Company: HEI-A
Filing Date: 2025-12-22
Form Type: 10-K
Source: 0000046619-25-000082
Chunk: 69

Company: HEICO CORP
Filing Date: 2025-12-22
Form: 10-K
Item: Item 7
Chunk 69
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, we may be obligated to pay contingent consideration should the acquired entity meet certain earnings objectives subsequent to the date of acquisition.  As of the acquisition date, contingent consideration is recorded at fair value as determined using a probability-based scenario analysis approach.  Under this method, a set of discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions for each scenario.  A probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant contingent consideration is calculated and discounted using a weighted average discount rate reflecting the credit risk of HEICO.  Changes in either the revenue growth rates, related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued.  As of October 31, 2025 and 2024, $46.2 million and $30.2 million of contingent consideration was accrued within our Consolidated Balance Sheets, respectively.  During fiscal 2025, 2024 and 2023, such fair value measurement adjustments resulted in net increases (decreases) to SG&A expenses of $12.9 million, ($9.9) million and ($.7) million, respectively.  For further information regarding our contingent consideration arrangements, see Note 8, Fair Value Measurements, of the Notes to Consolidated Financial Statements.

Valuation of Goodwill and Other Intangible Assets

We test goodwill for impairment annually as of October 31, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may exceed its fair value.  When testing goodwill for impairment, we may perform a qualitative assessment as the initial step for all or selected reporting units.  We are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired.

When performing the qualitative test, we consider factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and overall financial performance.  If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative impairment test.  

46

When performing the quantitative impairment test, we compare the fair value of each of our reporting units to its carrying value to determine potential impairment and an impairment loss is recognized in the amount by which the carrying value of a reporting unit’s goodwill exceeds its fair value.  The fair values of