Unassociated Document
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, 2009
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
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
|
|
|
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
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 (or for such shorter
period that the registrant was required to submit and post such
files). Yes o No o
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 number of shares outstanding of
each of the registrant’s classes of common stock as of May 28, 2009 is as
follows:
|
Common
Stock, $.01 par value
|
10,395,141
shares
|
|
Class
A Common Stock, $.01 par value
|
15,684,785
shares
|
HEICO
CORPORATION
INDEX
TO QUARTERLY REPORT ON FORM 10-Q
|
|
|
Page
|
|
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Balance Sheets (unaudited) as of April 30, 2009 and October
31, 2008
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations (unaudited) for the six months and
three months ended April 30, 2009 and 2008
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited) for the six months ended April 30, 2009
and 2008
|
4
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
5
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
32
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
32
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
33
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
33
|
|
|
|
|
|
Item
6.
|
Exhibits
|
34
|
|
|
|
|
SIGNATURE
|
35
|
PART
I. FINANCIAL INFORMATION
Item
1. FINANCIAL STATEMENTS
HEICO
CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS – UNAUDITED
|
|
April 30,
2009
|
|
|
October 31,
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
9,448,000 |
|
|
$ |
12,562,000 |
|
Accounts receivable,
net
|
|
|
71,984,000 |
|
|
|
88,403,000 |
|
Inventories,
net
|
|
|
142,508,000 |
|
|
|
132,910,000 |
|
Prepaid expenses and other current
assets
|
|
|
5,848,000 |
|
|
|
3,678,000 |
|
Deferred income
taxes
|
|
|
13,442,000 |
|
|
|
13,957,000 |
|
Total current
assets
|
|
|
243,230,000 |
|
|
|
251,510,000 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
60,127,000 |
|
|
|
59,966,000 |
|
Goodwill
|
|
|
331,205,000 |
|
|
|
323,393,000 |
|
Intangible assets,
net
|
|
|
22,366,000 |
|
|
|
24,983,000 |
|
Other
assets
|
|
|
17,564,000 |
|
|
|
16,690,000 |
|
Total
assets
|
|
$ |
674,492,000 |
|
|
$ |
676,542,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term
debt
|
|
$ |
222,000 |
|
|
$ |
220,000 |
|
Trade accounts
payable
|
|
|
25,727,000 |
|
|
|
29,657,000 |
|
Accrued expenses and other current
liabilities
|
|
|
35,158,000 |
|
|
|
49,586,000 |
|
Income taxes
payable
|
|
|
439,000 |
|
|
|
1,765,000 |
|
Total current
liabilities
|
|
|
61,546,000 |
|
|
|
81,228,000 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current
maturities
|
|
|
37,274,000 |
|
|
|
37,381,000 |
|
Deferred income
taxes
|
|
|
40,212,000 |
|
|
|
39,192,000 |
|
Other long-term
liabilities
|
|
|
17,664,000 |
|
|
|
17,003,000 |
|
Total
liabilities
|
|
|
156,696,000 |
|
|
|
174,804,000 |
|
Minority interests in consolidated
subsidiaries (Note 12)
|
|
|
85,072,000 |
|
|
|
83,978,000 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 12)
|
|
|
|
|
|
|
|
|
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
|
|
|
¾ |
|
|
|
¾ |
|
Common Stock, $.01 par value per
share; 30,000,000 shares authorized; 10,395,141 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; 15,680,126 and 15,829,790
shares issued and outstanding, respectively
|
|
|
157,000 |
|
|
|
158,000 |
|
Capital in excess of par
value
|
|
|
224,168,000 |
|
|
|
229,443,000 |
|
Accumulated other comprehensive
loss
|
|
|
(4,850,000 |
) |
|
|
(4,819,000 |
) |
Retained
earnings
|
|
|
213,145,000 |
|
|
|
192,872,000 |
|
Total shareholders’
equity
|
|
|
432,724,000 |
|
|
|
417,760,000 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
674,492,000 |
|
|
$ |
676,542,000 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these condensed consolidated financial
statements.
HEICO
CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
|
|
Six
months ended April 30,
|
|
|
Three
months ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
260,603,000 |
|
|
$ |
278,326,000 |
|
|
$ |
130,166,000 |
|
|
$ |
144,039,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
174,181,000 |
|
|
|
179,141,000 |
|
|
|
87,648,000 |
|
|
|
91,683,000 |
|
Selling,
general and administrative expenses
|
|
|
43,650,000 |
|
|
|
49,596,000 |
|
|
|
21,199,000 |
|
|
|
25,997,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses
|
|
|
217,831,000 |
|
|
|
228,737,000 |
|
|
|
108,847,000 |
|
|
|
117,680,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
42,772,000 |
|
|
|
49,589,000 |
|
|
|
21,319,000 |
|
|
|
26,359,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(307,000 |
) |
|
|
(1,507,000 |
) |
|
|
(112,000 |
) |
|
|
(645,000 |
) |
Other
income (expense)
|
|
|
2,000 |
|
|
|
(74,000 |
) |
|
|
49,000 |
|
|
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and minority interests
|
|
|
42,467,000 |
|
|
|
48,008,000 |
|
|
|
21,256,000 |
|
|
|
25,756,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
12,820,000 |
|
|
|
16,540,000 |
|
|
|
6,960,000 |
|
|
|
8,960,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before minority interests
|
|
|
29,647,000 |
|
|
|
31,468,000 |
|
|
|
14,296,000 |
|
|
|
16,796,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests’ share of income
|
|
|
7,789,000 |
|
|
|
9,434,000 |
|
|
|
3,755,000 |
|
|
|
4,848,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,858,000 |
|
|
$ |
22,034,000 |
|
|
$ |
10,541,000 |
|
|
$ |
11,948,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.83 |
|
|
$ |
.84 |
|
|
$ |
.40 |
|
|
$ |
.45 |
|
Diluted
|
|
$ |
.81 |
|
|
$ |
.81 |
|
|
$ |
.39 |
|
|
$ |
.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,317,465 |
|
|
|
26,230,514 |
|
|
|
26,224,248 |
|
|
|
26,276,396 |
|
Diluted
|
|
|
27,127,232 |
|
|
|
27,227,458 |
|
|
|
27,012,501 |
|
|
|
27,245,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$ |
.06 |
|
|
$ |
.05 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
|
|
HEICO
CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
|
|
Six months ended April
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
21,858,000 |
|
|
$ |
22,034,000 |
|
Adjustments to reconcile net
income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
6,908,000 |
|
|
|
7,308,000 |
|
Deferred income tax
provision
|
|
|
(254,000 |
) |
|
|
2,011,000 |
|
Minority interests’ share of
income
|
|
|
7,789,000 |
|
|
|
9,434,000 |
|
Tax benefit from stock option
exercises
|
|
|
2,136,000 |
|
|
|
6,285,000 |
|
Excess tax benefit from stock
option exercises
|
|
|
(1,793,000 |
) |
|
|
(4,350,000 |
) |
Stock option compensation
expense
|
|
|
7,000 |
|
|
|
129,000 |
|
Changes in operating assets and
liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Decrease in accounts
receivable
|
|
|
16,065,000 |
|
|
|
690,000 |
|
Increase in
inventories
|
|
|
(9,642,000 |
) |
|
|
(6,592,000 |
) |
Decrease (increase) in prepaid
expenses and other current assets
|
|
|
340,000 |
|
|
|
(754,000 |
) |
Decrease in trade accounts
payable
|
|
|
(3,847,000 |
) |
|
|
(492,000 |
) |
Decrease in accrued expenses and
other current liabilities
|
|
|
(10,402,000 |
) |
|
|
(2,459,000 |
) |
(Decrease) increase in income
taxes payable
|
|
|
(2,659,000 |
) |
|
|
2,111,000 |
|
Other
|
|
|
90,000 |
|
|
|
(128,000 |
) |
Net cash provided by operating
activities
|
|
|
26,596,000 |
|
|
|
35,227,000 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Acquisitions and related costs,
net of cash acquired
|
|
|
(13,484,000 |
) |
|
|
(28,221,000 |
) |
Capital
expenditures
|
|
|
(5,397,000 |
) |
|
|
(6,948,000 |
) |
Other
|
|
|
54,000 |
|
|
|
87,000 |
|
Net cash used in investing
activities
|
|
|
(18,827,000 |
) |
|
|
(35,082,000 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit
facility
|
|
|
27,000,000 |
|
|
|
32,800,000 |
|
Payments on revolving credit
facility
|
|
|
(27,000,000 |
) |
|
|
(30,800,000 |
) |
Borrowings on short-term line of
credit
|
|
|
¾ |
|
|
|
500,000 |
|
Payments on short-term line of
credit
|
|
|
¾ |
|
|
|
(500,000 |
) |
Payment of industrial development
revenue bonds
|
|
|
¾ |
|
|
|
(1,980,000 |
) |
Repurchases of common
stock
|
|
|
(8,098,000 |
) |
|
|
¾ |
|
Distributions to minority interest
owners
|
|
|
(3,527,000 |
) |
|
|
(4,321,000 |
) |
Cash dividends
paid
|
|
|
(1,585,000 |
) |
|
|
(1,312,000 |
) |
Excess tax benefit from stock
option exercises
|
|
|
1,793,000 |
|
|
|
4,350,000 |
|
Proceeds from stock option
exercises
|
|
|
678,000 |
|
|
|
1,797,000 |
|
Other
|
|
|
(104,000 |
) |
|
|
(67,000 |
) |
Net cash (used in) provided by
financing activities
|
|
|
(10,843,000 |
) |
|
|
467,000 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash
|
|
|
(40,000 |
) |
|
|
(132,000 |
) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
|
(3,114,000 |
) |
|
|
480,000 |
|
Cash and cash equivalents at
beginning of year
|
|
|
12,562,000 |
|
|
|
4,947,000 |
|
Cash and cash equivalents at end
of period
|
|
$ |
9,448,000 |
|
|
$ |
5,427,000 |
|
The accompanying notes are an integral
part of these condensed consolidated financial
statements.
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,” “we,” “us,” “our” 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, 2008. The October 31, 2008 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 and
statements of cash flows for such interim periods presented. The
results of operations for the six months ended April 30, 2009 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
New
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements,” 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 FASB Staff Position
(“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157,” which delays the
effective date of SFAS No. 157 by one year for nonfinancial assets and
liabilities, except those recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company adopted all required
portions of SFAS No. 157 effective November 1, 2008. The adoption of
SFAS No. 157 did not have a material effect on the Company’s results of
operations, financial position or cash flows. See Note 7, Fair Value
Measurements, 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. The portions of SFAS No. 157 that were delayed by
FSP FAS 157-2 will be adopted by the Company at the beginning of fiscal 2010 and
the Company is currently in the process of evaluating the effect such adoption
will have on its results of operations, financial position and cash
flows.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115.” SFAS No. 159
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. The Company adopted
SFAS No.
159 effective November 1, 2008 and has 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 SFAS No.
159 did not impact the Company’s results of operations, financial position or
cash flows.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51.” This statement requires the recognition of
a noncontrolling interest (previously referred to as a minority interest) 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. SFAS
No. 160 is effective for fiscal years beginning on or after December 15, 2008,
or in fiscal 2010 for HEICO. The Company is currently in the process
of evaluating the effect the adoption of SFAS No. 160 will have on its results
of operations, financial position and cash flows.
In March 2008, the FASB issued SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133.” SFAS No. 161 expands the
disclosure requirements in SFAS No. 133 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 under SFAS No. 133 and
its related interpretations; and (iii) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows. The Company adopted SFAS No. 161 effective February 1,
2009. SFAS No. 161 affects financial statement disclosures only and
the Company will make the required additional disclosures in reporting periods
for which it uses derivative instruments.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 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. SFAS No.
162 became effective November 15, 2008. The adoption of SFAS No. 162
did not have a material effect on the Company’s results of operations, financial
position or cash flows.
In May 2009, the FASB issued SFAS No.
165, “Subsequent Events.” SFAS No. 165 establishes general standards
of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. SFAS No. 165 is
effective for reporting periods ending after June 15, 2009, or in the third
quarter of fiscal 2009 for HEICO. The Company is currently in the
process of evaluating the effect the adoption of SFAS No. 165 will have on its
financial statements and will make the required additional disclosures in
reporting periods in which subsequent events occur.
2. ACQUISITIONS
In December 2008, the Company, through
its HEICO Aerospace Holdings Corp. subsidiary (“HEICO Aerospace”), made payment
for the remaining 10% equity interest in one of its subsidiaries, which
increased the Company’s ownership interest to 100% effective October 31,
2008. The purchase price was accrued as of October 31, 2008 and was
paid using cash provided by operating activities.
In December 2008, the Company, through
HEICO Aerospace, acquired an additional 14% equity interest in one of its
subsidiaries, which increased the Company’s ownership interest to
72%.
During the first quarter of fiscal
2009, the Company, through its HEICO Electronic Technologies Corp. subsidiary,
(“HEICO Electronic”) paid $2.2 million of additional purchase consideration
pursuant to the terms of the purchase agreement associated with a previous year
acquisition. The amount paid, which was accrued as of October 31,
2008, was based on a multiple of the subsidiary’s earnings relative to
target. Since this amount was not contingent upon the former
shareholders of the acquired entity remaining employed by the Company or
providing future services to the Company, the payment was recorded as an
additional cost of the acquired entity.
In April 2009, the Company, through
HEICO Electronic, acquired an additional 3.4% equity interest in one of its
subsidiaries, which increased the Company’s ownership interest to
89.9%. The purchase price of the acquired equity interest was paid
using cash provided by operating activities.
The fiscal 2009 acquisitions described
above were accounted for using the purchase method of accounting. The
purchase price of each acquisition was paid in cash using proceeds from the
Company’s revolving credit facility unless otherwise noted and was not
significant to the Company’s condensed consolidated financial
statements. (See Note 12, Commitments and Contingencies, for
additional information on put/call rights and contingent purchase consideration
associated with certain of the Company’s acquisitions.)
The operating results of each of the
Company’s fiscal 2009 acquisitions noted above were included in the Company’s
results of operations from their effective acquisition date. Assuming
these acquisitions had taken place as of the beginning of fiscal 2008, the pro
forma net sales, net income and net income per share (basic and diluted) for the
six months and three months ended April 30, 2009 and 2008 would not have been
materially different than the reported amounts.
3.
SELECTED
FINANCIAL STATEMENT INFORMATION
Accounts
Receivable
|
|
April 30,
2009
|
|
|
October 31,
2008
|
|
Accounts
receivable
|
|
$ |
74,356,000 |
|
|
$ |
90,990,000 |
|
Less: Allowance for
doubtful accounts
|
|
|
(2,372,000 |
) |
|
|
(2,587,000 |
) |
Accounts receivable,
net
|
|
$ |
71,984,000 |
|
|
$ |
88,403,000 |
|
Costs
and Estimated Earnings on Uncompleted Percentage-of-Completion
Contracts
|
|
April 30,
2009
|
|
|
October 31,
2008
|
|
Costs incurred on uncompleted
contracts
|
|
$ |
20,531,000 |
|
|
$ |
21,505,000 |
|
Estimated
earnings
|
|
|
10,825,000 |
|
|
|
12,545,000 |
|
|
|
|
31,356,000 |
|
|
|
34,050,000 |
|
Less: Billings to
date
|
|
|
(27,752,000 |
) |
|
|
(28,337,000 |
) |
|
|
$ |
3,604,000 |
|
|
$ |
5,713,000 |
|
Included in the accompanying
Condensed Consolidated
|
|
|
|
|
|
|
|
|
Balance Sheets under the following
captions:
|
|
|
|
|
|
|
|
|
Accounts receivable, net (costs
and estimated
|
|
|
|
|
|
|
|
|
earnings in excess of
billings)
|
|
$ |
3,934,000 |
|
|
$ |
6,115,000 |
|
Accrued expenses and other current
liabilities
|
|
|
|
|
|
|
|
|
(billings in excess of costs and
estimated earnings)
|
|
|
(330,000 |
) |
|
|
(402,000 |
) |
|
|
$ |
3,604,000 |
|
|
$ |
5,713,000 |
|
|
|
|
|
|
|
|
|
|
Changes in estimates did not have a
material effect on net income for the six months and three months ended April
30, 2009 and 2008.
Inventories
|
|
April 30,
2009
|
|
|
October 31,
2008
|
|
Finished
products
|
|
$ |
82,507,000 |
|
|
$ |
74,281,000 |
|
Work in
process
|
|
|
15,855,000 |
|
|
|
17,897,000 |
|
Materials, parts, assemblies and
supplies
|
|
|
44,146,000 |
|
|
|
40,732,000 |
|
Inventories,
net
|
|
$ |
142,508,000 |
|
|
$ |
132,910,000 |
|
Inventories related to long-term
contracts were not significant as of April 30, 2009 and October 31,
2008.
Property,
Plant and Equipment
|
|
April 30,
2009
|
|
|
October 31,
2008
|
|
Land
|
|
$ |
3,656,000 |
|
|
$ |
3,656,000 |
|
Buildings and
improvements
|
|
|
37,084,000 |
|
|
|
36,229,000 |
|
Machinery, equipment and
tooling
|
|
|
75,680,000 |
|
|
|
73,038,000 |
|
Construction in
progress
|
|
|
5,776,000 |
|
|
|
5,446,000 |
|
|
|
|
122,196,000 |
|
|
|
118,369,000 |
|
Less: Accumulated
depreciation and amortization
|
|
|
(62,069,000 |
) |
|
|
(58,403,000 |
) |
Property, plant and equipment,
net
|
|
$ |
60,127,000 |
|
|
$ |
59,966,000 |
|
Accrued
Customer Rebates and Credits
The aggregate amount of accrued
customer rebates and credits included within the caption accrued expenses and
other current liabilities in the accompanying Condensed Consolidated Balance
Sheets was $15,006,000 and $11,758,000 as of April 30, 2009 and October 31,
2008, respectively. The total customer rebates and credits deducted
within net sales for the six months ended April 30, 2009 and 2008 was $4,734,000
and $5,102,000, respectively. The total customer rebates and credits
deducted within net sales for the three months ended April 30, 2009 and 2008 was
$2,562,000 and $2,664,000, respectively.
4. GOODWILL
AND OTHER INTANGIBLE ASSETS
The Company has two operating segments:
the Flight Support Group (“FSG”) and the Electronic Technologies Group
(“ETG”). Changes in the carrying amount of goodwill by operating
segment for the six months ended April 30, 2009 are as follows:
|
|
Segment
|
|
|
Consolidated
|
|
|
|
FSG
|
|
|
ETG
|
|
|
Totals
|
|
Balances as of October 31,
2008
|
|
$ |
181,126,000 |
|
|
$ |
142,267,000 |
|
|
$ |
323,393,000 |
|
Goodwill
acquired
|
|
|
6,482,000 |
|
|
|
496,000 |
|
|
|
6,978,000 |
|
Adjustments to
goodwill
|
|
|
828,000 |
|
|
|
¾ |
|
|
|
828,000 |
|
Foreign currency translation
adjustments
|
|
|
(132,000 |
) |
|
|
138,000 |
|
|
|
6,000 |
|
Balances as of April 30,
2009
|
|
$ |
188,304,000 |
|
|
$ |
142,901,000 |
|
|
$ |
331,205,000 |
|
The goodwill acquired is a result of
certain current year acquisitions described in Note 2,
Acquisitions. Adjustments to goodwill consist primarily of final
purchase price adjustments related to the preliminary allocation of the purchase
price during the allocation period for certain prior year acquisitions to the
assets acquired and liabilities assumed.
Identifiable
intangible assets consist of the following:
|
|
As of April 30,
2009
|
|
|
As of October 31,
2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Amortizing
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
16,241,000 |
|
|
$ |
(7,757,000 |
) |
|
$ |
8,484,000 |
|
|
$ |
16,845,000 |
|
|
$ |
(6,451,000 |
) |
|
$ |
10,394,000 |
|
Intellectual
property
|
|
|
3,442,000 |
|
|
|
(2,130,000 |
) |
|
|
1,312,000 |
|
|
|
3,427,000 |
|
|
|
(1,833,000 |
) |
|
|
1,594,000 |
|
Licenses
|
|
|
1,000,000 |
|
|
|
(511,000 |
) |
|
|
489,000 |
|
|
|
1,000,000 |
|
|
|
(474,000 |
) |
|
|
526,000 |
|
Non-compete
agreements
|
|
|
1,083,000 |
|
|
|
(815,000 |
) |
|
|
268,000 |
|
|
|
1,086,000 |
|
|
|
(660,000 |
) |
|
|
426,000 |
|
Patents
|
|
|
581,000 |
|
|
|
(217,000 |
) |
|
|
364,000 |
|
|
|
575,000 |
|
|
|
(189,000 |
) |
|
|
386,000 |
|
|
|
|
22,347,000 |
|
|
|
(11,430,000 |
) |
|
|
10,917,000 |
|
|
|
22,933,000 |
|
|
|
(9,607,000 |
) |
|
|
13,326,000 |
|
Non-Amortizing
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
11,449,000 |
|
|
|
¾ |
|
|
|
11,449,000 |
|
|
|
11,657,000 |
|
|
|
¾ |
|
|
|
11,657,000 |
|
|
|
$ |
33,796,000 |
|
|
$ |
(11,430,000 |
) |
|
$ |
22,366,000 |
|
|
$ |
34,590,000 |
|
|
$ |
(9,607,000 |
) |
|
$ |
24,983,000 |
|
The decrease in the gross carrying
amount of customer relationships as of April 30, 2009 compared to October 31,
2008 principally relates to an adjustment to the preliminary allocation of the
purchase price of a prior year acquisition.
Amortization expense related to
intangible assets for the six months ended April 30, 2009 and 2008 was
$1,812,000 and $2,622,000, respectively. Amortization expense related
to intangible assets for the three months ended April 30, 2009 and 2008 was
$871,000 and $1,365,000, respectively. Amortization expense related
to intangible assets for the fiscal year ending October 31, 2009 is estimated to
be $3,581,000. Amortization expense for each of the next five fiscal
years is estimated to be $2,827,000 in fiscal 2010, $2,132,000 in fiscal 2011,
$1,476,000 in fiscal 2012, $959,000 in fiscal 2013 and $664,000 in fiscal
2014.
5. SHORT-TERM
AND LONG-TERM DEBT
As of April 30, 2009, no borrowings
were outstanding under the $2.5 million short-term line of credit that one of
the Company’s subsidiaries has with a bank.
Long-term debt consists of the
following:
|
|
April 30,
2009
|
|
|
October 31,
2008
|
|
Borrowings under revolving credit
facility
|
|
$ |
37,000,000 |
|
|
$ |
37,000,000 |
|
Notes payable, capital leases and
equipment loans
|
|
|
496,000 |
|
|
|
601,000 |
|
|
|
|
37,496,000 |
|
|
|
37,601,000 |
|
Less: Current maturities of
long-term debt
|
|
|
(222,000 |
) |
|
|
(220,000 |
) |
|
|
$ |
37,274,000 |
|
|
$ |
37,381,000 |
|
As of April 30, 2009 and October 31,
2008, the weighted average interest rate on borrowings under the Company’s $300
million revolving credit facility was 1.1% and 3.6%,
respectively. The revolving credit facility contains both financial
and non-financial covenants. As of April 30, 2009, the Company was in
compliance with all such covenants.
6. INCOME
TAXES
As of April 30, 2009 and October 31,
2008, the Company’s liability for gross unrecognized tax benefits related to
uncertain tax positions was $2,547,000 and $5,742,000, respectively, of which
$2,109,000 and $3,438,000, respectively, would decrease the Company’s income tax
expense and effective income tax rate if the tax benefits were
recognized. A reconciliation of the activity related to the liability
for gross unrecognized tax benefits for the six months ended April 30, 2009
follows:
Balance as of October 31,
2008
|
|
$ |
5,742,000 |
|
Increases related to prior year
tax positions
|
|
|
109,000 |
|
Decreases related to prior year
tax positions
|
|
|
(3,396,000 |
) |
Increases related to current year
tax positions
|
|
|
422,000 |
|
Settlements
|
|
|
(211,000 |
) |
Lapse of statutes of
limitations
|
|
|
(119,000 |
) |
Balance as of April 30,
2009
|
|
$ |
2,547,000 |
|
The $3,195,000 decrease in the
liability was principally related to the release of reserves for tax positions
for which the uncertainty was only related to the timing of such tax benefits
and the effect of a favorable settlement reached with the Internal Revenue
Service (“IRS”) during the first quarter of fiscal 2009. During the
IRS’ examination of the income tax credits claimed by the Company in its U.S.
federal filings for qualified research and development activities incurred for
fiscal years 2002 through 2005, new information was obtained that supported an
aggregate reduction of the liability for uncertain tax positions concerning
research and development activities for fiscal years 2002 through
2008. As a result of the IRS settlement and associated reserve
adjustment, the Company recognized a tax benefit, which increased net income by
approximately $1,225,000 and $142,000 for the six months and three months ended
April 30, 2009, respectively. Further, the Company believes that it
is reasonably possible that within the next twelve months the California
Franchise Tax Board examination of the income tax credit claimed for qualified
research and development activities on the Company’s state of California filings
for fiscal years 2001 through 2005 will be settled. Accordingly, the
Company reclassified the related liability for unrecognized tax benefits from
other long-term liabilities to accrued expenses and other current liabilities in
the Company’s Condensed Consolidated Balance Sheets. In addition, the Company
reclassified the $554,000 of income tax refund receivables for the state of
California filings from other assets to prepaid expenses and other current
assets in the Company’s Condensed Consolidated Balance Sheets.
During the second quarter of fiscal
2009, the Company filed an application with the IRS for an accounting
methodology change that does not require the IRS’ advanced
approval. As this change removes the uncertainty surrounding certain
tax positions that was related only to the timing of such tax benefits, the
Company released the related reserve, including interest, and deferred tax asset
upon filing the application, which did not have a material effect on net income
for the six months and three months ended April 30, 2009.
Except for the events discussed above,
there were no material changes in the liability for
unrecognized
tax positions resulting from tax positions taken during the current or a prior
year, settlements with other taxing authorities or a lapse of applicable
statutes of limitations. The accrual of interest and penalties
related to the unrecognized tax benefits was not material for the six months
ended April 30, 2009. Further, the Company does not expect the total
amount of unrecognized tax benefits to materially change in the next twelve
months.
7. FAIR
VALUE MEASUREMENTS
The Company adopted SFAS No. 157
effective November 1, 2008 for all financial assets and liabilities and
nonfinancial assets and liabilities that are recognized or disclosed at fair
value on a recurring basis. SFAS No. 157 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement
date. SFAS No. 157 also establishes a three-level fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. An asset or liability’s level is based on the lowest
level of input that is significant to the fair value
measurement. SFAS No. 157 requires that assets and liabilities
carried at fair value be classified and disclosed in one of the following three
categories:
|
|
|
|
Level
1
|
Quoted
prices in active markets for identical assets or
liabilities;
|
|
Level
2
|
Inputs,
other than quoted prices included within Level 1, that are observable for
the asset or liability either directly or indirectly;
or
|
|
Level
3
|
Unobservable
inputs for the asset or liability where there is little or no market data,
requiring management to develop its own
assumptions.
|
The following table sets forth by level
within the fair value hierarchy, the Company’s financial assets and liabilities
and nonfinancial assets and liabilities that were measured at fair value on a
recurring basis as of April 30, 2009:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
plans
|
|
$ |
2,623,000 |
|
|
$ |
12,252,000 |
|
|
$ |
— |
|
|
$ |
14,875,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
The Company maintains two non-qualified
deferred compensation plans. The assets of the HEICO Corporation
Leadership Compensation Plan principally represent cash surrender values of life
insurance policies, which derive their fair values from investments in mutual
funds that are managed by an insurance company and are classified within Level
2. The assets of the Company’s other deferred compensation plan are
invested in publicly-traded mutual funds and a life insurance policy, and the
fair values of this plan’s assets are classified within Level 1 and Level 2,
respectively. The assets of both plans are held within irrevocable
trusts and classified within other assets in the Company’s Condensed
Consolidated Balance Sheets. 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 $14,767,000 as of April 30, 2009.
8. SHAREHOLDERS’
EQUITY AND COMPREHENSIVE INCOME
Changes in consolidated shareholders’
equity and comprehensive income for the six months ended April 30, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Par Value
|
|
|
Loss
|
|
|
Earnings
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of October 31,
2008
|
|
$ |
106,000 |
|
|
$ |
158,000 |
|
|
$ |
229,443,000 |
|
|
$ |
(4,819,000 |
) |
|
$ |
192,872,000 |
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,858,000 |
|
|
$ |
21,858,000 |
|
Foreign currency translation
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(194,000 |
) |
|
|
— |
|
|
|
(194,000 |
) |
Comprehensive
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
21,664,000 |
|
Cash dividends ($.06 per
share)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,585,000 |
) |
|
|
|
|
Repurchases of common
stock
|
|
|
(2,000 |
) |
|
|
(2,000 |
) |
|
|
(8,094,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
Tax benefit from stock option
exercises
|
|
|
— |
|
|
|
— |
|
|
|
2,136,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Proceeds from stock option
exercises
|
|
|
— |
|
|
|
1,000 |
|
|
|
677,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Stock option compensation
expense
|
|
|
— |
|
|
|
— |
|
|
|
7,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Other
|
|
|
— |
|
|
|
— |
|
|
|
(1,000 |
) |
|
|
163,000 |
|
|
|
— |
|
|
|
|
|
Balances as of April 30,
2009
|
|
$ |
104,000 |
|
|
$ |
157,000 |
|
|
$ |
224,168,000 |
|
|
$ |
(4,850,000 |
) |
|
$ |
213,145,000 |
|
|
|
|
|
Share
Repurchases
In accordance with the Company’s share
repurchase program, 193,736 shares of Class A Common Stock were repurchased at a
total cost of $3.9 million and 184,500 shares of Common Stock were repurchased
at a total cost of $4.2 million during the second quarter of fiscal
2009.
In March 2009, the Company’s Board of
Directors approved an increase in the Company’s 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 repurchase to 1,024,742
shares.
9. RESEARCH
AND DEVELOPMENT EXPENSES
Cost of sales for the six months ended
April 30, 2009 and 2008 includes approximately $9.7 million and $8.5 million,
respectively, of new product research and development expenses. Cost
of sales for the three months ended April 30, 2009 and 2008 includes
approximately $4.9 million and $4.3 million, respectively, of new product
research and development expenses.
10. NET
INCOME PER SHARE
The computation of basic and diluted
net income per share is as follows:
|
|
Six months ended April
30,
|
|
|
Three months ended April
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
21,858,000 |
|
|
$ |
22,034,000 |
|
|
$ |
10,541,000 |
|
|
$ |
11,948,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding-basic
|
|
|
26,317,465 |
|
|
|
26,230,514 |
|
|
|
26,224,248 |
|
|
|
26,276,396 |
|
Effect of dilutive stock
options
|
|
|
809,767 |
|
|
|
996,944 |
|
|
|
788,253 |
|
|
|
969,362 |
|
Weighted average common shares
outstanding-diluted
|
|
|
27,127,232 |
|
|
|
27,227,458 |
|
|
|
27,012,501 |
|
|
|
27,245,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share-basic
|
|
$ |
.83 |
|
|
$ |
.84 |
|
|
$ |
.40 |
|
|
$ |
.45 |
|
Net income per
share-diluted
|
|
$ |
.81 |
|
|
$ |
.81 |
|
|
$ |
.39 |
|
|
$ |
.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options
excluded
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
11. OPERATING
SEGMENTS
Summarized financial information for
the Company’s two operating segments, the Flight Support Group (“FSG”),
consisting of HEICO Aerospace Holdings Corp. and its subsidiaries, and the
Electronic Technologies Group (“ETG”), consisting of HEICO Electronic
Technologies Corp. and its subsidiaries, for the six months and three months
ended April 30, 2009 and 2008, respectively, is as follows:
|
|
|
|
|
|
|
|
Other,
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily
|
|
|
|
|
|
|
Segment
|
|
|
Corporate
and
|
|
|
Consolidated
|
|
|
|
FSG
|
|
|
ETG
|
|
|
Intersegment
|
|
|
Totals
|
|
For
the six months ended April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
200,307,000 |
|
|
$ |
60,469,000 |
|
|
$ |
(173,000 |
) |
|
$ |
260,603,000 |
|
Depreciation and
amortization
|
|
|
4,809,000 |
|
|
|
1,878,000 |
|
|
|
221,000 |
|
|
|
6,908,000 |
|
Operating
income
|
|
|
31,538,000 |
|
|
|
16,573,000 |
|
|
|
(5,339,000 |
) |
|
|
42,772,000 |
|
Capital
expenditures
|
|
|
4,777,000 |
|
|
|
609,000 |
|
|
|
11,000 |
|
|
|
5,397,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
210,317,000 |
|
|
$ |
68,021,000 |
|
|
$ |
(12,000 |
) |
|
$ |
278,326,000 |
|
Depreciation and
amortization
|
|
|
4,422,000 |
|
|
|
2,702,000 |
|
|
|
184,000 |
|
|
|
7,308,000 |
|
Operating
income
|
|
|
39,331,000 |
|
|
|
16,948,000 |
|
|
|
(6,690,000 |
) |
|
|
49,589,000 |
|
Capital
expenditures
|
|
|
5,332,000 |
|
|
|
1,166,000 |
|
|
|
450,000 |
|
|
|
6,948,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
100,745,000 |
|
|
$ |
29,510,000 |
|
|
$ |
(89,000 |
) |
|
$ |
130,166,000 |
|
Depreciation and
amortization
|
|
|
2,398,000 |
|
|
|
927,000 |
|
|
|
112,000 |
|
|
|
3,437,000 |
|
Operating
income
|
|
|
15,897,000 |
|
|
|
8,031,000 |
|
|
|
(2,609,000 |
) |
|
|
21,319,000 |
|
Capital
expenditures
|
|
|
2,486,000 |
|
|
|
295,000 |
|
|
|
— |
|
|
|
2,781,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
107,968,000 |
|
|
$ |
36,083,000 |
|
|
$ |
(12,000 |
) |
|
$ |
144,039,000 |
|
Depreciation and
amortization
|
|
|
2,315,000 |
|
|
|
1,352,000 |
|
|
|
102,000 |
|
|
|
3,769,000 |
|
Operating
income
|
|
|
20,385,000 |
|
|
|
9,771,000 |
|
|
|
(3,797,000 |
) |
|
|
26,359,000 |
|
Capital
expenditures
|
|
|
3,164,000 |
|
|
|
725,000 |
|
|
|
247,000 |
|
|
|
4,136,000 |
|
Total assets by operating segment as of
April 30, 2009 and October 31, 2008 are as follows:
|
|
|
|
|
|
|
|
Other,
|
|
|
|
|
|
|
Segment
|
|
|
Primarily
|
|
|
Consolidated
|
|
|
|
FSG
|
|
|
ETG
|
|
|
Corporate
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of April 30,
2009
|
|
$ |
430,360,000 |
|
|
$ |
211,480,000 |
|
|
$ |
32,652,000 |
|
|
$ |
674,492,000 |
|
Total assets as of October 31,
2008
|
|
|
418,079,000 |
|
|
|
220,888,000 |
|
|
|
37,575,000 |
|
|
|
676,542,000 |
|
12.
COMMITMENTS AND CONTINGENCIES
Guarantees
The Company has arranged for a standby
letter of credit for $1.5 million, which is supported by the Company’s revolving
credit facility, to meet the security requirement of its insurance company for
potential workers’ compensation claims.
Product
Warranty
Changes in the Company’s product
warranty liability, which is included within the caption accrued expenses and
other current liabilities in the Company’s condensed consolidated balance sheet,
for the six months ended April 30, 2009 and 2008, respectively, are as
follows:
|
|
Six months ended April
30,
|
|
|
|
2009
|
|
|
2008
|
|
Balances as of beginning of fiscal
year
|
|
$ |
671,000 |
|
|
$ |
1,181,000 |
|
Accruals for
warranties
|
|
|
859,000 |
|
|
|
576,000 |
|
Warranty claims
settled
|
|
|
(497,000 |
) |
|
|
(393,000 |
) |
Balances as of April
30
|
|
$ |
1,033,000 |
|
|
$ |
1,364,000 |
|
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 the Company to purchase their
interests over a five-year period and the Company has 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 the Company 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 the second quarter of fiscal 2009 to cause the Company to purchase
their aggregate 10.5% interest over a four-year period ending in fiscal
2012. Accordingly, the Company increased its 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 the Company 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 the Company to purchase an aggregate
28% interest over a four-year period ending in fiscal 2011. Accordingly, the
Company increased its ownership interest in the subsidiary by 7% (or one-fourth
of such minority interest holders’ aggregate interest) to 58% effective April
2008. The Company 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 the Company’s ownership interest to 72%
effective December 2008. The remaining 7% interest is anticipated to
be purchased in April 2011. Further, the Company has 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 the Company 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, the Company has 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 the Company to purchase the same equity
interests over the same period.
As part of an agreement to acquire an
80% interest in a subsidiary by the FSG in fiscal 2008, the Company has 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 the Company 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 the Company 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. Assuming the subsidiaries perform
over their respective future measurement periods at the same earnings levels
they have performed in the comparable historical measurement periods and
assuming all Put Rights are exercised, the aggregate Redemption Amount that the
Company would be required to pay is approximately $39 million. The
actual Redemption Amount will likely be different. Upon exercise of
any Put Right, the Company’s ownership interest in the subsidiary would increase
and minority interest expense would decrease. The Put Rights are
embedded in the shares owned by the minority interest holders and are not
freestanding. Consistent with Accounting Research Bulletin No. 51,
“Consolidated Financial Statements,” minority interests have been recorded in
the Company’s consolidated balance sheets at historical cost plus an allocation
of subsidiary earnings based on ownership interests, less dividends paid to the
minority interest holders. As described in Note 1, Summary of
Significant Accounting Policies, the FASB issued SFAS No. 160 in December
2007
that will
change the current accounting and financial reporting for noncontrolling
(minority) interests. SFAS No. 160 will be effective for fiscal years
beginning after December 15, 2008. The Company will adopt SFAS No.
160 on November 1, 2009. SFAS No. 160 will require that
noncontrolling (minority) interests be reported in the consolidated balance
sheet within equity. The Company is currently in the process of
evaluating the effect such adoption will have on its minority interest
liabilities and related Put Rights.
Additional
Contingent Purchase Consideration
As part of the agreement to purchase a
subsidiary by the ETG in fiscal 2005, the Company may be obligated to pay
additional purchase consideration currently estimated to total up to $3.2
million should the subsidiary meet certain product line-related earnings
objectives during calendar years 2008 and 2009.
As part of the agreement to acquire a
subsidiary by the ETG in fiscal 2006, the Company may be obligated to pay
additional purchase consideration up to $19.2 million should the subsidiary meet
certain earnings objectives in fiscal 2009.
As part of the agreement to acquire a
subsidiary by the ETG in fiscal 2007, the Company may be obligated to pay
additional purchase consideration up to 73 million Canadian dollars in
aggregate, which translates to $60 million U.S. dollars based on the April 30,
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, the Company may be obligated to pay
additional consideration of up to approximately $.4 million should the
subsidiary meet certain earnings objectives during fiscal 2010, 2011 and
2012.
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 the Company or providing future services to the
Company. Accordingly, such consideration will be recorded as an
additional cost of the respective acquired entity when paid. The
aggregate maximum amount of such contingent consideration that the Company could
be required to pay is approximately $83 million payable over 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 have performed in the comparable historical
measurement periods, the aggregate amount of such contingent consideration that
the Company would be required to pay is approximately $6 million. The
actual contingent purchase consideration will likely be different.
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.
13. SUBSEQUENT
EVENT
In May 2009, the Company, through its
HEICO Electronic subsidiary, acquired 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
purchase price of this acquisition was paid in cash using proceeds from the
Company’s revolving credit facility and was not significant to the Company’s
condensed consolidated financial statements.
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, some
of 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, 2008.
Our business is comprised of two
operating segments: the Flight Support Group (“FSG”), consisting of
HEICO Aerospace Holdings Corp. (“HEICO Aerospace”) and its subsidiaries, and the
Electronic Technologies Group (“ETG”), consisting of HEICO Electronic
Technologies Corp. (“HEICO Electronic”) and its subsidiaries.
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.
|
|
Six months ended April
30,
|
|
|
Three months ended April
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net sales
|
|
$ |
260,603,000 |
|
|
$ |
278,326,000 |
|
|
$ |
130,166,000 |
|
|
$ |
144,039,000 |
|
Cost of
sales
|
|
|
174,181,000 |
|
|
|
179,141,000 |
|
|
|
87,648,000 |
|
|
|
91,683,000 |
|
Selling, general and
administrative expenses
|
|
|
43,650,000 |
|
|
|
49,596,000 |
|
|
|
21,199,000 |
|
|
|
25,997,000 |
|
Total operating costs and
expenses
|
|
|
217,831,000 |
|
|
|
228,737,000 |
|
|
|
108,847,000 |
|
|
|
117,680,000 |
|
Operating
income
|
|
$ |
42,772,000 |
|
|
$ |
49,589,000 |
|
|
$ |
21,319,000 |
|
|
$ |
26,359,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight Support
Group
|
|
$ |
200,307,000 |
|
|
$ |
210,317,000 |
|
|
$ |
100,745,000 |
|
|
$ |
107,968,000 |
|
Electronic Technologies
Group
|
|
|
60,469,000 |
|
|
|
68,021,000 |
|
|
|
29,510,000 |
|
|
|
36,083,000 |
|
Intersegment
sales
|
|
|
(173,000 |
) |
|
|
(12,000 |
) |
|
|
(89,000 |
) |
|
|
(12,000 |
) |
|
|
$ |
260,603,000 |
|
|
$ |
278,326,000 |
|
|
$ |
130,166,000 |
|
|
$ |
144,039,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income by
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight Support
Group
|
|
$ |
31,538,000 |
|
|
$ |
39,331,000 |
|
|
$ |
15,897,000 |
|
|
$ |
20,385,000 |
|
Electronic Technologies
Group
|
|
|
16,573,000 |
|
|
|
16,948,000 |
|
|
|
8,031,000 |
|
|
|
9,771,000 |
|
Other, primarily
corporate
|
|
|
(5,339,000 |
) |
|
|
(6,690,000 |
) |
|
|
(2,609,000 |
) |
|
|
(3,797,000 |
) |
|
|
$ |
42,772,000 |
|
|
$ |
49,589,000 |
|
|
$ |
21,319,000 |
|
|
$ |
26,359,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Gross
profit
|
|
|
33.2 |
% |
|
|
35.6 |
% |
|
|
32.7 |
% |
|
|
36.3 |
% |
Selling, general and
administrative expenses
|
|
|
16.7 |
% |
|
|
17.8 |
% |
|
|
16.3 |
% |
|
|
18.0 |
% |
Operating
income
|
|
|
16.4 |
% |
|
|
17.8 |
% |
|
|
16.4 |
% |
|
|
18.3 |
% |
Interest
expense
|
|
|
.1 |
% |
|
|
.5 |
% |
|
|
.1 |
% |
|
|
.4 |
% |
Other income
(expense)
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Income tax
expense
|
|
|
4.9 |
% |
|
|
5.9 |
% |
|
|
5.3 |
% |
|
|
6.2 |
% |
Minority interests’ share of
income
|
|
|
3.0 |
% |
|
|
3.4 |
% |
|
|
2.9 |
% |
|
|
3.4 |
% |
Net income
|
|
|
8.4 |
% |
|
|
7.9 |
% |
|
|
8.1 |
% |
|
|
8.3 |
% |
Comparison
of First Six Months of Fiscal 2009 to First Six Months of Fiscal
2008
Net
Sales
Net sales for the first six months of
fiscal 2009 decreased by 6.4% to $260.6 million, as compared to net sales of
$278.3 million for the first six months of fiscal 2008. The decrease
in net sales reflects a decrease of $10.0 million (a 4.8% decrease) to $200.3
million in net sales within the FSG and a decrease of $7.6 million (an 11.1%
decrease) to $60.5 million in net sales within the ETG. The net sales
decline in both the FSG and the ETG reflects the continued effects of the
slowdown in global economic activity, which has resulted in a reduction in
customer demand. The net sales decrease within the FSG reflects the fall in
demand for aftermarket parts and services as the airline industry cuts worldwide
capacity and reduces spending to conserve cash. 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.
Gross
Profit and Operating Expenses
Our consolidated gross profit margin
decreased to 33.2% for the first six months of fiscal 2009 as compared to 35.6%
for the first six months of fiscal 2008, mainly reflecting lower margins within
the FSG due principally to a less favorable product mix as well as a higher
investment by HEICO in the research and development of new products and
services. Consolidated cost of sales for the first six months of
fiscal 2009 and 2008 includes approximately $9.7 million and $8.5 million,
respectively, of new product research and development expenses.
Selling, general and administrative
(“SG&A”) expenses were $43.7 million and $49.6 million for the first six
months of fiscal 2009 and fiscal 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. These cost reductions resulted in a decrease of
SG&A expenses as a percentage of net sales from 17.8% for the first six
months of fiscal 2008 to 16.7% for the first six months of fiscal
2009.
Operating
Income
Operating income for the first six
months of fiscal 2009 decreased by 13.7% to $42.8 million, compared to operating
income of $49.6 million for the first six months of fiscal 2008. The
decrease in operating income reflects a decrease of $7.8 million (a 19.8%
decrease) to $31.5 million in operating income of the FSG in the first six
months of fiscal 2009 from $39.3 million for the first six months of fiscal
2008, a $.3 million decrease (a 2.2% decrease) in operating income of the ETG
from $16.9 million for the first six months of fiscal 2008 to $16.6 million for
the first six months of fiscal 2009, partially offset by a $1.4 million decrease
in corporate expenses.
As a percentage of net sales,
consolidated operating income decreased to 16.4% for the first six months of
fiscal 2009 compared to 17.8% for the first six months of fiscal
2008. The consolidated operating income as a percentage of net sales
reflects a decrease in the FSG’s operating income as a percentage of net sales
from 18.7% in the first six months of fiscal 2008 to 15.7% in the first six
months of fiscal 2009 offset by an increase in the ETG’s operating income as a
percentage of net sales from 24.9% in the first six months of fiscal 2008 to
27.4% in the first six months of 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 on gross profit margins and
a less favorable product mix. 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 $307,000
in the first six months of fiscal 2009 from $1,507,000 in the first six months
of fiscal 2008. The decrease was principally due to lower interest
rates and a lower weighted average balance outstanding under our revolving
credit facility in the first six months of fiscal 2009.
Other
Income (Expense)
Other income (expense) in the first six
months of fiscal 2009 and 2008 was not material.
Income
Tax Expense
Our effective tax rate for the first
six months of fiscal 2009 decreased to 30.2% from 34.5% for the first six months
of 2008. This decrease principally reflects a settlement reached with
the Internal Revenue Service (“IRS”) during the first quarter of fiscal 2009 and
a lower effective state income tax rate. 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 the first
six months of fiscal 2009. The lower effective state income tax rate
was due to changes in certain state tax laws which impacted state apportionment
factors.
Minority
Interests’ Share of Income
Minority interests’ share of income of
consolidated subsidiaries relates to the 20% minority interest held in HEICO
Aerospace and the minority interests held in certain subsidiaries of HEICO
Aerospace and HEICO Electronic. The decrease in the minority
interests’ share of income for the first six months of fiscal 2009 compared to
the first six months of fiscal 2008 is 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.
Net
Income
Our net income was $21.9 million, or
$.81 per diluted share, for the first six months of fiscal 2009 compared to
$22.0 million, or $.81 per diluted share, for the first six months of fiscal
2008 reflecting the aforementioned favorable IRS settlement, the decreased
minority interests’ share of income of certain consolidated subsidiaries and
lower interest expense, offset by the decreased operating income referenced
above.
Comparison
of Second Quarter of Fiscal 2009 to Second Quarter of Fiscal 2008
Net
Sales
Net sales for the second quarter of
fiscal 2009 decreased by 9.6% to $130.2 million, as compared to net sales of
$144.0 million for the second quarter of fiscal 2008. The decrease in
net sales reflects a decrease of $7.2 million (a 6.7% decrease) to $100.7
million in net sales within the FSG and a decrease of $6.6 million (an 18.2%
decrease) to $29.5 million in net sales within the ETG. The net sales
decline in both the FSG and the ETG reflects the continued effects of the
slowdown in global economic activity, which has resulted in a reduction in
customer demand. Within the FSG, we have experienced a fall in demand for
aftermarket parts and services and a corresponding decrease in net sales as the
airline industry continues to cut worldwide capacity and reduce spending to
conserve cash. 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.
Gross
Profit and Operating Expenses
Our consolidated gross profit margin
decreased to 32.7% for the second quarter of fiscal 2009 as compared to 36.3%
for the second quarter of fiscal 2008, principally reflecting lower margins
within the FSG primarily due to the impact of a less favorable product mix as
well as a higher investment by HEICO in the research and development of new
products and services. Consolidated cost of sales for the second
quarter of fiscal 2009 and 2008 includes approximately $4.9 million and $4.3
million, respectively, of new product research and development
expenses.
SG&A expenses were $21.2 million
and $26.0 million for the second quarter of fiscal 2009 and fiscal 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. These cost reductions resulted in a decrease of SG&A
expenses as a percentage of net sales from 18.0% for the second quarter of
fiscal 2008 to 16.3% for the second quarter of fiscal 2009.
Operating
Income
Operating income for the second quarter
of fiscal 2009 decreased by 19.1% to $21.3 million, compared to operating income
of $26.4 million for the second quarter of fiscal 2008. The decrease
in operating income reflects a decrease of $4.5 million (a 22.0% decrease) to
$15.9
million
in operating income of the FSG in the second quarter of fiscal 2009 from $20.4
million for the second quarter of fiscal 2008, a $1.8 million decrease (a 17.8%
decrease) in operating income of the ETG from $9.8 million for the second
quarter of fiscal 2008 to $8.0 million for the second quarter of fiscal 2009,
partially offset by a $1.2 million decrease in corporate expenses.
As a percentage of net sales,
consolidated operating income decreased to 16.4% for the second quarter of
fiscal 2009 compared to 18.3% for the second quarter of fiscal
2008. The consolidated operating income as a percentage of net sales
principally reflects a decrease in the FSG’s operating income as a percentage of
net sales from 18.9% in the second quarter of fiscal 2008 to 15.8% in the second
quarter of fiscal 2009 as the ETG’s operating income as a percentage of net
sales of 27.2% for the second quarter of fiscal 2009 approximated the 27.1%
reported for the second quarter of fiscal 2008. The decrease in
operating income as a percentage of net sales for the FSG principally reflects
the aforementioned impact of the lower sales volume on gross profit margins and
a less favorable product mix.
Interest
Expense
Interest expense decreased to $112,000
in the second quarter of fiscal 2009 from $645,000 in the second quarter of
fiscal 2008. The decrease was principally due to lower interest rates
and a lower weighted average balance outstanding under our revolving credit
facility in the second quarter of fiscal 2009.
Other
Income
Other income in the second quarter of
fiscal 2009 and 2008 was not material.
Income
Tax Expense
Our effective tax rate for the second
quarter of fiscal 2009 decreased to 32.7% from 34.8% for the second quarter of
fiscal 2008. This decrease principally reflects a lower effective
state income tax rate and an additional benefit from the settlement reached with
the IRS during the first quarter of fiscal 2009 pertaining to the income tax
credits claimed on HEICO’s U.S. federal filings for qualified research and
development activities incurred during fiscal years 2002 through 2005, which
increased net income by approximately $142,000, or $.01 per diluted share, for
the second quarter of fiscal 2009. The lower effective state income
tax rate was due to changes in certain state tax laws which impacted state
apportionment factors.
Minority
Interests’ Share of Income
Minority interests’ share of income of
consolidated subsidiaries relates to the 20% minority interest held in HEICO
Aerospace and the minority interests held in certain subsidiaries of HEICO
Aerospace and HEICO Electronic. The decrease in the minority
interests’ share of income for the second quarter of fiscal 2009 compared to the
second quarter of fiscal 2008 was attributable to the acquired additional equity
interests of certain FSG subsidiaries in which minority interests exist as well
as lower earnings of the FSG.
Net
Income
Our net income was $10.5 million, or
$.39 per diluted share, for the second quarter of fiscal 2009 compared to $11.9
million, or $.44 per diluted share, for the second quarter of fiscal
2008. This decrease in net income reflects the decreased operating
income referenced above, partially offset by the decreased minority interests’
share of income of certain consolidated subsidiaries and lower interest
expense.
Outlook
Considering the currently forecasted
worldwide airline capacity reductions and continuing weakness in demand for
certain products of the ETG, together with ongoing limited general economic
visibility, we are updating our forecasted fiscal 2009 full year net sales and
diluted net income per share to be approximately 5% to 10% lower when compared
to fiscal 2008.
Liquidity
and Capital Resources
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. As of April 30,
2009, our net debt to equity ratio was only 6%, with net debt (total debt less
cash and cash equivalents) of $28.0 million, and we have no significant debt
maturities until fiscal 2013.
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 $26.6 million for the first six months of fiscal 2009, consisting
primarily of net income of $21.9 million, minority interests’ share of income of
consolidated subsidiaries of $7.8 million, depreciation and amortization of $6.9
million and a tax benefit on stock option exercises of $2.1 million, partially
offset by an increase in net operating assets of $10.1 million and the
presentation of $1.8 million of excess tax benefit from stock option exercises
as a financing activity. The increase in net operating assets
principally results from payments of accrued expenses and other current
liabilities since October 31, 2008.
Net cash provided by operating
activities decreased $8.6 million from $35.2 million for the first six months of fiscal 2008 to $26.6 million for the first six months of fiscal 2009 principally due to higher inventory levels at the FSG as a
result of lower sales volume in the first six
months of fiscal 2009 and higher investment in inventories for new product
offerings.
Investing
Activities
Net cash used in investing activities
during the first six months
of fiscal 2009 related primarily to acquisitions and related costs of $13.5
million and capital expenditures totaling $5.4 million. Acquisitions
and related costs principally reflect the acquisition of an additional 14% of
the equity interests of a subsidiary of the FSG and additional purchase
consideration related to a subsidiary acquired in a previous year, which was
accrued as of October 31, 2008 based on the subsidiary’s earnings relative to
target. Further details on the fiscal 2009 acquisitions can be found
in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial
Statements.
Financing
Activities
Net cash used in financing activities
during the first six months
of fiscal 2009 primarily related to repurchases of our common stock of $8.1
million, distributions to minority interest holders of $3.5 million, and the
payment of $1.6 million in cash dividends on our common stock, offset by the
presentation of $1.8 million of excess tax benefit from stock option exercises
as a financing activity.
Contractual
Obligations
There have not been any material
changes to the amounts presented in the table of contractual obligations that
was included in our Annual Report on Form 10-K for the year ended October 31,
2008.
As discussed in “Off-Balance Sheet
Arrangements – Acquisitions – Put/Call Rights” below, 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. Assuming the subsidiaries perform
over their respective future measurement periods at the same earnings levels
they have performed in the comparable historical measurement periods and
assuming all Put Rights are exercised, the aggregate amount that we would be
required to pay is approximately $39 million. The actual amount will
likely be different.
Further, as discussed in “Off-Balance
Sheet Arrangements – Acquisitions – Additional Contingent Purchase
Consideration” below, we may be obligated to pay additional contingent purchase
consideration based on future earnings of certain acquired
businesses. The aggregate maximum amount of such contingent
consideration that we could be required to pay is approximately $83 million
payable over 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 have performed in the
comparable historical measurement periods, the aggregate amount of such
contingent consideration that we would be required to pay is approximately $6
million. The actual contingent purchase consideration will likely be
different.
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.
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
the second quarter of 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 anticipated 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 interests 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 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. Upon exercise of any Put Right, our
ownership interest in the subsidiary would increase and minority interest
expense would decrease. The Put Rights are embedded in the shares
owned by the minority interest holders and are not
freestanding. Consistent with Accounting Research Bulletin No. 51,
“Consolidated Financial Statements,” minority interests have been recorded in
our consolidated balance sheets at historical cost plus an allocation of
subsidiary earnings based on ownership interests, less dividends paid to the
minority interest holders. As described in Note 1, Summary of
Significant Accounting Policies, of the Notes to Condensed Consolidated
Financial Statements, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 160 in December 2007
that will change the current accounting and financial reporting for
noncontrolling (minority) interests. SFAS No. 160 will be effective
for fiscal years beginning after December 15, 2008. We will adopt
SFAS No. 160 on November 1, 2009. SFAS No. 160 will require that
noncontrolling (minority) interests be reported in the consolidated balance
sheet within equity. We are currently in the process of evaluating
the effect such adoption will have on our minority interest liabilities and
related Put Rights. See also “Contractual Obligations”
above.
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 total up to $3.2 million should
the subsidiary meet certain product line-related earnings objectives during
calendar years 2008 and 2009.
As part of the agreement to acquire a
subsidiary by the ETG in fiscal 2006, we may be obligated to pay additional
purchase consideration up to $19.2 million should the subsidiary meet certain
earnings objectives in fiscal 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 $60 million U.S. dollars based on the April 30, 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
consideration of up to approximately $.4 million in aggregate should the
subsidiary meet certain earnings objectives during fiscal 2010, 2011 and
2012.
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. See also
“Contractual Obligations” above.
New
Accounting Pronouncements
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements,” 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 FASB Staff
Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157,” which
delays the effective date of SFAS No. 157 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 SFAS No. 157 effective November 1, 2008. The adoption of
SFAS No. 157 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 Condensed 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 SFAS No. 157 that were delayed
by FSP FAS 157-2 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 SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115.” SFAS No. 159
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 SFAS No. 159 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 SFAS No. 159 did not impact
our results of operations, financial position or cash flows.
In December 2007, the FASB issued SFAS
No. 141(R), “Business Combinations.” SFAS No. 141(R) is a revision of SFAS No.
141 and retains the fundamental requirements in SFAS No. 141 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, SFAS No. 141(R) 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. SFAS No. 141(R) 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 are currently in the process of evaluating the effect the
adoption of SFAS No. 141(R) will have on our results of operations, financial
position and cash flows.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51.” This statement requires the recognition of
a noncontrolling interest (previously referred to as a minority interest) 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. SFAS
No. 160 is effective for fiscal years beginning on or after December 15, 2008,
or in fiscal 2010 for us. We are currently in the process of
evaluating the effect the adoption of SFAS No. 160 will have on our results of
operations, financial position and cash flows.
In March 2008, the FASB issued SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133.” SFAS No. 161 expands the
disclosure requirements in SFAS No. 133 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 under SFAS No. 133 and
its related interpretations; and (iii) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows. We adopted SFAS No. 161 effective February 1,
2009. SFAS No. 161 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 SFAS No.
162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS No. 162 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. SFAS No. 162 became
effective November 15, 2008. The adoption of SFAS No. 162 did not
have a material effect on our results of operations, financial position or cash
flows.
In May 2009, the FASB issued SFAS No.
165, “Subsequent Events.” SFAS No. 165 establishes general standards
of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. SFAS No. 165 is
effective for reporting periods ending after June 15, 2009, or in the third
quarter of fiscal 2009 for us. We are currently in the process of
evaluating the effect the adoption of SFAS No. 165 will have on our financial
statements and will make the required additional disclosures in reporting
periods in which subsequent events occur.
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; HEICO’s ability to introduce new
products and product pricing levels, which could reduce our sales or sales
growth; HEICO’s 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 and electronics
industries, which could negatively impact our costs and revenues; and HEICO’s
ability to maintain effective internal controls, which could adversely affect
our business and the market price of our common stock. We undertake
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or
otherwise.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT
MARKET RISK
There have not been any material
changes in the Company’s assessment of its sensitivity to market risk that was
disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market
Risk,” in the Company’s Annual Report on Form 10-K for the year ended October
31, 2008.
Item
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The Company’s management, with the
participation of the Company’s Chief Executive Officer and its Chief Financial
Officer, evaluated the effectiveness of the Company’s disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the
end of the period covered by this quarterly report. Based upon that
evaluation, the Company’s Chief Executive Officer and its Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are
effective as of the end of the period covered by this quarterly
report.
Changes
in Internal Control Over Financial Reporting
There were no changes in the Company’s
internal control over financial reporting identified in connection with the
evaluation referred to above that occurred during the Company’s most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
Item
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During March 2009, the Company
repurchased 193,736 shares of its Class A Common Stock at an average price of
$20.08 per share and 184,500 shares of its Common Stock at an average price of
$22.81 per share under a pre-existing share repurchase authorization that was
announced by the Company’s Board of Directors in October 2002.
On March 31, 2009, the Company
announced that its Board of Directors approved an increase in the Company’s
share repurchase program by an aggregate 1,000,000 shares of either or both
Class A Common Stock and Common Stock.
Including 24,742 shares available for
repurchase under HEICO’s pre-existing Board of Directors approval, but which had
not been completely utilized, the Company may now repurchase up to a total of
1,024,742 shares of its common stock. Purchases can be executed, at
management’s discretion, in the open market or via private
transactions. The Company’s share repurchase program does not have a
fixed expiration date.
Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the Annual Meeting of Shareholders
held on March 27, 2009, the Company’s shareholders elected nine directors. The
number of votes cast for and withheld for each nominee for director was as
follows:
|
|
Votes
|
|
|
Votes
|
|
Director
Nominee
|
|
For
|
|
|
Withheld
|
|
|
|
|
|
|
|
|
Samuel
L. Higginbottom
|
|
|
9,986,394 |
|
|
|
1,514,965 |
|
Mark
H. Hildebrandt
|
|
|
11,366,187 |
|
|
|
135,172 |
|
Wolfgang
Mayrhuber
|
|
|
9,910,493 |
|
|
|
1,590,866 |
|
Eric
A. Mendelson
|
|
|
11,279,814 |
|
|
|
221,545 |
|
Laurans
A. Mendelson
|
|
|
11,350,158 |
|
|
|
151,201 |
|
Victor
H. Mendelson
|
|
|
11,279,814 |
|
|
|
221,545 |
|
Albert
Morrison, Jr.
|
|
|
11,318,863 |
|
|
|
182,496 |
|
Dr.
Alan Schriesheim
|
|
|
11,316,969 |
|
|
|
184,390 |
|
Frank
J. Schwitter
|
|
|
11,321,874 |
|
|
|
179,485 |
|
The Company’s shareholders also
ratified the appointment of Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for the fiscal year ending October
31, 2009, with 11,398,454 votes for the proposal, 21,145 votes against and
81,760 abstentions.
Item
6. EXHIBITS
Exhibit
|
Description
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.*
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.*
|
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer.**
|
|
|
32.2
|
Section
1350 Certification of Chief Financial Officer.**
|
|
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
HEICO
CORPORATION |
|
|
|
|
|
Date:
June 3, 2009
|
By:
|
/s/ THOMAS
S. IRWIN |
|
|
|
Thomas
S. Irwin
Executive
Vice President and
Chief
Financial Officer
(Principal
Financial and
Accounting
Officer)
|
|
|
|
|
|
EXHIBIT
INDEX
Exhibit
|
Description
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer.
|
|
|
32.2
|
Section
1350 Certification of Chief Financial Officer.
|
|
|