01 per diluted share.

(6)

Operating income was increased by a $28.1 million reduction in accrued contingent consideration related to a fiscal 2013 and a fiscal 2012 acquisition within the ETG, partially offset by $15.0 million in impairment losses related to the write-down of certain intangible assets of the fiscal 2013 and fiscal 2012 acquisitions to their estimated fair values as well as lower than expected operating income at the fiscal 2013 acquired business, which in aggregate increased net income attributable to HEICO by $10.2 million, or $.08 per basic and diluted share. The reduction in accrued contingent consideration and $13.1 million of the impairment losses were recorded as a component of selling, general and administrative expenses, while the remaining impairment losses of $1.9 million were recorded as a component of cost of sales.

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Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Designs, Manufactures, Repairs, Overhauls and Distributes Jet Engine and Aircraft Component Replacement Parts. The Flight Support Group designs, manufactures, repairs, overhauls and distributes jet engine and aircraft component replacement parts.  The parts and services are approved by the Federal Aviation Administration (“FAA”).  The Flight Support Group also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the United States ("U.S.") government. Additionally, the Flight Support Group is a leading supplier, distributor, and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the U.S. and a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation, defense and space applications. Further, the Flight Support Group engineers, designs and manufactures thermal insulation blankets and parts as well as removable/reusable insulation systems for aerospace, defense, commercial and industrial applications, manufactures expanded foil mesh for lightning strike protection in fixed and rotary wing aircraft and is a leading distributor of aviation electrical interconnect products and electromechanical parts.

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Designs and Manufactures Electronic, Microwave and Electro-Optical Equipment, High-Speed Interface Products, High Voltage Interconnection Devices and High Voltage Advanced Power Electronics. The Electronic Technologies Group designs, manufactures and sells various types of electronic, microwave and electro-optical equipment and components, including power supplies, laser rangefinder receivers, infrared simulation, calibration and testing equipment; power conversion products serving the high-reliability military, space and commercial avionics end-markets; underwater locator beacons used to locate data and voice recorders utilized on aircraft and marine vessels; emergency locator beacons utilized on commercial and military aircraft; electromagnetic interference shielding for commercial and military aircraft operators, electronics companies and telecommunication equipment suppliers; traveling wave tube amplifiers and microwave power modules used in radar, electronic warfare and on-board jamming and countermeasure systems; advanced high-technology interface products that link devices such as telemetry receivers, digital cameras, high resolution scanners, simulation systems

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(1)	Excludes interest charges on borrowings and the fee on the amount of any unused commitment that we may be obligated to pay under our revolving credit facility as such amounts vary.  See Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements and “Liquidity and Capital Resources,” above for additional information regarding our long-term debt obligations.

(2)	Inclusive of $2.7 million in interest charges.  See Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements for additional information regarding our capital lease obligations.

(3)	See Note 15, Commitments and Contingencies – Lease Commitments, of the Notes to Consolidated Financial Statements for additional information regarding our operating lease obligations.

(4)	Includes contingent consideration aggregating $20.9 million related to a fiscal 2015, 2016 and 2017 acquisition. See Note 7, Fair Value Measurements, of the Notes to Consolidated Financial Statements for additional information.

(5)	Also includes an aggregate $4.3 million of commitments principally for capital expenditures and inventory. All purchase obligations of inventory and supplies in the ordinary course of business (i.e., with deliveries scheduled within the next year) are excluded from the table.

(6)

The holders of equity interests in certain of our subsidiaries have rights (“Put Rights”) that may be exercised on varying dates causing us to purchase their equity interests through fiscal 2025.  The Put Rights provide that cash consideration be paid for their equity interests (the “Redemption Amount”). As of October 31, 2018, management’s estimate of the aggregate Redemption Amount of all Put Rights that we could be required to pay is approximately $132.0 million, which is reflected within redeemable noncontrolling interests in our Consolidated Balance Sheet. The amounts in the table do not include Put Right obligations as none of the noncontrolling interest holders have exercised their Put Rights as of October 31, 2018. See Note 11, Redeemable Noncontrolling Interests, of the Notes to Consolidated Financial Statements for further information.

(7)

The amounts in the table do not include liabilities related to the HEICO LCP or our other deferred compensation arrangement as they are each fully supported by assets held within irrevocable trusts. See Note 3, Selected Financial Statement Information - Other Long-Term Assets and Liabilities, of the Notes to Consolidated Financial Statements for further information about these two deferred compensation plans.

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•	Lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services;

•	Product specification costs and requirements, which could cause an increase to our costs to complete contracts;

•	Governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales;

•	Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth;

•	Product development or manufacturing difficulties, which could increase our product development costs and delay sales;

•	Our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest, foreign currency exchange and income tax rates; economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues; and

•	Defense spending or budget cuts, which could reduce our defense-related revenue.

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Nature of Business

HEICO Corporation, through its principal subsidiaries consisting of HEICO Aerospace Holdings Corp. (“HEICO Aerospace”), HEICO Flight Support Corp. and HEICO Electronic Technologies Corp. (“HEICO Electronic”) and their respective subsidiaries (collectively, the “Company”), is principally engaged in the design, manufacture and sale of aerospace, defense and electronic related products and services throughout the United States ("U.S.") and internationally.  The Company’s customer base is primarily the aviation, defense, space, medical, telecommunications and electronics industries.

Basis of Presentation

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

The consolidated financial statements include the financial accounts of HEICO Corporation and its subsidiaries, all of which are wholly owned except for HEICO Aerospace, which is 20 % owned by Lufthansa Technik AG ("LHT"), the technical services subsidiary of Lufthansa German Airlines.  In addition, HEICO Aerospace consolidates two subsidiaries which are 80.1 % and 82.3 % owned, respectively, and a joint venture, which is 84 % owned. Also, HEICO Flight Support Corp. consolidates two subsidiaries which are 80 % and 84 % , owned, respectively, and four subsidiaries that are each 80.1 % owned. Furthermore, HEICO Electronic consolidates four subsidiaries, which are 80.1 % , 80.1 % , 82.5 % , and 95.9 % owned, respectively. Additionally, a wholly owned subsidiary of HEICO Electronic consolidates two subsidiaries which are 78 % and 85 % owned, respectively, while an 82.5 % owned subsidiary of HEICO Electronic consolidates a subsidiary in which it has a 53.1 % controlling interest. See Note 11, Redeemable Noncontrolling Interests. All intercompany balances and transactions are eliminated.

Stock Splits

In June 2018, December 2017 and March 2017, the Company's Board of Directors declared a 5-for-4 stock split on both classes of the Company's common stock. The stock splits were effected as of June 28, 2018, January 18, 2018 and April 19, 2017, respectively, in the form of a 25 % stock dividend distributed to shareholders of record as of June 21, 2018, January 3, 2018 and April 7, 2017, respectively. All applicable share and per share information has been adjusted retrospectively to give effect to the 5-for-4 stock splits.

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Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the consolidated financial statements, the Company considers all highly liquid investments such as U.S. Treasury bills and money market funds, without liquidity fees or redemption gates, with an original maturity of three months or less at the time of purchase to be cash equivalents.

Accounts Receivable

Accounts receivable consist of amounts billed and currently due from customers and unbilled costs and estimated earnings related to revenue from certain fixed price contracts recognized on the percentage-of-completion method that have been recognized for accounting purposes, but not yet billed to customers.  The valuation of accounts receivable requires that the Company set up an allowance for estimated uncollectible accounts and record a corresponding charge to bad debt expense.  The Company estimates uncollectible receivables based on such factors as its prior experience, its appraisal of a customer’s ability to pay, age of receivables outstanding and economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade accounts receivable.  The Company places its temporary cash investments with high credit quality financial institutions and limits the amount of credit exposure to any one financial institution.  Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company’s customer base and their dispersion across many different geographical regions.  The Company performs ongoing credit evaluations of its customers, but does not generally require collateral to support customer receivables.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost being determined on the first-in, first-out or the average cost basis.  Losses, if any, are recognized fully in the period when identified.

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The Company periodically evaluates the carrying value of inventory, giving consideration to factors such as its physical condition, sales patterns and expected future demand in order to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.

These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen or did not exist when the estimated write-downs were made. In accordance with industry practice, all inventories are classified as a current asset including portions with long production cycles, some of which may not be realized within one year.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Depreciation and amortization is generally provided on the straight-line method over the estimated useful lives of the various assets. The Company’s property, plant and equipment is generally depreciated over the following estimated useful lives:

	Buildings and improvements	10	to	40	years
	Machinery and equipment	3	to	10	years
	Leasehold improvements	2	to	20	years
	Tooling	2	to	5	years

The costs of major additions and improvements are capitalized.  Leasehold improvements are amortized over the shorter of the leasehold improvement’s useful life or the lease term.

Repairs and maintenance costs are expensed as incurred. Upon an asset's disposition, its cost and related accumulated depreciation are removed from the financial accounts and any resulting gain or loss is reflected within earnings.

Capital Leases

Assets acquired under capital leases are recorded at the lower of the asset's fair value or the present value of the future minimum lease payments, excluding any portion of the lease payments representing executory costs. The discount rate used in determining the present value of the minimum lease payments is the lower of the rate implicit in the lease or the Company's incremental borrowing rate. Assets under capital leases are included in property, plant and equipment and are depreciated over the shorter of the lease term or the useful life of the leased asset. Lease payments under capital leases are recognized as a reduction of the capital lease obligation and as interest expense.

Business Combinations

The Company allocates the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed based on their estimated fair values, with any excess recorded as goodwill.  The operating results of acquired businesses are included in the Company’s results of operations beginning as of their effective acquisition dates. Acquisition costs are generally expensed as

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incurred, were not material in fiscal 2018 or 2017 and totaled $ 3.2 million in fiscal 2016. See Note 2, Acquisitions, for additional information regarding fiscal 2016 acquisition costs.

For contingent consideration arrangements, a liability is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations. Additional information regarding the Company's contingent consideration arrangements may be found in Note 2, Acquisitions, and Note 7, Fair Value Measurements.

Goodwill and Other Intangible Assets

The Company tests goodwill for impairment annually as of October 31, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable.  In evaluating the recoverability of goodwill, the Company compares the fair value of each of its reporting units to its carrying value to determine potential impairment.  If the carrying value of a reporting unit exceeds its fair value, the implied fair value of that reporting unit’s goodwill is to be calculated and an impairment loss is recognized in the amount by which the carrying value of the reporting unit’s goodwill exceeds its implied fair value, if any. The fair values of the Company's reporting units are determined by using a weighted average of a market approach and an income approach.  Under the market approach, fair values are estimated using published market multiples for comparable companies. The Company calculates fair values under the income approach by taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital.

The Company’s intangible assets not subject to amortization consist principally of its trade names. The Company’s intangible assets subject to amortization are amortized on the straight-line method (except for certain customer relationships amortized on an accelerated method) over the following estimated useful lives :

	Customer relationships	4	to	15	years
	Intellectual property	4	to	22	years
	Licenses	10	to	17	years
	Patents	5	to	20	years
	Trade names	8	to	15	years

Amortization expense of intellectual property, licenses and patents is recorded as a component of cost of sales, and amortization expense of customer relationships, non-compete agreements and trade names is recorded as a component of selling, general and administrative ("SG&A") expenses in the Company’s Consolidated Statements of Operations.  The Company tests each non-amortizing intangible asset for impairment annually as of October 31, or more frequently if events or changes in circumstances indicate that the asset might be impaired. To derive the fair value of its trade names, the Company utilizes an income approach, which relies upon management's assumptions of royalty rates, projected revenues and discount rates.  The Company also tests each amortizing intangible asset for impairment if events or circumstances

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indicate that the asset might be impaired.  The test consists of determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.  If the total of the undiscounted future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. The determination of fair value requires management to make a number of estimates, assumptions and judgments of such factors as projected revenues and earnings and discount rates.

Investments

Investments are stated at fair value based on quoted market prices.  Investments that are intended to be held for less than one year are included within prepaid expenses and other current assets in the Company’s Consolidated Balance Sheets, while those intended to be held for longer than one year are classified within other assets.  Unrealized gains or losses associated with available-for-sale securities are reported net of tax within other comprehensive income or (loss) in shareholders’ equity.  Unrealized gains or losses associated with trading securities are recorded as a component of other income in the Company’s Consolidated Statements of Operations.

Customer Rebates and Credits

The Company records accrued customer rebates and credits as a component of accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheets.  These amounts generally relate to discounts negotiated with customers as part of certain sales contracts that are usually tied to sales volume thresholds.  The Company accrues customer rebates and credits as a reduction within net sales as the revenue is recognized based on the estimated level of discount rate expected to be earned by each customer over the life of the contractual rebate period (generally one year).  Accrued customer rebates and credits are monitored by management and discount levels are updated at least quarterly.

Product Warranties

Product warranty liabilities are estimated at the time of shipment and recorded as a component of accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheets.  The amount recognized is based on historical claims experience.

Defined Benefit Pension Plan

In connection with a prior year acquisition, the Company assumed a frozen qualified defined benefit pension plan (the "Plan"). The Plan's benefits are based on employee compensation and years of service; however, the accrued benefit for Plan participants was fixed as of the date of acquisition. The Company uses an actuarial valuation to determine the projected benefit obligation of the Plan and records the difference between the fair value of the Plan's assets and the projected benefit obligation as of October 31 in its Consolidated Balance Sheets. Additionally, any actuarial gain or loss that arises during a fiscal year that is not recognized as a component of net periodic pension income or expense is recorded as a component of other

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comprehensive income or (loss), net of tax. See Note 10, Employee Retirement Plans, for additional information and disclosures about the Plan.

Revenue Recognition

Revenue from the sale of products and the rendering of services is recognized when title and risk of loss passes to the customer, which is generally at the time of shipment.  Revenue from the rendering of services represented less than 10 % of consolidated net sales for all periods presented.  Revenue from certain fixed price contracts for which costs can be dependably estimated is recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract.  The percentage of the Company’s net sales recognized under the percentage-of-completion method was approximately 2 % , 3 % and 3 % in fiscal 2018, 2017 and 2016, respectively.  Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs.  SG&A costs are charged to expense as incurred.

Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the period of revision.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Variations in actual labor performance, changes to estimated profitability, and final contract settlements may result in revisions to cost estimates and are recognized in income in the period in which the revisions are determined.  Changes in estimates pertaining to percentage-of-completion contracts did not have a material effect on net income from consolidated operations in fiscal 2018, 2017 or 2016.

The asset, “costs and estimated earnings in excess of billings” on uncompleted percentage-of-completion contracts, included in accounts receivable, represents revenue recognized in excess of amounts billed.  The liability, “billings in excess of costs and estimated earnings,” included in accrued expenses and other current liabilities, represents billings in excess of revenue recognized on contracts accounted for under the percentage-of-completion method.

Billings are made based on the completion of certain milestones as provided for in the contracts.

For fixed price contracts in which costs cannot be dependably estimated, revenue is recognized on the completed-contract method.  A contract is considered complete when all significant costs have been incurred or the item has been accepted by the customer.  Progress billings and customer advances (“billings to date”) received on fixed price contracts accounted for under the completed-contract method are classified as a reduction to contracts in process (a component of inventories), if any, and any remaining amount is included in accrued expenses and other current liabilities.

Effective as of the beginning of the first quarter of fiscal 2019, the Company will adopt Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers,” which will impact the timing of revenue recognition for two types of the Company's customer contracts. See “New Accounting Pronouncements,” below for additional information.

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Stock-Based Compensation

The Company records compensation expense associated with stock options in its Consolidated Statements of Operations based on the grant date fair value of those awards.  The fair value of each stock option on the date of grant is estimated using the Black-Scholes pricing model based on certain valuation assumptions.  Expected stock price volatility is based on the Company’s historical stock prices over the contractual term of the option grant and other factors.  The risk-free interest rate used is based on the published U.S. Treasury yield curve in effect at the time of the option grant for instruments with a similar life.  The dividend yield reflects the Company’s expected dividend yield at the date of grant.  The expected option life represents the period of time that the stock options are expected to be outstanding, taking into consideration the contractual term of the option grant and employee historical exercise behavior.  The Company generally recognizes stock option compensation expense ratably over the award’s vesting period.

Income Taxes

Income tax expense includes U.S. and foreign income taxes, plus a provision for U.S. taxes on undistributed earnings of foreign subsidiaries not deemed to be permanently invested.  Deferred income taxes are provided on elements of income that are recognized for financial accounting purposes in periods different from periods recognized for income tax purposes. The Company’s policy is to recognize interest and penalties related to income tax matters as a component of income tax expense.  Further information regarding income taxes can be found in Note 6, Income Taxes.

Redeemable Noncontrolling Interests

As further detailed in Note 11, Redeemable Noncontrolling Interests, the holders of equity interests in certain of the Company’s subsidiaries have rights (“Put Rights”) that require the Company to provide cash consideration for their equity interests (the “Redemption Amount”) at fair value or at a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period.  The Put Rights are embedded in the shares owned by the noncontrolling interest holders and are not freestanding.

The Company tracks the carrying cost of such redeemable noncontrolling interests at historical cost plus an allocation of subsidiary earnings based on ownership interest, less dividends paid to the noncontrolling interest holders.  Redeemable noncontrolling interests are recorded outside of permanent equity at the higher of their carrying cost or management’s estimate of the Redemption Amount.  The initial adjustment to record redeemable noncontrolling interests at the Redemption Amount results in a corresponding decrease to retained earnings.  Subsequent adjustments to the Redemption Amount of redeemable noncontrolling interests may result in corresponding decreases or increases to retained earnings, provided any increases to retained earnings may only be recorded to the extent of decreases previously recorded.  Adjustments to Redemption Amounts based on fair value will have no effect on net income per share attributable to HEICO shareholders whereas the portion of periodic adjustments to the carrying amount of redeemable noncontrolling interests based solely on a multiple of future earnings that reflect a

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redemption amount in excess of fair value will affect net income per share attributable to HEICO shareholders.  Acquisitions of redeemable noncontrolling interests are treated as equity transactions.

Net Income per Share Attributable to HEICO Shareholders

Basic net income per share attributable to HEICO shareholders is computed by dividing net income attributable to HEICO by the weighted average number of common shares outstanding during the period.  Diluted net income per share attributable to HEICO shareholders is computed by dividing net income attributable to HEICO by the weighted average number of common shares outstanding during the period plus potentially dilutive common shares arising from the assumed exercise of stock options, if dilutive.  The dilutive impact of potentially dilutive common shares is determined by applying the treasury stock method.

Foreign Currency

All assets and liabilities of foreign subsidiaries that do not utilize the U.S. dollar as its functional currency are translated at period-end exchange rates, while revenue and expenses are translated using average exchange rates for the period.  Unrealized translation gains or losses are reported as foreign currency translation adjustments through other comprehensive income or (loss) in shareholders’ equity. Transaction gains or losses related to balances denominated in a currency other than the functional currency are recorded in the Company's Consolidated Statements of Operations.

Contingencies

Losses for contingencies such as product warranties, litigation and environmental matters are recognized in income when they are probable and can be reasonably estimated.  Gain contingencies are not recognized in income until they have been realized.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, which provides a comprehensive new revenue recognition model that will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09, as amended, is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2017, or in fiscal 2019 for HEICO. ASU 2014-09 shall be applied either retrospectively to each prior reporting period presented (“full retrospective method”) or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application (“modified retrospective method”).

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The Company has completed a review of its customer contracts and has evaluated the impact of ASU 2014-09 on each of its primary revenue streams. While the Company finalizes its overall assessment of the amended guidance, the most significant impact relates to the timing of revenue recognition, presentation and disclosures. ASU 2014-09 will impact the timing of revenue recognition for two types of the Company’s customer contracts. For certain contracts under which it produces products with no alternative use and for which the Company has an enforceable right to payment during the production cycle and for certain other contracts under which the Company creates or enhances customer-owned assets while performing repair and overhaul services, ASU 2014-09 will require HEICO to recognize revenue using an over-time recognition model as opposed to the Company’s current policy of recognizing revenue at the time of shipment. For impacted customer contracts, the adoption of ASU 2014-09 will accelerate revenue recognition and the associated cost of sales.

Effective as of the beginning of the first quarter of fiscal 2019, the Company will adopt ASU 2014-09 using the modified retrospective method and recognize a cumulative effect adjustment to retained earnings based on any open contracts at that time for which revenue recognition has changed from a point-in-time recognition model to an over-time recognition model. While the ongoing impact to net sales and net income is not expected to be material to the Company’s consolidated results of operations, the future impact of ASU 2014-09 is dependent on the mix and nature of specific customer contracts. The Company is nearing completion of implementing changes to its business processes, systems and controls needed to support recognition and disclosure requirements under ASU 2014-09.

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

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 August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which clarifies how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. The Company adopted ASU 2016-15 on a retrospective basis in the fourth quarter of fiscal 2018, which requires that proceeds from corporate-owned life insurance policies be classified as cash inflows from investing activities. Such proceeds aggregated $ .1 million over the past three fiscal years and were all received in

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fiscal 2016. In addition, and as permitted by ASU 2016-15, the Company has elected to classify investments related to the HEICO Corporation Leadership Compensation Plan as cash outflows from investing activities as such investments primarily represent premium payments on corporate-owned life insurance policies. The adoption of ASU 2016-15 resulted in an $ 11.5 million , $ 13.4 million and $ 10.5 million increase in cash provided by operating activities and in cash used in investing activities in fiscal 2018, 2017 and fiscal 2016, respectively.

AAT Acquisition

On September 15, 2017 , the Company, through HEICO Electronic, acquired all of the outstanding stock of AeroAntenna Technology, Inc. ("AAT"). The purchase price of this acquisition was paid in cash using proceeds from the Company's revolving credit facility. AAT designs and produces high performance active antenna systems for commercial aircraft, precision guided munitions, other defense applications and commercial uses. The Company believes that this acquisition is consistent with HEICO’s practice of acquiring high quality niche designers and manufacturers who also focus on customer needs and will further enable the Company to broaden its product offerings, technologies and customer base.

The following table summarizes the total consideration for the acquisition of AAT (in thousands):

Cash paid		$ 317,500
Less: cash acquired	( 868		)
Cash paid, net	316,632
Contingent consideration	13,797
Additional purchase consideration	544
Total consideration		$ 330,973

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As noted in the table above, the total consideration includes an accrual of $ 13.8 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may be obligated to pay should AAT meet certain earnings objectives during the first six years following the acquisition. See Note 7, Fair Value Measurements, for additional information regarding the Company's contingent consideration obligation.

The following table summarizes the allocation of the total consideration for the acquisition of AAT to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands):

Assets acquired:
Goodwill		$ 157,901
Customer relationships	100,000
Intellectual property	39,000
Trade name	20,000
Inventories	8,306
Accounts receivable	6,115
Property, plant and equipment	1,893
Other assets	208
Total assets acquired, excluding cash	333,423
Liabilities assumed:
Accounts payable	1,299
Accrued expenses	1,151
Total liabilities assumed	2,450
Net assets acquired, excluding cash		$ 330,973

The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of AAT and the value of its assembled workforce that do not qualify for separate recognition. The amortization period of the customer relationships, intellectual property and trade name acquired is 15 years , 15 years and indefinite, respectively. The operating results of AAT were included in the Company’s results of operations from the effective acquisition date. The Company's consolidated net sales and net income attributable to HEICO for the fiscal year ended October 31, 2017 includes $ 10.2 million and $ 2.5 million , respectively from the acquisition of AAT.

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The following table presents unaudited pro forma financial information for fiscal 2017 and fiscal 2016 as if the acquisition of AAT had occurred as of November 1, 2015 (in thousands, except per share data):

	Year ended October 31,
	2017				2016
Net sales		$ 1,582,653				$ 1,428,336
Net income from consolidated operations		$ 220,419				$ 185,070
Net income attributable to HEICO		$ 198,744				$ 165,112
Net income per share attributable to HEICO shareholders:
Basic		$ 1.51				$ 1.26
Diluted		$ 1.47				$ 1.24

The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place as of November 1, 2015. The unaudited pro forma financial information includes adjustments to historical amounts such as additional amortization expense related to intangible assets acquired, increased interest expense associated with borrowings to finance the acquisition and inventory purchase accounting adjustments charged to cost of sales as the inventory is sold.

Robertson Acquisition

On January 11, 2016 , the Company, through HEICO Electronic, acquired all of the limited liability company interests of Robertson Fuel Systems, LLC ("Robertson"). The purchase price of this acquisition was paid in cash using proceeds from the Company’s revolving credit facility. Robertson designs and produces mission-extending, crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft. The Company believes that this acquisition is consistent with HEICO’s practice of acquiring outstanding niche designers and manufacturers of critical components in the defense industry and will further enable the Company to broaden its product offerings, technologies and customer base.

The following table summarizes the total consideration for the acquisition of Robertson (in thousands):

Cash paid		$ 256,293
Less: cash acquired	( 3,271		)
Total consideration		$ 253,022

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The following table summarizes the allocation of the total consideration for the acquisition of Robertson to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands):

Assets acquired:
Goodwill		$ 93,425
Customer relationships	55,100
Intellectual property	39,600
Trade name	28,400
Inventories	27,417
Property, plant and equipment	7,476
Accounts receivable	4,973
Other assets	1,884
Total assets acquired, excluding cash	258,275
Liabilities assumed:
Accounts payable	4,606
Accrued expenses	647
Total liabilities assumed	5,253
Net assets acquired, excluding cash		$ 253,022

The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of Robertson and the value of its assembled workforce that do not qualify for separate recognition. The amortization period of the customer relationships, intellectual property and trade name acquired is 15 years , 22 years and indefinite, respectively. Acquisition costs associated with the purchase of Robertson totaled $ 3.1 million in fiscal 2016 and were recorded as a component of SG&A expenses in the Company's Consolidated Statements of Operations. The operating results of Robertson were included in the Company’s results of operations from the effective acquisition date. The Company's consolidated net sales and net income attributable to HEICO for the fiscal year ended October 31, 2016 includes $ 84.1 million and $ 12.3 million , respectively, from the acquisition of Robertson, exclusive of the aforementioned acquisition costs.

Had the acquisition of Robertson been consummated as of November 1, 2014, 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 fiscal 2016 would not have been materially different than the reported amounts.

Other Acquisitions

In September 2018, the Company, through a subsidiary of HEICO Electronic, obtained control over 53.1 % of the equity interests of SST Components, Inc. (“SST”) . SST manufactures discrete semiconductor components, tests electronic components, and custom assembles a wide variety of prototype and off the shelf components into desired package styles for military, space and commercial uses. The purchase price of this acquisition was paid using cash provided by operating activities.

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In August 2018, the Company, through a subsidiary of HEICO Flight Support Corp., acquired all of the business and assets of Optical Display Engineering ("ODE") . ODE is a Federal Aviation Administration ("FAA")-authorized Part 145 Repair Station focusing on the repair of LCD screens and display modules for aviation displays used in civilian and military aircraft. ODE also holds FAA-Parts Manufacturer Approval authority to supply products that it repairs. The purchase price of this acquisition was paid in cash, principally using cash provided by operating activities.

In April 2018, the Company, through a subsidiary of HEICO Electronic, acquired all of the assets and business of the Emergency Locator Transmitter Beacon product line ("ELT Product Line") of Instrumar Limited. The ELT Product Line designs and manufactures Emergency Locator Transmitter Beacons for the commercial aviation and defense markets, that upon activation, transmit a distress signal to alert search and rescue operations of the aircraft's location. The purchase price of this acquisition was paid using cash provided by operating activities.

In February 2018, the Company, through a subsidiary of HEICO Electronic, acquired 85 % of the assets and business of Sensor Technology Engineering, Inc. ("Sensor Technology") . Sensor Technology designs and manufactures sophisticated nuclear radiation detectors for law enforcement, homeland security and military applications. The remaining 15 % continues to be owned by certain members of Sensor Technology's management team (see Note 11, Redeemable Noncontrolling Interests, for additional information).

In November 2017, the Company, through a subsidiary of HEICO Electronic, acquired all of the stock of Interface Displays & Controls, Inc. ("IDC") . IDC designs and manufactures electronic products for aviation, marine, military fighting vehicles, and embedded computing markets. The purchase price of this acquisition was paid using cash provided by operating activities.

In June 2017, the Company, through a subsidiary of the HEICO Flight Support Corp., acquired all of the ownership interests of Carbon by Design ("CBD"). CBD is a manufacturer of composite components for UAVs, rockets, spacecraft and other specialized applications. The purchase price of CBD was paid using cash provided by operating activities.

In April 2017, the Company, through a subsidiary of HEICO Flight Support Corp., acquired 80.1 % of the equity interests of LLP Enterprises, LLC, which owns all of the outstanding equity interests of the operating units of Air Cost Control ("A2C"). A2C is a leading aviation electrical interconnect product distributor of items such as connectors, wire, cable, protection and fastening systems, in addition to distributing a wide range of electromechanical parts. The remaining 19.9 % interest continues to be owned by certain members of A2C's management team (see Note 11, Redeemable Noncontrolling Interests, for additional information).

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In December 2015, the Company, through a subsidiary of HEICO Electronic, acquired certain assets of a company that designs and manufactures underwater locator beacons used to locate aircraft cockpit voice recorders, flight data recorders, marine ship voyage recorders and other devices which have been submerged under water . The total consideration includes an accrual as of the acquisition date representing the estimated fair value of contingent consideration the Company may be obligated to pay in aggregate during the first five years following the acquisition. See Note 7, Fair Value Measurements, for additional information regarding the Company's contingent consideration obligation. The purchase price of this acquisition was paid using cash provided by operating activities.

Unless otherwise noted, the purchase price of each of the above referenced other acquisitions was paid in cash, principally using proceeds from the Company's revolving credit facility, and is not material or significant to the Company's consolidated financial statements.

The following table summarizes the aggregate total consideration for the Company's other acquisitions (in thousands):

	Year ended October 31,
	2018				2017				2016
Cash paid		$ 61,931				$ 109,346				$ 11,000
Less: cash acquired	( 4,000		)		( 7,713		)		—
Cash paid, net	57,931				101,633				11,000
Contingent consideration	—				—				1,225
Additional purchase consideration	( 407		)		1,300				—
Total consideration		$ 57,524				$ 102,933				$ 12,225

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

	Year ended October 31,
	2018				2017				2016
Assets acquired:
Goodwill		$ 38,320				$ 49,932				$ 6,876
Customer relationships	11,620				29,500				2,800
Trade names	760				16,750				300
Intellectual property	6,970				1,950				2,000
Inventories	6,219				28,410				249
Accounts receivable	1,488				15,165				—
Property, plant and equipment	1,807				4,522				—
Other assets	51				982				—
Total assets acquired, excluding cash	67,235				147,211				12,225
Liabilities assumed:
Accounts payable	671				7,696				—
Accrued expenses	1,522				6,054				—
Deferred income taxes	—				5,432				—
Other liabilities	—				1,434				—
Total liabilities assumed	2,193				20,616				—
Noncontrolling interests in consolidated subsidiaries	7,518				23,662				—
Net assets acquired, excluding cash		$ 57,524				$ 102,933				$ 12,225

The following table summarizes the weighted average amortization period of the definite-lived intangible assets acquired in connection with the Company's other fiscal 2018, 2017 and 2016 acquisitions (in years):

	Year ended October 31,
	2018			2017			2016
Customer relationships	7			12			11
Trade names	—			—			15
Intellectual property	10			13			15

The allocation of the total consideration of the Company's other fiscal 2018 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

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the goodwill recognized were the premiums paid by the Company for the future earnings potential of the businesses acquired and the value of their assembled workforces that do not qualify for separate recognition, which, in the case of Sensor Technology and A2C benefit both the Company and the noncontrolling interest holders. The fair value of the noncontrolling interests in Sensor Technology and A2C 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 Company's other fiscal 2018 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 Company's other fiscal 2018 acquisitions included in the Consolidated Statement of Operations is not material. Had the other fiscal 2018 acquisitions occurred as of November 1, 2016, 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 fiscal 2018 and 2017 would not have been materially different than the reported amounts.

The operating results of the Company's other fiscal 2017 acquisitions were included in the Company's results of operations from each of the effective acquisition dates. The Company's consolidated net sales for the fiscal year ended October 31, 2017 includes $ 49.0 million from the other fiscal 2017 acquisitions. The amount of earnings of the other fiscal 2017 acquisitions included in the Company's results of operations for the fiscal year ended October 31, 2017 is not material. Had the other fiscal 2017 acquisitions occurred as of November 1, 2015, net sales on a pro forma basis for fiscal 2017 would not have been materially different than the reported amounts and net sales on a pro forma basis for fiscal 2016 would have been $ 1,464.5 million . Net income from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to HEICO shareholders on a pro forma basis for fiscal 2017 and 2016 would not have been materially different than the reported amounts. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisitions had taken place as of November 1, 2015.

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Accounts Receivable

		As of October 31,
(in thousands)		2018				2017
Accounts receivable			$ 254,727				$ 225,462
Less: Allowance for doubtful accounts		( 3,258		)		( 3,006		)
Accounts receivable, net			$ 251,469				$ 222,456

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

		As of October 31,
(in thousands)		2018				2017
Costs incurred on uncompleted contracts			$ 39,350				$ 29,491
Estimated earnings		19,708				19,902
		59,058				49,393
Less: Billings to date		( 45,731		)		( 41,262		)
			$ 13,327				$ 8,131
Included in the accompanying Consolidated Balance Sheets under the following captions:
Accounts receivable, net (costs and estimated earnings in excess of billings)			$ 14,183				$ 9,377
Accrued expenses and other current liabilities (billings in excess of costs and estimated earnings)		( 856		)		( 1,246		)
			$ 13,327				$ 8,131

Changes in estimates pertaining to percentage-of-completion contracts did not have a material effect on net income from consolidated operations in fiscal 2018, 2017 or 2016.

Inventories

		As of October 31,
(in thousands)		2018				2017
Finished products			$ 192,758				$ 173,559
Work in process		49,315				39,986
Materials, parts, assemblies and supplies		158,039				128,031
Contracts in process		1,649				2,415
Less: Billings to date		( 208		)		( 363		)
Inventories, net of valuation reserves			$ 401,553				$ 343,628

Contracts in process represents accumulated capitalized costs associated with fixed price contracts. Related progress billings and customer advances (“billings to date”) are classified as a

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reduction to contracts in process, if any, and any excess is included in accrued expenses and other liabilities.

Property, Plant and Equipment

		As of October 31,
(in thousands)		2018				2017
Land			$ 5,864				$ 5,435
Buildings and improvements		101,424				91,916
Machinery, equipment and tooling		230,108				191,298
Construction in progress		5,044				5,553
		342,440				294,202
Less:  Accumulated depreciation and amortization		( 187,701		)		( 164,319		)
Property, plant and equipment, net			$ 154,739				$ 129,883

The amounts set forth above include tooling costs having a net book value of $ 8.2 million and $ 7.6 million as of October 31, 2018 and 2017, respectively. Amortization expense on capitalized tooling was $ 2.8 million , $ 2.7 million and $ 2.9 million in fiscal 2018, 2017 and 2016, respectively.

The amounts set forth above also include $ 11.9 million and $ 4.8 million of assets under capital leases as of October 31, 2018 and October 31, 2017, respectively. Accumulated depreciation associated with assets under capital leases was $ 1.5 million and $ 1.0 million as of October 31, 2018 and October 31, 2017, respectively. See Note 5, Long-Term Debt, for additional information pertaining to capital lease obligations.

Depreciation and amortization expense, exclusive of tooling, on property, plant and equipment was $ 23.2 million , $ 21.9 million and $ 20.4 million in fiscal 2018, 2017 and 2016, respectively.

Accrued Expenses and Other Current Liabilities

		As of October 31,
(in thousands)		2018				2017
Accrued employee compensation and related payroll taxes			$ 97,048				$ 78,058
Deferred revenue		28,262				29,247
Accrued customer rebates and credits		16,861				12,866
Contingent consideration and other accrued purchase consideration		6,138				7,588
Other		23,205				19,853
Accrued expenses and other current liabilities			$ 171,514				$ 147,612

The increase in accrued employee compensation and related payroll taxes principally reflects a higher level of accrued performance-based compensation resulting from the improved consolidated operating results and the impact of our fiscal 2018 acquisitions. The total customer

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rebates and credits deducted within net sales in fiscal 2018, 2017 and 2016 was $ 9.9 million , $ 11.0 million and $ 10.8 million , respectively.

Other Long-Term Assets and Liabilities

The Company provides eligible employees, officers and directors of the Company the opportunity to voluntarily defer base salary, bonus payments, commissions, long-term incentive awards and directors fees, as applicable, on a pre-tax basis through the HEICO Corporation Leadership Compensation Plan (“LCP”), a nonqualified deferred compensation plan that conforms to Section 409A of the Internal Revenue Code.  The Company matches 50 % of the first 6 % of base salary deferred by each participant.  Director fees that would otherwise be payable in Company common stock may be deferred into the LCP, and, when distributable, are distributed in actual shares of Company common stock.  The LCP does not provide for diversification of a director’s assets allocated to Company common stock.  The deferred compensation obligation associated with Company common stock is recorded as a component of shareholders’ equity at cost and subsequent changes in fair value are not reflected in operations or shareholders’ equity of the Company.  Further, while the Company has no obligation to do so, the LCP also provides the Company the opportunity to make discretionary contributions.  The Company’s matching contributions and any discretionary contributions are subject to vesting and forfeiture provisions set forth in the LCP.  Company contributions to the LCP charged to income in fiscal 2018, 2017 and 2016 totaled $ 5.9 million , $ 4.6 million and $ 6.8 million , respectively.  The aggregate liabilities of the LCP were $ 125.8 million and $ 116.0 million as of October 31, 2018 and 2017, respectively, and are classified within other long-term liabilities in the Company’s Consolidated Balance Sheets.  The assets of the LCP, totaling $ 126.8 million and $ 117.2 million as of October 31, 2018 and 2017, respectively, are classified within other assets and principally represent cash surrender values of life insurance policies that are held within an irrevocable trust that may be used to satisfy the obligations under the LCP.

Other long-term liabilities also includes deferred compensation of $ 5.9 million and $ 5.7 million as of October 31, 2018 and 2017, respectively, principally related to elective deferrals of salary and bonuses under a Company sponsored non-qualified deferred compensation plan formerly available to selected employees.  The Company makes no contributions to this plan. The assets of this plan, which equaled the deferred compensation liability as of October 31, 2018 and 2017, respectively, are held within an irrevocable trust and classified within other assets in the Company’s Consolidated Balance Sheets. Additional information regarding the assets of this deferred compensation plan and the LCP may be found in Note 7, Fair Value Measurements.

Research and Development Expenses

The amount of new product research and development ("R&D") expenses included in cost of sales is as follows (in thousands):

	Year ended October 31,
	2018				2017				2016
R&D expenses		$ 57,450				$ 46,473				$ 44,726

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Accumulated Other Comprehensive Loss

Changes in the components of accumulated other comprehensive loss during fiscal 2018 and 2017 are as follows (in thousands):

Changes in the carrying amount of goodwill during fiscal 2018 and 2017 by operating segment are as follows (in thousands):

	Segment								Consolidated
	FSG				ETG				Totals
Balances as of October 31, 2016		$ 336,681				$ 529,036				$ 865,717
Goodwill acquired	48,960				160,903				209,863
Foreign currency translation adjustments	2,965				2,761				5,726
Balances as of October 31, 2017	388,606				692,700				1,081,306
Goodwill acquired	10,586				27,734				38,320
Adjustments to goodwill	972				( 3,003		)		( 2,031		)
Foreign currency translation adjustments	( 1,470		)		( 1,293		)		( 2,763		)
Balances as of October 31, 2018		$ 398,694				$ 716,138				$ 1,114,832

The goodwill acquired during fiscal 2018 and 2017 relates to the acquisitions consummated in those respective years as described in Note 2, Acquisitions, and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed. Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Consolidated Statements of Comprehensive Income. The adjustments to goodwill represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal 2017 acquisitions. The Company estimates that most of the goodwill acquired in fiscal 2018 and 2017 is deductible for income tax purposes.  Based on the annual test for goodwill impairment as of October 31, 2018, the Company determined there is no impairment of its goodwill and the fair value of each of the Company’s reporting units significantly exceeded their carrying value.

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

	As of October 31, 2018												As of October 31, 2017
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Amortizing Assets:
Customer relationships		$ 373,946				($ 135,359	)			$ 238,587				$ 379,966				($ 117,069	)			$ 262,897
Intellectual property	185,983				( 56,055		)		129,928				181,811				( 44,861		)		136,950
Licenses	6,559				( 3,522		)		3,037				6,559				( 2,928		)		3,631
Patents	927				( 609		)		318				870				( 551		)		319
Non-compete agreements	814				( 814		)		—				817				( 817		)		—
Trade names	466				( 157		)		309				466				( 118		)		348
	568,695				( 196,516		)		372,179				570,489				( 166,344		)		404,145
Non-Amortizing Assets:
Trade names	134,181				—				134,181				133,936				—				133,936
		$ 702,876				($ 196,516	)			$ 506,360				$ 704,425				($ 166,344	)			$ 538,081

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

	As of October 31,
	2018				2017
Borrowings under revolving credit facility		$ 523,000				$ 671,000
Capital leases and note payable	9,470				2,979
	532,470				673,979
Less: Current maturities of long-term debt	( 859		)		( 451		)
		$ 531,611				$ 673,528

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

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Revolving Credit Facility

On November 6, 2017, the Company entered into a new $ 1.3 billion Revolving Credit Facility Agreement ("New Credit Facility") with a bank syndicate, which matures in November 2022. Under certain circumstances, the maturity of the New Credit Facility may be extended for two one-year periods. The New Credit Facility also includes a feature that will allow the Company to increase revolving commitments under the New Credit Facility by $ 350 million , to become a $ 1.65 billion facility, through increased commitments from existing lenders or the addition of new lenders. Borrowings under the New Credit Facility may be used to finance acquisitions and for working capital and other general corporate purposes, including capital expenditures. The New Credit Facility replaced the Company's prior $ 1.0 billion (as amended) Revolving Credit Agreement.

Borrowings under the New Credit Facility accrue interest at the Company’s election of the Base Rate or the Eurocurrency Rate, plus in each case, the Applicable Rate (based on the Company’s Total Leverage Ratio). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (i) the Prime Rate; (ii) the Federal Funds Rate plus .50%; and (iii) the Eurocurrency Rate for an Interest Period of one month plus 100 basis points. The Eurocurrency Rate is the rate per annum obtained by dividing LIBOR for the applicable Interest Period by a percentage equal to 1.00 minus the daily average Eurocurrency Reserve Rate for such Interest Period, as such capitalized terms are defined in the New Credit Facility. The Applicable Rate for Eurocurrency Rate Loans ranges from 1.00 % to 2.00 % . The Applicable Rate for Base Rate Loans ranges from 0 % to 1.00 % . A fee is charged on the amount of the unused commitment ranging from .125 % to .30 % (depending on the Company’s Total Leverage Ratio). The New Credit Facility also includes $ 100 million sublimits for borrowings made in foreign currencies and for swingline borrowings, and a $ 50 million sublimit for letters of credit. Outstanding principal, accrued and unpaid interest and other amounts payable under the New Credit Facility may be accelerated upon an event of default, as such events are described in the New Credit Facility. The New Credit Facility is unsecured and contains covenants that require, among other things, the maintenance of a Total Leverage Ratio and an Interest Coverage Ratio, as such capitalized terms are defined in the New Credit Facility.

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Capital Lease Obligations

The Company's capital lease obligations are principally for manufacturing facilities including a 14-year lease that a subsidiary of HEICO Flight Support became party to during fiscal 2018. The estimated future minimum lease payments of all capital leases for the next five fiscal years and thereafter are as follows (in thousands):

The components of income before income taxes and noncontrolling interests are as follows (in thousands):

	Year ended October 31,
	2018				2017				2016
Domestic		$ 309,123				$ 264,420				$ 227,927
Foreign	47,163				33,540				29,123
Income before taxes and noncontrolling interests		$ 356,286				$ 297,960				$ 257,050

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The components of the provision for income taxes on income before income taxes and noncontrolling interests are as follows (in thousands):

	Year ended October 31,
	2018				2017				2016
Current:
Federal		$ 61,548				$ 85,047				$ 75,261
State	9,420				6,820				7,463
Foreign	12,608				9,529				7,370
	83,576				101,396				90,094
Deferred:
Federal	( 13,115		)		( 9,661		)		( 5,979		)
State	1,578				( 499		)		( 2,587		)
Foreign	( 1,439		)		( 936		)		( 628		)
	( 12,976		)		( 11,096		)		( 9,194		)
Total income tax expense		$ 70,600				$ 90,300				$ 80,900

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

	Year ended October 31,
	2018			2017			2016
Federal statutory income tax rate (blended rate in fiscal 2018)	23.3	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit	2.9	%		1.9	%		1.7	%
Discrete net tax benefit related to Tax Act	( 3.4	%)		—	%		—	%
Research and development tax credits	( 2.0	%)		( 1.8	%)		( 2.7	%)
Domestic production activities tax deduction	( .8	%)		( 1.1	%)		( 1.3	%)
Tax benefit related to stock option exercises	( .5	%)		( 1.0	%)		—	%
Noncontrolling interests’ share of income	( .3	%)		( .7	%)		( .7	%)
Tax-exempt losses (gains) on corporate-owned life insurance policies	.1	%		( 1.8	%)		( .1	%)
Other, net	.5	%		( .2	%)		( .4	%)
Effective tax rate	19.8	%		30.3	%		31.5	%

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

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which do not become effective for HEICO until fiscal 2019 but does not anticipate these provisions to materially affect its consolidated results of operations, financial position or cash flows.

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

As a result of the Tax Act, the Company's effective federal statutory income tax rate in fiscal 2018 is a blended rate of 23.3 % , which reflects the reduction in the U.S. federal statutory tax rate from 35 % to 21 % effective January 1, 2018. Additionally, the Company remeasured its U.S. federal net deferred tax liabilities and recorded a discrete tax benefit of $ 16.5 million in fiscal 2018. Further, the Company recorded a provisional discrete tax expense of $ 4.4 million in fiscal 2018 related to a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. The Company intends to pay this tax over the eight-year period allowed for in the Tax Act.

The Company’s effective tax rate in fiscal 2018 decreased to 19.8 % from 30.3 % in fiscal 2017. The decrease principally reflects the previously mentioned discrete tax benefit from the remeasurement of the Company’s U.S. federal net deferred tax liabilities and the net benefit of a lower federal statutory income tax rate, which were partially offset by the aforementioned one-time transition tax expense. Further, the decrease in fiscal 2018 was slightly moderated by an unfavorable impact from lower tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation Leadership Compensation Plan ("HEICO LCP").

The Company’s effective tax rate in fiscal 2017 decreased to 30.3 % from 31.5 % in fiscal 2016. The decrease principally reflects the favorable impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO LCP and a $ 3.1 million discrete income tax benefit related to stock option exercises resulting from the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," in the first quarter of fiscal 2017. These decreases were partially offset by the benefit recognized in fiscal 2016 from the retroactive and permanent extension of the U.S. federal R&D tax credit that resulted in the recognition of additional income tax credits for qualified R&D activities related to the last ten months of fiscal 2015 and a less favorable benefit in fiscal 2017 from the foreign tax rate differential associated with the undistributed earnings of a fiscal 2015 acquisition.

The Company files income tax returns in the U.S. federal jurisdiction and in multiple state jurisdictions.  The Company is also subject to income taxes in certain jurisdictions outside the U.S., none of which are individually material to the accompanying consolidated financial

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statements.  Generally, the Company is no longer subject to U.S. federal, state or foreign examinations by tax authorities for years prior to fiscal 2014.

The Company has not made a provision for U.S. income taxes on the undistributed

earnings of a fiscal 2015 foreign acquisition as such earnings are considered permanently

reinvested outside of the U.S. The amount of undistributed earnings is not material to the

Company's consolidated financial statements.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The Company believes that it is more likely than not that it will generate sufficient future taxable income to utilize all of its deferred tax assets and has therefore not recorded a valuation allowance on any such asset.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	As of October 31,
	2018				2017
Deferred tax assets:
Deferred compensation liability		$ 31,152				$ 47,093
Inventories	22,204				31,797
Share-based compensation	9,811				12,984
Bonus accrual	4,474				4,956
Customer rebates accrual	1,526				1,864
Vacation accrual	1,456				2,112
Deferred revenue	68				730
Other	7,084				9,230
Total deferred tax assets	77,775				110,766
Deferred tax liabilities:
Goodwill and other intangible assets	( 112,533		)		( 160,158		)
Property, plant and equipment	( 11,615		)		( 7,887		)
Other	( 271		)		( 1,747		)
Total deferred tax liabilities	( 124,419		)		( 169,792		)
Net deferred tax liability		($ 46,644	)			($ 59,026	)

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As of October 31, 2018 and 2017, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $ 2.1 million and $ 2.0 million , respectively, of which $ 1.7 million and $ 1.3 million , respectively, would decrease the Company’s income tax expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross unrecognized tax benefits during fiscal 2018 and 2017 is as follows (in thousands):

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 October 31, 2018
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Assets:
Deferred compensation plans:
Corporate-owned life insurance			$ —				$ 123,255				$ —				$ 123,255
Money market funds		3,560				—				—				3,560
Equity securities		3,179				—				—				3,179
Mutual funds		1,437				—				—				1,437
Other		1,306				—				—				1,306
Total assets			$ 9,482				$ 123,255				$ —				$ 132,737
Liabilities:
Contingent consideration			$ —				$ —				$ 20,875				$ 20,875

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		As of October 31, 2017
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Assets:
Deferred compensation plans:
Corporate-owned life insurance			$ —				$ 113,220				$ —				$ 113,220
Money market funds		3,972				—				—				3,972
Equity securities		2,895				—				—				2,895
Mutual funds		1,541				—				—				1,541
Other		1,246				—				—				1,246
Total assets			$ 9,654				$ 113,220				$ —				$ 122,874
Liabilities:
Contingent consideration			$ —				$ —				$ 27,573				$ 27,573

The Company maintains two non-qualified deferred compensation plans.  The assets of the HEICO Corporation Leadership Compensation Plan ("HEICO LCP") principally represent cash surrender values of life insurance policies, which derive their fair values from investments in mutual funds that are managed by an insurance company and are classified within Level 2 and valued using a market approach. Certain other assets of the HEICO LCP represent investments in money market funds that are classified within Level 1. The assets of the Company's other deferred compensation plan are principally invested in equity securities and mutual funds that are classified within Level 1. The assets of both plans are held within irrevocable trusts and classified within other assets in the Company’s Consolidated Balance Sheets.

As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017, the Company may be obligated to pay contingent consideration of $ 20.0 million in fiscal 2023 should the acquired entity meet certain earnings objectives during the first six years following the acquisition. As of October 31, 2018, the estimated fair value of the contingent consideration was $ 13.9 million .

As part of the agreement to acquire certain assets of a company by the ETG in fiscal 2016, the Company may be obligated to pay contingent consideration of up to $ 1.7 million in aggregate during the first four years following the first anniversary of the acquisition. During fiscal 2018, the Company paid $ .3 million of contingent consideration based on the actual financial performance of the acquired entity during the second year following the acquisition. As of October 31, 2018, the estimated fair value of the remaining contingent consideration was $ 1.2 million .

As part of the agreement to acquire a subsidiary by the FSG in fiscal 2015, the Company may be obligated to pay contingent consideration of up to € 6.1 million per year should the acquired entity meet certain earnings objectives during each of the first four years following the acquisition. The estimated fair value of the aggregate contingent consideration as of October 31,

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2017 for the third and fourth year following the acquisition was € 10.8 million , or $ 12.6 million . During fiscal 2018, the Company paid € 4.4 million , or $ 5.1 million , of contingent consideration based on the lower actual than anticipated earnings of the acquired entity during the third year following the acquisition and recognized a € 1.3 million , or $ 1.8 million , reduction in accrued contingent consideration based principally on the lower actual than anticipated earnings. As of October 31, 2018, the estimated fair vale of the contingent consideration for the fourth year following the acquisition was € 5.1 million , or $ 5.8 million .

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

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

	Fiscal 2017 Acquisition				Fiscal 2016 Acquisition					Fiscal 2015 Acquisition
Compound annual revenue growth rate range	( 4 %)	-	7 %		4	%	-	13 %		10	%	-	13 %
Weighted average discount rate	6.3 %				4.8 %					.8 %

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Changes in the Company’s contingent consideration liability measured at fair value on a recurring basis using unobservable inputs (Level 3) during fiscal 2018 and 2017 are as follows (in thousands):

	Liabilities
Balance as of October 31, 2016		$ 18,881
Contingent consideration related to acquisition	13,797
Increase in accrued contingent consideration, net	1,100
Payment of contingent consideration	( 7,039		)
Foreign currency transaction adjustments	834
Balance as of October 31, 2017	27,573
Payment of contingent consideration	( 5,425		)
Decrease in accrued contingent consideration, net	( 1,365		)
Foreign currency transaction adjustments	92
Balance as of October 31, 2018		$ 20,875
Included in the accompanying Consolidated Balance Sheet under the following captions:
Accrued expenses and other current liabilities		$ 6,107
Other long-term liabilities	14,768
		$ 20,875

The Company recorded the increase (decrease) in accrued contingent consideration and foreign currency transaction adjustments set forth in the table above within SG&A expenses in the Company's Consolidated Statements of Operations.

The Company did not have any transfers between Level 1 and Level 2 fair value measurements during fiscal 2018 and 2017.

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Common Stock and Class A Common Stock

The Company has two classes of common stock that are virtually identical in all economic respects except voting rights. Each share of Common Stock is entitled to one vote per share.  Each share of Class A Common Stock is entitled to a 1/10 vote per share.  Holders of the Company’s common stock are entitled to receive dividends and other distributions payable in cash, property, stock or otherwise, when and if declared by the Board of Directors. In the event of liquidation, after payment of debts and other liabilities of the Company, the remaining assets of the Company will be distributable ratably among the holders of both classes of common stock.

Share Repurchases

In 1990, the Company's Board of Directors authorized a share repurchase program, which allows the Company to repurchase shares of Company common stock in the open market or in privately negotiated transactions at the Company's discretion, subject to certain restrictions included in the Company's revolving credit agreement. As of October 31, 2018, the maximum number of shares that may yet be purchased under this program was 4,886,353 of either or both of the Company's Class A Common Stock and the Company's Common Stock. The repurchase program does not have a fixed termination date. During fiscal 2018, 2017 and 2016, the Company did not repurchase any shares of Company common stock under this program.

During fiscal 2018, the Company repurchased an aggregate 332,140 shares and 18,145 shares of Common Stock and Class A Common Stock, respectively, at a total cost of approximately $ 23.9 million and $ 1.1 million , respectively. The shares purchased represent shares tendered as payment of employee withholding taxes due upon the issuance of a share-based award. The shares purchased in fiscal 2018 did not impact the number of shares authorized for future purchase under the Company’s share repurchase program and are reflected as redemptions of common stock related to share-based compensation in the Company's Consolidated Statements of Shareholders' Equity and the Company's Consolidated Statements of Cash Flows. Such share repurchases in fiscal 2017 and 2016 were not material.

Stock Splits

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The Company currently has one stock option plan, the HEICO Corporation 2018 Incentive Compensation Plan ("2018 Plan"), which enables the Company to grant various forms of share-based compensation awards including stock options, restricted stock, restricted stock awards and stock appreciation rights. The 2018 Plan became effective in fiscal 2018 and replaced the Company's 2012 Incentive Compensation Plan (“2012 Plan”). Options outstanding under the Company's 2012 Plan, 2002 Stock Option Plan and Non-Qualified Stock Option Plan may be exercised pursuant to their terms. The total number of shares approved by the shareholders of the Company for the 2018 Plan is 5.0 million plus any options outstanding under the 2012 Plan as of the 2018 Plan's effective date that are subsequently forfeited or expire.  A total of approximately 11.0 million shares of the Company's common stock are reserved for issuance to employees, directors, officers and consultants as of October 31, 2018, including 6.4 million shares currently under option and 4.6 million shares available for future grants.

Stock options granted pursuant to the 2018 Plan may be designated as Common Stock and/or Class A Common Stock in such proportions as shall be determined by the Board of Directors or the Stock Option Plan Committee at its sole discretion.  The exercise price per share of a stock option granted under the 2018 Plan may not be less than the fair market value of the designated class of Company common stock as of the date of grant and stock option grants vest ratably over a period specified as of the date of grant (generally five years) and expire ten years after the date of grant.  Options issued under the 2018 Plan may be designated as incentive stock options or non-qualified stock options, but only employees are eligible to receive incentive stock options and no incentive stock options were outstanding as of October 31, 2018.  The 2018 Plan will terminate no later than the tenth anniversary of its effective date.

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Information concerning share-based activity for each of the last three fiscal years ended October 31 is as follows (in thousands, except per share data):

				Shares Under Option
	Shares Available For Grant			Shares			Weighted Average Exercise Price
Outstanding as of October 31, 2015	2,590			6,514				$ 13.07
Granted	( 586	)		586				$ 23.58
Exercised	—			( 568	)			$ 10.45
Cancelled	12			( 12	)			$ 18.62
Outstanding as of October 31, 2016	2,016			6,520				$ 14.23
Granted	( 1,186	)		1,186				$ 41.37
Exercised	—			( 409	)			$ 15.27
Outstanding as of October 31, 2017	830			7,297				$ 18.58
Shares approved by the Company's shareholders for the 2018 Incentive Compensation Plan	5,000			—				$—
Cancelled unissued shares under the 2012 Incentive Compensation Plan	( 830	)		—				$—
Granted	( 412	)		412				$ 65.64
Exercised	—			( 1,285	)			$ 10.54
Cancelled	24			( 24	)			$ 28.85
Outstanding as of October 31, 2018	4,612			6,400				$ 23.19

Information concerning stock options outstanding (all of which are vested or expected to vest) and stock options exercisable by class of common stock as of October 31, 2018 is as follows (in thousands, except per share and contractual life data):

	Options Outstanding
	Number Outstanding			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Common Stock	2,955				$ 23.48			4.4			$ 178,327
Class A Common Stock	3,445				$ 22.94			5.5		150,649
	6,400				$ 23.19			5.0			$ 328,976

	Options Exercisable
	Number Outstanding			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Common Stock	2,197				$ 14.75			3.0			$ 151,756
Class A Common Stock	2,160				$ 15.59			4.1		110,297
	4,357				$ 15.17			3.5			$ 262,053

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Information concerning stock options exercised is as follows (in thousands):

	Year ended October 31,
	2018				2017				2016
Cash proceeds from stock option exercises		$ 4,031				$ 5,659				$ 5,924
Tax benefit realized from stock option exercises	2,162				3,087				868
Intrinsic value of stock option exercises	75,152				10,376				9,751

Net income from consolidated operations for the fiscal years ended October 31, 2018, 2017 and 2016 includes compensation expense of $ 9.3 million , $ 7.4 million and $ 6.4 million , respectively, and an income tax benefit of $ 2.2 million , $ 2.8 million and $ 2.4 million , respectively, related to the Company’s stock options.  Substantially all of the stock option compensation expense was recorded as a component of SG&A expenses in the Company’s Consolidated Statements of Operations.  As of October 31, 2018, there was $ 26.9 million of pre-tax unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately 3.5 years.  The total fair value of stock options that vested in fiscal 2018, 2017 and 2016 was $ 8.5 million , $ 5.3 million and $ 5.8 million , respectively.  If there were a change in control of the Company, all of the unvested options outstanding as of October 31, 2018 would become immediately exercisable.

The fair value of each stock option grant in fiscal 2018, 2017 and 2016 was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:

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The HEICO Savings and Investment Plan (the “401(k) Plan”) is a qualified defined contribution retirement plan under which eligible employees of the Company and its participating subsidiaries may make Elective Deferral Contributions up to the limitations set forth in Section 402(g) of the Internal Revenue Code.  The Company generally makes a 50 % Employer Matching Contribution, as determined by the Board of Directors, based on a participant’s Elective Deferral Contribution up to 6 % of the participant’s Compensation for the Elective Deferral Contribution period.  The 401(k) Plan also provides that the Company may make additional Employer Contributions. Employer Contributions may be contributed in the form of the Company’s common stock or cash, as determined by the Company. Employer Contributions awarded in the form of Company common stock are valued based on the fair value of the underlying shares as of the effective date of contribution. Employer Contributions may be diversified by a participant into any of the participant-directed investment options of the 401(k) Plan; however, Employee Contributions may not be invested in Company common stock. Unless specified otherwise, all capitalized terms herein are defined in the 401(k) Plan document.

Participants receive 100 % vesting in Employee Contributions and on cash dividends received on Company common stock.  Vesting in Employer Contributions is based on a participant’s number of Years of Service.  Employer Contributions to the 401(k) Plan charged to income in fiscal 2018, 2017 and 2016 totaled $ 8.0 million , $ 7.8 million and $ 7.0 million , respectively, and were made through the issuance of new shares of Company common stock and the use of forfeited shares within the 401(k) Plan.

Information concerning share-based activity pertaining to the 401(k) Plan for each of the last three fiscal years ended October 31 is as follows (in thousands):

	Common Stock			Class A Common Stock
Shares available for issuance as of October 31, 2015	28			28
Shares registered for issuance to the 401(k) Plan	586			586
Issuance of common stock to the 401(k) Plan	( 123	)		( 123	)
Shares available for issuance as of October 31, 2016	491			491
Issuance of common stock to the 401(k) Plan	( 93	)		( 93	)
Shares available for issuance as of October 31, 2017	398			398
Issuance of common stock to the 401(k) Plan	( 65	)		( 65	)
Shares available for issuance as of October 31, 2018	333			333

As previously mentioned in Note 1, Summary of Significant Accounting Policies, the Company acquired a frozen qualified defined benefit pension plan (the "Plan") in connection with a prior year acquisition.

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Changes in the Plan's projected benefit obligation and plan assets during fiscal 2018 and 2017 are as follows (in thousands):

Change in projected benefit obligation:
Projected benefit obligation as of October 31, 2016		$ 14,511
Actuarial gain	( 156		)
Interest cost	561
Benefits paid	( 916		)
Projected benefit obligation as of October 31, 2017	14,000
Actuarial gain	( 749		)
Interest cost	539
Benefits paid	( 900		)
Projected benefit obligation as of October 31, 2018		$ 12,890
Change in plan assets:
Fair value of plan assets as of October 31, 2016		$ 10,510
Actual return on plan assets	1,048
Employer contributions	428
Benefits paid	( 916		)
Fair value of plan assets as of October 31, 2017	11,070
Actual return on plan assets	( 151		)
Employer contributions	360
Benefits paid	( 900		)
Fair value of plan assets as of October 31, 2018		$ 10,379
Funded status as of October 31, 2017		($ 2,930	)
Funded status as of October 31, 2018		($ 2,511	)

The $ 2.5 million and $ 2.9 million difference between the projected benefit obligation and fair value of plan assets as of October 31, 2018 and October 31, 2017, respectively, is included in other long-term liabilities within the Company's Consolidated Balance Sheets. Additionally, the Plan experienced a $ .1 million unrealized loss during fiscal 2018 and a $ .5 million unrealized gain during fiscal 2017, that were recognized in other comprehensive income (loss) and reported net of less than $ .1 million and $ .2 million of tax in fiscal 2018 and 2017, respectively. The total unrealized loss in accumulated other comprehensive loss that has yet to be recognized as a component of net periodic pension income (expense) as of October 31, 2018 is $ 1.8 million (pre-tax).

Weighted average assumptions used to determine the projected benefit obligation are as follows:

	As of October 31,
	2018			2017
Discount rate	4.49	%		3.98	%

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Weighted average assumptions used to determine net pension income are as follows:

	Year ended October 31,
	2018			2017			2016
Discount rate	3.98	%		3.99	%		4.47	%
Expected return on plan assets	6.75	%		6.75	%		6.75	%

The discount rate used to determine the projected benefit obligation was determined using the results of a bond yield curve model based on a portfolio of high-quality bonds matching expected Plan benefit payments. The expected return on Plan assets was based upon the target asset allocation and investment return estimates for the Plan's equity and fixed income securities. In establishing this assumption, the Company considers many factors including both the historical rate of return and projected inflation-adjusted real rate of return on the Plan's various asset classes and the expected working lifetime for Plan participants.

Components of net pension income that were recorded within the Company's Consolidated Statements of Operations are as follows (in thousands):

	Year ended October 31,
	2018				2017				2016
Expected return on plan assets		$ 728				$ 688				$ 702
Less: Interest cost	( 539		)		( 561		)		( 613		)
Less: Amortization of unrealized loss	( 17		)		( 46		)		—
Net pension income		$ 172				$ 81				$ 89

The Company anticipates making contributions of $ 1.0 million to the Plan during fiscal 2019. Estimated future benefit payments to be made during each of the next five fiscal years and in aggregate during the succeeding five fiscal years are as follows (in thousands):

Year ending October 31,
2019		$ 930
2020	929
2021	897
2022	877
2023	869
2024-2028	4,329

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The fair value of the Plan's assets are set forth by level within the fair value hierarchy in the following tables (in thousands):

	As of October 31, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Fixed income securities		$ 5,276				$ —				$ —				$ 5,276
Equity securities	5,006				—				—				5,006
Money market funds and cash	97				—				—				97
		$ 10,379				$ —				$ —				$ 10,379

	As of October 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Fixed income securities		$ 5,382				$ —				$ —				$ 5,382
Equity securities	5,593				—				—				5,593
Money market funds and cash	95				—				—				95
		$ 11,070				$ —				$ —				$ 11,070

Fixed income securities consist of investments in mutual funds. Equity securities consist of investments in common stocks, mutual funds and exchange traded funds.

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The holders of equity interests in certain of the Company’s subsidiaries have rights (“Put Rights”) that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal 2025.  The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the “Redemption Amount”) be at fair value or at a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period.  As of October 31, 2018, management’s estimate of the aggregate Redemption Amount of all Put Rights that the Company could be required to pay is approximately $ 132.0 million .  The actual Redemption Amount will likely be different.  The aggregate Redemption Amount of all Put Rights was determined using probability adjusted internal estimates of future earnings of the Company’s subsidiaries with Put Rights while considering the earliest exercise date, the measurement period and any applicable fair value adjustments.  The portion of the estimated Redemption Amount as of October 31, 2018 redeemable at fair value is approximately $ 83.5 million and the portion redeemable based solely on a multiple of future earnings is approximately $ 48.5 million .

A summary of the Put Rights associated with the redeemable noncontrolling interests in certain of the Company’s subsidiaries as of October 31, 2018 is as follows:

Subsidiary Acquisition Year		Operating Segment		Company Ownership Interest		Earliest Put Right Year		Purchase Period (Years)
2005		ETG		95.9%		2019 (1)		4 (2)
2006		FSG		80.1%		2019 (1)		4
2008		FSG		82.3%		2019 (1)		5
2009		ETG		82.5%		2019 (1)		1
2012		ETG		78.0%		2019 (1)		2
2012		FSG		84.0%		2019 (1)		4
2012		FSG		80.1%		2019 (1)		4
2015		FSG		80.0%		2019		4
2015		FSG		80.1%		2020		4
2015		ETG		80.1%		2020		2
2015		FSG		80.1%		2022		4
2017		FSG		80.1%		2022		2 (3)
2018		ETG		85.0%		2021		1
(1) Currently puttable
(2) A portion is to be purchased in a lump sum
(3) The second purchase is to be made two years after the first Put Right Year

The estimated aggregate Redemption Amount of the Put Rights that are currently puttable or becoming puttable during fiscal 2019 is approximately $ 61.3 million , of which approximately

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$ 27.7 million would be payable in fiscal 2019 should all of the eligible associated noncontrolling interest holders elect to exercise their Put Rights during fiscal 2019. Additionally, the Company has call rights to purchase the equity interests of the noncontrolling holders over the same purchase period as the Put Rights.

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

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(in thousands, except per share data)		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Net sales:
2018			$ 404,410				$ 430,602				$ 465,825				$ 476,884
2017			$ 343,432				$ 368,657				$ 391,500				$ 421,224
Gross profit:
2018			$ 154,791				$ 167,857				$ 181,609				$ 186,458
2017			$ 125,417				$ 140,382				$ 148,897				$ 160,029
Net income from consolidated operations:
2018			$ 71,695				$ 66,011				$ 73,899				$ 74,081
2017			$ 46,265				$ 50,833				$ 51,475				$ 59,087
Net income attributable to HEICO:
2018			$ 65,152				$ 59,618				$ 67,086				$ 67,377
2017			$ 40,927				$ 45,686				$ 45,698				$ 53,674
Net income per share attributable to HEICO:
Basic:
2018			$ .49				$ .45				$ .51				$ .51
2017			$ .31				$ .35				$ .35				$ .41
Diluted:
2018			$ .48				$ .44				$ .49				$ .49
2017			$ .30				$ .34				$ .34				$ .39

During the first quarter of fiscal 2018, the U.S. government enacted significant changes to existing tax law resulting in the Company recording a provisional discrete tax benefit from remeasuring its U.S. federal net deferred tax liabilities that was partially offset by a provisional discrete tax expenses related to a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. The net impact of these provisional amounts increased net income attributable to HEICO by $ 11.9 million , or $ .09 per basic and dilute share. See Note 6, Income Taxes, for additional information regarding changes to existing tax law.

During the first quarter of fiscal 2017, the Company adopted ASU 2016-09, resulting in the recognition of a $ 3.1 million discrete income tax benefit and a 1,220,000 increase in the Company's weighted average number of diluted common shares outstanding, which, net of noncontrolling interests, increased net income attributable to HEICO by $ 2.6 million , or $ .02 per basic and $ .01 per diluted share.

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The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace and HEICO Flight Support Corp. and their collective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic and its subsidiaries. The Company's operating segment reporting structure is consistent with how management reviews the business, makes investing and resource decisions and assesses operating performance. Additionally, characteristics such as similarity of products, customers, economic characteristics and various other factors are considered when identifying the Company's operating segments. The FSG designs, manufactures, repairs, overhauls and distributes jet engine and aircraft component replacement parts.  The parts and services are approved by the FAA.  The FSG also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the U.S. government. Additionally, the FSG is a leading supplier, distributor, and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the U.S. and is a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation, defense and space applications. Further, the FSG engineers, designs and manufactures thermal insulation blankets and parts and is a leading distributor of aviation electrical interconnect products and electromechanical parts. The ETG collectively designs and manufactures electronic, microwave, and electro-optical equipment and components, three-dimensional microelectronic and stacked memory products, high-speed interface products, high voltage interconnection devices, high voltage advanced power electronics products, power conversion products, underwater locator beacons, emergency locator transmission beacons, electromagnetic interference shielding, traveling wave tube amplifiers, harsh environment electronic connectors and other interconnect products, communications and electronic intercept receivers and tuners, crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft, radio frequency (RF) and microwave amplifiers, transmitters and receivers, satellite microwave modules and integrated subsystems and high performance active antenna systems primarily for the aviation, defense, space, medical, telecommunications and electronics industries.

The Company’s reportable operating segments offer distinctive products and services that are marketed through different channels.  They are managed separately because of their unique technology and service requirements.

Segment Profit or Loss

The accounting policies of the Company’s operating segments are the same as those described in Note 1, Summary of Significant Accounting Policies.  Management evaluates segment performance based on segment operating income.

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Information on the Company’s two operating segments, the FSG and the ETG, for each of the last three fiscal years ended October 31 is as follows (in thousands):

		Segment								Other, Primarily Corporate and Intersegment (1)				Consolidated Totals
		FSG				ETG
Year ended October 31, 2018:
Net sales			$ 1,097,937				$ 701,827				($ 22,043	)			$ 1,777,721
Depreciation		13,322				9,225				692				23,239
Amortization		19,530				33,339				1,083				53,952
Operating income		206,623				204,508				( 34,886		)		376,245
Capital expenditures		13,074				9,531				19,266				41,871
Total assets		1,093,858				1,391,997				167,541				2,653,396
Year ended October 31, 2017:
Net sales			$ 967,540				$ 574,261				($ 16,988	)			$ 1,524,813
Depreciation		13,042				8,609				227				21,878
Amortization		18,026				24,167				752				42,945
Operating income		179,278				157,451				( 30,071		)		306,658
Capital expenditures		15,665				10,100				233				25,998
Total assets		1,042,925				1,339,363				130,143				2,512,431
Year ended October 31, 2016:
Net sales			$ 875,870				$ 511,272				($ 10,884	)			$ 1,376,258
Depreciation		12,113				8,030				218				20,361
Amortization		16,590				22,664				662				39,916
Operating income		163,427				126,031				( 24,113		)		265,345
Capital expenditures		18,434				11,962				467				30,863
Total assets		877,672				1,015,696				105,044				1,998,412
(1) Intersegment activity principally consists of net sales from the ETG to the FSG.

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The following table summarizes the Company’s net sales to external customers by product lines included in each operating segment (in thousands):

		Year ended October 31,
		2018				2017				2016
Flight Support Group:
Aftermarket replacement parts (1)			$ 582,562				$ 489,644				$ 405,108
Repair and overhaul parts and services (2)		286,454				270,482				251,357
Specialty products (3)		228,921				207,414				219,405
Total net sales		1,097,937				967,540				875,870
Electronic Technologies Group:
Electronic component parts for defense, space and aerospace equipment (4)		547,088				420,991				371,297
Electronic component parts for equipment in various other industries (5)		154,739				153,270				139,975
Total net sales		701,827				574,261				511,272
Other, primarily corporate and intersegment		( 22,043		)		( 16,988		)		( 10,884		)
Total consolidated net sales			$ 1,777,721				$ 1,524,813				$ 1,376,258

(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 and high performance active antenna systems.

(5)	Includes various component parts such as electromagnetic and radio interference shielding, high voltage interconnection devices, high voltage advanced power electronics, harsh environment connectivity products and custom molded cable assemblies.

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Major Customer and Geographic Information

The Company markets its products and services in approximately 115 countries.  The following table summarizes the Company’s net sales to customers located in the United States and to those in other countries for each of the last three fiscal years ended October 31 (in thousands).  Net sales are attributed to countries based on the location of the customer.  Net sales to any one customer or originating from any one foreign country did not account for 10% or more of the Company’s consolidated net sales during any of the last three fiscal years. The following table also summarizes the Company’s long-lived assets held within and outside of the United States as of October 31 of the last three fiscal years (in thousands).  Long-lived assets consist of net property, plant and equipment.

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Lease Commitments

The Company leases certain property and equipment, including manufacturing facilities and office equipment under operating leases.  Some of these leases provide the Company with the option after the initial lease term either to purchase the property at the then fair market value or renew the lease at the then fair rental value.  Generally, management expects that leases will be renewed or replaced by other leases in the normal course of business.

Future minimum payments under non-cancelable operating leases for the next five fiscal years and thereafter are estimated to be as follows (in thousands):

Year ending October 31,
2019		$ 14,961
2020	14,991
2021	14,147
2022	12,546
2023	7,334
Thereafter	18,007
Total minimum lease commitments		$ 81,986

Total rent expense charged to operations for operating leases in fiscal 2018, 2017 and 2016 amounted to $ 17.5 million , $ 15.6 million and $ 14.7 million , respectively.

Guarantees

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

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Product Warranty

Changes in the Company’s product warranty liability in fiscal 2018 and 2017 are as follows (in thousands):

	Year ended October 31,
	2018				2017
Balances as of beginning of year		$ 2,921				$ 3,351
Accruals for warranties	2,720				2,254
Acquired warranty liabilities	320				—
Warranty claims settled	( 2,655		)		( 2,684		)
Balances as of end of year		$ 3,306				$ 2,921

Litigation

The following table presents supplemental disclosures of cash flow information and non-cash investing activities for fiscal 2018, 2017 and 2016 (in thousands):

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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 and the total consideration for the acquisition is not material or significant to the Company’s consolidated financial statements.

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Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(1)	Represents aggregated information pertaining to our four equity compensation plans: the HEICO Corporation 2018 Incentive Compensation Plan, the 2012 Incentive Compensation Plan, the 2002 Stock Option Plan and the Non-Qualified Stock Option Plan.  See Note 9, Share-Based Compensation, of the Notes to Consolidated Financial Statements for further information regarding these plans.

(2)

Shares are available for future grant in column (c) solely under the HEICO Corporation 2018 Incentive Compensation Plan, under a formula that counts one share against the available share reserve for each one share subject to a stock option or stock appreciation right, and counts 2.5 shares against the available share reserve for each one share subject to a restricted stock award, a restricted stock unit award, a free-standing dividend equivalent award, or any other stock-based award or a performance award denominated in shares. Additionally, the 4,612 remaining number of securities available for future issuance may be designated as Common Stock and/or Class A Common Stock in such proportions as shall be determined by the Board of Directors or the Stock Option Plan Committee at its sole discretion.

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Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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		Year ended October 31,
		2018				2017				2016
Allowance for doubtful accounts (in thousands):
Allowance as of beginning of year			$ 3,006				$ 3,159				$ 2,038
Additions charged to costs and expenses		492				7				390
Additions (credited) charged to other accounts (a)		( 13		)		298				973
Deductions (b)		( 227		)		( 458		)		( 242		)
Allowance as of end of year			$ 3,258				$ 3,006				$ 3,159

(a)	Principally additions from acquisitions and foreign currency translation adjustments.

(b)	Principally write-offs of uncollectible accounts receivable, net of recoveries.

		Year ended October 31,
		2018				2017				2016
Inventory valuation reserves (in thousands):
Reserves as of beginning of year			$ 92,148				$ 81,449				$ 69,654
Additions charged to costs and expenses		9,227				6,284				10,270
Additions charged to other accounts (a)		1,270				6,264				6,268
Deductions (b)		( 7,254		)		( 1,849		)		( 4,743		)
Reserves as of end of year			$ 95,391				$ 92,148				$ 81,449

(a)	Principally additions from acquisitions and foreign currency translation adjustments .

(b)	Principally write-offs of slow-moving, obsolete or damaged inventory .

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