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, 2004 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of
common stock as of May 24, 2004:
Common Stock, $.01 par value 9,871,813 shares
Class A Common Stock, $.01 par value 14,285,426 shares
HEICO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets (unaudited)
as of April 30, 2004 and October 31, 2003................................ 2
Condensed Consolidated Statements of Operations (unaudited)
for the six months and three months ended April 30, 2004 and 2003........ 3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended April 30, 2004 and 2003......................... 4
Notes to Condensed Consolidated Financial Statements (unaudited).......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risks............... 22
Item 4. Controls and Procedures................................................... 23
PART II. OTHER INFORMATION:
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities........................................... 24
Item 4. Submission of Matters to a Vote of Security Holders....................... 24
Item 6. Exhibits and Reports on Form 8-K.......................................... 25
Signature............................................................................. 26
1
PART I. Item 1. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
APRIL 30, 2004 OCTOBER 31, 2003
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,445,000 $ 4,321,000
Accounts receivable, net 31,803,000 28,820,000
Inventories 49,367,000 51,240,000
Prepaid expenses and other current assets 5,500,000 6,231,000
Deferred income taxes 4,810,000 3,872,000
---------------- ----------------
Total current assets 94,925,000 94,484,000
Property, plant and equipment, net 36,649,000 35,537,000
Goodwill 216,317,000 188,700,000
Other assets 15,507,000 14,523,000
---------------- ----------------
Total assets $ 363,398,000 $ 333,244,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 57,000 $ 29,000
Trade accounts payable 6,823,000 7,475,000
Accrued expenses and other current liabilities 15,176,000 14,362,000
Income taxes payable 1,955,000 820,000
---------------- ----------------
Total current liabilities 24,011,000 22,686,000
Long-term debt, net of current maturities 44,100,000 31,984,000
Deferred income taxes 12,991,000 10,337,000
Other non-current liabilities 5,718,000 6,142,000
---------------- ----------------
Total liabilities 86,820,000 71,149,000
---------------- ----------------
Minority interests in consolidated subsidiaries 42,129,000 40,577,000
---------------- ----------------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred Stock, $.01 par value per share; 10,000,000 shares
authorized; 300,000 shares designated as Series B Junior
Participating Preferred Stock and 300,000 shares designated as
Series C Junior Participating Preferred Stock, none issued - -
Common Stock, $.01 par value per share; 30,000,000 shares authorized;
9,871,813 and 9,690,945 shares issued and outstanding, respectively 99,000 97,000
Class A Common Stock, $.01 par value per share; 30,000,000 shares
authorized; 14,285,426 and 13,876,496 shares issued and outstanding,
respectively 143,000 117,000
Capital in excess of par value 187,671,000 155,064,000
Retained earnings 46,536,000 69,172,000
---------------- ----------------
234,449,000 224,450,000
Less: Note receivable secured by Class A Common Stock - (2,932,000)
---------------- ----------------
Total shareholders' equity 234,449,000 221,518,000
---------------- ----------------
Total liabilities and shareholders' equity $ 363,398,000 $ 333,244,000
================ ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
--------------------------------- --------------------------------
2004 2003 2004 2003
--------------- -------------- -------------- --------------
Net sales $ 98,944,000 $ 83,379,000 $ 52,793,000 $ 41,591,000
--------------- -------------- -------------- --------------
Operating costs and expenses:
Cost of sales 64,694,000 55,702,000 34,079,000 27,690,000
Selling, general and administrative expenses 19,505,000 17,217,000 10,542,000 8,970,000
--------------- -------------- -------------- --------------
Total operating costs and expenses 84,199,000 72,919,000 44,621,000 36,660,000
--------------- -------------- -------------- --------------
Operating income 14,745,000 10,460,000 8,172,000 4,931,000
Interest expense (632,000) (630,000) (301,000) (285,000)
Interest and other income 2,000 89,000 4,000 8,000
--------------- -------------- -------------- --------------
Income before income taxes and minority interests 14,115,000 9,919,000 7,875,000 4,654,000
Income tax expense 4,856,000 3,498,000 2,701,000 1,641,000
--------------- -------------- -------------- --------------
Income before minority interests 9,259,000 6,421,000 5,174,000 3,013,000
Minority interests' share of income 1,910,000 979,000 1,066,000 405,000
--------------- -------------- -------------- --------------
Net income $ 7,349,000 $ 5,442,000 $ 4,108,000 $ 2,608,000
=============== ============== ============== ==============
Net income per share:
Basic $ .31 $ .24 $ .17 $ .11
Diluted $ .29 $ .22 $ .16 $ .11
Weighted average number of common shares outstanding:
Basic 23,896,675 23,103,219 24,048,105 23,120,139
Diluted 25,687,039 24,382,028 25,741,078 24,293,619
Cash dividends per share $ .025 $ .023 $ -- $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
SIX MONTHS ENDED APRIL 30,
---------------------------------
2004 2003
--------------- ---------------
Operating Activities:
Net income $ 7,349,000 $ 5,442,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,415,000 3,272,000
Deferred income tax provision 1,716,000 1,922,000
Minority interests' share of income 1,910,000 979,000
Tax benefit from stock option exercises 1,258,000 347,000
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable (1,198,000) 3,245,000
Decrease in inventories 2,418,000 172,000
Increase in prepaid expenses and other current assets (439,000) (43,000)
Decrease in trade accounts payables, accrued
expenses and other current liabilities (522,000) (2,769,000)
Increase in income taxes payable 1,135,000 988,000
Other (297,000) (55,000)
--------------- ---------------
Net cash provided by operating activities 16,745,000 13,500,000
--------------- ---------------
Investing Activities:
Acquisitions and related costs, net of cash acquired (27,581,000) (83,000)
Capital expenditures (2,220,000) (2,343,000)
Other (740,000) 468,000
--------------- ---------------
Net cash used in investing activities (30,541,000) (1,958,000)
--------------- ---------------
Financing Activities:
Borrowings (payments) on revolving credit facilities, net 12,000,000 (8,000,000)
Cash dividends paid (596,000) (525,000)
Proceeds from stock option exercises 684,000 240,000
Other 832,000 (134,000)
--------------- ---------------
Net cash provided by (used in) financing activities 12,920,000 (8,419,000)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (876,000) 3,123,000
Cash and cash equivalents at beginning of year 4,321,000 4,539,000
--------------- ---------------
Cash and cash equivalents at end of period $ 3,445,000 $ 7,662,000
=============== ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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 (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, 2003. The
October 31, 2003 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 of only 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, 2004 are not
necessarily indicative of the results, which may be expected for the entire
fiscal year.
RECLASSIFICATIONS
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year presentation.
STOCK DIVIDEND
In December 2003, the Company's Board of Directors declared a 10% stock
dividend on both its Common Stock and its Class A Common Stock that was paid in
shares of Class A Common Stock on January 16, 2004 to shareholders of record as
of January 6, 2004. All common stock share and per share information has been
adjusted retroactively to give effect to the stock dividend.
STOCK BASED COMPENSATION
The Company accounts for stock-based employee compensation using the
intrinsic value method. Accordingly, compensation expense has been recorded in
the accompanying condensed consolidated financial statements for any stock
options granted below the fair market value of the underlying stock as of the
date of grant. The following table illustrates the pro forma effects on net
income and net income per share as if the Company had applied the fair-value
recognition provisions (an alternative method) to stock-based employee
compensation. The fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option-pricing model.
5
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Net income, as reported $ 7,349,000 $ 5,442,000 $ 4,108,000 $ 2,608,000
Add: Stock-based employee
compensation expense included in
reported net income, net
of related tax effects 1,000 2,000 1,000 1,000
Deduct: Total stock-based employee
compensation expense determined
under a fair-value method for all
awards, net of related tax effects (777,000) (864,000) (391,000) (451,000)
-------------- -------------- -------------- --------------
Pro forma net income $ 6,573,000 $ 4,580,000 $ 3,718,000 $ 2,158,000
============== ============== ============== ==============
Net income per share:
Basic - as reported $ .31 $ .24 $ .17 $ .11
Basic - pro forma $ .28 $ .20 $ .15 $ .09
Diluted - as reported $ .29 $ .22 $ .16 $ .11
Diluted - pro forma $ .26 $ .19 $ .14 $ .09
NEW ACCOUNTING PRONOUNCEMENT
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This Interpretation, which was
revised in December 2003, clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 requires an enterprise to consolidate a variable interest
entity if that enterprise will absorb a majority of the entity's expected
losses, is entitled to receive a majority of the entity's expected residual
returns, or both. FIN 46 also requires disclosures about unconsolidated variable
interest entities in which an enterprise holds a significant variable interest.
FIN 46 was immediately effective for variable interest entities created or
entered into after January 31, 2003 and is effective in the first reporting
period ending after December 15, 2003 for variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The adoption of FIN 46 did not have a material effect on the Company's results
of operations or financial position.
2. ACQUISITION
In December 2003, the Company, through its HEICO Electronic Technologies
Corp. subsidiary, acquired an 80% interest in the assets and business of Sierra
Microwave Technology, Inc., (Sierra). Under the transaction, the Company formed
a new subsidiary, Sierra Microwave Technology, LLC (Sierra LLC), which acquired
substantially all of the assets and assumed certain liabilities of Sierra. The
new subsidiary is owned 80% by the Company and 20% by certain members of
Sierra's management group. The results of operations of Sierra LLC were included
in the Company's results of operations effective December 2003. The purchase
price
6
was paid principally in cash using proceeds from the Company's revolving credit
facility and with some shares of the Company's Class A Common Stock. The
purchase price of the acquisition was not significant to the Company's condensed
consolidated financial statements and the pro forma consolidated operating
results assuming Sierra had been acquired as of the beginning of fiscal 2004
would not have been materially different from the reported results. The
allocation of the purchase price to the acquired net assets is preliminary while
the Company obtains final information regarding the fair value of assets
acquired and liabilities assumed. Sierra LLC is engaged in the design and
manufacture of certain niche microwave components used in satellites and
military products.
3. SELECTED FINANCIAL STATEMENT INFORMATION
ACCOUNTS RECEIVABLE
APRIL 30, 2004 OCTOBER 31, 2003
---------------- ----------------
Accounts receivable $ 32,456,000 $ 29,455,000
Less: Allowance for doubtful accounts (653,000) (635,000)
---------------- ----------------
Accounts receivable, net $ 31,803,000 $ 28,820,000
================ ================
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED PERCENTAGE-OF-COMPLETION OF
CONTRACTS
APRIL 30, 2004 OCTOBER 31, 2003
---------------- ----------------
Costs incurred on uncompleted contracts $ 12,546,000 $ 9,635,000
Estimated earnings 9,599,000 7,861,000
---------------- ----------------
22,145,000 17,496,000
Less: Billings to date (19,979,000) (15,223,000)
---------------- ----------------
$ 2,166,000 $ 2,273,000
================ ================
Included in accompanying condensed consolidated
balance sheets under the following captions:
Accounts receivable, net (costs and estimated
earnings in excess of billings) $ 3,606,000 $ 3,520,000
Accrued expenses and other current liabilities
(billings in excess of costs and estimated earnings) (1,440,000) (1,247,000)
---------------- ----------------
$ 2,166,000 $ 2,273,000
================ ================
Changes in estimates on long-term contracts accounted for under the
percentage-of-completion method did not have a significant impact on net income
or diluted net income per share in the six months and three months ended April
30, 2004 and 2003.
INVENTORIES
APRIL 30, 2004 OCTOBER 31, 2003
---------------- ----------------
Finished products $ 25,845,000 $ 28,958,000
Work in process 10,293,000 9,333,000
Materials, parts, assemblies and supplies 13,229,000 12,949,000
---------------- ----------------
Total inventories $ 49,367,000 $ 51,240,000
================ ================
7
Inventories related to long-term contracts were not significant as of April
30, 2004 and October 31, 2003. Amounts set forth above are net of write-downs to
reduce slow-moving inventories to estimated net realizable values.
PROPERTY, PLANT AND EQUIPMENT
APRIL 30, 2004 OCTOBER 31, 2003
---------------- ----------------
Land $ 2,157,000 $ 1,750,000
Buildings and improvements 19,611,000 18,981,000
Machinery and equipment 45,527,000 43,629,000
Construction in progress 2,155,000 1,623,000
---------------- ----------------
69,450,000 65,983,000
Less: Accumulated depreciation (32,801,000) (30,446,000)
---------------- ----------------
Property, plant and equipment, net $ 36,649,000 $ 35,537,000
================ ================
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, 2004 are as
follows:
SEGMENT
--------------------------------- CONSOLIDATED
FSG ETG TOTALS
--------------- --------------- ---------------
Balances as of October 31, 2003 $ 119,729,000 $ 68,971,000 $ 188,700,000
Goodwill acquired - 27,510,000 27,510,000
Adjustments to goodwill 46,000 61,000 107,000
--------------- --------------- ---------------
Balances as of April 30, 2004 $ 119,775,000 $ 96,542,000 $ 216,317,000
=============== =============== ===============
The goodwill acquired during the period is a result of the Company's
acquisition through a subsidiary of an 80% interest in the assets and business
of Sierra (see Note 2). Adjustments to goodwill consist primarily of additional
purchase price payments and contingent purchase price payments to previous
owners of acquired businesses.
Other intangible assets are recorded within the caption "Other assets" in
the Company's condensed consolidated balance sheets. Other intangible assets
subject to amortization consist primarily of licenses, patents, and non-compete
covenants. The gross carrying amount and accumulated amortization of other
intangible assets was $1,437,000 and $201,000, respectively, as of April 30,
2004. Amortization expense of other intangible assets for the six months and
three months ended April 30, 2004 was $54,000 and $27,000, respectively.
Amortization expense of other intangible assets for the fiscal year ending
October 31, 2004 is estimated to be $109,000. Amortization expense for each of
the next five fiscal years is estimated to be $131,000 in fiscal 2005, $130,000
in fiscal 2006, $127,000 in fiscal 2007, $109,000 in fiscal 2008 and $92,000 in
fiscal 2009.
8
5. LONG-TERM DEBT
Long-term debt consists of:
APRIL 30, 2004 OCTOBER 31, 2003
---------------- ----------------
Borrowings under revolving credit facility $ 42,000,000 $ 30,000,000
Industrial Development Revenue Refunding
Bonds - Series 1988 1,980,000 1,980,000
Capital leases and equipment loans 177,000 33,000
---------------- ----------------
44,157,000 32,013,000
Less: Current maturities of long-term debt (57,000) (29,000)
---------------- ----------------
$ 44,100,000 $ 31,984,000
================ ================
As of April 30, 2004 and October 31, 2003, the Company had a total of $42
million and $30 million, respectively, borrowed under its $120 million revolving
credit facility at a weighted average interest rate of 2.6%. In April 2004, the
Company extended the revolving credit term by one year to May 2007. The
revolving credit facility contains both financial and non-financial covenants.
As of April 30, 2004, the Company was in compliance with all such covenants.
The interest rates on the Series 1988 industrial development revenue bonds
were 1.1% and 1.2% as of April 30, 2004 and October 31, 2003, respectively. In
January 2004, the Company extended the expiration date of its $2.0 million
letter of credit that secures the payment of the 1988 industrial development
revenue bonds to April 2008.
6. SHAREHOLDERS' EQUITY
Changes in consolidated shareholders' equity for the six months ended April
30, 2004 are as follows:
CLASS A CAPITAL IN
COMMON COMMON EXCESS OF PAR RETAINED NOTE
STOCK STOCK VALUE EARNINGS RECEIVABLE
-------------- -------------- -------------- -------------- --------------
Balances as of October 31, 2003 $ 97,000 $ 117,000 $ 155,064,000 $ 69,172,000 $ (2,932,000)
10% stock dividend on Common
Stock and Class A Common Stock
paid in shares of Class A Common
Stock (Note 1) - 22,000 29,342,000 (29,393,000) -
Net income - - - 7,349,000 -
Shares issued in connection with
business acquisition (Note 2) - 3,000 2,997,000 - -
Proceeds from shares sold in
connection with business
acquisition (Note 10) - - - - 1,259,000
Adjustment to guaranteed resale
value of shares issued in connection
with business acquisition (Note 10) - - (1,673,000) - 1,673,000
Cash dividends ($.05 per share) - - - (596,000) -
Tax benefit from stock option
exercises - - 1,258,000 - -
Exercises of stock options 2,000 1,000 681,000 - -
Other - - 2,000 4,000 -
-------------- -------------- -------------- -------------- --------------
Balances as of April 30, 2004 $ 99,000 $ 143,000 $ 187,671,000 $ 46,536,000 $ -
============== ============== ============== ============== ==============
9
7. RESEARCH AND DEVELOPMENT EXPENSES
Cost of sales for the six months ended April 30, 2004 and 2003 includes
approximately $4.5 million and $4.3 million, respectively, of new product
research and development expenses. New product research and development expenses
for the three months ended April 30, 2004 and 2003 were $2.4 million and $2.1
million, respectively. The expenses are net of reimbursements pursuant to
research and development cooperation and joint venture agreements, which were
not significant.
8. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share for the six months and three months ended April 30:
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
------------------------------- -------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Numerator:
Net income $ 7,349,000 $ 5,442,000 $ 4,108,000 $ 2,608,000
============== ============== ============== ==============
Denominator:
Weighted average common shares outstanding - basic 23,896,675 23,103,219 24,048,105 23,120,139
Effect of dilutive stock options 1,790,364 1,278,809 1,692,973 1,173,480
-------------- -------------- -------------- --------------
Weighted average common shares outstanding - diluted 25,687,039 24,382,028 25,741,078 24,293,619
============== ============== ============== ==============
Net income per share - basic $ .31 $ .24 $ .17 $ .11
Net income per share - diluted $ .29 $ .22 $ .16 $ .11
Anti-dilutive stock options excluded 569,817 2,417,565 589,039 2,552,726
10
9. OPERATING SEGMENTS
Information on 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, 2004 and 2003, respectively, is as follows:
OTHER,
SEGMENT PRIMARILY
----------------------------- CORPORATE AND CONSOLIDATED
FSG ETG INTERSEGMENT TOTALS
------------- ------------- ------------- -------------
For the six months ended April 30, 2004:
Net sales $ 71,967,000 $ 27,082,000 $ (105,000) $ 98,944,000
Depreciation and amortization 2,345,000 844,000 226,000 3,415,000
Operating income 11,338,000 6,187,000 (2,780,000) 14,745,000
Capital expenditures 1,166,000 1,051,000 3,000 2,220,000
For the six months ended April 30, 2003:
Net sales $ 62,262,000 $ 21,288,000 $ (171,000) $ 83,379,000
Depreciation and amortization 2,482,000 637,000 153,000 3,272,000
Operating income 9,539,000 2,672,000 (1,751,000) 10,460,000
Capital expenditures 536,000 1,803,000 4,000 2,343,000
For the three months ended April 30, 2004:
Net sales $ 37,710,000 $ 15,143,000 $ (60,000) $ 52,793,000
Depreciation and amortization 1,258,000 439,000 109,000 1,806,000
Operating income 6,012,000 3,703,000 (1,543,000) 8,172,000
Capital expenditures 670,000 533,000 - 1,203,000
For the three months ended April 30, 2003:
Net sales $ 30,376,000 $ 11,288,000 $ (73,000) $ 41,591,000
Depreciation and amortization 1,236,000 329,000 82,000 1,647,000
Operating income 4,162,000 1,904,000 (1,135,000) 4,931,000
Capital expenditures 396,000 633,000 4,000 1,033,000
The total assets held by each operating segment as of April 30, 2004 and
October 31, 2003 is as follows:
SEGMENT OTHER,
----------------------------- PRIMARILY CONSOLIDATED
FSG ETG CORPORATE TOTALS
------------- ------------- ------------- -------------
Total assets as of April 30, 2004 $ 213,105,000 $ 135,113,000 $ 15,180,000 $ 363,398,000
Total assets as of October 31, 2003 214,292,000 103,798,000 15,154,000 333,244,000
11
10. COMMITMENTS AND CONTINGENCIES
GUARANTEES
The Company has arranged for standby letters of credit aggregating to $1.2
million to meet the security requirement of its insurance company for potential
workers' compensation claims and one of the Company's subsidiaries has
guaranteed its performance related to a customer contract through a $0.5 million
letter of credit expiring July 2004. These letters of credit are supported by
the Company's $120 million revolving credit facility. In addition, the Company's
industrial development revenue bonds are secured by a $2.0 million letter of
credit expiring April 2008 and a mortgage on the related properties pledged as
collateral.
The Company's accounting policy for product warranties is to accrue an
estimated liability at the time of shipment. Warranty reserves are included in
the Company's condensed consolidated balance sheets under the caption "Accrued
expenses and other current liabilities." The amount recognized is based on
historical claims cost experience. Based on an analysis of such cost experience,
the Company reduced its estimated warranty liability in the first quarter of
fiscal 2004. Changes in the product warranty liability for the six months ended
April 30, 2004 are as follows:
Balance as of October 31, 2003 $ 633,000
Change in estimate of warranty liability (491,000)
Accruals for warranties 63,000
Warranty claims settled (50,000)
-----------
Balance as of April 30, 2004 $ 155,000
===========
As partial consideration in the acquisition of Inertial Airline Services,
Inc. (IAS) in August 2001, the Company issued $5 million in HEICO Class A Common
Stock (318,960 shares) and guaranteed that the resale value of such Class A
Common Stock would be at least $5 million through August 31, 2004. Concurrent
with the acquisition, the Company loaned the seller $5 million, which was due
August 31, 2004 and secured by the 318,960 shares of HEICO Class A Common Stock.
The loan has been shown as a reduction of shareholders' equity in the Company's
condensed consolidated balance sheets under the caption, "Note receivable
secured by Class A Common Stock." In October 2003, the seller sold 220,000
shares of the HEICO Class A Common Stock and the Company received net proceeds
of $2.1 million to reduce the note receivable. In the second quarter of fiscal
2004, the Company received net proceeds of $1.2 million from the seller upon the
sale of the remaining 98,960 shares of the HEICO Class A Common Stock. Pursuant
to the Company's guarantee that the aggregate resale value of the 318,960 shares
of Class A Common Stock would be at least $5 million, the $1.7 million
difference between the guaranteed value and the $3.3 million of aggregate net
proceeds ($2.1 million received in October 2003 and $1.2 million received in the
second quarter of 2004) from the sales of the Class A Common Stock has been
recorded as a reduction of both capital in excess of par value and the note
receivable.
12
As part of the agreement to acquire an 80% interest in Sierra (see Note 2),
the Company has the right to purchase the minority interests in approximately
ten years, or sooner under certain conditions, and the minority holders have the
right to cause the Company to purchase their interests commencing in
approximately five years, or sooner under certain conditions.
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 significant effect on the Company's condensed
consolidated financial statements.
11. SUBSEQUENT EVENT
In May 2004, an employee upon whom the Flight Support Group maintained a $5
million key-person life insurance policy died. The insurance carrier has been
notified of the claim. The Flight Support Group may incur restructuring expenses
as a result of this event; however, the amount, if any, has not been quantified.
13
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.
The Company's 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 the Company's Annual Report on Form 10-K for the year ended October
31, 2003.
The Company has 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. and its subsidiaries.
The Company acquired an 80% interest in Sierra Microwave Technology, Inc.
(Sierra) in December 2003 through its ETG (see Note 2 to the Condensed
Consolidated Financial Statements). The purchase price of the acquisition was
not significant to the Company's condensed consolidated financial statements and
the pro forma consolidated results assuming Sierra had been acquired as of the
beginning of fiscal 2004 would not have been materially different from the
reported results. The operating results of Sierra have had a positive impact on
the ETG, the smaller of the Company's two operating segments, as further
explained below.
RESULTS OF OPERATIONS
The following table sets forth the results of the Company's operations; net
sales and operating income by segment; and the percentage of net sales
represented by the respective items in the Company's condensed consolidated
statements of operations.
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
----------------------------- ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net sales $ 98,944,000 $ 83,379,000 $ 52,793,000 $ 41,591,000
------------- ------------- ------------- -------------
Cost of sales 64,694,000 55,702,000 34,079,000 27,690,000
Selling, general and administrative expenses 19,505,000 17,217,000 10,542,000 8,970,000
------------- ------------- ------------- -------------
Total operating costs and expenses 84,199,000 72,919,000 44,621,000 36,660,000
------------- ------------- ------------- -------------
Operating income $ 14,745,000 $ 10,460,000 $ 8,172,000 $ 4,931,000
============= ============= ============= =============
14
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
----------------------------- ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net sales by segment:
Flight Support Group $ 71,967,000 $ 62,262,000 $ 37,710,000 $ 30,376,000
Electronic Technologies Group 27,082,000 21,288,000 15,143,000 11,288,000
Intersegment sales (105,000) (171,000) (60,000) (73,000)
------------- ------------- ------------- -------------
$ 98,944,000 $ 83,379,000 $ 52,793,000 $ 41,591,000
============= ============= ============= =============
Operating income by segment:
Flight Support Group $ 11,338,000 $ 9,539,000 $ 6,012,000 $ 4,162,000
Electronic Technologies Group 6,187,000 2,672,000 3,703,000 1,904,000
Other, primarily corporate (2,780,000) (1,751,000) (1,543,000) (1,135,000)
------------- ------------- ------------- -------------
$ 14,745,000 $ 10,460,000 $ 8,172,000 $ 4,931,000
============= ============= ============= =============
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 34.6% 33.2% 35.4% 33.4%
Selling, general and administrative expense 19.7% 20.6% 20.0% 21.6%
Operating income 14.9% 12.5% 15.5% 11.9%
Interest expense 0.6% 0.8% 0.6% 0.7%
Interest and other income - 0.1% - -
Income tax expense 4.9% 4.2% 5.1% 3.9%
Minority interests' share of income 1.9% 1.2% 2.0% 1.0%
Net income 7.4% 6.5% 7.8% 6.3%
COMPARISON OF FIRST SIX MONTHS OF FISCAL 2004 TO FIRST SIX MONTHS OF FISCAL 2003
Net Sales
Net sales for the first six months of fiscal 2004 increased by 18.7% to
$98.9 million, as compared to net sales of $83.4 million for the first six
months of fiscal 2003. The increase in net sales reflects an increase of $9.7
million (a 15.6% increase) to $72.0 million in sales within the FSG, and an
increase of $5.8 million (a 27.2% increase) to $27.1 million in sales within the
ETG. The FSG's sales increase primarily reflects improved demand for its
aftermarket replacement parts and repair and overhaul services, which reflects
continuing recovery within the commercial airline industry, as well as increased
sales of new products. The increase in sales within the ETG primarily resulted
from the acquisition of Sierra in December 2003.
The Company's net sales for the first six months of fiscal 2004 by market
were comprised of 65% from the commercial aviation industry, 23% from the
defense and space industries and 12% from other markets including industrial,
medical, electronics and telecommunications. Net sales for the first six months
of fiscal 2003 by market consisted of 70% from the commercial aviation industry,
20% from the defense and space industries and 10% from other markets.
Gross Profits and Operating Expenses
The Company's gross profit margin improved to 34.6% for the first six
months of fiscal 2004 as compared to 33.2% for the first six months of fiscal
2003, reflecting higher margins within the
15
ETG offset by a small decrease in the FSG's gross profit margin. The ETG's gross
profit margin increase was primarily due to the acquisition of Sierra and sales
of higher margin products. The FSG's gross profit margin decrease was
principally due to higher costs from write-offs of excess inventory in the first
quarter of fiscal 2004, partially offset by a reduction of its product warranty
reserve and lower research and development expenses as a percentage of net
sales. Consolidated cost of sales amounts for the first six months of fiscal
2004 and fiscal 2003 include approximately $4.5 million and $4.3 million,
respectively, of new product research and development expenses.
Selling, general and administrative (SG&A) expenses were $19.5 million and
$17.2 million for the first six months of fiscal 2004 and fiscal 2003,
respectively. The increase in SG&A expenses is mainly due to an increase in
Corporate expenses and the acquisition of Sierra. Corporate expenses in the
first six months of fiscal 2003 reflected a reversal of approximately $400,000
of professional fees that were accrued at the end of fiscal 2002 pursuant to a
contractual arrangement that was renegotiated in the first quarter of fiscal
2003.
As a percentage of net sales, SG&A expenses decreased to 19.7% for the
first six months of fiscal 2004 compared to 20.6% for the first six months of
fiscal 2003. The decrease as a percentage of sales is due to higher sales
volumes within the FSG and ETG.
Operating Income
Operating income for the first six months of fiscal 2004 increased by 41.0%
to $14.7 million, compared to operating income of $10.5 million for the first
six months of fiscal 2003. The increase in operating income reflects an increase
of $1.8 million (an 18.9% increase) in operating income of the FSG from $9.5
million for the first six months of fiscal 2003 to $11.3 million for the first
six months of fiscal 2004 and an increase of $3.5 million (a 131.5% increase) in
operating income of the ETG from $2.7 million for the first six months of fiscal
2003 to $6.2 million for the first six months of fiscal 2004, partially offset
by a $1.0 million increase in Corporate expenses. As a percentage of net sales,
operating income increased from 12.5% in the first six months of fiscal 2003 to
14.9% in the first six months of fiscal 2004. The increase in operating income
as a percentage of net sales reflects an increase in the FSG's operating income
as a percentage of net sales from 15.3% in the first six months of fiscal 2003
to 15.8% in the first six months of fiscal 2004 and an increase in the ETG's
operating income as a percentage of net sales from 12.6% in the first six months
of fiscal 2003 to 22.8% in the first six months of fiscal 2004. The increase in
the FSG's operating income as a percentage of net sales reflects the lower SG&A
expenses as a percentage of sales partially offset by the small decrease in
gross profit margins discussed previously. The increase in the ETG's operating
income and operating income as a percentage of net sales reflects the purchase
of Sierra and the increased gross margins, discussed previously.
Interest Expense
Interest expense in the first six months of fiscal 2004 and fiscal 2003 was
comparable as average borrowings outstanding and associated interest rates
remained at approximately the same levels.
16
Interest and Other Income
Interest and other income in the first six months of fiscal 2004 and fiscal
2003 were not material.
Income Tax Expense
The Company's effective tax rate decreased from 35.3% for the first six
months of fiscal 2003 to 34.4% for the first six months of fiscal 2004 as the
minority interests' share of the income of Sierra Microwave Technology, LLC
(Sierra LLC) is excluded from the Company's income that is subject to federal
income taxes, and due to a higher tax benefit on foreign sales.
Minority Interests' Share of Income
Minority interests' share of income of consolidated subsidiaries relates to
the minority interests held in HEICO Aerospace and the 20% minority interest
held in Sierra LLC. The increase from the first six months of fiscal 2003 to the
first six months of fiscal 2004 was attributable to income of Sierra LLC and
higher earnings of the FSG.
Net Income
The Company's net income was $7.3 million, or $.29 per diluted share, in
the first six months of fiscal 2004 compared to $5.4 million, or $.22 per
diluted share, in the first six months of fiscal 2003.
OUTLOOK
The Company reported increased sales in its two business segments,
reflecting both organic growth and growth through acquisitions. Based on
operating results through the first half of the year and current market
conditions, the Company believes that the FSG's operating margins will continue
to improve during the balance of fiscal 2004 while maintaining the strong
operating margins in the ETG.
Based on the current strengthening of the general economy and the markets
in which the Company participates and the Company's continued success in
introducing new products and services, the Company continues to target growth in
fiscal 2004 sales and earnings over fiscal 2003 results.
The FSG filed a claim with its insurance carrier in May 2004 on a $5
million key-person life insurance policy that it maintains (see Note 11 to the
Condensed Cosolidated Financial Statements).
17
COMPARISON OF SECOND QUARTER OF FISCAL 2004 TO SECOND QUARTER OF FISCAL 2003
Net Sales
Net sales for the second quarter of fiscal 2004 increased by 26.9% to $52.8
million, as compared to net sales of $41.6 million for the second quarter of
fiscal 2003. The increase in net sales reflects an increase of $7.3 million (a
24.1% increase) to $37.7 million in sales within the FSG, and an increase of
$3.9 million (a 34.2% increase) to $15.1 million in sales within the ETG. The
FSG's sales increase primarily reflects improved demand for its aftermarket
replacement parts and repair and overhaul services, which reflects continued
recovery within the commercial airline industry, as well as increased sales of
new products. The increase in sales within the ETG primarily resulted from the
acquisition of Sierra .
Gross Profits and Operating Expenses
The Company's gross profit margin improved to 35.4% for the second quarter
of fiscal 2004 as compared to 33.4% for the second quarter of fiscal 2003,
reflecting higher margins within the ETG. The ETG's gross profit margin increase
was primarily due to the acquisition of Sierra and sales of higher margin
products. The FSG's gross profit margin was the same in both the second quarter
of fiscal 2004 and 2003. Consolidated cost of sales amounts for the second
quarter of fiscal 2004 and fiscal 2003 include approximately $2.4 million and
$2.1 million, respectively, of new product research and development expenses.
Selling, general and administrative (SG&A) expenses were $10.5 million and
$9.0 million for the second quarters of fiscal 2004 and fiscal 2003,
respectively. The increase in SG&A expenses is mainly due to the acquisition of
Sierra and an increase in Corporate expenses.
As a percentage of net sales, SG&A expenses decreased to 20.0% for the
second quarter of fiscal 2004 compared to 21.6% for the second quarter of fiscal
2003. The decrease as a percentage of sales is due to higher sales volumes
within the FSG and ETG.
Operating Income
Operating income of $8.2 million for the second quarter of fiscal 2004 was
65.7% higher than operating income of $4.9 million for the second quarter of
fiscal 2003. The increase in operating income reflects a $1.8 million increase
in operating income of the FSG from $4.2 million for the second quarter of
fiscal 2003 to $6.0 million for the second quarter to fiscal 2004 and a $1.8
million increase in operating income of the ETG from $1.9 million for the second
quarter of fiscal 2003 to $3.7 million for the second quarter of fiscal 2004,
partially offset by a $.4 million increase in Corporate expenses. As a
percentage of net sales, operating income increased from 11.9% in the second
quarter of fiscal 2003 to 15.5% in the second quarter of fiscal 2004. The
increase in operating income as a percentage of net sales reflects an increase
in the FSG's operating income as a percentage of net sales from 13.7% in the
second quarter of fiscal 2003 to 15.9% in the second quarter of fiscal 2004 and
an increase in the ETG's operating income as a percentage of net sales from
16.9% in the second quarter of fiscal 2003 to 24.5% in the second quarter of
fiscal 2004. The increase in the FSG's operating income as a percentage of net
sales reflects the lower SG&A
18
expenses as a percentage of sales. The increase in the ETG's operating income
and operating income as a percentage of net sales reflects the purchase of
Sierra and the increased gross margins, discussed previously.
Interest Expense
Interest expense in the second quarters of fiscal 2004 and fiscal 2003 was
comparable as average borrowings outstanding and associated interest rates
remained at approximately the same levels.
Interest and Other Income
Interest and other income in the second quarters of fiscal 2004 and fiscal
2003 were not material.
Income Tax Expense
The Company's effective tax rate decreased from 35.3% for the second
quarter of fiscal 2003 to 34.3% for the second quarter of fiscal 2004 as the
minority interests' share of the income of Sierra Microwave Technology, LLC
(Sierra LLC) is excluded from the Company's income that is subject to federal
income taxes, and due to a higher tax benefit on foreign sales.
Minority Interests' Share of Income
Minority interests' share of income of consolidated subsidiaries relates to
the minority interests held in HEICO Aerospace and the 20% minority interest
held in Sierra LLC. The increase from the second quarter of fiscal 2003 to the
second quarter of fiscal 2004 was attributable to higher earnings of the FSG and
income of Sierra LLC.
Net Income
The Company's net income was $4.1 million, or $.16 per diluted share, in
the second quarter of fiscal 2004 compared to $2.6 million, or $0.11 per diluted
share, in the second quarter of fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash primarily from its operating activities and
financing activities, including borrowings under long-term credit agreements.
Principal uses of cash by the Company include acquisitions, payments of
principal and interest on debt, capital expenditures, cash dividends and
increases in working capital.
The Company believes that its operating cash flow and available borrowings
under its revolving credit facility will be sufficient to fund cash requirements
for the foreseeable future.
19
Operating Activities
Net cash provided by operating activities was $16.7 million for the first
six months of fiscal 2004, consisting primarily of net income of $7.3 million,
depreciation and amortization of $3.4 million, minority interests' share of
income of consolidated subsidiaries of $1.9 million, a deferred income tax
provision of $1.7 million, a tax benefit on stock option exercises of $1.3
million, and a decrease in net operating assets of $1.1 million.
Investing Activities
Net cash used in investing activities during the first six months of fiscal
2004 related primarily to the acquisition of Sierra and capital expenditures
totaling $2.2 million for building improvements at certain manufacturing
facilities and equipment purchases.
Financing Activities
Net cash provided by financing activities during the first six months of
fiscal 2004 primarily related to net borrowings of $12.0 million on the
Company's revolving credit facility reflecting $27.0 million borrowed to fund
the acquisition referenced above, net of repayments of $15.0 million and
proceeds from stock option exercises of $0.7 million, partially offset by the
payment of $0.6 million in cash dividends on the Company's common stock.
In April 2004, the Company extended the term of its revolving credit
facility by one year to May 2007.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has arranged for standby letters of credit aggregating to $1.2
million to meet the security requirement of its insurance company for potential
workers' compensation claims and one of the Company's subsidiaries has
guaranteed its performance related to a customer contract through a $0.5 million
letter of credit expiring July 2004. These letters of credit are supported by
the Company's $120 million revolving credit facility. In addition, the Company's
industrial development revenue bonds are secured by a $2.0 million letter of
credit expiring April 2008 and a mortgage on the related properties pledged as
collateral.
As part of the agreement to acquire an 80% interest in Sierra (see Note 2
to the condensed consolidated financial statements), the Company has the right
to purchase the minority interests in approximately ten years, or sooner under
certain conditions, and the minority holders have the right to cause the Company
to purchase their interests commencing in approximately five years, or sooner
under certain conditions.
NEW ACCOUNTING PRONOUNCEMENT
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This Interpretation, which was
revised in December 2003, clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to
20
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 requires an enterprise to consolidate a
variable interest entity if that enterprise will absorb a majority of the
entity's expected losses, is entitled to receive a majority of the entity's
expected residual returns, or both. FIN 46 also requires disclosures about
unconsolidated variable interest entities in which an enterprise holds a
significant variable interest. FIN 46 was immediately effective for variable
interest entities created or entered into after January 31, 2003 and is
effective in the first reporting period ending after December 15, 2003 for
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. The adoption of FIN 46 did not have a
material effect on the Company's results of operations or financial position.
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 could
differ materially from those expressed in or implied by those forward-looking
statements as a result of factors, including, but 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
or space 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 aerospace, defense and electronics
industries, which could negatively impact our costs and revenues. 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, 2003. We
undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Substantially all of the Company's borrowings bear interest at floating
interest rates. Based on the outstanding debt balance as of April 30, 2004, a
hypothetical 10% increase in interest rates would increase the Company's
interest expense by approximately $111,000 on an annual basis.
22
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and its Chief Financial Officer
concluded that the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective, based on their
evaluation as of the end of the period covered by this quarterly report on Form
10-Q.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the Company's internal control over financial
reporting 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.
23
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
As announced by the Company in October 2002, the Company's Board of
Directors has authorized the repurchase of up to 425,000 shares of its Common
Stock and/or Class A Common Stock to be executed, at management's discretion, in
the open market or via private transactions. Through April 30, 2004, the Company
has repurchased 22,000 shares of its Class A Common Stock. The remaining 403,000
shares authorized for repurchase are subject to certain restrictions included in
the Company's revolving credit agreement. During the quarter ended April 30,
2004, the Company did not repurchase any shares of its Common Stock and/or Class
A Common Stock. The repurchase program does not have a fixed termination date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on March 16, 2004, the Company's
shareholders elected seven directors.
The number of votes cast for and withheld for each nominee for director was
as follows:
DIRECTOR FOR WITHHELD
-------- --- --------
Samuel L. Higginbottom 10,457,220 86,977
Wolfgang Mayrhuber 10,484,836 59,361
Eric A. Mendelson 10,250,239 293,958
Laurans A. Mendelson 10,254,367 289,830
Victor H. Mendelson 10,248,938 295,259
Albert Morrison, Jr. 10,309,579 234,618
Dr. Alan Schriesheim 10,458,459 85,738
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
10.1 Consent to Extension dated as of April 5, 2004 to the
Revolving Credit Agreement dated as of May 15, 2003 among
HEICO Corporation and SunTrust Bank. *
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer. *
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer. *
32.1 Section 1350 Certification of Chief Executive Officer. **
32.2 Section 1350 Certification of Chief Financial Officer. **
----------
* Filed herewith.
** Furnished herewith.
(b) REPORTS ON FORM 8-K
The Company furnished a report on Form 8-K to the Securities and
Exchange Commission dated February 24, 2004, which contained a press
release announcing the Company's financial results for the first
quarter ended January 31, 2004.
The Company filed a report on Form 8-K with the Securities and
Exchange Commission on March 1, 2004, which announced that a member of
the Company's Board of Directors ceased receiving and will no longer
receive any consulting, advisory or other compensatory fee from the
Company or any subsidiary thereof, other than Director's Fees in his
capacity as a member of the Board of Directors and any Board
Committee.
25
SIGNATURE
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)
Date: May 28, 2004 By: /s/ Thomas S. Irwin
-----------------------
Thomas S. Irwin
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
EXHIBIT INDEX
EXHIBIT # DESCRIPTION
- --------- -----------
10.1 Consent to Extension dated as of April 5, 2004 to the Revolving
Credit Agreement dated as of May 15, 2003 among HEICO Corporation
and SunTrust Bank.
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer.
32.1 Section 1350 Certification of Chief Executive Officer.
32.2 Section 1350 Certification of Chief Financial Officer.
Exhibit 10.1
CONSENT TO EXTENSION
THIS CONSENT TO EXTENSION (this "Consent"), is made and entered into as
of April 5, 2004, by and among HEICO CORPORATION, a Florida corporation (the
"Borrower"), the several banks and other financial institutions from time to
time party hereto (collectively, the "Lenders") and SUNTRUST BANK, in its
capacity as Administrative Agent for the Lenders (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are
parties to a certain Revolving Credit Agreement, dated as of May 15, 2003 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"; capitalized terms used herein and not otherwise defined
shall have the meanings assigned to such terms in the Credit Agreement),
pursuant to which the Lenders have made certain financial accommodations
available to the Borrower;
WHEREAS, the Borrower has requested that the Lenders and the
Administrative Agent extend the Revolving Commitment Termination Date pursuant
to Section 2.24 of the Credit Agreement, and subject to the terms and conditions
hereof, the Lenders consent and are willing to do so;
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of all of which are acknowledged, the Borrower, the Lenders and the
Administrative Agent agree as follows:
1. Amendment to Revolving Commitment Termination Date.
(a) Section 1.1 of the Credit Agreement is hereby amended by replacing
the definition of "Revolving Commitment Termination Date" in its entirety with
the following definition:
"Revolving Commitment Termination Date" shall mean the
earliest of (i) May 15, 2007, as extended pursuant to Section
2.24, (ii) the date on which the Revolving Commitments are
terminated pursuant to Section 2.9 and (iii) the date on which
all amounts outstanding under this Agreement have been declared
or have automatically become due and payable (whether by
acceleration or otherwise)."
2. Conditions to Effectiveness of this Consent. Notwithstanding any
other provision of this Consent and without affecting in any manner the rights
of the Lenders hereunder, it is understood and agreed that this Consent shall
not become effective, and the Borrower shall have no rights under this Consent,
until the Administrative Agent shall have
1
received (i) reimbursement or payment of its costs and expenses incurred in
connection with this Consent (including reasonable fees, charges and
disbursements of King & Spalding LLP, counsel to the Administrative Agent), and
(ii) executed counterparts to this Consent from the Borrower, each of the
Subsidiary Loan Parties and the Lenders;
3. Representations and Warranties. To induce the Lenders and the
Administrative Agent to enter into this Consent, each Loan Party hereby
represents and warrants to the Lenders and the Agent that:
(a) The execution, delivery and performance by such Loan Party of
this Consent (i) are within such Loan Party's power and authority; (ii) have
been duly authorized by all necessary corporate and shareholder action; (iii)
are not in contravention of any provision of such Loan Party's certificate of
incorporation or bylaws or other organizational documents; (iv) do not violate
any law or regulation, or any order or decree of any Governmental Authority; (v)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which such Loan
Party or any of its Subsidiaries is a party or by which such Loan Party or any
such Subsidiary or any of their respective property is bound; (vi) do not result
in the creation or imposition of any Lien upon any of the property of such Loan
Party or any of its Subsidiaries; and (vii) do not require the consent or
approval of any Governmental Authority or any other Person;
(b) This Consent has been duly executed and delivered for the
benefit of or on behalf of each Loan Party and constitutes a legal, valid and
binding obligation of each Loan Party, enforceable against such Loan Party in
accordance with its terms except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and remedies in general;
(c) at the time of and immediately after giving effect to this
extension, no Default or Event of Default shall exist;
(d) all representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct in all material respects on and
as of the date hereof, in each case before and after giving effect thereto
(except to the extent such representations and warranties relate solely to an
earlier date and except for changes therein expressly permitted or expressly
contemplated by the Loan Documents);
(e) since the date of the annual financial statements of the
Borrower described in Section 4.4 of the Credit Agreement, there has been no
change which has had or could reasonably be expected to have a Material Adverse
Effect; and
(f) after giving effect to this Consent, the Revolving Credit
Exposure will not exceed the Aggregate Revolving Commitment Amount.
2
4. Reaffirmations and Acknowledgments.
(a) Reaffirmation of Guaranty. Each Subsidiary Loan Party consents
to the execution and delivery by the Borrower of this Consent and jointly and
severally ratify and confirm the terms of the Subsidiary Guaranty Agreement with
respect to the indebtedness now or hereafter outstanding under the Credit
Agreement as amended hereby and all promissory notes issued thereunder. Each
Subsidiary Loan Party acknowledges that, notwithstanding anything to the
contrary contained herein or in any other document evidencing any indebtedness
of the Borrower to the Lenders or any other obligation of the Borrower, or any
actions now or hereafter taken by the Lenders with respect to any obligation of
the Borrower, the Subsidiary Guaranty Agreement (i) is and shall continue to be
a primary obligation of the Subsidiary Loan Parties, (ii) is and shall continue
to be an absolute, unconditional, joint and several, continuing and irrevocable
guaranty of payment, and (iii) is and shall continue to be in full force and
effect in accordance with its terms. Nothing contained herein to the contrary
shall release, discharge, modify, change or affect the original liability of the
Subsidiary Loan Parties under the Subsidiary Guaranty Agreement.
(b) Acknowledgment of Perfection of Security Interest. Each Loan
Party hereby acknowledges that, as of the date hereof, the security interests
and liens granted to the Administrative Agent and the Lenders under the Credit
Agreement and the other Loan Documents are in full force and effect, are
properly perfected and are enforceable in accordance with the terms of the
Credit Agreement and the other Loan Documents.
5. Effect of Consent. Except as set forth expressly herein, all
terms of the Credit Agreement, as amended hereby, and the other Loan Documents
shall be and remain in full force and effect and shall constitute the legal,
valid, binding and enforceable obligations of the Borrower to the Lenders and
the Administrative Agent. The execution, delivery and effectiveness of this
Consent shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Lenders under the Credit Agreement, nor
constitute a waiver of any provision of the Credit Agreement. This Consent shall
constitute a Loan Document for all purposes of the Credit Agreement.
6. Governing Law. This Consent shall be governed by, and construed
in accordance with, the internal laws of the State of Florida and all applicable
federal laws of the United States of America.
7. No Novation. This Consent is not intended by the parties to be,
and shall not be construed to be, a novation of the Credit Agreement or an
accord and satisfaction in regard thereto.
8. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Agent in connection with the
preparation, execution and delivery of this Consent, including, without
limitation, the reasonable fees and out-of-pocket expenses of outside counsel
for the Administrative Agent with respect thereto.
3
9. Counterparts. This Consent may be executed by one or more of the
parties hereto in any number of separate counterparts, each of which shall be
deemed an original and all of which, taken together, shall be deemed to
constitute one and the same instrument. Delivery of an executed counterpart of
this Consent by facsimile transmission or by electronic mail in pdf form shall
be as effective as delivery of a manually executed counterpart hereof.
10. Binding Nature. This Consent shall be binding upon and inure to
the benefit of the parties hereto, their respective successors,
successors-in-titles, and assigns.
11. Entire Understanding. This Consent sets forth the entire
understanding of the parties with respect to the matters set forth herein, and
shall supersede any prior negotiations or agreements, whether written or oral,
with respect thereto.
[Signature Pages To Follow]
4
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
duly executed, under seal in the case of the Borrower and the Subsidiary Loan
Parties, by their respective authorized officers as of the day and year first
above written.
BORROWER:
HEICO CORPORATION
By:
--------------------------------------
Name:
Title:
SUBSIDIARY LOAN PARTIES:
HEICO AEROSPACE HOLDINGS CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
HEICO AEROSPACE CORPORATION
By
--------------------------------------
Thomas S. Irwin
Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
5
JET AVION CORPORATION
By
--------------------------------------
Thomas S. Irwin
Treasurer
LPI INDUSTRIES CORPORATION
By
--------------------------------------
Thomas S. Irwin
Treasurer
AIRCRAFT TECHNOLOGY, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
ATI HEAT TREAT CORPORATION
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
JET AVION HEAT TREAT CORPORATION
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
N.A.C. ACQUISITION CORPORATION
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
6
NORTHWINGS ACCESSORIES CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
KINETIC TECHNOLOGIES, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
HNW BUILDING CORP.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
MCCLAIN INTERNATIONAL, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
MCCLAIN PROPERTY CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
ASSOCIATED COMPOSITE, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
7
ROGERS-DIERKS, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
TURBINE KINETICS, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
AIR RADIO & INSTRUMENTS CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
THERMAL STRUCTURES, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
TSI QUALITY HONEYCOMB HOLDINGS CORP.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
FUTURE AVIATION, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
8
AVITECH ENGINEERING CORPORATION
By
--------------------------------------
Thomas S. Irwin
Treasurer
ATK ACQUISITION CORP.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
AVIATION FACILITIES, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
HEICO AEROSPACE PARTS CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
JETSEAL, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
HEICO AEROSPACE C&A CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
9
AD HEICO ACQUISITION CORP.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
AERODESIGN, INC.
By
--------------------------------------
Thomas S. Irwin
President
By
--------------------------------------
Elizabeth R. Letendre
Secretary
BATTERY SHOP, L.L.C.
By: AD HEICO Acquisition Corp.,
its sole member
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
NIACC TECHNOLOGY, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
HEICO ELECTRONIC TECHNOLOGIES CORP.
By
--------------------------------------
Thomas S. Irwin
Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
10
RADIANT POWER CORP.
By
-------------------------------------
Thomas S. Irwin
Treasurer
LEADER TECH, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
SANTA BARBARA INFRARED, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
101 LUMMIS ROAD CORP.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
ANALOG MODULES, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
INERTIAL AIRLINE SERVICES, INC.
By
--------------------------------------
Thomas S. Irwin
Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
11
HEICO EAST CORPORATION
By
--------------------------------------
Thomas S. Irwin
Treasurer
HEICO-NEWCO, INC.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
HEICO ENGINEERING CORPORATION
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
HEICO-JET CORPORATION
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
HEICO BEARINGS CORP.
By
--------------------------------------
Thomas S. Irwin
President and Treasurer
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
12
LENDERS:
SUNTRUST BANK, as Administrative
Agent, as Issuing Bank, as Swingline
Lender and as a Lender
By:
--------------------------------------
Name:
Title:
WACHOVIA BANK, NATIONAL ASSOCIATION
By:
--------------------------------------
Name:
Title:
HSBC BANK USA
By:
--------------------------------------
Name:
Title:
REGIONS BANK
By:
--------------------------------------
Name:
Title:
COMMERCEBANK, N.A.
By:
--------------------------------------
Name:
Title:
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
13
NORTHERN TRUST BANK OF FLORIDA, N.A.
By:
--------------------------------------
Name:
Title:
ISRAEL DISCOUNT BANK OF NEW YORK
By:
--------------------------------------
Name:
Title:
[SIGNATURE PAGE TO CONSENT TO EXTENSION]
14
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Laurans A. Mendelson, Chief Executive Officer of HEICO Corporation, certify
that:
(1) I have reviewed this quarterly report on Form 10-Q of HEICO
Corporation;
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
(4) The Registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the Registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
c) Disclosed in this report any change in the Registrant's
internal control over financial reporting that occurred
during the Registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control
over financial reporting; and
(5) The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal control over financial
reporting.
Date: May 28, 2004 /S/ LAURANS A. MENDELSON
------------------------
Laurans A. Mendelson
Chief Executive Officer
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Thomas S. Irwin, Chief Financial Officer of HEICO Corporation, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of HEICO
Corporation;
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
(4) The Registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the Registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
c) Disclosed in this report any change in the Registrant's
internal control over financial reporting that occurred
during the Registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control
over financial reporting; and
(5) The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal control over financial
reporting.
Date: May 28, 2004 /S/ THOMAS S. IRWIN
-------------------
Thomas S. Irwin
Chief Financial Officer
Exhibit 32.1
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of HEICO Corporation (the
"Company") on Form 10-Q for the period ended April 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report") I, Laurans
A. Mendelson, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Date: May 28, 2004 /S/ LAURANS A. MENDELSON
------------------------
Laurans A. Mendelson
Chief Executive Officer
Exhibit 32.2
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of HEICO Corporation (the
"Company") on Form 10-Q for the period ended April 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report") I, Thomas
S. Irwin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Date: May 28, 2004 /S/ THOMAS S. IRWIN
-------------------
Thomas S. Irwin
Chief Financial Officer