UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended October 31, 2009 or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from
___________________to__________________
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Commission
file number 1-4604
HEICO
CORPORATION
(Exact
name of registrant as specified in its charter)
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Florida
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65-0341002
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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3000
Taft Street, Hollywood, Florida
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33021
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (954) 987-4000
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $.01 par value per share
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New
York Stock Exchange
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Class
A Common Stock, $.01 par value per share
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Securities
registered pursuant to Section 12(g) of the Act:
Rights
to Purchase Series B Junior Participating Preferred Stock
Rights
to Purchase Series C Junior Participating Preferred Stock
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
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 x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months. Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer o Non−accelerated
filer o
Smaller reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
The
aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant was $639,454,000 based on the closing price of
HEICO Common Stock and Class A Common Stock as of April 30, 2009 as reported by
the New York Stock Exchange.
The
number of shares outstanding of each of the registrant's classes of common stock
as of December 17, 2009:
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Common
Stock, $.01 par value
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10,421,225
shares
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Class
A Common Stock, $.01 par value
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15,732,299
shares
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DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s definitive
proxy statement for the 2010 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
INDEX
TO ANNUAL REPORT ON FORM 10-K
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BUSINESS
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The
Company
HEICO Corporation through its
subsidiaries (collectively, “HEICO,” “we,” “us,” “our” or the “Company”)
believes it is the world’s largest manufacturer of Federal Aviation
Administration (“FAA”)-approved jet engine and aircraft component replacement
parts, other than the original equipment manufacturers (“OEMs”) and their
subcontractors. HEICO also believes it is a leading manufacturer of
various types of electronic equipment for the aviation, defense, space, medical,
telecommunication and electronic industries.
The Company was organized in 1993
creating a new holding corporation known as HEICO Corporation and renaming the
former holding company (formerly known as HEICO Corporation, organized in 1957)
as HEICO Aerospace Corporation. The reorganization, which was completed in
1993, did not result in any change in the business of the Company, its
consolidated assets or liabilities or the relative interests of its
shareholders.
Our business is comprised of two
operating segments:
The Flight Support
Group. Our Flight Support Group (“FSG”), consisting of HEICO
Aerospace Holdings Corp. (“HEICO Aerospace”) and its subsidiaries, accounted for
73%, 75% and 76% of our net sales in fiscal 2009, 2008 and 2007,
respectively. The Flight Support Group uses proprietary technology to
design and manufacture jet engine and aircraft component replacement parts for
sale at lower prices than those manufactured by OEMs. These parts are
approved by the FAA and are the functional equivalent of parts sold by
OEMs. In addition, the Flight Support Group repairs and distributes jet
engine and aircraft components, avionics and instruments for domestic and
foreign commercial air carriers and aircraft repair companies as well as
military and business aircraft operators; and manufactures thermal insulation
products and other component parts primarily for aerospace, defense and
commercial applications.
The Flight Support Group competes with
the leading industry OEMs and, to a lesser extent, with a number of smaller,
independent parts distributors. Historically, the three principal jet
engine OEMs, General Electric (including CFM International), Pratt & Whitney
and Rolls Royce, have been the sole source of substantially all jet engine
replacement parts for their jet engines. Other OEMs have been the sole
source of replacement parts for their aircraft component parts. While we
believe that we currently supply less than 2% of the market for jet engine and
aircraft component replacement parts, we have in recent years been adding new
products to our line at a rate of 400 to 500 per year of Parts Manufacturer
Approvals (“PMA” or “PMAs”). We currently offer to our customers over
5,000 parts for which PMAs have been received from the FAA.
We believe that, based on our
competitive pricing, reputation for high quality, short lead time requirements,
strong relationships with domestic and foreign commercial air carriers and
repair stations (companies that overhaul aircraft engines and/or components),
strategic relationships with Lufthansa and other major airlines and successful
track record of receiving PMAs from the FAA, we are uniquely positioned to
continue to increase our product lines and gain market share.
The Electronic Technologies
Group. Our Electronic Technologies Group (“ETG”), consisting of
HEICO Electronic Technologies Corp. and its subsidiaries, accounted for 27%, 25%
and 24% of our net
sales in
fiscal 2009, 2008 and 2007, respectively. Through our Electronic
Technologies Group, which derived approximately 46% of its sales in fiscal 2009
from the sale of products and services to U.S. and foreign military agencies, we
design, manufacture and sell various types of electronic, microwave and
electro-optical products, including infrared simulation and test equipment,
laser rangefinder receivers, electrical power supplies, back-up power supplies,
power conversion products, underwater locator beacons, electromagnetic
interference and radio frequency interference shielding, high power capacitor
charging power supplies, amplifiers, photodetectors, amplifier modules, flash
lamp drivers, laser diode drivers, arc lamp power supplies, custom power supply
designs, cable assemblies, high voltage interconnection devices and wire, high
voltage energy generators, high frequency power delivery systems and high-speed
interface products that link devices such as telemetry receivers, digital
cameras, high resolution scanners, simulation systems and test systems to almost
any computer.
In October 1997, we entered into a
strategic alliance with Lufthansa. Lufthansa is the world’s largest
independent provider of engineering and maintenance services for commercial
aircraft components and jet engines and supports over 200 airlines, governments
and other customers. As part of this strategic alliance, Lufthansa has
invested over $60 million in our Company to acquire and maintain a 20% minority
interest in HEICO Aerospace. This strategic alliance has enabled us to
expand domestically and internationally by enhancing our ability to (i) identify
key jet engine and aircraft component replacement parts with significant profit
potential by utilizing Lufthansa’s extensive operating data on engine and
component parts; (ii) introduce those parts throughout the world in an efficient
manner due to Lufthansa’s testing and diagnostic resources; and (iii) broaden
our customer base by capitalizing on Lufthansa’s established relationships and
alliances within the airline industry.
In March 2001, we entered into a joint
venture with American Airlines, one of the world’s largest airlines, to develop,
design and sell FAA-approved jet engine and aircraft component replacement parts
through HEICO Aerospace. The joint venture is partly owned by American
Airlines. American Airlines and HEICO Aerospace have agreed to cooperate
regarding technical services and marketing support on a worldwide basis.
We have also entered into several strategic relationships with other leading
airlines, such as United Airlines (May 2002), Delta Air Lines (February 2003),
Japan Airlines (March 2004) and British Airways (May 2007). These
relationships accelerate HEICO’s efforts in developing a broad range of jet
engine and aircraft component replacement parts for FAA approval. Each of
the aforementioned airlines purchase these newly developed parts, and many of
HEICO Aerospace’s current FAA-approved parts product line, on an exclusive basis
from HEICO Aerospace.
HEICO has continuously operated in the
aerospace industry for more than 50 years. Since assuming control in 1990,
our current management has achieved significant sales and profit growth through
a broadened line of product offerings, an expanded customer base, increased
research and development expenditures and the completion of a number of
acquisitions. As a result of internal growth and acquisitions, our net
sales from continuing operations have grown from $26.2 million in fiscal 1990 to
$538.3 million in fiscal 2009, a compound annual growth rate of approximately
17%. During the same period, we improved our net income from $2.0 million
to $44.6 million, representing a compound annual growth rate of approximately
18%.
Flight
Support Group
The Flight Support Group, headquartered
in Hollywood, Florida, serves a broad spectrum of the aviation industry,
including (i) commercial airlines and air cargo carriers; (ii) repair and
overhaul facilities; (iii) OEMs; and (iv) U.S. and foreign
governments.
Jet engine and aircraft component
replacement parts can be categorized by their ongoing ability to be repaired and
returned to service. The general categories in which we participate are as
follows: (i)
rotable;
(ii) repairable; and (iii) expendable. A rotable is a part which is
removed periodically as dictated by an operator’s maintenance procedures or on
an as needed basis and is typically repaired or overhauled and re-used an
indefinite number of times. An important subset of rotables is “life
limited” parts. A life limited rotable has a designated number of
allowable flight hours and/or cycles (one take-off and landing generally
constitutes one cycle) after which it is rendered unusable. A repairable
is similar to a rotable except that it can only be repaired a limited number of
times before it must be discarded. An expendable is generally a part which is
used and not thereafter repaired for further use.
Jet engine and aircraft component
replacement parts are classified within the industry as (i) factory-new; (ii)
new surplus; (iii) overhauled; (iv) repairable; and (v) as removed. A
factory-new or new surplus part is one that has never been installed or
used. Factory-new parts are purchased from FAA-approved manufacturers
(such as HEICO or OEMs) or their authorized distributors. New surplus
parts are purchased from excess stock of airlines, repair facilities or other
redistributors. An overhauled part is one that has been completely
repaired and inspected by a licensed repair facility such as ours. An
aircraft spare part is classified as “repairable” if it can be repaired by a
licensed repair facility under applicable regulations. A part may also be
classified as “repairable” if it can be removed by the operator from an aircraft
or jet engine while operating under an approved maintenance program and is
airworthy and meets any manufacturer or time and cycle restrictions applicable
to the part. A “factory-new,” “new surplus” or “overhauled” part
designation indicates that the part can be immediately utilized on an
aircraft. A part in “as removed” or “repairable” condition requires
inspection and possibly functional testing, repair or overhaul by a licensed
facility prior to being returned to service in an aircraft.
Factory-New Jet Engine and Aircraft
Component Replacement Parts. The Flight Support Group engages in
the research and development, design, manufacture and sale of FAA-approved
replacement parts that are sold to domestic and foreign commercial air carriers
and aircraft repair and overhaul companies. Our principal competitors are
Pratt & Whitney, a division of United Technologies Corporation, and General
Electric Company, including its CFM International joint venture. The Flight
Support Group’s factory-new replacement parts include various jet engine and
aircraft component replacement parts. A key element of our growth strategy
is the continued design and development of an increasing number of PMA
replacement parts in order to further penetrate our existing customer base and
obtain new customers. We select the jet engine and aircraft component
replacement parts to design and manufacture through a selection process which
analyzes industry information to determine which replacement parts are suitable
candidates. As part of Lufthansa’s investment in the Flight Support Group,
Lufthansa has the
right to select 50% of the parts for which we will seek PMAs, provided that such
parts are technologically and economically feasible and substantially comparable
with the profitability of our other PMA parts.
Repair and Overhaul
Services. The Flight Support Group provides repair and overhaul
services on selected jet engine and aircraft component parts, as well as on
avionics, instruments, composites and flight surfaces of commercial aircraft
operated by domestic and foreign commercial airlines. The Flight Support
Group also provides repair and overhaul services including avionics and
navigation systems as well as subcomponents and other instruments utilized on
military aircraft operated by the United States government and foreign military
agencies and for aircraft repair and overhaul companies. Our repair and
overhaul operations require a high level of expertise, advanced technology and
sophisticated equipment. Services include the repair, refurbishment and
overhaul of numerous accessories and parts mounted on gas turbine engines and
airframes. Components overhauled include fuel pumps, generators, fuel
controls, pneumatic valves, starters and actuators, turbo compressors and
constant speed drives, hydraulic pumps, valves and actuators, composite flight
controls, electro-mechanical equipment and auxiliary power unit
accessories. The Flight Support Group also provides commercial airlines,
regional operators, asset management companies and Maintenance, Repair and
Overhaul (“MRO”) providers with high quality and cost effective niche accessory
component exchange services as an alternative to OEMs’ spares
services.
Distribution. The
Flight Support Group distributes FAA-approved parts including hydraulic,
pneumatic, mechanical and electro-mechanical components for the commercial,
regional and general aviation markets.
Manufacture of Specialty
Aircraft/Defense Related Parts and Subcontracting for OEMs. The
Flight Support Group manufactures thermal insulation blankets primarily for
aerospace, defense and commercial applications. The Flight Support Group
also manufactures specialty components for sale as a subcontractor for aerospace
and industrial original equipment manufacturers and the United States
government.
FAA Approvals and Product
Design. Non-OEM manufacturers of jet engine replacement parts must
receive a PMA from the FAA to sell the replacement part. The PMA approval
process includes the submission of sample parts, drawings and testing data to
one of the FAA’s Aircraft Certification Offices where the submitted data are
analyzed. We believe that an applicant’s ability to successfully complete
the PMA process is limited by several factors, including (i) the agency’s
confidence level in the applicant; (ii) the complexity of the part; (iii) the
volume of PMAs being filed; and (iv) the resources available to the FAA.
We also believe that companies such as HEICO that have demonstrated their
manufacturing capabilities and established favorable track records with the FAA
generally receive a faster turnaround time in the processing of PMA
applications. Finally, we believe that the PMA process creates a
significant barrier to entry in this market niche through both its technical
demands and its limits on the rate at which competitors can bring products to
market.
As part of our growth strategy, we have
continued to increase our research and development activities. Research
and development expenditures by the Flight Support Group, which were
approximately $300,000 in fiscal 1991, increased to approximately $11.5 million
in fiscal 2009, $11.1 million in fiscal 2008 and $10.7 million in 2007. We
believe that our Flight Support Group’s research and development capabilities
are a significant component of our historical success and an integral part of
our growth strategy. In recent years, the FAA granted us PMAs for
approximately 400 to 500 new parts per year (excluding acquired PMAs); however,
no assurance can be
given that the FAA will continue to grant PMAs or that we will achieve
acceptable levels of net sales and gross profits on such parts in the
future.
We benefit from our proprietary rights
relating to certain design, engineering and manufacturing processes and repair
and overhaul procedures. Customers often rely on us to provide initial and additional components, as
well as to redesign, re-engineer, replace or repair and provide overhaul
services on such aircraft components at every stage of their useful lives.
In addition, for some products, our unique manufacturing capabilities are
required by the customer’s specifications or designs, thereby necessitating
reliance on us for production of such designed products.
We have no material patents for the
proprietary techniques, including software and manufacturing expertise, we have
developed to manufacture jet engine and aircraft component replacement parts and
instead, we primarily rely on trade secret protection. Although our
proprietary techniques and software and manufacturing expertise are subject to
misappropriation or obsolescence, we believe that we take appropriate measures
to prevent misappropriation or obsolescence from occurring by developing new
techniques and improving existing methods and processes, which we will continue
on an ongoing basis as dictated by the technological needs of our
business.
Electronic
Technologies Group
Our Electronic Technologies Group’s
strategy is to design and produce mission-critical subcomponents for smaller,
niche markets, but which are utilized in larger systems – systems
like
targeting,
tracking, identification, simulation, testing, communications, lighting,
surgical, x-ray, telecom and computer systems. These systems are, in turn,
often located on another platform, such as aircraft, satellites, ships,
vehicles, handheld devices and other platforms.
Electro-Optical Infrared Simulation
and Test Equipment. The Electronic Technologies Group believes it
is a leading international designer and manufacturer of niche state-of-the-art
simulation, testing and calibration equipment used in the development of missile
seeking technology, airborne targeting and reconnaissance systems, shipboard
targeting and reconnaissance systems,
space-based sensors as well as ground vehicle-based systems. These
products include infrared scene projector equipment, such as our MIRAGE IR Scene
Simulator, high precision blackbody sources, software and integrated calibration
systems.
Simulation equipment allows the U.S.
government and allied foreign military to save money on missile testing as it
allows infrared-based missiles to be tested on a multi-axis, rotating table
instead of requiring the launch of a complete missile. In addition,
several large military prime contractors have elected to purchase such equipment
from us instead of maintaining internal staff to do so because we can offer a
more cost-effective solution. Our customers include major U.S. Department
of Defense weapons laboratories and defense prime contractors, such as Lockheed
Martin, Northrop Grumman and Boeing.
Electro-Optical Laser
Products. The Electronic Technologies Group believes it is a
leading designer and maker of Laser Rangefinder Receivers and other
photodetectors used in airborne, vehicular and handheld targeting systems
manufactured by major prime military contractors, such as Northrop Grumman and
Lockheed Martin. Most of our Rangefinder Receiver product offering
consists of complex and patented products which detect reflected light from
laser targeting systems and allow the systems to confirm target accuracy and
calculate target distances prior to discharging a weapon system. These
products are also used in laser eye surgery systems for tracking ocular
movement.
Electro-Optical, Microwave and Other
Power Equipment. The Electronic Technologies Group produces power
supplies, amplifiers and flash lamp drivers used in laser systems for military,
medical and other applications that are sometimes utilized with our Rangefinder
Receivers. We also produce emergency back-up power supplies and batteries
used on commercial aircraft and business jets for services such as emergency
exit lighting, emergency fuel shut-off, power door assists, cockpit voice
recorders and flight computers. We offer custom or standard designs that
solve challenging OEM requirements and meet stringent agency safety and
emissions requirements. Our power electronics products include capacitor
charger power supplies, laser diode drivers, arc lamp power supplies and custom
power supply designs.
Our microwave products are used in
satellites and electronic warfare systems. These products, which include
isolators, bias tees, circulators, latching ferrite switches and waveguide
adapters, are used in satellites to control or direct energy according to
operator needs. As satellites are frequently used as sensors for stand-off
warfare, we believe this product line further supports our goal of increasing
our activity in the stand-off market. We believe we are a leading supplier
of the niche products which we design and manufacture for this market, a market
that includes commercial satellites. Our customers for these products
include satellite manufacturers, such as Space Systems/Loral, Boeing and
Raytheon.
Electromagnetic and Radio
Interference Shielding. The Electronic Technologies Group designs
and manufactures shielding used to prevent electromagnetic energy and radio
frequencies from interfering with computers, telecommunication devices,
avionics, weapons systems and other electronic equipment. Our products
include a patented line of shielding applied directly to circuit boards and a
line of gasket-type shielding applied to computers and other electronic
equipment. Our customers consist essentially of medical, electronic,
telecommunication and defense equipment producers.
High-Speed Interface
Products. The Electronic Technologies Group designs and
manufactures advanced high-technology, high-speed interface products utilized in
homeland security, defense, medical research, astronomical and other
applications across numerous industries.
High Voltage Interconnection
Devices. The Electronic Technologies Group designs and manufactures
high and very high voltage interconnection devices, cable assemblies and wire
for the medical equipment, defense and other industrial markets. Among
others, our products are utilized in aircraft missile defense, fighter pilot
helmet displays, avionic systems, medical applications, wireless communications,
and industrial applications including high voltage test equipment and underwater
monitoring systems.
High Voltage Advanced Power
Electronics. The Electronic Technologies Group designs and
manufactures a patented line of high voltage energy generators for medical,
baggage inspection and industrial imaging systems, and also offers a patented
line of high frequency power delivery systems for the commercial sign
industry.
Power Conversion Products.
The Electronic Technologies Group designs and provides innovative power
conversion products principally serving the high-reliability military, space and
commercial avionics end-markets. These high density, low profile and lightweight
DC-to-DC converters and electromagnetic interference filters, which include
thick film hermetically sealed hybrids, military commercial-off-the-shelf and
custom designed and assembled products, have become the primary specified
components of their kind on a generation of complex military, space and avionics
equipment.
Underwater Locator
Beacons. The Electronic Technologies Group designs and manufactures
Underwater Locator Beacons (“ULBs”) used to locate aircraft Cockpit Voice
Recorders and Flight Data Recorders, marine ship Voyage Recorders and various
other devices which have been submerged under water. ULBs are required equipment
on all U.S. FAA and European Aviation Safety Agency (“EASA”) approved Flight
Data and Cockpit Voice Recorders used in aircraft and on similar systems
utilized on large marine shipping vessels.
As part of our growth strategy, we have
continued to increase our research and development activities. Research
and development expenditures by the Electronic Technologies Group were $8.2
million in fiscal 2009, $7.3 million in fiscal 2008 and $5.8 million in fiscal
2007. We believe that our Electronic Technologies Group’s research and
development capabilities are a significant component of our historical success
and an integral part of our growth strategy.
Financial
Information About Operating Segments and Geographic Areas
See Note 14, Operating Segments, of the
Notes to Consolidated Financial Statements for financial information by
operating segment and by geographic areas.
Distribution,
Sales, Marketing and Customers
Each of our operating segments
independently conducts distribution, sales and marketing efforts directed at
their respective customers and industries and, in some cases, collaborates with
other operating divisions and subsidiaries within its group for cross-marketing
efforts. Sales and marketing efforts are conducted primarily by in-house
personnel and, to a lesser extent, by independent manufacturers’
representatives. Generally, the in-house sales personnel receive a base
salary plus commission and manufacturers’ representatives receive a commission
on sales.
We believe that direct relationships
are crucial to establishing and maintaining a strong customer base and,
accordingly, our senior management is actively involved in our marketing
activities, particularly with established customers. We are also a member
of various trade and business organizations related to the commercial aviation
industry, such as the Aerospace Industries Association, which we refer to as
AIA, the leading trade association representing the nation’s manufacturers of
commercial, military and business aircraft, aircraft engines and related
components and equipment. Due in large part to our established industry
presence, we enjoy strong customer relations, name recognition and repeat
business.
We sell our products to a broad
customer base consisting of domestic and foreign commercial and cargo airlines,
repair and overhaul facilities, other aftermarket suppliers of aircraft engine
and airframe materials, OEMs, domestic and foreign military units, electronic
manufacturing services companies, manufacturers for the defense industry as well
as medical, telecommunication, scientific, and industrial companies. No
one customer accounted for sales of 10% or more of total consolidated sales from
continuing operations during any of the last three fiscal years. Net sales
to our five largest customers accounted for approximately 20% of total net sales
during the year ended October 31, 2009.
Competition
The aerospace product and service
industry is characterized by intense competition and some of our competitors
have substantially greater name recognition, inventories, complementary product
and service offerings, financial, marketing and other resources than we
do. As a result, such competitors may be able to respond more quickly to
customer requirements than we can. Moreover, smaller competitors may be in
a position to offer more attractive pricing as a result of lower labor costs and
other factors.
Our jet engine and aircraft component
replacement parts business competes primarily with Pratt & Whitney, General
Electric, and other OEMs. The competition is principally based on price
and service to the extent that our parts are interchangeable. With respect
to other aerospace products and services sold by the Flight Support Group, we
compete with both the leading jet engine OEMs and a large number of machining,
fabrication and repair companies, some of which have greater financial and other
resources than we do. Competition is based mainly on price, product
performance, service and technical capability.
Competition for the repair and overhaul
of jet engine and aircraft components comes from three principal sources: OEMs,
major commercial airlines and other independent service companies. Some of
these competitors have greater financial and other resources than we do.
Some major commercial airlines own and operate their own service centers and
sell repair and overhaul services to other aircraft operators. Foreign
airlines that provide repair and overhaul services typically provide these
services for their own aircraft components and for third parties. OEMs
also maintain service centers that provide repair and overhaul services for the
components they manufacture. Other independent service organizations also
compete for the repair and overhaul business of other users of aircraft
components. We believe that the principal competitive factors in the
repair and overhaul market are quality, turnaround time, overall customer
service and price.
Our Electronic Technologies Group
competes with several large and small domestic and foreign competitors, some of
which have greater financial and other resources than we do. The markets
for our electronic products are niche markets with several competitors with
competition based mainly on design, technology, quality, price, and customer
satisfaction.
Raw
Materials
We purchase a variety of raw materials,
primarily consisting of high temperature alloy sheet metal and castings,
forgings, pre-plated metals and electrical components from various
vendors. The
materials
used by our operations are generally available from a number of sources and in
sufficient quantities to meet current requirements subject to normal lead
times.
Backlog
Our total backlog of unshipped orders
was $104.5 million as of October 31, 2009 compared to $107.1 million as of
October 31, 2008. The Flight Support Group’s backlog of unshipped orders
was $32.9 million as of October 31, 2009 as compared to $49.0 million as of
October 31, 2008. This backlog excludes forecasted shipments for certain
contracts of the Flight Support Group pursuant to which customers provide only
estimated annual usage and not firm purchase orders. Our backlogs within
the Flight Support Group are typically short-lead in nature with many product
orders being received within the month of shipment. The decrease in the
Flight Support Group’s backlog reflects a reduction in demand for our
aftermarket replacement parts and repair and overhaul services resulting from
worldwide airline capacity cuts and efforts to reduce spending and conserve cash
by the airline industry. The Electronic Technologies Group’s backlog of
unshipped orders was $71.6 million as of October 31, 2009 as compared to $58.1
million as of October 31, 2008. The increase in the Electronic
Technologies Group’s backlog is primarily related to backlogs of businesses
acquired during fiscal 2009 and some increased orders associated with our
defense related businesses, including homeland security products.
Substantially the entire backlog of orders as of October 31, 2009 is expected to
be delivered during fiscal 2010.
Government
Regulation
The FAA regulates the manufacture,
repair and operation of all aircraft and aircraft parts operated in the United
States. Its regulations are designed to ensure that all aircraft and
aviation equipment are continuously maintained in proper condition to ensure
safe operation of the aircraft. Similar rules apply in other
countries. All aircraft must be maintained under a continuous condition
monitoring program and must periodically undergo thorough inspection and maintenance. The
inspection, maintenance and repair procedures for the various types of aircraft
and equipment are prescribed by regulatory authorities and can be performed only by
certified repair facilities utilizing certified technicians. Certification
and conformance is required prior to installation of a part on an
aircraft. Aircraft operators must maintain logs concerning the utilization
and condition of aircraft engines, life-limited engine parts and
airframes. In addition, the FAA requires that various maintenance routines
be performed on aircraft engines, some engine parts, and airframes at regular
intervals based on cycles or flight time. Engine maintenance must also be
performed upon the occurrence of certain events, such as foreign object damage
in an aircraft engine or the replacement of life-limited engine parts.
Such maintenance usually requires that an aircraft engine be taken out of
service. Our operations may in the future be subject to new and more
stringent regulatory requirements. In that regard, we closely monitor the FAA
and industry trade groups in an attempt to understand how possible future
regulations might impact us.
There has been no material adverse
effect to our consolidated financial statements as a result of these government
regulations.
Environmental
Regulation
Our operations are subject to
extensive, and frequently changing, federal, state and local environmental laws
and substantial related regulation by government agencies, including the
Environmental Protection Agency. Among other matters, these regulatory
authorities impose requirements that regulate the operation, handling,
transportation and disposal of hazardous materials; protect the health and
safety of workers; and require us to obtain and maintain licenses and permits in
connection with our operations. This extensive regulatory framework
imposes significant compliance
burdens
and risks on us. Notwithstanding these burdens, we believe that we are in
material compliance with all federal, state and local laws and regulations
governing our operations.
Other Regulation
We are also subject to a variety of
other regulations including work-related and community safety laws. The
Occupational Safety and Health Act of 1970 mandates general requirements for
safe workplaces for all employees and established the Occupational Safety and
Health Administration (“OSHA”) in the Department of Labor. In particular,
OSHA provides special procedures and measures for the handling of some hazardous
and toxic substances. In addition, specific safety standards have been
promulgated for workplaces engaged in the treatment, disposal or storage of
hazardous waste. Requirements under state law, in some circumstances, may
mandate additional measures for facilities handling materials specified as
extremely dangerous. We believe that our operations are in material
compliance with OSHA’s health and safety requirements.
Insurance
We are a named insured under policies
which include the following coverage: (i) product liability, including
grounding; (ii) personal property, inventory and business income at our
facilities; (iii) general liability coverage; (iv) employee benefit liability;
(v) international liability and automobile liability; (vi) umbrella liability
coverage; and (vii) various other activities or items subject to certain limits
and deductibles. We believe that our insurance coverage is adequate to
insure against the various liability risks of our business.
Employees
As of October 31, 2009, we had
approximately 2,100 full-time and part-time employees including approximately
1,400 in the Flight Support Group and approximately 700 in the Electronic
Technologies Group. None of our employees are represented by a
union. Our management believes that we have good relations with our
employees.
Available
Information
Our Internet web site address is http://www.heico.com. We make available
free of charge through our web site our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and Exchange
Commission (“SEC”). These materials are also available free of charge on
the SEC’s website at http://www.sec.gov. The information on or
obtainable through our web site is not incorporated into this annual report on
Form 10-K.
We have adopted a code of ethics that
applies to our principal executive officer, principal financial officer,
principal accounting officer or controller and other persons performing similar
functions. Our Code of Ethics for Senior Financial Officers and Other
Officers is part of our Code of Business Conduct, which is located on our web
site at http://www.heico.com. Any
amendments to or waivers from a provision of this code of ethics will be posted
on the web site. Also located on the web site are our Corporate Governance
Guidelines, Finance/Audit Committee Charter, Nominating & Corporate
Governance Committee Charter, and Compensation Committee Charter.
Copies of the above referenced
materials will be made available, free of charge, upon written request to the
Corporate Secretary at the Company’s headquarters.
Executive
Officers of the Registrant
Our executive officers are elected by
the Board of Directors at the first meeting following the annual meeting of
shareholders and serve at the discretion of the Board. The following table
sets forth the names, ages of, and positions and offices held by our executive
officers as of December 17, 2009:
|
Name
|
Age
|
Position(s)
|
Director
Since
|
|||
|
Laurans
A. Mendelson
|
71
|
Chairman
of the Board and Chief Executive Officer
|
1989
|
|||
|
Eric
A. Mendelson
|
44
|
Co-President
and Director; President and Chief Executive Officer of HEICO Aerospace
Holdings Corp.
|
1992
|
|||
|
Victor
H. Mendelson
|
42
|
Co-President
and Director; President and Chief Executive Officer of HEICO Electronic
Technologies Corp.
|
1996
|
|||
|
Thomas
S. Irwin
|
63
|
Executive
Vice President and Chief Financial Officer
|
─
|
|||
|
William
S. Harlow
|
61
|
Vice
President of Corporate Development
|
─
|
Laurans A. Mendelson has
served as our Chairman of the Board since December 1990. He has also
served as our Chief Executive Officer since February 1990 and served as our
President from September 1991 through September 2009. HEICO Corporation is
a member of the Aerospace Industries Association (“AIA”) in Washington D.C., and
Mr. Mendelson serves on the Board of Governors of AIA. He is also former
Chairman of the Board of Trustees, former Chairman of the Executive Committee
and a current member of the Society of Mt. Sinai Founders of Mt. Sinai Medical
Center in Miami
Beach, Florida. In addition, Mr. Mendelson
served as a Trustee of Columbia University in The City of New York from 1995 to
2001, as well as Chairman of the Trustees’ Audit Committee. Mr. Mendelson
currently serves as Trustee Emeritus of Columbia University. Mr. Mendelson
is a Certified Public Accountant. Laurans Mendelson is the father of Eric
Mendelson and Victor Mendelson.
Eric A. Mendelson has served
as our Co-President since October 2009 and served as our Executive Vice
President from 2001 through September 2009. He also serves as President
and Chief Executive Officer of HEICO Aerospace Holdings Corp., a subsidiary of
ours, since its formation in 1997; and President of HEICO Aerospace Corporation
since 1993. He also served as our Vice President from 1992 to 2001;
President of HEICO’s Jet Avion Corporation, a wholly owned subsidiary of HEICO
Aerospace, from 1993 to 1996; and Jet Avion’s Executive Vice President and Chief
Operating Officer from 1991 to 1993. From 1990 to 1991, Mr. Mendelson was
our Director of Planning and Operations. Mr. Mendelson is a co-founder,
and, since 1987, has been Managing Director of Mendelson International
Corporation, a private investment company and a shareholder of HEICO. In
addition, Mr. Mendelson is a member of the Advisory Board of Trustees of Mt.
Sinai Medical Center in Miami Beach, Florida and a member of the Board of
Trustees of Ransom – Everglades School in Coconut Grove, Florida, as well as a
member of the Executive Committee of the Columbia College Alumni
Association. Eric Mendelson is the son of Laurans Mendelson and the
brother of Victor Mendelson.
Victor H. Mendelson has
served as our Co-President since October 2009 and served as our Executive Vice
President from 2001 through September 2009. He also serves as President
and Chief
Executive
Officer of HEICO Electronic Technologies Corp., a subsidiary of ours, since
September 1996. He served as our General Counsel from 1993 to September
2008 and our Vice President from 1996 to 2001. In addition, Mr. Mendelson
was the Executive Vice President of our former MediTek Health Corporation
subsidiary from 1994 and MediTek Health’s Chief Operating Officer from 1995
until its sale in July 1996. He was our Associate General Counsel from
1992 until 1993. From 1990 until 1992, he worked on a consulting
basis with us, developing and analyzing various strategic
opportunities. Mr. Mendelson is a co-founder, and, since 1987, has
been President of Mendelson International Corporation, a private investment
company and a shareholder of HEICO. He is a member of the Board of
Visitors of Columbia College in New York City, a Trustee of St. Thomas
University in Miami Gardens, Florida and President and a Director of the Florida
Grand Opera. Victor Mendelson is the son of Laurans Mendelson and the
brother of Eric Mendelson.
Thomas S. Irwin has served as
our Executive Vice President and Chief Financial Officer since September 1991;
our Senior Vice President from 1986 to 1991; and our Vice President and
Treasurer from 1982 to 1986. Mr. Irwin is a Certified Public
Accountant. He is a Trustee of the Greater Hollywood Chamber of
Commerce and a Director of the Broward Alliance.
William S. Harlow has served
as our Vice President of Corporate Development since 2001 and served as Director
of Corporate Development from 1995 to 2001.
|
RISK
FACTORS
|
Our business, financial condition,
operating results and cash flows can be impacted by a number of factors, many of
which are beyond our control, including those set forth below and elsewhere in
this Annual Report on Form 10-K, any one of which may cause our actual results
to differ materially from anticipated results:
Our
success is highly dependent on the performance of the aviation industry, which
could be impacted by lower demand for commercial air travel or airline fleet
changes causing lower demand for our goods and services.
Economic factors and passenger security
concerns that affect the aviation industry also affect our business. The
aviation industry has historically been subject to downward cycles from time to
time which reduce the overall demand for jet engine and aircraft component
replacement parts and repair and overhaul services, and such downward cycles
result in lower prices and greater credit risk. These economic factors and
passenger security concerns may have a material adverse effect on our business,
financial condition and results of operations.
We
are subject to governmental regulation and our failure to comply with these
regulations could cause the government to withdraw or revoke our authorizations
and approvals to do business and could subject us to penalties and sanctions
that could harm our business.
Governmental agencies throughout the
world, including the FAA, highly regulate the manufacture, repair and overhaul
of aircraft parts and accessories. We include, with the replacement parts
that we sell to our customers, documentation certifying that each part complies
with applicable regulatory requirements and meets applicable standards of
airworthiness established by the FAA or the equivalent regulatory agencies in
other countries. In addition, our repair and overhaul operations are
subject to certification pursuant to regulations established by the FAA.
Specific regulations vary from country to country, although compliance with FAA
requirements generally satisfies regulatory requirements in other
countries. The revocation or suspension of any of our material
authorizations or approvals would have an
adverse
effect on our business, financial condition and results of operations. New
and more stringent government regulations, if adopted and enacted, could have an
adverse effect on our business, financial condition and results of operations.
In addition, some sales to foreign countries of the equipment manufactured by
our Electronic Technologies Group require approval or licensing from the U.S.
government. Denial of export licenses could reduce our sales to those
countries and could have a material adverse effect on our business.
The
retirement of commercial aircraft could reduce our revenues.
Our Flight Support Group designs,
engineers, manufactures and distributes jet engine and aircraft component
replacement parts and also repairs, refurbishes and overhauls jet engine and
aircraft components. If aircraft or engines for which we have
replacement parts or supply repair and overhaul services are retired and there
are fewer aircraft that require these parts or services, our revenues may
decline.
Reductions
in defense, space or homeland security spending by U.S. and/or foreign customers
could reduce our revenues.
In fiscal 2009, approximately 46% of
the sales of our Electronic Technologies Group were derived from the sale of
defense products and services to U.S. and foreign military agencies and their
suppliers. A decline in defense, space or homeland security budgets
or additional restrictions imposed by the U.S. government on sales of products
or services to foreign military agencies could lower sales of our products and
services.
Intense
competition from existing and new competitors may harm our
business.
We face significant competition in each
of our businesses.
Flight
Support Group
|
|
·
|
For
jet engine replacement parts, we compete with the industry’s leading jet
engine OEMs, particularly Pratt & Whitney and General
Electric.
|
|
|
·
|
For
the overhaul and repair of jet engine and airframe components as well as
avionics and navigation systems, we compete
with:
|
|
|
-
|
major
commercial airlines, many of which operate their own maintenance and
overhaul units;
|
|
|
-
|
OEMs,
which manufacture, repair and overhaul their own parts;
and
|
|
|
-
|
other
independent service companies.
|
Electronic
Technologies Group
|
|
·
|
For
the design and manufacture of various types of electronic and
electro-optical equipment as well as high voltage interconnection devices
and high speed interface products, we compete in a fragmented marketplace
with a number of companies, some of which are well
capitalized.
|
The aviation aftermarket supply
industry is highly fragmented, has several highly visible leading companies, and
is characterized by intense competition. Some of our OEM competitors have
greater name recognition than HEICO, as well as complementary lines of business
and financial, marketing and other
resources
that HEICO does not have. In addition, OEMs, aircraft maintenance providers,
leasing companies and FAA-certificated repair facilities may attempt to bundle
their services and product offerings in the supply industry, thereby
significantly increasing industry competition. Moreover, our smaller
competitors may be able to offer more attractive pricing of parts as a result of
lower labor costs or other factors. A variety of potential actions by
any of our competitors, including a reduction of product prices or the
establishment by competitors of long-term relationships with new or existing
customers, could have a material adverse effect on our business, financial
condition and results of operations. Competition typically
intensifies during cyclical downturns in the aviation industry, when supply may
exceed demand. We may not be able to continue to compete effectively
against present or future competitors, and competitive pressures may have a
material and adverse effect on our business, financial condition and results of
operations.
Our
success is dependent on the development and manufacture of new products,
equipment and services. Our inability to develop, manufacture and introduce new
products and services at profitable pricing levels could reduce our sales or
sales growth.
The aviation, defense, space, medical,
telecommunication and electronic industries are constantly undergoing
development and change and, accordingly, new products, equipment and methods of
repair and overhaul service are likely to be introduced in the
future. In addition to manufacturing electronic and electro-optical
equipment and selected aerospace and defense components for OEMs and the U.S.
government and repairing jet engine and aircraft components, we re-design
sophisticated aircraft replacement parts originally developed by OEMs so that we
can offer the replacement parts for sale at substantially lower prices than
those manufactured by the OEMs. Consequently, we devote substantial
resources to research and product development. Technological
development poses a number of challenges and risks, including the
following:
|
|
·
|
We
may not be able to successfully protect the proprietary interests we have
in various aircraft parts, electronic and electro-optical equipment and
our repair processes;
|
|
|
·
|
As
OEMs continue to develop and improve jet engines and aircraft components,
we may not be able to re-design and manufacture replacement parts that
perform as well as those offered by OEMs or we may not be able to
profitably sell our replacement parts at lower prices than the
OEMs;
|
|
|
·
|
We
may need to expend significant capital
to:
|
- purchase
new equipment and machines,
- train
employees in new methods of production and service, and
- fund the
research and development of new products; and
|
|
·
|
Development
by our competitors of patents or methodologies that preclude us from the
design and manufacture of aircraft replacement parts or electrical and
electro-optical equipment could adversely affect our business, financial
condition and results of
operations.
|
In addition, we may not be able to
successfully develop new products, equipment or methods of repair and overhaul
service, and the failure to do so could have a material adverse effect on our
business, financial condition and results of operations.
Product
specification costs and requirements could cause an increase to our costs to
complete contracts.
The costs to meet customer
specifications and requirements could result in us having to spend more to
design or manufacture products and this could reduce our profit margins on
current contracts or those we obtain in the future.
We
may incur product liability claims that are not fully insured.
Our jet engine and aircraft component
replacement parts and repair and overhaul services expose our business to
potential liabilities for personal injury or death as a result of the failure of
an aircraft component that we have designed, manufactured or
serviced. The commercial aviation industry occasionally has
catastrophic losses that may exceed policy limits. An uninsured or
partially insured claim, or a claim for which third-party indemnification is not
available, could have a material adverse effect on our business, financial
condition and results of operations. Additionally, insurance coverage
costs may become even more expensive in the future. Our customers
typically require us to maintain substantial insurance coverage and our
inability to obtain insurance coverage at commercially reasonable rates could
have a material adverse effect on our business.
We
may not have the administrative, operational or financial resources to continue
to grow the company.
We have experienced rapid growth in
recent periods and intend to continue to pursue an aggressive growth strategy,
both through acquisitions and internal expansion of products and
services. Our growth to date has placed, and could continue to place,
significant demands on our administrative, operational and financial
resources. We may not be able to grow effectively or manage our
growth successfully, and the failure to do so could have a material adverse
effect on our business, financial condition and results of
operations.
We
may not be able to execute our acquisition strategy, which could slow our
growth.
A key element of our strategy is growth
through the acquisition of additional companies. Our acquisition
strategy is affected by and poses a number of challenges and risks, including
the following:
|
|
·
|
Availability
of suitable acquisition candidates;
|
|
|
·
|
Availability
of capital;
|
|
|
·
|
Diversion
of management’s attention;
|
|
|
·
|
Integration
of the operations and personnel of acquired
companies;
|
|
|
·
|
Potential
write downs of acquired intangible
assets;
|
|
|
·
|
Potential
loss of key employees of acquired
companies;
|
|
|
·
|
Use
of a significant portion of our available
cash;
|
|
|
·
|
Significant
dilution to our shareholders for acquisitions made utilizing our
securities; and
|
|
|
·
|
Consummation
of acquisitions on satisfactory
terms.
|
We may not be able to successfully
execute our acquisition strategy, and the failure to do so could have a material
adverse effect on our business, financial condition and results of
operations.
We
may incur environmental liabilities and these liabilities may not be covered by
insurance.
Our operations and facilities are
subject to a number of federal, state and local environmental laws and
regulations, which govern, among other things, the discharge of hazardous
materials into the air and water as well as the handling, storage and disposal
of hazardous materials. Pursuant to various environmental laws, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous materials. Environmental
laws typically impose liability whether or not the owner or operator knew of, or
was responsible for, the presence of hazardous materials. Although
management believes that our operations and facilities are in material
compliance with environmental laws and regulations, future changes in them or
interpretations thereof or the nature of our operations may require us to make
significant additional capital expenditures to ensure compliance in the
future.
We do not maintain specific
environmental liability insurance and the expenses related to these
environmental liabilities, if we are required to pay them, could have a material
adverse effect on our business, financial condition and results of
operations.
We
are dependent on key personnel and the loss of these key personnel could have a
material adverse effect on our success.
Our success substantially depends on
the performance, contributions and expertise of our senior management team led
by Laurans A. Mendelson, our Chairman and Chief Executive Officer, Eric A.
Mendelson, our Co-President, and Victor H. Mendelson, our
Co-President. Technical employees are also critical to our research
and product development, as well as our ability to continue to re-design
sophisticated products of OEMs in order to sell competing replacement parts at
substantially lower prices than those manufactured by the OEMs. The
loss of the services of any of our executive officers or other key employees or
our inability to continue to attract or retain the necessary personnel could
have a material adverse effect on our business, financial condition and results
of operations.
Our
executive officers and directors have significant influence over our management
and direction.
As of December 17, 2009, collectively
our executive officers and entities controlled by them, our 401(k) Plan and
members of the Board of Directors beneficially owned approximately 26% of our
outstanding Common Stock and approximately 7% of our outstanding Class A Common
Stock. Accordingly, they will be able to substantially influence the
election of the Board of Directors and control our business, policies and
affairs, including our position with respect to proposed business combinations
and attempted takeovers.
|
UNRESOLVED STAFF
COMMENTS
|
None.
|
PROPERTIES
|
We own or lease a number of facilities,
which are utilized by our Flight Support Group (“FSG”), Electronic Technologies
Group (“ETG”) and Corporate office. All of the facilities listed
below are in good operating condition, well maintained and in regular
use. We believe that our existing facilities are sufficient to meet
our operational needs for the foreseeable future. Summary information
on the facilities utilized within the FSG and the ETG to support their principal
operating activities is as follows:
Flight Support
Group
|
Square Footage
|
|||||||||
|
Location
|
Leased
|
Owned
|
Description
|
||||||
|
United
States facilities (8 states)
|
294,000 | 173,000 |
Manufacturing,
engineering and distribution
|
||||||
|
facilities,
and corporate headquarters
|
|||||||||
|
United
States facilities (6 states)
|
134,000 | 127,000 |
Repair
and overhaul facilities
|
||||||
|
International
facilities (3 countries)
-
India, Singapore and United Kingdom
|
10,000 | — |
Manufacturing,
engineering and distribution
facilities
|
||||||
Electronic Technologies
Group
|
Square Footage
|
|||||||||
|
Location
|
Leased
|
Owned
|
Description
|
||||||
|
United
States facilities (9 states)
|
185,000 | 76,000 |
Manufacturing
and engineering facilities
|
||||||
|
International
facilities (2 countries)
|
52,000 | 12,000 |
Manufacturing
and engineering facilities
|
||||||
|
-
Canada and United Kingdom
|
|||||||||
Corporate
|
Square Footage
|
|||||||||
|
Location
|
Leased
|
Owned (1)
|
Description
|
||||||
|
United
States facilities (1 state)
|
— | 4,000 |
Administrative
offices
|
||||||
|
(1)
|
Represents
the square footage of corporate offices in Miami, Florida. The square
footage of our corporate headquarters in Hollywood, FL is included within
the square footage under the caption “United States facilities (8 states)”
under Flight Support Group.
|
|
LEGAL
PROCEEDINGS
|
We are involved in various legal
actions arising in the normal course of business. Based upon the
company’s and our legal counsel’s evaluations of any claims or assessments,
management is of the opinion that the outcome of these matters will not have a
material adverse effect on our results of operations, financial position or cash
flows.
|
SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
|
There were no matters submitted to a
vote of security holders during the fourth quarter of fiscal 2009.
|
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Market
Information
Our Class A Common Stock and Common
Stock are listed and traded on the New York Stock Exchange (“NYSE”) under the
symbols “HEI.A” and “HEI”, respectively. The following tables set
forth, for the periods indicated, the high and low share prices for our Class A
Common Stock and our Common Stock as reported on the NYSE, as well as the amount
of cash dividends paid per share during such periods.
Class A Common
Stock
|
High
|
Low
|
Cash Dividends
Per Share
|
||||||||||
|
Fiscal
2008:
|
||||||||||||
|
First
Quarter
|
$ | 44.63 | $ | 32.05 | $ | .05 | ||||||
|
Second
Quarter
|
42.24 | 32.80 | ― | |||||||||
|
Third
Quarter
|
41.68 | 24.87 | .05 | |||||||||
|
Fourth
Quarter
|
36.19 | 19.82 | ― | |||||||||
|
Fiscal
2009:
|
||||||||||||
|
First
Quarter
|
$ | 31.36 | $ | 18.27 | $ | .06 | ||||||
|
Second
Quarter
|
30.63 | 17.34 | ― | |||||||||
|
Third
Quarter
|
32.76 | 23.26 | .06 | |||||||||
|
Fourth
Quarter
|
35.00 | 26.01 | ― | |||||||||
As of December 17, 2009, there were 569
holders of record of our Class A Common Stock.
Common
Stock
|
High
|
Low
|
Cash Dividends
Per Share
|
||||||||||
|
Fiscal
2008:
|
||||||||||||
|
First
Quarter
|
$ | 56.92 | $ | 42.00 | $ | .05 | ||||||
|
Second
Quarter
|
52.78 | 41.80 | ― | |||||||||
|
Third
Quarter
|
54.35 | 30.16 | .05 | |||||||||
|
Fourth
Quarter
|
48.27 | 26.49 | ― | |||||||||
|
Fiscal
2009:
|
||||||||||||
|
First
Quarter
|
$ | 42.78 | $ | 24.30 | $ | .06 | ||||||
|
Second
Quarter
|
41.64 | 21.40 | ― | |||||||||
|
Third
Quarter
|
40.50 | 26.32 | .06 | |||||||||
|
Fourth
Quarter
|
44.02 | 35.00 | ― | |||||||||
As of December 17, 2009, there were 584
holders of record of our Common Stock.
Performance
Graphs
The following graph and table compare
the total return on $100 invested in HEICO Common Stock and HEICO Class A Common
Stock with the total return of $100 invested in the New York Stock Exchange
(NYSE) Composite Index and the Dow Jones U.S. Aerospace Index for the five-year
period from October 31, 2004 through October 31, 2009. The NYSE
Composite Index measures all common stock listed on the NYSE. The Dow
Jones U.S. Aerospace Index is comprised of large companies which make aircraft,
major weapons, radar and other defense equipment and systems as well as
providers of satellites used for defense purposes. The total returns
include the reinvestment of cash dividends.
|
Cumulative Total Return as of October 31,
|
||||||||||||||||||||||||
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||||||
|
HEICO
Common Stock
|
$ | 100.00 | $ | 122.76 | $ | 201.48 | $ | 302.93 | $ | 214.60 | $ | 212.80 | ||||||||||||
|
HEICO
Class A Common Stock
|
100.00 | 122.23 | 217.16 | 314.51 | 204.39 | 225.62 | ||||||||||||||||||
|
NYSE
Composite Index
|
100.00 | 111.06 | 131.11 | 154.07 | 90.56 | 100.70 | ||||||||||||||||||
|
Dow
Jones U.S. Aerospace Index
|
100.00 | 121.17 | 158.41 | 209.17 | 125.95 | 141.69 | ||||||||||||||||||
The following graph and table compare
the total return on $100 invested in HEICO Common Stock since October 31, 1990
using the same indices shown on the five-year performance graph on the previous
page. October 31, 1990 was the end of the first fiscal year following
the date the current executive management team assumed leadership of the
Company. No Class A Common Stock was outstanding as of October 31,
1990. As with the five-year performance graph, the total returns
include the reinvestment of cash dividends.
|
Cumulative Total Return as of October 31,
|
||||||||||||||||||||||||||||
|
1990
|
1991
|
1992
|
1993
|
1994
|
1995
|
1996
|
||||||||||||||||||||||
|
HEICO
Common Stock (1)
|
$ | 100.00 | $ | 141.49 | $ | 158.35 | $ | 173.88 | $ | 123.41 | $ | 263.25 | $ | 430.02 | ||||||||||||||
|
NYSE
Composite Index
|
100.00 | 130.31 | 138.76 | 156.09 | 155.68 | 186.32 | 225.37 | |||||||||||||||||||||
|
Dow
Jones U.S. Aerospace Index
|
100.00 | 130.67 | 122.00 | 158.36 | 176.11 | 252.00 | 341.65 | |||||||||||||||||||||
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
||||||||||||||||||||||
|
HEICO
Common Stock (1)
|
$ | 1,008.31 | $ | 1,448.99 | $ | 1,051.61 | $ | 809.50 | $ | 1,045.86 | $ | 670.39 | $ | 1,067.42 | ||||||||||||||
|
NYSE
Composite Index
|
289.55 | 326.98 | 376.40 | 400.81 | 328.78 | 284.59 | 339.15 | |||||||||||||||||||||
|
Dow
Jones U.S. Aerospace Index
|
376.36 | 378.66 | 295.99 | 418.32 | 333.32 | 343.88 | 393.19 | |||||||||||||||||||||
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||||||
|
HEICO
Common Stock (1)
|
$ | 1,366.57 | $ | 1,674.40 | $ | 2,846.48 | $ | 4,208.54 | $ | 2,872.01 | $ | 2,984.13 | ||||||||||||
|
NYSE
Composite Index
|
380.91 | 423.05 | 499.42 | 586.87 | 344.96 | 383.57 | ||||||||||||||||||
|
Dow
Jones U.S. Aerospace Index
|
478.49 | 579.77 | 757.97 | 1,000.84 | 602.66 | 678.00 | ||||||||||||||||||
|
(1)
|
Information
has been adjusted retroactively to give effect to all stock dividends paid
during the nineteen-year period.
|
Dividend
Policy
We have historically paid semi-annual
cash dividends on both our Class A Common Stock and Common Stock. In
July 2009, we paid our 62nd
consecutive semi-annual cash dividend since 1979. Our Board of
Directors presently intends to continue the payment of regular semi-annual cash
dividends on both classes of our common stock. In December 2009, the
board of directors declared a regular semi-annual cash dividend of $.06 per
share payable in January 2010. The current annual cash dividend of
$.12 per share represents a 20% increase over the prior annual per share
amount. Our ability to pay dividends could be affected by future
business performance, liquidity, capital needs, alternative investment
opportunities and loan covenants under our revolving credit
facility.
Equity
Compensation Plan Information
The following table summarizes
information about our equity compensation plans as of October 31,
2009.
|
Number of Securities
|
||||||||||||
|
Remaining Available for
|
||||||||||||
|
Number of Securities
|
Future Issuance Under
|
|||||||||||
|
to be Issued Upon
|
Weighted-Average
|
Equity Compensation
|
||||||||||
|
Exercise of
|
Exercise Price of
|
Plans (Excluding
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Securities Reflected in
|
||||||||||
|
Warrants and Rights
|
Warrants and Rights
|
Column (a))
|
||||||||||
|
Plan Category
|
(a)
|
(b)
|
(c)
|
|||||||||
|
Equity compensation plans approved
by security holders (1)
|
1,703,062 | $ | 15.19 | 1,326,064 | ||||||||
|
Equity compensation
plans not approved by security holders (2)
|
160,000 | $ | 7.36 | ― | ||||||||
|
Total
|
1,863,062 | $ | 14.52 | 1,326,064 | ||||||||
|
(1)
|
Represents
aggregated information pertaining to our three equity compensation plans:
the 1993 Stock Option Plan, the Non-Qualified Stock Option Plan and the
2002 Stock Option Plan. See Note 9, Stock Options, of the Notes
to Consolidated Financial Statements for further information regarding
these plans.
|
|
(2)
|
Represents
stock options granted in fiscal 2002 to a former shareholder of a business
acquired in fiscal 1999. Such stock options were fully vested
and transferable as of the grant date and expire ten years from the date
of grant. The exercise price of such options was the fair
market value as of the date of
grant.
|
Issuer
Purchases of Equity Securities
During March 2009, we repurchased
193,736 shares of our Class A Common Stock at an average price of $20.08 per
share and 184,500 shares of our Common Stock at an average price of $22.81 per
share under a pre-existing share repurchase authorization that was announced by
our Board of Directors in October 2002. We did not repurchase any
shares of our Class A Common Stock and/or Common Stock during fiscal 2008 or
2007.
In March 2009, our Board of Directors
approved an increase in our share repurchase program by an aggregate 1,000,000
shares of either or both Class A Common Stock and Common Stock, bringing the
total authorized for future purchase to 1,024,742 shares. The
remaining shares authorized for repurchase can be executed, at management’s
discretion, in the open market or via private transactions and are
subject
to certain restrictions included in our revolving credit
agreement. The repurchase program does not have a fixed termination
date.
Recent
Sales of Unregistered Securities
There were no unregistered sales of our
equity securities during fiscal 2009.
|
SELECTED FINANCIAL
DATA
|
|
For the year ended October 31, (1)
|
||||||||||||||||||||
|
2005
|
2006
|
2007
|
2008
|
2009
|
||||||||||||||||
|
(in thousands, except per share data)
|
||||||||||||||||||||
|
Operating
Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 269,647 | $ | 392,190 | $ | 507,924 | $ | 582,347 | $ | 538,296 | ||||||||||
|
Gross
profit
|
100,996 | 142,513 | 177,458 | 210,495 | 181,011 | |||||||||||||||
|
Selling,
general and administrative expenses
|
56,347 | 75,646 | 91,444 | 104,707 | 92,756 | |||||||||||||||
|
Operating
income
|
44,649 | 66,867 | 86,014 | 105,788 |
(4)
|
88,255 | ||||||||||||||
|
Interest
expense
|
1,136 | 3,523 | 3,293 | 2,314 | 615 | |||||||||||||||
|
Other
income (expense)
|
528 | 639 | 95 | (637 | ) | 205 | ||||||||||||||
|
Net
income
|
22,812 | 31,888 |
(2)
|
39,005 |
(3)
|
48,511 |
(4)
|
44,626 |
(5)
|
|||||||||||
|
Weighted
average number of common shares outstanding:
|
||||||||||||||||||||
|
Basic
|
24,460 | 25,085 | 25,716 | 26,309 | 26,205 | |||||||||||||||
|
Diluted
|
26,323 | 26,598 | 26,931 | 27,243 | 27,024 | |||||||||||||||
|
Per
Share Data:
|
||||||||||||||||||||
|
Net
income:
|
||||||||||||||||||||
|
Basic
|
$ | 0.93 | $ | 1.27 |
(2)
|
$ | 1.52 |
(3)
|
$ | 1.84 |
(4)
|
$ | 1.70 |
(5)
|
||||||
|
Diluted
|
0.87 | 1.20 |
(2)
|
1.45 |
(3)
|
1.78 |
(4)
|
1.65 |
(5)
|
|||||||||||
|
Cash
dividends
|
.05 | .08 | .08 | .10 | .12 | |||||||||||||||
|
Balance
Sheet Data (as of October 31):
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 5,330 | $ | 4,999 | $ | 4,947 | $ | 12,562 | $ | 7,167 | ||||||||||
|
Total
assets
|
435,624 | 534,815 | 631,302 | 676,542 | 732,910 | |||||||||||||||
|
Total
debt (including current portion)
|
34,124 | 55,061 | 55,952 | 37,601 | 55,431 | |||||||||||||||
|
Minority
interests in consolidated subsidiaries
|
49,035 | 63,301 | 72,938 | 83,978 | 89,742 | |||||||||||||||
|
Shareholders’
equity
|
273,503 | 317,258 | 371,601 | 417,760 | 457,853 | |||||||||||||||
|
(1)
|
Results
include the results of acquisitions from each respective effective
date.
|
|
(2)
|
Includes
the benefit of a tax credit (net of related expenses) for qualified
research and development activities claimed for certain prior years, which
increased net income by $1,002, or $.04 per basic and diluted
share.
|
|
(3)
|
Includes
the benefit of a tax credit (net of related expenses) for qualified
research and development activities recognized for the full fiscal 2006
year pursuant to the retroactive extension in December 2006 of Section 41,
“Credit for Increasing Research Activities,” of the Internal Revenue Code,
which increased net income by $535, or $.02 per basic and diluted
share.
|
|
(4)
|
Operating
income was reduced by an aggregate of $1,835 in impairment losses related
to the write-down of certain intangible assets within the Electronic
Technologies Group to their estimated fair values. The
impairment losses were recorded as a component of selling, general and
administrative expenses and decreased net income by $1,140, or $.04 per
basic and diluted share.
|
|
(5)
|
Includes
a benefit related to a settlement with the Internal Revenue Service
concerning the income tax audit claimed by the Company on its U.S. federal
filings for qualified research and development activities incurred during
fiscal years 2002 through 2005 as well as an aggregate reduction to the
related reserve for fiscal years 2006 through 2008, which increased net
income by $1,225, or $.05 per basic and diluted
share.
|
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
Overview
Our business is comprised of two
operating segments, the Flight Support Group (“FSG”) and the Electronic
Technologies Group (“ETG”).
The Flight Support Group consists of
HEICO Aerospace Holdings Corp. (“HEICO Aerospace”) and its subsidiaries, which
primarily:
|
|
·
|
Designs, Manufactures, Repairs
and Distributes Jet Engine and Aircraft Component Replacement
Parts. The Flight Support Group designs, manufactures,
repairs and distributes jet engine and aircraft component replacement
parts. The parts and services are approved by the Federal
Aviation Administration (“FAA”). The Flight Support Group also
manufactures and sells specialty parts as a subcontractor for aerospace
and industrial original equipment manufacturers and the United States
government.
|
The Electronic Technologies Group
consists of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and its
subsidiaries, which primarily:
|
|
·
|
Designs and Manufactures
Electronic, Microwave and Electro-Optical Equipment, High-Speed Interface Products,
High Voltage Interconnection Devices and High Voltage Advanced Power
Electronics. The Electronic Technologies Group designs,
manufactures and sells various types of electronic, microwave and
electro-optical equipment and components, including power supplies, laser
rangefinder receivers, infrared simulation, calibration and testing
equipment; power conversion products serving the high-reliability
military, space and commercial avionics end-markets; underwater locator
beacons used to locate data and voice recorders utilized on aircraft and
marine vessels; electromagnetic interference shielding for commercial and
military aircraft operators, electronics companies and telecommunication
equipment suppliers; advanced high-technology interface products that link
devices such as telemetry receivers, digital cameras, high resolution
scanners, simulation systems and test systems to computers; high voltage
energy generators interconnection devices, cable assemblies and wire for
the medical equipment, defense and other industrial markets; and high
frequency power delivery systems for the commercial sign
industry.
|
Our results of operations during each
of the past three fiscal years have been affected by a number of
transactions. This discussion of our financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included herein. For further information
regarding the acquisitions discussed below, see Note 2, Acquisitions, of the
Notes to Consolidated Financial Statements. The acquisitions have
been accounted for using the purchase method of accounting and are included in
our results of operations from the effective dates of acquisition.
In April and September 2007, we
acquired, through HEICO Electronic, all of the stock of a U.S. company engaged
in the design and manufacture of Radio Frequency Interference and
Electromagnetic Frequency Interference Suppressors for a variety of markets and
a Canadian company that designs and manufactures high voltage energy generators
for medical, baggage inspection and industrial imaging manufacturers and high
frequency power delivery systems for the commercial sign industry,
respectively. In August 2007, we acquired, through HEICO Aerospace,
substantially all of the assets of a U.S. company that designs and manufactures
FAA-approved aircraft and engine parts.
In November 2007, we acquired, through
an 80%-owned subsidiary of HEICO Aerospace, all of the stock of a European
company that supplies aircraft parts for sale and exchange and provides repair
management services. In January and February 2008, we acquired,
through HEICO Aerospace, certain assets and assumed certain liabilities of a
U.S. company that designs and manufactures FAA-approved aircraft and engine
parts and acquired an 80% interest in certain assets and certain liabilities of
a U.S. company that is an FAA-approved repair station which specializes in
avionics. The remaining 20% of the repair station’s equity interests
are principally owned by certain members of the acquired company’s
management.
In April 2008, we acquired, through
HEICO Aerospace, an additional 7% equity interest in one of our subsidiaries,
which increased our ownership interest to 58%. In December 2008, we
acquired, through HEICO Aerospace, and additional 14% equity interest in the
subsidiary, which increased our ownership interest to
72%.
In May 2009, we acquired, through HEICO
Electronic, 82.5% of the stock of VPT, Inc. (“VPT”). VPT is a
designer and provider of power conversion products principally serving the
defense, space and aviation industries. The remaining 17.5% continues
to be owned by an existing VPT shareholder which is also a supplier to the
acquired company.
In October 2009, we acquired, through
HEICO Electronic, the business, assets and certain liabilities of the Seacom
division of privately-held Dukane Corp. and formed a new subsidiary, Dukane
Seacom, Inc. (“Seacom”). Seacom is a designer and manufacturer of
underwater locator beacons used to locate aircraft cockpit voice recorders,
flight data recorders, marine ship voyage recorders and various other devices
which have been submerged under water.
The purchase price of each of the above
referenced acquisitions was paid in cash using proceeds from the Company’s
revolving credit facility and was not material or significant to our
consolidated financial statements. The aggregate cost of all of our
acquisitions, including payments made in cash and contingent payments, was $71.1
million, $29.0 million and $48.4 million in fiscal 2009, 2008 and 2007,
respectively.
Critical
Accounting Policies
We believe that the following are our
most critical accounting policies, some of which require management to make
judgments about matters that are inherently uncertain.
Revenue
Recognition
Revenue is recognized on an accrual
basis, primarily upon the shipment of products and the rendering of
services. Revenue from certain fixed price contracts for which costs
can be dependably estimated is recognized on the percentage-of-completion
method, measured by the percentage of costs incurred to date to estimated total
costs for each contract. This method is used because management
considers costs incurred to be the best available measure of progress on these
contracts. Variations in actual labor performance, changes to
estimated profitability and final contract settlements may result in revisions
to cost estimates. Revisions in cost estimates as contracts progress
have the effect of increasing or decreasing profits in the period of
revision. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. For fixed
price contracts in which costs cannot be dependably estimated, revenue is
recognized on the completed-contract method. A contract is considered
complete when all significant costs have been incurred or the item has been
accepted by the customer. The percentage of our net sales recognized
under the percentage-of-completion method was approximately 1%, 3% and 3% in
fiscal 2009, 2008 and 2007, respectively. The aggregate effects
of
changes
in estimates relating to long-term contracts did not have a significant effect
on net income or diluted net income per share in fiscal 2009, 2008 or
2007.
Valuation
of Accounts Receivable
The valuation of accounts receivable
requires that we set up an allowance for estimated uncollectible accounts and
record a corresponding charge to bad debt expense. We estimate
uncollectible receivables based on such factors as our prior experience, our
appraisal of a customer’s ability to pay and economic conditions within and
outside of the aviation, defense, space, medical, telecommunication and
electronic industries. Actual bad debt expense could differ from
estimates made.
Valuation
of Inventory
Inventory is stated at the lower of
cost or market, with cost being determined on the first-in, first-out or the
average cost basis. Losses, if any, are recognized fully in the
period when identified.
We periodically evaluate the carrying
value of inventory, giving consideration to factors such as its physical
condition, sales patterns and expected future demand in order to estimate
the amount necessary
to write-down its slow moving, obsolete or damaged inventory. These
estimates could vary significantly from actual amounts based upon future
economic conditions, customer inventory levels, or competitive factors that were
not foreseen or did not exist when the estimated write-downs were
made.
Purchase
Accounting
We apply the purchase method of
accounting to our acquisitions. Under this method, the purchase
price, including any capitalized acquisition costs, is allocated to the
underlying tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair market values, with any excess recorded as
goodwill. Determining the fair value of assets acquired and
liabilities assumed requires management’s judgment and often involves the use of
significant estimates and assumptions, including assumptions with respect to
future cash inflows and outflows, discount rates, asset lives and market
multiples, among other items. We determine the fair values of such
assets, principally intangible assets, generally in consultation with
third-party valuation advisors.
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 not be fully
recoverable. The test requires us to compare the fair value of each
of our reporting units to its carrying value to determine potential
impairment. If the carrying value of a reporting unit exceeds its
fair value, the implied fair value of that reporting unit’s goodwill is to be
calculated and an impairment loss is recognized in the amount by which the
carrying value of a reporting unit’s goodwill exceeds its implied fair value, if
any. The determination of fair value requires us to make a number of
estimates, assumptions and judgments of such factors as earnings multiples,
projected revenues and operating expenses and our weighted average cost of
capital. If there is a material change in such assumptions used by us
in determining fair value or if there is a material change in the conditions or
circumstances influencing fair value, we could be required to recognize a
material impairment charge. See Item 1.A., Risk Factors, for a list
of factors of which any may cause our actual results to differ materially from
anticipated results. Based on the annual goodwill test for impairment
as of October 31, 2009, 2008 and 2007, we determined there is no impairment of
our goodwill.
We test each non-amortizing intangible
asset for impairment annually as of October 31, or more frequently if events or
changes in circumstances indicate that the asset might be
impaired. We also test each amortizing intangible asset for
impairment if events or circumstances indicate that the asset might be
impaired. These tests consist of determining whether the carrying
value of such assets will be recovered through undiscounted expected future cash
flows. If the total of the undiscounted future cash flows is less
than the carrying amount of those assets, we recognize an impairment loss based
on the excess of the carrying amount over the fair value of the
assets. The determination of fair value requires us to make a number
of estimates, assumptions and judgments of such factors as projected revenues
and earnings and discount rates. Based on the impairment tests
conducted during fiscal 2009 and 2008, we recognized pre-tax impairment losses
of $.2 million and $.1 million, respectively, and $1.3 million and $.5 million,
respectively, related to the write-down of certain customer relationships and
trade names, respectively, within the ETG to their estimated fair
values. The impairment losses were recorded as a component of
selling, general and administrative expenses in the Company’s Consolidated
Statements of Operations. Based on the impairment tests conducted
during fiscal 2007, we determined there was no impairment of our intangible
assets.
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 Consolidated Statements of Operations:
|
For the year ended October 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 538,296,000 | $ | 582,347,000 | $ | 507,924,000 | ||||||
|
Cost
of sales
|
357,285,000 | 371,852,000 | 330,466,000 | |||||||||
|
Selling,
general and administrative expenses
|
92,756,000 | 104,707,000 | 91,444,000 | |||||||||
|
Total
operating costs and expenses
|
450,041,000 | 476,559,000 | 421,910,000 | |||||||||
|
Operating
income
|
$ | 88,255,000 | $ | 105,788,000 | $ | 86,014,000 | ||||||
|
Net
sales by segment:
|
||||||||||||
|
Flight
Support Group
|
$ | 395,423,000 | $ | 436,810,000 | $ | 383,911,000 | ||||||
|
Electronic
Technologies Group
|
143,372,000 | 146,044,000 | 124,035,000 | |||||||||
|
Intersegment
sales
|
(499,000 | ) | (507,000 | ) | (22,000 | ) | ||||||
| $ | 538,296,000 | $ | 582,347,000 | $ | 507,924,000 | |||||||
|
Operating
income by segment:
|
||||||||||||
|
Flight
Support Group
|
$ | 60,003,000 | $ | 81,184,000 | $ | 67,408,000 | ||||||
|
Electronic
Technologies Group
|
39,981,000 | 38,775,000 | 33,870,000 | |||||||||
|
Other,
primarily corporate
|
(11,729,000 | ) | (14,171,000 | ) | (15,264,000 | ) | ||||||
| $ | 88,255,000 | $ | 105,788,000 | $ | 86,014,000 | |||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Gross
profit
|
33.6 | % | 36.1 | % | 34.9 | % | ||||||
|
Selling,
general and administrative expenses
|
17.2 | % | 18.0 | % | 18.0 | % | ||||||
|
Operating
income
|
16.4 | % | 18.2 | % | 16.9 | % | ||||||
|
Interest
expense
|
.1 | % | .4 | % | .6 | % | ||||||
|
Other
income (expense)
|
― | (.1 | )% | ― | ||||||||
|
Income
tax expense
|
5.2 | % | 6.1 | % | 5.4 | % | ||||||
|
Minority
interests' share of income
|
2.8 | % | 3.2 | % | 3.2 | % | ||||||
|
Net
income
|
8.3 | % | 8.3 | % | 7.7 | % | ||||||
Comparison
of Fiscal 2009 to Fiscal 2008
Net
Sales
Net sales in fiscal 2009 decreased by
7.6% to $538.3 million compared to net sales of $582.3 million in fiscal
2008. The decrease in net sales reflects a decrease of $41.4 million
(a 9.5% decrease) to $395.4 million in net sales within the FSG and a decrease
of $2.7 million (a 1.8% decrease) to $143.4 million in net sales within the
ETG. The net sales decline in both the FSG and the ETG reflects the
impact of the continued global recession on our businesses, which has resulted
in a reduction in customer demand. The net sales decrease within the
FSG reflects lower demand for our aftermarket replacement parts and repair and
overhaul services resulting from worldwide airline capacity cuts and efforts to
reduce spending and conserve cash by the airline industry. Within the
ETG, we are generally seeing some strength in our defense related businesses,
including space and homeland security products, but continued weakness in
customer demand for certain of our medical, telecommunication and electronic
products. The net sales decline in the ETG was partially offset by
the favorable impact on net sales from acquisitions of approximately $17
million.
Our net sales in fiscal 2009 and 2008
by market approximated 68% and 69%, respectively, from the commercial aviation
industry, 20% and 16%, respectively, from the defense and space industries, and
12% and 15%, respectively, from other industrial markets including medical,
electronics and telecommunications.
Gross
Profit and Operating Expenses
Our consolidated gross profit margin
decreased to 33.6% in fiscal 2009 as compared to 36.1% in fiscal 2008, mainly
reflecting lower margins within the FSG due principally to a less favorable
product mix as well as the impact of lower sales volumes on fixed manufacturing
costs and a higher investment by HEICO in the research and development of new
products and services. Consolidated cost of sales in fiscal 2009 and
2008 includes approximately $19.7 million and $18.4 million, respectively, of
new product research and development expenses.
SG&A expenses were $92.8 million
and $104.7 million in fiscal 2009 and 2008, respectively. The
decrease in SG&A expenses was mainly due to lower operating costs,
principally personnel related, associated with cost reduction initiatives and
the decline in net sales discussed above, partially offset by the additional
operating costs associated with the acquired businesses. These cost
reductions resulted in a decrease of SG&A expenses as a percentage of net
sales from 18.0% in fiscal 2008 to 17.2% in fiscal 2009.
Operating
Income
Operating income in fiscal 2009
decreased by 16.6% to $88.3 million, compared to operating income of $105.8
million in fiscal 2008. The decrease in operating income reflects a
decrease of $21.2 million (a 26.1% decrease) to $60.0 million in operating
income of the FSG in fiscal 2009, partially offset by an increase of $1.2
million (a 3.1% increase) to $40.0 million in operating income of the ETG in
fiscal 2009 and a $2.4 million decrease in corporate expenses.
As a percentage of net sales, operating
income decreased to 16.4% in fiscal 2009 compared to 18.2% in fiscal
2008. The decrease in operating income as a percentage of net sales
reflects a decrease in the FSG’s operating income as a percentage of net sales
to 15.2% in fiscal 2009 compared to 18.6% in fiscal 2008, partially offset by an
increase in the ETG’s operating income as a percentage of net sales from 26.6%
in fiscal 2008 to 27.9% in fiscal 2009. The decrease in operating
income as a percentage of
net sales
for the FSG principally reflects the aforementioned impact of the lower sales
volume and a less favorable product mix on gross profit and operating income
margins. The increase in operating income as a percentage of net
sales for the ETG principally reflects a favorable product mix.
Interest
Expense
Interest expense decreased to $.6
million in fiscal 2009 from $2.3 million in fiscal 2008. The decrease
was principally due to lower variable interest rates under our revolving credit
facility in 2009.
Other
Income (Expense)
Other income (expense) in fiscal 2009
and 2008 were not material.
Income Tax
Expense
Our effective tax rate for fiscal 2009
decreased to 31.9% from 34.5% in fiscal 2008. The decrease was
principally related to a settlement reached with the Internal Revenue Service
(“IRS”) during fiscal 2009. The IRS settlement pertained to the
income tax credits claimed on HEICO’s U.S. federal filings for qualified
research and development activities incurred for fiscal years 2002 through 2005
and a resulting reduction to the related reserve for fiscal years 2002 through
2008 based on new information obtained during the examination, which increased
net income by approximately $1,225,000, or $.05 per diluted share, for fiscal
2009.
For a detailed analysis of the
provision for income taxes, see Note 6, Income Taxes, of the Notes to
Consolidated Financial Statements.
Minority
Interests’ Share of Income
Minority interests’ share of income of
consolidated subsidiaries relates to the 20% minority interest held in the FSG
and the minority interests held in certain subsidiaries of the FSG and the
ETG. Minority interests’ share of income decreased to $15.2 million
in fiscal 2009 from $18.9 million in fiscal 2008. The decrease in the
minority interests’ share of income for fiscal 2009 compared to fiscal 2008 is
principally attributable to the acquired additional equity interests of certain
FSG subsidiaries in which minority interests exist as well as the lower earnings
of the FSG, partially offset by the higher earnings of certain ETG subsidiaries
in which minority interests exist and the mid-year acquisition of an 82.5%
interest in VPT.
Net
Income
Our net income was $44.6 million, or
$1.65 per diluted share, in fiscal 2009 compared to $48.5 million, or $1.78 per
diluted share, in fiscal 2008 reflecting the decreased operating income
referenced above, partially offset by the aforementioned favorable IRS
settlement, the decreased minority interests’ share of income of certain
consolidated subsidiaries and lower interest expense.
Outlook
As we look forward to fiscal 2010,
HEICO will continue its focus on developing new products and services, further
market penetration, additional acquisition opportunities and maintaining its
financial strength. We are targeting growth in net sales, earnings
and net cash provided by operating activities in fiscal 2010 over fiscal 2009
results despite the uncertainty as to the duration of the global economic
recession.
Comparison
of Fiscal 2008 to Fiscal 2007
Net
Sales
Net sales in fiscal 2008 increased by
14.7% to $582.3 million, as compared to net sales of $507.9 million in fiscal
2007. The increase in net sales reflects an increase of $52.9 million
(a 13.8% increase) to $436.8 million in net sales within the FSG and an increase
of $22.0 million (a 17.7% increase) to $146.0 million in net sales within the
ETG. The FSG’s net sales increase reflects organic growth of
approximately 10% as well as the impact on net sales from the fiscal 2008
acquisitions. The organic growth principally represents higher sales
of new products and services and increased demand for the FSG’s aftermarket
replacement parts and repair and overhaul services. The ETG’s net
sales increase reflects the impact on net sales from prior year acquisitions as
well as organic growth of approximately 9% principally due to increased demand
for certain products.
Our net sales in both fiscal 2008 and
2007 by market approximated 69% from the commercial aviation industry, 16% from
the defense and space industries and 15% from other industrial markets including
medical, electronics and telecommunications.
Gross
Profit and Operating Expenses
Our gross profit margin increased to
36.1% in fiscal 2008 as compared to 34.9% in fiscal 2007, principally reflecting
higher margins within the FSG and the ETG primarily due to a more favorable
product mix. Consolidated cost of sales in fiscal 2008 and 2007
includes approximately $18.4 million and $16.5 million, respectively, of new
product research and development expenses.
SG&A expenses were $104.7 million
and $91.4 million in fiscal 2008 and 2007, respectively. The increase
in SG&A expenses was mainly due to higher operating costs, principally
personnel related, associated with the growth in net sales discussed above and
the additional operating costs associated with the acquired
businesses. As a percentage of net sales, SG&A expenses were
18.0% in fiscal 2008 and 2007.
Operating
Income
Operating income in fiscal 2008
increased by 23.0% to $105.8 million, compared to operating income of $86.0
million in fiscal 2007. The increase in operating income reflects an
increase of $13.8 million (a 20.4% increase) to $81.2 million in operating
income of the FSG in fiscal 2008, an increase of $4.9 million (a 14.5% increase)
to $38.8 million in operating income of the ETG in fiscal 2008 and a $1.1
million decrease in corporate expenses.
As a percentage of net sales, operating
income increased to 18.2% in fiscal 2008 compared to 16.9% in fiscal
2007. The increase in operating income as a percentage of net sales
reflects an increase in the FSG’s operating income as a percentage of net sales
to 18.6% in fiscal 2008 compared to 17.6% in fiscal 2007, partially offset by a
decrease in the ETG’s operating income as a percentage of net sales from 27.3%
in fiscal 2007 to 26.6% in fiscal 2008. The increase in the FSG’s
operating income as a percentage of net sales principally reflects the
aforementioned increased gross profit margins. The decrease in the
ETG’s operating income as a percentage of net sales principally reflects an
aggregate of $1.8 million in impairment losses related to the write-down of
certain intangible assets to their estimated fair values recognized in fiscal
2008.
Interest
Expense
Interest expense decreased to $2.3
million in fiscal 2008 from $3.3 million in fiscal 2007. The decrease was
principally due to lower interest rates.
Other
Income (Expense)
Other income (expense) in fiscal 2008
and 2007 were not material.
Income Tax
Expense
Our effective tax rate for fiscal 2008
increased to 34.5% from 33.2% in fiscal 2007. The increase was
principally related to the December 2006 retroactive extension for the two year
period covering January 1, 2006 to December 31, 2007 of Section 41, “Credit for
Increasing Research Activities,” of the Internal Revenue Code. As a
result of this retroactive extension, we recognized an income tax credit for
qualified research and development activities for the full fiscal 2006 year in
fiscal 2007, which increased net income, net of expenses, by approximately $.5
million.
For a detailed analysis of the
provision for income taxes, see Note 6, Income Taxes, of the Notes to
Consolidated Financial Statements.
Minority
Interests’ Share of Income
Minority interests’ share of income of
consolidated subsidiaries relates to the 20% minority interests held in the FSG
and the minority interests held in certain subsidiaries of the FSG and the
ETG. Minority interests’ share of income increased to $18.9 million
in fiscal 2008 from $16.3 million in fiscal 2007. The increase in the
minority interests’ share of income in fiscal 2008 compared to fiscal 2007 was
attributable to the higher earnings of the FSG and certain ETG subsidiaries in
which the minority interests exist.
Net
Income
Our net income was $48.5 million, or
$1.78 per diluted share, in fiscal 2008 compared to $39.0 million, or $1.45 per
diluted share, in fiscal 2007 reflecting the increased operating income
referenced above, partially offset by the increased minority interests’ share of
certain consolidated subsidiaries.
Inflation
We have generally experienced increases
in our costs of labor, materials and services consistent with overall rates of
inflation. The impact of such increases on our net income has been
generally minimized by efforts to lower costs through manufacturing efficiencies
and cost reductions.
Liquidity
and Capital Resources
Our capitalization was as
follows:
|
As of October 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
and cash equivalents
|
$ | 7,167,000 | $ | 12,562,000 | ||||
|
Total
debt (including current portion)
|
55,431,000 | 37,601,000 | ||||||
|
Shareholders’
equity
|
457,853,000 | 417,760,000 | ||||||
|
Total
capitalization (debt plus equity)
|
513,284,000 | 455,361,000 | ||||||
|
Total
debt to total capitalization
|
11 | % | 8 | % | ||||
In addition to cash and cash
equivalents of $7.2 million, we had approximately $243 million of unused
availability under the terms of our revolving credit facility as of October 31,
2009. Our principal uses of cash include acquisitions, payments of
principal and interest on debt, capital expenditures, cash dividends and
increases in working capital. We finance our activities primarily
from our operating activities and financing activities, including borrowings
under short-term and long-term credit agreements.
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 the foreseeable future.
Operating
Activities
Net cash provided by operating
activities was $75.8 million for fiscal 2009, principally reflecting net income
of $44.6 million, minority interests’ share of income of $15.2 million,
depreciation and amortization of $15.0 million, a tax benefit related to stock
option exercises of $1.9 million, and a decrease in net operating assets of $2.5
million, partially offset by the presentation of $1.6 million of excess tax
benefit from stock option exercises as a financing activity and a deferred
income tax benefit of $2.7 million. The decrease in net operating
assets (current assets used in operating activities net of current liabilities)
primarily reflects a decrease in accounts receivable due to the timing of cash
collections and lower net sales, partially offset by a decrease in accrued
expenses, including employee compensation, customer rebates and credits and
additional accrued purchase consideration since October 31, 2008.
Net cash provided by operating
activities was $73.2 million for fiscal 2008, principally reflecting net income
of $48.5 million, minority interests’ share of income of $18.9 million,
depreciation and amortization of $15.1 million, a tax benefit related to stock
option exercises of $6.2 million, deferred income tax provision of $3.6 million
and impairment losses of intangible assets aggregating $1.8 million, partially
offset by an increase in net operating assets of $17.1 million and the
presentation of $4.3 million of excess tax benefit from stock option exercises
as a financing activity. The increase in net operating assets
(current assets used in operating activities net of current liabilities)
primarily reflects a higher investment in inventories by the FSG required to
meet sales demand associated with new product offerings, sales growth, and
increased lead times on certain raw materials; and an increase in accounts
receivable due to sales growth; partially offset by higher current liabilities
associated with increased sales and purchases and higher accrued employee
compensation and related payroll taxes.
Net cash provided by operating
activities was $57.5 million for fiscal 2007, principally reflecting net income
of $39.0 million, minority interests’ share of income of $16.3 million,
depreciation and amortization of $12.2 million, a tax benefit related to stock
option exercises of $6.9 million, and a deferred income tax provision of $2.8
million, partially offset by an increase in net operating assets of
$16.0
million and the presentation of $5.3 million of excess tax benefit from stock
option exercises as a financing activity. The increase in net
operating assets primarily reflects a higher investment in inventories by the
FSG required to meet increased sales demand associated with new product
offerings, sales growth, improved product delivery times, and higher prices of
certain raw materials; and an increase in accounts receivable due to sales
growth; partially offset by higher current liabilities associated with increased
sales and purchases and higher accrued employee compensation and related payroll
taxes.
Investing
Activities
Net cash used in investing activities
during the three-year fiscal period ended October 31, 2009 primarily relates to
several acquisitions, including payments of additional contingent purchase
consideration and the acquisitions of certain minority interests, totaling
$148.5 million, including $71.1 million in fiscal 2009, $29.0 million in fiscal
2008 and $48.4 million in fiscal 2007. Further details on
acquisitions may be found at the beginning of this Item 7 under the caption
“Overview” and Note 2, Acquisitions, of the Notes to Consolidated Financial
Statements. Capital expenditures aggregated $36.6 million over the
last three fiscal years, primarily reflecting the expansion of existing
production facilities and capabilities, which were generally funded using cash
provided by operating activities.
Financing
Activities
During the three-year fiscal period
ended October 31, 2009, the Company borrowed an aggregate $187.0 million under
its revolving credit facility principally to fund acquisitions and for working
capital needs, including $91.0 million in fiscal 2009, $50.0 million in fiscal
2008 and $46.0 million in fiscal 2007. Further details on acquisitions may be
found at the beginning of this Item under the caption “Overview” and Note 2,
Acquisitions, of the Notes to Consolidated Financial
Statements. Repayments on the revolving credit facility aggregated
$185.0 million over the last three fiscal years, including $73.0 million in
fiscal 2009, $66.0 million in fiscal 2008 and $46.0 million in fiscal
2007. For the three-year fiscal period ended October 31, 2009, we
made distributions to minority interest owners aggregating $23.5 million, made
repurchases of our common stock aggregating $8.1 million, paid cash dividends
aggregating $7.8 million, and paid the matured industrial development revenue
bonds aggregating $2.0 million. For the three-year fiscal period
ended October 31, 2009, we received proceeds from stock option exercises
aggregating $10.5 million. Net cash provided by financing activities
also includes the presentation of $1.6 million, $4.3 million and $5.3 million of
excess tax benefit from stock option exercises in fiscal 2009, 2008 and 2007,
respectively.
In May 2008, we amended our revolving
credit facility by entering into a $300 million Second Amended and Restated
Revolving Credit Agreement (“Credit Facility”) with a bank syndicate, which
matures in May 2013. Under certain circumstances, the maturity may be
extended for two one-year periods. The Credit Facility also includes
a feature that will allow us to increase the Credit Facility, at its option, up
to $500 million through increased commitments from existing lenders or the
addition of new lenders. The Credit Facility may be used for working
capital and general corporate needs of the company, including letters of credit,
capital expenditures and to finance acquisitions. Advances under the
Credit Facility accrue interest at our choice of the “Base Rate” or the London
Interbank Offered Rate (“LIBOR”) plus applicable margins (based on our ratio of
total funded debt to earnings before interest, taxes, depreciation and
amortization, minority interest and non-cash charges, or “leverage
ratio”). The Base Rate is the higher of (i) the Prime Rate or (ii)
the Federal Funds rate plus .50%. The applicable margins for
LIBOR-based borrowings range from .625% to 2.25%. A fee is charged on
the amount of the unused commitment ranging from .125% to .35% (depending on our
leverage ratio). The Credit Facility also includes a $50 million
sublimit for borrowings made in euros, a $30 million sublimit for letters of
credit and a $20 million swingline sublimit. The Credit Facility is
unsecured and contains covenants that require, among other things, the
maintenance of the leverage ratio, a senior leverage ratio and a
fixed
charge
coverage ratio. In the event our leverage ratio exceeds a specified
level, the Credit Facility would become secured by the capital stock owned in
substantially all of our subsidiaries. As of October 31, 2009, our
leverage ratio was significantly below such specified level. See Note
5, Short-Term and Long-Term Debt, of the Notes to Consolidated Financial
Statements for further information regarding the revolving credit
facility.
Contractual
Obligations
The following table summarizes our
contractual obligations as of October 31, 2009:
|
Payments due by fiscal period
|
||||||||||||||||||||
|
Total
|
2010
|
2011 - 2012
|
2013 - 2014
|
Thereafter
|
||||||||||||||||
|
Short-term and
long-term debt obligations (1)
|
$ | 55,374,000 | $ | 193,000 | $ | 161,000 | $ | 55,020,000 | $ | ― | ||||||||||
|
Capital lease
obligations and equipment loans (1)
|
57,000 | 44,000 | 13,000 | ― | ― | |||||||||||||||
|
Operating lease
obligations (2)
|
28,188,000 | 6,012,000 | 9,604,000 | 5,487,000 | 7,085,000 | |||||||||||||||
|
Purchase obligations
(3)
(4)
(5)
|
8,746,000 | 2,775,000 | 5,971,000 | ― | ― | |||||||||||||||
|
Other long-term
liabilities (6)
(7)
|
203,000 | 56,000 | 80,000 | 67,000 | ― | |||||||||||||||
|
Total
contractual obligations
|
$ | 92,568,000 | $ | 9,080,000 | $ | 15,829,000 | $ | 60,574,000 | $ | 7,085,000 | ||||||||||
|
(1)
|
Excludes
interest charges on borrowings and the fee on the amount of any unused
commitment that we may be obligated to pay under our revolving credit
facility as such amounts vary. Also excludes interest charges
associated with notes payable, capital lease obligations and equipment
loans as such amounts are not material. See Note 5, Short-Term
and Long-Term Debt, of the Notes to Consolidated Financial Statements and
“Financing
Activities” above for additional information regarding our
long-term debt and capital lease obligations and equipment
loans.
|
|
(2)
|
See
Note 15, Commitments and Contingencies – Lease Commitments, of the Notes
to Consolidated Financial Statements for additional information regarding
our operating lease obligations.
|
|
(3)
|
Includes
an aggregate of $273,000 of commitments for capital expenditures as well
as purchase obligations of inventory and supplies that extend beyond one
year. All purchase obligations of inventory and supplies in the
ordinary course of business (i.e., with deliveries scheduled within the
next year) are excluded from the
table.
|
|
(4)
|
Also
includes accrued additional contingent purchase consideration of
$1,775,000 payable in fiscal 2010 relating to a previous year acquisition
(see Note 2, Acquisitions, of the Notes to Consolidated Financial
Statements). The amounts in the table do not include the
additional contingent purchase consideration we may have to pay based on
future earnings of certain acquired businesses, which is further discussed
in “Off-Balance Sheet Arrangements – Acquisitions – Additional Contingent
Purchase Consideration” below. The aggregate maximum amount of such
contingent purchase consideration that we could be required to pay is
approximately $94 million payable over the future periods beginning in
fiscal 2010 through fiscal 2013. Assuming the subsidiaries
perform over their respective future measurement periods at the same
earnings levels they performed in the comparable historical measurement
periods, the aggregate amount of such contingent purchase consideration
that we would be required to pay is approximately $12
million. The actual contingent purchase consideration will
likely be different.
|
|
(5)
|
As
further explained below in “Off-Balance Sheet Arrangements – Acquisitions
– Put/Call Rights,” the minority interest holders of certain subsidiaries
have rights (“Put Rights”) that may be exercised on varying dates causing
us to purchase their equity interests beginning in fiscal 2010 through
fiscal 2018. The Put Rights provide that cash consideration be paid
for minority interests (“Redemption Amount”). The amounts in
the
|
|
|
table
include $6,698,000 as management’s estimate of the aggregate Redemption
Amount payable in fiscal years 2010 through 2012 pursuant to past
exercises of such Put Rights by the minority interest holders of certain
of our subsidiaries. As the actual Redemption Amount payable in
fiscal 2011 and 2012 are based on a multiple of future earnings, such
amounts will likely be different. Management’s estimate of the
aggregate Redemption Amount related to all other Put Rights of
approximately $50 million has been excluded from the table as the timing
of such payments is contingent upon the exercise of the Put
Rights.
|
|
(6)
|
Represents
projected payments aggregating $203,000 under our Directors Retirement
Plan, which is explained further in Note 10, Retirement Plans, of the
Notes to Consolidated Financial Statements (the plan is unfunded and we
pay benefits directly). The amounts in the table do not include
amounts related to the Leadership Compensation Plan or our other deferred
compensation arrangement as there is a related asset or an offsetting
asset, respectively, included in our Consolidated Balance
Sheets. See Note 3, Selected Financial Statement Information –
Other Long-Term Liabilities, of the Notes to Consolidated Financial
Statements for further information about these two deferred compensation
plans.
|
|
(7)
|
The
amounts in the table do not include approximately $3,121,000 of our
liability for unrecognized tax benefits due to the uncertainty with
respect to the timing of future cash flows associated with these
unrecognized tax benefits as we are unable to make reasonably reliable
estimates of the timing of any cash settlements. See Note 6,
Income Taxes, of the Notes to Consolidated Financial Statements for
further information about our liability for unrecognized tax
benefits.
|
Off-Balance
Sheet Arrangements
Guarantees
We have arranged for a standby letter
of credit for $1.5 million, which is supported by our revolving credit facility,
to meet the security requirement of our insurance company for potential workers’
compensation claims. As of October 31, 2009, one of our subsidiaries
has guaranteed its performance related to a customer contract through a letter
of credit for $.4 million, expiring May 2010, which is supported by our
revolving credit facility. The subsidiary is also a beneficiary of a
letter of credit related to the same contract.
Acquisitions
– Put/Call Rights
As part of the agreement to acquire an
80% interest in a subsidiary by the ETG in fiscal 2004, the minority interest
holders currently have the right to cause us to purchase their interests over a
five-year period and we have the right to purchase the minority interests over a
five-year period beginning in fiscal 2015, or sooner under certain
conditions.
Pursuant to the purchase agreement
related to the acquisition of an 85% interest in a subsidiary by the ETG in
fiscal 2005, certain minority interest holders exercised their option during
fiscal 2007 to cause us to purchase their aggregate 3% interest over a four-year
period ending in fiscal 2010. Pursuant to this same purchase
agreement, certain other minority interest holders exercised their option during
fiscal 2009 to cause us to purchase their aggregate 10.5% interest over a
four-year period ending in fiscal 2012. Accordingly, we increased our
ownership interest in the subsidiary by an aggregate 4.9% (or one-fourth of such
applicable minority interest holders’ aggregate interest in fiscal years 2007
through 2009) to 89.9% effective April 2009. Further, the remaining
minority interest holders currently have the right to cause us to purchase their
aggregate 1.5% interest over a four-year period.
Pursuant to the purchase agreement
related to the acquisition of a 51% interest in a subsidiary by the FSG in
fiscal 2006, the minority interest holders exercised their option during fiscal
2008 to cause us to purchase an aggregate 28% interest over a four-year period
ending in fiscal 2011. Accordingly, we
increased
our ownership interest in the subsidiary by 7% (or one-fourth of such minority
interest holders’ aggregate interest) to 58% effective April 2008. We
and the minority interest holders agreed to accelerate the purchase of 14% of
these equity interests (7% from April 2009 and 7% from April 2010), which
increased our ownership interest to 72% effective December 2008. The
remaining 7% interest is scheduled to be purchased in April
2011. Further, we have the right to purchase the remaining 21% of the
equity interests of the subsidiary over a three-year period beginning in fiscal
2012, or sooner under certain conditions, and the minority interest holders have
the right to cause us to purchase the same equity interests over the same
period.
As part of the agreement to acquire an
80% interest in a subsidiary by the FSG in fiscal 2006, we have the right to
purchase the minority interests over a four-year period beginning in fiscal
2014, or sooner under certain conditions, and the minority interest holders have
the right to cause us to purchase the same equity interest over the same
period.
As part of an agreement to acquire an
80% interest in a subsidiary by the FSG in fiscal 2008, we have the right to
purchase the minority interests over a five-year period beginning in fiscal
2014, or sooner under certain conditions, and the minority interest holders have
the right to cause us to purchase the same equity interest over the same
period.
As part of an agreement to acquire an
82.5% interest in a subsidiary by the ETG in fiscal 2009, we have the right to
purchase the minority interests beginning in fiscal 2014, or sooner under
certain conditions, and the minority interest holder has the right to cause us
to purchase the same equity interests over the same period.
The above referenced rights of the
minority interest holders (“Put Rights”) may be exercised on varying dates
causing us to purchase their equity interests beginning in fiscal 2010 through
fiscal 2018. 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 the minority interests (“Redemption Amount”)
be at a formula that management intended to reasonably approximate fair value,
as defined in the applicable agreements based on a multiple of future earnings
over a measurement period. As described in Note 1, Summary of
Significant Accounting Policies, of the Notes to Consolidated Financial
Statements, we are required to adopt new guidance regarding the accounting for
our Put Rights (known as “redeemable noncontrolling interests”) effective as of
the beginning of fiscal 2010. Effective November 1, 2009, we will
adjust our redeemable noncontrolling interests to the higher of their carrying
cost or management’s estimate of the Redemption Amount with a corresponding
charge to retained earnings and classify such interests outside of permanent
equity in our Consolidated Balance Sheets. Under this guidance,
subsequent adjustments to the carrying amount of redeemable noncontrolling
interests (the Redemption Amount) based on fair value will be recorded to
retained earnings and have no effect on net income per diluted
share. Subsequent adjustments to the carrying amount of redeemable
noncontrolling interests based solely on a multiple of future earnings that
reflect a redemption in excess of fair value will be recorded to retained
earnings and will be reflected in net income per diluted share under the
two-class method. As of October 31, 2009, management’s estimate of
the aggregate Redemption Amount of all Put Rights that we would be required to
pay is approximately $57 million. The actual Redemption Amount will
likely be different. The portion of the estimated Redemption Amount
as of October 31, 2009 redeemable at fair value is $25 million and the portion
redeemable based solely on a multiple of future earnings is $32 million.
Acquisitions
– Additional Contingent Purchase Consideration
As part of the agreement to purchase a
subsidiary by the ETG in fiscal 2005, we may be obligated to pay additional
purchase consideration currently estimated to be $.9 million should the
subsidiary meet certain product line-related earnings objectives during calendar
year 2009.
As part of the agreement to acquire a
subsidiary by the ETG in fiscal 2007, we may be obligated to pay additional
purchase consideration up to 73 million Canadian dollars in aggregate, which
translates to approximately $68 million U.S. dollars based on the October 31,
2009 exchange rate, should the subsidiary meet certain earnings objectives
through fiscal 2012.
As part of the agreement to acquire a
subsidiary by the FSG in fiscal 2008, we may be obligated to pay additional
purchase consideration of up to approximately $.4 million should the subsidiary
meet certain earnings objectives during fiscal 2010, 2011 and 2012.
As part of the agreement to acquire a
subsidiary by the ETG in fiscal 2009, we may be obligated to pay additional
purchase consideration of up to approximately $1.3 million in fiscal 2010, $1.3
million in fiscal 2011 and $10.1 million in fiscal 2012 should the subsidiary
meet certain earnings objectives during each of the first three years following
the acquisition.
As part of the agreement to acquire a
subsidiary by the ETG in fiscal 2009, we may be obligated to pay additional
purchase consideration of up to approximately $11.7 million should the
subsidiary meet certain earnings objectives during the first two years following
the acquisition.
The above referenced additional
contingent purchase consideration will be accrued when the earnings objectives
are met. Such additional contingent consideration is based on a multiple of
earnings above a threshold (subject to a cap in certain cases) and is not
contingent upon the former shareholders of the acquired entities remaining
employed by us or providing future services to us. Accordingly, such
consideration will be recorded as an additional cost of the respective acquired
entity when paid.
For additional information on the
aforementioned acquisitions see Note 2, Acquisitions, of the Notes to
Consolidated Financial Statements.
New
Accounting Pronouncements
In September 2006, the Financial
Accounting Standards Board (“FASB”) issued new guidance which defines fair
value, establishes a framework for measuring fair value, and requires expanded
disclosures about fair value measurements. In February 2008, the FASB
issued additional guidance which delays the effective date by one year for
nonfinancial assets and liabilities, except those recognized or disclosed at
fair value in the financial statements on a recurring basis. We adopted all
required portions of the new guidance effective November 1, 2008. The
adoption did not have a material effect on our results of operations, financial
position or cash flows. See Note 7, Fair Value Measurements, of the Notes to
Consolidated Financial Statements, which provides information about the extent
to which fair value is used to measure assets and liabilities and the methods
and assumptions used to measure fair value. We will adopt the
portions of the new guidance that were delayed at the beginning of fiscal 2010,
and we are currently in the process of evaluating the effect such adoption will
have on our results of operations, financial position and cash
flows.
In February 2007, the FASB issued new
guidance that permits entities to choose to measure certain financial assets and
liabilities at fair value that are not currently required to be measured at fair
value, and report unrealized gains and losses on items for which the fair value
option has been elected in earnings. We adopted this guidance
effective November 1, 2008 and have not elected to measure any financial assets
and financial liabilities at fair value that were not previously required to be
measured at fair value. Accordingly, the adoption of the new guidance
did not impact our results of operations, financial position or cash
flows.
In December 2007, the FASB issued new
guidance on business combinations that retains the fundamental requirements of
previous guidance that the acquisition method of accounting (formerly the
“purchase accounting” method) be used for all business combinations and for an
acquirer to be identified for each business combination. However, the
new guidance changes the approach of applying the acquisition method in a number
of significant areas, including that acquisition costs will generally be
expensed as incurred; noncontrolling interests will be valued at fair value at
the acquisition date; in-process research and development will be recorded at
fair value as an indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. The new guidance is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first fiscal year beginning
on or after December 15, 2008, or in fiscal 2010 for us. We will
apply this new guidance for all business combinations consummated on or after
November 1, 2009.
In December 2007, the FASB issued new
guidance that requires the recognition of certain noncontrolling interests
(previously referred to as minority interests) as a separate component within
equity in the consolidated balance sheet. It also requires the amount of
consolidated net income attributable to the parent and the noncontrolling
interest be clearly identified and presented within the consolidated statement
of operations. The new guidance is effective for fiscal years
beginning on or after December 15, 2008, or in fiscal 2010 for
us. The adoption of this new guidance will affect the presentation of
noncontrolling interests in our results of operations, financial position and
cash flows.
In March 2008, the FASB Emerging Issues
Task Force (“EITF”) made certain revisions to the guidance on the financial
statement classification and measurement of redeemable noncontrolling interests
which are required to be applied no later than the effective date of the above
referenced guidance for noncontrolling interests, or in fiscal 2010 for
us. As further detailed in Note 15, Commitments and Contingencies, of
the Notes to Consolidated Financial Statements, the holders of interests in
certain of our subsidiaries have rights (“Put Rights”) that require us to
provide cash consideration for their equity interests (the “Redemption Amount”)
at fair value or at a formula that management intended to reasonably approximate
fair value, as defined in the applicable agreements based solely on a multiple
of future earnings over a measurement period. The Put Rights are
embedded in the shares owned by the noncontrolling interest holders and are not
freestanding. Historically, we have recorded such redeemable
noncontrolling interests at historical cost plus an allocation of subsidiary
earnings based on ownership interests, less dividends paid to the noncontrolling
interest holders. Effective November 1, 2009, we will adjust our
redeemable noncontrolling interests to the higher of their carrying cost or
management’s estimate of the Redemption Amount with a corresponding charge to
retained earnings and classify such interests outside of permanent
equity. Under this guidance, subsequent adjustments to the carrying
amount of redeemable noncontrolling interests (the Redemption Amount) based on
fair value will be recorded to retained earnings and have no effect on net
income per diluted share. Subsequent adjustments to the carrying
amount of redeemable noncontrolling interests based solely on a multiple of
future earnings that reflect a redemption in excess of fair value will be
recorded to retained earnings and will be reflected in net income per diluted
share under the two-class method. If both the guidance on
noncontrolling interests and redeemable noncontrolling interests was effective
as of October 31, 2009, we would have reclassified approximately $78 million
from minority interests in consolidated subsidiaries to permanent equity for
non-redeemable noncontrolling interests and recorded an approximately $45
million increase to minority interests in consolidated subsidiaries (to be
renamed as “redeemable noncontrolling interests”) with a corresponding decrease
to retained earnings in our Consolidated Balance Sheets. The
resulting $57 million of redeemable noncontrolling interests represents
management’s estimate of the aggregate Redemption Amount of all Put Rights that
the Company would be required to pay of which approximately $25
million
is
redeemable at fair value and approximately $32 million is redeemable based
solely on a multiple of future earnings. The actual Redemption Amount
will likely be different.
In March 2008, the FASB issued new
guidance that expands the disclosure requirements about an entity’s derivative
instruments and hedging activities. It requires enhanced disclosures
about (i) how and why an entity uses derivative instruments; (ii) how derivative
instruments and related hedged items are accounted for; and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. We adopted the new guidance effective
February 1, 2009. The new guidance affects financial statement
disclosures only, and we will make the required additional disclosures in
reporting periods for which we use derivative instruments.
In May 2008, the FASB issued new
guidance that identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements
that are presented in conformity with generally accepted accounting
principles. The new guidance became effective November 15,
2008. The adoption of the new guidance did not have a material effect
on our results of operations, financial position or cash flows.
In May 2009, the FASB issued new
guidance on subsequent events that establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued. The new guidance requires the
disclosure of the date through which an entity has evaluated subsequent events,
which is through the date the financial statements are issued for a public
entity such as ours. We adopted the new guidance in the third quarter
of fiscal 2009. The adoption of the new guidance did not impact our
results of operations, financial position or cash flows.
In June 2009, the FASB issued new
guidance that establishes the FASB Accounting Standards CodificationTM as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with generally accepted accounting principles
(“GAAP”). We adopted the new guidance in the fourth quarter of fiscal
2009. The new guidance is not intended to change GAAP, therefore the
adoption of the new guidance did not impact our results of operations, financial
position or cash flows.
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 statements 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 known and unknown 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 or implied in those statements. Factors that
could cause such differences include, but are not limited to:
|
|
·
|
Lower
demand for commercial air travel or airline fleet changes, 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 product pricing levels, which could
reduce our sales or sales growth;
and
|
|
|
·
|
Our
ability to make acquisitions and achieve operating synergies from acquired
businesses, customer credit risk, interest rates and economic conditions
within and outside of the aviation, defense, space, medical,
telecommunication and electronic industries, which could negatively impact
our costs and revenues.
|
For further information on these and
other factors that potentially could materially affect our financial results,
see Item 1A, Risk Factors. We undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
The primary market risk to which we
have exposure is interest rate risk, mainly related to our revolving credit
facility, which has variable interest rates. Interest rate risk
associated with our variable rate debt is the potential increase in interest
expense from an increase in interest rates. Periodically, we enter
into interest rate swap agreements to manage our interest expense. We
did not have any interest rate swap agreements in effect as of October 31,
2009. Based on our aggregate outstanding variable rate debt balance
of $55 million as of October 31, 2009, a hypothetical 10% increase in interest
rates would not have a material effect on our results of operations, financial
position or cash flows.
We maintain a portion of our cash and
cash equivalents in financial instruments with original maturities of three
months or less. These financial instruments are subject to interest
rate risk and will decline in value if interest rates increase. Due
to the short duration of these financial instruments, a hypothetical 10%
increase in interest rates as of October 31, 2009 would not have a material
effect on our results of operations, financial position or cash
flows.
We are also exposed to foreign currency
exchange rate fluctuations on the United States dollar value of our foreign
currency denominated transactions, which are principally in Canadian dollar and
British pound sterling. During fiscal 2008, we entered into a one
year foreign currency forward contract to mitigate a portion of foreign exchange
risk at one of our foreign subsidiaries for transactions denominated in a
currency other than its functional currency. The impact of this
forward contract did not have a material effect on our results of operations,
financial position or cash flows. A hypothetical 10% weakening in the
exchange rate of the Canadian dollar or British pound sterling to the United
States dollar as of October 31, 2009 would not have a material effect on our
results of operations, financial position or cash flows.
|
FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
|
HEICO
CORPORATION AND SUBSIDIARIES
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
||||
|
Report
of Independent Registered Public Accounting Firm
|
40 | |||
|
Consolidated
Balance Sheets as of October 31, 2009 and 2008
|
42 | |||
|
Consolidated
Statements of Operations for the years ended October 31,
2009,
|
||||
|
2008
and 2007
|
43 | |||
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive
Income
|
||||
|
for
the years ended October 31, 2009, 2008 and 2007
|
44 | |||
|
Consolidated
Statements of Cash Flows for the years ended October 31,
2009,
|
||||
|
2008
and 2007
|
45 | |||
|
Notes
to Consolidated Financial Statements
|
46 | |||
|
Financial
Statement Schedule II, Valuation and Qualifying Accounts for
the
|
||||
|
years
ended October 31, 2009, 2008 and 2007
|
84 | |||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
HEICO
Corporation
Hollywood,
Florida
We have
audited the accompanying consolidated balance sheets of HEICO Corporation and
subsidiaries (the “Company”) as of October 31, 2009 and 2008, and the related
consolidated statements of operations, shareholders’ equity and comprehensive
income, and cash flows for each of the three years in the period ended October
31, 2009. Our audits also included the financial statement schedule listed
in the Index at Item 15. We also have audited the Company’s internal
control over financial reporting as of October 31, 2009, based on criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is
responsible for these financial statements and the financial statement schedule,
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule and an opinion
on the Company’s internal control over financial reporting based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel 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. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of HEICO Corporation and
subsidiaries as of October 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 2009, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein. Also, in our opinion,
the Company maintained, in all material respects, effective internal control
over financial reporting as of October 31, 2009, based on the criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
DELOITTE
& TOUCHE LLP
Certified
Public Accountants
Miami,
Florida
December
23, 2009
HEICO
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
As of October 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 7,167,000 | $ | 12,562,000 | ||||
|
Accounts
receivable, net
|
77,864,000 | 88,403,000 | ||||||
|
Inventories,
net
|
137,585,000 | 132,910,000 | ||||||
|
Prepaid
expenses and other current assets
|
4,290,000 | 3,678,000 | ||||||
|
Deferred
income taxes
|
16,671,000 | 13,957,000 | ||||||
|
Total
current assets
|
243,577,000 | 251,510,000 | ||||||
|
Property,
plant and equipment, net
|
60,528,000 | 59,966,000 | ||||||
|
Goodwill
|
365,243,000 | 323,393,000 | ||||||
|
Intangible
assets, net
|
41,588,000 | 24,983,000 | ||||||
|
Other
assets
|
21,974,000 | 16,690,000 | ||||||
|
Total
assets
|
$ | 732,910,000 | $ | 676,542,000 | ||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
maturities of long-term debt
|
$ | 237,000 | $ | 220,000 | ||||
|
Trade
accounts payable
|
26,978,000 | 29,657,000 | ||||||
|
Accrued
expenses and other current liabilities
|
36,978,000 | 49,586,000 | ||||||
|
Income
taxes payable
|
1,320,000 | 1,765,000 | ||||||
|
Total
current liabilities
|
65,513,000 | 81,228,000 | ||||||
|
Long-term
debt, net of current maturities
|
55,194,000 | 37,381,000 | ||||||
|
Deferred
income taxes
|
41,340,000 | 39,192,000 | ||||||
|
Other
long-term liabilities
|
23,268,000 | 17,003,000 | ||||||
|
Total
liabilities
|
185,315,000 | 174,804,000 | ||||||
|
Minority
interests in consolidated subsidiaries (Note 15)
|
89,742,000 | 83,978,000 | ||||||
|
Commitments
and contingencies (Notes 2 and 15)
|
||||||||
|
Shareholders’
equity:
|
||||||||
|
Preferred
Stock, $.01 par value per share; 10,000,000 shares authorized; 300,000
shares designated as Series B Junior Participating Preferred Stock and
300,000 shares designated as Series C Junior Participating Preferred
Stock; none issued
|
― | ― | ||||||
|
Common
Stock, $.01 par value par share; 30,000,000 shares authorized; 10,409,141
and 10,572,641 shares issued and outstanding, respectively
|
104,000 | 106,000 | ||||||
|
Class
A Common Stock, $.01 par value per share; 30,000,000 shares authorized;
15,713,234 and 15,829,790 shares issued and outstanding,
respectively
|
157,000 | 158,000 | ||||||
|
Capital
in excess of par value
|
224,625,000 | 229,443,000 | ||||||
|
Accumulated
other comprehensive loss
|
(1,381,000 | ) | (4,819,000 | ) | ||||
|
Retained
earnings
|
234,348,000 | 192,872,000 | ||||||
|
Total
shareholders’ equity
|
457,853,000 | 417,760,000 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 732,910,000 | $ | 676,542,000 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
HEICO
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For the year ended October
31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 538,296,000 | $ | 582,347,000 | $ | 507,924,000 | ||||||
|
Operating
costs and expenses:
|
||||||||||||
|
Cost
of sales
|
357,285,000 | 371,852,000 | 330,466,000 | |||||||||
|
Selling,
general and administrative expenses
|
92,756,000 | 104,707,000 | 91,444,000 | |||||||||
|
Total
operating costs and expenses
|
450,041,000 | 476,559,000 | 421,910,000 | |||||||||
|
Operating
income
|
88,255,000 | 105,788,000 | 86,014,000 | |||||||||
|
Interest
expense
|
(615,000 | ) | (2,314,000 | ) | (3,293,000 | ) | ||||||
|
Other
income (expense)
|
205,000 | (637,000 | ) | 95,000 | ||||||||
|
Income
before income taxes and minority interests
|
87,845,000 | 102,837,000 | 82,816,000 | |||||||||
|
Income
tax expense
|
28,000,000 | 35,450,000 | 27,530,000 | |||||||||
|
Income
before minority interests
|
59,845,000 | 67,387,000 | 55,286,000 | |||||||||
|
Minority
interests’ share of income
|
15,219,000 | 18,876,000 | 16,281,000 | |||||||||
|
Net
income
|
$ | 44,626,000 | $ | 48,511,000 | $ | 39,005,000 | ||||||
|
Net
income per share:
|
||||||||||||
|
Basic
|
$ | 1.70 | $ | 1.84 | $ | 1.52 | ||||||
|
Diluted
|
$ | 1.65 | $ | 1.78 | $ | 1.45 | ||||||
|
Weighted
average number of common shares outstanding:
|
||||||||||||
|
Basic
|
26,204,799 | 26,309,139 | 25,715,899 | |||||||||
|
Diluted
|
27,024,031 | 27,243,356 | 26,931,048 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
HEICO
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
|
Accumulated
|
||||||||||||||||||||||||
|
Class
A
|
Capital
in
|
Other
|
||||||||||||||||||||||
|
Common
|
Common
|
Excess
of
|
Comprehensive
|
Retained
|
Comprehensive
|
|||||||||||||||||||
|
Stock
|
Stock
|
Par
Value
|
Income
(Loss)
|
Earnings
|
Income
|
|||||||||||||||||||
|
Balances
as of October 31, 2006
|
$ | 103,000 | $ | 151,000 | $ | 206,260,000 | $ | 62,000 | $ | 110,682,000 | ||||||||||||||
|
Net
income
|
― | ― | ― | ― | 39,005,000 | $ | 39,005,000 | |||||||||||||||||
|
Foreign
currency translation adjustments
|
― | ― | ― | 2,966,000 | ― | 2,966,000 | ||||||||||||||||||
|
Comprehensive
income
|
― | ― | ― | ― | ― | $ | 41,971,000 | |||||||||||||||||
|
Cash
dividends ($.08 per share)
|
― | ― | ― | ― | (2,056,000 | ) | ||||||||||||||||||
|
Tax
benefit from stock option exercises
|
― | ― | 6,873,000 | ― | ― | |||||||||||||||||||