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, 2002
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)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
The number of shares outstanding of each of the Registrant's classes of common
stock as of May 31, 2002:
Title of Class Shares Outstanding
Common Stock, $.01 par value 9,372,770
Class A Common Stock, $.01 par value 11,568,088
HEICO CORPORATION
INDEX
Page No.
Part I. Financial Information:
Item 1. Condensed Consolidated Balance Sheets (unaudited)
as of April 30, 2002 and October 31, 2001 2
Condensed Consolidated Statements of Operations (unaudited)
for the six and three months ended April 30, 2002 and 2001 3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended April 30, 2002 and 2001 4
Notes to Condensed Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risks 21
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
1
PART I. Item 1. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
ASSETS
April 30, 2002 October 31, 2001
------------------ -----------------
Current assets:
Cash and cash equivalents $7,816,000 $4,333,000
Accounts receivable, net 26,145,000 31,506,000
Inventories 56,723,000 52,017,000
Prepaid expenses and other current assets 7,811,000 5,281,000
Deferred income taxes 2,786,000 3,180,000
------------------ -----------------
Total current assets 101,281,000 96,317,000
Property, plant and equipment less accumulated
depreciation of $24,685,000 and $22,673,000, respectively 40,841,000 39,298,000
Intangible assets less accumulated amortization of
$19,610,000 and $19,454,000, respectively 186,705,000 183,048,000
Other assets 6,842,000 6,977,000
------------------ -----------------
Total assets $335,669,000 $325,640,000
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $17,000 $27,000
Trade accounts payable 8,306,000 7,768,000
Accrued expenses and other current liabilities 13,303,000 16,443,000
Income taxes payable -- 564,000
------------------ -----------------
Total current liabilities 21,626,000 24,802,000
Long-term debt, net of current maturities 67,983,000 66,987,000
Deferred income taxes 3,652,000 2,064,000
Other non-current liabilities 5,631,000 6,173,000
------------------ -----------------
Total liabilities 98,892,000 100,026,000
------------------ -----------------
Minority interests in consolidated subsidiaries 37,843,000 36,845,000
------------------ -----------------
Commitments and contingencies (Note 16)
Shareholders' equity:
Preferred Stock, par value $.01 per share, Authorized - 10,000,000 shares
issuable in series; 200,000 shares designated as Series A
Junior Participating Preferred Stock, none issued -- --
Common Stock, $.01 par value; Authorized - 30,000,000 shares;
Issued and outstanding - 9,370,670 and 9,317,453 shares,
respectively 93,000 93,000
Class A Common Stock, $.01 par value; Authorized - 30,000,000
shares; Issued and outstanding - 11,567,491 and 11,515,779
shares, respectively 116,000 115,000
Capital in excess of par value 153,618,000 150,605,000
Accumulated other comprehensive loss -- (226,000)
Retained earnings 50,107,000 43,830,000
------------------ -----------------
203,934,000 194,417,000
Less: Note receivable from employee savings and investment plan -- (648,000)
Note receivable secured by Class A Common Stock (5,000,000) (5,000,000)
------------------ -----------------
Total shareholders' equity 198,934,000 188,769,000
------------------ -----------------
Total liabilities and shareholders' equity $335,669,000 $325,640,000
================== =================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED.
2
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Six months ended April 30, Three months ended April 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- -------------- -------------- ----------------
Net sales $84,013,000 $81,392,000 $43,001,000 $41,742,000
---------------- -------------- -------------- ----------------
Operating costs and expenses:
Cost of sales 53,804,000 45,984,000 27,642,000 23,366,000
Selling, general and administrative expenses 18,444,000 19,159,000 9,356,000 9,985,000
---------------- -------------- -------------- ----------------
Total operating costs and expenses 72,248,000 65,143,000 36,998,000 33,351,000
---------------- -------------- -------------- ----------------
Operating income 11,765,000 16,249,000 6,003,000 8,391,000
Interest expense (1,262,000) (1,064,000) (474,000) (512,000)
Interest and other income 92,000 1,387,000 29,000 1,072,000
Gain on sale of product line 1,230,000 -- 1,230,000 --
---------------- -------------- -------------- ----------------
Income before income taxes and minority interests 11,825,000 16,572,000 6,788,000 8,951,000
Income tax expense 4,200,000 6,439,000 2,430,000 3,486,000
---------------- -------------- -------------- ----------------
Income before minority interests 7,625,000 10,133,000 4,358,000 5,465,000
Minority interests in consolidated subsidiaries 827,000 1,411,000 388,000 651,000
---------------- -------------- -------------- ----------------
Net income $6,798,000 $8,722,000 $3,970,000 $4,814,000
================ ============== ============== ================
Net income per share:
Basic $.33 $.45 $.19 $.25
================ ============== ============== ================
Diluted $.30 $.40 $.18 $.22
================ ============== ============== ================
Weighted average number of common shares outstanding:
Basic 20,863,790 19,296,677 20,886,951 19,334,073
================ ============== ============== ================
Diluted 22,596,372 22,027,867 22,654,966 22,117,033
================ ============== ============== ================
Cash dividends per share $.025 $.022 $ -- $ --
================ ============== ============== ================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
3
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Six months ended April 30,
--------------------------------------------
2002 2001
------------------ -----------------
Cash flows from operating activities:
Net income $6,798,000 $8,722,000
Adjustments to reconcile net income to cash
provided by operating activities:
Gain on sale of product line (1,230,000) --
Depreciation and amortization 2,181,000 4,990,000
Deferred income tax provision 1,838,000 348,000
Minority interests in consolidated subsidiaries 827,000 1,411,000
Tax benefit on stock option exercises 2,675,000 386,000
Gain on sale of property held for disposition -- (657,000)
Change in assets and liabilities, net of acquisitions:
Decrease in accounts receivable 5,720,000 838,000
Increase in inventories (4,335,000) (3,631,000)
Increase in prepaid expenses and other assets (2,355,000) (1,488,000)
Decrease in trade payables, accrued
expenses and other current liabilities (1,338,000) (683,000)
Decrease in income taxes payable (564,000) (6,743,000)
Other 68,000 (233,000)
------------------ -----------------
Net cash provided by operating activities 10,285,000 3,260,000
------------------ -----------------
Cash flows from investing activities:
Acquisitions and related costs, net of cash acquired (4,844,000) (23,906,000)
Capital expenditures (3,347,000) (3,136,000)
Proceeds from sale of product line -- 12,412,000
Proceeds from sale of long-term investments -- 7,035,000
Proceeds from sale of property held for disposition -- 2,157,000
Payment received from employee savings and investment
plan note receivable 648,000 803,000
Other (30,000) (417,000)
------------------ -----------------
Net cash used in investing activities (7,573,000) (5,052,000)
------------------ -----------------
Cash flows from financing activities:
Proceeds from revolving credit facility 4,000,000 23,000,000
Principal payments on long-term debt (3,014,000) (22,014,000)
Proceeds from the exercise of stock options 311,000 697,000
Cash dividends paid (522,000) (437,000)
Other (4,000) 2,000
------------------ -----------------
Net cash provided by financing activities 771,000 1,248,000
------------------ -----------------
Net increase (decrease) in cash and cash equivalents 3,483,000 (544,000)
Cash and cash equivalents at beginning of year 4,333,000 4,807,000
------------------ -----------------
Cash and cash equivalents at end of period $7,816,000 $4,263,000
================== =================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED.
4
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
April 30, 2002
1. The accompanying unaudited condensed consolidated financial statements of
HEICO Corporation and its subsidiaries (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 latest Annual Report on Form 10-K for the year ended October 31, 2001.
The October 31, 2001 condensed consolidated balance sheet was derived from
audited financial statements. In the opinion of management, the unaudited
condensed consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation of the
condensed consolidated balance sheets, statements of operations and cash flows
for such interim periods presented. The results of operations for the six months
ended April 30, 2002 are not necessarily indicative of the results which may be
expected for the entire fiscal year.
2. All net income per share, dividend per share, stock options and shares
outstanding information has been retroactively restated to reflect all stock
dividends.
3. In November 2001, the Company, through a subsidiary, acquired certain assets
and liabilities of an unrelated entity. The purchase price was not significant
to the Company's consolidated financial statements.
4. In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations be
accounted for under the purchase method. The statement further requires separate
recognition of intangible assets that meet one of two criteria. The statement
applies to all business combinations initiated after June 30, 2001. SFAS No. 142
requires that an intangible asset that is acquired shall be initially recognized
and measured based on its fair value. Goodwill in each reporting unit must be
tested for impairment as of the beginning of the fiscal year in which the
statement is initially applied in its entirety. An entity has six months from
the date it initially applies this statement to complete the transitional
impairment test. The statement also provides that goodwill should not be
amortized, but shall be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a comparison of fair value
to its carrying amount. SFAS 142 also requires that reporting units based on an
entity's reporting structure be established. All goodwill recognized in an
entity's statement of financial position at the date SFAS 142 is initially
applied shall be assigned to one or more reporting units. SFAS No. 142 is
effective for fiscal periods beginning after December 15, 2001.
The Company adopted the provisions of SFAS No. 142 effective the beginning of
the first quarter of fiscal 2002. These standards only permit prospective
application of the new accounting; accordingly, adoption of these standards will
not affect previously reported financial information. The principal effect of
implementing SFAS No. 142 was the cessation of the amortization of goodwill in
the first six months of fiscal 2002. The Company has performed the
5
transitional impairment test which requires comparison of carrying values to
fair values and if appropriate the carrying value of impaired assets is reduced
to fair value. As a result of the test performed, the Company determined there
was no goodwill impairment as of the beginning of the first quarter. There can
be no assurance that future goodwill impairments will not occur. Intangible
assets that are not subject to amortization consist of goodwill. As of April 30,
2002, the carrying value of goodwill amounted to $185.6 million. Pretax goodwill
amortization in the six months and three months ended April 30, 2001 amounted to
$3.3 million ($.09 per diluted share, net of tax) and $1.7 million ($.05 per
diluted share, net of tax), respectively.
The following table reflects a comparison of the current year to the comparable
prior year periods' results of operations and net income per share adjusted to
give effect to the adoption of SFAS No. 142:
Six months ended April 30, Three months ended April 30,
------------------------------------- --------------------------------
2002 2001 2002 2001
----------------- ---------------- -------------- -------------
Reported net income $6,798,000 $8,722,000 $3,970,000 $4,814,000
Add-back after tax goodwill amortization -- 2,104,000 -- 1,076,000
----------------- ---------------- -------------- -------------
Adjusted net income $6,798,000 $10,826,000 $3,970,000 $5,890,000
================= ================ ============== =============
Net income per share - basic $.33 $.45 $.19 $.25
Add-back after tax goodwill amortization -- .11 -- .05
----------------- ---------------- -------------- -------------
Adjusted net income per share - basic $.33 $.56 $.19 $.30
================= ================ ============== =============
Net income per share - diluted $.30 $.40 $.18 $.22
Add-back after tax goodwill amortization -- .09 -- .05
----------------- ---------------- -------------- -------------
Adjusted net income per share - diluted $.30 $.49 $.18 $.27
================= ================ ============== =============
The changes in the carrying amount of goodwill during the six months ended April
30, 2002 by segment are as follows:
Consolidated
FSG ETG Total
---------------- ---------------- ----------------
Balance as of November 1, 2001 $112,756,000 $69,322,000 $182,078,000
Goodwill acquired during the year 3,437,000 -- 3,437,000
Other 70,000 42,000 112,000
---------------- ---------------- ----------------
Balance as of April 30, 2002 $116,263,000 $69,364,000 $185,627,000
================ ================ ================
The increase in goodwill in the six months ended April 30, 2002 results
primarily from the acquisition of assets and liabilities of an unrelated entity
in November 2001.
Other intangible assets subject to amortization consist primarily of patents,
non-compete covenants and loan costs. The gross carrying amount and accumulated
amortization of other intangible assets was $3.2 million and $2.1 million,
respectively, as of April 30, 2002. Amortization expense of other intangible
assets for the six months and three months ended April 30, 2002 was $156,000 and
$62,000, respectively. Amortization expense for the fiscal year ended October
31, 2002 and the succeeding five fiscal years by year is expected to be as
follows: 2002 - $307,000; 2003 - $249,000; 2004 - $226,000; 2005 - $178,000;
2006 - $37,000; 2007 - $36,000.
6
5. In September 2000, the Company sold a product line represented by a
wholly-owned subsidiary, Trilectron Industries, Inc. (Trilectron). At the time
of the sale, the Company accrued approximately $10.8 million for expenses
related to the sale. In the second quarter of fiscal 2002, the Company
recognized a $1.2 million pre-tax gain ($765,000 net of tax or $.03 per diluted
share) on sale of the Trilectron product line due to the elimination of certain
reserves upon the expiration of indemnification provisions of the sales
contract. The $1.2 million gain is reported as gain on sale of product line in
the condensed consolidated statements of operations.
6. Accounts receivable are composed of the following:
April 30, 2002 October 31, 2001
------------------- -------------------
Accounts receivable $27,187,000 $32,415,000
Less allowance for doubtful accounts (1,042,000) (909,000)
------------------- -------------------
Accounts receivable, net $26,145,000 $31,506,000
=================== ===================
7. Costs and estimated earnings on uncompleted percentage of completion
contracts are as follows:
April 30, 2002 October 31, 2001
------------------- -------------------
Costs incurred on uncompleted contracts $6,062,000 $7,709,000
Estimated earnings 5,136,000 6,224,000
------------------- -------------------
11,198,000 13,933,000
Less: Billings to date (13,241,000) (14,770,000)
------------------- -------------------
($2,043,000) ($837,000)
=================== ===================
Included in accompanying balance
sheets under the following captions:
Accounts receivable, net (costs and estimated
earnings in excess of billings) $735,000 $234,000
Accrued expenses and other current liabilities
(billings in excess of costs and estimated earnings) (2,778,000) (1,071,000)
------------------- -------------------
($2,043,000) ($837,000)
=================== ===================
Changes in estimates on long-term contracts accounted for under the percentage
of completion method did not have a significant impact on net income and diluted
net income per share in the six months and three months ended April 30, 2002.
For the six months and three months ended April 30, 2001, changes in estimates
increased net income and diluted net income per share by $600,000 ($.03 per
diluted share) and $400,000 ($.02 per diluted share), respectively.
8. Inventories are comprised of the following:
April 30, 2002 October 31, 2001
------------------- --------------------
Finished products $32,025,000 $27,791,000
Work in process 7,279,000 7,883,000
Materials, parts, assemblies and supplies 17,419,000 16,343,000
------------------- --------------------
Total inventories $56,723,000 $52,017,000
=================== ====================
Inventories related to long-term contracts were not significant as of April 30,
2002 and October 31, 2001.
7
9. Long-term debt consists of:
April 30, 2002 October 31, 2001
------------------- --------------------
Borrowings under revolving credit facility $66,000,000 $65,000,000
Industrial Development Revenue Refunding
Bonds - Series 1988 1,980,000 1,980,000
Equipment loans 20,000 34,000
------------------- --------------------
68,000,000 67,014,000
Less current maturities (17,000) (27,000)
------------------- --------------------
$67,983,000 $66,987,000
=================== ====================
10. Pursuant to the Company's $120 million revolving credit facility (Credit
Facility) of which $66 million is outstanding as of April 30, 2002, funds are
available for funding acquisitions, working capital and general corporate
requirements on a revolving basis through July 2003. The Company has the option
to convert outstanding advances to term loans amortizing over a period through
July 2005. The weighted average interest rates were 2.9% and 3.4% at April 30,
2002 and October 31, 2001, respectively.
The interest rates on the Series 1988 industrial development revenue bonds were
1.8% and 2.1% at April 30, 2002 and October 31, 2001, respectively.
11. For the six months ended April 30, 2002 and 2001, cost of sales amounts
include approximately $5.2 million and $3.0 million, respectively, of new
product research and development expenses. The expenses for the first six months
of fiscal 2001 are net of $1.0 million in reimbursements pursuant to research
and development cooperation and joint venture agreements. The reimbursements
pursuant to such agreements in the six months ended April 30, 2002 were not
significant.
12. The Company's effective tax rate decreased from 38.9% in the first six
months of fiscal 2001 to 35.5% in the first six months of fiscal 2002 primarily
due to the elimination of goodwill amortization.
8
13. Information on operating segments for the six months and quarter ended April
30, 2002 and 2001, respectively, for the Flight Support Group (FSG) consisting
of HEICO Aerospace and its subsidiaries and the Electronic Technologies Group
(ETG) consisting of HEICO Electronic Technologies Corp. and its subsidiaries are
as follows:
Segments
-----------------------------------
Other,
Primarily
Corporate and
Intersegment Consolidated
FSG ETG Sales Totals
--------------- --------------- ---------------- ---------------
For the six months ended April 30, 2002:
- -------------------------------------------
Net sales $57,418,000 $26,938,000 ($343,000) $84,013,000
Depreciation and amortization 1,434,000 598,000 149,000 2,181,000
Operating income 8,040,000 6,157,000 (2,432,000) 11,765,000
Capital expenditures 2,147,000 1,170,000 30,000 3,347,000
For the six months ended April 30, 2001:
- -------------------------------------------
Net sales $64,787,000 $16,605,000 $ - $81,392,000
Depreciation and amortization 3,765,000 1,095,000 130,000 4,990,000
Operating income 14,669,000 3,954,000 (2,374,000) 16,249,000
Capital expenditures 2,052,000 380,000 704,000 3,136,000
For the quarter ended April 30, 2002:
- -------------------------------------------
Net sales $ 29,038,000 $14,130,000 ($167,000) $43,001,000
Depreciation and amortization 760,000 289,000 68,000 1,117,000
Operating income 3,844,000 3,427,000 (1,268,000) 6,003,000
Capital expenditures 1,041,000 972,000 28,000 2,041,000
For the quarter ended April 30, 2001:
- -------------------------------------------
Net sales $33,284,000 $8,458,000 $ - $41,742,000
Depreciation and amortization 1,916,000 561,000 72,000 2,549,000
Operating income 7,678,000 2,004,000 (1,291,000) 8,391,000
Capital expenditures 1,238,000 341,000 692,000 2,271,000
Total assets held by the operating segments as of April 30, 2002 and October 31,
2001 are as follows:
Segments
-------------------------------------
Other,
Primarily Consolidated
FSG ETG Corporate Totals
----------------- ---------------- -------------- ---------------
As of April 30, 2002 $216,967,000 $106,565,000 $12,137,000 $335,669,000
As of October 31, 2001 $209,367,000 $105,451,000 $10,822,000 $325,640,000
14. The Company's comprehensive income consists of:
Six months ended April 30, Three months ended April 30,
------------------------------------ -----------------------------------
2002 2001 2002 2001
----------------- --------------- -------------- ----------------
Net income $6,798,000 $8,722,000 $3,970,000 $4,814,000
Interest rate swap income (loss)
adjustment 370,000 (400,000) 223,000 (111,000)
Tax (expense) benefit (144,000) 156,000 (92,000) 43,000
----------------- --------------- -------------- ----------------
Comprehensive income $7,024,000 $8,478,000 $4,101,000 $4,746,000
================= =============== ============== ================
9
15. The following is a reconciliation between the weighted average outstanding
shares used in the calculation of basic and diluted net income per share.
Six months ended April 30, Three months ended April 30,
------------------------------------ -----------------------------------
2002 2001 2002 2001
----------------- --------------- -------------- ----------------
Weighted average common shares
outstanding 20,863,790 19,296,677 20,886,951 19,334,073
Net effect of dilutive stock options 1,732,582 2,731,190 1,768,015 2,782,960
----------------- --------------- -------------- ----------------
Weighted average common shares
outstanding - assuming dilution 22,596,372 22,027,867 22,654,966 22,117,033
================= =============== ============== ================
Options outstanding which are not
included in the calculation of
diluted net income per share
because their impact is anti-dilutive 879,865 571,509 555,680 522,066
================= =============== ============== ================
16. The Company is involved in various legal actions arising in the normal
course of business. Based upon the amounts sought by the plaintiffs in these
actions, management is of the opinion that the outcome of these matters will not
have a significant effect on the Company's condensed consolidated financial
statements.
17. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS Statement No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of". SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends APB 30, "Reporting
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business". SFAS 144 develops one accounting model (based on the model in SFAS
121) for long-lived assets that are to be disposed of by sale, as well as
addresses the principal implementation issues. SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less cost to sell. That requirement eliminates the requirement of
APB 30 that discontinued operations be measured at net realizable value or that
entities include under "discontinued operations" in the financial statements
amounts for operating losses that have not yet occurred. Additionally, SFAS 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the entity
and (2) will be eliminated from the ongoing operations of the entity in a
disposal transaction. While the Company has not completed the process of
determining the effect of this new accounting pronouncement on its consolidated
financial statements, the Company currently expects that the effect of SFAS No.
144 on the Company's financial statements, when it becomes effective, will not
be significant. SFAS 144 is effective for fiscal years beginning after December
15, 2001 and generally the provisions of the statement will be applied
prospectively.
10
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 at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those estimates
if different assumptions were used or different events ultimately transpire.
Our Flight Support Group (FSG) consists of HEICO Aerospace Holdings Corp. (HEICO
Aerospace) and its subsidiaries and our Electronic Technologies Group (ETG)
consists of HEICO Electronic Technologies Corp. and its subsidiaries.
In November 2001, the Company, through a FSG subsidiary, acquired certain assets
and liabilities of an unrelated entity. The purchase price was not significant
to the Company's consolidated financial statements.
All net income per share information has been retroactively restated to reflect
all stock dividends.
Critical Accounting Policies
The Company believes that the following are its most critical accounting
policies, some of which require management to make judgments about matters that
are inherently uncertain.
Revenue Recognition
Revenue is recognized on an accrual basis, primarily upon shipment of products
and the rendering of services. Revenue from certain fixed price contracts for
which costs can be dependably estimated are recognized on the percentage of
completion method, measured by the cost-to-cost method. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs. Revisions in cost estimates as
contracts progress have the effect of increasing or decreasing profits in the
period of revision. For contracts in which costs cannot be dependably estimated,
revenue is recognized on the completed-contract method. A contract is considered
complete when all costs except insignificant items have been incurred or the
item has been accepted by the customer. The aggregate effects of changes in
estimates relating to inventories and/or long-term contracts were not material
in the second quarter and first six months of fiscal 2002.
Valuation of Accounts Receivable
The valuation of accounts receivable requires that the Company provide for
anticipated bad debts, by recording allowances based upon experience, economic
conditions, and a significant negative change in a customer's financial
condition. Actual bad debts could differ from estimates used.
11
Inventories
Portions of the inventories are stated at the lower of cost or market, with cost
being determined on the first-in, first-out basis. The remaining portions of the
inventories are stated at the lower of cost or market, on a per contract basis,
with estimated total contract costs being allocated ratably to all units. The
effects of changes in estimated total contract costs are recognized in the
period determined. Losses, if any, are recognized fully when identified.
The Company periodically evaluates inventory levels, giving consideration to
factors such as the physical condition of the inventory, sales patterns and
expected future demand and estimates a reasonable amount to be provided for slow
moving, obsolete or damaged inventory. These estimates could vary significantly,
either favorable or unfavorable, from actual requirements based upon future
economic conditions, customer inventory levels or competitive factors that were
not foreseen or did not exist when the valuation allowances were established.
Goodwill
The Company adopted the provisions of SFAS No. 142 effective the beginning of
the first quarter of fiscal 2002. The principal effect of implementing SFAS No.
142 was the cessation of the amortization of goodwill in the first six months of
fiscal 2002. The Company has performed the transitional impairment test which
requires comparison of carrying values to fair values and if appropriate the
carrying value of impaired assets is reduced to fair value. As a result of the
test performed, the Company determined there was no goodwill impairment as of
the beginning of the first quarter. The test required estimates, assumptions and
judgments and results could be materially different if different estimates,
assumptions and judgments had been used. There can be no assurance that future
goodwill impairments will not occur. Intangible assets that are not subject to
amortization consist of goodwill. As of April 30, 2002, goodwill amounted to
$185.6 million.
Results of Operations
The Company's results of operations in the first six months of fiscal 2002
compared to the same period in fiscal 2001 has been significantly affected by
the terrorist attacks of September 11, 2001 (September 11th), the adoption of
SFAS No. 142 and the results of operations from businesses acquired in fiscal
2001.
For the periods indicated below, the following tables set forth the results of
operations, net sales and operating income by operating segment and the
percentage of net sales represented by the respective items.
Six months ended April 30, Three months ended April 30,
---------------------------------- ---------------------------------
2002 2001 2002 2001
-------------- ---------------- -------------- --------------
Net sales $84,013,000 $81,392,000 $43,001,000 $41,742,000
-------------- ---------------- -------------- --------------
Cost of sales 53,804,000 45,984,000 27,642,000 23,366,000
Selling, general and administrative expenses 18,444,000 19,159,000 9,356,000 9,985,000
-------------- ---------------- -------------- --------------
Total operating costs and expenses 72,248,000 65,143,000 36,998,000 33,351,000
-------------- ---------------- -------------- --------------
Operating income $11,765,000 $16,249,000 $6,003,000 $8,391,000
============== ================ ============== ==============
12
Six months ended April 30, Three months ended April 30,
------------------------------------ ---------------------------------
2002 2001 2002 2001
--------------- ----------------- -------------- ---------------
Net sales by segment:
FSG $57,418,000 $64,787,000 $29,038,000 $33,284,000
ETG 26,938,000 16,605,000 14,130,000 8,458,000
Intersegment sales (343,000) - (167,000) -
--------------- ----------------- -------------- ---------------
$84,013,000 $81,392,000 $43,001,000 $41,742,000
=============== ================= ============== ===============
Operating income by segment:
FSG $8,040,000 $14,669,000 $3,844,000 $7,678,000
ETG 6,157,000 3,954,000 3,427,000 2,004,000
Other, primarily corporate (2,432.000) (2,374,000) (1,268,000) (1,291,000)
--------------- ----------------- -------------- ---------------
$11,765,000 $16,249,000 $6,003,000 $8,391,000
=============== ================= ============== ===============
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 36.0% 43.5% 35.7% 44.0%
Selling, general and
administrative expense 22.0% 23.5% 21.8% 23.9%
Operating income 14.0% 20.0% 14.0% 20.1%
Interest expense 1.5% 1.3% 1.1% 1.2%
Interest and other income 0.1% 1.7% 0.1% 2.6%
Gain on sale of product line 1.5% - 2.9% -
Income tax expense 5.0% 7.9% 5.7% 8.4%
Minority interest 1.0% 1.7% 0.9% 1.6%
Net income 8.1% 10.7% 9.2% 11.5%
Comparison of First Six Months of Fiscal 2002 to First Six Months of Fiscal 2001
Net Sales
Net sales for the first six months of fiscal 2002 totaled $84.0 million, up 3%
when compared to the first six months of fiscal 2001 net sales of $81.4 million.
The increase in the first six months of fiscal 2002 sales reflects an increase
of $10.3 million (a 62% increase) to $26.9 million in sales from the ETG
partially offset by a decrease of $7.4 million (an 11% decrease) to $57.4
million in sales from the FSG. The ETG sales increase mainly reflects
acquisitions as the Company expanded its capabilities to include laser,
navigation and power supply technologies. This increase was partially offset by
continued weakness in sales of EMI shielding products to the electronics and
communications industries. The FSG sales decrease mainly reflects the continued
impact of the terrorist attacks of September 11th on commercial airline
customers and continued softness in demand within the component overhaul and
repair services market, particularly from cargo carriers which resulted in lower
PMA parts and overhaul services sales. This decrease was partially offset by
sales of newly-acquired businesses. The sales attributable to newly-acquired
businesses of both the ETG and FSG approximated $16.3 million.
Gross Profits and Operating Expenses
The Company's gross profit margins averaged 36.0% for the first six months of
fiscal 2002 as compared to 43.5% for the first six months of fiscal 2001. This
decrease reflects lower margins within the FSG primarily attributable to lower
sales of higher margin PMA parts and overhaul
13
services discussed above, a budgeted increase in new product research and
development expenses of $2.3 million and an excess inventory charge of $400,000
at one of the Company's overhaul services companies. The decrease also reflects
slightly lower gross margins in the ETG due primarily to lower sales of higher
margin electro-magnetic interference (EMI) shielding products partially offset
by gross profit margins from acquired businesses. Cost of sales amounts for the
first six months of fiscal 2002 and fiscal 2001 include approximately $5.2
million and $3.0 million, respectively, of new product research and development
expenses net of reimbursements pursuant to cooperation and joint venture
agreements. FSG's new product research and development expense for the full
fiscal 2002 is expected to increase by approximately $3 million over fiscal 2001
as the Company plans to introduce additional new commercial jet engine and
aircraft parts.
Selling, general and administrative (SG&A) expenses decreased to $18.4 million
for the first six months of fiscal 2002 from $19.2 million for the first six
months of fiscal 2001. As a percentage of net sales, SG&A expenses decreased to
22.0% for the first six months of fiscal 2002 compared to 23.5% for the first
six months of fiscal 2001. The decrease in SG&A and SG&A as a percent of sales
is mainly due to the elimination of goodwill amortization ($3.3 million) as
required under SFAS 142, offset by the additional SG&A expenses of
newly-acquired businesses and accelerated marketing efforts.
Operating Income
Operating income decreased to $11.8 million for the first six months of fiscal
2002 from $16.2 million for the first six months of fiscal 2001. As a percent of
net sales, operating income decreased from 20.0% in the first six months of
fiscal 2001 to 14.0% in the first six months of fiscal 2002. The decrease in
operating income reflects a decrease from $14.7 million to $8.0 million in the
Company's FSG partially offset by an increase from $4.0 million to $6.2 million
in the Company's ETG. The decline in operating income as a percent of sales
reflects a decline in the FSG's operating income as a percentage of net sales
from 22.6% in the first six months of fiscal 2001 to 14.0% in the first six
months of fiscal 2002 while the ETG's operating income as a percentage of net
sales declined from 23.8% in the first six months of fiscal 2001 to 22.9% in the
first six months of fiscal 2002. The decrease in the FSG's operating income and
operating income as a percent of sales reflects the lower sales and gross
margins discussed above. The lower margins in the FSG were partially offset by
the elimination of goodwill amortization of $2.5 million and the operating
income of acquired businesses. The increase in ETG operating income reflects
operating income from the acquisitions and the elimination of goodwill
amortization of $800,000, partially offset by the continued weakness in economic
conditions in certain technology industries, which continues to impact sales of
EMI shielding products. The decrease in the ETG's operating income as a percent
of net sales in the first six months of fiscal 2002 is mainly due to lower sales
of the higher margin EMI shielding products partially offset by higher gross
margins of acquired businesses and the elimination of goodwill amortization.
Interest Expense
Interest expense increased $198,000 to $1,262,000 from the first six months of
fiscal 2001 to the first six months of fiscal 2002. The increase was principally
due to borrowings used to fund acquisitions.
14
Interest and Other Income
Interest and other income decreased from $1.4 million to $92,000 from the first
six months of fiscal 2001 to the first six months of fiscal 2002. This decrease
is mainly due to the inclusion in fiscal 2001 of the gain of $657,000 on the
sale of property retained in the sale of the Trilectron product line sold in
September 2000 and the realized gain of $179,000 on the sale of long-term
investments. The decrease also reflects lower investment interest rates and
other income in the first six months of fiscal 2002.
Gain on Sale of Product Line
In the second quarter of fiscal 2002, the Company recognized an additional
pretax gain of $1,230,000 ($765,000 net of tax or $.03 per diluted share) on
sale of the Trilectron product line due to the elimination of certain reserves
upon the expiration of indemnification provisions of the sales contract.
Minority Interests
Minority interests in consolidated subsidiaries represents the minority
interests held in HEICO Aerospace. The decrease from the first six months of
fiscal 2001 to the first six months of fiscal 2002 results from lower earnings
of the FSG.
Income Tax Expense
The Company's effective tax rate was 35.5% in the first six months of fiscal
2002 and 38.9% in the first six months of fiscal 2001. The decrease is primarily
due to the elimination of goodwill amortization in the first six months of
fiscal 2002.
Net Income
The Company's net income was $6.8 million, or $.30 per diluted share, in the
first six months of fiscal 2002 and $8.7 million, or $.40 per diluted share, in
the first six months of fiscal 2001. For the first six months of fiscal 2001,
net income as adjusted on a proforma basis for the adoption of SFAS No. 142
would have been $10.8 million, or $.49 per diluted share. The lower net income
in the first six months of fiscal 2002 reflects the lower operating income
discussed above, partially offset by the additional gain on sale of the
Trilectron product line.
Outlook
During the second quarter of fiscal 2002, the Company experienced some recovery
of sales to airline customers as reflected by a 14% increase in sales of
FAA-approved replacement parts over the first quarter of fiscal 2002 reflecting
some replacement of capacity by the airlines and additional product offerings by
the Company. Net sales in the second quarter of fiscal 2002 reflects an increase
of $2.0 million (a 5% increase) when compared to sales in the first quarter of
fiscal 2002 of $41.0 million. This increase reflects an increase in sales of
both the FSG and the ETG. ETG sales increased $1.3 million (10% increase) from
$12.8 million in the first quarter of fiscal 2002 due mainly to increased sales
from defense-related contracts. FSG sales increased $700,000 from $28.4 million
in the first quarter of fiscal 2002 mainly due to the 14% increase in
FAA-approved parts sales partially offset by lower sales to the original
equipment manufacturer
15
market. The Company is still unable to predict with certainty when, or if the
commercial markets will fully rebound.
Operating income in the second quarter of fiscal 2002 increased by $200,000
compared to operating income in the first quarter of fiscal 2002 of $5.8
million. The increase reflects higher operating income in the ETG partially
offset by lower operating income in the FSG. The ETG's operating income
increased $700,000 (a 26% increase) from $2.7 million in the first quarter of
fiscal 2002. This increase reflects higher sales of defense-related contracts
discussed above. FSG's operating income decreased $350,000 from $4.2 million in
the first quarter of fiscal 2002 primarily due to the inventory charge discussed
below and higher new product research and development expense partially offset
by the benefit of the higher sales discussed above.
Net income in the second quarter of fiscal 2002 increased $1.1 million, or 5
cents per share, from $2,828,000 or 13 cents per share in the first quarter of
fiscal 2002. The increased net income in the second quarter of fiscal 2002
compared to the first quarter of fiscal 2002 reflects higher sales and earnings
discussed above. In addition, net income in the second quarter reflects
$765,000, or $.03 per diluted share, related to an increase in the gain on sale
of the Trilectron product line.
The Company believes that its strategic relationships with some of the world's
major airlines; including Lufthansa, American Airlines and United Airlines
(United) demonstrates how critical the Company is to the airlines' ability to
operate cost effectively. The recently announced strategic alliance with United
is expected to provide the Company with between $100 to $150 million of non-JT8D
engine revenue over the next seven years.
In addition, the Company's diversification of its operations beyond commercial
aerospace has cushioned the impact of September 11th. Including sales from
newly-acquired businesses, revenues from defense customers in fiscal 2002
increased over 70% compared to the first six months of fiscal 2001 and represent
approximately 25% of our total revenues in the first six months of fiscal 2002.
In addition, approximately 10% of our total revenues in the first six months of
fiscal 2002 were derived from markets other than the aviation and defense
industries, including industrial, medical, electronics and telecommunications.
The Company currently expects continued strengthening of its defense markets and
low to modest growth in other markets.
The Company has also increased its new product research and development budget
for FAA-approved replacement parts by over 50% to more than $9 million in fiscal
2002 and has met targets set for new product designs and approvals through April
30, 2002.
For the balance of fiscal 2002, the Company expects improvements in its
operating results despite some softness in the commercial aviation markets.
Based on current market conditions and customer order patterns, the Company
expects revenues in the second half of fiscal 2002 to be up at least 10% - 15%
over the first half of fiscal 2002 and earnings to be up at least 25% - 40% in
the same period.
Because of the uncertainties in the commercial aviation market since September
11th and the generally slow domestic economy, the Company cannot predict with
certainty the near-term impact of recent events. The Company believes, however,
that its basic strategies will result in long-term growth.
16
Comparison of Second Quarter of Fiscal 2002 to Second Quarter of Fiscal 2001
Net Sales
Net sales for the second quarter of fiscal 2002 totaled $43.0 million, up 3%
when compared to the second quarter of fiscal 2001 net sales of $41.7 million.
The increase in second quarter of fiscal 2002 sales reflects an increase of $5.7
million (a 67% increase) to $14.1 million in sales from the ETG partially offset
by a decrease of $4.2 million (a 13% decrease) to $29.0 million in sales from
the FSG. The ETG sales increase mainly reflects acquisitions as the Company
expanded its capabilities to include laser, navigation and power supply
technologies. This increase was partially offset by continued weakness in sales
of EMI shielding products to the electronics and communications industries. The
FSG sales decrease mainly reflects the continued impact of the terrorist attacks
of September 11th on commercial airline customers and continued softness in
demand within the component overhaul and repair services market, particularly
from cargo carriers which resulted in lower PMA parts and overhaul services
sales. This decrease was partially offset by sales of newly-acquired businesses.
The sales attributable to newly-acquired businesses of both the ETG and FSG
approximated $7.4 million.
Gross Profits and Operating Expenses
The Company's gross profit margins averaged 35.7% for the second quarter of
fiscal 2002 as compared to 44.0% for the second quarter of fiscal 2001. This
decrease reflects lower margins within the FSG primarily attributable to lower
sales of higher margin PMA parts and overhaul services, discussed above, a
budgeted increase in new product research and development expenses of $1.4
million and an excess inventory charge of $300,000 at one of the Company's
overhaul services companies. The decrease also reflects slightly lower gross
margins in the ETG due primarily to lower sales of higher margin EMI shielding
products partially offset by gross margins from acquired businesses. Cost of
sales amounts for the second quarter of fiscal 2002 and fiscal 2001 include
approximately $2.6 million and $1.4 million, respectively, of new product
research and development expenses net of reimbursements pursuant to cooperation
and joint venture agreements.
Selling, general and administrative (SG&A) expenses decreased $600,000 to $9.4
million for the second quarter of fiscal 2002 from $10.0 million for the second
quarter of fiscal 2001. As a percentage of net sales, SG&A expenses decreased to
21.8% for the second quarter of fiscal 2002 compared to 23.9% for the second
quarter of fiscal 2001. The decrease in SG&A and SG&A as a percentage of net
sales is mainly due to the elimination of goodwill amortization ($1.7 million)
as required under SFAS 142, discussed above, offset by the additional SG&A
expenses of newly-acquired businesses and accelerated marketing efforts.
Operating Income
Operating income decreased to $6.0 million for the second quarter of fiscal 2002
from $8.4 million for the second quarter of fiscal 2001. As a percentage of net
sales, operating income decreased from 20.1% in the second quarter of fiscal
2001 to 14.0% in the second quarter of fiscal 2002. The decrease in operating
income reflects a decrease from $7.7 million to $3.8 million in the Company's
FSG partially offset by an increase from $2.0 million to $3.4 million in the
Company's
17
ETG. The decline in operating income as a percent of sales reflects a decline in
the FSG's operating income as a percentage of net sales from 23.1% in the second
quarter of fiscal 2001 to 13.2% in the second quarter of fiscal 2002 partially
offset by an increase in the ETG's operating income as a percentage of net sales
from 23.7% in the second quarter of fiscal 2001 to 24.3% in the second quarter
of fiscal 2002. The decrease in the FSG's operating income and operating income
as a percentage of sales reflects the lower sales and gross margins discussed
above. The lower margins in the FSG were partially offset by the elimination of
goodwill amortization of $1.3 million and the operating income of acquired
businesses. The increase in ETG operating income and operating income as a
percentage of net sales reflects operating income from the acquired businesses
and the elimination of goodwill amortization of $400,000, partially offset by
the continued weakness in economic conditions in certain technology industries,
which continues to impact sales of EMI shielding products.
Interest Expense
Interest expense decreased $38,000 to $474,000 from the second quarter of fiscal
2001 to the second quarter of fiscal 2002. The decrease was principally due to
lower interest rates on outstanding debt in the second quarter of fiscal 2002.
Interest and Other Income
Interest and other income decreased from $1,072,000 to $29,000 from the second
quarter of fiscal 2001 to the second quarter of fiscal 2002. This decrease is
mainly due to the inclusion in the second quarter of fiscal 2001 of the gain of
$657,000 on the sale of property retained in the sale of the Trilectron product
line sold in September 2000 and the realized gain of $179,000 on the sale of
long-term investments in the second quarter of fiscal 2001. The decrease also
reflects lower investment interest rates and other income in the second quarter
of fiscal 2002.
Gain on Sale of Product Line
In the second quarter of fiscal 2002, the Company recognized an additional
pretax gain of $1,230,000 ($765,000 net of tax or $.03 per diluted share) on
sale of the Trilectron product line due to the elimination of certain reserves
upon the expiration of indemnification provisions of the sales contract.
Income Tax Expense
The Company's effective tax rate was 35.8% in the second quarter of fiscal 2002
and 38.9% in the second quarter of fiscal 2001. The decrease is primarily due to
the elimination of goodwill amortization in the second quarter of fiscal 2002.
Minority Interests
Minority interests in consolidated subsidiaries represents the minority
interests held in HEICO Aerospace. The decrease from the second quarter of
fiscal 2001 to the second quarter of fiscal 2002 results from lower earnings of
the FSG.
18
Net Income
The Company's net income was $4.0 million, or $.18 per diluted share, in the
second quarter of fiscal 2002 and $4.8 million, or $.22 per diluted share, in
the second quarter of fiscal 2001. For the second quarter of fiscal 2001, net
income as adjusted on a proforma basis for the adoption of SFAS No. 142 would
have been $5.9 million, or $.27 per diluted share. The lower net income in the
second quarter of fiscal 2002 reflects the lower operating income discussed
above partially offset by the additional gain on sale of the Trilectron product
line.
Inflation
The Company has generally experienced increases in its costs of labor, materials
and services consistent with overall rates of inflation. The impact of such
increases on the Company's net income has been generally minimized by efforts to
lower costs through manufacturing efficiencies and cost reductions.
Liquidity and Capital Resources
The Company generates cash primarily from operating activities and financing
activities, including borrowings under long-term credit agreements.
Principal uses of cash by the Company include acquisitions, increases in working
capital, payments of interest and principal on debt and capital expenditures.
The Company believes that operating cash flow and available borrowings under the
Company's Credit Facility will be sufficient to fund cash requirements for the
foreseeable future.
Operating Activities
The Company's cash flow from operations was $10.3 million for the first six
months of fiscal 2002, consisting primarily of net income of $6.8 million,
depreciation and amortization of $2.2 million, tax benefit on stock option
exercises of $2.7 million, deferred income tax provision of $1.8 million,
partially offset by an increase in net operating assets of $2.9 million, mainly
due to higher inventories in the FSG associated with new products and inventory
orders placed prior to September 11th.
Investing Activities
The principal cash used in investing activities in the first six months of
fiscal 2002 was acquisition related costs and capital expenditures of
approximately $4.8 million and $3.3 million, respectively.
Financing Activities
The Company's principal financing activities during the first six months of
fiscal 2002 included net proceeds of $1.0 million from the Company's Credit
Facility to fund acquisitions and the payment of cash dividends of $522,000.
19
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS Statement No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of". SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends APB 30, "Reporting Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business". SFAS
144 develops one accounting model (based on the model in SFAS 121) for
long-lived assets that are to be disposed of by sale, as well as addresses the
principal implementation issues. SFAS 144 requires that long-lived assets that
are to be disposed of by sale be measured at the lower of book value or fair
value less cost to sell. That requirement eliminates the requirement of APB 30
that discontinued operations be measured at net realizable value or that
entities include under "discontinued operations" in the financial statements
amounts for operating losses that have not yet occurred. Additionally, SFAS 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the entity
and (2) will be eliminated from the ongoing operations of the entity in a
disposal transaction. While the Company has not completed the process of
determining the effect of this new accounting pronouncement on its consolidated
financial statements, the Company currently expects that the effect of SFAS No.
144 on the Company's financial statements, when it becomes effective, will not
be significant. SFAS 144 is effective for fiscal years beginning after December
15, 2001 and generally the provisions of the statement will be applied
prospectively.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking," including statements contained in this
report and other filings with the Securities and Exchange Commission and in
reports to the Company's shareholders. Management believes that all statements
that express expectations and projections with respect to future matters may
differ materially from that discussed as a result of factors, including, but not
limited to, the demand for commercial air travel, the adverse impact of the
September 11, 2001 terrorist attacks on commercial airlines and the economy in
general, the extent of benefits received by U.S. airlines and air cargo carriers
under the Air Transportation Safety and System Stabilization Act, considering
any challenges to and interpretations or amendments of the Act, increasing cost
of insurance coverage as a result of the September 11, 2001 terrorist attacks,
credit risk related to receivables from customers, product specification costs
and requirements, governmental and regulatory demands, competition on military
programs, government export policies, government funding of military programs,
product pricing levels, the Company's ability to make acquisitions and achieve
operating synergies from such acquisitions, interest rates and economic
conditions within and outside of the aerospace, defense and electronics
industries. For an enterprise such as the Company, a wide range of factors could
materially affect future developments and performance. A list of such factors is
set forth in the Company's Annual Report on Form 10-K for the year ended October
31, 2001.
20
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company's interest rate swap pursuant to which it exchanged floating rate
interest based on three-month LIBOR on a notional principal amount of $20
million expired on February 1, 2002. Based on the outstanding debt balance at
April 30, 2002, a change of 1% in interest rates would cause a change in
interest expense of approximately $680,000 on an annual basis.
21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on March 19, 2002, the
Company's shareholders elected seven directors and approved the HEICO
Corporation 2002 Stock Option Plan pursuant to which 520,000 shares of
Common Stock and/or Class A Common Stock are reserved for issuance.
The number of votes cast for and withheld for each nominee for director
were as follows:
Director For Withheld
- -------- --- --------
Samuel L. Higginbottom 9,631,633 76,784
Wolfgang Mayrhuber 9,309,794 398,623
Eric A. Mendelson 9,640,740 67,677
Laurans A. Mendelson 9,643,850 64,567
Victor H. Mendelson 9,640,909 67,508
Albert Morrison, Jr. 9,644,507 63,910
Dr. Alan Schriesheim 9,634,314 74,103
The number of votes cast for, withheld and abstained for the HEICO Corporation
2002 Stock Option Plan were as follows:
For: 8,345,329
Against: 1,022,379
Abstained: 340,709
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) There were no reports on Form 8-K filed during the three months ended
April 30, 2002.
22
SIGNATURES
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
-----------------
(Registrant)
June 12, 2002 BY /s/Thomas S. Irwin
- -------------------- ----------------------------------
Date Thomas S. Irwin, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
23