Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the quarterly period ended April 30, 2016
 
 
 
 
 
OR
 
 
 
¨
 
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from ______ to _______
Commission File Number: 1-4604
HEICO CORPORATION
(Exact name of registrant as specified in its charter)
Florida
 
65-0341002
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3000 Taft Street, Hollywood, Florida
 
33021
(Address of principal executive offices)
 
(Zip Code)
(954) 987-4000
(Registrant’s telephone number, including area code)
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 ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of each of the registrant’s classes of common stock as of May 26, 2016 is as follows:
Common Stock, $.01 par value
26,955,392

shares
Class A Common Stock, $.01 par value
40,105,660

shares


Index

HEICO CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

 
 
 
Page
Part I.
Financial Information
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
Part II.
Other Information
 
 
 
 
 
 
Item 6.
 
 
 
 
 




1

Index

PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS

HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except per share data)
 
 
April 30, 2016
 
October 31, 2015
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 

$36,789

 

$33,603

Accounts receivable, net
 
179,207

 
181,593

Inventories, net
 
282,140

 
243,517

Prepaid expenses and other current assets
 
12,030

 
9,369

Deferred income taxes
 
35,832

 
35,530

Total current assets
 
545,998

 
503,612

 
 
 
 
 
Property, plant and equipment, net
 
117,663

 
105,670

Goodwill
 
868,569

 
766,639

Intangible assets, net
 
386,651

 
272,593

Deferred income taxes
 
680

 
847

Other assets
 
97,551

 
87,026

Total assets
 

$2,017,112

 

$1,736,387

 
 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
Current maturities of long-term debt
 

$355

 

$357

Trade accounts payable
 
63,193

 
64,682

Accrued expenses and other current liabilities
 
89,759

 
100,155

Income taxes payable
 
8,521

 
3,193

Total current liabilities
 
161,828

 
168,387

 
 
 
 
 
Long-term debt, net of current maturities
 
562,575

 
367,241

Deferred income taxes
 
109,778

 
110,588

Other long-term liabilities
 
116,110

 
105,618

Total liabilities
 
950,291

 
751,834

 
 
 
 
 
Commitments and contingencies (Note 10)
 

 

 
 
 
 
 
Redeemable noncontrolling interests (Note 3)
 
88,380

 
91,282

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
Common Stock, $.01 par value per share; 75,000 shares authorized; 26,955 and 26,906 shares issued and outstanding
 
270

 
269

Class A Common Stock, $.01 par value per share; 75,000 shares authorized; 40,079 and 39,967 shares issued and outstanding
 
401

 
400

Capital in excess of par value
 
296,689

 
286,220

Deferred compensation obligation
 
1,635

 
1,783

HEICO stock held by irrevocable trust
 
(1,635
)
 
(1,783
)
Accumulated other comprehensive loss
 
(19,086
)
 
(25,080
)
Retained earnings
 
613,072

 
548,054

Total HEICO shareholders’ equity
 
891,346

 
809,863

Noncontrolling interests
 
87,095

 
83,408

Total shareholders’ equity
 
978,441

 
893,271

Total liabilities and equity
 

$2,017,112

 

$1,736,387

The accompanying notes are an integral part of these condensed consolidated financial statements.


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Index

HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
(in thousands, except per share data)
 
 
Six months ended April 30,
 
Three months ended April 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net sales
 

$656,875

 

$559,606

 

$350,648

 

$291,421

 
 
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales
 
410,650

 
360,315

 
216,619

 
185,927

Selling, general and administrative expenses
 
126,810

 
97,097

 
67,235

 
49,706

 
 
 
 
 
 
 
 
 
Total operating costs and expenses
 
537,460

 
457,412

 
283,854

 
235,633

 
 
 
 
 
 
 
 
 
Operating income
 
119,415

 
102,194

 
66,794

 
55,788

 
 
 
 
 
 
 
 
 
Interest expense
 
(3,900
)
 
(2,258
)
 
(2,333
)
 
(1,146
)
Other income
 
138

 
559

 
568

 
362

 
 
 
 
 
 
 
 
 
Income before income taxes and noncontrolling interests
 
115,653

 
100,495

 
65,029

 
55,004

 
 
 
 
 
 
 
 
 
Income tax expense
 
36,000

 
29,900

 
21,300

 
16,500

 
 
 
 
 
 
 
 
 
Net income from consolidated operations
 
79,653

 
70,595

 
43,729

 
38,504

 
 
 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
9,725

 
9,850

 
5,072

 
5,399

 
 
 
 
 
 
 
 
 
Net income attributable to HEICO
 

$69,928

 

$60,745

 

$38,657

 

$33,105

 
 
 
 
 
 
 
 
 
Net income per share attributable to HEICO shareholders:
 
 
 
 
 
 
 
 
Basic
 

$1.05

 

$.91

 

$.58

 

$.50

Diluted
 

$1.03

 

$.90

 

$.57

 

$.49

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
66,899

 
66,653

 
66,923

 
66,711

Diluted
 
67,984

 
67,735

 
68,028

 
67,801

 
 
 
 
 
 
 
 
 
Cash dividends per share
 

$.08

 

$.07

 

$—

 

$—

The accompanying notes are an integral part of these condensed consolidated financial statements.



3

Index

HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME – UNAUDITED
(in thousands)
 
 
Six months ended April 30,
 
Three months ended April 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income from consolidated operations
 

$79,653

 

$70,595

 

$43,729

 

$38,504

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
6,548

 
(11,735
)
 
9,215

 
3

Total other comprehensive income (loss)
 
6,548

 
(11,735
)
 
9,215

 
3

Comprehensive income from consolidated operations
 
86,201

 
58,860

 
52,944

 
38,507

Less: Net income attributable to noncontrolling interests
 
9,725

 
9,850

 
5,072

 
5,399

Less: Foreign currency translation adjustments attributable to noncontrolling interests
 
554

 
(810
)
 
758

 
(353
)
Comprehensive income attributable to noncontrolling interests
 
10,279

 
9,040

 
5,830

 
5,046

Comprehensive income attributable to HEICO
 

$75,922

 

$49,820

 

$47,114

 

$33,461

The accompanying notes are an integral part of these condensed consolidated financial statements.




4

Index

HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
(in thousands, except per share data)
 
 
 
HEICO Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Common Stock
 
Class A Common Stock
 
Capital in Excess of Par Value
 
Deferred Compensation Obligation
 
HEICO Stock Held by Irrevocable Trust
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Noncontrolling Interests
 
Total Shareholders' Equity
Balances as of October 31, 2015

$91,282

 

$269

 

$400

 

$286,220

 

$1,783

 

($1,783
)
 

($25,080
)
 

$548,054

 

$83,408

 

$893,271

Comprehensive income
5,221

 

 

 

 

 

 
5,994

 
69,928

 
5,058

 
80,980

Cash dividends ($.08 per share)

 

 

 

 

 

 

 
(5,350
)
 

 
(5,350
)
Issuance of common stock to HEICO Savings and Investment Plan

 
1

 
1

 
4,846

 

 

 

 

 

 
4,848

Share-based compensation expense

 

 

 
3,286

 

 

 

 

 

 
3,286

Proceeds from stock option exercises

 

 

 
1,471

 

 

 

 

 

 
1,471

Tax benefit from stock option exercises

 

 

 
870

 

 

 

 

 

 
870

Distributions to noncontrolling interests
(4,086
)
 

 

 

 

 

 

 

 
(1,421
)
 
(1,421
)
Acquisitions of noncontrolling interests
(3,599
)
 

 

 

 

 

 

 

 

 

Adjustments to redemption amount of redeemable noncontrolling interests
(438
)
 

 

 

 

 

 

 
438

 

 
438

Deferred compensation obligation

 

 

 

 
(148
)
 
148

 

 

 

 

Other

 

 

 
(4
)
 

 

 

 
2

 
50

 
48

Balances as of April 30, 2016

$88,380

 

$270

 

$401

 

$296,689

 

$1,635

 

($1,635
)
 

($19,086
)
 

$613,072

 

$87,095

 

$978,441

 
 
 
HEICO Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Common Stock
 
Class A Common Stock
 
Capital in Excess of Par Value
 
Deferred Compensation Obligation
 
HEICO Stock Held by Irrevocable Trust
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Noncontrolling Interests
 
Total Shareholders' Equity
Balances as of October 31, 2014

$39,966

 

$268

 

$397

 

$269,351

 

$1,138

 

($1,138
)
 

($8,289
)
 

$437,757

 

$75,135

 

$774,619

Comprehensive income (loss)
2,288

 

 

 

 

 

 
(10,925
)
 
60,745

 
6,752

 
56,572

Cash dividends ($.07 per share)

 

 

 

 

 

 

 
(4,666
)
 

 
(4,666
)
Issuance of common stock to HEICO Savings and Investment Plan

 
1

 

 
4,127

 

 

 

 

 

 
4,128

Share-based compensation expense

 

 

 
2,778

 

 

 

 

 

 
2,778

Proceeds from stock option exercises

 

 
2

 
2,952

 

 

 

 

 

 
2,954

Tax benefit from stock option exercises

 

 

 
1,405

 

 

 

 

 

 
1,405

Noncontrolling interests assumed related to acquisitions
17,007

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interests
(2,651
)
 

 

 

 

 

 

 

 
(2,082
)
 
(2,082
)
Adjustments to redemption amount of redeemable noncontrolling interests
7,304

 

 

 

 

 

 

 
(7,304
)
 

 
(7,304
)
Deferred compensation obligation

 

 

 

 
158

 
(158
)
 

 

 

 

Other

 

 

 
(5
)
 

 

 

 
2

 

 
(3
)
Balances as of April 30, 2015

$63,914

 

$269

 

$399

 

$280,608

 

$1,296

 

($1,296
)
 

($19,214
)
 

$486,534

 

$79,805

 

$828,401

The accompanying notes are an integral part of these condensed consolidated financial statements.




5


HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
 
Six months ended April 30,
 
2016
 
2015
Operating Activities:
 
 
 
Net income from consolidated operations

$79,653

 

$70,595

Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
29,183

 
23,141

Share-based compensation expense
3,286

 
2,778

Employer contributions to HEICO Savings and Investment Plan
3,266

 
2,596

Foreign currency transaction adjustments, net
2,186

 
(2,247
)
Increase (decrease) in accrued contingent consideration
1,679

 
(1,058
)
Deferred income tax benefit
(1,168
)
 
(1,851
)
Tax benefit from stock option exercises
870

 
1,405

Excess tax benefit from stock option exercises
(870
)
 
(1,405
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Decrease in accounts receivable
7,875

 
2,039

Increase in inventories
(9,855
)
 
(4,962
)
Increase in prepaid expenses and other current assets
(2,616
)
 
(5,622
)
Decrease in trade accounts payable
(4,860
)
 
(3,699
)
Decrease in accrued expenses and other current liabilities
(10,224
)
 
(16,300
)
Increase in income taxes payable
5,489

 
173

Other long-term assets and liabilities, net
(1,189
)
 
(778
)
Net cash provided by operating activities
102,705

 
64,805

 
 
 
 
Investing Activities:
 
 
 
Acquisitions, net of cash acquired
(263,811
)
 
(49,482
)
Capital expenditures
(15,546
)
 
(9,460
)
Other
(3,241
)
 
86

Net cash used in investing activities
(282,598
)
 
(58,856
)
 
 
 
 
Financing Activities:
 
 
 
Borrowings on revolving credit facility
260,000

 
61,696

Payments on revolving credit facility
(66,000
)
 
(61,000
)
Distributions to noncontrolling interests
(5,507
)
 
(4,733
)
Cash dividends paid
(5,350
)
 
(4,666
)
Acquisitions of noncontrolling interests
(3,599
)
 

Proceeds from stock option exercises
1,471

 
2,954

Excess tax benefit from stock option exercises
870

 
1,405

Other
(181
)
 
(206
)
Net cash provided by (used in) financing activities
181,704

 
(4,550
)
 
 
 
 
Effect of exchange rate changes on cash
1,375

 
(949
)
 
 
 
 
Net increase in cash and cash equivalents
3,186

 
450

Cash and cash equivalents at beginning of year
33,603

 
20,229

Cash and cash equivalents at end of period

$36,789

 

$20,679

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Index

HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of HEICO Corporation and its subsidiaries (collectively, “HEICO,” or the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Therefore, the condensed consolidated financial statements do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2015. The October 31, 2015 Condensed Consolidated Balance Sheet has been derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statements of shareholders' equity and statements of cash flows for such interim periods presented. The results of operations for the six months ended April 30, 2016 are not necessarily indicative of the results which may be expected for the entire fiscal year.

The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and its subsidiaries.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers," which provides a comprehensive new revenue recognition model that will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09, as amended, is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2017, or in fiscal 2019 for HEICO. Early adoption in the year preceding the effective date is permitted. ASU 2014-09 shall be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating which transition method it will elect and the



7

Index

effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.

In February 2015, the FASB issued ASU 2015-02, "Amendments to the Consolidation Analysis," which changes the guidance for evaluating whether to consolidate certain legal entities. Specifically, ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities. Additionally, this guidance eliminates the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2015, or in fiscal 2017 for HEICO. Early adoption is permitted. ASU 2015-02 shall be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2015-02 recognized at the date of initial application. The Company is currently evaluating which transition method it will elect and the effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.
    
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory," which requires entities to measure inventories at the lower of cost or net realizable value. Under current guidance, inventories are measured at the lower of cost or market. ASU 2015-11 must be applied prospectively and is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2016, or in fiscal 2018 for HEICO. Early adoption is permitted. The Company is currently evaluating the effect, if any, the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes," which requires that all deferred tax assets and liabilities be classified as noncurrent in the balance sheet. ASU 2015-17 may be applied either prospectively or retrospectively and is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2016, or in fiscal 2018 for HEICO. Early adoption is permitted. The Company is currently evaluating which transition method it will elect. The adoption of this guidance will only effect the presentation of deferred taxes in the Company's consolidated statement of financial position.

In February 2016, the FASB issued ASU 2016-02, "Leases," which requires recognition of lease assets and lease liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2018, or in fiscal 2020 for HEICO. Early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach and provides certain optional transition relief. The Company is currently evaluating the effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.




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Index

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects related to accounting for share-based payment transactions. Under ASU 2016-09, all excess tax benefits and tax deficiencies are to be recognized in the statement of operations as a component of income tax expense rather than as capital in excess of par value, and the tax effects will be presented within the statement of cash flows as an operating cash flow rather than as a financing activity. ASU 2016-09 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2016, or in fiscal 2018 for HEICO. Early adoption is permitted. The recognition of the tax effects in the statement of operations, as well as related changes to the computation of diluted earnings per share are to be applied prospectively and entities may elect to apply the change in the presentation of the statement of cash flows either prospectively or retrospectively. The Company is currently evaluating the effect the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.


2.     ACQUISITIONS

In December 2015, the Company, through a subsidiary of HEICO Electronic, acquired certain assets of a company that designs and manufactures underwater locator beacons used to locate aircraft cockpit voice recorders, flight data recorders, marine ship voyage recorders and other devices which have been submerged under water. The total consideration includes an accrual of $1.2 million representing the estimated fair value of contingent consideration the Company may be obligated to pay in aggregate during the first five years following the acquisition. The maximum amount of contingent consideration that the Company could be required to pay is $2.0 million. See Note 7, Fair Value Measurements, for additional information regarding the Company's contingent consideration obligation. The purchase price of this acquisition was paid using cash provided by operating activities and the total consideration for the acquisition is not material or significant to the Company’s condensed consolidated financial statements.

On January 11, 2016, the Company, through HEICO Electronic, acquired all of the limited liability company interests of Robertson Fuel Systems, LLC ("Robertson"). The purchase price of this acquisition was paid in cash using proceeds from the Company’s revolving credit facility. Robertson is a world leader in the design and production of mission-extending, crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft. The Company believes that this acquisition is consistent with HEICO’s practice of acquiring outstanding niche designers and manufacturers of critical components in the defense industry and will further enable the Company to broaden its product offerings, technologies and customer base.

    



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Index

The following table summarizes the total consideration for the acquisition of Robertson (in thousands):
Cash paid

$256,293

Less: cash acquired
(3,271
)
Total consideration
253,022


The following table summarizes the allocation of the total consideration for the acquisition of Robertson to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands):
Assets acquired:
 
Identifiable intangible assets

$123,100

Goodwill
91,705

Inventories
27,955

Property, plant and equipment
7,200

Accounts receivable
5,000

Other assets
1,883

Total assets acquired, excluding cash
256,843

 
 
Liabilities assumed:
 
Accounts payable
3,174

Accrued expenses
647

Total liabilities assumed
3,821

Net assets acquired, excluding cash

$253,022


The allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until the Company obtains final information regarding their fair values. The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of Robertson and the value of its assembled workforce that do not qualify for separate recognition. Acquisition costs associated with the purchase of Robertson totaled $3.1 million for the six months ended April 30, 2016 and were recorded as a component of selling, general and administrative ("SG&A") expenses in the Company's Condensed Consolidated Statements of Operations. The operating results of Robertson were included in the Company’s results of operations from the effective acquisition date. The Company's consolidated net sales and net income attributable to HEICO for the six months ended April 30, 2016, includes approximately $29.5 million and $3.8 million, respectively, from the acquisition of Robertson, exclusive of the aforementioned acquisition costs. The Company's consolidated net sales and net income attributable to HEICO for the three months ended April 30, 2016, includes approximately $23.3 million and $3.1 million, respectively, from the acquisition of Robertson.




    



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Index

The following table presents unaudited pro forma financial information for the six and three months ended April 30, 2016 and April 30, 2015 as if the acquisition of Robertson had occurred as of November 1, 2014 (in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2016
 
2015
 
2016
 
2015
Net sales

$678,209

 

$596,037

 

$350,648

 

$311,831

Net income from consolidated operations

$85,618

 

$71,210

 

$44,181

 

$40,658

Net income attributable to HEICO

$75,893

 

$61,360

 

$39,109

 

$35,259

Net income per share attributable to HEICO shareholders:
 
 
 
 
 
 
 
Basic

$1.13

 

$.92

 

$.58

 

$.53

Diluted

$1.12

 

$.91

 

$.57

 

$.52


The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place as of November 1, 2014. The unaudited pro forma financial information includes adjustments to historical amounts such as additional amortization expense related to intangible assets acquired, increased interest expense associated with borrowings to finance the acquisition, the reclassification of acquisition costs associated with the purchase of Robertson from fiscal 2016 to fiscal 2015, and inventory purchase accounting adjustments charged to cost of sales as the inventory is sold.


3.     SELECTED FINANCIAL STATEMENT INFORMATION

Accounts Receivable
(in thousands)
 
April 30, 2016
 
October 31, 2015
Accounts receivable
 

$182,499

 

$183,631

Less: Allowance for doubtful accounts
 
(3,292
)
 
(2,038
)
Accounts receivable, net
 

$179,207

 

$181,593




11

Index

Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts
(in thousands)
 
April 30, 2016
 
October 31, 2015
Costs incurred on uncompleted contracts
 

$31,256

 

$22,645

Estimated earnings
 
21,423

 
16,116

 
 
52,679

 
38,761

Less: Billings to date
 
(44,993
)
 
(36,442
)


 

$7,686

 

$2,319

Included in the accompanying Condensed Consolidated Balance Sheets under the following captions:
 
 
 
 
Accounts receivable, net (costs and estimated earnings in excess of billings)
 

$11,081

 

$6,263

Accrued expenses and other current liabilities (billings in excess of costs and estimated earnings)
 
(3,395
)
 
(3,944
)
 
 

$7,686

 

$2,319


Changes in estimates pertaining to percentage-of-completion contracts did not have a material effect on net income from consolidated operations for the six and three months ended April 30, 2016 and 2015.

Inventories
(in thousands)
 
April 30, 2016
 
October 31, 2015
Finished products
 

$126,332

 

$119,262

Work in process
 
37,942

 
32,201

Materials, parts, assemblies and supplies
 
114,730

 
89,739

Contracts in process
 
4,214

 
4,521

Less: Billings to date
 
(1,078
)
 
(2,206
)
Inventories, net of valuation reserves
 

$282,140

 

$243,517


Contracts in process represents accumulated capitalized costs associated with fixed price contracts. Related progress billings and customer advances (“billings to date”) are classified as a reduction to contracts in process, if any, and any excess is included in accrued expenses and other liabilities.




12

Index

Property, Plant and Equipment
(in thousands)
 
April 30, 2016
 
October 31, 2015
Land
 

$5,103

 

$5,060

Buildings and improvements
 
75,820

 
70,626

Machinery, equipment and tooling
 
165,211

 
152,022

Construction in progress
 
8,797

 
4,668

 
 
254,931

 
232,376

Less: Accumulated depreciation and amortization
 
(137,268
)
 
(126,706
)
Property, plant and equipment, net
 

$117,663

 

$105,670


Accrued Customer Rebates and Credits

The aggregate amount of accrued customer rebates and credits included within accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets was $8.3 million and $8.1 million as of April 30, 2016 and October 31, 2015, respectively. The total customer rebates and credits deducted within net sales for the six months ended April 30, 2016 and 2015 was $5.2 million and $2.9 million, respectively. The total customer rebates and credits deducted within net sales for the three months ended April 30, 2016 and 2015 was $2.9 million and $1.3 million, respectively.

Research and Development Expenses

The amount of new product research and development ("R&D") expenses included in cost of sales for the six and three months ended April 30, 2016 and 2015 is as follows (in thousands):
 
 
Six months ended April 30,
 
Three months ended April 30,
 
 
2016
 
2015
 
2016
 
2015
R&D expenses
 

$19,992

 

$19,439

 

$10,985

 

$10,137





13

Index

Redeemable Noncontrolling Interests

The holders of equity interests in certain of the Company's subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal 2025. 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 their equity interests (the "Redemption Amount") be at fair value or a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period. Management's estimate of the aggregate Redemption Amount of all Put Rights that the Company could be required to pay is as follows (in thousands):
 
 
April 30, 2016
 
October 31, 2015
Redeemable at fair value
 

$74,027

 

$76,929

Redeemable based on a multiple of future earnings
 
14,353

 
14,353

Redeemable noncontrolling interests
 

$88,380

 

$91,282


During the second quarter of fiscal 2016, the holders of a 19.9% noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2011 exercised their option to cause the Company to purchase their interest over a two-year period ending in fiscal 2017.  Accordingly, the Company’s ownership interest in the subsidiary increased to 90.05% effective March 2016. The purchase price of the redeemable noncontrolling interest acquired was paid using cash provided by operating activities.

Accumulated Other Comprehensive Loss

Changes in the components of accumulated other comprehensive loss for the six months ended April 30, 2016 are as follows (in thousands):
 
 
Foreign Currency Translation
 
Pension Benefit Obligation
 
Accumulated
Other
Comprehensive Loss
Balances as of October 31, 2015
 

($24,368
)
 

($712
)
 

($25,080
)
Unrealized gain
 
5,994

 

 
5,994

Balances as of April 30, 2016
 

($18,374
)
 

($712
)
 

($19,086
)



14

Index

4.     GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by operating segment for the six months ended April 30, 2016 are as follows (in thousands):
 
 
Segment
 
Consolidated Totals
 
 
FSG
 
ETG
 
Balances as of October 31, 2015
 

$337,507

 

$429,132

 

$766,639

Goodwill acquired
 

 
98,641

 
98,641

Foreign currency translation adjustments
 
983

 
1,991

 
2,974

Adjustments to goodwill
 
287

 
28

 
315

Balances as of April 30, 2016
 

$338,777

 

$529,792

 

$868,569


The goodwill acquired pertains to the fiscal 2016 acquisitions described in Note 2, Acquisitions, and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities assumed. Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of Comprehensive Income. The adjustments to goodwill represent immaterial measurement period adjustments to the purchase price allocation of certain fiscal 2015 acquisitions. The Company estimates that all of the goodwill acquired in fiscal 2016 will be deductible for income tax purposes.

Identifiable intangible assets consist of the following (in thousands):
 
 
As of April 30, 2016
 
As of October 31, 2015
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizing Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 

$249,279

 

($76,175
)
 

$173,104

 

$190,450

 

($63,461
)
 

$126,989

Intellectual property
 
140,426

 
(28,138
)
 
112,288

 
98,143

 
(22,912
)
 
75,231

Licenses
 
6,200

 
(2,045
)
 
4,155

 
4,200

 
(1,882
)
 
2,318

Non-compete agreements
 
820

 
(820
)
 

 
914

 
(914
)
 

Patents
 
768

 
(466
)
 
302

 
746

 
(447
)
 
299

Trade names
 
466

 
(57
)
 
409

 
166

 
(38
)
 
128

 
 
397,959

 
(107,701
)
 
290,258

 
294,619

 
(89,654
)
 
204,965

Non-Amortizing Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
96,393

 

 
96,393

 
67,628

 

 
67,628

 
 

$494,352

 

($107,701
)
 

$386,651

 

$362,247

 

($89,654
)
 

$272,593


The increase in the gross carrying amount of customer relationships, intellectual property and amortizing and non-amortizing trade names as of April 30, 2016 compared to October 31, 2015 principally relates to such intangible assets recognized in connection with the fiscal 2016 acquisitions (see Note 2, Acquisitions). The weighted-average amortization period of the



15

Index

customer relationships, intellectual property and amortizing trade names acquired during fiscal 2016 is 15 years, 22 years and 15 years, respectively.

Amortization expense related to intangible assets for the six months ended April 30, 2016 and 2015 was $17.6 million and $13.1 million, respectively. Amortization expense related to intangible assets for the three months ended April 30, 2016 and 2015 was $9.3 million and $7.0 million, respectively. Amortization expense related to intangible assets for the remainder of fiscal 2016 is estimated to be $18.7 million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $36.6 million in fiscal 2017, $34.6 million in fiscal 2018, $32.4 million in fiscal 2019, $29.8 million in fiscal 2020, $27.3 million in fiscal 2021, and $110.9 million thereafter.


5.     LONG-TERM DEBT

Long-term debt consists of the following (in thousands):
 
 
April 30, 2016
 
October 31, 2015
Borrowings under revolving credit facility
 

$560,621

 

$365,203

Capital leases
 
2,309

 
2,395

 
 
562,930

 
367,598

Less: Current maturities of long-term debt
 
(355
)
 
(357
)
 
 

$562,575

 

$367,241


As of April 30, 2016 and October 31, 2015, the weighted average interest rate on borrowings under the Company’s revolving credit facility was 1.6% and 1.3%, respectively. The revolving credit facility contains both financial and non-financial covenants. As of April 30, 2016, the Company was in compliance with all such covenants.


6.     INCOME TAXES

The Company’s effective tax rate in the first six months of fiscal 2016 increased to 31.1% from 29.8% in the first six months of fiscal 2015. The increase principally reflects the benefit from a prior year tax return amendment recognized in the first six months of fiscal 2015 for additional foreign tax credits related to R&D activities at one of the Company's foreign subsidiaries. In addition, the effective tax rate in the first six months of fiscal 2015 reflects the favorable impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation Leadership Compensation Plan.

The Company’s effective tax rate in the second quarter of fiscal 2016 increased to 32.8% from 30.0% in the second quarter of fiscal 2015. The increase principally reflects the aforementioned benefit of additional foreign tax credits related to a prior year tax return amendment recognized in the second quarter of fiscal 2015 as well as higher net income



16

Index

attributable to noncontrolling interests in subsidiaries structured as partnerships in the second quarter of fiscal 2015.


7.     FAIR VALUE MEASUREMENTS

The Company's assets and liabilities that were measured at fair value on a recurring basis are set forth by level within the fair value hierarchy in the following tables (in thousands):
 
 
As of April 30, 2016
 
 
Quoted Prices
in Active Markets for Identical Assets
(Level 1)
 
Significant
Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
 
Deferred compensation plans:
 
 
 
 
 
 
 
 
Corporate owned life insurance
 

$—

 

$84,595

 

$—

 

$84,595

Money market funds
 
139

 

 

 
139

Equity securities
 
1,812

 

 

 
1,812

Mutual funds
 
1,685

 

 

 
1,685

Other
 
952

 
50

 

 
1,002

Total assets
 

$4,588

 

$84,645

 

$—

 

$89,233

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 

$—

 

$—

 

$25,219

 

$25,219

 
 
As of October 31, 2015
 
 
Quoted Prices
in Active Markets for Identical Assets (Level 1)
 
Significant
Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
 
Deferred compensation plans:
 
 
 
 
 
 
 
 
Corporate owned life insurance
 

$—

 

$73,238

 

$—

 

$73,238

Money market funds
 
3,832

 

 

 
3,832

Equity securities
 
1,845

 

 

 
1,845

Mutual funds
 
1,665

 

 

 
1,665

Other
 
946

 
50

 

 
996

Total assets
 

$8,288

 

$73,288

 

$—

 

$81,576

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 

$—

 

$—

 

$21,405

 

$21,405



The Company maintains two non-qualified deferred compensation plans. The assets of the HEICO Corporation Leadership Compensation Plan (the “LCP”) principally represent cash surrender values of life insurance policies, which derive their fair values from investments in



17

Index

mutual funds that are managed by an insurance company and are classified within Level 2 and valued using a market approach. Certain other assets of the LCP represent investments in money market funds that are classified within Level 1. The assets of the Company’s other deferred compensation plan are principally invested in equity securities and mutual funds that are classified within Level 1. The assets of both plans are held within irrevocable trusts and classified within other assets in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of $89.2 million as of April 30, 2016 and $81.6 million as of October 31, 2015, of which the LCP related assets were $84.7 million and $77.1 million as of April 30, 2016 and October 31, 2015, respectively. The related liabilities of the two deferred compensation plans are included within other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of $88.6 million as of April 30, 2016 and $80.7 million as of October 31, 2015, of which the LCP related liability was $84.1 million and $76.2 million as of April 30, 2016 and October 31, 2015, respectively.

As part of the agreement to acquire certain assets of a company by the ETG in fiscal 2016, the Company may be obligated to pay contingent consideration of up to $2.0 million in aggregate during the five year period following the acquisition. As of April 30, 2016, the estimated fair value of the contingent consideration was $1.2 million.    

As part of the agreement to acquire a subsidiary by the FSG in fiscal 2015, the Company may be obligated to pay contingent consideration of up to €6.1 million per year, or €24.4 million in aggregate, which translates to approximately $28.0 million based on the April 30, 2016 exchange rate, should the acquired entity meet certain earnings objectives during the first four years following the acquisition. As of April 30, 2016, the estimated fair value of the contingent consideration was €21.0 million, or $24.0 million, of which €6.1 million, or $7.0 million, represents the portion paid in May 2016 based on the actual earnings of the acquired entity during the first year following the acquisition.

The estimated fair value of the contingent consideration arrangements described above are classified within Level 3 and were determined using a probability-based scenario analysis approach. Under this method, a set of discrete potential future subsidiary earnings was determined using internal estimates based on various revenue growth rate assumptions for each scenario. A probability of likelihood was assigned to each discrete potential future earnings estimate and the resultant contingent consideration was calculated. The resulting probability-weighted contingent consideration amounts were discounted using a weighted average discount rate reflecting the credit risk of a market participant. Changes in either the revenue growth rates, related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued and such changes will be recorded in the Company's condensed consolidated statements of operations.




18

Index

The Level 3 inputs used to derive the estimated fair value of the Company's contingent consideration liability as of April 30, 2016 were as follows:
 
Fiscal 2016 Acquisition
 
Fiscal 2015 Acquisition
Compound annual revenue growth rate range
(3
%)
-
11%
 
2
%
-
17%
Weighted average discount rate
3.7%
 
1.7%


Changes in the Company’s contingent consideration liability measured at fair value on a recurring basis using unobservable inputs (Level 3) for the six months ended April 30, 2016 are as follows (in thousands):
 
 
 
Balance as of October 31, 2015
 

$21,405

Increase in accrued contingent consideration
 
1,679

Contingent consideration related to acquisition
 
1,225

Foreign currency transaction adjustments
 
910

Balance as of April 30, 2016
 

$25,219

 
 
 
Included in the accompanying Condensed Consolidated Balance Sheet
under the following captions:
 
 
Accrued expenses and other current liabilities
 

$7,236

Other long-term liabilities
 
17,983

 
 

$25,219


The Company recorded the increase in accrued contingent consideration and foreign currency transaction adjustments set forth in the table above within SG&A expenses in the Company's Condensed Consolidated Statement of Operations.

The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the six months ended April 30, 2016.

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, trade accounts payable and accrued expenses and other current liabilities approximate fair value as of April 30, 2016 due to the relatively short maturity of the respective instruments. The carrying amount of long-term debt approximates fair value due to its variable interest rates.





19

Index

8.     NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS
The computation of basic and diluted net income per share attributable to HEICO shareholders is as follows (in thousands, except per share data):
 
 
Six months ended April 30,
 
Three months ended April 30,
 
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to HEICO
 

$69,928

 

$60,745

 

$38,657

 

$33,105

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
66,899

 
66,653

 
66,923

 
66,711

Effect of dilutive stock options
 
1,085

 
1,082

 
1,105

 
1,090

Weighted average common shares outstanding - diluted
 
67,984

 
67,735

 
68,028

 
67,801

 
 
 
 
 
 
 
 
 
Net income per share attributable to HEICO shareholders:
 
 
 
 
 
 
 
 
Basic
 

$1.05

 

$.91

 

$.58

 

$.50

Diluted
 

$1.03

 

$.90

 

$.57

 

$.49

 
 
 
 
 
 
 
 
 
Anti-dilutive stock options excluded
 
726

 
305

 
737

 
305






20

Index

9.    OPERATING SEGMENTS

Information on the Company’s two operating segments, the FSG and the ETG, for the six and three months ended April 30, 2016 and 2015, respectively, is as follows (in thousands):
 
 
 
 
 
 
Other,
Primarily Corporate and
Intersegment
 
Consolidated
Totals
 
 
Segment
 
 
 
 
FSG
 
ETG
 
 
Six months ended April 30, 2016:
 
 
 
 
 
 
 
 
Net sales
 

$424,866

 

$236,718

 

($4,709
)
 

$656,875

Depreciation
 
5,924

 
3,976

 
112

 
10,012

Amortization
 
8,245

 
10,595

 
331

 
19,171

Operating income
 
76,788

 
55,671

 
(13,044
)
 
119,415

Capital expenditures
 
8,415

 
6,741

 
390

 
15,546

 
 
 
 
 
 
 
 
 
Six months ended April 30, 2015:
 
 
 
 
 
 
 
 
Net sales
 

$384,832

 

$180,216

 

($5,442
)
 

$559,606

Depreciation
 
5,093

 
3,348

 
71

 
8,512

Amortization
 
6,068

 
8,230

 
331

 
14,629

Operating income
 
68,248

 
41,624

 
(7,678
)
 
102,194

Capital expenditures
 
6,477

 
2,857

 
126

 
9,460

 
 
 
 
 
 
 
 
 
Three months ended April 30, 2016:
 
 
 
 
 
 
 
 
Net sales
 

$220,290

 

$132,566

 

($2,208
)
 

$350,648

Depreciation
 
2,974

 
2,124

 
56

 
5,154

Amortization
 
4,117

 
5,825

 
166

 
10,108

Operating income
 
41,308

 
33,402

 
(7,916
)
 
66,794

Capital expenditures
 
4,710

 
5,058

 
88

 
9,856

 
 
 
 
 
 
 
 
 
Three months ended April 30, 2015:
 
 
 
 
 
 
 
 
Net sales
 

$202,775

 

$90,995

 

($2,349
)
 

$291,421

Depreciation
 
2,840

 
1,647

 
36

 
4,523

Amortization
 
3,509

 
4,039

 
166

 
7,714

Operating income
 
37,545

 
22,206

 
(3,963
)
 
55,788

Capital expenditures
 
3,863

 
1,226

 
117

 
5,206





21

Index

Total assets by operating segment as of April 30, 2016 and October 31, 2015 are as follows (in thousands):
 
 
 
 
 
 
Other,
Primarily Corporate
 
Consolidated
Totals
 
 
Segment
 
 
 
 
FSG
 
ETG
 
 
Total assets as of April 30, 2016
 

$857,575

 

$1,020,623

 

$138,914

 

$2,017,112

Total assets as of October 31, 2015
 
868,218

 
746,018

 
122,151

 
1,736,387



10. COMMITMENTS AND CONTINGENCIES
Guarantees
As of April 30, 2016, the Company has arranged for standby letters of credit aggregating $2.6 million, which are supported by its revolving credit facility. One letter of credit in the amount of $1.5 million is to satisfy the security requirement of the insurance company used by the Company for potential workers' compensation claims and the remainder pertain to performance guarantees related to customer contracts entered into by certain of the Company's subsidiaries.
Product Warranty
Changes in the Company’s product warranty liability for the six months ended April 30, 2016 and 2015, respectively, are as follows (in thousands):
 
 
Six months ended April 30,
 
 
2016
 
2015
Balances as of beginning of fiscal year
 

$3,203

 

$4,079

Accruals for warranties
 
1,068

 
436

Acquired warranty liabilities
 

 
35

Warranty claims settled
 
(1,150
)
 
(1,078
)
Balances as of April 30
 

$3,121

 

$3,472


Litigation
The Company is involved in various legal actions arising in the normal course of business. Based upon the Company’s and its 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 the Company’s results of operations, financial position or cash flows.





22

Index

Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview

This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.

Our critical accounting policies, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended October 31, 2015. There have been no material changes to our critical accounting policies during the six months ended April 30, 2016.

Our business is comprised of two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.

Our results of operations for the six and three months ended April 30, 2016 have been
affected by the fiscal 2015 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2015 and the fiscal 2016 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements of this quarterly report.



23

Index

Results of Operations
The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations (in thousands):
 
 
Six months ended April 30,
 
Three months ended April 30,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 

$656,875

 

$559,606

 

$350,648

 

$291,421

Cost of sales
 
410,650

 
360,315

 
216,619

 
185,927

Selling, general and administrative expenses
 
126,810

 
97,097

 
67,235

 
49,706

Total operating costs and expenses
 
537,460

 
457,412

 
283,854

 
235,633

Operating income
 

$119,415

 

$102,194

 

$66,794

 

$55,788