HEICO CORPORATION 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 inthe 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 endedOctober 31, 2019 . There have been no material changes to our critical accounting policies during the six months endedApril 30, 2020 . Our business is comprised of two operating segments: theFlight Support Group ("FSG"), consisting ofHEICO Aerospace Holdings Corp. andHEICO Flight Support Corp. and their respective subsidiaries; and theElectronic Technologies Group ("ETG"), consisting ofHEICO Electronic Technologies Corp. and its subsidiaries. Our results of operations for the six and three months endedApril 30, 2020 have been significantly affected by the COVID-19 outbreak, classified by theWorld Health Organization as a global pandemic inMarch 2020 (the "Outbreak"). The effects of the Outbreak and related actions by governments around the world to mitigate its spread have impacted our employees, customers, suppliers and manufacturers. In response to the economic impact from the Outbreak, we have implemented certain cost reduction efforts, including layoffs, temporary reduced work hours and temporary pay reductions within various departments of our business, including within our executive management team. Additionally, our response to the Outbreak has included the implementation of varying health and safety measures at our facilities, including: supplying and requiring the use of personal protective equipment; body temperature taking; staggering work shifts; increasing work-from-home capabilities; consistent and ongoing cleaning of work spaces and high-touch areas; and establishing processes aligned with theCenters for Disease and Control guidelines to work with any individual exposed to COVID-19 on their necessary quarantine period and the process for the individual to return to work. With respect to our results of operations, approximately half of our net sales are derived from defense, space and other industrial markets including electronics, medical and telecommunications. Demand for products in that half of our business has not been 26
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fundamentally impacted and its operational results remain materially consistent with financial expectations prior to the commencement of the Outbreak. However, we have experienced, and expect to continue experiencing, periodic operational disruptions resulting from supply chain disturbances, staffing challenges, temporary facility closures, transportation interruptions and other conditions which slow production or increase costs. While these issues have not yet been material, it is impossible to predict their future impact and our current experience indicates that the likely effect will be to delay orders and shipments measured in weeks and months, and to temporarily increase some costs, as opposed to profoundly changing our business overall. Fortunately, many of our defense and medical component design, manufacturing and supply operations are believed to be crucial suppliers to markets with continuing strong needs. While it has not had a material impact on our consolidated net sales, demand for our components used in medical equipment, such as ventilators, x-ray systems, sterilization equipment and personal protective equipment, has increased as a result of the Outbreak. The remaining portion of our net sales is derived from commercial aviation products and services. The Outbreak has caused significant volatility and a substantial decline in value across global economic markets. Most notably, the commercial aerospace industry has experienced an ongoing substantial decline in demand. As such, our businesses that operate within the commercial aerospace industry have been materially impacted by the significant decline in global commercial air travel that began inMarch 2020 . Once commercial air travel resumes, cost savings will most likely be a priority for our commercial aviation customers and we anticipate recovery in demand for our commercial aviation products, which frequently provide aircraft operators with significant savings. Furthermore, we believe our cost-saving solutions and robust product development programs will enable us to potentially increase market share and emerge with a stronger presence within this market. Additionally, our results of operations for the six and three months endedApril 30, 2020 have been affected by the fiscal 2019 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 endedOctober 31, 2019 . 27
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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):
Three months ended April
Six months ended April 30, 30,
2020 2019 2020 2019
Net sales $974,421 $981,794 $468,146 $515,648
Cost of sales 597,484 590,170 289,256 306,261
Selling, general and administrative
expenses 157,786 174,494 70,729 90,204
Total operating costs and expenses 755,270 764,664 359,985 396,465
Operating income $219,151 $217,130 $108,161 $119,183
Net sales by segment:
Flight Support Group $553,031 $595,464 $251,964 $308,251
Electronic Technologies Group 427,366 398,880 218,955 214,451
Intersegment sales (5,976) (12,550) (2,773) (7,054)
$974,421 $981,794 $468,146 $515,648
Operating income by segment:
Flight Support Group $109,576 $115,046 $47,531 $62,166
Electronic Technologies Group 123,017 118,954 65,526 67,352
Other, primarily corporate (13,442) (16,870) (4,896) (10,335)
$219,151 $217,130 $108,161 $119,183
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit 38.7 % 39.9 % 38.2 % 40.6 %
Selling, general and administrative
expenses 16.2 % 17.8 % 15.1 % 17.5 %
Operating income 22.5 % 22.1 % 23.1 % 23.1 %
Interest expense .8 % 1.1 % .8 % 1.1 %
Other income - % .2 % - % .5 %
Income tax expense .1 % 3.1 % 5.0 % 5.1 %
Net income attributable to
noncontrolling interests 1.4 % 1.7 % 1.2 % 1.6 %
Net income attributable to HEICO 20.3 % 16.4 % 16.1 % 15.9 %
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Comparison of First Six Months of Fiscal 2020 to First Six Months of Fiscal 2019
Our consolidated net sales in the first six months of fiscal 2020 decreased by 1% to$974.4 million , as compared to net sales of$981.8 million in the first six months of fiscal 2019. The decrease in consolidated net sales principally reflects a decrease of$42.4 million (a 7% decrease) to$553.0 million in net sales within the FSG partially offset by an increase of$28.5 million (a 7% increase) to a record$427.4 million in net sales within the ETG. The net sales decrease in the FSG is principally organic and reflects lower demand for the majority of our products and services resulting from the significant decline in global commercial air travel beginning inMarch 2020 due to the Outbreak. As a result, net sales of our repair and overhaul parts and services, aftermarket replacement parts, and specialty products product lines decreased by$18.7 million ,$17.2 million , and$6.5 million , respectively. The net sales increase in the ETG reflects net sales of$28.2 million contributed by our fiscal 2019 and 2020 acquisitions as well as organic growth of 2%. The ETG's organic growth is mainly attributable to increased demand for our defense products resulting in a net sales increase of$22.0 million partially offset by lower demand for our space products resulting in a net sales decrease of$14.8 million . 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 2020.
Gross Profit and Operating Expenses
Our consolidated gross profit margin decreased to 38.7% in the first six months of fiscal 2020, as compared to 39.9% in the first six months of fiscal 2019, principally reflecting a decrease of 2.2% and 1.1% in the ETG's and FSG's gross profit margin, respectively. The decrease in the ETG's gross profit margin principally reflects a decrease in net sales of certain space products and a less favorable product mix of certain aerospace products, partially offset by increased net sales of certain defense products. The decrease in the FSG's gross profit margin principally reflects a decrease in net sales and less favorable product mix within our repair and overhaul parts and services product line as well as a less favorable product mix within our aftermarket replacement parts product line. Total new product research and development expenses included within our consolidated cost of sales were$33.9 million in the first six months of fiscal 2020, up from$32.0 million in the first six months of fiscal 2019. Our consolidated selling, general and administrative ("SG&A") expenses decreased by 10% to$157.8 million in the first six months of fiscal 2020, as compared to$174.5 million in the first six months of fiscal 2019. The decrease in consolidated SG&A expenses principally reflects an$18.6 million decrease in performance-based compensation expense and a$4.3 million reduction in other selling expenses including outside sales commissions, marketing and travel, partially offset by$7.5 million attributable to the fiscal 2019 and 2020 acquisitions. Our consolidated SG&A expenses as a percentage of net sales decreased to 16.2% in the first six months of fiscal 2020, down from 17.8% in the first six months of fiscal 2019. The 29
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decrease in consolidated SG&A expenses as a percentage of net sales is mainly due to a 1.9% impact from the previously mentioned lower performance-based compensation expense.
Operating Income
Our consolidated operating income increased by 1% to a record $219.2 million
in the first six months of fiscal 2020, up from $217.1 million in the first six
months of fiscal 2019. The increase in consolidated operating income principally
reflects a $4.1 million increase (a 3% increase) to a record $123.0 million in
operating income of the ETG partially offset by a $5.5 million decrease (a 5%
decrease) to $109.6 million in operating income of the FSG. The increase in
operating income of the ETG principally reflects the previously mentioned net
sales growth and a $4.3 million decrease in performance-based compensation
expense, partially offset by the previously mentioned lower gross profit margin.
The decrease in operating income of the FSG principally reflects the previously
mentioned decrease in net sales and lower gross profit margin, partially offset
by an $11.8 million decrease in performance-based compensation expense. Further,
the increase in consolidated operating income reflects $2.1 million of lower
corporate expenses mainly attributable to a decrease in performance-based
compensation expense.
Our consolidated operating income as a percentage of net sales improved to 22.5%
in the first six months of fiscal 2020, up from 22.1% in the first six months of
fiscal 2019. The increase principally reflects an increase in the FSG's
operating income as a percentage of net sales to 19.8% in the first six months
of fiscal 2020, up from 19.3% in the first six months of fiscal 2019 and the
previously mentioned lower corporate expenses, partially offset by a decrease in
the ETG's operating income as a percentage of net sales to 28.8% in the first
six months of fiscal 2020 as compared to 29.8% in the first six months of fiscal
2019. The increase in the FSG's operating income as a percentage of net sales
principally reflects a 1.6% decrease in SG&A expenses as a percentage of net
sales mainly from lower performance-based compensation expense, partially offset
by the previously mentioned lower gross profit margin. The decrease in the ETG's
operating income as a percentage of net sales principally reflects the
previously mentioned lower gross profit margin partially offset by a 1.1%
decrease in SG&A expenses as a percentage of net sales mainly from lower
performance-based compensation expense.
Interest Expense
Interest expense decreased to
Other Income
Other income in the first six months of fiscal 2020 and 2019 was not material.
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Income Tax Expense
Our effective tax rate in the first six months of fiscal 2020 was .3%, as compared to 14.5% in the first six months of fiscal 2019. HEICO recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2020 and 2019 of$47.6 million and$16.6 million , respectively. The$31.0 million larger benefit from stock option exercises recognized in the first quarter of fiscal 2020 was the result of more stock options exercised and the 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 byLufthansa Technik AG ("LHT") inHEICO Aerospace Holdings Corp. ("HEICO Aerospace ") and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was$13.4 million in the first six months of fiscal 2020, as compared to$17.0 million in the first six months of fiscal 2019. The decrease in net income attributable to noncontrolling interests in the first six months of fiscal 2020 principally reflects the impact of a dividend paid byHEICO Aerospace inJune 2019 that effectively resulted in the transfer of the 20% noncontrolling interest held by LHT in eight of our existing subsidiaries withinHEICO Aerospace that are principally part of the FSG's repair and overhaul parts and services product line toHEICO Flight Support Corp. , a wholly owned subsidiary of HEICO.
Net Income Attributable to HEICO
Net income attributable to HEICO increased to a record$197.3 million , or$1.44 per diluted share, in the first six months of fiscal 2020, up from$161.1 million , or$1.18 per diluted share, in the first six months of fiscal 2019 principally reflecting the previously mentioned income tax benefit, increased operating income and lower interest expense.
Comparison of Second Quarter of Fiscal 2020 to Second Quarter of Fiscal 2019
Our consolidated net sales in the second quarter of fiscal 2020 decreased by 9% to$468.1 million , as compared to net sales of$515.6 million in the second quarter of fiscal 2019. The decrease in consolidated net sales principally reflects a decrease of$56.3 million (an 18% decrease) to$252.0 million in net sales within the FSG partially offset by an increase of$4.5 million (a 2% increase) to$219.0 million in net sales within the ETG. The net sales decrease in the FSG is principally organic and reflects lower demand for the majority of our products and services resulting from the significant decline in global commercial air travel beginning inMarch 2020 due to the Outbreak. As a result, net sales of our aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines decreased by$26.0 million ,$20.8 million , and$9.5 million , respectively. The net sales increase in the ETG reflects net sales of$13.3 million contributed by our fiscal 2019 and 2020 acquisitions, partially offset by an 31
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organic net sales decrease of 2%. The ETG's decrease in organic net sales is mainly attributable to lower shipments of our space products resulting in a net sales decrease of$7.3 million partially offset by increased demand for our defense products resulting in a net sales increase of$2.7 million . 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 2020.
Gross Profit and Operating Expenses
Our consolidated gross profit margin decreased to 38.2% in the second quarter of fiscal 2020, as compared to 40.6% in the second quarter of fiscal 2019, principally reflecting a decrease of 3.5% and 2.7% in the FSG's and ETG's gross profit margin, respectively. The decrease in the FSG's gross profit margin principally reflects a decrease in net sales and a less favorable product mix within our repair and overhaul parts and services and aftermarket replacement parts product lines. The decrease in the ETG's gross profit margin principally reflects a decrease in net sales and less favorable product mix of certain space and commercial aerospace products partially offset by increased net sales of certain defense products. Total new product research and development expenses included within our consolidated cost of sales were$16.8 million in both the second quarter of fiscal 2020 and 2019. Our consolidated SG&A expenses decreased by 22% to$70.7 million in the second quarter of fiscal 2020, as compared to$90.2 million in the second quarter of fiscal 2019. The decrease in consolidated SG&A expenses principally reflects an$18.2 million decrease in performance-based compensation expense and a$3.7 million reduction in other selling expenses including outside sales commissions, marketing and travel, partially offset by$3.3 million attributable to the fiscal 2019 and 2020 acquisitions. Our consolidated SG&A expenses as a percentage of net sales decreased to 15.1% in the second quarter of fiscal 2020, down from 17.5% in the second quarter of fiscal 2019. The decrease in consolidated SG&A expenses as a percentage of net sales is mainly due to a 3.5% impact from the previously mentioned lower performance-based compensation expense partially offset by some inefficiencies resulting from the overall impacts of the Outbreak.
Operating Income
Our consolidated operating income decreased by 9% to $108.2 million in the
second quarter of fiscal 2020, as compared to operating income of $119.2 million
in the second quarter of fiscal 2019. The decrease in consolidated operating
income principally reflects a $14.6 million decrease (a 24% decrease) to $47.5
million in operating income of the FSG and a $1.8 million decrease (a 3%
decrease) to $65.5 million in operating income of the ETG. The decrease in
operating income of the FSG principally reflects the previously mentioned
decrease in net sales and lower gross profit margin, partially offset by an
$11.5 million decrease in performance-based compensation expense. The decrease
in operating income of the ETG principally reflects the previously mentioned
lower gross profit margin partially offset by a $4.0 million decrease in
performance-based compensation expense and the previously mentioned increase in
net sales.
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Further, the decreases in operating income of the FSG and ETG were partially moderated by lower corporate expenses of$4.1 million mainly attributable to a decrease in performance-based compensation expense. Our consolidated operating income as a percentage of net sales was 23.1% in both the second quarter of fiscal 2020 and 2019 principally reflecting a 1.5% and 1.3% decrease in the ETG's and FSG's operating income as a percentage of net sales, respectively, offset by the previously mentioned lower corporate expenses. The decrease in the ETG's operating income as a percentage of net sales to 29.9% in the second quarter of fiscal 2020 from 31.4% in the second quarter of fiscal 2019 principally reflects the previously mentioned lower gross profit margin partially offset by a 1.2% decrease in SG&A expenses as a percentage of net sales mainly reflecting lower performance-based compensation expense. The decrease in the FSG's operating income as a percentage of net sales to 18.9% in the second quarter of fiscal 2020 from 20.2% in the second quarter of fiscal 2019 principally reflects the previously mentioned lower gross profit margin partially offset by a 2.2% decrease in SG&A expenses as a percentage of net sales mainly from lower performance-based compensation expense partially offset by some inefficiencies resulting from the overall impacts of the Outbreak.
Interest Expense
Interest expense decreased to$3.8 million in the second quarter of fiscal 2020, down from$5.5 million in the second quarter of fiscal 2019. The decrease was principally due to a lower weighted average interest rate on borrowings outstanding under our revolving credit facility.
Other Income
Other income in the second quarter of fiscal 2020 and 2019 was not material.
Income Tax Expense
Our effective tax rate in the second quarter of fiscal 2020 was 22.6%, as compared to 22.5% in the second quarter of fiscal 2019.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by LHT inHEICO Aerospace and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was$5.5 million in the second quarter of fiscal 2020, as compared to$8.3 million in the second quarter of fiscal 2019. The decrease in net income attributable to noncontrolling interests in the second quarter of fiscal 2020 principally reflects the impact of a dividend paid byHEICO Aerospace inJune 2019 that effectively resulted in the transfer of the 20% noncontrolling interest held by LHT in eight of our existing subsidiaries withinHEICO Aerospace that are 33
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principally part of the FSG's repair and overhaul parts and services product
line to
Net Income Attributable to HEICO
Net income attributable to HEICO was$75.5 million , or$.55 per diluted share, in the second quarter of fiscal 2020, as compared to$81.8 million , or$.60 per diluted share, in the second quarter of fiscal 2019 principally reflecting the previously mentioned lower operating income, partially offset by less net income attributable to noncontrolling interests and lower interest expense.
Outlook
In our Quarterly Report on Form 10-Q for the three months endedJanuary 31, 2020 , we provided net sales and net income estimates for fiscal 2020, but noted that it excluded any impact from the coronavirus outbreak as it was at such an early stage. As noted within our Form 8-K, filed onApril 15, 2020 , we withdrew our fiscal 2020 financial guidance due to the COVID-19 outbreak, classified by theWorld Health Organization as a global pandemic inMarch 2020 (the "Outbreak"). The Outbreak has resulted in a significant reduction in global demand for commercial air travel beginning inMarch 2020 . As such, the results of operations for the six and three months endedApril 30, 2020 are not indicative of the results to be expected for the full fiscal 2020 year. We entered the Outbreak with a healthy balance sheet that included a strong cash position and nominal debt. We cannot estimate the duration and magnitude of the Outbreak and cannot confidently predict when demand for our commercial aerospace products will return to pre-Outbreak levels. However, we believe HEICO is favorably positioned for long-term success despite the short-term challenges created by the Outbreak in the global economy. 34
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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. At the onset of the Outbreak, we borrowed$200.0 million on our revolving credit facility as a precautionary measure to ensure we have additional cash on hand to pay our employees and vendors and for potential acquisition opportunities. As a result of this borrowing and through net cash provided by operating activities, our cash and cash equivalents increased to$346.8 million as ofApril 30, 2020 , up from$57.0 million as ofOctober 31, 2019 . We finance our business 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 ofApril 30, 2020 , we were in compliance with all such covenants and our total debt to shareholders' equity ratio was 39.2%. Based on our current outlook, we believe that our net cash provided by operating activities, available borrowings under our revolving credit facility and cash and cash equivalents on hand will be sufficient to fund cash requirements for at least the next twelve months.
Operating Activities
Net cash provided by operating activities was$205.9 million in the first six months of fiscal 2020 and consisted primarily of net income from consolidated operations of$210.7 million , depreciation and amortization expense of$43.3 million (a non-cash item), net changes in other long-term liabilities and assets related to the HEICO Leadership Compensation Plan of$14.0 million (principally participant deferrals and employer contributions),$5.3 million in share-based compensation expense (a non-cash item), and$4.8 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), partially offset by a$69.0 million increase in working capital and a$5.1 million deferred income tax benefit. The increase in working capital is inclusive of a$47.7 million decrease in accrued expenses and other current liabilities mainly reflecting the payment of fiscal 2019 accrued performance-based compensation; a$37.8 million increase in inventories as a result of certain inventory purchase commitments based on pre-Outbreak net sales expectations and to support the backlog of certain of our businesses; a$15.6 million increase in prepaid expenses and other current assets due to the timing of income tax payments; and a$13.0 million increase in contract assets, partially offset by a$44.4 million decrease in accounts receivable resulting from strong cash collections and lower net sales. Net cash provided by operating activities increased by$27.6 million in the first six months of fiscal 2020, up from$178.3 million in the first six months of fiscal 2019. The increase is principally attributable to a$32.6 million increase in net income from consolidated operations partially offset by a$6.8 million increase in net working capital. 35
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Investing Activities
Net cash used in investing activities totaled$70.9 million in the first six months of fiscal 2020 and related primarily to acquisitions of$45.3 million (net of cash acquired), investments related to the HEICO LCP of$13.6 million and capital expenditures of$12.4 million . Further details regarding our fiscal 2020 acquisitions may be found in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements.
Financing Activities
Net cash provided by financing activities in the first six months of fiscal 2020 totaled$155.6 million . During the first six months of fiscal 2020, we borrowed$200.0 million under our revolving credit facility to provide a cushion of liquidity during this period of economic uncertainty resulting from the Outbreak and$45.0 million to fund our fiscal 2020 acquisitions. Additionally, we made$68.0 million in payments on our revolving credit facility, paid$10.8 million in cash dividends on our common stock, and made$9.7 million of distributions to noncontrolling interests. Contractual Obligations There have not been any material changes to the amounts presented in the table of contractual obligations that was included in our Annual Report on Form 10-K for the year endedOctober 31, 2019 .
Off-Balance Sheet Arrangements
Guarantees
As ofApril 30, 2020 , we have arranged for standby letters of credit aggregating$4.8 million , which are supported by our revolving credit facility and pertain to payment guarantees related to potential workers' compensation claims and a facility lease as well as performance guarantees related to customer contracts entered into by certain of our subsidiaries.
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.
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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 theSecurities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management's estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include: the severity, magnitude and duration of the Outbreak; our liquidity and the amount and timing of cash generation; the continued decline in commercial air travel caused by the Outbreak, 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 byU.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 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. 37
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