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 ended
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 nine and three months endedJuly 31, 2020 have been significantly affected by the COVID-19 outbreak, which is classified as a global pandemic (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 and our Board of Directors. 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; staggering work shifts; body temperature taking; 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 28
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fundamentally impacted and its operational results remain materially consistent with financial expectations prior to the Outbreak. However, we have experienced, and expect to continue experiencing, periodic operational disruptions resulting from supply chain disturbances, staffing challenges - including at some of our customers, temporary facility closures, transportation interruptions and other conditions which slow production and orders, or increase costs. While these issues have not yet been material overall, we have experienced disruptions in some orders and shipments during the third quarter of fiscal 2020. 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 markets. Most notably, the commercial aerospace industry experienced an ongoing substantial decline in demand resulting from a significant number of aircraft in the global fleet being grounded during HEICO's third quarter of fiscal 2020. 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 . Consolidated net sales for our businesses that operate within the commercial aerospace industry decreased by approximately 54% during the third quarter of fiscal 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 nine and three months endedJuly 31, 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 and the fiscal 2020 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to the Condensed Consolidated Financial Statements of this quarterly report. 29
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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):
Nine months ended July 31, Three months ended July 31,
2020 2019 2020 2019
Net sales $1,360,831 $1,514,118 $386,410 $532,324
Cost of sales 840,411 909,663 242,927 319,493
Selling, general and administrative
expenses 232,835 267,911 75,049 93,417
Total operating costs and expenses 1,073,246 1,177,574 317,976 412,910
Operating income $287,585 $336,544 $68,434 $119,414
Net sales by segment:
Flight Support Group $731,189 $915,480 $178,158 $320,016
Electronic Technologies Group 638,285 615,009 210,919 216,129
Intersegment sales (8,643) (16,371) (2,667) (3,821)
$1,360,831 $1,514,118 $386,410 $532,324
Operating income by segment:
Flight Support Group $121,597 $179,843 $12,021 $64,797
Electronic Technologies Group 184,948 181,160 61,931 62,206
Other, primarily corporate (18,960) (24,459) (5,518) (7,589)
$287,585 $336,544 $68,434 $119,414
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit 38.2 % 39.9 % 37.1 % 40.0 %
Selling, general and administrative
expenses 17.1 % 17.7 % 19.4 % 17.5 %
Operating income 21.1 % 22.2 % 17.7 % 22.4 %
Interest expense .8 % 1.1 % .7 % 1.0 %
Other income .1 % .2 % .2 % .1 %
Income tax expense .7 % 3.7 % 2.3 % 4.7 %
Net income attributable to
noncontrolling interests 1.2 % 1.6 % .8 % 1.5 %
Net income attributable to HEICO 18.5 % 16.0 % 14.1 % 15.2 %
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Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Net Sales Our consolidated net sales in the first nine months of fiscal 2020 decreased by 10% to$1,360.8 million , as compared to net sales of$1,514.1 million in the first nine months of fiscal 2019. The decrease in consolidated net sales principally reflects a decrease of$184.3 million (a 20% decrease) to$731.2 million in net sales within the FSG partially offset by an increase of$23.3 million (a 4% increase) to a record$638.3 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, organic net sales of our aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines decreased by$89.0 million ,$62.4 million , and$35.3 million , respectively. The net sales increase in the ETG principally reflects$36.8 million contributed by our fiscal 2019 and 2020 acquisitions and higher demand for our defense products resulting in an organic net sales increase of$14.7 million partially offset by lower demand for our space, aerospace and other electronics products resulting in organic net sales decreases of$11.3 million ,$4.0 million and$3.3 million , respectively, largely attributable to the Outbreak. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first nine months of fiscal 2020.
Gross Profit and Operating Expenses
Our consolidated gross profit margin decreased to 38.2% in the first nine months
of fiscal 2020, as compared to 39.9% in the first nine months of fiscal 2019,
principally reflecting a decrease of 2.7% and 2.0% 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 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. 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. Total new product research and development ("R&D") expenses included
within our consolidated cost of sales were $49.0 million in the first nine
months of fiscal 2020, up from $48.7 million in the first nine months of fiscal
2019.
Our consolidated selling, general and administrative ("SG&A") expenses decreased
by 13% to $232.8 million in the first nine months of fiscal 2020, as compared to
$267.9 million in the first nine months of fiscal 2019. The decrease in
consolidated SG&A expenses reflects a $29.7 million decrease in
performance-based compensation expense, a $12.4 million reduction in other
general and administrative expenses and a $10.3 million reduction in other
selling expenses including outside sales commissions, marketing and travel.
These decreases were partially offset by $10.0 million attributable to the
fiscal 2019 and 2020 acquisitions and a $7.3 million increase in bad debt
expense principally due to potential collection difficulties from certain
commercial
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aviation customers that filed for bankruptcy protection during the third quarter of fiscal 2020 as a result of the financial impact of the Outbreak.
Our consolidated SG&A expenses as a percentage of net sales decreased to 17.1% in the first nine months of fiscal 2020, down from 17.7% in the first nine months of fiscal 2019. The decrease in consolidated SG&A expenses as a percentage of net sales is due to a 1.8% impact from the previously mentioned lower performance-based compensation expense partially offset by a .7% impact from higher other general and administrative expenses as a percentage of net sales and a .5% increase in bad debt expense principally due to potential collection difficulties from certain commercial aviation customers that filed for bankruptcy protection during the third quarter of fiscal 2020 as a result of the financial impact of the Outbreak.
Operating Income
Our consolidated operating income decreased by 15% to $287.6 million in the
first nine months of fiscal 2020, as compared to $336.5 million in the first
nine months of fiscal 2019. The decrease in consolidated operating income
principally reflects a $58.2 million decrease (a 32% decrease) to $121.6 million
in operating income of the FSG partially offset by a $3.8 million increase (a 2%
increase) to a record $184.9 million in operating income of the ETG. The
decrease in operating income of the FSG principally reflects the previously
mentioned decrease in net sales, lower gross profit margin and a $7.8 million
increase in bad debt expense principally due to potential collection
difficulties from certain commercial aviation customers that filed for
bankruptcy protection during the third quarter of fiscal 2020 as a result of the
financial impact of the Outbreak, partially offset by a $19.8 million decrease
in performance-based compensation expense. The increase in operating income of
the ETG principally reflects the previously mentioned net sales growth, a $7.6
million decrease in performance-based compensation expense and a $1.6 million
decrease in acquisition-related expenses, partially offset by the previously
mentioned decrease in gross profit margin. Further, the decrease in consolidated
operating income was partially offset by $4.8 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 was 21.1% in the
first nine months of fiscal 2020, as compared to 22.2% in the first nine months
of fiscal 2019. The decrease principally reflects a decrease in the FSG's
operating income as a percentage of net sales to 16.6% in the first nine months
of fiscal 2020, as compared to 19.6% in the first nine months of fiscal 2019 and
a decrease in the ETG's operating income as a percentage of net sales to 29.0%
in the first nine months of fiscal 2020, as compared to 29.5% in the first nine
months of fiscal 2019. The decrease in the FSG's operating income as a
percentage of net sales reflects the previously mentioned lower gross profit
margin and a .3% increase in SG&A expenses as a percentage of net sales mainly
reflecting the previously mentioned higher bad debt expense and some
inefficiencies resulting from the overall impacts of the Outbreak partially
offset by the previously mentioned lower performance-based compensation expense.
The decrease in the ETG's operating income as a percentage of net sales reflects
the previously mentioned lower gross profit margin partially offset by a 1.5%
decrease in SG&A expenses as a percentage of net
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sales mainly from lower performance-based compensation expense and lower acquisition-related expenses.
Interest Expense
Interest expense decreased to
Other Income
Other income in the first nine months of fiscal 2020 and 2019 was not material.
Income Tax Expense
Our effective tax rate in the first nine months of fiscal 2020 was 3.5%, as compared to 17.1% in the first nine 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. Further, the decrease in the first nine months of fiscal 2020 reflects a larger deduction related to Foreign-Derived Intangible Income ("FDII") principally resulting from final tax regulations that were issued in the third quarter of fiscal 2020 as part of the Tax Cuts and Jobs Act that was enacted inDecember 2017 , as well as a larger income tax credit for qualified R&D activities. 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$16.6 million in the first nine months of fiscal 2020, as compared to$25.0 million in the first nine months of fiscal 2019. The decrease in net income attributable to noncontrolling interests in the first nine 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. Further, the decrease in net income attributable to noncontrolling interests reflects a decrease in operating results of certain subsidiaries of the FSG in which noncontrolling interests are held. 33
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Net Income Attributable to HEICO
Net income attributable to HEICO increased to a record$251.7 million , or$1.83 per diluted share, in the first nine months of fiscal 2020, up from$242.2 million , or$1.76 per diluted share, in the first nine months of fiscal 2019. The increase principally reflects the previously mentioned income tax benefit, a smaller amount of net income attributable to noncontrolling interests and lower interest expense partially offset by lower operating income.
Comparison of Third Quarter of Fiscal 2020 to Third Quarter of Fiscal 2019
Our consolidated net sales in the third quarter of fiscal 2020 decreased by 27% to$386.4 million , as compared to net sales of$532.3 million in the third quarter of fiscal 2019 mainly attributable to the Outbreak. The decrease in consolidated net sales principally reflects a decrease of$141.9 million (a 44% decrease) to$178.2 million in net sales within the FSG and a decrease of$5.2 million (a 2% decrease) to$210.9 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, organic net sales of our aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines decreased by$71.8 million ,$43.7 million , and$26.8 million , respectively. The net sales decrease in the ETG principally reflects lower demand for our defense and aerospace products resulting in an organic net sales decrease of$7.3 million and$6.4 million , respectively, mainly attributable to the Outbreak, partially offset by net sales of$8.6 million contributed by our fiscal 2019 and 2020 acquisitions and higher demand for our space products resulting in an organic net sales increase of$3.5 million . Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the third quarter of fiscal 2020.
Gross Profit and Operating Expenses
Our consolidated gross profit margin decreased to 37.1% in the third quarter of fiscal 2020, as compared to 40.0% in the third quarter of fiscal 2019, principally reflecting a decrease of 7.6% and 1.9% in the FSG's and ETG's gross profit margin, respectively. The decrease in the FSG's gross profit margin principally reflects the 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 the decrease in net sales and a less favorable product mix of certain commercial aerospace and defense products partially offset by increased net sales and a more favorable product mix of certain space products. Total new product R&D expenses included within our consolidated cost of sales were$15.1 million in the third quarter of fiscal 2020 compared to$16.6 million in the third quarter of fiscal 2019. Our consolidated SG&A expenses decreased by 20% to$75.0 million in the third quarter of fiscal 2020, as compared to$93.4 million in the third quarter of fiscal 2019. The decrease in 34
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consolidated SG&A expenses principally reflects an$11.1 million reduction in other general and administrative expenses, an$11.0 million decrease in performance-based compensation expense and a$6.0 million reduction in selling expenses including outside sales commissions, marketing and travel. These decreases were partially offset by a$7.2 million increase in bad debt expense principally due to potential collection difficulties from certain commercial aviation customers that filed for bankruptcy protection during the third quarter of fiscal 2020 as a result of the financial impact of the Outbreak and$2.6 million attributable to the fiscal 2019 and 2020 acquisitions. Our consolidated SG&A expenses as a percentage of net sales increased to 19.4% in the third quarter of fiscal 2020, up from 17.5% in the third quarter of fiscal 2019. The increase in consolidated SG&A expenses as a percentage of net sales is due to a 1.9% impact from an increase in bad debt expense principally due to potential collection difficulties from certain commercial aviation customers that filed for bankruptcy protection during the third quarter of fiscal 2020 as a result of the financial impact of the Outbreak and a 1.7% impact from an increase in other general and administrative expenses partially offset by a 1.7% decrease from lower performance-based compensation expense.
Operating Income
Our consolidated operating income decreased by 43% to $68.4 million in the
third quarter of fiscal 2020, as compared to operating income of $119.4 million
in the third quarter of fiscal 2019. The decrease in consolidated operating
income principally reflects a $52.8 million decrease (an 81% decrease) to $12.0
million in operating income of the FSG. Operating income of the ETG totaled
$61.9 million and $62.2 million in the third quarter of fiscal 2020 and 2019,
respectively. The decrease in operating income of the FSG principally reflects
the previously mentioned decrease in net sales, lower gross profit margin and a
$7.3 million increase in bad debt expense principally due to potential
collection difficulties from certain commercial aviation customers that filed
for bankruptcy protection during the third quarter of fiscal 2020 as a result of
the financial impact of the Outbreak partially offset by an $8.0 million
decrease in performance-based compensation expense. Further, the decrease in
consolidated operating income was partially moderated by lower corporate
expenses of $2.7 million mainly attributable to a decrease in performance-based
compensation expense.
Our consolidated operating income as a percentage of net sales was 17.7% in the
third quarter of fiscal 2020, as compared to 22.4% in the third quarter of
fiscal 2019. The decrease in the third quarter of fiscal 2020 principally
reflects a 13.5% decrease in the FSG's operating income as a percentage of net
sales to 6.7% in the third quarter of fiscal 2020 from 20.2% in the third
quarter of fiscal 2019 partially offset by a .6% increase in the ETG's operating
income as a percentage of net sales to 29.4% in the third quarter of fiscal
2020, up from 28.8% in the third quarter of fiscal 2019. The decrease in the
FSG's operating income as a percentage of net sales reflects the previously
mentioned lower gross profit margin and a 5.9% increase in SG&A expenses as a
percentage of net sales mainly reflecting the previously mentioned higher bad
debt expense. The increase in the ETG's operating income as a percentage of net
sales reflects a 2.5% decrease in SG&A expenses as a percentage of net sales
mainly from lower performance-based
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compensation expense and a decrease in acquisition-related expenses partially offset by the previously mentioned lower gross profit margin.
Interest Expense
Interest expense decreased to$2.6 million in the third quarter of fiscal 2020, down from$5.5 million in the third quarter of fiscal 2019. The decrease was due to a lower weighted average interest rate on borrowings outstanding under our revolving credit facility partially offset by a higher weighted average balance outstanding. Other Income
Other income in the third quarter of fiscal 2020 and 2019 was not material.
Income Tax Expense
Our effective tax rate in the third quarter of fiscal 2020 was 13.4%, as
compared to 22.0% in the third quarter of fiscal 2019. The decrease in the third
quarter of fiscal 2020 principally reflects a larger deduction related to the
previously mentioned FDII as well as a larger income tax credit for qualified
R&D activities.
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$3.2 million in the third quarter of fiscal 2020, as compared to$8.0 million in the third quarter of fiscal 2019. The decrease in net income attributable to noncontrolling interests in the third quarter of fiscal 2020 principally reflects a decrease in operating results of certain subsidiaries of the FSG in which noncontrolling interests are held as well as the previously mentioned impact of a dividend paid byHEICO Aerospace that resulted in the transfer of the 20% noncontrolling interest held by LHT in eight subsidiaries withinHEICO Aerospace toHEICO Flight Support Corp.
Net Income Attributable to HEICO
Net income attributable to HEICO was$54.3 million , or$.40 per diluted share, in the third quarter of fiscal 2020, as compared to$81.1 million , or$.59 per diluted share, in the third quarter of fiscal 2019 principally reflecting the previously mentioned lower operating income of the FSG, partially offset by lower income tax expense, less net income attributable to noncontrolling interests and lower interest expense. 36
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Outlook
As we look ahead to the remainder of fiscal 2020, we continue to forecast positive cash from operations. We entered the Outbreak with a healthy balance sheet that included a strong cash position and nominal debt. While we cannot estimate the Outbreak's duration and magnitude and cannot confidently predict when demand for our commercial aerospace products will return to pre-Outbreak levels, we believe HEICO is favorably positioned for long-term success despite the short-term challenges created by the Outbreak in the global economy.
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$395.3 million as ofJuly 31, 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 ofJuly 31, 2020 , we were in compliance with all such covenants and our total debt to shareholders' equity ratio was 37.9%. 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$299.0 million in the first nine months of fiscal 2020 and consisted primarily of net income from consolidated operations of$268.3 million , depreciation and amortization expense of$65.2 million (a non-cash item), net changes in other long-term liabilities and assets related to the HEICO Leadership Compensation Plan of$10.6 million (principally participant deferrals and employer contributions),$7.8 million in share-based compensation expense (a non-cash item), and$7.5 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), partially offset by a$54.4 million increase in working capital and a$9.3 million deferred income tax benefit. The increase in working capital is inclusive of a$71.4 million decrease in accrued expenses and other current liabilities and trade accounts payable mainly reflecting the payment of fiscal 2019 accrued performance-based compensation as well as the timing of payments; a$48.1 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; and a$16.0 million increase in contract assets, partially offset by a$96.3 million decrease in accounts receivable resulting from lower net sales and strong cash collections. 37
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Net cash provided by operating activities decreased by$14.4 million in the first nine months of fiscal 2020 from$313.4 million in the first nine months of fiscal 2019. The decrease is principally attributable to a$16.4 million increase in net working capital partially offset by a$3.5 million increase in depreciation and amortization expense (a non-cash item).
Investing Activities
Net cash used in investing activities totaled$98.0 million in the first nine months of fiscal 2020 and related primarily to acquisitions of$66.3 million (net of cash acquired), capital expenditures of$17.5 million and investments related to the HEICO LCP of$14.6 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 nine months of fiscal 2020 totaled$134.6 million . During the first nine 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$21.6 million in cash dividends on our common stock, made$12.2 million of distributions to noncontrolling interests, paid$7.5 million to acquire certain noncontrolling interests, redeemed common stock related to stock option exercises aggregating$5.3 million and received$5.3 million in proceeds from stock option exercises. 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 ofJuly 31, 2020 , we have arranged for standby letters of credit aggregating$4.5 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. 39
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