Heico Corp 10-Q for FY2022 Q2
Heico Corp (HEI)
10-Q
2022-05-25
For: 2022-04-30
View Original
Added on
April 07, 2026
About this 10-Q
Heico Corp filed this 10-Q on May 25, 2022, covering the quarter ended April 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended April 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $538.81M
- up 15.5% from $466.65M a year earlier
- Net income
- $85.01M
- up 20.3% from net income of $70.67M a year earlier
- Diluted EPS
- $0.62
- up 21.6% from $0.51 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended | ||||||||
| OR | ||||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the transition period from ______ to _______ | ||||||||
Commission File Number: 001-04604
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(954 ) 987-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of each of the registrant’s classes of common stock as of May 23, 2022 is as follows:
Common Stock, $ | shares | |||||||
Class A Common Stock, $ | shares | |||||||
HEICO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| Page | |||||||||||
| Part I. | Financial Information | ||||||||||
Item 1. | |||||||||||
Item 2. | |||||||||||
Item 3. | |||||||||||
Item 4. | |||||||||||
| Part II. | Other Information | ||||||||||
Item 6. | |||||||||||
1
PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except per share data)
| April 30, 2022 | October 31, 2021 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Accounts receivable, net | ||||||||||||||
| Contract assets | ||||||||||||||
| Inventories, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Current maturities of long-term debt | $ | $ | ||||||||||||
| Trade accounts payable | ||||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||
| Income taxes payable | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt, net of current maturities | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies (Note 11) | ||||||||||||||
| Redeemable noncontrolling interests (Note 3) | ||||||||||||||
| Shareholders’ equity: | ||||||||||||||
Preferred Stock, $ | ||||||||||||||
Common Stock, $ | ||||||||||||||
Class A Common Stock, $ | ||||||||||||||
| Capital in excess of par value | ||||||||||||||
| Deferred compensation obligation | ||||||||||||||
| HEICO stock held by irrevocable trust | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total HEICO shareholders’ equity | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
| Total shareholders’ equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
(in thousands, except per share data)
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total operating costs and expenses | |||||||||||||||||||||||
Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
Income before income taxes and noncontrolling interests | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income from consolidated operations | |||||||||||||||||||||||
Less: Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income attributable to HEICO | $ | $ | $ | $ | |||||||||||||||||||
Net income per share attributable to HEICO shareholders: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
Weighted average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME – UNAUDITED
(in thousands)
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income from consolidated operations | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
Amortization of unrealized loss on defined benefit pension plan, net of tax | |||||||||||||||||||||||
| Total other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
Comprehensive income from consolidated operations | |||||||||||||||||||||||
Net income attributable to noncontrolling interests | |||||||||||||||||||||||
Foreign currency translation adjustments attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Comprehensive income attributable to HEICO | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
For the Six Months Ended April 30, 2022 and 2021
(in thousands, except per share data)
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of October 31, 2021 | $ | $ | $ | $ | $ | ($ | ($ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to HEICO Savings and Investment Plan | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from stock option exercises | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemptions of common stock related to stock option exercises | — | ( | ( | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests assumed related to acquisitions | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | ( | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to redemption amount of redeemable noncontrolling interests | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2022 | $ | $ | $ | $ | $ | ($ | ($ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of October 31, 2020 | $ | $ | $ | $ | $ | ($ | ($ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($ | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to HEICO Savings and Investment Plan | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from stock option exercises | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemptions of common stock related to stock option exercises | — | — | — | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | ( | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to redemption amount of redeemable noncontrolling interests | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation obligation | — | — | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2021 | $ | $ | $ | $ | $ | ($ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
For the Three Months Ended April 30, 2022 and 2021
(in thousands, except per share data)
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2022 | $ | $ | $ | $ | $ | ($ | ($ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to HEICO Savings and Investment Plan | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from stock option exercises | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Redemptions of common stock related to stock option exercises | — | — | — | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests assumed related to acquisitions | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | ( | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to redemption amount of redeemable noncontrolling interests | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2022 | $ | $ | $ | $ | $ | ($ | ($ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Income | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2021 | $ | $ | $ | $ | $ | ($ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to HEICO Savings and Investment Plan | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from stock option exercises | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Redemptions of common stock related to stock option exercises | — | — | — | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | ( | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to redemption amount of redeemable noncontrolling interests | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other | ( | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2021 | $ | $ | $ | $ | $ | ($ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
| Six months ended April 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating Activities: | |||||||||||
| Net income from consolidated operations | $ | $ | |||||||||
Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation expense | |||||||||||
| Employer contributions to HEICO Savings and Investment Plan | |||||||||||
| Deferred income tax provision (benefit) | ( | ||||||||||
| (Decrease) increase in accrued contingent consideration, net | ( | ||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Increase in accounts receivable | ( | ( | |||||||||
| Decrease in contract assets | |||||||||||
| (Increase) decrease in inventories | ( | ||||||||||
| Increase in prepaid expenses and other current assets | ( | ( | |||||||||
| Increase in trade accounts payable | |||||||||||
| (Decrease) increase in accrued expenses and other current liabilities | ( | ||||||||||
| Decrease in income taxes payable | ( | ( | |||||||||
| Net changes in other long-term liabilities and assets related to HEICO Leadership Compensation Plan | |||||||||||
| Other | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing Activities: | |||||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||
| Capital expenditures | ( | ( | |||||||||
| Investments related to HEICO Leadership Compensation Plan | ( | ( | |||||||||
| Other | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing Activities: | |||||||||||
| Borrowings on revolving credit facility | — | ||||||||||
| Payments on revolving credit facility | ( | ( | |||||||||
| Redemptions of common stock related to stock option exercises | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||
| Revolving credit facility issuance costs | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Other | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of HEICO Corporation and its subsidiaries (collectively, “HEICO,” or the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Therefore, the condensed consolidated financial statements do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2021. The October 31, 2021 Condensed Consolidated Balance Sheet has been derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statements of shareholders' equity and statements of cash flows for such interim periods presented. The results of operations for the six months ended April 30, 2022 are not necessarily indicative of the results which may be expected for the entire fiscal year.
The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. ("HFSC") and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and its subsidiaries.
8
2. ACQUISITIONS
In March 2022, the Company, through a subsidiary of HFSC, acquired 74 % of the membership interests of Pioneer Industries, LLC ("Pioneer"). Pioneer is a specialty distributor of spares for military aviation, marine, and ground platforms. The remaining 26 % interest continues to be owned by certain members of Pioneer's management team (see Note 3, Selected Financial Statement Information - Redeemable Noncontrolling Interests, for additional information). The total consideration includes an accrual of $9.8 million as of the acquisition date representing the estimated fair value of contingent consideration the Company may be obligated to pay should Pioneer meet a certain earnings objective following the acquisition. See Note 8, Fair Value Measurements, for additional information regarding the Company’s contingent consideration obligation. The purchase price of this acquisition was paid in cash, principally using proceeds from the Company's revolving credit facility.
In March 2022, the Company, through a subsidiary of HEICO Electronic, acquired 100 % of the stock of Flight Microwave Corporation ("Flight Microwave"). Flight Microwave is a designer and manufacturer of custom high power filters and filter assemblies used in space and defense applications. The purchase price of this acquisition was paid in cash using cash provided by operating activities.
The purchase price of Pioneer and Flight Microwave is not material or significant to the Company's condensed consolidated financial statements. The allocation of the total consideration for the fiscal 2022 acquisitions to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed is preliminary until the Company obtains final information regarding their fair values. However, the Company does not expect any adjustment to such allocations to be material to the Company's consolidated financial statements. The operating results of the fiscal 2022 acquisitions were included in the Company’s results of operations as of each effective acquisition date. The amount of net sales and earnings of the fiscal 2022 acquisitions included in the Condensed Consolidated Statements of Operations for the six and three months ended April 30, 2022 is not material. Had the fiscal 2022 acquisitions
9
3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
| (in thousands) | April 30, 2022 | October 31, 2021 | ||||||||||||
| Accounts receivable | $ | $ | ||||||||||||
| Less: Allowance for doubtful accounts | ( | ( | ||||||||||||
| Accounts receivable, net | $ | $ | ||||||||||||
Inventories
| (in thousands) | April 30, 2022 | October 31, 2021 | ||||||||||||
| Finished products | $ | $ | ||||||||||||
| Work in process | ||||||||||||||
| Materials, parts, assemblies and supplies | ||||||||||||||
| Inventories, net of valuation reserves | $ | $ | ||||||||||||
Property, Plant and Equipment
| (in thousands) | April 30, 2022 | October 31, 2021 | ||||||||||||
| Land | $ | $ | ||||||||||||
| Buildings and improvements | ||||||||||||||
| Machinery, equipment and tooling | ||||||||||||||
| Construction in progress | ||||||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | ||||||||||||
| Property, plant and equipment, net | $ | $ | ||||||||||||
Accrued Customer Rebates and Credits
The aggregate amount of accrued customer rebates and credits included within accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets was $15.9 million as of April 30, 2022 and $13.2 million as of October 31, 2021. The total customer rebates and credits deducted within net sales for the six months ended April 30, 2022 and 2021 was $3.7 1.8 2.0 1.0
10
Research and Development Expenses
The amount of new product research and development ("R&D") expenses included in cost of sales for the six and three months ended April 30, 2022 and 2021 is as follows (in thousands):
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| R&D expenses | $ | $ | $ | $ | |||||||||||||||||||
Redeemable Noncontrolling Interests
The holders of equity interests in certain of the Company's subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal 2032. The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the "Redemption Amount") be at fair value or a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period. Management's estimate of the aggregate Redemption Amount of all Put Rights that the Company could be required to pay is as follows (in thousands):
| April 30, 2022 | October 31, 2021 | ||||||||||
| Redeemable at fair value | $ | $ | |||||||||
| Redeemable based on a multiple of future earnings | |||||||||||
| Redeemable noncontrolling interests | $ | $ | |||||||||
As discussed in Note 2, Acquisitions, the Company, through a subsidiary of HFSC, acquired 74 % of the membership interests of Pioneer in March 2022. As part of the operating agreement, the noncontrolling interest holders have the right to cause the Company to purchase their membership interest over a four-year period beginning in fiscal 2029, or sooner under certain conditions, and the Company has the right to purchase the same membership interest over the same period.
During fiscal 2022, the Company sold a 3 % equity interest in a subsidiary of the FSG that was acquired in fiscal 2015, which decreased the Company's ownership interest in the subsidiary to 82 %. As part of the operating agreement, the noncontrolling interest holder has the right to cause the Company to purchase its equity interest over a five-year period beginning in fiscal 2028, or sooner under certain conditions, and the Company has the right to purchase the same equity interest over the same period.
During fiscal 2022, the Company sold 10 % of the membership interests of a subsidiary of the FSG that was acquired in fiscal 2018, which decreased the Company's ownership interest in the subsidiary to 90 %. As part of the operating agreement, the noncontrolling interest holder has the right to cause the Company to purchase its membership interest over a four-year period beginning in fiscal 2027, or sooner under certain conditions, and the Company has the right to purchase the same membership interest over the same period.
11
Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss for the six months ended April 30, 2022 are as follows (in thousands):
| Foreign Currency Translation | Defined Benefit Pension Plan | Accumulated Other Comprehensive Loss | |||||||||||||||
| Balances as of October 31, 2021 | ($ | ($ | ($ | ||||||||||||||
| Unrealized loss | ( | — | ( | ||||||||||||||
| Amortization of unrealized loss | — | ||||||||||||||||
| Balances as of April 30, 2022 | ($ | ($ | ($ | ||||||||||||||
4. GOODWILL AND OTHER INTANGIBLE ASSETS
| Segment | Consolidated Totals | ||||||||||||||||
| FSG | ETG | ||||||||||||||||
| Balances as of October 31, 2021 | $ | $ | $ | ||||||||||||||
| Goodwill acquired | |||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||
| Adjustments to goodwill | ( | ( | ( | ||||||||||||||
| Balances as of April 30, 2022 | $ | $ | $ | ||||||||||||||
The goodwill acquired pertains to the fiscal 2022 acquisitions described in Note 2, Acquisitions, and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed. Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of Comprehensive Income. The adjustments to goodwill principally represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal 2021 acquisitions. The Company estimates that $70 million of the goodwill acquired in fiscal 2022 will be deductible for income tax purposes.
12
Identifiable intangible assets consist of the following (in thousands):
| As of April 30, 2022 | As of October 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||
| Amortizing Assets: | ||||||||||||||||||||||||||||||||||||||
| Customer relationships | $ | ($ | $ | $ | ($ | $ | ||||||||||||||||||||||||||||||||
| Intellectual property | ( | ( | ||||||||||||||||||||||||||||||||||||
| Licenses | ( | ( | ||||||||||||||||||||||||||||||||||||
| Patents | ( | ( | ||||||||||||||||||||||||||||||||||||
| Non-compete agreements | ( | ( | ||||||||||||||||||||||||||||||||||||
| Trade names | ( | ( | ||||||||||||||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||||||||||||||
| Non-Amortizing Assets: | ||||||||||||||||||||||||||||||||||||||
| Trade names | — | — | ||||||||||||||||||||||||||||||||||||
| $ | ($ | $ | $ | ($ | $ | |||||||||||||||||||||||||||||||||
Amortization expense related to intangible assets for the six months ended April 30, 2022 and 2021 was $30.2 million and $30.3 million, respectively. Amortization expense related to intangible assets for the three months ended April 30, 2022 and 2021 was $15.2 million and $15.1 30.3 million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $56.5 million in fiscal 2023, $51.5 million in fiscal 2024, $47.1 million in fiscal 2025, $42.6 million in fiscal 2026, $39.6 million in fiscal 2027, and $166.5 million thereafter.
5. LONG-TERM DEBT
| April 30, 2022 | October 31, 2021 | ||||||||||
| Borrowings under revolving credit facility | $ | $ | |||||||||
| Finance leases and note payable | |||||||||||
| Less: Current maturities of long-term debt | ( | ( | |||||||||
| $ | $ | ||||||||||
The Company's borrowings under its revolving credit facility mature in fiscal 2025 as discussed further below. As of April 30, 2022 and October 31, 2021, the weighted average interest rate on borrowings under the Company's revolving credit facility was 1.7 % and 1.1 %, respectively. The revolving credit facility contains both financial and non-financial covenants. As of April 30, 2022, the Company was in compliance with all such covenants.
13
6. REVENUE
Contract Balances
Contract assets (unbilled receivables) represent revenue recognized on contracts using an over-time recognition model in excess of amounts invoiced to the customer. Contract liabilities (deferred revenue) represent customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets.
| April 30, 2022 | October 31, 2021 | Change | |||||||||||||||
| Contract assets | $ | $ | ($ | ||||||||||||||
| Contract liabilities | |||||||||||||||||
| Net contract assets | $ | $ | ($ | ||||||||||||||
The increase in the Company's contract liabilities during the first six months of fiscal 2022 principally reflects the receipt of advance deposits on certain customer contracts at both the ETG and FSG.
The amount of revenue that the Company recognized during the six and three months ended April 30, 2022 that was included in contract liabilities as of the beginning of fiscal 2022 was $19.6 million and $6.1 million, respectively.
Remaining Performance Obligations
As of April 30, 2022, the Company had $447.1 million of remaining performance obligations associated with contracts with an original duration of greater than one year pertaining to the majority of the products offered by the ETG as well as certain products of the FSG's specialty products product line. The Company will recognize net sales as these obligations are satisfied. The Company expects to recognize $204.6 million of this amount during the remainder of fiscal 2022 and $242.5 million thereafter, of which the majority is expected to occur in fiscal 2023.
14
Disaggregation of Revenue
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Flight Support Group: | |||||||||||||||||||||||
Aftermarket replacement parts (1) | $ | $ | $ | $ | |||||||||||||||||||
Repair and overhaul parts and services (2) | |||||||||||||||||||||||
Specialty products (3) | |||||||||||||||||||||||
| Total net sales | |||||||||||||||||||||||
| Electronic Technologies Group: | |||||||||||||||||||||||
Electronic component parts primarily for defense, space and aerospace equipment (4) | |||||||||||||||||||||||
Electronic component parts for equipment in various other industries (5) | |||||||||||||||||||||||
| Total net sales | |||||||||||||||||||||||
| Intersegment sales | ( | ( | ( | ( | |||||||||||||||||||
| Total consolidated net sales | $ | $ | $ | $ | |||||||||||||||||||
(1) Includes primarily 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 as well as machining, brazing, fabricating and welding services generally to original equipment manufacturers.
(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, a wide variety of memory products and radio frequency (RF) and microwave products, crashworthy and ballistically self-sealing auxiliary fuel systems, high performance communications and electronic intercept receivers and tuners, high performance active antenna systems and technical surveillance countermeasures (TSCM) equipment.
(5) Includes various component parts such as electromagnetic and radio frequency interference shielding, high voltage interconnection devices, high voltage advanced power electronics, harsh environment connectivity products, custom molded cable assemblies, silicone material for a variety of demanding applications and rugged small form-factor embedded computing solutions.
15
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Flight Support Group: | |||||||||||||||||||||||
| Aerospace | $ | $ | $ | $ | |||||||||||||||||||
| Defense and Space | |||||||||||||||||||||||
Other (1) | |||||||||||||||||||||||
| Total net sales | |||||||||||||||||||||||
| Electronic Technologies Group: | |||||||||||||||||||||||
| Defense and Space | |||||||||||||||||||||||
Other (2) | |||||||||||||||||||||||
| Aerospace | |||||||||||||||||||||||
| Total net sales | |||||||||||||||||||||||
| Intersegment sales | ( | ( | ( | ( | |||||||||||||||||||
| Total consolidated net sales | $ | $ | $ | $ | |||||||||||||||||||
(1) Principally industrial products.
7. INCOME TAXES
The Company's effective tax rate was 15.0 % in the first six months of fiscal 2022, as compared to 12.0 % in the first six months of fiscal 2021. The increase in the Company's effective tax rate principally reflects an unfavorable impact from tax-exempt unrealized losses in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan ("HEICO LCP") in the first six months of fiscal 2022 as compared to the tax-exempt unrealized gains recognized on such policies in the first six months of fiscal 2021, partially offset by a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2022. The Company recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2022 and 2021 of $17.8 million and $13.5 million, respectively. The tax benefit from stock option exercises in both periods was the result of strong appreciation in HEICO's stock price during the optionees' holding periods.
The Company's effective tax rate was 23.7 % in the second quarter of fiscal 2022, as compared to 19.5 % in the second quarter of fiscal 2021. The increase in the Company's effective tax rate principally reflects an unfavorable impact from tax-exempt unrealized losses in the cash surrender values of life insurance policies related to the HEICO LCP in the second quarter of
16
8. FAIR VALUE MEASUREMENTS
The Company's assets and liabilities that were measured at fair value on a recurring basis are set forth by level within the fair value hierarchy in the following tables (in thousands):
| As of April 30, 2022 | ||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Deferred compensation plan: | ||||||||||||||||||||||||||
| Corporate-owned life insurance | $ | $ | $ | $ | ||||||||||||||||||||||
| Money market fund | ||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||||||||||||
| As of October 31, 2021 | ||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Deferred compensation plan: | ||||||||||||||||||||||||||
| Corporate-owned life insurance | $ | $ | $ | $ | ||||||||||||||||||||||
| Money market fund | ||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||||||||||||
The Company maintains the HEICO Corporation Leadership Compensation Plan (the "LCP"), which is a non-qualified deferred compensation plan. The assets of the LCP principally represent cash surrender values of life insurance policies, which derive their fair values from investments in mutual funds that are managed by an insurance company, and are classified within Level 2 and valued using a market approach. Certain other assets of the LCP represent investments in money market funds that are classified within Level 1. The assets of the LCP are held within an irrevocable trust and classified within other assets in the Company’s Condensed Consolidated Balance Sheets. The related liabilities of the LCP are included within other long-term liabilities and accrued expenses and other current liabilities in the Company’s Condensed
17
Consolidated Balance Sheets and have an aggregate value of $217.7 million as of April 30, 2022 and $244.3 million as of October 31, 2021.
As part of the agreement to acquire 74 % of the membership interests of a subsidiary by the FSG in fiscal 2022, the Company may be obligated to pay contingent consideration of $14.1 million in fiscal 2027 should the acquired entity meet a certain earnings objective during the five-year period following the acquisition. As of April 30, 2022, the estimated fair value of the contingent consideration was $9.4 million.
As part of the agreement to acquire 89 % of the membership interests of a subsidiary by the FSG in fiscal 2021, the Company may be obligated to pay contingent consideration of $8.9 million as early as in fiscal 2024 should the acquired entity meet a certain earnings objective during the three-year period following the acquisition. Additionally, the Company may be obligated to pay contingent consideration of up to $17.8 million as early as in fiscal 2026 should the acquired entity meet a certain earnings objective during the three-year period following the second anniversary of the acquisition. As of April 30, 2022, the estimated fair value of the contingent consideration was $17.0 million.
As part of the agreement to acquire 89.99 % of the equity interests of a subsidiary by the ETG in fiscal 2020, the Company may be obligated to pay contingent consideration of up to CAD $27.0 million, or $21.0 million, in fiscal 2025 should the acquired entity meet certain earnings objectives during fiscal 2023 and 2024. However, should the acquired entity achieve a certain earnings objective over any two consecutive fiscal years beginning in fiscal 2021 and ending in fiscal 2023, half of the contingent consideration obligation, or CAD $13.5 million, would be payable in the following year. As of April 30, 2022, the estimated fair value of the contingent consideration was CAD $15.7 million, or $12.2 million.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2020, the Company may be obligated to pay contingent consideration of up to $35.0 million in fiscal 2025 based on the earnings of the acquired entity during calendar years 2023 and 2024 provided the entity meets certain earnings objectives during each of calendar years 2021 to 2024. As of April 30, 2022, the estimated fair value of the contingent consideration was $12.9 million. The obligation to pay any contingent consideration would be payable by a consolidated subsidiary of HEICO that is 75 % owned by HEICO Electronic.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017, the Company may be obligated to pay contingent consideration of $20.0 million in fiscal 2023 should the acquired entity meet a certain earnings objective during the first six years following the acquisition. As of April 30, 2022, the estimated fair value of the contingent consideration was $18.4 million.
18
The following unobservable inputs were used to derive the estimated fair value of the Company's Level 3 contingent consideration liabilities as of April 30, 2022 ($ in thousands):
| Unobservable | Weighted | |||||||||||||||||||||||||
| Acquisition Date | Fair Value | Input | Range | Average (1) | ||||||||||||||||||||||
| 3-17-2022 | $ | Compound annual revenue growth rate | ( | |||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
| 8-4-2021 | Compound annual revenue growth rate | |||||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
| 8-18-2020 | Compound annual revenue growth rate | |||||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
| 8-11-2020 | Compound annual revenue growth rate | |||||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
| 9-15-2017 | Compound annual revenue growth rate | ( | ||||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
Changes in the Company’s contingent consideration liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the six months ended April 30, 2022 are as follows (in thousands):
| Liabilities | ||||||||
| Balance as of October 31, 2021 | $ | |||||||
| Contingent consideration related to acquisition | ||||||||
| Decrease in accrued contingent consideration, net | ( | |||||||
| Foreign currency transaction adjustments | ( | |||||||
| Balance as of April 30, 2022 | $ | |||||||
Included in the accompanying Condensed Consolidated Balance Sheet under the following captions: | ||||||||
| Accrued expenses and other current liabilities | $ | |||||||
| Other long-term liabilities | ||||||||
| $ | ||||||||
19
The Company records changes in accrued contingent consideration and foreign currency transaction adjustments within selling, general and administrative expenses in its Condensed Consolidated Statement of Operations.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, trade accounts payable and accrued expenses and other current liabilities approximate fair value as of April 30, 2022 due to the relatively short maturity of the respective instruments. The carrying amount of long-term debt approximates fair value due to its variable interest rates.
9. NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
Net income attributable to HEICO | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
Weighted average common shares outstanding - basic | |||||||||||||||||||||||
| Effect of dilutive stock options | |||||||||||||||||||||||
Weighted average common shares outstanding - diluted | |||||||||||||||||||||||
Net income per share attributable to HEICO shareholders: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
Anti-dilutive stock options excluded | |||||||||||||||||||||||
20
10. OPERATING SEGMENTS
Information on the Company’s two operating segments, the FSG and the ETG, for the six and three months ended April 30, 2022 and 2021, respectively, is as follows (in thousands):
Other, Primarily Corporate and Intersegment (1) | Consolidated Totals | |||||||||||||||||||||||||
| Segment | ||||||||||||||||||||||||||
| FSG | ETG | |||||||||||||||||||||||||
| Six months ended April 30, 2022: | ||||||||||||||||||||||||||
| Net sales | $ | $ | ($ | $ | ||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| Operating income | ( | |||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||
| Six months ended April 30, 2021: | ||||||||||||||||||||||||||
| Net sales | $ | $ | ($ | $ | ||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| Operating income | ( | |||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||
| Three months ended April 30, 2022: | ||||||||||||||||||||||||||
| Net sales | $ | $ | ($ | $ | ||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| Operating income | ( | |||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||
| Three months ended April 30, 2021: | ||||||||||||||||||||||||||
| Net sales | $ | $ | ($ | $ | ||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| Operating income | ( | |||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||
(1) Intersegment activity principally consists of net sales from the ETG to the FSG .
21
Total assets by operating segment are as follows (in thousands):
| Other, Primarily Corporate | Consolidated Totals | |||||||||||||||||||||||||
| Segment | ||||||||||||||||||||||||||
| FSG | ETG | |||||||||||||||||||||||||
| Total assets as of April 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
| Total assets as of October 31, 2021 | ||||||||||||||||||||||||||
11. COMMITMENTS AND CONTINGENCIES
Guarantees
As of April 30, 2022, the Company has arranged for standby letters of credit aggregating $15.9 million, which are supported by its revolving credit facility and principally pertain to performance guarantees related to customer contracts entered into by certain of the Company's subsidiaries as well as payment guarantees related to potential workers' compensation claims and a facility lease.
Product Warranty
Changes in the Company’s product warranty liability for the six months ended April 30, 2022 and 2021, respectively, are as follows (in thousands):
| Six months ended April 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Balances as of beginning of fiscal year | $ | $ | ||||||||||||
| Accruals for warranties | ||||||||||||||
| Warranty claims settled | ( | ( | ||||||||||||
| Balances as of April 30 | $ | $ | ||||||||||||
Litigation
On April 20, 2021, an indirect subsidiary of HFSC, which was acquired in June 2020, received a grand jury subpoena from the United States District Court for the Southern District of California requiring the production of documents for the time period December 1, 2017 through February 4, 2019 related to the subsidiary's employment of a certain individual and its performance of work on certain Navy vessels during that time period. The Company is cooperating with the investigation. The Company has completed its production of documents responsive to the subpoena, although the Company has a continuing obligation to produce such documents should any be located. At this early stage in the investigation, the Company cannot predict the outcome of the investigation or when the investigation will ultimately be resolved; nor can the Company reasonably estimate the possible range of loss or impact to its business, if any, that may result from this matter.
22
23
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.
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 Policies” in our Annual Report on Form 10-K for the year ended October 31, 2021. There have been no material changes to our critical accounting policies during the six months ended April 30, 2022.
Our business is comprised of two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.
Our results of operations in fiscal 2022 continue to reflect the adverse impact from the COVID-19 global pandemic (the “Pandemic”). Despite the aforementioned, we experienced continued improvement in operating results in the first six months and second quarter of fiscal 2022 as compared to the first six months and second quarter of fiscal 2021 principally reflecting improved demand for our commercial aerospace products. The Flight Support Group has reported seven consecutive quarters of improvement in net sales and operating income resulting from signs of commercial air travel recovery in certain domestic travel markets, moderated by a slower recovery in international travel markets.
Additionally, our results of operations for the six and three months ended April 30, 2022 have been affected by the fiscal 2021 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, 2021 and the fiscal 2022 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to the Condensed Consolidated Financial Statements of this quarterly report.
24
Results of Operations
The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations (in thousands):
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $1,029,156 | $884,553 | $538,813 | $466,651 | |||||||||||||||||||
| Cost of sales | 627,717 | 546,346 | 327,584 | 286,878 | |||||||||||||||||||
Selling, general and administrative expenses | 179,840 | 161,174 | 88,452 | 83,025 | |||||||||||||||||||
| Total operating costs and expenses | 807,557 | 707,520 | 416,036 | 369,903 | |||||||||||||||||||
| Operating income | $221,599 | $177,033 | $122,777 | $96,748 | |||||||||||||||||||
| Net sales by segment: | |||||||||||||||||||||||
| Flight Support Group | $578,994 | $429,614 | $306,313 | $230,280 | |||||||||||||||||||
| Electronic Technologies Group | 459,729 | 466,639 | 237,393 | 243,089 | |||||||||||||||||||
| Intersegment sales | (9,567) | (11,700) | (4,893) | (6,718) | |||||||||||||||||||
| $1,029,156 | $884,553 | $538,813 | $466,651 | ||||||||||||||||||||
| Operating income by segment: | |||||||||||||||||||||||
| Flight Support Group | $118,573 | $61,298 | $66,197 | $35,476 | |||||||||||||||||||
| Electronic Technologies Group | 121,576 | 131,422 | 65,988 | 71,294 | |||||||||||||||||||
| Other, primarily corporate | (18,550) | (15,687) | (9,408) | (10,022) | |||||||||||||||||||
| $221,599 | $177,033 | $122,777 | $96,748 | ||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Gross profit | 39.0 | % | 38.2 | % | 39.2 | % | 38.5 | % | |||||||||||||||
Selling, general and administrative expenses | 17.5 | % | 18.2 | % | 16.4 | % | 17.8 | % | |||||||||||||||
| Operating income | 21.5 | % | 20.0 | % | 22.8 | % | 20.7 | % | |||||||||||||||
| Interest expense | .2 | % | .5 | % | .2 | % | .4 | % | |||||||||||||||
| Other income | .1 | % | .1 | % | .1 | % | .1 | % | |||||||||||||||
| Income tax expense | 3.2 | % | 2.4 | % | 5.4 | % | 4.0 | % | |||||||||||||||
Net income attributable to noncontrolling interests | 1.5 | % | 1.3 | % | 1.5 | % | 1.2 | % | |||||||||||||||
| Net income attributable to HEICO | 16.7 | % | 16.0 | % | 15.8 | % | 15.1 | % | |||||||||||||||
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Comparison of First Six Months of Fiscal 2022 to First Six Months of Fiscal 2021
Net Sales
Our consolidated net sales in the first six months of fiscal 2022 increased by 16% to a record $1,029.2 million, up from net sales of $884.6 million in the first six months of fiscal 2021. The increase in consolidated net sales principally reflects an increase of $149.4 million (a 35% increase) to $579.0 million in net sales within the FSG, partially offset by a decrease of $6.9 million (a 1% decrease) to $459.7 million in net sales within the ETG. The net sales increase in the FSG reflects strong organic growth of 26% as well as net sales of $36.3 million contributed by our fiscal 2021 and 2022 acquisitions. The FSG's organic growth reflects increased demand for the majority of our commercial aerospace products and services resulting from continued recovery in global commercial air travel as compared to the prior year. As such, organic net sales increased by $62.8 million, $30.5 million and $19.8 million within our aftermarket replacement parts, repair and overhaul parts and services and specialty products product lines, respectively. The net sales decrease in the ETG principally reflects a 3% decrease in organic net sales, partially offset by $10.4 million contributed by our fiscal 2021 and 2022 acquisitions. The ETG's organic net sales decline is mainly attributable to decreased demand for our defense products resulting in a net sales decrease of $36.7 million, partially offset by increased demand for our medical, other electronics, telecommunications and space products resulting in net sales increases of $9.2 million, $4.9 million, $3.3 million and $2.2 million, respectively. Although sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first six months of fiscal 2022, recent cost inflation and potential supply chain disruptions may lead to higher sales prices during the remainder of fiscal 2022.
Gross Profit and Operating Expenses
Our consolidated gross profit margin increased to 39.0% in the first six months of fiscal 2022, up from 38.2% in the first six months of fiscal 2021, principally reflecting a 3.8% improvement in the FSG's gross profit margin, partially offset by a .6% decrease in the ETG's gross profit margin. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales across all product lines. The reduction in the ETG's gross profit margin principally reflects the decrease in net sales of defense products and an increase in new product research and development expenses as a percentage of net sales to support ongoing new product research and development activities. Total new product research and development expenses included within our consolidated cost of sales were $37.1 million in the first six months of fiscal 2022, up from $34.2 million in the first six months of fiscal 2021.
Our consolidated selling, general and administrative ("SG&A") expenses were $179.8 million in the first six months of fiscal 2022, as compared to $161.2 million in the first six months of fiscal 2021. The increase in consolidated SG&A expenses principally reflects costs incurred to support the previously mentioned net sales growth resulting in increases of $6.3 million and $6.1 million in general and administrative expenses and selling expenses, respectively. Additionally, the increase in consolidated SG&A expenses reflects $6.3 million attributable to our fiscal 2021 and 2022 acquisitions.
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Our consolidated SG&A expenses as a percentage of net sales decreased to 17.5% in the first six months of fiscal 2022, down from 18.2% in the first six months of fiscal 2021. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects the efficiencies realized from the higher net sales, as a well as a .4% impact from lower intangible asset amortization expense and a .2% favorable impact from changes in the estimated fair value of accrued contingent consideration.
Operating Income
Our consolidated operating income increased by 25% to a record $221.6 million in the first six months of fiscal 2022, up from $177.0 million in the first six months of fiscal 2021. The increase in consolidated operating income principally reflects a $57.3 million increase (a 93% increase) to a record $118.6 million in operating income of the FSG, partially offset by a $9.8 million decrease (a 7% decrease) to $121.6 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned improved gross profit margin, net sales growth, and efficiencies realized from the higher net sales volume. The decrease in operating income of the ETG principally reflects a lower level of efficiencies resulting from the net sales decrease, as well as the previously mentioned lower gross profit margin. Further, the increase in consolidated operating income was partially offset by $4.5 million of higher corporate expenses mainly attributable to an increase in performance-based compensation expense and the suspension of corporate salary reductions as of the end of the first quarter of fiscal 2021.
Our consolidated operating income as a percentage of net sales increased to 21.5% in the first six months of fiscal 2022, up from 20.0% in the first six months of fiscal 2021. The increase principally reflects an increase in the FSG’s operating income as a percentage of net sales to 20.5% in the first six months of fiscal 2022, up from 14.3% in the first six months of fiscal 2021, partially offset by a decrease in the ETG's operating income as a percentage of net sales to 26.4% in the first six months of fiscal 2022, as compared to 28.2% in the first six months of fiscal 2021. The increase in the FSG’s operating income as a percentage of net sales principally reflects the previously mentioned improved gross profit margin, as well as a 2.4% impact from a decrease in SG&A expenses as a percentage of net sales mainly reflecting the previously mentioned efficiencies. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 1.1% impact from an increase in SG&A expenses as a percentage of net sales mainly from the previously mentioned lower level of efficiencies, as well as the previously mentioned lower gross profit margin.
Interest Expense
Interest expense decreased to $1.8 million in the first six months of fiscal 2022, down from $4.5 million in the first six months of fiscal 2021. The decrease was principally due to a lower weighted average balance of borrowings outstanding under our revolving credit facility.
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Other Income
Other income in the first six months of fiscal 2022 and 2021 was not material.
Income Tax Expense
Our effective tax rate was 15.0% in the first six months of fiscal 2022, as compared to 12.0% in the first six months of fiscal 2021. The increase in our effective tax rate principally reflects an unfavorable impact from tax-exempt unrealized losses in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan ("HEICO LCP") in the first six months of fiscal 2022 as compared to the tax-exempt unrealized gains recognized on such policies in the first six months of fiscal 2021, partially offset by a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2022. We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2022 and 2021 of $17.8 million and $13.5 million, respectively. The tax benefit from stock option exercises in both periods was the result of strong appreciation in HEICO's stock price during the optionees' holding periods.
Net Income Attributable to Noncontrolling Interests
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 $15.4 million in the first six months of fiscal 2022, as compared to $11.5 million in the first six months of fiscal 2021. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG in which noncontrolling interests are held, inclusive of fiscal 2021 and 2022 acquisitions, partially offset by a decrease in the operating results of certain subsidiaries of the ETG in which noncontrolling interests are held.
Net Income Attributable to HEICO
Net income attributable to HEICO increased by 22% to $171.9 million, or $1.25 per diluted share, in the first six months of fiscal 2022, up from $141.3 million, or $1.03 per diluted share, in the first six months of fiscal 2021 principally reflecting the previously mentioned higher consolidated operating income.
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Comparison of Second Quarter of Fiscal 2022 to Second Quarter of Fiscal 2021
Net Sales
Our consolidated net sales in the second quarter of fiscal 2022 increased by 15% to $538.8 million, up from net sales of $466.7 million in the second quarter of fiscal 2021. The increase in consolidated net sales principally reflects an increase of $76.0 million (a 33% increase) to $306.3 million in net sales within the FSG, partially offset by a decrease of $5.7 million (a 2% decrease) to $237.4 million in net sales within the ETG. The net sales increase in the FSG reflects strong organic growth of 23% as well as net sales of $22.7 million contributed by our fiscal 2021 and 2022 acquisitions. The FSG's organic growth reflects increased demand for the majority of our commercial aerospace products and services resulting from continued recovery in global commercial air travel as compared to the prior year. As such, organic net sales increased by $30.3 million, $12.2 million and $10.8 million within our aftermarket replacement parts, repair and overhaul parts and services and specialty products product lines, respectively. The net sales decrease in the ETG principally reflects a 4% decrease in organic net sales, partially offset by $5.2 million contributed by our fiscal 2021 and 2022 acquisitions. The ETG's organic net sales decline is mainly attributable to decreased demand for our defense products resulting in a net sales decrease of $22.1 million, partially offset by increased demand for our space, medical, other electronics and telecommunications products resulting in net sales increases of $4.4 million, $4.2 million, $2.1 million and $1.9 million, respectively. Although sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the second quarter of fiscal 2022, recent cost inflation and potential supply chain disruptions may lead to higher sales prices during the remainder of fiscal 2022.
Gross Profit and Operating Expenses
Our consolidated gross profit margin increased to 39.2% in the second quarter of fiscal 2022, up from 38.5% in the second quarter of fiscal 2021, principally reflecting a 3.4% improvement in the FSG's gross profit margin, partially offset by a .4% decrease in the ETG's gross profit margin. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales across all product lines. The reduction in the ETG's gross profit margin principally reflects the decrease in net sales of defense products and an increase in new product research and development expenses as a percentage of net sales to support ongoing new product research and development activities. Total new product research and development expenses included within our consolidated cost of sales were $18.8 million in the second quarter of fiscal 2022, up from $18.0 million in the second quarter of fiscal 2021.
Our consolidated SG&A expenses were $88.5 million in the second quarter of fiscal 2022, as compared to $83.0 million in the second quarter of fiscal 2021. The increase in consolidated SG&A expenses principally reflects $3.4 million attributable to our fiscal 2021 and 2022 acquisitions and an increase of $3.1 million in selling expenses to support the previously mentioned net sales growth, partially offset by a $1.1 million decrease in general and administrative expenses.
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Our consolidated SG&A expenses as a percentage of net sales decreased to 16.4% in the second quarter of fiscal 2022, down from 17.8% in the second quarter of fiscal 2021. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects the efficiencies realized from the higher net sales, as well as a .6% impact from lower accrued performance-based compensation expense, a .4% favorable impact from changes in the estimated fair value of accrued contingent consideration, and a .3% impact from lower intangible asset amortization expense.
Operating Income
Our consolidated operating income increased by 27% to a record $122.8 million in the second quarter of fiscal 2022, up from $96.7 million in the second quarter of fiscal 2021. The increase in consolidated operating income principally reflects a $30.7 million increase (an 87% increase) to a record $66.2 million in operating income of the FSG, partially offset by a $5.3 million decrease (a 7% decrease) to $66.0 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, improved gross profit margin, and efficiencies realized from the higher net sales volume. The decrease in operating income of the ETG principally reflects a lower level of efficiencies resulting from the net sales decrease, as well as the previously mentioned lower gross profit margin.
Our consolidated operating income as a percentage of net sales increased to 22.8% in the second quarter of fiscal 2022, up from 20.7% in the second quarter of fiscal 2021. The increase principally reflects an increase in the FSG’s operating income as a percentage of net sales to 21.6% in the second quarter of fiscal 2022, up from 15.4% in the second quarter of fiscal 2021, partially offset by a decrease in the ETG's operating income as a percentage of net sales to 27.8% in the second quarter of fiscal 2022, as compared to 29.3% in the second quarter of fiscal 2021. The increase in the FSG’s operating income as a percentage of net sales principally reflects the previously mentioned improved gross profit margin, as well as a 2.9% impact from a decrease in SG&A expenses as a percentage of net sales mainly reflecting the previously mentioned efficiencies. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 1.1% impact from an increase in SG&A expenses as a percentage of net sales mainly from the previously mentioned lower level of efficiencies, as well as the previously mentioned lower gross profit margin.
Interest Expense
Interest expense decreased to $1.0 million in the second quarter of fiscal 2022, down from $2.1 million in the second quarter of fiscal 2021. The decrease was principally due to a lower weighted average balance of borrowings outstanding under our revolving credit facility.
Other Income
Other income in the second quarter of fiscal 2022 and 2021 was not material.
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Income Tax Expense
Our effective tax rate was 23.7% in the second quarter of fiscal 2022, as compared to 19.5% in the second quarter of fiscal 2021. The increase in our effective tax rate principally reflects an unfavorable impact from tax-exempt unrealized losses in the cash surrender values of life insurance policies related to the HEICO LCP in the second quarter of fiscal 2022 as compared to the tax-exempt unrealized gains recognized on such policies in the second quarter of fiscal 2021.
Net Income Attributable to Noncontrolling Interests
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 $8.1 million in the second quarter of fiscal 2022, as compared to $5.8 million in the second quarter of fiscal 2021. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG in which noncontrolling interests are held, inclusive of fiscal 2021 and 2022 acquisitions.
Net Income Attributable to HEICO
Net income attributable to HEICO increased by 20% to $85.0 million, or $.62 per diluted share, in the second quarter of fiscal 2022, up from $70.7 million, or $.51 per diluted share, in the second quarter of fiscal 2021 principally reflecting the previously mentioned higher consolidated operating income.
Outlook
As we look ahead to the remainder of fiscal 2022, we expect global commercial air travel to continue growing despite the potential for additional Pandemic variants. We remain cautiously optimistic that the ongoing worldwide rollout of Pandemic vaccines, including boosters, will continue to positively influence global commercial air travel and benefit the markets we serve. But, it still remains very difficult to predict the Pandemic's path and effect, including factors like new variants and vaccination rates, potential supply chain disruptions and inflation, which can impact our key markets. Therefore, we feel it would not be responsible to provide fiscal 2022 net sales and earnings guidance at this time. However, we believe our ongoing conservative policies, strong balance sheet, and high degree of liquidity enable us to continuously invest in new research and development, take advantage of periodic strategic inventory purchasing opportunities, and execute on our successful acquisition program, which collectively position HEICO for market share gains.
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Liquidity and Capital Resources
Our principal uses of cash include acquisitions, capital expenditures, cash dividends, distributions to noncontrolling interests and working capital needs. We now anticipate fiscal 2022 capital expenditures to be approximately $40 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility. The revolving credit facility contains both financial and non-financial covenants. As of April 30, 2022, we were in compliance with all such covenants and our total debt to shareholders’ equity ratio was 11.0%.
On April 7, 2022, we entered into an amendment to extend the maturity date of our Revolving Credit Facility Agreement ("Credit Facility") by one year to November 2024 and to replace the Eurocurrency Rate with Adjusted Term SOFR as an election in which borrowings under the Credit Facility accrue interest, as such capitalized terms are defined in the Credit Facility.
Based on our current outlook, we believe that our net cash provided by operating activities and available borrowings under our revolving credit facility will be sufficient to fund cash requirements for at least the next twelve months.
Operating Activities
Net cash provided by operating activities was $174.8 million in the first six months of fiscal 2022 and consisted primarily of net income from consolidated operations of $187.4 million, depreciation and amortization expense of $46.7 million (a non-cash item), net changes in other long-term liabilities and assets related to the HEICO LCP of $13.4 million (principally participant deferrals and employer contributions), $6.9 million in share-based compensation expense (a non-cash item), and $5.4 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), partially offset by an $87.4 million increase in net working capital. The increase in net working capital is inclusive of a $42.8 million increase in inventories reflecting strategic buys within our distribution businesses and to support an increase in consolidated backlog, a $20.3 million increase in accounts receivable resulting from the previously mentioned net sales growth, a $15.9 million decrease in accrued expenses and other current liabilities mainly reflecting the payment of fiscal 2021 accrued performance-based compensation, and a $9.0 million increase in prepaid expenses and other current assets.
Net cash provided by operating activities decreased by $35.4 million in the first six months of fiscal 2022 from $210.1 million in the first six months of fiscal 2021. The decrease is principally attributable to a $83.8 million increase in net working capital, partially offset by a $34.6 million increase in net income from consolidated operations, a $10.6 million decrease in deferred income tax benefits and a $2.6 million increase in share-based compensation expense. The increase in net working capital primarily resulted from the previously mentioned increase in inventories, the payment of a larger amount of accrued performance-based compensation in the first six months of fiscal 2022 resulting from the much improved fiscal 2021 operating results, and the increase in accounts receivable as a result of the previously mentioned net sales growth.
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Investing Activities
Net cash used in investing activities totaled $144.0 million in the first six months of fiscal 2022 and related primarily to acquisitions of $105.5 million, capital expenditures of $16.2 million, investments related to the HEICO LCP of $11.7 million, and $10.5 million of other investing activities. Further details regarding our fiscal 2022 acquisitions may be found in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements.
Financing Activities
Net cash used in financing activities in the first six months of fiscal 2022 totaled $18.1 million. During the first six months of fiscal 2022, we made $65.0 million in payments on our revolving credit facility, redeemed common stock related to stock option exercises aggregating $23.7 million, paid $12.2 million in cash dividends on our common stock, and made $10.6 million of distributions to noncontrolling interests, which were partially offset by $93.0 million of borrowings under our revolving credit facility.
Other Obligations and Commitments
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, 2021.
New Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements for additional information.
Forward-Looking Statements
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
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those expressed in or implied by those forward-looking statements. Factors that could cause such differences include: the severity, magnitude and duration of the Pandemic; our liquidity and the amount and timing of cash generation; lower commercial air travel caused by the Pandemic and its aftermath, 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 and manufacturing 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, including the effects of inflation, 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. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have not been any material changes in our assessment of HEICO’s sensitivity to market risk that was disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended October 31, 2021.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that HEICO’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the second quarter ended April 30, 2022 that have materially affected, or are reasonably likely to materially affect, HEICO's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. EXHIBITS
| Exhibit | Description | |||||||
| 10.1 | ||||||||
| 10.2 | Second Amendment to Revolving Credit Agreement, effective as of April 7, 2022, among HEICO Corporation, as Borrower, the Lenders from time to time party thereto and Truist Bank (as successor by merger to SunTrust Bank), as Administrative Agent is incorporated by reference to Exhibit 10.1 to the Form 8-K filed on April 12, 2022. *** | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. * | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. * | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. * | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. * | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. * | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. * | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * | |||||||
* Filed herewith.
** Furnished herewith.
*** Previously filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HEICO CORPORATION | |||||||||||
| Date: | May 25, 2022 | By: | /s/ CARLOS L. MACAU, JR. | ||||||||
| Carlos L. Macau, Jr. Executive Vice President - Chief Financial Officer and Treasurer (Principal Financial Officer) | |||||||||||
| By: | /s/ STEVEN M. WALKER | ||||||||||
| Steven M. Walker Chief Accounting Officer and Assistant Treasurer (Principal Accounting Officer) | |||||||||||
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Exhibit 10.1
HEICO SAVINGS AND INVESTMENT PLAN
(Amended and Restated Effective as of March 30, 2022)
TABLE OF CONTENTS
Page
i
ii
iii
HEICO SAVINGS AND INVESTMENT PLAN
ARTICLE 1
INTRODUCTION
HEICO Corporation (“HEICO”) adopted the HEICO Savings and Investment Plan (the “Plan”) effective January 1, 1985 for the benefit of employees of HEICO and participating affiliated companies. The Plan was last restated in its entirety effective January 1, 2012, was thereafter amended, and is hereby further amended and restated effective as of March 30, 2022 (except for those sections of the Plan that have an alternate effective date).
The Plan is intended to be an employee stock ownership plan within the meaning of Code Section 4975(e)(7) which is designed to invest primarily in Common Stock and a stock bonus plan within the meaning of Treasury Regulation Section 1.401-1(b)(1)(iii) that is qualified under Code Section 401(a). The purposes of the Plan are (i) to encourage Employee savings by establishing a formal plan under which Employee contributions are supplemented by Employer contributions to create a flexible and competitive total compensation program for Employees, and (ii) to allow Employees the option to defer a portion of their compensation on a pre-tax basis.
ARTICLE 2
DEFINITIONS
The following terms when used herein shall have the designated meaning unless a different meaning is plainly required by the context in which the term is used:
2.01“Accounts” shall mean the Account established and maintained by the Committee, the Administrator or Trustee for each Participant or his Beneficiary to which shall be allocated each Participant’s interest in the Trust, and all dividends, income, gains and losses attributable thereto. Each Account may be divided into sub-accounts determined by the Committee as described in Section 6.01.
2.02“ACT Plan” shall mean the Aerospace & Commercial Technologies LLC Retirement Plan that is merged into the Plan as of March 30, 2022.
2.03“Actual Deferral Percentage” shall mean the ratio, expressed as a percentage, of Elective Deferral Contributions on behalf of a Participant for the Plan Year to the Participant’s Compensation for the Plan Year. The Actual Deferral Percentage of each Participant shall be rounded to the nearest 100th of 1% of such Participant’s Compensation. The Actual Deferral Percentage of a Participant who makes no Elective Deferral Contributions during a Plan Year is zero.
2.04“Adjustment” shall mean, for a Valuation Date, the aggregate earnings, realized or unrealized appreciation, losses, expenses, and realized or unrealized depreciation of the Investment Fund since the immediately preceding Valuation Date.
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2.05“Administrator” shall mean the Committee or such other persons or entities designated by the Committee pursuant to Section 14.02 to administer the Plan on behalf of the Committee.
2.06“Affiliate” shall mean the Company and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Company; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Company; and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o).
2.07“Authorized Leave of Absence” shall mean that period during which the Participant is absent without Compensation and for which the Committee, in its sole discretion, has determined him to be on a “Leave of Absence” instead of having terminated his Employment. However, such discretion of the Committee shall be exercised in a nondiscriminatory manner. In all events, a Leave of Absence by reason of service in the armed forces of the United States shall end no later than the time at which a Participant’s re-employment rights as a member of the armed forces cease to be protected by law; and a Leave of Absence for any other reason shall end after six (6) months, except that if the Participant resumes employment with the Employer prior thereto, the Leave of Absence shall end on such date of resumption of employment. The date that the Leave of Absence ends shall be deemed the Termination Date if the Participant does not resume employment with the Employer. In determining a Year of Service for Accrual of Benefits, all such Leaves of Absence shall be considered periods when the Employee is a Participant.
2.08“Average Actual Deferral Percentage” shall mean the average, expressed as a percentage, of the Actual Deferral Percentages of the Participants. The Average Actual Deferral Percentage of the Participants shall be rounded to the nearest 100th of 1%. If two or more plans maintained by the Employer or its Affiliates are treated as one plan for purposes of the nondiscrimination requirements of Code Section 401(a)(4) or the coverage requirements of Code Section 410(b) (other than for purposes of the average benefits test), all Elective Deferral Contributions that are made pursuant to those plans shall be treated as having been made pursuant to one plan.
2.09“Actual Contribution Percentage” shall mean the ratio, expressed as a percentage, of the sum of the after-tax contributions and Employer Contributions under the Plan on behalf of a Participant for the Plan Year to the Participant’s Compensation for the Plan Year. The Actual Contribution Percentage of each Participant shall be rounded to the nearest 100th of such Participant’s Compensation.
2.10“Average Actual Contribution Percentage” shall mean the average, expressed as percentage, of the Contribution Percentages of the Participants. The Average Actual Contribution Percentage of the Participants shall be rounded to the nearest 100th of 1%. If two or more plans maintained by the Employer or its Affiliates are treated as one plan for purposes of the nondiscrimination requirements of Code Section 401(a)(4) or the coverage requirements of Code Section 410(b) (other than for purposes of the average benefits test), all Employer Matching Contributions that are made pursuant to those plans shall be treated as having been made pursuant to one plan.
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2.11“Beneficiary” shall mean any person, including a contingent beneficiary or beneficiaries, designated by a Participant to receive benefits payable in the event of the death of a Participant; except that the Beneficiary of a Participant who is married shall be the Participant’s spouse, unless such spouse consents in writing to the Participant’s designation of a Beneficiary other than such spouse. Such written consent must be on a form acceptable to the Committee, delivered to the Committee, signed by the consenting spouse and notarized. Such consent shall not be required if it is established to the satisfaction of the Committee that there is no spouse or the spouse cannot be located. If no Beneficiary is designated or a designation is revoked, or if a designated Beneficiary shall not survive to receive payments due hereunder, all or a part of the Participant’s Accounts which have not been distributed shall be payable to the surviving spouse of the Participant or, if there is not such surviving spouse, to the Participant’s estate. The foregoing provisions shall not preclude the designation of the Beneficiary’s estate or other conditional Beneficiaries in the event the first designated Beneficiary does not survive to receive full payment. A Participant may change his Beneficiary at any time by similar written designation. Any designation of a Beneficiary shall take effect upon receipt of written notice to the Committee.
2.12“Board” shall mean the Board of Directors of HEICO Corporation.
2.13“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. A reference to a specific provision of the Code shall include such provision and any applicable Treasury Regulation pertaining thereto.
2.14“Committee” shall mean the Committee appointed by the Board of Directors under Article 14 to administer the Plan.
2.15“Common Stock” shall mean the common stock of HEICO Corporation that also meet the requirements to be Qualifying Employer Securities. Both HEICO Corporation Common Stock and HEICO Corporation Class A Common Stock shall be considered Common Stock.
2.16“Company” shall mean HEICO Corporation or any successor to the HEICO Corporation by merger, consolidation, or purchase of substantially all of its assets.
2.17“Compensation” shall mean the total base salary or wages, including overtime pay, paid by an Employer to an Employee during the Plan Year under consideration, excluding commissions, bonuses, incentive compensation, any amount paid in lieu of vacation days and all other items of extraordinary compensation reportable as taxable wages. Compensation also includes any elective deferrals under a cash-or-deferred arrangement or cafeteria plan that are not includible in gross income by reason of Code Section 125 or 402(e)(3), but does not include any other amounts contributed pursuant to, or received under, this Plan or any other defined contribution plan.
Notwithstanding the above, Compensation shall include any amount which is contributed by an Employer pursuant to a salary reduction agreement and which is not includible in the gross income of the Employee under Code Sections 125, 132(f), 402(e), 402(h) or 403(b). Compensation shall also include Differential Wage Payments, but only to the extent such payments do not exceed the amounts the individual would have received from the Employer if the individual had continued to perform services for the Employer.
Notwithstanding the above, the annual Compensation of each participant taken into account in determining allocations for any Plan Year beginning after December 31, 2021, shall not exceed $305,000, as adjusted for cost-of-living increases in accordance with Code Section 401(a)(17)(B). Annual Compensation means Compensation during the plan year or such other
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consecutive 12-month period over which compensation is otherwise determined under the plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year.
Notwithstanding the above, Compensation for purposes of Section 2.02, Section 2.07, Article 4 and Article 7 for the Plan Year in which an Employee first becomes a Participant shall be determined based on the Employee’s Compensation for the portion of the Plan Year in which the Employee is eligible to participate in the Plan. Notwithstanding the preceding sentence, Compensation for purposes of Section 5.01 and Section 5.02 (Limitations on Annual Additions) shall be based on the amount actually paid or made available to the Participant during the Plan Year.
2.18“Differential Wage Payments” shall mean any payment (as defined in Code Section 3401(h)) which is paid after December 31, 2008 and which (a) is made by the Employer to an individual with respect to any period during which the individual is performing service in the uniformed services (as defined in Chapter 43, Title 38, United States Code) while on active duty for a period of more than 30 days, and (b) represents all or a portion of the wages the individual would have received from the Employer if the individual were performing service for the Employer.
2.19“Early Retirement Date” shall mean the later of (a) an Employee’s 55th birthday or (b) the date on which he completes 10 Years of Service.
2.20“Elective Deferral Contributions” shall mean Employer contributions made to the Plan at the election of the Participant, in lieu of cash compensation, and shall include contributions made pursuant to a salary reduction agreement or other deferral mechanism. Elective Deferral Contributions shall be made in either percentage or dollar increments. Elective Deferral Contributions shall not include any amount properly distributed as excess annual additions. Effective as of July 1, 2022, the term Elective Deferral Contribution includes Pre-Tax Elective Deferrals and Roth Elective Deferrals.
2.21“Elective Deferral Contributions Account” shall mean the portion of a Participant’s Account attributable to Elective Deferral Contributions, and the total of the Adjustments that have been credited to or deducted from a Participant’s Account with respect to Elective Deferral Contributions. The term Elective Deferral Contribution Account includes the Pre-Tax Elective Deferral Account and Roth Elective Deferral Account.
2.22“Eligible Employee” shall mean, except for those Employees identified in the following sentence, all Employees employed by an Employer. The following Employees shall not be considered Eligible Employees:
(a)Any Employee included in a collective bargaining unit for which a labor organization is recognized as collective bargaining agent unless such Employee has been designated by the Committee as an “Eligible Employee” for the purposes of this Plan;
(b)Any Employee who is employed by an Affiliate that is not an Participating Employer;
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(c)Any Employee who is a nonresident alien and who does not receive earned income from the Employer that constitutes income from sources within the United States; or
(d)Employees who are, according to the Employer’s records, characterized as temporary, seasonal or occasional employees; provided, however, any temporary, seasonal or occasional employee of an Employer who completes one Year of Service shall be an Eligible Employee.
(e)Notwithstanding the foregoing, any Employee, including any temporary, seasonal or occasional employee of an Employer, who completes 3 consecutive 12-month periods, beginning on or after January 1, 2021, during each of which the Employee has at least 500 Hours of Service, shall be an Eligible Employee solely for purposes of making Elective Deferral Contributions and Catch-Up Contributions. Each such Employee must meet the other rules of this Section in order to be an Eligible Employee for purposes of receiving Employer Contributions. However, each 12-month period for which such Employee has at least 500 Hours of Service shall be treated as a Year of Service for vesting purposes of Employer Contributions made to the Participant’s Employer Accounts in the future.
2.23“Employee” shall mean any person employed by an Employer, including a leased employee within the meaning of Code Section 414(n) and an individual who is treated as an employee pursuant to regulations issued under Code Section 414(o). An “Employee” also includes any person who would be an Employee but who is on an Authorized Leave of Absence or who is receiving Differential Wage Payments from an Employer.
2.24“Employer” shall mean the Company and any Affiliate that has been approved by the Board to participate in the Plan and which shall have taken all action deemed necessary by the Board to participate. All references in the Plan to the term “Participating Employer” shall mean the Employer and vice versa. All Employers, groups of employees designated as participating in the Plan by such Employers (if not all employees), and the effective date of a company’s designation as an Employer shall be specified in Appendix A.
2.25“Employer Contributions” shall mean Employer Matching Contributions and Equity Builder Contributions. All references in the Plan to “Employer Account(s)” shall mean the Account(s) to which Employer Contributions are allocated thereto.
2.26“Employer Matching Contributions” shall have the meaning as defined in Section 4.04(a).
2.27“Employer Matching Contributions Account” shall mean the portion of a Participant’s Account attributable to Employer Matching Contributions, and the total of the Adjustments that have been credited to or deducted from a Participant’s Account with respect to Employer Matching Contributions.
2.28“Employment” shall mean the active service of an Employee with the Employer or an Affiliate.
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2.29“Entry Date” shall mean each day of the Plan Year.
2.30“ERISA” shall mean Public Law 93-406, the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
2.31“Equity Builder Contributions” shall mean contributions that are made by an Employer on behalf of a Participant that is designated as an Equity Builder Contribution, pursuant to Section 4.04(b), and is not taken into account under the tests described in Article 7.
2.32“Equity Builder Contributions Account” shall mean the portion of a Participant’s Account attributable to Equity Builder Contributions, and the total of the Adjustments that have been credited to or deducted from a Participant’s Account with respect to such Equity Builder Contributions.
2.33“Excess Aggregate Contributions” shall mean the amounts described in Section 7.02(e).
2.34“Excess Contributions” shall mean the amounts described in Section 7.01(e).
2.35“Excess Deferral Amounts” shall mean the amounts described in Section 4.01(d).
2.36“Highly Compensated Employee” shall mean:
(a)Any Employee who (1) was a five (5) percent owner at any time during the Plan Year or the preceding Plan Year, or (2) for the preceding Plan Year received compensation in excess of $135,000 beginning after December 31, 2021, (adjusted at the same time and in the same manner as under Code Section 415(d)).
(b)A former Employer if the former Employee separated from service from an Employer and all Affiliates (or is deemed to have separated from service from the Employer and all Affiliates) prior to the determination year, performed no services for an Employer during the determination year, and was a highly compensated active employee during the separation year or any determination year ending on or after the date the Employee attains age 55.
(c)The determination of who is a Highly Compensated Employee hereunder, including the determination as to the number and identity of employees in the top paid group, and the compensation considered shall be made in accordance with the provisions of Code Section 414(q) and the regulations issued thereunder.
(d)For purposes of this Section 2.35, the following terms shall have the following meanings:
(1) Compensation shall mean all compensation within the meaning of Code Section 414(s), including elective amounts that are not includible in the gross income of the Employee under Code Section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b).
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(2) 5 Percent Owner shall mean any Employee who owns or is deemed to own (within the meaning of Code Section 318), more than five percent (5%) of the value of outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of the Employer.
2.37“Hour of Service” shall mean:
(a)Each hour for which an Employee is paid, or entitled to payment, for performance of duties for performance of duties for an Employer or Employers.
(b)Each hour for which an Employee is paid, or entitled to payment, by an Employer or Employers, on account of a period of time during which no duties are performed (irrespective of whether the employment relationship is terminated) due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence; provided that in no event, shall an Employee receive credit for more than 501 Hours of Service for any single continuous period of non-working time.
(c)Each hour for which an Employee is absent from work by reason of (1) the pregnancy of the Employee, (2) the birth of a child of the Employee, (3) the placement of a child with the Employee in connection with the adoption of the child by the Employee, or (4) the caring for a child referred to in Sections (1) through (3) immediately following birth or placement. Hours credited under this Section shall be credited at the rate of eight (8) hours per day, but shall not, in the aggregate, exceed the number of hours required to prevent the Employee from incurring a One-Year Break in Service (a maximum of 501 hours) during the first computation period in which a One-Year Break in Service would otherwise occur; provided, however, that this rule shall apply only during the Plan Year in which the absence from work begins and the immediately following Plan Year.
(d)Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer or Employers. These hours shall be credited to the Employee for the computation period or period to which the award or agreement pertains, rather than the computation period in which the award, agreement, or payment is made.
(e)In lieu of the foregoing, an Employee who is not compensated on an hourly basis (such as salary and commission employees) shall be credited with 40 Hours of Service for each week (or 8 Hours of Service for each day) in which such Employee would be credited with Hours of Service in hourly pay. However, this method of computing Hours of Service may not be used for any Employee whose Hours of Service is required to be counted and recorded by an federal law, such as the Fair Labor Standards act. Any such method must yield an equivalency of at least 1,000 hours per computation.
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(f)The following rules shall apply in determining whether an Employee completes an “Hour of Service:
(1)The same hours shall not be credited under Sections (a) or (b) above, as the case may be, and Sections (c) above.
(2)The rules relating to determining hours of service for reasons other than the performance of duties and for crediting hours of service to particular periods of employment shall be those rules stated in Department of Labor regulations Title 29, Chapter XXV, subchapter C, part 2530, Sections 200b-2(b) and 200(b)-2(c), respectively.
2.38“Investment Fund” shall mean the separate funds under the Trust Fund that are distinguished by their investment objectives.
2.39“Investment Manager” shall mean the term “Investment Manager” as defined in Section 3(38) of ERISA.
2.40“Non-Highly Compensated Employee” shall mean an Employee of the Employer who is not a Highly Compensated Employee.
2.41“Normal Retirement Age” shall mean the date a Participant attains age sixty-five (65).
2.42“One Year Break in Service” shall mean, with respect to any Employee or Participant, any Computation Period during which he is not credited with 500 Hours of Service.
2.43“Participant” shall mean an Employee who becomes eligible to participate in the Plan as provided in Article 3. Notwithstanding the foregoing, for purposes of Article 7, a Participant shall mean any Eligible Employee who (a) is eligible to receive an allocation of an Employer Matching Contribution, even if no Employer Matching Contribution is allocated due to the Eligible Employee’s failure to make a required Elective Deferral Contribution, (b) is eligible to make an Elective Deferral Contribution, including an Eligible Employee whose right to make Elective Deferral Contributions has been suspended because of an election not to participate or a hardship distribution prior to January 1, 2019, and (c) is unable to receive an Employer Matching Contribution or make an Elective Deferral Contribution because his Compensation is less than a stated amount.
2.44“Plan” shall mean the HEICO Savings and Investment Plan.
2.45“Plan Year” shall mean the calendar year. In addition, Plan Year shall also be the “limitation year” for purposes of Code Section 415.
2.46“Pre-Tax Elective Deferral” shall mean an Elective Deferral Contribution that is not includible in gross income at the time deferred.
2.47“Pre-Tax Elective Deferral Account” shall mean the sub-account to which a Participant's Pre-Tax Elective Deferrals are allocated.
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2.48“Qualified” as used in “qualified plan” or “qualified trust” shall mean a plan and trust which are entitled to the tax benefits provided respectively by Code Sections 401 and 501 and by related provisions of the Code.
2.49“Qualifying Employer Securities” shall mean common stock issued by the Employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market in accordance with Code Section 409(l) or otherwise qualifies under Code Section 409(l). Noncallable preferred stock shall be treated as Qualifying Employer Securities if such stock is convertible at any time into stock which meets the requirements of the previous sentence and if such conversion is at a conversion price which (as of the date of the acquisition by the tax credit employee stock ownership plan) is reasonable in accordance with Code Section 409(l)(3). A security is “readily tradable on an established securities market” if the security is traded on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or the security is traded on a foreign national securities exchange that is officially recognized, sanctioned, or supervised by a governmental authority and the security is deemed by the SEC as having a “ready market” under SEC Rule 15c3-1 (17 CFR 240.15c3-1).
2.50“Rollover Contributions” shall mean any distribution as provided for in Code Section 402(c)(4), or any other provision of the Code which may permit rollovers to the Plan from time to time, from an eligible retirement plan as that term is defined in Code Section 402(c)(8).
2.51“Rollover Contributions Account” shall mean the portion of a Participant’s Account attributable to Rollover Contributions, and the total of the Adjustments which have been credited to or deducted from a Participant’s Account with respect to Rollover Contributions.
2.52“Roth Elective Deferral” shall mean an Elective Deferral designated irrevocably by the Participant at the time of the cash or deferred election as an Elective Deferrals that is being made in lieu of all or a portion of the Pre-Tax Elective Deferrals the Participant is otherwise eligible to make under the Plan; and is treated by the Employer as includible in the Participant’s income at the time the Participant would have received that amount in cash if the Participant had not made a cash or deferred election.
2.53“Roth Elective Deferral Account” shall the account to which a Participant's Roth Elective Deferrals are allocated. No contributions other than Roth Elective Deferrals, and properly attributable earnings or losses thereon, will be credited to such account. The Plan will maintain a record of the amount of Roth Elective Deferrals in each Roth Elective Deferral Account. Gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to each Participant’s Roth Elective Deferral Account and the Participant’s other accounts under the Plan.
2.54“Termination of Employment” or “Termination Date” shall mean the date on which the earliest of the following events occurs: (a) a Participant’s retirement, (b) a Participant’s termination of employment as a result of Total and Permanent Disability, (c) a Participant’s death, or (d) a Participant’s termination of employment for any other reason. Transfer of employment among Affiliates will not be considered a termination of employment with any Employer.
2.55“Total and Permanent Disability” or “Disability” shall mean a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders such Participant incapable of continuing any gainful occupation and which constitutes total disability under the federal Social Security Acts.
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2.56“Trust Agreement” shall mean the agreement and any amendments thereto entered into between the Company and the Trustee to establish the Trust Fund and specify the duties of the Trustee and the Company.
2.57“Trust Fund” or “Trust” shall mean the cash and other properties held and administered by the Trustee pursuant to the Trust Agreement to carry out the provisions of the Plan.
2.58“Trustee” shall mean the designated trustee acting at any time under the Trust Agreement.
2.59“Valuation Date” shall mean the last day of each calendar quarter and any other date as of which the value of Plan assets is determined.
2.60“Year of Service” shall mean any Computation Period during which an Employee is credited with at least 1,000 Hours of Service.
(a)For purposes of applying the vesting rules, a Year of Service shall mean any Computation Period a Participant is credited with 1,000 Hours of Service with an Employer or Affiliate. An Employee will receive credit for a Year of Service as of the end of the Computation Period if the Employee completes the required Hours of Service during such period, even if the Employee is not employed for the entire period.
(b)For all periods on or after January 1, 2004, the “Computation Period” shall mean the Plan Year.
(c)In the case of a Participant who has five (5) consecutive One Year Breaks in Service, all Years of Service after such period of break will be disregarded for the purpose of vesting in the portion of the Participant’s Employer Accounts that was credited before such period of break.
(d)If a Participant has five (5) consecutive One Year Breaks in Service and had no vested interest in his Employer Accounts prior to the period of break, all Years of Service credited before the period of break shall be permanently disregarded for all purposes under the Plan.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.01Participation in the Plan.
(a)An Eligible Employee shall become a Participant in (and thereupon be permitted to make Elective Deferral Contributions) the Plan on the Entry Date coincident with the later of (1) the date the Employee is credited with One Hour of Service, or (2) the date the Employee becomes an Eligible Employee, if he was not an Eligible Employee.
(b)Prior to becoming a Participant, each Eligible Employee shall be provided an opportunity to designate the percentage of his Compensation to be contributed to the Plan under Section 4.01. Any such designation shall
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become effective as of the date such Employee becomes a Participant in accordance with Section 3.01(a) above, provided the designation is made in the manner authorized by the Committee.
(c)A Participant who has a Termination Date or who ceases to be an Eligible Employee but does not have a Termination Date, then such Participant shall continue to be known as a “Participant”, but shall not be eligible to make Elective Deferral Contributions and shall not be eligible to receive Employer Contributions.
(d)If an Employee’s termination of Employment occurs after becoming a Participant and having a vested balance in his Account, such Employee shall become a Participant again on his date of rehire.
3.02Rollover Contributions. Employees may not make Rollover Contributions to the Plan prior to becoming a Participant.
3.03Acquisitions. If a group of persons becomes employed by an Employer (or any of its subsidiaries or divisions) as a result of an acquisition of another employer, the Committee shall determine the applicable Entry Date or special entry date for such acquired employees, and any other terms and conditions which apply to participation in this Plan. Except to the extent required by law or provided for by the Committee, employees of an acquired business shall be treated as having first accrued an Hour of Service as of the date of the Employer’s acquisition of such business.
ARTICLE 4
CONTRIBUTIONS
4.01Elective Deferral Contributions.
(a)An arrangement under which Participants may make elective deferrals, such as Elective Deferral Contributions under this Plan is referred to as a cash or deferred arrangement (“CODA”). Under such an arrangement, elective deferrals cannot relate to Compensation that is currently available prior to the adoption or effective date of the CODA. In addition, except for occasional, bona fide administrative considerations, contributions made pursuant to such an election cannot precede the earlier of (1) the performance of services relating to the contribution, and (2) when the Compensation that is subject to the election would be currently available to the Participant in the absence of an election to defer prior to the adoption or effective date of the CODA. Participants may not make Elective Deferral Contributions with respect to amounts that are not Code Section 415(c)(3) Compensation. Code Section 415(c)(3) Compensation shall have the same meaning as set forth in Code Section 415(c)(3) and Treasury Regulation Section 1.415(c)-2(d)(2). It should be noted, for this purpose, Code Section 415(c)(3) Compensation is not limited to the annual compensation limit of Code Section 401(a)(17).
(b)Each Employer shall contribute to the Trust, on behalf of each Participant, Elective Deferral Contributions as specified in a salary reduction agreement between the Participant and such Employer; provided,
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however, that such contribution for a Participant shall not exceed 80% of the Participant’s Compensation, nor or shall the contribution exceed the limitations set forth in Code Section 402(g) ($20,500 for Plan Years beginning after December 31, 2021), or any successor thereto, for each Plan Year (including any other elective deferrals within the meaning of Code Section 402(g)(3) in the case of all other plans, contracts, or arrangements of the Employer).
Notwithstanding the foregoing, with respect to each Eligible Employee who is hired by an Employer on or after January 1, 2006, such Eligible Employee shall be deemed to make an election to contribute to the Trust, and the Employer shall so contribute as soon as administratively feasible, an Elective Deferral Contribution in an amount equal to three percent (3%) of the Eligible Employee’s Compensation for the Plan Year, unless the Eligible Employee elects a greater or lesser percentage (including zero) in a salary reduction agreement entered into between the Eligible Employee and the Employer with respect to such Plan Year. Each such Eligible Employee shall have an effective opportunity to receive notice of availability of such election, as well as a salary reduction agreement form, and the Eligible Employee shall have a reasonable period to make a salary reduction election change before the date on which the deemed election shall take place. In the event that the automatic contribution arrangement under this Plan is an eligible automatic contribution arrangement as defined in Code Section 414(w)(3), then each Eligible Employee who is automatically enrolled in this Plan pursuant to this Section 4.01(b) shall be provided with a ninety (90) day period (commencing from the first day on which his or her participation begins) to elect out of the Plan and withdraw the contributions made on his or her behalf and the earnings thereon.
(c)A Participant may assign to this Plan any Excess Deferral Amounts made during a taxable year of the Participant by notifying the Committee on or before March 1st (or such later date as established by the Committee) of the subsequent year of the amount of the Excess Deferrals Amounts to be assigned to the Plan. Notwithstanding any other provision of the Plan, Excess Deferral Amounts and income allocable thereto shall be distributed no later than the April 15th immediately following the end of the applicable Plan Year. A distribution pursuant to this Section 4.01(c) of Excess Deferral Amounts and income, gains and losses allocable thereto shall be made without regard to any consent otherwise required under Section 10.02(c) or any other provision of the Plan. A distribution pursuant to this Section 4.01(c) of Excess Deferral Amounts and income, gains and losses allocable thereto shall not be treated as a distribution for purposes of determining whether a distribution required by Section 10.06 is satisfied. Any distribution under this Section 4.01(c) of less than the entire Excess Deferral Amount and income, gains and losses allocable thereto shall be treated as a pro rata distribution of Excess Deferral Amounts and income, gains and losses allocable thereto. In no case may an Employee receive from the Plan as a corrective distribution for a taxable year under this Section 4.01(c) an amount in excess of the individual’s total Elective Deferral Contributions under the Plan for the taxable year.
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(d)“Excess Deferral Amount” shall mean those Elective Deferral Contributions that are includable in a Participant’s gross income under Code Section 402(g) to the extent such Participant’s Elective Deferral Contributions for a taxable year exceed the dollar limitation under Code Section 402(g). If an Excess Deferral Amount is not distributed by the first April 15 following the close of the Participant’s taxable year, such amount shall be treated as an annual addition under the Plan.
(e)The Participant’s notice of an Excess Deferral Amount made pursuant to Section 4.01(c) shall be in writing; shall be submitted to the Committee no later than March 1 with respect to the preceding calendar year; shall specify the Participant’s Excess Deferral Amount for the preceding calendar year; and shall be accompanied by the Participant’s written statement that if such amounts are not distributed, such Excess Deferral Amount, when added to amounts deferred under other plans or arrangements described in Code Sections 401(k), 408(k), or 403(b), exceeds the limit imposed on the Participant by Code Section 402(g) for the calendar year in which the deferral occurred. A Participant is deemed to notify the Committee of any Excess Deferral Amount that arises by taking into account only those Elective Deferral Contributions made to this Plan and any other plans of this Employer or an Affiliate.
(f)The Excess Deferral Amount shall be adjusted for income or loss. The income or loss allocable to the Excess Deferral Amount is equal to the allocable income or loss for the taxable year of the individual as follows:
The income or loss allocable to the Excess Deferral Amount for the taxable year of the individual is equal to the income or loss for the taxable year of the individual allocable to the Participant’s Elective Deferral Contributions multiplied by a fraction, the numerator of which is such Participant’s Excess Deferral Amount for the taxable year, and the denominator of which is equal to the sum of the Participant’s Elective Deferral Account as of the beginning of the taxable year, plus the Participant’s Elective Deferral Contributions for the taxable year.
(g)The Excess Deferral Amount, which may be distributed under Section 4.01(c) with respect to an Employee for a taxable year, shall be reduced by any Excess Contributions previously distributed with respect to such Employee for the Plan Year beginning with or within such taxable year. In the event of a reduction under this Section 4.01(g), the amount of Excess Contributions included in the gross income of the Employee and reported by the Employer as a distribution of Excess Contributions shall be reduced by the amount of the reduction under this Section 4.01(g).
4.02Elections Regarding Elective Deferral Contributions.
(a)A Participant may elect to change his Elective Deferral Contribution Amount on a daily basis by contacting the Administrator and executing any forms (whether hardcopy or electronic) as may be required by the Administrator from time to time. Any change a Participant makes shall become effective as soon as administratively feasible following the receipt of such election by the Administrator.
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(b)A Participant may suspend further Elective Deferral Contributions to the Plan at any time by contacting the Administrator and executing any forms (whether hardcopy or electronic) as may be required by the Administrator from time to time. Any suspension a Participant requests shall become effective as soon as administratively feasible following the receipt of such election by the Administrator.
(c)Effective as of July 1, 2022, a Participant may elect to classify all or a portion of an Elective Deferral Contribution as a Roth Elective Deferral. An Elective Deferral Contribution contributed as one type of Elective Deferral may not later be reclassified as the other type of Elective Deferral. All of a Participant's Pre-tax Elective Deferrals will be allocated to the Participant's Pre-Tax Elective Deferral Account, and all of a Participant's Roth Elective Deferrals will be allocated to the Participant's Roth Elective Deferral Account.
4.03Catch-Up Contributions.
(a)Eligibility. All Employees who are eligible to make Elective Deferral Contributions under this Plan and who are projected to have attained age 50 before the close of the Plan Year shall be eligible to make Catch-Up Contributions in accordance with, and subject to the limitations of, Code Section 414(v).
(b)Election. In order to have Catch-Up Contributions made on his or her behalf for a Plan Year, a Participant shall direct that such Catch-Up Contributions be made pursuant to a procedure prescribed by the Committee whereby such Participant’s annual Compensation shall be reduced by a specified amount not to exceed the limitations of Code Section 414(v), and whereby the Employer agrees to contribute an identical amount on the Participant’s behalf to the Plan on a pre-tax basis under this Section 4.03.
(c)Application. Such Catch-Up Contributions shall not be taken into account for purposes of the limitation set forth in Section 5.02 hereof as well as the provisions of the Plan implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of such Catch-Up Contributions.
(d)Classification; No Matching Contributions. For purposes of this Plan, except as provided in this Section 4.03, Catch-Up Contributions shall be considered Elective Deferral Contributions and shall be allocated to a Participant’s Elective Deferral Account. Notwithstanding the foregoing, Catch-Up Contributions shall not be considered Elective Deferral Contributions for purposes of allocating Employer Matching Contributions as provided in Section 4.04(a) of this Plan to the extent that such Elective Deferrals exceeds an applicable limit that is the statutory limit, as that term is defined in Treasury Regulation Section 1.414(v)-1(b)(i).
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4.04Employer Contributions.
(a)Employer Matching Contributions. Each Employer shall contribute Employer Matching Contributions, if any, as provided for in this Section 4.04(a). A Participant’s Employer Matching Contribution is a percentage of his or her Elective Deferral Contributions made to the Plan and may be limited to a percentage of the Participant’s Compensation, as determined by the Board of Directors from time to time at its sole discretion. The Employer Matching Contribution percentage may vary (1) among Participants employed by different Employers; or (2) with the Participant’s rate of deferral, but must be uniform for Participants with equal rates of Elective Deferral Contributions and may not increase as the rate of Elective Deferral Contribution increases. Effective for Plan Years beginning on or after January 1, 2009, Employer Matching Contributions shall be calculated quarterly based on Elective Deferral Contributions made during that calendar quarter and Compensation paid for each payroll period for which Elective Deferral Contributions are made (i.e., excluding Compensation paid for any payroll period that the Participant does not contribute any Elective Deferral Contributions to the Plan, and excluding any Compensation paid prior to the payroll period for which the Participant’s first Elective Deferral Contribution was ever made to the Plan), and subject to the requirement set forth in Section 4.04(c)(1) hereof, shall be contributed to the Plan at the end of each calendar quarter on behalf of any Participant who makes Elective Deferral Contributions during that calendar quarter.
(b)Equity Builder Contributions. Each Employer may contribute Equity Builder Contributions as provided for in this Section 4.04(b). Subject to the requirement in Section 4.04(c)(2) hereof, a Participant’s share of Equity Builder Contributions for a Plan Year is determined by multiplying (1) the total Equity Builder Contributions to be allocated among all Participants’ Accounts by (2) the Participant’s Compensation for the Plan Year and dividing the result by (3) the Compensation paid for the Plan Year to all Participants eligible for an allocation. Only Compensation paid by Employers on account of service while a Participant is taken into account. A Participant’s share of Equity Builder Contributions shall be in an amount as fixed by the Board of Directors from time to time at its sole discretion.
(c)Eligibility to Receive Employer Matching Contributions and Equity Builder Contributions. Effective for Plan Years beginning on or after January 1, 2009, Employer Matching Contributions and Equity Builder Contributions, if any, shall be allocated to the Employer Accounts of Participants based on the following:
(1)With respect to each calendar quarter during a Plan Year, Employer Matching Contributions shall be allocated among and credited to the Employer Matching Contributions Account of Participants who are employed by an Employer on the last day of each such calendar quarter.
(2)Equity Builder Contributions, if any, shall be allocated to the Employer Accounts of Participants who are credited with 1,000
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Hours of Service during the Plan Year with an Employer and are employed on the last day of such Plan Year.
4.05After-Tax Contributions. Participants shall not be permitted to make after-tax contributions to the Plan other than in the form of Roth Elective Deferral Contributions.
4.06Rollover Contributions. An Eligible Employee may make a Rollover Contribution to this Plan, provided, however, that the trust from which the funds are to be transferred must permit the transfer to be made, and provided, further, the Committee consents to such transfer and is reasonably satisfied that such transfer will not jeopardize the tax exempt status of this Plan or Trust. Rollover Contributions shall be made by delivery to the Administrator for deposit in the Trust. All Rollover Contributions must be in cash or property satisfactory to the Administrator, whose decision in this regard shall be final. The Administrator will not accept rollovers of accumulated deductible employee contributions from a simplified employee pension plan or after-tax contributions from another qualified plan or IRA (including Roth IRAs described in Code Section 408A(b)). Upon approval by the Administrator, the amount transferred shall be deposited in the Trust and shall be credited to the Participant’s Rollover Contributions Account. A Rollover Contribution will not be matched by Employer Contributions, and is not subject to the restrictions provided in Section 4.01 or the limitations described in Article 5 and Article 7.
4.07Form and Timing of Contributions.
(a)Elective Deferral Contributions shall be deducted by the Employer from the Participant’s Compensation and contributed to the Trust as promptly as possible after the end of each regular pay period but in no event later than 15 days after the end of the month in which such Elective Deferral Contributions are retained by the Employer.
(b)All Employer Contributions for the purpose of paying or prepaying principal, interest or fees on Plan Indebtedness related to Financed Stock, as defined in Article 12, must be made in cash. All other Employer Contributions may be made in cash, Company Stock or other property, in the contributing Employer’s discretion. All Employer Contributions, whether in cash, Company Stock, or other property, are contingent upon acceptance by the Trustee and a determination by the Administrator that the contributions will not jeopardize the qualified status of this Plan.
(c)All Employer Contributions shall be contributed to the Trust on or before the time required by law for filing the Employer’s federal income tax return (including extensions) for its taxable year in or with which the Plan Year with respect to which the contribution is made ends.
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4.08Nondeductible Contributions and Contributions Made by Mistake of Fact. Any contribution or portion of a contribution to the Plan that (a) is determined to be nondeductible under Code Section 404 or (b) is made as a result of a mistake of fact may be reclaimed by the appropriate Employer within one year after the date of the disallowance of the deduction or the making of the mistaken contribution.
4.09Forfeitures.
(a)At least once per Plan Year, any amounts which became Forfeitures since the last December 31st shall be made available to (1) reinstate previously forfeited Account balances of Participants, if any, in accordance with Section 8.03, (2) pay administrative expenses of the Plan, and/or (3) reduce Employer Matching Contributions and/or Equity Builder Contributions that Employers would otherwise make on behalf of their current Participants that Plan Year, or Participants in the next Plan Year and each succeeding Plan Year.
(b)The term “Forfeiture” shall mean the amount of a Participant’s nonvested Account balance which is forfeited as provided for in Article 8, or any excess Employer Matching Contributions forfeited in accordance with Article 7. The portion of a Participant’s Accounts that are not distributable to him by reason of the provisions Article 7 or Article 8 shall be credited to a Forfeiture Account. The value of the Forfeiture Account shall be the market value as determined on each Valuation Date.
(c)Elective Deferral Contributions are to be taken into account in determining a Participant’s vested benefits under the Plan. Thus, for example, the Plan shall take Elective Deferral Contributions into account in determining whether a Participant has a nonforfeitable right to contributions under the Plan for purposes of forfeitures, and for applying provisions permitting the repayment of distributions to have forfeited amounts restored, and the provisions of Code Sections 410(a)(5)(D)(iii) and 411(a)(6)(D)(iii) permitting a plan to disregard certain service completed prior to breaks-in-service (sometimes referred to as “the rule of parity”).
4.10Investment Funds. The Administrator will establish a Company Stock fund (“Company Stock Fund”) for the investment of Plan assets in Common Stock. The Committee may direct the Administrator to establish other Investment Funds within the Trust and to permit Participants to direct the allocation of their Account balances among these Investment Funds in accordance with rules prescribed by the Committee. The Committee may alter the available Investment Funds or the procedures for allocating Account balances among them at any time.
4.11Investment of Contributions. Contributions made by a Participant pursuant to Sections 4.01 and 4.06 shall be contributed to the Trust and invested in the Investment Funds selected by each Participant in accordance with rules and/or procedures prescribed by the Committee. Such contributions shall not be invested in Company Stock. If an investment election is not made by the Participant, funds will be invested in a default investment fund designated by the Committee. Contributions, other than Elective Deferral Contributions, made by the Employer on behalf of a Participant shall be invested in the Company Stock Fund.
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ARTICLE 4
MAXIMUM BENEFITS
5.01Limitation on Annual Additions.
(a)Notwithstanding any other provisions of the Plan, the sum of the Annual Additions to a Participant’s Accounts, when combined with Annual Additions to the Participant’s account under all other qualified plans maintained by the Employer, for any Plan Year shall not exceed the lesser of $61,000 (for Plan years ending after December 31, 2021) or 100% of such Participant’s compensation (as such term is defined in Code Section 415(c)(3)). For purposes of the Code Section 415(c)(3), payments made by the later of 2½ months after severance from employment or the end of the limitation year that includes the date of severance from employment are included in compensation for the limitation year if, absent a severance from employment, such payments would have been paid to the employee while the employee continued in employment with the employer and are regular compensation for services during the employee’s regular working hours, compensation for services outside the employee’s regular working hours (such as overtime or shift differential), commissions, bonuses or other similar compensation. Code Section 415(c)(3) compensation shall also include Differential Wage Payments, but only to the extent such payments do not exceed the amounts the individual would have received from the Employer if the individual had continued to perform services for the Employer.
The term “Annual Additions” to a Participant’s Accounts for any Plan Year means the sum of:
(1)such Participant’s allocable share of the Employer Contributions for the Plan Year;
(2)such Participant’s Elective Deferral Contributions for the Plan Year;
(3)forfeitures allocated to such Participant’s account; and
(4)amounts described in Code Sections 415(l)(1) and 419A(d)(2).
Notwithstanding the foregoing, the term “Annual Additions” shall not include the following: (i) the direct transfer of a benefit or employee contributions from a qualified plan to this Plan; (ii) rollover contributions (as described in Code Section 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)); (iii) repayments of loans made to a participant from the Plan; (iv) repayments of amounts described in Code Section 411(a)(7)(B) (in accordance with Code Section 411(a)(7)(C)) and Code Section 411(a)(3)(D) or repayment of contributions to a governmental plan (as defined in Code Section 414(d)) as described in Code Section 415(k)(3), as well as Employer restorations of benefits that are required pursuant to such repayments; and (v) restorative payments, which are payments made to restore losses to a Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a
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fiduciary duty under ERISA or under other applicable federal or state law, where Participants who are similarly situated are treated similarly with respect to the payments.
Elective Deferral Contributions and Employer Contributions do not fail to be Annual Additions merely because such contributions are Excess Deferral Amounts, Excess Contributions or Excess Aggregate Contributions or merely because such Excess Deferral Amounts, Excess Contributions and Excess Aggregate Contributions are corrected through distribution.
The 100% limitation shall not apply to (1) any post-retirement medical benefits account for a key employee (as defined in section 419A(d)(1)) which is otherwise treated as an Annual Addition or (2) any amount otherwise treated as an Annual Addition under Code Section 415(l)(1).
(b)If it is determined that, but for the limitations contained in Section 5.01(a), the Annual Additions to a Participant’s Accounts for any Plan Year would be in excess of the limitations contained herein, then the Sponsoring Employer will follow the rules of any Employee Plans Compliance Resolution System (EPCRS) or any superseding guidance that is issued by the Internal Revenue Service, including, but not limited to, the preamble of the final Section 415 regulations.
(c)For purposes of this Article, all defined contribution plans (without regard to whether a plan has been terminated) ever maintained by the Employer (or a “predecessor employer”) under which the participant receives annual additions are treated as one defined contribution plan as required to be combined pursuant to Code Section 415(f) and Regulation Section 1.415(f)-1. Employer shall mean the employer that adopts this Plan, and all members of a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h), or affiliated service groups (as defined in Code Section 414(m)) of which the adopting Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations under Code Section 414(o).
5.02Increase in Limitations on Annual Additions. Notwithstanding anything contained in Section 5.01 to the contrary, the $61,000 (for Plan years ending after December 31, 2021) Annual Addition limitation shall be adjusted for increases in the cost-of-living as provided under Code Section 415(d)(1)(C) and Regulation Section 1.415(d)-1.
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ARTICLE 6
ACCOUNTS AND ALLOCATIONS
6.01Participant Accounts.
(a)A separate Account shall be maintained for each Participant, or Beneficiary, so long as he has an interest in the Trust Fund.
(b)The Committee may divide the Account into sub-accounts and divide any sub-accounts into additional sub-portions as the Committee deems to be necessary or advisable under the circumstances or to establish other accounts or sub-accounts as needed.
(c)The Committee shall set up a separate sub-account for each of the following accounts merged into the Plan from the ACT Plan: (1) ACT Roth Contribution, (2) ACT Roth Rollover, (3) ACT Safe Harbor Match, (4) ACT Match 100% Vested and (5) ACT Rollover, and the Committee may set up additional sub-accounts as the Committee determines to be necessary or advisable in its discretion.
6.02Value of Account as of Valuation Date. As of each Valuation Date, each Participant’s Account shall equal:
(a)His total Account as determined on the immediately preceding Valuation Date, plus
(b)His Elective Deferral Contributions added to his Account since the immediately preceding Valuation Date, plus
(c)His Employer Contributions added to his Account since the immediately preceding Valuation Date, plus
(d)His Rollover Contributions which were added to his Account since the immediately preceding Valuation Date, minus
(e)His Distributions, if any, since the immediately preceding Valuation Date, plus or minus
(f)His allocable share of Adjustments.
6.03Allocation of Adjustments. As of each Valuation Date, amounts in Participants' Accounts/sub-accounts which have not been segregated from the general Trust Fund for investment purposes (accounts which have been segregated include any directed investment accounts) and which have not been distributed since the prior Valuation Date will have the net income of the Trust Fund that has been earned since the prior Valuation Date allocated in accordance with such rules and procedures that are established by the Administrator and that are applied in a uniform and nondiscriminatory manner based upon the investments of the Trust Fund and the Participants' Accounts/sub-accounts to which the net income is allocated. However, Participants' Accounts and/or sub-accounts which have been segregated from the general Trust Fund for investment purposes will only have the net income earned thereon allocated thereto. For purposes of this Section, the term "net income" means the net of any
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interest, dividends, unrealized appreciation and depreciation, capital gains and losses, and investment expenses of the Trust Fund determined on each Valuation Date.
ARTICLE 7
SPECIAL DISCRIMINATION RULES
7.01Average Actual Deferral Percentage Limitation.
(a)The Average Actual Deferral Percentage for all Participants who are Highly Compensated Employees may not exceed the greater of:
(1) the Average Actual Deferral Percentage for all Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by 1.25; or
(2) the Average Actual Deferral Percentage for all Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by two, but not more than two percentage points in excess of the Average Actual Deferral Percentage of Participants who are Non-Highly Compensated Employees.
(b)Should neither limitation (1) or (2) in Section 7.01(a) be met with respect to a Plan Year, the Committee, subject to applicable law and regulations, shall cause Excess Contributions and income allocable thereto to be distributed in accordance with Section 7.01(e) no later than 2½ months (6 months in the case of an Excess Contribution made to an eligible automatic contribution arrangement (as defined in Code Section 414(w)(3)) following the end of any Plan Year to Participants on whose behalf such Excess Contributions were made for the current Plan Year.
(c)Distributions of Excess Contributions must be adjusted for income (gain or loss) through the end of the Plan Year for which the contribution was made. The Committee has the discretion to determine and allocate income using any of the methods set forth below:
(1) The Committee may use any reasonable method for computing the income allocable to Excess Contributions, provided that the method does not violate Code Section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participant’s Accounts. A Plan will not fail to use a reasonable method for computing the income allocable to Excess Contributions merely because the income allocable to Excess Contributions is determined on a date that is no more than seven (7) days before the distribution.
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(2) The Committee may allocate income to Excess Contributions for the Plan Year by multiplying the income for the Plan Year allocable to the Elective Deferral Contributions and other amounts taken into account under the Average Actual Deferral Percentage test (including contributions made for the Plan Year), by a fraction, the numerator of which is the Excess Contributions for the Participant for the Plan Year, and the denominator of which is the sum of the:
(i) Account balance attributable to Elective Deferral Contributions and other amounts taken into account under the Average Actual Deferral Percentage test as of the beginning of the Plan Year, and
(ii) Any additional amount of such contributions made for the Plan Year.
A distribution of Excess Contributions and income, gains and losses allocable thereto shall be made without regard to any consent otherwise required under Section 10.02(c) or any other provision of the Plan. A distribution pursuant to Section 7.01(b) of Excess Contributions and income, gains and losses allocable thereto shall not be treated as a distribution for purposes of determining whether the distribution required by Section 10.06 is satisfied. Any distribution under Section 7.01(b) of less than the entire Excess Contribution and income, gains and losses allocable thereto shall be treated as a pro rata distribution of Excess Contributions and income, gains and losses allocable thereto. In no event shall Excess Contributions for a Plan Year remain unallocated or be allocated to a suspense account for allocation to one or more employees in any future Plan Year.
(d)The Actual Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferral Contributions (as defined in Treasury Regulation Section 1.401(k)-6) allocated to such Participant’s Account under two (2) or more cash or deferred arrangements described in Code Section 401(k) that are maintained by the same Employer or an Affiliate, shall be determined as if all such Elective Deferral Contributions were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements of the Employer that have different Plan Years, then all Elective Deferral Contributions made during the Plan Year being tested under all such cash or deferred arrangements shall be aggregated, without regard to the plan years of the other plans.
(e)Elective Deferral Contributions exceeding the limitations of Section 7.01(a) (“Excess Contributions”) and any income or loss allocable to such Excess Contribution shall be designated by the Committee as Excess Contributions and shall be distributed to Highly Compensated Employees whose Accounts were credited with Excess Contributions in the current Plan Year. To determine the aggregate amount of Excess Contributions to be distributed, the Committee shall first determine the aggregate dollar amount of the distribution as follows:
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(1)Determine the dollar amount by which the Elective Deferral Contributions of the Highly Compensated Employee(s) with the highest Actual Deferral Percentage must be reduced to equal the second highest Actual Deferral Percentage(s) under the Plan; then
(2)Determine the dollar amount by which the Elective Deferral Contributions for the two (or more) Highly Compensated Employees with the highest Actual Deferral Percentage(s) under the Plan must be reduced to equal the third highest Actual Deferral Percentage(s) under the Plan; then
(3)Repeat the steps described in (1) and (2) above with respect to the third and successive highest Actual Deferral Percentage levels under the Plan until the Average Actual Deferral Percentage does not exceed the amount allowable under Section 7.01(a); then
(4)Add the dollar amounts determined in each of steps (1), (2), and (3) above.
The aggregate dollar amount of Excess Contributions determined under steps (1) through (4) above shall be distributed as follows:
(1)First, to those Highly Compensated Employee(s) with the highest amount of Elective Deferral Contributions until each such Participant’s Elective Deferral Contributions equals the second highest Elective Deferral Contributions under the Plan;
(2)Second, to the two (or more) Highly Compensated Employees with the next highest dollar amount of Elective Deferral Contributions under the Plan, until each such Participant’s Elective Deferral Contributions equals the third highest amount of Elective Deferral Contributions under the Plan; and
(3)Then, the steps described in (1) and (2) above shall be repeated with respect to the third and successive Highly Compensated Employees with the highest amount of Elective Deferral Contributions until all Excess Contributions have been distributed.
(f)The income, gain or loss allocable to distributed Excess Contributions for the Plan Year for purposes of Section 4.01(c) is determined by multiplying the income for the Plan Year allocable to Elective Deferral Contributions by a fraction. The numerator of the fraction is the Excess Contribution distributed to the Participant for the Plan Year. The denominator of the fraction is the total Account Balance of the Participant attributable to Elective Deferral Contributions as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such total amount for the Plan Year. To the extent the Administrator has not adopted an administrative procedure concerning the distributions of Excess Deferrals, Distribution of Elective Deferral Contributions that are Excess Contributions will first be made from a Participant's Roth Elective Deferral Account, if any, before the Participant's Pre-Tax Elective Deferral Account, to the extent that Roth Elective Deferrals were made for the Plan Year, unless the Administrator permits the Participant to specify otherwise.
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(g)The determination of the amount of aggregate Excess Contributions to be distributed under Section 4.01(c) with respect to an Employee for a taxable year shall be reduced by any Excess Contributions previously distributed with respect to such Participant for the Plan Year beginning with or within such taxable year.
(h)To the extent administratively possible, the Committee shall distribute all Excess Contributions and any income or loss allocable thereto prior to 2½ months (6 months in the case of an Excess Contribution made to an eligible automatic contribution arrangement (as defined in Code Section 414(w)(3)) following the end of the Plan Year in which the Excess Contributions arose. In any event, however, the Excess Contributions and any income or loss allocable thereto shall be distributed prior to the end of the Plan Year following the Plan Year in which the Excess Contributions arose.
(i)Notwithstanding anything contained herein to the contrary, the Employer may, in determining whether the Plan satisfies this Section 7.01, exclude from consideration all Participants (other than Highly Compensated Employees) who have not attained age 21 and is credited with one Year of Service, as described in Code Section 410(a)(1)(A).
(j)Except as otherwise provided in this Section 7.01, the Plan may use the current year testing method or prior year testing method for the Average Actual Deferral Percentage test for a Plan Year without regard to whether the current year testing method or prior year testing method is used for the Average Actual Contribution Percentage test for that Plan Year. However, if different testing methods are used, then the Plan cannot use:
(1) The recharacterization method of Treasury Regulation Section 1.401(k)-2(b)(3) to correct excess contributions for a Plan Year; or
(2) The rules of Treasury Regulation Section 1.401(m)-2(a)(6)(ii) to take Elective Deferral Contributions into account under the Average Actual Contribution Percentage test (rather than the Average Actual Deferral Percentage test).
7.02Average Actual Contribution Percentage Limitation.
(a)The Average Actual Contribution Percentage for Participants who are Highly Compensated Employees may not exceed the greater of:
(1) the Average Actual Contribution Percentage for all Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by 1.25; or
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(2) the Average Actual Contribution Percentage for all Participants who are Non-Highly Compensated Employees for the current Plan Year multiplied by two, but not more than two percentage points in excess of the Average Actual Contribution Percentage of Participants who are Non-Highly Compensated Employees.
(b)An Employer Matching Contribution with respect to an Elective Deferral Contribution for a Plan Year is not taken into account under the Average Actual Contribution Percentage test for a Non-Highly Compensated Employee to the extent it exceeds the greatest of:
(1) five percent (5%) of the Non-Highly Compensated Employee’s Code Section 414(s) compensation for the Plan Year;
(2) the Non-Highly Compensated Employee’s Elective Deferral Contributions for the Plan Year; and
(3) the product of two (2) times the Plan’s “representative matching rate” and the Non-Highly Compensated Employee’s Elective Deferral Contributions for the Plan Year.
For purposes of this Section 7.02(b), the Plan’s “representative matching rate” is the lowest “matching rate” for any eligible Non-Highly Compensated Employee among a group of Non-Highly Compensated Employees that consists of half of all eligible Non-Highly Compensated Employees in the Plan for the Plan Year who make Elective Deferral Contributions for the Plan Year (or, if greater, the lowest “matching rate” for all eligible Non-Highly Compensated Employees in the Plan who are employed by the Employer on the last day of the Plan Year and who make Elective Deferral Contributions for the Plan Year).
For purposes of this Section 7.02(b), the “matching rate” for a Participant generally is the Employer Matching Contributions made for such Participant divided by the Participant’s Elective Deferral Contributions for the Plan Year. If the matching rate is not the same for all levels of Elective Deferral Contributions for a Participant, then the Participant’s “matching rate” is determined assuming that a Participant’s Elective Deferral Contributions are equal to six percent (6%) of Code Section 414(s) compensation.
(c)Excess Aggregate Contributions and income allocable thereto shall be forfeited, if otherwise forfeitable under the terms of this Plan, or if not forfeitable, shall be distributed no later than 2½ months (6 months in the case of an Excess Aggregate Contribution made to an eligible automatic contribution arrangement (as defined in Code Section 414(w)(3)) after the first day of each Plan Year as set forth below. Distributions of Excess Aggregate Contributions must be adjusted for income (gain or loss) through the end of the Plan Year for which the contribution was made. For the purpose of this Section, “income” shall be determined and allocated in accordance with the provisions of Section 7.01(c) of this Plan, except that such Section shall be applied by substituting “Excess Contributions” with “Excess Aggregate Contributions” and by substituting amounts taken into account under the Average Actual Contribution Percentage test for amounts taken into account under the Average Actual
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Deferral Percentage test. A distribution of Excess Aggregate Contributions and income, gains and losses allocable thereto shall be made without regard to any consent otherwise required under Section 10.02(c) or any other provision of the Plan. A distribution pursuant to this Section 7.02(c) of Excess Aggregate Contributions and income, gains and losses allocable thereto shall not be treated as a distribution for purposes of determining whether the distribution required by Section 10.06 is satisfied.
(d)The Average Actual Contribution Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to receive Employer Matching Contributions allocated to his or her account under two (2) or more plans described in Code Section 401(a), or arrangements described in Code Section 401(k) that are maintained by the same Employer, shall be determined as if the total of such contributions was made under each plan and arrangement. If a Highly Compensated Employee participates in two (2) or more such plans or arrangements that have different plan years, then all matching contributions made during the Plan Year being tested under all such plans and arrangements shall be aggregated, without regard to the plan years of the other plans. In the event this Plan satisfies the requirements of Code Section 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Code Section 410(b) only if aggregated with this Plan, then this Section 7.02 shall be applied by determining the Actual Contribution Percentage of Participants as if all such plans were a single plan.
(e)For purposes of this Plan, “Excess Aggregate Contributions” shall mean, with respect to a Plan Year, the excess of the aggregate amount of the Employer Contributions actually made on behalf of Highly Compensated Employees for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 7.02(a). To determine the aggregate amount of Excess Aggregate Contributions to be distributed, the Committee shall first determine the aggregate dollar amount of the distribution as follows:
(1)Determine the dollar amount by which the Excess Aggregate Contributions of the Highly Compensated Employee(s) with the highest Actual Contribution Percentage must be reduced to equal the second highest Actual Contribution Percentage (s) under the Plan; then
(2)Determine the dollar amount by which the Excess Aggregate Contributions for the two (or more) Highly Compensated Employees with the highest Actual Contribution Percentage (s) under the Plan must be reduced to equal the third highest Actual Contribution Percentage (s) under the Plan; then
(3)Repeat the steps described in (1) and (2) above with respect to the third and successive highest Actual Contribution Percentage levels under the Plan until the Average Actual Contribution Percentage does not exceed the amount allowable under Section 7.02(a); then
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(4)Add the dollar amounts determined in each of steps (1), (2), and (3) above.
The aggregate dollar amount of Excess Aggregate Contributions determined under steps (1) through (4) above shall be distributed as follows:
(1)First, to those Highly Compensated Employee(s) with the highest amount of Excess Aggregate Contributions until the sum of each such Participant’s Employer Matching Contributions equals the sum of the second highest Employer Matching Contributions under the Plan; then
(2)Second, to the two (or more) Highly Compensated Employees with the next highest dollar amount of Excess Aggregate Contributions under the Plan, until the sum of each such Participant’s Employer Matching Contributions equals the sum of the third highest Employer Matching Contributions under the Plan; and
(3)Then, the steps described in (1) and (2) above shall be repeated with respect to the third and successive Highly Compensated Employees with the highest amount of Excess Aggregate Contributions until all Excess Aggregate Contributions have been distributed.
(f)The income, gain or loss allocable to distributed Excess Aggregate Contributions for the Plan Year is determined by multiplying the income for the Plan Year allocable to Employer Matching Contributions by a fraction. The numerator of the fraction is the Excess Aggregate Contributions made on behalf of the Participant for the Plan Year. The denominator of the fraction is the total Account Balance of the Participant attributable to Employer Matching Contributions as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such total amount for the Plan Year. If the rules of Treasury Regulation Section 1.401(m)-2(a)(6)(ii) to take Elective Deferral Contributions into account under the Average Actual Contribution Percentage test (rather than the Average Actual Deferral Percentage test) are utilized, then to the extent the Administrator has not adopted an administrative procedure concerning the distributions of Excess Aggregate Contributions, distribution of such Elective Deferral Contributions that are Excess Aggregate Contributions will first be made from a Participant's Roth Elective Deferral Account (to the extent Roth Elective Deferrals were made for the Plan Year) before distribution is made from the Participant's Pre-Tax Elective Deferral Account, unless the Administrator permits the Participant to specify otherwise.
(g)The determination and correction of Excess Aggregation Contributions of a Highly Compensated Employee shall be calculated in accordance with Treasury Regulation Sections 1.401(m)-1(e)(4)(iii) and 1.401(m)-1(f)(13)(iii).
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(h)Excess Aggregate Contributions shall be forfeited if otherwise forfeitable under the terms of the Plan (or if not forfeitable, distributed) from the Employer Matching Contributions Account of the Participant in proportion to the Employer Matching Contributions for the Plan Year.
(i)Amounts forfeited by Highly Compensated Employees under this Section 7.02 shall be treated as Annual Additions and applied to reduce subsequent Employer Contributions to the Plan.
(j)Notwithstanding the foregoing, no forfeitures arising under this Section 7.02 shall be allocated to the Account of any Highly Compensated Employee.
(k)Except as otherwise provided in this Section 7.02, the Plan may use the current year testing method or prior year testing method for the Average Actual Contribution Percentage test for a Plan Year without regard to whether the current year testing method or prior year testing method is used for the Average Actual Deferral Percentage test for that Plan Year. However, if different testing methods are used, then the Plan cannot use:
(1) The recharacterization method of Treasury Regulation Section 1.401(k)-2(b)(3) to correct excess contributions for a Plan Year; or
(2) The rules of Treasury Regulation Section 1.401(m)-2(a)(6)(ii) to take Elective Deferral Contributions into account under the Average Actual Contribution Percentage test (rather than the Average Actual Deferral Percentage test).
ARTICLE 8
VESTING
8.01Vested Percentage of Accounts. A Participant shall be vested in the following percentages of his Accounts:
(a)100% of his Elective Deferral Contributions Account, Rollover Contributions Account and Prior Employer Accounts, if any, plus
(b)a percentage of his Employer Accounts, which shall vest in accordance with the following schedule:
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Years of Service | Vested Percentage | ||||
less than 2 | 0% | ||||
2 but less than 3 | 20% | ||||
3 but less than 4 | 40% | ||||
4 but less than 5 | 60% | ||||
5 but less than 6 | 80% | ||||
6 or more | 100% | ||||
(c)Notwithstanding the above, a Participant’s Account shall become fully (100%) vested upon (1) his Early Retirement Date or Normal Retirement Date, if he is then an Employee, (2) his death, if he was an Employee immediately before his death, or (3) the determination that he is unable to continue his previous employment on account of Disability. If a Participant dies while performing qualified military service (as defined in Code Section 414(u)), the survivors of the Participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan as if the Participant had resumed and then terminated employment on account of death, including accelerated vesting.
(d)A Participant shall become fully vested in all cash dividends received by the Trust for which an election is offered pursuant to Section 12.08.
8.02Amount Subject to Distribution Upon Termination of Employment. Upon Termination of Employment, a Participant may request a distribution of the vested percentage of his Accounts as described in Section 8.01 hereof. Such distribution shall be distributed in accordance with Article 10. The portion of a Participant’s Employer Account that is not vested shall be forfeited in accordance with Section 8.03.
8.03Forfeitures.
(a)When a Participant has a Termination of Employment but does not receive a distribution of his vested Employer Account prior to incurring five consecutive One Year Break in Service, the Employer Account shall continue to be credited with investment gains and losses until distribution of the vested percentage of the Employer Account commences. Upon incurring five consecutive One Year Breaks in Service, the Participant’s non-vested Account balance shall be forfeited.
(b)If a Participant has a Termination of Employment and receives a distribution of his entire vested Employer Account prior to incurring five consecutive One Year Breaks in Service, the non-vested portion of the Employer Account, will be forfeited.
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(c)When a Participant forfeits the non-vested portion of his Employer Account, to the extent possible, Financed Stock released from the Stock Suspense Account in accordance with the provisions of Section 12.05(c) and allocated in accordance with the provisions of Sections 12.06(c) and (d) must be forfeited only after all other assets. If the Participant has an interest in more than one class of Financed Stock which have been released from the Stock Suspense Account and allocated to a Participant’s Employer Account (and any other Account holding employer securities), to the extent possible, all Qualifying Employer Securities must be forfeited in the same proportion of each such class of Financed Stock.
(d)A Participant is eligible to have a previous Forfeiture restored, if (1) he previously incurred a Forfeiture under this Article, (2) he again becomes an Employee before he has five (5) consecutive One Year Breaks in Service, and (3) he repays any distribution that he previously received, in the manner specified in Section 8.03(f).
(e)Any repayment in accordance with (d) above must be made no later than the earlier of (1) the end of the Plan Year in which the individual incurs a five (5) consecutive One Year Breaks in Service, counting from the Plan Year beginning immediately after distribution or deemed distribution that resulted in his Forfeiture or (2) the fifth (5th) anniversary of his reemployment.
(f)In order to exercise his right of repayment, the Participant must repay to the Trust, without interest (1) an amount equal to any cash he received as part of the distribution that resulted in his Forfeiture, plus (2) all Company Stock that was then distributed to him. Cash or other property may not be restored to the Trust in lieu of Company Stock, but the shares restored need not be the same ones that were originally distributed. A Participant who had no vested interest in his Accounts at the time of his Forfeiture is automatically deemed to have complied with the terms of this Section as of the date on which he becomes eligible to make a repayment.
(g)If a Participant complies with the conditions of the applicable provisions of this Section 8.03, his Accounts will be credited with both the cash and Company Stock that he has repaid and the interest in his Accounts that he had previously forfeited, unadjusted for any income, expenses, gains or losses since the time of forfeiture. This restoration is to be made, first, out of Forfeitures arising in the Plan Year of repayment, and, second, out of Employer Contributions and shares of Company Stock released from the Unallocated Stock Account in the Plan Year of repayment. The Participant’s Employer is required to make any contributions necessary to make a complete restoration.
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ARTICLE 9
IN-SERVICE WITHDRAWALS
9.01Hardship Withdrawals. A Participant may apply in writing to the Administrator for a hardship withdrawal of part or all of his Elective Deferral Contributions Account (other than earnings credited to his Elective Deferral Contributions Account on or after January 1, 1989). The Administrator, in its discretion, and in accordance with the provisions of this Section 9.01, shall determine whether a withdrawal of part or all of such account is necessary to alleviate the hardship. For purposes of Section 9.01(a), a distribution is on account of hardship only if the distribution both is made on account of an immediate and heavy financial need of the participant as determined in accordance with Section 9.01(a) below, and is necessary to satisfy such financial need as determined in accordance with Section 9.01(b) below. Effective for distributions made on or after January 1, 2020, the Participant must represent (in writing or by an electronic medium) that the Participant has insufficient cash or other liquid assets to satisfy the financial need. The determination by the Administrator of the existence of an immediate and heavy financial need and of the amount necessary to meet the need shall be made in a non-discriminatory and consistent manner. The determination of hardship by the Administrator shall be final and binding.
(a)A distribution will be deemed to be made on account of an immediate and heavy financial need of the participant only if the distribution is on account of the financial needs described in this Section 9.01(a), in which case the Administrator may reasonably rely upon the participant’s representation that the financial need is on account of:
(1) Expenses for (or necessary to obtain) medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);
(2) Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);
(3) Payment of tuition, related educational fees, and room and board expenses, for up to the next twelve (12) months of post-secondary education for the Participant, the Participant’s spouse, children, or dependents (as defined in Code Section 152, without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)) and such expenses of the Participant’s primary beneficiary under the Plan (as defined below);
(4) Payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure on the mortgage on that residence;
(5) Payments for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in Code Section 152, and without regard to Code Section 152(d)(1)(B)) and such expenses of the Participant’s primary beneficiary under the Plan (as defined below);
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(6) Expenses for the repair of damage to the Employee’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income) or
(7) Expenses and losses (including loss of income) incurred by the employee on account of a disaster declared by the Federal Emergency Management Agency (FEMA) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 100-707, provided that the Employee's principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the disaster, effective for distributions made on or after January 1, 2021.
A financial need shall not fail to qualify as immediate and heavy merely because such need was reasonably foreseeable or voluntarily incurred by the Participant. There shall be no reduction in the maximum amount of Elective Deferral Contributions that a Participant may make pursuant to Code Section 402(g) solely because of a hardship distribution made by this Plan or any other plan of the Employer. A Participant’s “primary beneficiary under the Plan” is an individual who is named as a beneficiary under the Plan and has an unconditional right to all or a portion of the Participant’s account balance under the Plan upon the Participant’s death.
(b)A distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant if all of the following requirements are satisfied:
(1)the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant, including any amounts necessary to satisfy applicable federal, state and local income taxes, excise taxes and penalty taxes which may be reasonably anticipated to result from the distribution;
(2)the Participant has obtained all distributions (including distributions currently available to the Participant as provided for in Section 12.09), other than hardship distributions, and for distributions made prior to January 1, 2019 all non-taxable loans currently available under all plans maintained by the Employer; and
(3)for distributions made prior to January 1, 2019, the Participant does not make a contribution to this Plan or to any other plan of deferred compensation contrary to the provisions of Section 9.02.
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9.02Suspension of Contributions Due to Hardship Withdrawal. For distributions made prior to January 1, 2019, if a Participant receives a hardship withdrawal, such Participant shall not be permitted to make:
(a)Elective Deferrals for the six-month period following the date of receipt of the hardship withdrawal; and
(b)Contributions to any other qualified or nonqualified plan of deferred compensation maintained by the Employer including, but not limited to, stock option plans and stock purchase plans for the six-month period following the date of receipt of the hardship withdrawal.
The Plan will discontinue any remaining portion of the suspension period for hardship distributions made prior to January 1, 2019.
9.03CARES Act
(a)Coronavirus-Related Distributions. Effective as of April 1, 2020, a Qualified Individual may take one or more Coronavirus-Related Distributions. A “Coronavirus-Related Distribution” means a distribution to a Qualified Individual during the period beginning January 1, 2020 and ending December 30, 2020. The total amount of Coronavirus-Related Distributions to a Qualified Individual from all plans maintained by the Employer, or any related employer described in Code Sections 414(b), (c), (m), or (o), shall not exceed $100,000. The Coronavirus-Related Distributions from the Plan to a Qualified Individual will not exceed the amount of the individual’s vested account balance or the present value of the individual’s vested accrued benefit.
(b)Repayment of distribution. A Participant who receives a Coronavirus-Related Distribution (from this Plan and/or another eligible retirement plan as defined in Code Section 402(c)(8)(B)), at any time during the 3-year period beginning on the day after receipt of the distribution, may make one or more contributions to the Plan, as Rollover Contributions, in an aggregate amount not to exceed the amount of such distribution.
(c)Qualified Individual. For purposes of this Section and Section 11.05, a “Qualified Individual” means any individual who meets one or more of the criteria described in paragraphs (1), (2), (3), or (4). Participants, alternate payees and beneficiaries of deceased participants can be treated as Qualified Individuals. The Plan Administrator may rely on an individual's certification that the individual satisfies a condition to be a Qualified Individual unless the Plan Administrator has actual knowledge to the contrary. In applying the criteria, "COVID-19" means either the virus SARS-CoV-2 or coronavirus disease 2019; "an approved test" means a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); and a "member of the individual's household" means someone who shares the individual's principal residence. The criteria are as follows:
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(1)The individual was diagnosed with COVID-19 by an approved test;
(2)The individual's spouse or dependent (as defined in Code Section 152) was diagnosed with COVID-19 by an approved test;
(3)The individual has experienced adverse financial consequences because: (a) the individual or the individual's spouse, or a member of the individual's household was quarantined, furloughed or laid off, or had work hours reduced due to COVID-19; (b) the individual, the individual's spouse, or a member of the individual's household was unable to work due to lack of childcare due to COVID-19; (c) A business owned or operated by the individual, the individual's spouse, or a member of the individual's household closed or reduced hours due to COVID-19; or (d) the individual, the individual's spouse, or a member of the individual's household had a reduction in pay (or self-employment income) due to COVID-19 or had a job offer rescinded or start date for a job delayed due to COVID-19; or
(4)The individual satisfies any other criteria determined by the Treasury or the IRS.
9.04ACT Plan Subaccounts The following rules apply solely to Accounts merged into the Plan from the ACT Plan.
(a)ACT Rollover Account. A Participant may elect to withdraw up to 100 percent of the amount then credited to the Participant’s ACT Rollover sub-account. Such withdrawals may be made at any time.
(b)Active Military Distribution (HEART Act). If so provided by the Employer in Subsection 1.19(c)(3), a Participant performing service in the uniformed services as described in Code Section 3401(h)(2)(A) shall be treated as having been severed from employment with the Employer for purposes of Code Section 401(k)(2)(B)(i)(I) and shall, as long as that service in the uniformed services continues, have the option to request a distribution of all or any part of his or her Account restricted from distribution only due to Code Section 401(k)(2)(B)(i)(I). Any distribution taken by a Participant pursuant to the previous sentence shall be considered an eligible rollover distribution pursuant to Section 13.04(c) of the Plan and any Participant taking a distribution under this Subsection shall be suspended from making Deferral Contributions and Employee Contributions under the Plan for a period of 6 months following the date of any such distribution.
(c)Qualified Reservist Distribution. A Participant with subaccounts merged into the Plan from the ACT Plan who is ordered or called to active duty for a period in excess of 179 days or for an indefinite period by reason of being a member of a reserve component (as defined in Section 101 of Title 37, United States Code), shall be eligible to elect to receive a Qualified Reservist Distribution. A “Qualified Reservist Distribution”
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means a distribution from the Participant’s Account of amounts attributable to Elective Deferral Contributions, provided such distribution is made during the period beginning on the date of the order or call to active duty and ending at the close of the active duty period.
ARTICLE 10
PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES
10.01Definitions.
(a)“Designated Beneficiary” shall mean the individual who is designated as the beneficiary under Section 2.10 of the Plan and is the designated beneficiary under Code Section 401(a)(9) and Treasury Regulation Section 1.401(a)(9)-l, Q&A-4.
(b)“Distribution Calendar Year” shall mean a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 10.06(b)(2). The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.
(c)“Life Expectancy” shall mean life expectancy as computed by use of the Single Life Table in Treasury Regulation Section 1.401(a)(9)-9.
(d)“Participant’s Account Balance” shall mean the account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.
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10.02Commencement of Distribution. The Participant’s Account shall be distributed at the earliest of the following dates:
(a)Termination of Employment. If a Participant has a Termination Date other than on account of death, the Participant’s Account shall be distributed as soon as administratively feasible following the Participant’s Termination Date and receipt by the Committee of the Participant’s request for a distribution. A Participant shall be treated as having a Termination of Employment for purposes of the restrictions on the distribution of Elective Deferrals under Code Section 401(k)(2)(B)(i)(I) during any period the Participant is performing service in the uniformed services (as described in Code Section 3401(h)(2)(A)) and such Participant may elect to receive a distribution of his Elective Deferrals, provided, however, that the Participant may not make additional Elective Deferral contributions for the 6-month period beginning on the date of the distribution.
(b)Death. If a Participant has a Termination Date on account of death, the Participant’s Account shall be distributed within ninety (90) days after the Participant’s death unless the particular facts and circumstances require a longer wait.
(c)Consent of Participant. A Participant’s consent to a distribution of his Account shall be subject to the following:
(1)If the total value of the Participant’s vested Accounts to be distributed is less than or equal to $1,000, determined any time on or after the Participant’s Termination Date, the Participant’s vested Account balance shall be distributed as soon as administratively feasible to the Participant in a lump sum payment.
(2)If the total value of the Participant’s vested Accounts to be distributed is greater than $1,000, determined on or after the Participant’s Termination Date, the Participant’s consent to a distribution shall be required; provided that, notwithstanding the lack of consent, distribution shall be made no later than the date established under Section 10.06 for mandatory distributions.
(d)Retirement After Age 65. Notwithstanding any other provision of the Plan, unless the Participant otherwise elects, the payment of benefits under this Plan shall begin not later than the 60th day after the latest of the close of the Plan Year in which occurs (1) the Participant’s Normal Retirement Age or (2) the Participant’s Termination Date.
10.03Forms of Payments. Except as provided for in Section 10.04, a Participant may elect to receive a distribution in the form of a single lump sum payment of his entire vested Account. However, with respect to his Accounts invested in the Company Stock Fund, a
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Participant may elect a distribution in the form of cash, or full shares of Common Stock and cash in lieu of fractional shares.
10.04Prior Employer Accounts. A Participant’s Prior Employer Account shall be distributed in the form of a single lump sum payment of the Participant’s entire vested Prior Employer Account. No distribution shall be made in the form of an annuity or cash installment.
10.05Payments When a Loan is Outstanding. Payments to Participants who have borrowed from their Accounts pursuant to Article 11 will also be governed by Section 11.03(b).
10.06Minimum Distribution Requirements.
(a)General Rules
(1) Requirements of Treasury Regulations Incorporated. All distributions required under this Section 10.06 will be determined and made in accordance with the Treasury Regulations under Code Section 401(a)(9).
(2) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section 10.06, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.
(b)Time and Manner of Distribution.
(1) Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date. For purposes of this Section:
(i) The term “required beginning date” of a Participant is the later of the first day of April of the calendar year following: (A) the calendar year in which the Participant attains age 70½ (for Participants born before July 1, 1949) or age 72 (for Participants born after June 30, 1949), or (B) the calendar year in which the Participant retires if the Participant is not a 5-percent owner of the Employer.
(ii) The “required beginning date” for a Participant who is a 5-percent Owner (as defined in Code Section 401(a)(9)) shall not be later than April 1 of the calendar year following the calendar year in which the participant attains age 70½ (for Participants born before July 1, 1949) or age 72 (for Participants born after June 30, 1949).
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(iii) Once distributions have begun to a 5-percent owner under this Section, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year.
(2) Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:
(i) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70½ (for Participants born before July 1, 1949) or age 72 (for Participants born after June 30, 1949), if later.
(ii) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.
(iii) If there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.
(iv) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 10.06(b)(2), other than Section 10.06(b)(2)(i), will apply as if the surviving spouse was the Participant.
For purposes of this Section 10.06(b) and Section 10.06(d) unless Section 10.06(b)(2)(iv) applies, distributions are considered to begin on the Participant’s required beginning date. If Section 10.06(b)(2)(iv) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 10.06(b)(2)(i). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 10.06(b)(2)(i)), the date distributions are considered to begin is the date distributions actually commence.
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(3) Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 10.06(c) and 10.06(d) of the Plan. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury Regulations.
(c)Required Minimum Distributions During Participant’s Lifetime.
(1) Amount of Required Minimum Distribution for Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:
(i) the quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or
(ii) if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.
(2) Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 10.06(c) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.
(d)Required Minimum Distributions After Participant’s Death. For distributions with respect to Participants who die before January 1, 2020:
(1) Death On or After Date Distributions Begin.
(i) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:
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(A) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
(B) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.
(C) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.
(ii) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
(e)Death Before Date Distributions Begin. For distributions with respect to Participants who die before January 1, 2020:
(1) Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s designated beneficiary, determined as provided in Section 10.06(d)(1).
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(2) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.
(3) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 10.06(b)(2), this Section 10.06(e)(3) will apply as if the surviving spouse were the Participant.
(f)Notwithstanding the foregoing provisions of this Section 10.06, if the total value of a Participant’s vested Accounts to be distributed is less than or equal to $1,000, determined any time on or after the Participant’s Termination Date, the Participant’s vested Account balance shall be distributed in a lump sum payment as soon as administratively feasible in accordance with Section 10.02(c)(1).
(g)2009 Required Minimum Distributions. Notwithstanding the foregoing provisions of this Section 10.06, a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 but for the enactment of Code Section 401(a)(9)(H) (the “2009 required minimum distributions”), and who would have satisfied that requirement by receiving distributions that are (1) equal to the 2009 required minimum distributions or (2) one or more payments in a series of substantially equal distributions (that include the 2009 required minimum distributions) made at least annually and expected to last for the life (or life expectancy) of the Participant, the joint lives (or joint life expectancy) of the Participant and the Participant’s Designated Beneficiary, or for a period of at least 10 years, will not receive those distributions for 2009 unless the Participant or Beneficiary chooses to receive such distributions.
(h)2020 Required Minimum Distributions. Notwithstanding the foregoing provisions of Section 10.06, a Participant or Beneficiary who would have been required to receive required minimum distributions in 2020 (or paid in 2021 for the 2020 calendar year for a participant with a required beginning date of April 1, 2021) but for the enactment of section 401(a)(9)(I) of the Code (2020 RMDs), and who would have satisfied that requirement by receiving distributions that are either (1) equal to the 2020 RMDs, or (2) one or more payments (that include the 2020 RMDs) in a series of substantially equal periodic payments made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancies) of the Participant and the Participant's designated beneficiary, or for a period of at least 10 years (Extended 2020 RMDs), will not receive those distributions unless the Participant or Beneficiary chooses to receive the distribution. In addition, and solely for purposes of applying the direct rollover provisions of the plan, the 2020 RMDs and Extended 2020 RMDs will be treated as eligible rollover distributions.
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(i)Distribution on Account of Death. Notwithstanding the foregoing provisions of Section 10.06(d) and Section 10.06(e), for distributions with respect to Participants who die after December 31, 2019, regardless of whether before or after distribution has begun, a Participant's entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the tenth anniversary of the Participant's death unless the designated beneficiary meets the requirements of an "eligible designated beneficiary". An "eligible designated beneficiary" may receive distributions over the life of such designated beneficiary. If there is no designated beneficiary as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. An "eligible designated beneficiary" is defined as any designated beneficiary who is: (i) the surviving spouse of the Participant; (ii) a minor child of the Participant; (iii) disabled; (iv) a chronically ill individual; or (v) an individual who is not more than 10 years younger than the Participant. The determination of whether a designated beneficiary is an "eligible designated beneficiary" shall be made as of the date of death of the Participant. If an "eligible designated beneficiary" dies before the portion of the Participant's interest is entirely distributed, the remainder of such portion shall be distributed within 10 years after the death of such "eligible designated beneficiary".
10.07Qualified Domestic Relations Orders. Notwithstanding any other provisions of this Article 10, any Account of a Participant may be apportioned between the Participant and an alternate payee (as defined in Code Section 414(p)(8)) either through separate Accounts or by providing the alternate payee a percentage of the Participant’s Account. The Committee shall notify the affected Participant and each alternate payee of the order and determine that the order is a qualified domestic relations order as defined in Code Section 414(p)(1)(A). A domestic relations order that otherwise satisfies the requirements for a qualified domestic relations order (“QDRO”) will not fail to be a QDRO: (i) solely because the order is issued after, or revises, another domestic relations order or QDRO; or (ii) solely because of the time at which the order is issued, including issuance after the annuity starting date or after the Participant’s death.
10.08Payment to Minors and Incapacitated Persons. In the event that any amount is payable to a minor or to any person who, in the judgment of the Committee, is incapable of making proper disposition thereof, such payment shall be made for the benefit of such minor or such person in any of the following ways as the Committee, in its sole discretion, shall determine:
(a)By payment to the legal representative of such minor or such person;
(b)By payment directly to such minor or such person;
(c)By payment in discharge of bills incurred by or for the benefit of such minor or such person. The Trustee shall make such payments as directed by the Committee without the necessary intervention of any guardian or like fiduciary and without any obligation to require bond or to see the further application of such payment. Any payment so made shall be in
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complete discharge of the Plan’s obligation to the Participant and his Beneficiaries.
10.09Notices to Participants. The Committee shall distribute or cause to be distributed to each Participant who has requested a withdrawal or distribution a notice, containing the information described in Code Section 402(f). Such notice shall be provided within a reasonable time, not in excess of 180 days prior to the date of such withdrawal or distribution. Such notice shall clearly inform the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution or withdrawal (or, if applicable, a particular distribution option). Distribution or withdrawal shall not be made within such 30-day period, unless the Participant affirmatively elects otherwise. A Participant shall be permitted to revoke his election at any time prior to the annuity starting date, or, if later, the end of the seven-day period beginning on the date the above described notice was provided.
10.10Eligible Rollover Distributions.
(a)A Participant may elect, at a time and in the manner prescribed by Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover. An eligible rollover distribution shall be a distribution of all or any portion of the balance to the credit of a Participant, except that an eligible rollover distribution shall not include any distribution which is part of a series of installment payments over a period of ten years or more, any distribution to the extent such distribution is required under Code Section 401(a)(9), and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). An eligible individual retirement plan is an individual retirement account as described in Code Section 408(a), an individual retirement annuity as described in Code Section 408(b), or a qualified trust described in Code Section 401 which accepts the Participant’s eligible rollover distribution. This Section shall also apply to distributions to the surviving spouse of a deceased Participant, or to the alternate payee of a Participant under a Qualified Domestic Relations Order, provided that, in the case of a distribution to a surviving spouse, an eligible retirement plan shall include only an individual retirement account or an individual retirement annuity. This Section will be applied by treating any amount distributed from the Participant’s Roth Elective Deferral Account as a separate distribution from any amount distributed from the Participant's other Plan accounts, even if the amounts are distributed at the same time.
(b)Notwithstanding the above, an eligible retirement plan shall also mean an annuity contract described in Code Section 403(b) and an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Code
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Section 414(p). A Participant may elect to roll over directly an eligible rollover distribution to a Roth IRA described in Code Section 408A(b).
(c)For purposes of this Section 10.10, any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan.
(d)Non-spouse beneficiary rollover right. A non-spouse beneficiary who is a Beneficiary under the Plan who also qualifies as a designated beneficiary under Code Section 401(a)(9)(E), may roll over all or any portion of his or her distribution, by a direct trustee-to-trustee transfer (“direct rollover”), to an individual retirement account the beneficiary establishes for purposes of receiving the distribution. In order to be able to roll over the distribution, the distribution otherwise must satisfy the definition of an eligible rollover distribution. A non-spouse beneficiary may not roll over an amount which is a required minimum distribution, as determined under applicable Treasury Regulations and other Revenue Service guidance.
10.11Age 59½ Withdrawals. A Participant who has attained age 59½ may withdraw any portion of any Account in which he is fully (100%) vested, as of any Valuation Date giving written notice to the Administrator, in such form as the Administrator may require, at least fifteen (15) days before the date as of which the withdrawal is to be made. A Participant may make no more than two withdrawals under this Section 10.11 in any Plan Year.
ARTICLE 11
LOANS
11.01Availability of Loans. Loans shall be permitted to Participants under this Plan, as established by the policy of the Committee. Any such loan shall be subject to such conditions and limitations (including such loan guidelines as may, from time to time, be established by the Committee) as the Committee deems necessary for administrative convenience and to preserve the tax-qualified status of the Plan. Notwithstanding the foregoing, except to the extent otherwise required under the Code or ERISA, loans shall not be permitted under this Plan to (a) any Beneficiary or (b) any Participant after the Participant has terminated employment with the Employer and its Affiliates.
11.02Amount of Loans. Subject to the limitations contained in this Article 11, any Participant may borrow from his Accounts an amount not exceeding the lesser of the following:
(a)50% of the combined current value of the Participant’s Elective Deferral Account, Rollover Contributions Account and the vested portion of Employer Accounts, determined on the date of such Participant’s request for a loan, reduced by the outstanding balance of all other loans from the Plan, or
(b)the vested portion of his Accounts up to $50,000, reduced by the greater of (1) the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date on which such loan is made,
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or (2) the outstanding balance of loans from the Plan on the date on which such loan is made.
11.03Conditions of the Loan. The loan shall be subject to the following conditions:
(a)The interest rate on all loans shall be commercially reasonable at the time the Administrator approves the loan. All loans shall be evidenced by a note and shall be adequately secured as to principal and interest. No more than 50% of the Participant’s vested portion of his Accounts valued immediately after the origination of each loan shall serve as security for his outstanding loan, provided, however, that the terms of any loan may be adjusted at any time, in the sole and absolute discretion of the Administrator to ensure that there is adequate security for the loan. No loan may have a term in excess of five years, except for a loan obtained to acquire a principal residence which may not have a term in excess of fifteen years.
(b)The Administrator shall be responsible for the collection of all loans. Upon default of any loan, the entire unpaid balance shall, if the immediate distribution of the Participant’s Account is to be made, be offset against that portion of the Participant’s Account which serve as security for his loan, upon his first becoming entitled to receive a distribution in accordance with the relevant portion of Article 10 of the Plan, whether or not the Participant elects to have his payments commence at that time.
11.04Loan Policy. The Administrator is authorized and directed to administer the loan program in accordance with the regulations and rulings of the Internal Revenue Service and the Department of Labor. The Committee may establish such additional guidelines and rules as it deems necessary. Such guidelines and rules shall be set forth in the loan policy and the terms specified in such loan policy are hereby incorporated by reference in the Plan. The Committee may amend or modify the loan policy as it deems necessary to carry out the provisions of this Article 11.
11.05CARES Act Loan Provisions.
(a)Increased loan limit. Notwithstanding the loan limitation that otherwise would apply, the Plan will determine the loan limit under Code Section 72(p)(2)(A) for a loan to a Qualified Individual (as defined in Section 9.03(c)), made during the period beginning April 17, 2020 and ending September 22, 2020, by substituting “$100,000” for “$50,000,” and by substituting “100% of the present value of the nonforfeitable accrued benefit of the employee under the Plan” for “50% of the combined current value of the Participant’s Elective Deferral Account, Rollover Contributions Account and the vested portion of Employer Accounts”. A Participant may take one additional loan under this provision regardless of the number of existing loans the Participant has outstanding.
(b)Extension of certain repayments. If a Qualified Individual has an outstanding loan from the Plan on or after April 17, 2020, then: (1) if the date for any repayment of such loan occurs during the Suspension Period, the due date is extended for the Extension Period; (2) the due date of the loan will be extended by the Extension Period; (3) the Plan will adjust any subsequent repayments to reflect the extension of the due date and any interest accrued during the Suspension Period; and (4) the Plan will
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disregard the Extension Period in determining the 5-year period and the loan term under Code Sections 72(p)(2)(B) or (C). The Suspension Period will begin April 17, 2020 and end December 31, 2020. The Extension Period will be one year. The provisions of this Section will be applied in accordance with Section 5.B. of IRS Notice 2050-50, or any subsequent applicable guidance, and the adjustment described in (3) may reflect the “safe harbor” described therein.
ARTICLE 12
LEVERAGED EMPLOYEE STOCK
OWNERSHIP PLAN PROVISIONS
12.01Effect of Article. Notwithstanding anything to the contrary contained in the Plan, the provisions of this Article 12 shall control the interpretation and administration of the Plan where applicable.
12.02Definitions. The following terms when used in this Article 12 shall have the designated meaning unless a different meaning is plainly required by the context in which the term is used:
(a)“Disqualified Person” shall mean a person defined in Code Section 4975(e)(2) and shall mean a party in interest as defined in ERISA Section 3(14).
(b)“Exempt Loan” shall mean any Loan that satisfies the provisions of Section 12.04.
(c)“Financed Stock” shall mean Common Stock acquired with the proceeds of an Exempt Loan.
(d)“Indebtedness” shall mean the principal amount of any indebtedness incurred by the Plan in connection with the acquisition of Financed Stock.
(e)“Interest” shall mean interest payable by the Plan with respect to Indebtedness.
(f)“Leveraged ESOP” shall mean the portion of the Plan described in this Article 12.
(g)“Loan” shall mean any loan made to the Leveraged ESOP, by a Disqualified Person or guaranteed by a Disqualified Person.
(h)“Release Date” shall mean each date specified in Section 12.05(c) for the release of shares of Common Stock from the Stock Suspense Account for allocation to Participants’ Employer Accounts.
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(i)“Stock Suspense Account” shall mean an account credited with the Financed Stock prior to the release there from in accordance with Section 12.05(d).
(j)“Unallocated Financed Stock” shall mean shares of Financed Stock that remain in the Stock Suspense Account prior to the release of such shares from the Stock Suspense Account and the allocation of such shares to Participants’ Employer Accounts.
12.03Purpose and Nature of the Leveraged ESOP.
(a)The primary purpose of the Leveraged ESOP is to enable Participants to share in the growth and prosperity of HEICO Corporation and its Affiliates by enabling Participants to acquire stock ownership interests in the form of Common Stock. Accordingly, the Leveraged ESOP is an employee stock ownership plan within the meaning of Code Section 4975(e)(7) which is designed to invest primarily in Common Stock. The Leveraged ESOP may engage in loans (or other extensions of credit) to finance its acquisition of Common Stock, including such Loans (or extensions of credit) from or secured primarily by a guarantee of the Company or an Affiliated Company or the expectation that the Company and its Affiliated Companies will make contributions to the Leveraged ESOP in amounts sufficient to enable the Leveraged ESOP to amortize such loans (or extensions of credit).
(b)The Leveraged ESOP is intended to be and shall be a stock bonus plan within the meaning of Treasury Regulation Section 1.401-1(b)(1)(iii) that is qualified under Code Section 401(a). It is designed to meet the requirements for an employee stock ownership plan within the meaning of Code Section 4975(e)(7) and ERISA Section 407(d)(6) and regulations thereunder and may enter into one or more Exempt Loans pursuant to this Article 12. Separate accounting shall be maintained with respect to the Leveraged ESOP, any Exempt Loan and Financed Stock acquired with the proceeds of such Exempt Loan.
(c)The terms of any Exempt Loan shall comply with all the requirements necessary to constitute an “exempt loan” within the meaning of Treasury Regulation Section 54.4975-7(b).
12.04Requirements as to Exempt Loans. No Loan shall be entered into on behalf of the Leveraged ESOP which is a Loan made or guaranteed by a Disqualified Person unless the Committee determines that all of the requirements of this Section including each of the following requirements are met:
(a)the terms shall be as favorable to the Plan as the terms of a comparable loan from arms-length negotiations between independent parties;
(b)the interest rate shall be no more than a reasonable interest rate considering all relevant factors including the amount and duration of the loan, the security and guarantee involved, the credit standing of the Plan and the guarantor of the loan, and the interest rate prevailing for comparable loans;
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(c)the loan shall be without recourse against the Plan;
(d)the loan must be for a specific term under which the number of years to maturity is definitely ascertainable at all times;
(e)the loan may not be payable at the demand of any person except in the case of default;
(f)the only assets of the Plan that may be given as collateral on the loan are Common Stock acquired with the proceeds of the Exempt Loan or Common Stock used as collateral on a prior Exempt Loan repaid with the proceeds of the Exempt Loan;
(g)no person entitled to payment under the loan shall have any right to assets of the Plan other than collateral given for the loan, contributions made to the Plan to enable it to meet its obligations under the loan, and earnings attributable to such collateral and such contributions;
(h)the value of Plan assets transferred in satisfaction of the loan upon an event of default shall not exceed the amount of the default;
(i)if the lender is a Disqualified Person, Plan assets may only be transferred upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the loan;
(j)upon payment of any portion of the balance due on the loan, the assets pledged as collateral for such portion shall be released from encumbrance;
(k)the loan shall be repaid only from proceeds of an Exempt Loan, amounts contributed to the Plan by the Company or its Affiliated Companies to enable the Plan to repay such loan, earnings on such contributions, and earnings on Financed Stock acquired with the proceeds of such loan (including dividends and proceeds of sale of such Financed Stock, so long as such use of proceeds complies with applicable requirements of the Code and regulations thereunder);
(l)the payments made with respect to an Exempt Loan must not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year less such payments in prior year, and such contributions and earnings must be accounted for separately in the books and accounts of the ESOP until the Exempt Loan is repaid; and
(m)the loan must be primarily for the benefit of Participants and their beneficiaries.
12.05Use of Exempt Loan Proceeds.
(a)The proceeds of any Exempt Loan shall be used within a reasonable time after receipt thereof to acquire Common Stock, to repay such loan, or to repay a prior Exempt Loan as determined by the Committee in its sole discretion. Except as permitted by law, Common Stock acquired with the proceeds of an Exempt Loan may not at that time or at any time thereafter be subject to any put, call, option, buy-sell or other similar arrangement when held by and distributed from the Plan, whether or not the Plan is
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then an employee stock ownership plan. The rights and protections granted in this paragraph are non-terminable and will continue to exist as long as any Company Stock acquired with an Exempt Loan is held by the Plan or by any Participant or any other person for whose benefit such protections and rights have been created, and neither the repayment of such loan nor the failure of the Plan to be an employee stock ownership plan, nor any amendment of the Plan, will cause a termination of the protections and rights.
(b)All shares of Common Stock acquired by the Trustee with the proceeds of an Exempt Loan shall be allocated to a separate Stock Suspense Account within the Trust and be held therein until allocated to the Employer Accounts of Participants pursuant to the provisions of Section (d) below.
(c)As of the last day of any Plan Year (each date being referred to as a “Release Date”), there shall be released from the Stock Suspense Account and allocated to Participants’ Employer Accounts in accordance with the provisions of Section 12.06(c) below a number of shares of Financed Stock, as determined in a reasonable and nondiscriminatory manner by the Committee and subject to the provisions of Sections (d) and (e) below.
(d)If the conditions of this Section 12.05(d) are satisfied, the percentage of Financed Stock to be released on each Release Date equals the Indebtedness repaid during the current Plan Year divided by the Indebtedness originally incurred.
(1)The formula set forth in this Section 12.05(d) may be used if (i) the Board elects its use no later than the time when stock acquired under a particular Loan Agreement is first released, (ii) the term of the Loan Agreement does not exceed ten (10) years, and (iii) the Loan Agreement provides for the repayment of Indebtedness on a basis that results in the amortization of Indebtedness no less rapidly than under standard amortization tables.
(e)If the formula set forth in Section 12.05(d) is not used, the percentage of shares of Financed Stock so released from the Stock Suspense Account, as of each Release Date shall not be less than the total number of shares of Financed Stock in the Stock Suspense Account immediately prior to the first day of such Plan Year multiplied by a fraction, the numerator of which is equal to the total dollar amount of Indebtedness and Interest actually paid by the Trustee with respect to such Plan Year to amortize the Exempt Loan and the denominator of which is the sum of the numerator plus the total dollar amount of Indebtedness and Interest due for all future periods of such Exempt Loan after the end of such Plan Year.
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12.06Allocations and Accounting.
(a)The provisions of this Section 12.06 shall govern the allocation of Employer Contributions that are used to make payments on an Exempt Loan.
(b)Any Financed Stock acquired by the Leveraged ESOP shall be allocated initially to the Stock Suspense Account. Each Participant’s Employer Account shall reflect such Participant’s interest in the Leveraged ESOP.
(1)Each Participant’s Employer Account shall be credited with its allocated share of Common Stock released from the Stock Suspense Account pursuant to Sections 12.05(d) and 12.05(e). Each Participant’s Employer Account will be credited with its allocable share of cash dividends on Common Stock allocated to such Participant’s Employer Account and proceeds from the sale of such shares of Common Stock.
(2)Each Participant’s Employer Account shall be debited for Common Stock distributed to said Participant from such Employer Account pursuant to applicable Plan provisions, or for its allocable share of Common Stock sold by the Trustee or otherwise removed from such Employer Account in accordance with any applicable provisions of the Plan. Each Participant’s Employer Account shall be debited for cash payments which are distributed to said Participant from such Account pursuant to applicable Plan provisions.
(c)All Common Stock released from the Stock Suspense Account as of any Release Date are allocated among the Participants’ Employer Matching Contributions Account, to the extent that Employer Matching Contributions made on their behalf were utilized to pay Interest or repay Indebtedness. Common Stock not so allocated is allocated to the Equity Builder Contributions Account of active Participants in accordance with the provisions of Section 4.04(b).
(d)As of each Release Date in each Plan Year, the Financed Stock that is released from the Stock Suspense Account, if any, pursuant to the provisions of Sections 12.05(d) and 12.05(e) shall be allocated to the Employer Accounts of Participants. Each Participant’s allocable share of Financed Stock shall be calculated by multiplying the aggregate number of shares of Financed Stock released on such Release Date by a fraction, the numerator of which is the Contribution made for such Plan Year by the Employer on behalf of such Participant pursuant to Section 4.04, and the denominator of which is the aggregate contribution to be made by the Employer on behalf of all Participants pursuant to Section 4.04 for such Plan Year.
12.07Use of Cash Dividends on Common Stock.
(a)All dividends received with respect to Financed Stock are used to pay Interest or repay Indebtedness. If, however, dividends that would otherwise be allocated to Participants’ Accounts or distributed to them in accordance with Section 12.08 are used to pay Interest or repay
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Indebtedness, Company Stock equal in value to the dividends so applied must be allocated to each Participant’s Equity Builder Account, in addition to any other allocations under this Plan.
(b)After a loan has been repaid, dividends on stock acquired with the proceeds of the loan are distributed or allocated in accordance with Section 12.08. The refinancing of a loan through a new loan transaction is not deemed to be repayment for purposes of this Section 12.07.
12.08Common Stock Cash Dividends.
(a)Cash Dividends Paid
(1)Notwithstanding any other provision of Article 12 to the contrary, each Participant may elect to:
(i) receive a distribution in cash equal to the value of any cash dividends paid by the Company and received by the Trust with respect to shares of Common Stock allocated to his Employer Accounts at the close of business on the ex-dividend date established for the payment of such cash dividends; or
(ii) reinvest in the Company Stock Fund any cash dividends paid by the Company and received by the Trust with respect to shares of Common Stock allocated to his Employer Accounts at the close of business on the ex-dividend date established for the payment of such cash dividends.
(2)Any distribution pursuant to paragraph (a)(1)(i) shall be made as soon as is administratively feasible following the receipt of the cash dividends by the Trust, but in no event later than 90 days after the close of the Plan Year in which such cash dividends were paid by the Company.
(3)If a Participant fails to make an election pursuant to paragraph (a)(1)(i), he shall be deemed to have made an election pursuant to paragraph (a)(1)(ii).
(4)Cash dividends subject to an election pursuant to paragraph (a)(1) shall be fully vested in accordance with Section 8.01(d).
(b)Elections. The Committee shall specify the manner in which Participants will be required to make their elections subject to the following conditions:
(1)The Committee shall provide no less than annually each Participant an opportunity to make an election.
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(2)A Participant’s election shall take effect immediately following receipt by the Committee and shall remain in effect until an election to the contrary is filed by such Participant.
(3)A Participant’s election shall become irrevocable the latter of (i) that date on which the cash dividends attributable to such election are paid to the Trust, or (ii) the date established by the Committee for revoking such an election.
(4)The rules established by the Committee for making an election shall be applied in a uniform and nondiscriminatory manner.
12.09Diversification Election.
(a)With respect to any shares of Common Stock allocated to the Account of a Participant, alternate payee who has an account under the Plan, or a beneficiary of a deceased Participant, the individual shall be entitled to elect to direct the Plan to divest any such shares and to reinvest an equivalent amount in other Investment Funds which satisfy the requirements of Section 12.09(c) hereof.
(b)Except as otherwise determined by the Committee as may be necessary and appropriate, a Participant’s election to divest pursuant to Section 12.09(a) as to a Plan Year may be made at any time by filing a written election with the Administrator. The Committee shall impose restrictions on the divestiture of Common Stock this is either required in order to ensure compliance with applicable securities laws or is reasonably designed to ensure compliance with applicable securities laws. The Administrator shall direct the Trustee in writing to liquidate, including a specific direction as to the manner in which to liquidate, the shares of Common Stock as to which a Participant has made a transfer election and to transfer such cash proceeds to the other Investment Fund or Funds elected as soon as administratively feasible after such transfer election has been made.
(c)For purposes of this Section 12.09, other Investment Funds must include not less than three (3) Investment Funds, other than Company Stock, to which the Participant may direct the proceeds of divestment of Company Stock required by this Section 12.09, each of which options is diversified and has materially different risk and return characteristics.
12.10Voting and Tendering of Company Stock. The Trustee shall vote each share of Common Stock held under the Plan. Each Participant shall be entitled to direct the Trustee as to the manner in which the voting rights attributable to the shares of Common Stock allocated to his Employer Accounts as of the relevant record date are to be exercised. The Trustee shall vote all shares of Common Stock as to which it receives timely voting instructions solely in accordance with such instructions, provided that the Trustee may vote the shares as it determines is reasonably necessary to fulfill its fiduciary duties under ERISA. If a Participant does not, with respect to any matter, give instructions concerning the voting of stock allocated to his Employer Accounts, the Trustee shall vote that Participant’s Employer Accounts Common Stock in the same proportions as Common Stock for which instructions have been received, subject to its fiduciary duties under ERISA.
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Except as otherwise required by the fiduciary standards of ERISA Section 404, the Trustee shall vote Common Stock held in the Stock Suspense Account in the same proportions as Common Stock that has been allocated to Participants’ Employer Accounts.
ARTICLE 13
TOP-HEAVY PROVISIONS
13.01Top-Heavy. The following provisions shall become effective in any Plan Year in which the Plan is determined to be a Top-Heavy Plan.
(a)The following terms when used in this Article 13 shall have the designated meaning unless a different meaning is plainly required by the context in which the term is used:
(1)“Key Employee” shall mean any individual who meets the criteria of a Key Employee as defined in Code Section 416(i)(1).
(2)“Determination Date” shall mean, with respect to any Plan Year, the last day of the immediately preceding Plan Year.
(3)“Permissive Aggregation Group” means any grouping of plans of the Employer which includes the Required Aggregation Group, plus any other plans of the Employer that allow, when aggregated, the resulting group of plans to meet the requirements of Code Sections 401(a)(4) and 410.
(4)“Required Aggregation Group” means each plan of the Employer in which a Key Employee is a participant, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410.
(5)“Non-Key Employee” shall mean any individual who is not a Key Employee.
(b)The Plan will be considered a Top-Heavy Plan for the Plan Year, if, as of the last Determination Date:
(1)the aggregate of the Accounts of Participants who are Key Employees exceeds 60% of the aggregate of the accounts of all Participants (the “60% Test”); or
(2)the Plan is part of a Required Aggregation Group and the Required Aggregation Group meets the requirements of Section 13.01(b)(1).
However, and notwithstanding the results of the 60% Test, the Plan shall not be considered a Top-Heavy Plan for any Plan Year in which the Plan is a part of a Required or Permissive Aggregation Group which is not top-heavy. Distributions made with respect to Employees within the five-year period ending on the Determination Date shall be included for purposes of making the 60% Test. If any employee has not performed services for the
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Employer at any time during the five-year period ending on the Determination Date, any Account of such employee shall not be taken into account for purposes of the foregoing determination. If any Employee is a Non-Key Employee for any Plan Year, but was a Key Employee for any prior Plan Year, the Non-Key Employee’s Account shall not be taken into account for purposes of the foregoing determination for any Plan Year following the last Plan Year for which the Employee was treated as a Key Employee.
Solely for the purpose of determining if the Plan, or any other plan included in a required aggregation group of which this Plan is a part, is top-heavy (within the meaning of Code Section 416(g)) the accounts of an Employee other than a Key Employee shall be determined under (1) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer, or (2) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C). Rollover Contributions or transfers initiated by the Employee and made from another qualified plan within the meaning of Code Section 401(a) maintained by an employer (other than the Employer or an Affiliated Company), shall not be taken into account with respect to this Plan for purposes of determining whether this Plan is top-heavy (or whether any aggregation group which includes this Plan is top-heavy).
(c)The minimum annual contribution for a Non-Key Employee shall be equal to the lesser of:
(1)3% of his compensation (within the meaning of Code Section 415); or
(2)the percentage at which contributions are made (or required to be made) under the Plan, including Elective Deferral Contributions, for the plan year for the Key Employee for whom such percentage is the highest.
Each Participant who is a Non-Key Employee and who is also a Participant in a defined benefit plan maintained by the Employer shall receive a minimum benefit accrual under the defined benefit plan to the extent provided therein, and, to the extent that the minimum benefits provided thereunder are not sufficient to satisfy the requirements of Code Section 416, shall receive a minimum contribution under this Plan. The minimum contribution under this Plan shall in no event be greater than that which is necessary, when combined with the benefits provided to the Participant under the defined benefit plan (including the minimum benefit provisions therein), to satisfy the requirements of Code Section 416.
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(d)If the Plan is top-heavy for any Plan Year, a Participant’s Account shall continue to be vested in accordance with the vesting schedule provided in Section 8.01 of the Plan.
13.02Modification of Top-Heavy Rules. Notwithstanding anything contained in this Plan to the contrary, for purposes of determining whether the plan is a top-heavy plan under Code Section 416(g), and whether the plan satisfies the minimum benefits requirements of Code Section 416(c) for such years the following shall apply:
(a)Determination of top-heavy status.
(1)Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual compensation greater than $200,000 (for Plan Years beginning after December 31, 2021, as adjusted under Code Section 416(i)(1)), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Code Section 415(c)(3). The determination of who is a key employee will be made in accordance with Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability issued thereunder.
(2)Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the plan and any plan aggregated with the plan under Code Section 416(g)(2) during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”
(3)Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account.
(b)Minimum benefits. Employer Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. Employer Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the
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Actual Contribution Percentage test and other requirements of Code Section 401(m).
ARTICLE 14
PLAN ADMINISTRATION
14.01Committee. The day-to-day operations of the Plan are administered by one or more persons appointed by the Board of Directors, who are referred to in this Plan as the “Committee”. The Board may remove any member of the Committee at any time with or without cause. The Board will fill vacancies in the Committee as soon as is reasonably possible after the vacancy occurs. Until a new appointment is made, the remaining member or members of the Committee have full authority to act. The Board is responsible for transmitting to the Trustee the names and authorized signatures of the members of the Committee and, as changes take place in membership, the names and signatures of new members. Any member of the Committee may resign by delivering his written resignation to the Board, the Trustee and the Committee. Any such resignation becomes effective upon its receipt by the Board or on such other date as is agreed to by the Board and the resigning member. The Committee acts by a majority of its members at the time in office, and such action may be taken either by vote at a meeting or by consent in writing without a meeting. The Committee may adopt such rules and appoint such subcommittees as it deems desirable for the conduct of its affairs and the administration of the Plan.
14.02Powers of the Committee. In carrying out its duties with respect to the general administration of the Plan, the Committee has, in addition to any other powers conferred by the Plan or by law, the following powers:
(a)to determine all questions relating to eligibility to participate in the Plan;
(b)to compute and certify to the Trustee the amount and kind of distributions payable to Participants and their Beneficiaries;
(c)to maintain all records necessary for the administration of the Plan except for those maintained by the Company or Trustee;
(d)to interpret the provisions of the Plan and to make and publish such rules for the administration of the Plan not inconsistent with the terms thereof;
(e)to establish and modify the method of accounting for the Plan or the Trust;
(f)to employ counsel, accountants and other consultants to aid in exercising its powers and carrying out its duties hereunder;
(g)to appoint, at the direction of the Company, an Investment Manager (as defined in ERISA Section 3(38)), who shall have responsibility for investment of the Trust Fund; and
(h)to perform any other acts necessary and proper for the administration of the Plan, except such acts that are to be performed by the Company or the Trustee.
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14.03Indemnification of Members of the Committee. The Company agrees to indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of his action or failure to act in such capacity, excepting only expenses and liabilities arising out of his own willful misconduct or gross negligence. This right of indemnification is in addition to any other rights to which any member of the Committee may be entitled.
14.04Liabilities for which Members of the Committee are Indemnified. Liabilities and expenses against which a member of the Committee is indemnified hereunder include, without limitation, the amount of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against him or her or the settlement thereof.
14.05Company’s Right to Settle Claims. The Company may, at its own expense, settle any claim asserted or proceeding brought against any member of the Committee when such settlement appears to be in the best interests of the Company.
14.06Fiduciary Liability Insurance. If the Company obtains fiduciary liability insurance to protect the Committee, the provisions of this Section 14.06 will apply only to the extent that such insurance coverage is not sufficient.
14.07Designation of Members of the Committee as Named Fiduciaries. The members of the Committee are hereby designated as “named fiduciaries”, within the meaning of Section 402(a) of ERISA, with respect to the operation and administration of the Plan and are, except to the extent provided by Section 14.08, jointly responsible for administering the Plan in accordance with its terms.
14.08Procedures for Allocating or Delegating Fiduciary Responsibilities. The Committee may establish procedures for (a) the allocation of fiduciary responsibilities (other than “trustee responsibilities” as defined in Section 405(c) of ERISA) under the Plan among its members, and (b) the designation of persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the Plan.
If any fiduciary responsibility is allocated or delegated to any person, no named fiduciary is liable for any act or omission of such person, except as provided in Section 405(c) of ERISA.
The Company shall be empowered to appoint and remove the Trustee and Committee from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act.
14.09Filing of Claim. If a dispute arises between the Committee and a Participant or Beneficiary over the amount of benefits payable under the Plan, the Participant or Beneficiary may file a claim for benefits by notifying the Committee in writing of his claim. Such notification may be in any form adequate to give reasonable notice to the Committee, must set forth the basis of the claim and must authorize the Committee to conduct such investigations as may be necessary to determine the validity of the claim and to take such steps as may be necessary to facilitate the payment of any benefits to which the claimant may be entitled under the Plan.
14.10Time for Initial Decision. The Committee is required to decide whether to grant a claim within 90 days after the date on which the claim is filed, unless special circumstances require a longer period for adjudication and the claimant is notified in writing of the reasons for an extension of time. No extensions, however, are permitted beyond 90 days after the date on
57
which the claimant received notice of the extension of time from the Committee. If the Committee fails to notify the claimant of its decision to grant or deny the claim within the time specified by this Section, the claim will be deemed to have been denied, and the review procedure described in Section 14.12 will become available to the claimant.
14.11Notice of Denial. Whenever a claim for benefits is denied, written notice prepared in a manner calculated to be understood by the claimant, will be provided to him, setting forth the specific reasons for the denial and explaining the procedure for reconsideration of the decision made by the Committee. If the denial is based upon submission of information insufficient to support a decision, the Committee will specify the information necessary to perfect the claim and its reasons for requiring such additional information.
14.12Manner of Reconsideration. Any claimant whose claim is denied may, within 60 days after his receipt of written notice of denial, request in writing a reconsideration of its decision by the Committee. The claimant or his representative may examine any Plan documents relevant to his claim and may submit issues and comments in writing.
14.13Time for Reconsideration. The Committee is required to review and reconsider its decision within 60 days after its receipt of the claimant’s written request, unless special circumstances require a longer period for adjudication and the claimant is notified in writing of the reasons for an extension of time. A decision must, however, be made no later than 120 days after the Committee’s receipt of the claimant’s written request. If the Committee fails to notify the claimant of its decision within the time specified by this Section, the claim will be deemed to have been denied on reconsideration.
14.14Notice of Adverse Decision on Reconsideration. The Committee’s decision to deny a claimant’s request for reconsideration must be in writing, must state specifically the reasons for the decision, must be written in a manner calculated to be understood by the claimant and must make specific reference to the pertinent Plan provisions upon which it is based.
14.15Expenses of the Committee. The members of the Committee serve without compensation for services as such. All expenses of the Committee are paid out of the Trust Fund, unless paid by the Employers. Expenses payable from the Trust include any expenses incidental to the functioning of the Committee, including, but not limited to, fees of legal counsel, accountants and other specialists.
14.16Conduct of Committee Business. The Committee may select one of its members as secretary to keep minutes of its proceedings and to have custody of all data, records and documents pertaining to the administration of the Plan. The Committee may authorize one or more of its members to execute any document or documents on behalf of the Committee, in which event the Committee must notify the Trustee in writing of such action and the name or names of those designated. The Trustee thereafter may accept and rely conclusively upon any direction or document executed by such member or members as representing action by the Committee until such time as the Committee files with the Trustee a written revocation of the designation.
14.17Agent for Service of Process. The Committee is hereby designated as the agent for service of process in any action brought against the Plan or Trust.
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ARTICLE 15
AMENDMENT AND TERMINATION
15.01Right to Amend. The Company intends for the Plan to be permanent so long as the Company exists; however, it reserves (through action of either the Committee or the Board) the right to modify, alter, or amend this Plan or the Trust Agreement, from time to time, to any extent that it may deem advisable, including, but not limited to any amendment deemed necessary to insure the continued qualification of the Plan under Code Sections 401(a) and 401(k) or to insure compliance with ERISA; provided, however, that the Company shall not have the authority to amend this Agreement in any manner which will:
(a)Permit any part of the Trust Fund (other than such part as is required to pay taxes and administrative expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participant or their Beneficiaries;
(b)Cause or permit any portion of the Trust Fund to revert to or become the property of the Employer;
(c)Change the duties, liabilities, or responsibilities of the Trustee without its prior written consent.
15.02Termination and Discontinuance of Contributions. The Company (through action of either the Committee or the Board) shall have the right at any time and for any reason to terminate this Plan (hereinafter referred to as “Plan Termination”). Upon Plan Termination, the Committee shall direct the Trustee with reference to the disposition of the Trust Fund, after payment of any expenses properly chargeable against the Trust Fund. The Trustee shall distribute all amounts held in Trust to the Participants and others entitled to distributions based on each Participant’s Account balance in the Plan. In the event that this Plan is partially terminated, then the provisions of this Section 15.02 shall apply, but solely with respect to the Employees’ Participating Employer and shall not affect the sponsorship of the Plan by the Company or any other Participating Employer.
In the event the Plan is terminated, partially terminated or Employer Contributions discontinued, the Employer Account of affected Participants shall become fully (100%) vested. Any distribution after termination of the Plan may be made at any time, and from time to time, in whole or in part to the extent that no discrimination in value results, in cash, in securities or other assets in kind, as the Committee in its discretion may determine, or, if there shall be no Committee, as the Company in its discretion may determine. In making such distribution any and all determinations, divisions, appraisals, apportionments and allotments so made shall be final and conclusive.
If the Employer maintains an alternative defined contribution plan (described in Treasury Regulation Section 1.401(k)-1(d)(4)(i)), the Employer shall be prevented from distributing elective deferrals (and other amounts, such as QNECs, that are subject to the distribution restrictions that apply to elective deferrals) from a terminating 401(k) plan. An alternative defined contribution plan does not include an employee stock ownership plan defined in Code Sections 4975(e)(7) or 409(a), a simplified employee pension as defined in Code Section 408(k),
59
a SIMPLE IRA plan as defined in Code Section 408(p), a plan or contract that satisfies the requirements of Code Section 403(b), or a plan that is described in Code Sections 457(b) or (f).
15.03Supplements. In adopting the Plan or at any time thereafter, an Employer may adopt a Supplement that modifies or adds to the Plan. Any Supplement shall be effective only if approved by the Board. Upon its effective date, any Supplement shall be deemed incorporated by reference into the Plan as adopted by such Employer.
15.04Merger of the Plan. In the event of any merger or consolidation of the Plan with or transfer in whole or in part of the assets and liabilities of the Trust or another trust fund held hereunder to any other plan of deferred compensation maintained or to be established for the benefit of some or all of the Participants of this Plan, the assets of the Trust applicable to such Participants shall be transferred to the other trust fund only if:
(a)Each Participant would (if either this Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit, which he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had been terminated);
(b)Resolutions of the Boards of Directors of all Employers under this Plan and of any new or successor employer of the affected Participants shall authorize such transfer of assets; and
(c)Such other plan is qualified under Code Section 401(a) and the related trust is exempt from tax under Code Section 501(a).
15.05Transfers to Nonqualified Foreign Trusts. Notwithstanding anything contained in the Plan, a transfer from this Plan to a nonqualified foreign trust is treated as a distribution. In the case of a transfer to an ERISA Section 1022(i)(1) plan, the transfer is not treated as a distribution from the transferor plan and the transfer will not be treated as causing the transferor plan to fail to satisfy the requirements of Code Section 401(a).
ARTICLE 16
PARTICIPATING EMPLOYERS
16.01Participation by Participating Employers. A Participating Employer may adopt this Plan by a properly executed document evidencing such adoption, with the consent of the Board. Each Participating Employer delegates all fiduciary and administrative responsibilities (including the appointment and removal of fiduciaries) allocated under the Plan to the Company, the Committee and other fiduciaries of the Plan. Provided, however, that this delegation of fiduciary and administrative responsibilities may be altered by agreement between the Company and a Participating Employer.
All Participating Employers shall be listed in Appendix A to the Plan.
16.02Withdrawal of Participating Employers. Any Participating Employer (including a present or past Employer) may discontinue or revoke its participation in the Plan at any time without affecting the other Employees in the Plan by delivering to the Committee a copy of resolutions to such effect. The Committee may, in its absolute discretion, terminate the
60
participation in the Plan of any Participating Employer (including a present or past Affiliated Employer) at any time such Employer fails to discharge its obligations under the Plan.
After any discontinuance of participation, the Trustee shall transfer, deliver and assign contracts and any other Trust Fund assets allocable to the Participants of such Participating Employer to such new Trustee as shall have been designated by such Participating Employer, in the event that it has established a separate qualified plan for its Employees; provided, however, that no such transfer shall be made if the result is the elimination or reduction of any benefits protected under Code Section 411(d)(6). If no successor trustee is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of the Trust. In no event shall any part of the corpus or income of the Trust Fund as it relates to such Participating Employer be used for or diverted to purposes other than for the exclusive benefit of the Employees of such Participating Employer.
16.03Requirements of Participating Employers. Each Participating Employer shall be required to use the Trustee as provided in this Plan. The Trustee may, but is not required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. However, the assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and Beneficiaries under the Plan without regard to the Employer who contributed such assets.
16.04Transfers Between Participating Employers. If a Participant is transferred to or from a Participating Employer, this transfer shall not affect the Participant’s rights under the Plan, and all amounts credited to such Participant’s Accounts, as well as his accumulated service for eligibility and vesting, shall continue to his credit. An Employee transferred between Participating Employers shall be credited with all accumulated service for eligibility and vesting. No such transfer shall be considered a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall be obligated to the Employee under the Plan in the same manner as was the Participating Employer from whom the Employee was transferred.
16.05Participating Employer Contributions. All contributions made by a Participating Employer, as provided for in this Plan, shall be determined separately by each Participating Employer, and shall be allocated only among the Participants eligible to a share of the contributions of the Employer or Participating Employer making the contribution. On the basis of the information furnished by each Participating Employer, the Committee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer.
ARTICLE 17
MISCELLANEOUS
17.01Laws of Florida to Apply. Except to the extent superseded by ERISA, all questions pertaining to the validity, construction, and operation of the Plan shall be determined in accordance with the laws of the State of Florida.
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17.02Protected Benefits. Early retirement benefits, retirement-type subsidies, or optional forms of benefits protected under Code Section 411(d)(6) (“Protected Benefits”) shall not be reduced or eliminated with respect to benefits accrued under such Protected Benefits unless such reduction or elimination is permitted under the Code, authority issued by the Internal Revenue Service, or judicial authority.
17.03Credit for Qualified Military Service; Treatment of Differential Wage Payments. Notwithstanding any provision of this Plan to the contrary, effective as required by USERRA (i.e., December 12, 1994), contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). In addition, effective as required by the HEART Act (i.e., January 1, 2009), the differential wage payment rules contained in Code Section 414(u)(12) shall apply with respect to individuals performing services in the uniformed services described in Code Section 3401(h)(2)(A).
17.04Exclusive Benefit Rule. All contributions made by the Employer to the Trust Fund will be used for the exclusive benefit of the Participants and their Beneficiaries and will not be used for nor diverted to any other purpose except the payment of the costs of maintaining the Plan. The sponsorship of the Plan shall not be transferred from an Employer to an unrelated taxpayer unless the transfer of the sponsorship of the Plan is in connection with a transfer of business assets, operations, or employees from the Employer to the unrelated taxpayer.
17.05No Rights under the Plan except as Set Forth Herein. Nothing in this Plan, express or implied, is intended to confer upon or give to any person, firm, association, or corporation, other than the parties hereto and their successors in interest, any right, remedy, or claim under or by reason of this Plan or any covenant, condition, or stipulation hereof, and all covenants, conditions and stipulations in this Plan, by or on behalf of any party, are for the sole and exclusive benefit of the parties hereto.
17.06Undefined Terms. Unless the context clearly requires another meaning, any term not specifically defined in this Plan is used in the sense given to it by ERISA and the Code.
17.07Number and Gender. When appropriate the singular as used in this Plan shall include the plural and vice versa; and the masculine shall include the feminine.
IN WITNESS WHEREOF, HEICO Corporation has caused this instrument, approved as of the 26 day of March, 2022, to be executed by its duly authorized officer.
HEICO CORPORATION
By: /s/ CARLOS L. MACAU, JR.
Title: Carlos L. Macau, Jr.
Executive Vice President -
Chief Financial Officer and Treasurer
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APPENDIX A
PARTICIPATING EMPLOYERS IN THE
HEICO SAVINGS AND INVESTMENT PLAN
PARTICIPATING EMPLOYERS IN THE
HEICO SAVINGS AND INVESTMENT PLAN
Participating Employer EIN Effective Date
HEICO Corporation 65-0341002 January 1, 1985
Jet Avion Corporation 59-2699611 July 1, 1985
LPI Industries Corporation 65-0054782 April 1, 1989
HEICO Aerospace Corporation 59-0791770 April 27, 1993
Aircraft Technology, Inc. 65-0233725 October 1, 1998
Radiant Power Corp. 65-0892651 February 1, 1999
McClain International, Inc. 58-0876596 October 1, 1998
Rogers-Dierks, Inc. 58-2428936 October 1, 1999
Turbine Kinetics, Inc. 65-0845883 October 1,1999
Thermal Structures, Inc. 95-3575611 August 1, 1999
Santa Barbara Infrared, Inc. 77-0111325 January 1, 2000
Northwings Accessories Corp. 65-0312802 January 1, 2000
Leader Tech, Inc. 04-2667972 April 1, 2000
Future Aviation, Inc. 65-1011336 April 1, 2001
Analog Modules, Inc. 59-2074349 May 1, 2001
Jetseal, Inc. 91-1433851 January 1, 2002
Inertial Airline Services, Inc. 34-1823836 January 1, 2002
HEICO Aerospace Parts Corp. 65-1146790 July 1, 2002
Aviation Facilities, Inc. 03-0377215 July 1, 2002
Aero Design, Inc. 62-1858631 January 1, 2003
Niacc-Avitech Technologies, Inc. 51-0453669 July 1, 2003
Sierra Microwave Technology, LLC 37-1480034 January 1, 2004
Connectronics Corp. 20-1971140 December 1, 2004
Lumina Power, Inc. 20-2350926 May 1, 2005
Engineering Design Team, Inc. 93-0964386 January 1, 2006
Arger Enterprises, Inc. 95-3296745 January 1, 2007
Prime Air, LLC 20-5545289 January 1, 2007
DEC Technologies, Inc. 26-0348155 January 1, 2008
Meridian Industrial, Inc. 26-0837681 January 1, 2008
Sunshine Avionics LLC 26-1913893 July 1, 2008
HEICO Parts Group, Inc. 26-3082967 January 1, 2009
VPT, Inc. 54-1684156 June 1, 2009
dB Control Corp. 27-1784894 July 1, 2010
3D Plus U.S.A., Inc. 74-2947071 January 1, 2012
Switchcraft, Inc. 36-2051512 January 1, 2012
Conxall Corporation 36-2944789 January 1, 2012
Ramona Research, Inc. 45-4786673 July 1, 2012
CSI Aerospace, Inc. 45-5531151 October 1, 2012
Action Research Company 46-1086859 January 1, 2013
Reinhold Industries, Inc 13-2596288 September 1, 2013
Lucix Corporation 77-0504129 November 29, 2013
Si-Rel Inc. 46-3801015 January 1, 2014
Seal Dynamics 20-3713644 January 1, 2015
Harter Aerospace, LLC 47-2458702 April 1, 2015
Thermal Energy Products, Inc. 33-0238469 October 1, 2015
Astroseal Products Mfg. Corporation 06-0808406 January 1, 2016
Midwest Microwave Solutions, Inc. 27-0124198 January 1, 2016
Robertson Fuel Systems, LLC 86-0775241 April 1, 2016
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Aerospace & Comm Technologies, LLC 47-4759100 January 1, 2017
Air Cost Control 20-5059785 July 1, 2017
Carbon By Design 20-1043190 January 1, 2018
AeroAntenna Technologies, Inc. 95-4322670 January 1, 2018
30 S Thech, LLC 82-4199356 July 1, 2018
HEICO Aerospace Parts 65-1146790 July 1, 2018
HFSC II Corp 46-1634579 January 1, 2019
Dielectric Sciences, Inc. 04-2603559 January 1, 2019
Blue Aerospace, LLC. 27-4313205 January 1, 2019
Specialty Silicone Products, Inc. 14-1725435 January 1, 2019
Apex Microtechnology, Inc. 46-0624696 April 1, 2019
Solid Sealing Technology, Inc. 20-0539521 May 1, 2019
Decavo, LLC 26-4673544 January 1, 2020
Research Electronics International, LLC 62-1597816 January 1, 2020
IRCameras LLC 27-4686945 January 1, 2020
HEICO Repair Grp Aerostructures LLC 82-2700627 January 1, 2020
Rocky Mountain Hydrostatics, LLC 84-1168334 October 1, 2020
Quell Corporation 46-0507356 January 1, 2021
Intelligent Devices, Inc. 52-1943471 January 1, 2021
Transformational Security, LLC 20-1891706 January 1, 2021
Pyramid Semiconductor Corporation 86-2249124 July 1, 2021
Connect Tech, Inc 98-0187158 January 1, 2022
Ridge Engineering, Inc. 52-0908121 January 1, 2022
The Bechdon Company, Inc. 52-0895348 January 1, 2022
As of March 30, 2022
64
APPENDIX B
PRIOR EMPLOYER ACCOUNTS
PRIOR EMPLOYER ACCOUNTS
The term “Prior Employer Account” shall mean the Accounts established to hold assets attributable to the following plans merged with or had assets transferred to this Plan:
(1) Air Radio & Instrument Corp. Profit Sharing Plan as in existence prior to its merger with and into this Plan as of June 30, 2000.
(2) California Manufacturing Enterprises and Affiliates 401(k) Profit Sharing Plan as in existence prior to the transfer of assets into this Plan as of March 15, 2000.
(3) Santa Barbara Infrared, Inc. 401(k) Profit Sharing Plan as in existence prior to its merger with and into this Plan as of December 31, 2001
(4) Aerospace & Commercial Technologies LLC Retirement Plan as in existence prior to its merger with and into this Plan as of March 30, 2022.
65
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Laurans A. Mendelson, certify that:
(1)I have reviewed this Quarterly Report on Form 10-Q of HEICO Corporation;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 25, 2022 | /s/ LAURANS A. MENDELSON | ||||||
| Laurans A. Mendelson | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Carlos L. Macau, Jr., certify that:
(1)I have reviewed this Quarterly Report on Form 10-Q of HEICO Corporation;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 25, 2022 | /s/ CARLOS L. MACAU, JR. | ||||||
| Carlos L. Macau, Jr. | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
Exhibit 32.1
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of HEICO Corporation (the “Company”) on Form 10-Q for the period ended April 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Laurans A. Mendelson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | May 25, 2022 | /s/ LAURANS A. MENDELSON | ||||||
| Laurans A. Mendelson | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 32.2
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of HEICO Corporation (the “Company”) on Form 10-Q for the period ended April 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carlos L. Macau, Jr., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | May 25, 2022 | /s/ CARLOS L. MACAU, JR. | ||||||
| Carlos L. Macau, Jr. | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||