HEI 10-K & 10-Q changes, risk factors and insider trading

In addition, we may not be able to successfully develop new products, equipment or methods of repair and overhaul service, and the failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Our business is affected by the availability and price of the raw materials and component parts that we use to manufacture our products. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ ability to adjust delivery of long-lead time products during times of volatile demand. The supply chains for our business could also be disrupted by external events such as natural disasters, extreme weather events, pandemics, labor disputes, governmental actions and legislative or regulatory changes. For example, tariffs, duties or other trade policy changes affecting the import or export of raw materials or components could increase costs or limit availability. As a result, our suppliers may fail to perform according to specifications when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance. Transitions to new suppliers may result in significant costs and delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. Our inability to fill our supply needs could jeopardize our ability to fulfill obligations under customer contracts, which could result in reduced revenues and profits, contract penalties or terminations, and damage to customer relationships and reputation. Further, increased costs of such raw materials or components could reduce our profits if we were unable to pass along such price increases to our customers.

Product specification costs and requirements could cause an increase toin our costs to complete contracts.

We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of critical business processes and activities. We also collect and store sensitive data, including confidential business information and personal data.data that are subject to privacy and security laws and regulations. Certain of our businesses that perform work for the U.S. Department of Defense are also required to comply with applicable cybersecurity standards, including the Department of Defense’s Cybersecurity Maturity Model Certification (“CMMC”) program. CMMC requirements may change over time and could impose additional compliance obligations on us and our suppliers, and failure to meet applicable CMMC requirements could affect our ability to receive or perform certain defense-related contracts. We continue to monitor evolving data-privacy requirements and the use of emerging technologies, such as artificial intelligence, and maintain policies intended to promote their secure and responsible use. These systems may be susceptible to damage, disruptions or shutdowns due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events. In addition, security breaches of our systems could result in the misappropriation or unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers or suppliers. Any such eventsevent could disrupt our operations, delay production and shipments, result in defective products or services, damage customer relationships and our reputation and result in legal claims or proceedings that could have a material adverse effect on our business, financial condition and results of operations.

As a result of our acquisitions, goodwill and intangible assets represent a significant portion of our total assets. As of October 31, 20242025 and 2023,2024, goodwill and intangible assets, net of amortization, accounted for 62%60% and 64%62% of our total assets, respectively. We test our goodwill and intangible assets for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We may not realize the full value of our goodwill and intangible assets, and to the extent that impairment has occurred, we would be required to recognize the impaired portion of such assets inas a non-cash charge to our earnings. An impairment of a significant portion of such assets could have a material adverse effect on our business, financial condition and results of operations.

Our success substantially depends on the performance, contributions and expertise of our senior management team led by Laurans A. Mendelson, our Chairman and Chief Executive Officer, and Eric A. Mendelson and Victor H. Mendelson, our Co-Presidents.Co-Chairmen and Co-Chief Executive Officers, and Carlos L. Macau, Jr., our Chief Financial Officer. Because many of our products are highly engineered, we depend on our experienced, educated and trained team members. Technical employees are also a critical tocomponent of our research and product development,development activities, as well as our ability to continue to re-design sophisticated products of OEMs in order to sell competing replacement parts at substantially lower prices than those manufactured by the OEMs. The loss of the services of any of our executive officers or other key employees or our inability to continue to attract or retain the necessary personnel could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, disruptions within the aviation industry, such as production delays or regulatory challenges affecting major manufacturers, can reduce demand for our products and services and strain our supply chain. Historically, the aviation industry has been subject to downward cycles from time to time which reduce the overall demand for jet engine and aircraft component replacement parts and repair and overhaul services, and such downward cycles result in lower sales and greater credit risk. Demand for commercial air travel can be influenced by airline industry profitability, world trade policies, government-to-government relations, terrorism, disease outbreaks, environmental constraints imposed upon aircraft operations, technological changes, price and other competitive factors. Lower commercial air travel caused by risks arising from public health threats, such as the COVID-19 global pandemic,threats and their aftermath, airline fleet changes or airline purchasing decisions, could cause lower demand for our goods and services. These global industry and economic conditions may have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks arising from public health threats, such as the the COVID-19including global pandemicor regional health emergencies ("“Health Emergencies"”).

Health Emergencies can negatively impact our supply chain, cause inflationary pressures and pose a risk that we or our employees, customers, suppliers, manufacturers and other commercial partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns requested or mandated by governmental authorities. The extent to which Health Emergencies may have a material adverse effect on our future business, financial condition and results of operations will depend on many factors that are not within HEICO’s control, including but not limited toto, the pathgeographic location and effectthe rate of Health Emergencies, including factors like new variantsspread and path of the Health Emergency, available vaccinations and the vaccination rates,rate, and potential supply chain disruptions and inflation, which can impact our key markets.

Governmental agencies throughout the world, including the FAA, highly regulate the manufacture, repair and overhaul of aircraft parts and accessories. We include, with the replacement parts that we sell to our customers, documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries. In addition, our repair and overhaul operations are subject to certification pursuant to regulations established by the FAA. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. The revocation or suspension of any of our material authorizations or approvals would have an adverse effect on our business, financial condition and results of operations. New and more stringent government regulations, if adopted and enacted, could have an adverse effect on our business, financial condition and results of operations. In addition, certain product sales to foreign countries of our Electronic Technologies Group and Flight Support Group require export approval or licensing from the United States ("U.S.") government. Denial of export licenses could reduce our sales to those countries and could have a material adverse effect on our business.

•Changes in available tax credits or tax deductions;

•The reversal of any previously experiencedrecognized 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; and

•The Organization offor Economic CooperationCo-operation and DevelopmentDevelopment’s (“OECD”) has issued Pillar Two model rules to ensure large corporations pay a global minimum tax offramework 15%,(“Pillar Two”), which willestablishes begina to15% beminimum effective tax rate for large multinational enterprises, became effective for our operations in fiscal 2025. The OECD has issued administrative guidance and safe harbor rules around the implementationadoption of Pillar Two.Two We currently dodid not expect Pillar Two will have a significant impact on our fiscal 2025 consolidated financial statements,statements. butWe will continue to monitor the potential impact of future legislation and guidance.guidance and as more jurisdictions in which we conduct business implement Pillar Two legislation.

Our operations and facilities are subject to a number of federal, state and local environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of hazardous materials. We monitor evolving environmental and climate-related regulations for potential impact on our business or results of operations. Pursuant to various environmental laws, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous materials. Environmental laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous materials in the environment. Although management believes that our operations and facilities are in material compliance with environmental laws and regulations, future changes in them or interpretations thereof or the nature of our operations may require us to make significant additional capital expenditures to ensure compliance in the future.

•Designs and Manufactures Electronic, Microwave, Electro-Optical and Other Power Equipment, High-Speed Interface Products, High Voltage Interconnection Devices, EMI and RFI Shielding and Filters, High Voltage Advanced Power Electronics, Power Conversion Products, Underwater Locator Beacons, Memory Products, Self-Sealing Auxiliary Fuel Systems, Active Antenna Systems, Airborne Antennas, TSCM Equipment andEquipment, High Reliability ("Hi-Rel") Electronic Components, In-Flight Entertainment Products, and Cockpit displays and Other Avionics Components. The ETG collectively designs, manufactures and sells various types of electronic, data and microwave, and electro-optical products, including infrared simulation and test equipment, laser rangefinder receivers, electrical power supplies, back-up power supplies, power conversion products, underwater locator beacons, emergency locator transmission beacons, flight deck annunciators, panels andpanels, indicators, electromagnetic and radio frequency interference shielding and filters, high power capacitor charging power supplies, amplifiers, traveling wave tube amplifiers, photodetectors, amplifier modules, microwave power modules, flash lamp drivers, laser diode drivers, arc lamp power supplies, custom power supply designs, cable assemblies, high voltage power supplies, high voltage interconnection devices and wire, high voltage energy generators, high frequency power delivery systems; memory products, including three-dimensional microelectronic and stacked memory, static random-access memory (SRAM) and electronically erasable programmable read-only memory (EEPROM); harsh environment electronic connectors and other interconnect products, RF and microwave amplifiers, transmitters, and receivers and integrated assemblies, sub-assemblies and components; RF sources, detectors and controllers, wireless cabin control systems, solid state power distribution and management systems, proprietary in-cabin power and entertainment components and subsystems, cockpit displays and other avionics components, crashworthy and ballistically self-sealing auxiliary fuel systems, nuclear radiation detectors, communications and electronic intercept receivers and tuners, fuel level sensing systems, high-speed interface products that link devices, high performance active antenna systems and airborne antennas for commercial and military aircraft, precision guided munitions, other defense applications and commercial uses; silicone material for a variety of demanding applications; precision power analog monolithic, hybrid and open frame components; high-reliability ceramic-to-metal feedthroughs and connectors, technical surveillance countermeasures (TSCM) equipment to detect devices used for espionage and information theft; rugged small-form factor embedded computing solutions; custom high power filters and filter assemblies; test sockets and adapters for both engineering and production use of semiconductor devices, anddevices; radiation assurance services and products; and Hi-Rel, complex, passive electronic components and rotary joint assemblies for mostly aerospace and defense applications, in addition to other high-end applications, such as medical and energy uses including emerging "clean energy" and electrification applications.

Our consolidated net sales in fiscal 20242025 increased by 30%16% to a record $3,857.7$4,485.0 million, up from net sales of $2,968.1$3,857.7 million in fiscal 2023.2024. The increase in consolidated net sales principally reflects an increase of $869.2$477.9 million (aan 49%18% increase) to a record $2,639.4$3,117.3 million in net sales of the FSG and an increase of $38.4$149.5 million (a 3%12% increase) to a record $1,263.6$1,413.1 million in net sales of the ETG. The net sales increase in the FSG reflects $643.5strong organic growth of 14% and net sales of $110.6 million contributed by fiscal 20232025 and 2024 acquisitions as well as strong organic growth of 13%.acquisitions. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines resulting in net sales increases of $172.1$263.9 million, $33.5$67.8 million and $20.1$35.6 million, respectively. The net sales increase in the ETG includesreflects $40.7strong organic growth of 7% and net sales of $63.9 million contributed by fiscal 20232025 and 2024 acquisitions, partially offset by a 2% organic net sales decline.acquisitions. The ETG's organic net sales declinegrowth is mainly attributable to decreased demand for its other electronics and medical products resulting in net sales decreases of $45.0 million and $14.0 million, respectively, partially offset by increased demand for its defensedefense, space, other electronics, and aerospace products resulting in net sales increases of $24.4$29.6 millionmillion, $28.4 million, $20.6 million, and $12.9$16.2 million, respectively.respectively, partially offset by decreased demand for its medical products resulting in a net sales decrease of $9.4 million. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in fiscal 2024.2025.

Our consolidated gross profit margin wasimproved to 39.8% in fiscal 2025, up from 38.9% in both fiscal 20242024, andprincipally 2023reflecting anda reflects1.5% increases of .5%increase in both the FSG’s and ETG’sFSG's gross profit margin. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales growth within our aftermarket replacement parts andits repair and overhaul parts and services product lines.line Theand increasea inmore favorable product mix within the ETG'sspecialty grossproducts profitproduct margin principally reflects the previously mentioned higher net sales of defense and aerospace products, partially offset by the previously mentioned decrease in net sales of other electronics and medical products.line. Total new product research and development expenses included within our consolidated cost of sales were $120.9 million in fiscal 2025, up from $111.3 million in fiscal 2024, up from $95.8 million in fiscal 2023.2024.

Our consolidated SG&A expenses as a percentage of net sales decreasedimproved to 17.1% in fiscal 2025, down from 17.6% in fiscal 2024, down from 17.8% in fiscal 2023.2024. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects efficiencies realized from the previously mentioned net sales growth, partially offset by a .7%.5% impact from the previously mentioned lowerchanges acquisition costs, partially offset by a .3% impact from bothin the previouslyestimated mentionedfair higher intangible asset amortization expense and amendment and terminationvalue of aaccrued contingent consideration agreement.consideration.

Our consolidated operating income increased by 32%24% to a record $1,019.0 million in fiscal 2025, up from $824.5 million in fiscal 2024, up from $625.3 million in fiscal 2023.2024. The increase in consolidated operating income principally reflects a $205.8$157.3 million increase (a 53%27% increase) to a record $593.1$750.4 million in operating income of the FSG and a $3.1$36.8 million increase (a 1%13% increase) to a record $288.2$325.0 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, a $15.0 million decrease in acquisition costs and the previously mentioned improved gross profit margin, partiallyand offset by a $36.6 million increase in intangible asset amortization expense, a $15.9 million increase in performance-based compensationSG&A expense andefficiencies a $9.1 million prior year impactrealized from the previouslynet mentionedsales termination of a contingent consideration agreement.growth. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth and improved gross profit margin, partially offset by a lower level of SG&A efficiencies.expense efficiencies realized from the net sales growth.

Our consolidated operating income as a percentage of net sales improved to 22.7% in fiscal 2025, up from 21.4% in fiscal 2024, up from 21.1% in fiscal 2023.2024. The increase in consolidated operating income as a percentage of net sales principally reflects an increase in the FSG’s operating income as a percentage of net sales to 24.1% in fiscal 2025, up from 22.5% in fiscal 2024, upand froman 21.9% in fiscal 2023, partially offset by a decreaseincrease in the ETG's operating income as a percentage of net sales to 23.0% in fiscal 2025, up from 22.8% in fiscal 2024, as compared to 23.3% in fiscal 2023.2024. The increase in the FSG’s operating income as a percentage of net sales principally reflects a .9% impact from lower acquisition costs, a .5% impact from the previously mentioned improved gross profit margin and a .4% impact from lower performance-based compensation expense as a percentage of net sales, partially offset by a .7% impact from the previously mentioned higher intangible asset amortization expense and a .5% prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 1.0% impact from an increase in SG&A expenses as a percentage of net sales principally reflecting the previously mentioned lower level of efficiencies, which was partially offset by the previously mentioned improved gross profit margin.

Interest expense increaseddecreased to $129.9 million in fiscal 2025, down from $149.3 million in fiscal 2024, as compared to $73.0 million in fiscal 2023.2024. The increasedecrease in interest expense was principally due to ana increaselower weighted-average interest rate on borrowings outstanding under our revolving credit facility and a decrease in the amount of outstanding debt related to fiscal 2023 acquisitions.debt.

Our effective tax rate decreased to 16.6% in fiscal 2025, down from 17.5% in fiscal 2024, down from 20.0% in fiscal 2023.2024. The decrease in our effective tax rate principally reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024.2025. We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 20242025 and 20232024 of $13.6$27.2 million and $6.2$13.6 million, respectively. Additionally, the decrease in our effective tax rate reflects a larger favorable impact from tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan (the “LCP”) in fiscal 2024, net of the nondeductible portion of the related gains in the LCP accounts of certain executive officers, as well as increased foreign-derived intangible income, which is subject to a lower tax rate.

Net income attributable to HEICO increased by 27%34% to a record $690.4 million, or $4.90 per diluted share, in fiscal 2025, up from $514.1 million, or $3.67 per diluted share, in fiscal 2024, up from $403.6 million, or $2.91 per diluted share, in fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income, partially offset by the previously mentioned higher interest expense.income.

As we lookLooking ahead to fiscal 2025,2026, we anticipate net sales growth in both the FSG and ETG, driven primarily by organic growth supportedfrom by strongincreased demand for the majority of our products.products Additionally,as wewell plan to driveas growth through our recentlyrecent completedacquisitions. We will continue to pursue selective acquisition opportunities to complement this growth. Our disciplined financial management remains dedicated to creating long-term shareholder value through a balanced combination of making strategic acquisitions and organic expansion, while positioningmaintaining ourselvesfinancial to capitalize on potential opportunities from future acquisitions. Our priorities include advancing the development of new productsresilience and services, further expanding market penetration, and maintaining our financial strength and flexibility, all with a strong emphasis on delivering long-term value to our shareholders.flexibility.

Our principal uses of cash include acquisitions, interest payments, capital expenditures, interest payments, cash dividends, distributions to noncontrolling interests and working capital needs. Capital expenditures in fiscal 20252026 are anticipated to be approximately $65$80 to $70$90 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility.

Net cash provided by operating activities was $672.4$934.3 million in fiscal 20242025 and consisted primarily of net income from consolidated operations of $559.1$745.6 million, depreciation and amortization expense of $175.3$196.1 million (a non-cash item), net changes of $53.5$34.4 million included in theshare-based "Other"compensation captionexpense (principallya thenon-cash receipt of advance deposits on certain long-term customer contractsitem), net changes in other long-term liabilities and assets related to the HEICO Corporation Leadership Compensation Plan (the "LCP") of $21.6$23.5 million (principally participant deferrals and employer contributions), and $7.5$20.4 million ofin intangibleemployer assetcontributions impairmentto expensethe HEICO Savings and Investment Plan (a non-cash item), partially offset by a $143.0$58.7 million increase in net working capital.capital and a $48.6 million deferred income tax benefit (a non-cash item). The increase in net working capital principallyis reflectsinclusive of a $132.9$75.6 million increase in accounts receivable resulting from increased net sales and timing of collections, and a $44.9 million increase in inventories to support an increase in consolidated backlog.backlog, partially offset by a $44.6 million increase in accrued expenses and other current liabilities and a $15.4 million decrease in prepaid expenses and other current assets.

Net cash provided by operating activities was $448.7$672.4 million in fiscal 20232024 and consisted primarily of net income from consolidated operations of $444.4$559.1 million, depreciation and amortization expense of $130.0$175.3 million (a non-cash item), $15.5net changes of $53.5 million included in share-basedthe compensation"Other" expensecaption (aprincipally non-cashthe itemreceipt of advance deposits on certain long-term customer contracts), net changes in other long-term liabilities and $15.3assets million in employer contributionsrelated to the HEICOLCP Savingsof $21.6 million (principally participant deferrals and Investmentemployer Plancontributions), and $7.5 million of intangible asset impairment expense (a non-cash item), partially offset by a $117.4$143.0 million increase in net working capital, a $26.5 million deferred income tax benefit (a non-cash item), and a $9.1 million impact from the amendment and termination of a contingent consideration agreement (a non-cash item).capital. The increase in net working capital isprincipally inclusive ofreflects a $124.8$132.9 million increase in inventories to support an increase in consolidated backlog and a $65.6 million increase in accounts receivable resulting from the previously mentioned higher net sales and the timing of collections, partially offset by a $72.6 million increase in accrued expenses and other current liabilities principally from a higher level of accrued performance based-compensation due to the improved operating results and an increase in contract liabilities.backlog.

On July 27, 2023, we completed the public offer and sale of senior unsecured notes, which consisted of $600 million principal amount of 5.25% Senior Notes due August 1, 2028 (the "2028 Notes") and $600 million principal amount of 5.35% Senior Notes due August 1, 2033 (the "2033 Notes" and, collectively with the 2028 Notes, the "Notes"). Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year, and commenced on February 1, 2024. The 2028 Notes and 2033 Notes each have an effective interest rate of 5.5%. The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our existing and future subsidiaries that guarantee our obligations under the Credit Facility (the “Guarantor Group”). We were in compliance with all covenants related to the Notes as of October 31, 2025.

See Note 5, Short-Term and Long-Term Debt, of the Notes to Consolidated Financial Statements for information regarding our long-term debt obligations.

See Note 8, Fair Value Measurements, of the Notes to Consolidated Financial Statements for information pertaining to contingent consideration obligations. As of October 31, 2024,2025, none of the estimated fair value of contingent consideration was payable in fiscal 2025 was $8.4 million.2026.

As part of the agreement to acquire certain subsidiaries, we may be obligated to pay contingent consideration should the acquired entity meet certain earnings objectives subsequent to the date of acquisition. As of the acquisition date, contingent consideration is recorded at fair value as determined through the use ofusing a probability-based scenario analysis approach. Under this method, a set of discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions for each scenario. A probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant contingent consideration is calculated and 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. As of October 31, 20242025 and 2023,2024, $30.2$46.2 million and $71.1$30.2 million of contingent consideration was accrued within our Consolidated Balance Sheets, respectively. During fiscal 2024,2025, 20232024 and 2022,2023, such fair value measurement adjustments resulted in net increases (decreases) to SG&A expenses of ($9.9)$12.9 million, ($.7$9.9) million and ($7.6$.7) million, respectively. For further information regarding our contingent consideration arrangements, see Note 8, Fair Value Measurements, of the Notes to Consolidated Financial Statements.

When performing the qualitative test, we consider factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative impairment test. When performing the quantitative impairment test, we compare the fair value of each of our reporting units to its carrying value to determine potential impairment and an impairment loss is recognized in the amount by which the carrying value of a reporting unit’s goodwill exceeds its fair value. The fair values of our reporting units are determined using a weighted average of a market approach and an income approach. The market approach estimates the value of reporting units by comparing to guideline public companies or guideline transactions. Various valuation multiples are calculated utilizing financial data of companies that are economically and operationally similar resulting in ranges of multiples. Judgmental adjustments are often necessary to ensure comparability. The selection of the appropriate multiple within a range requires judgement,judgment, considering various qualitative and quantitative factors. Changes in assumptions or estimates could materially affect the estimated fair value of our reporting units and the potential for impairment. The income approach estimates fair value 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. Assumptions used in the analysis include estimated future revenues and expenses, the weighted average cost of working capital, capital expenditures, and other variables. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Based on the annual goodwill impairment test as of October 31, 2024,2025, 20232024 and 2022,2023, we determined there was no impairment of our goodwill. The fair value of each of our reporting units calculated as part of our quantitative impairment test significantly exceeded its carrying value as of October 31, 2024.2025.

We test each non-amortizing intangible asset (principally trade names) 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 our trade names, we utilize an income approach, which relies upon management's assumptions of royalty rates, projected revenues and discount rates. We also test each amortizing intangible asset for impairment if events or circumstances 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, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. The determination of fair value requires us to make a number of estimates, assumptions and judgments of underlying factors such as projected revenues and related earnings as well as discount rates. Based on the intangible impairment tests conducted, we recognized no impairment loss in fiscal 2025, an aggregate impairment loss of $7.5 million during fiscal 2024, and an immaterial impairment loss in fiscal 2023 and no impairment loss in fiscal 2022.2023. The impairment loss we recognized in fiscal 2024 related to the write-down of trade names at two ETG subsidiaries due to a reduction in the expected future cash flows associated with such intangible assets. The impairment loss was recorded as a component of SG&A expenses in the Company's Consolidated Statement of Operations. See Note 8, Fair Value Measurements, for additional information regarding the Company’s fiscal 2024 impairment loss.

Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences includeinclude, among others:

•The severity, magnitude and duration of public health threats, such as the COVID-19 pandemicthreats;

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

Our critical accounting policies, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended October 31, 2025. There have been no material changes to our critical accounting policies during the sixnine months ended AprilJuly 30,31, 2026.

Our results of operations for the sixnine and three months ended AprilJuly 30,31, 2026 have been affected by the fiscal 2025 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2025 and the fiscal 2026 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to the Condensed Consolidated Financial Statements of this quarterly report.

Comparison of First SixNine Months of Fiscal 2026 to First SixNine Months of Fiscal 2025

Our consolidated net sales in the first sixnine months of fiscal 2026 increased by 20%21% to a record $2,554.3$3,967.3 million, up from net sales of $2,128.0$3,275.6 million in the first sixnine months of fiscal 2025. The increase in consolidated net sales principally reflects an increase of $269.2$414.3 million (an 18% increase) to a record $1,749.4$2,697.2 million in net sales of the FSG and an increase of $157.7$285.3 million (a 23%28% increase) to a record $830.2$1,313.7 million in net sales of the ETG. The net sales increase in the FSG reflects robust organic growth of 16%15% and net sales of $36.1$81.9 million contributed by fiscal 20252026 and 20262025 acquisitions. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines resulting in net sales increases of $161.9$234.0 million, $40.3$50.7 million, and $30.5$46.4 million, respectively. The net sales increase in the ETG reflects very strong organic growth of 12%14% and net sales of $79.8$140.1 million contributed by fiscal 20252026 and 20262025 acquisitions. The ETG's organic net sales growth is mainly attributable to increased demand for its other electronics, defense, aerospace, and defensemedical products resulting in net sales increases of $30.7$60.0 million, $21.8$36.3 million, $31.1 million, and $19.9$7.0 million, respectively. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first sixnine months of fiscal 2026.

Our consolidated gross profit margin improved to 40.1%40.5% in the first sixnine months of fiscal 2026, up from 39.6%39.7% in the first sixnine months of fiscal 2025, principally reflecting a .6%.7% increase in the FSG’s gross profit margin and a .4% increase in the ETG’s gross profit margin. The increase in the FSG's gross profit margin principally reflects a more favorable product mix within its aftermarket replacement parts product line. The increase in the ETG's gross profit margin principally reflects the previously mentioned higher net sales of its aerospace products, partially offset by a lower proportion of net sales from its space products. Total new product research and development expenses included within our consolidated cost of sales were $68.4$104.5 million in the first sixnine months of fiscal 2026, up from $56.3$88.3 million in the first sixnine months of fiscal 2025.

Our consolidated selling, general and administrative ("SG&A") expenses were $414.2$639.9 million in the first sixnine months of fiscal 2026, as compared to $368.5$560.6 million in the first sixnine months of fiscal 2025. The increase in consolidated SG&A expenses reflects $19.3$36.1 million attributable to our fiscal 20252026 and 20262025 acquisitions, ana $11.3$15.6 million increase in share-based compensation expense, and costs incurred to support the previously mentioned net sales growth, which resulted in increases of $11.8$17.9 million and $3.2$9.8 million in other selling expenses and other general and administrative expenses, respectively.

Our consolidated SG&A expenses as a percentage of net sales improved to 16.2%16.1% in the first sixnine months of fiscal 2026, down from 17.3%17.1% in the first sixnine months of fiscal 2025. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects efficiencies realized from the previously mentioned net sales growth.

Our consolidated operating income increased by 29%30% to a record $610.3$965.5 million in the first sixnine months of fiscal 2026, up from $475.0$740.0 million in the first sixnine months of fiscal 2025. The increase in consolidated operating income principally reflects a $92.7$139.7 million increase (a 26%25% increase) to a record $443.8$689.1 million in operating income of the FSG and aan $40.7$85.3 million increase (a 26%36% increase) to a record $195.1$320.6 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, the previously mentioned improved gross profit margin, and SG&A expense efficiencies realized from the net sales growth. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and the previously mentioned improved gross profit margin. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth and SG&A expense efficiencies realized from the net sales growth.

Our consolidated operating income as a percentage of net sales improved to 23.9%24.3% in the first sixnine months of fiscal 2026, up from 22.3%22.6% in the first sixnine months of fiscal 2025. The increase in consolidated operating income as a percentage of net sales principally reflects an increase in the FSG’s operating income as a percentage of net sales to 25.4%25.5% in the first sixnine months of fiscal 2026, up from 23.7%24.1% in the first sixnine months of fiscal 2025, and an increase in the ETG's operating income as a percentage of net sales to 23.5%24.4% in the first sixnine months of fiscal 2026, up from 23.0%22.9% in the first sixnine months of fiscal 2025. The increase in the FSG's operating income as a percentage of net sales reflects the previously mentioned improved gross profit margin and a .7% impact from a decrease in SG&A expenses as a percentage of net sales, mainly due to the previously mentioned SG&A expense efficiencies. The increase in the ETG's operating income as a percentage of net sales reflects a 1.1% impact from a decrease in SG&A expenses as a percentage of net sales, mainly due to the previously mentioned SG&A expense efficienciesefficiencies, and the previously mentioned improved gross profit margin. The increase in the ETG's operating income as a percentage of net sales principally reflects the previously mentioned SG&A expense efficiencies.

Interest expense decreasedwas to $63.6$99.6 million in the first sixnine months of fiscal 2026, downas fromcompared $65.3to $97.0 million in the first sixnine months of fiscal 2025. The decreaseincrease in interest expense was principally due to an increase in the amount of debt outstanding, partially offset by a lower weighted-average interest rate on outstanding borrowings under our revolving credit facility,facility partially("Credit offset by an increase in the amount of debt outstanding.Facility").

Other income in the first sixnine months of fiscal 2026 and 2025 was not material.

Our effective tax rate was 17.1%18.4% in the first sixnine months of fiscal 2026, as compared to 14.4%16.0% in the first sixnine months of fiscal 2025. The increase in our effective tax rate principally reflects a smaller tax benefit from stock option exercises recognized in the first quarter of fiscal 2026. We recognized a discrete tax benefit from stock option exercises in the first quarter of fiscal 2026 and 2025 of $22.3 million and $27.2 million, respectively.

Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $31.1$50.1 million in the first sixnine months of fiscal 2026, as compared to $27.3$40.7 million in the first sixnine months of fiscal 2025. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries in which noncontrolling interests are held.

Net income attributable to HEICO increased by 31% to a record $424.0$659.4 million, or $3.01$4.67 per diluted share, in the first sixnine months of fiscal 2026, up from $324.7$502.1 million, or $2.31$3.57 per diluted share, in the first sixnine months of fiscal 2025, principally reflecting the previously mentioned higher consolidated operating income.

Comparison of SecondThird Quarter of Fiscal 2026 to SecondThird Quarter of Fiscal 2025

Our consolidated net sales in the secondthird quarter of fiscal 2026 increased by 25%23% to a record $1,375.7$1,413.1 million, up from net sales of $1,097.8$1,147.6 million in the secondthird quarter of fiscal 2025. The increase in consolidated net sales principally reflects an increase of $162.4$145.1 million (aan 21%18% increase) to a record $929.4$947.8 million in net sales of the FSG and an increase of $117.4$127.6 million (a 34%36% increase) to a record $459.5$483.5 million in net sales of the ETG. The net sales increase in the FSG reflects strong organic growth of 19%12% and net sales of $17.4$45.8 million contributed by fiscal 2026 acquisitions. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts, specialty products, and repair and overhaul parts and services product lines resulting in net sales increases of $102.4$72.1 million, $22.7$15.9 million, and $19.7$10.4 million, respectively. The net sales increase in the ETG reflects strongrobust organic growth of 17%18% and net sales of $58.3$60.2 million contributed by fiscal 2026 and 2025 acquisitions. The ETG's organic net sales growth is mainly attributable to increased demand for its other electronics, defense, aerospace, and spaceaerospace products resulting in net sales increases of $22.6$29.3 million, $16.5 million, $13.8$16.3 million, and $4.0$9.3 million, respectively. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the secondthird quarter of fiscal 2026.

Our consolidated gross profit margin improved to 41.4%41.1% in the secondthird quarter of fiscal 2026, up from 39.9%39.8% in the secondthird quarter of fiscal 2025, principally reflecting a 2.7%1.0% increase in the ETG’sFSG’s gross profit margin and a .8% increase in the FSG's gross profit margin. The.9% increase in the ETG's gross profit margin principally reflects the previously mentioned higher net sales and a more favorable product mix of its aerospace products.margin. The increase in the FSG's gross profit margin principally reflects a more favorable product mix within its specialty products and aftermarket replacement parts product line.lines. The increase in the ETG's gross profit margin principally reflects the previously mentioned higher net sales of its aerospace products. Total new product research and development expenses included within our consolidated cost of sales were $36.4$36.1 million in the secondthird quarter of fiscal 2026, up from $28.7$31.9 million in the secondthird quarter of fiscal 2025.

Our consolidated SG&A expenses were $219.1$225.8 million in the secondthird quarter of fiscal 2026, as compared to $189.7$192.1 million in the secondthird quarter of fiscal 2025. The increase in consolidated SG&A expenses reflects $11.8$16.8 million attributable to our fiscal 2026 and 2025 acquisitions, $4.9$4.3 million of higher share-based compensation expense, and costs incurred to support the previously mentioned net sales growth, which resulted in increases of $6.9$6.6 million and $5.8$6.1 million in other selling expenses and other general and administrative expenses and other selling expenses, respectively.

Our consolidated SG&A expenses as a percentage of net sales improved to 15.9%16.0% in the secondthird quarter of fiscal 2026, down from 17.3%16.7% in the secondthird quarter of fiscal 2025. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects efficiencies realized from the previously mentioned net sales growth.

Our consolidated operating income increased by 41%34% to a record $350.4$355.2 million in the secondthird quarter of fiscal 2026, up from $248.2$265.0 million in the secondthird quarter of fiscal 2025. The increase in consolidated operating income principally reflects a $58.1$47.0 million increase (a 31%24% increase) to a record $243.1$245.3 million in operating income of the FSG and a $43.9$44.6 million increase (a 56%55% increase) to a record $121.8$125.6 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, the previously mentioned improved gross profit margin, and SG&A expense efficiencies realized from the net sales growth. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and the previously mentioned improved gross profit margin. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth and improved gross profit margin, as well as SG&A expense efficiencies realized from the net sales growth.

Our consolidated operating income as a percentage of net sales improved to 25.5%25.1% in the secondthird quarter of fiscal 2026, up from 22.6%23.1% in the secondthird quarter of fiscal 2025. The increase in consolidated operating income as a percentage of net sales principally reflects an increase in the ETG’s operating income as a percentage of net sales to 26.5%26.0% in the secondthird quarter of fiscal 2026, up from 22.8% in the secondthird quarter of fiscal 2025, and an increase in the FSG's operating income as a percentage of net sales to 26.2%25.9% in the secondthird quarter of fiscal 2026, up from 24.1%24.7% in the secondthird quarter of fiscal 2025. The increase in the ETG's operating income as a percentage of net sales reflects the previously mentioned improved gross profit margin and a 1.0%2.3% impact from a decrease in SG&A expenses as a percentage of net sales, primarily driven by the previously mentioned SG&A expense efficiencies.efficiencies and the previously mentioned improved gross profit margin. The increase in the FSG's operating income as a percentage of net sales principally reflects a 1.3% impact from a decrease in SG&A expenses as a percentage of net sales, primarily driven by the previously mentioned SG&A expense efficiencies, and the previously mentioned improved gross profit margin.

Interest expense increasedwas to $34.2$35.9 million in the secondthird quarter of fiscal 2026, as compared to $32.9$31.7 million in the secondthird quarter of fiscal 2025. The increase in interest expense was principally due to an increase in the amount of outstanding debt, partially offset by a lower weighted-average interest rate on borrowings outstanding under our revolvingCredit credit facility.Facility.

Other income in the secondthird quarter of fiscal 2026 and 2025 was not material.

Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $16.5$19.0 million in the secondthird quarter of fiscal 2026, as compared to $13.7$13.3 million in the secondthird quarter of fiscal 2025. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries in which noncontrolling interests are held.

Net income attributable to HEICO increased by 49%33% to a record $233.8$235.4 million, or $1.66$1.67 per diluted share, in the secondthird quarter of fiscal 2026, up from $156.8$177.3 million, or $1.12$1.26 per diluted share, in the secondthird quarter of fiscal 20252025, principally reflecting the previously mentioned higher consolidated operating income.

For the remainder of fiscal 2026, we expect increased net sales at both the FSG and ETG to continue to be supported by underlying demand for our products and contributions from recent acquisitions. We intendremain tofocused continueon identifying and evaluating acquisition opportunities that are consistentalign with our strategic objectives. Our capital allocation approachstrategy remainscontinues focusedto onprioritize balancinginvestments in organic growth and acquisitions while maintainingpreserving adequate liquidity and financial flexibility.

Our principal uses of cash include acquisitions, interest payments, capital expenditures, cash dividends, distributions to noncontrolling interests and working capital needs. We nowcontinue to estimate fiscal 2026 capital expenditures to be approximately $85 to $95 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolvingCredit credit facility.Facility. The revolvingCredit credit facilityFacility and senior unsecured notes contain both financial and non-financial covenants. As of AprilJuly 30,31, 2026, we were in compliance with all such covenants and our total debt to shareholders’ equity ratio was 53.3%.50.6%.

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

Net cash provided by operating activities was $470.6$815.9 million in the first sixnine months of fiscal 2026 and consisted primarily of net income from consolidated operations of $455.1$709.6 million, depreciation and amortization expense of $107.6$166.4 million (a non-cash item), $22.5$34.4 million in share-based compensation expense (a non-cash item), $17.9 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), net changes in other long-term liabilities and assets related to the LCP of $16.2 million (principally participant deferrals and employer contributions), and net changes of $18.4$15.1 million included in the "Other" caption (principally the receipt of advance deposits on certain long-term customer contracts), net changes in other long-term liabilities and assets related to the HEICO Corporation Leadership Compensation Plan (the "LCP") of $13.7 million (principally participant deferrals and employer contributions), an $11.8 million deferred income tax provision (a non-cash item), and $10.5 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), partially offset by a $173.5$154.4 million increase in net working capital. The increase in net working capital is inclusive of a $75.9 million decrease in accrued expenses and other current liabilities, mainly reflecting the payment of fiscal 2025 accrued performance-based compensation, distributions to participants of the LCP, and the payment of payroll taxes arising from withholding requirements on stock option exercises, partially offset by accrued performance-based compensation expense; as well as a $65.1 million increase in accounts receivable resulting from the timing of collections, and a $40.5$78.4 million increase in inventories to support an increase in consolidated backlog, a $58.7 million increase in accounts receivable resulting from increased net sales and the timing of collections, and a $33.5 million increase in prepaid expenses and other current assets mainly reflecting deposits placed on future inventory deliveries, partially offset by a $50.0$47.3 million increase in trade accounts payable.payable due to the timing of payments.

Net cash provided by operating activities increased by $62.8$177.0 million (a 15%28% increase) in the first sixnine months of fiscal 2026, up from $407.7$638.9 million in the first sixnine months of fiscal 2025. The increase is principally attributable to a $103.0$166.8 million increase in net income from consolidated operations andoperations, a $29.7$31.5 million increase in the deferred income tax provision, a $21.5 million increase in depreciation and amortization expense, and a $16.1 million increase in share-based compensation expense, partially offset by a $79.8$65.9 million increase in net working capital. The increase in net working capital mainly reflects a $48.4 million increase in prepaid expenses and other current assets principally from increased deposits placed on future inventory deliveries and a $22.7 million increase in accounts receivable resulting from the higher net sales.

Net cash used in investing activities totaled $851.0$1,072.9 million in the first sixnine months of fiscal 2026 and related primarily to acquisitions of $821.3$1,018.2 million, capital expenditures of $31.5$54.1 million, and LCP funding of $16.8$19.4 million, partially offset by $22.7 million in proceeds from corporate-owned life insurance policy withdrawals within the LCP. Further details regarding our fiscal 2026 acquisitions may be found in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements.

Net cash provided by financing activities in the first sixnine months of fiscal 2026 totaled $371.9$280.0 million. During the first sixnine months of fiscal 2026, we received net proceeds of $1,191.5 million from the issuance of senior unsecured notes and borrowed $830.7$1,030.7 million under our revolvingCredit credit facility,Facility, which was partially offset by $410.7$1,845.7 million in payments made on our revolvingCredit creditFacility, facility, $16.7$34.9 million of cash dividends paid on our common stock, $16.4 million of distributions to noncontrolling interests, and $12.4$29.3 million of payments to acquire certain noncontrolling interests, and $25.8 million of distributions to noncontrolling interests.

ThereExcept as noted below, there have not been any material changes to our other obligations and commitments that were included in our Annual Report on Form 10-K for the year ended October 31, 2025.