LEASES

12 Months Ended

Oct. 31, 2020

LEASES

The Company adopted ASC 842, Leases, as of November 1, 2019 using a modified transition approach as described in Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, and did not adjust the prior comparative periods.

The Company’s lease arrangements primarily pertain to manufacturing facilities, office buildings, equipment, land and vehicles. The Company evaluates whether a contractual arrangement that provides it with control over the use of an asset is, or contains, a lease at the inception date. The term of a lease is inclusive of any option to renew, extend, or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company classifies a lease as operating or finance using the classification criteria set forth in ASC 842. HEICO recognizes lease right-of-use (“ROU”) assets and corresponding lease liabilities as of the lease commencement date based on the present value of the lease payments over the lease term. The discount rate used to calculate the present value of the Company’s leases is based on HEICO’s incremental borrowing rate and considers credit risk, the lease term and other available information as of the commencement date since the leases do not provide a readily determinable implicit rate. Variable lease payments that depend on an index or a rate are included in the determination of ROU assets and lease liabilities using the index or rate at the lease commencement date. Variable lease payments that do not depend on an index or rate or resulting from changes in an index or rate subsequent to the lease commencement date, are recorded as lease expense in the period in which the obligation for the payment is incurred. The Company’s ROU assets are increased by any prepaid lease payments and initial direct costs and reduced by any lease incentives. The Company’s leases do not contain any material residual value guarantees or restrictive covenants.

HEICO’s lease ROU assets represent its right to use an underlying asset during the lease term and its lease liabilities represent the Company’s obligation to make lease payments arising from the lease. HEICO’s operating lease ROU assets are included within other assets and its operating lease liabilities are included within other long-term liabilities and accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheet. HEICO's finance lease ROU assets are included within property, plant and equipment and its finance lease liabilities are included within long-term debt, net of current maturities and current maturities of long-term debt within the Company's Consolidated Balance Sheet. The following table presents the Company’s lease ROU assets and lease liabilities (in thousands):


	As of October 31, 2020
	Operating Leases	Finance Leases
Right-of-use assets	$57,103	$10,512

Current lease liabilities	$14,180	$1,034
Long-term lease liabilities	44,114	8,533
Total lease liabilities	$58,294	$9,567

The Company’s operating lease expense is recorded within cost of sales and/or selling, general, and administrative ("SG&A") expenses in the Company’s Consolidated Statements of Operations. The Company's finance lease expense consists of amortization of ROU assets and interest on lease liabilities, which are included within cost of sales and/or SG&A expenses, and interest expense, respectively, in the Company's Consolidated Statements of Operations. Further, interest expense on finance leases is recognized using the effective interest method based on the discount rate determined at lease commencement. The following table presents the components of lease expense for fiscal 2020 (in thousands):


						Year ended
						October 31, 2020
Operating Leases:
Operating lease expense						$17,317
Variable lease expense						3,225
Total operating lease expense (1)						$20,542

Finance Leases:
Amortization on finance lease ROU assets						$874
Interest on finance lease liabilities						416
Total finance lease expense						$1,290

(1) Excludes short-term lease expense, which is not material.

The following table presents a maturity analysis of the Company's lease liabilities as of October 31, 2020 for the next five fiscal years and thereafter (in thousands):


	Operating Leases	Finance Leases
Year ending October 31,
2021	$16,549	$1,436
2022	15,228	1,429
2023	9,164	1,098
2024	5,326	1,005
2025	4,506	959
Thereafter	20,005	6,217
Total minimum lease payments	70,778	12,144
Less: imputed interest	(12,484)	(2,577)
Present value of minimum lease payments	$58,294	$9,567

The Company does not have any material leases that have been signed but have yet to commence as of October 31, 2020.

The following table presents the weighted average remaining lease term and discount rate of the Company’s leases as of October 31, 2020:


	As of October 31, 2020
	Operating Leases		Finance Leases
Weighted average remaining lease term (years)	7		10.8
Weighted average discount rate	5.1	%	4.5	%

The following table presents supplemental disclosures of cash flow information associated with the Company's leases for fiscal 2020 (in thousands):


	Year ended October 31, 2020
	Operating Leases	Finance Leases
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows	$16,965	$416
Financing cash flows	—	921
Right-of-use assets obtained in exchange for new lease liabilities	$8,648	$1,808

As previously disclosed in the Company's audited financial statements for the fiscal year ended October 31, 2019, and under the previous lease accounting standard, the following table presents the future minimum lease payments under non-cancellable operating leases and capital leases for the next five fiscal years and thereafter as of October 31, 2019 (in thousands):


	Operating Leases	Capital Leases
Year ending October 31,
2020	$15,508	$1,213
2021	15,563	1,212
2022	13,808	1,203
2023	8,515	906
2024	4,741	832
Thereafter	18,812	5,596
Total minimum lease payments	$76,947	10,962
Less: imputed interest		(2,327)
Present value of minimum lease payments		$8,635

Prior to the adoption of ASC 842, total rent expense charged to operations for operating leases in fiscal 2019 and 2018 amounted to $20.0 million and $17.5 million, respectively.

Prior to the adoption of ASC 842, property, plant and equipment acquired through capital lease obligations totaled $.1 million and $7.2 million in fiscal 2019 and 2018, respectively.