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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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) 987-6101
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE (Name of Each Exchange On Which
(Title of Each Class) Registered)
Securities registered pursuant to Section 12(g) of the Act:
PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting stock held by
nonaffiliates of the registrant as of December 31, 1999 was $270,000,000 based
on the closing price of Common Stock of $21 13/16 and Class A Common Stock of
$21 1/8 on December 31, 1999 as reported by the New York Stock Exchange and
after subtracting from the number of shares outstanding on that date the number
of shares held by affiliates of the registrant.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
COMMON STOCK, $.01 PAR VALUE 8,419,144 SHARES
CLASS A COMMON STOCK, $.01 PAR VALUE 7,347,266 SHARES
(Class) (Outstanding at December 31, 1999)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2000 Annual Meeting of Shareholders
are incorporated by reference into Part III. See Item 14(a)(3) on page 50 for a
listing of exhibits.
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CERTAIN STATEMENTS IN THIS REPORT CONSTITUTE FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WE
HAVE BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS AND
PROJECTIONS ABOUT FUTURE EVENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES, AND ASSUMPTIONS ABOUT HEICO CORPORATION, INCLUDING, AMONG
OTHER THINGS:
o Lower commercial air travel;
o Our anticipated growth strategies and ability to achieve operating
synergies from acquired businesses;
o Our intention to introduce new products;
o Product pricing levels;
o Product specification costs and requirements;
o Governmental and regulatory demands;
o Competition on military programs;
o Anticipated trends in our businesses, including trends in the markets for
jet engine parts, jet engine overhaul and electronics and ground support
equipment;
o Economic conditions within and outside of the aerospace, aviation and
defense industries; and
o Our ability to continue to control costs and maintain quality.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
THE COMPANY
HEICO Corporation ("HEICO" or the "Company") believes it is the world's
largest manufacturer of Federal Aviation Administration ("FAA") approved jet
engine replacement parts, other than the original equipment manufacturers
("OEMs") and their subcontractors. It is also a leading manufacturer of certain
electronic and ground support equipment to the airline and defense industries.
The Company's operations are divided into two segments, the Flight Support Group
("FSG") and the Electronics & Ground Support Group ("EGSG"). Through our FSG we
use proprietary technology to design, manufacture and sell jet engine
replacement parts for sale at lower prices than those manufactured by OEMs.
These parts are approved by the FAA and are the functional equivalent of parts
sold by OEMs. In addition, our FSG repairs, refurbishes and overhauls jet engine
and aircraft components for domestic and foreign commercial air carriers and
aircraft repair companies, and manufactures thermal insulation products and
related components primarily for aerospace and defense applications. In fiscal
1999, the FSG accounted for 67% of our revenues. Through our EGSG, we
manufacture various types of electrical and aircraft ground support equipment
("GSE"), including electrical power, back-up power supplies, circuit board
shielding and infrared simulation and ground test equipment as well as air
start, air conditioning and heating units, primarily for the aerospace industry.
In fiscal 1999, the EGSG accounted for 33% of our revenues.
We have continuously operated in the aerospace industry for approximately 40
years. Since assuming control in 1990, current management has achieved
significant sales and profit growth through expanded product offerings, an
expanded customer base, increased research and development expenditures, and the
completion of acquisitions. As a result of internal growth and acquisitions, our
revenues have grown from $19.2 million in fiscal 1994 to $141.3 million in
fiscal 1999, a compound annual growth rate of 49% over the five-year period.
During the same period, diluted earnings per share increased from $.06 to $.93,
a compound annual growth rate of 73%.
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In October 1997, we formed a strategic alliance with Lufthansa Technik AG
("Lufthansa"), the technical services subsidiary of Lufthansa German Airlines
AG. Lufthansa is the world's largest independent provider of engineering and
maintenance services for aircraft and aircraft engines and supports over 200
airlines, governments and other customers. As part of the transaction, Lufthansa
acquired a 20% minority interest in our FSG, investing $42 million to date and
committing to invest an additional $3 million for research and development
projects over the next year. This includes direct equity investments and the
funding of specific research and development projects. In connection with
subsequent acquisitions by our FSG, Lufthansa invested additional amounts
pursuant to its option to maintain a 20% equity interest. This strategic
alliance should continue to enable us to expand domestically and internationally
by enhancing our ability to (i) identify key jet engine replacement parts with
significant profit potential by utilizing Lufthansa's extensive operating data
on engine parts, (ii) introduce those parts throughout the world in an efficient
manner due to Lufthansa's testing and diagnostic resources, and (iii) broaden
our customer base by capitalizing on Lufthansa's established relationships and
alliances within the airline industry.
Beginning in fiscal 1997, the Company, through acquisitions, has added seven
subsidiaries to its FSG and three subsidiaries to its EGSG. See "Management's
Discussion of Financial Condition and Results of Operations" for details of the
Company's acquisitions.
FLIGHT SUPPORT GROUP
Our FSG designs, engineers, manufactures, repairs and/or overhauls jet
engine parts and components such as combustion chambers, gas flow transition
ducts and various other engine and airframe parts. We also manufacture specialty
aviation and defense components as a subcontractor. We serve a broad spectrum of
the aviation industry, including (i) commercial airlines and air cargo couriers,
(ii) repair and overhaul facilities, (iii) OEMs, and (iv) the U.S. government.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a listing of operating subsidiaries included in the FSG.
Jet engine replacement parts can be categorized by their ongoing ability to
be repaired and returned to service. The general categories (in all of which we
participate) are as follows: (i) rotable; (ii) repairable; and (iii) expendable.
A rotable is a part which is removed periodically as dictated by an operator's
maintenance procedures or on an as needed basis and is typically repaired or
overhauled and re-used an indefinite number of times. An important subset of
rotables is "life limited" parts. A life limited rotable has a designated number
of allowable flight hours and/or cycles (one take-off and landing generally
constitutes one cycle) after which it is rendered unusable. A repairable is
similar to a rotable except that it can only be repaired a limited number of
times before it must be discarded. An expendable is generally a part which is
used and not thereafter repaired for further use.
Jet engine replacement parts are classified within the industry as (i)
factory-new, (ii) new surplus, (iii) overhauled, (iv) serviceable, and (v) as
removed. A factory-new or new surplus part is one that has never been installed
or used. Factory-new parts are purchased from FAA-approved manufacturers (such
as HEICO or OEMs) or their authorized distributors. New surplus parts are
purchased from excess stock of airlines, repair facilities or other
redistributors. An overhauled part has been completely repaired and inspected by
a licensed repair facility (such as ours). An aircraft spare part is classified
repairable if it can be repaired by a licensed repair facility under applicable
regulations. A part may also be classified repairable if it can be can be
removed by the operator from an aircraft or engine while operating under an
approved maintenance program and is airworthy and meets any manufacturer or time
and cycle restrictions applicable to the part. A factory-new, new surplus,
overhauled or serviceable part designation indicates that the part can be
immediately utilized on an aircraft. A part in "as removed" condition requires
inspection and possibly functional testing, repair or overhaul by a licensed
facility prior to being returned to service in an aircraft.
FACTORY-NEW JET ENGINE REPLACEMENT PARTS. The principal business of the FSG
is the research and development, design, manufacture and sale of FAA-approved
jet engine replacement parts that are sold to domestic and foreign commercial
air carriers and aircraft repair and overhaul companies. Our principal
competitor is Pratt & Whitney, a
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division of United Technologies Corporation ("UTC"). The FSG's factory-new jet
engine replacement parts include combustion chambers and various other jet
engine replacement parts. A key element of our growth strategy is the continued
design and development of an increasing number of Parts Manufacturer Approval
(PMA) replacement parts in order to further penetrate our existing customer base
and obtain new customers. We select the jet engine replacement parts to design
and manufacture through a selection process which analyzes industry information
to determine which jet engine replacement parts are expected to generate the
greatest profitability. As part of Lufthansa's investment in the FSG, Lufthansa
has the right to select 50% of the engine parts for which we will seek PMAs,
provided that such parts are technologically and economically feasible and
substantially comparable with the profitability of our other PMA parts.
The following table sets forth (i) the lines of engines for which we provide
jet engine replacement parts and (ii) the approximate number of such engines
currently in service as estimated by us. Although we expect that our strategic
alliance with Lufthansa will broaden our product lines, most of our current PMA
parts are for Pratt & Whitney engines, with a substantial majority for the JT8D.
NUMBER
OEM LINES IN SERVICE PRINCIPAL ENGINE APPLICATION
- ----------------------------- ----- ---------- --------------------------------
Pratt & Whitney JT8D 9,000 Boeing 727 and 737 (100 and 200
series)
McDonnell Douglas DC-9 and MD-80
JT9D 2,000 Boeing 747 (100, 200 and 300
series) and 767 (200 series)
Airbus A300 and A310
McDonnell Douglas DC-10
PW2000 700 Boeing 757
PW4000 1,800 Boeing 747-400, 767-300 and 777
Airbus A300, A310 and A330
McDonnell Douglas MD-11
CFM International (a joint CFM56 6,600 Boeing 737 (300, 400, 500, 700,
Venture of General Electric and 800 and 900 series)
SNECMA) Airbus A320 and A340-200
General Electric CF6 4,200 Boeing 747 and 767
Airbus A300, A310 and A330
McDonnell Douglas MD-11
REPAIR AND OVERHAUL SERVICES. We provide repair and overhaul services on
selected parts for certain aircraft engines, as well as for avionics,
instruments, and electronic equipment for commercial aircraft. Our repair and
overhaul operations require a high level of expertise, advanced technology and
sophisticated equipment. Services on jet engine replacement parts include the
repair, refurbishment and overhaul of numerous accessories and parts mounted on
gas turbine engines, aircraft wings and frames or fuselages. Engine accessories
include fuel pumps, generators and fuel controls. Parts include pneumatic
valves, starters and actuators, turbo compressors and constant speed drives,
hydraulic pumps, valves and actuators, electro-mechanical equipment and
auxiliary power unit accessories.
SUBCONTRACTING FOR OEMS/MANUFACTURE OF SPECIALTY AIRCRAFT/DEFENSE RELATED
PARTS. We also manufacture thermal insulation blankets primarily for aerospace
and defense applications. These blankets are primarily used in the engine or
"hot section" of aircrafts and are usually replaced every three to five years.
We also derive revenue from the sale of specialty components as a subcontractor
for OEMs and the U.S. government.
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MANUFACTURING AND QUALITY CONTROL
Our FSG manufacturing operations involve a high level of technical expertise
and vertical integration, including computer numerical control ("CNC") machining
and grinding, complex sheet metal fabrication, vacuum heat treating, plasma
spraying and laser cutting. We also perform all of the design and engineering
for our products. Specific components of the process include:
o RESEARCH AND DEVELOPMENT. Our research and development department uses
state-of-the-art equipment such as a scanning electron microscope,
CAD/CAM/CAE workstations and finite element analysis and thermal testing
software to design and engineer components, as well as to ensure
accurate data transfer between our new product development and
manufacturing departments. Our engineers are recruited from OEMs and
other aerospace industry participants in a variety of disciplines,
including aerodynamics, heat transfer, manufacturing, materials and
structures. See "-- FAA Approvals and Product Design."
o MACHINING AND FABRICATION. Our CNC machining and grinding capabilities
provide cost advantages and dimensional repeatability with a variety of
aerospace materials. Our lathes are frequently equipped with touch
probes to perform critical in-process evaluations and automatically
adjust machining parameters. Fabrication capabilities include
custom-designed machines that automatically position and spot, fusion
and flash weld, mechanical and hydraulic presses, and wire, as well as
conventional, electrical discharge machining.
o SPECIAL PROCESSES. We believe that our heat treatment, brazing, plasma
spraying and other in-house special process capabilities reduce lead
times and allow us to better control the quality of our products. For
example, our robotic systems can apply thermal barrier and heat
resistant coatings to parts ranging from 0.25 inches to 60 inches in
dimension.
o QUALITY CONTROL. We incur significant costs to maintain the most
stringent quality control of our products and services. In addition to
domestic and foreign governmental regulations, OEMs, commercial airlines
and other customers require that we satisfy certain requirements
relating to the quality of our products and services. We perform testing
and certification procedures on all of the products that we design,
engineer, manufacture, repair and overhaul, and maintain detailed
records to ensure traceability of the production of and service on each
aircraft component. Management believes that the resources required to
institute and maintain our quality control procedures represents a
barrier to entry for competitors.
FAA APPROVALS AND PRODUCT DESIGN
Non-OEM manufacturers of jet engine replacement parts must receive a PMA
from the FAA. The PMA process includes the submission of sample parts, drawings
and testing data to one of the FAA's Aircraft Certification Offices where the
submitted data are analyzed. We believe that an applicant's ability to
successfully complete the PMA process is limited by several factors, including
(i) the agency's confidence level in the applicant, (ii) the complexity of the
part, (iii) the volume of PMAs being filed, and (iv) the resources available to
the FAA. We also believe that companies such as HEICO that have demonstrated
their manufacturing capabilities and established favorable track records with
the FAA generally receive a faster turnaround time in the processing of PMA
applications. Finally, we believe that the PMA process creates a significant
barrier to entry in this market niche through both its technical demands and its
limits on the rate at which competitors can bring products to market.
As part of our growth strategy, we have continued to increase our research
and development activities. Research and development expenditures increased from
approximately $300,000 in 1991 to approximately $7.9 million in fiscal 1999
including $6.7 million reimbursed under our strategic alliance with Lufthansa.
We believe that our FSG's research and development capabilities are a
significant component of our historical success and an integral
4
part of our growth strategy. As of October 31, 1999 an aggregate of $4.5 million
remained available under Lufthansa's commitment to reimburse research and
development expenditures.
The Company's expanded research and development activities have included
development of more complex jet engine replacement parts. In October 1999, the
Company received its first PMA for a compressor blade from the FAA and is
continuing research and development of other compressor blades. The Company
believes the development and sale of complex parts represents a significant
long-term market opportunity; however, no assurance can be given that the FAA
will continue to grant PMAs or that the Company will achieve acceptable levels
of net sales and gross profits on such parts in the future.
We benefit from our proprietary rights relating to certain designs,
engineering, manufacturing processes and repair and overhaul procedures.
Customers often rely on us to provide initial and additional components, as well
as to redesign, re-engineer, replace or repair and provide overhaul services on
such aircraft components at every stage of their useful lives. In addition, for
some products, our unique manufacturing capabilities are required by the
customer's specifications or designs, thereby necessitating reliance on us for
production of such designed product.
While we have developed proprietary techniques, software and manufacturing
expertise for the manufacture of jet replacement parts, we have no patents for
these proprietary techniques and choose to rely on trade secret protection. We
believe that although our proprietary techniques, software and expertise are
subject to misappropriation or obsolescence, development of improved methods and
processes and new techniques by us will continue on an ongoing basis as dictated
by the technological needs of our business.
ELECTRONICS AND GROUND SUPPORT GROUP
Our EGSG manufactures various types of electrically engineered products,
such as power supplies, shielding for communications, computer and aerospace
applications, infrared simulation and ground test equipment, and GSE. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a listing of operating subsidiaries included in the EGSG.
We currently serve the commercial and military GSE markets through the
manufacture of electrical ground power units, air start units, and air
conditioning and heating units that are sold to both domestic and foreign
commercial and military customers. We also manufacture specialty military
electronics such as shipboard power supplies and power converters. Because
military and commercial aircraft vary so widely by size and manufacturer, unique
equipment is often required for each distinct airframe. Military aircraft
require particularly unique equipment arrangements that necessitate custom
manufacturing. Examples of our GSE products include a sophisticated cooling
system for the Air Force's new F-22 fighter aircraft and a combination ground
power and air conditioning unit for the F-16 aircraft.
During fiscal 1999, the Company added the following products through
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a description of these acquisitions.
o ON-BOARD AIRCRAFT POWER SUPPLIES. Our EGSG manufactures power supply
and current control products and replacement components used in
aircraft. Our products include battery and charger units to support
emergency lighting, emergency fuel shut-off devices, emergency exit
door power assists, static inverters for emergency lighting and cockpit
lighting dimmers. These products enhanced the EGSG's existing power
supply product line. While periodically, entire units may require
replacement, there is an ongoing replacement market for batteries which
have an estimated service life of approximately 3 to 5 years. These
products are mainly sold to OEM customers and customers in the retrofit
and modification market.
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o INFRARED SIMULATION AND GROUND TEST EQUIPMENT. EGSG is also a leading
international designer and manufacturer of state-of-the-art aerospace
and defense infrared simulation and ground test equipment. Our products
include high precision blackbody sources, optical systems and fully
integrated test calibration systems. In addition, the new MIRAGE IR
Scene Simulator, which is used to test and calibrate complex infrared
targeting and imaging systems, incorporates a state-of-the-art, large
scale integrated circuit as the infrared emitter chip.
o CIRCUIT BOARD SHIELDING. EGSG also manufactures electromagnetic and
radio frequency shielding for circuit boards utilized in
telecommunications, aerospace, and microwave applications. The circuit
board shielding technology reduces electronic noise and protects
sensitive components. We have the ability to fabricate short to medium
runs, in a wide variety of shapes and applications, which is a
manufacturing advantage.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
See Note 13 to the Consolidated Financial Statements for financial
information by operating segment and information about foreign and domestic
operations as well as export sales.
SALES, MARKETING AND CUSTOMERS
Each of our operating segments and their subsidiaries independently conducts
sales and marketing efforts directed at their respective customers and
industries and, in some cases, collaborates with other operating divisions and
subsidiaries within its group for cross-marketing efforts. Sales and marketing
efforts are conducted primarily by in-house personnel and, to a lesser extent,
by independent manufacturer's representatives. Generally, the in-house sales
personnel receive a base salary plus commission and manufacturer's
representatives receive a commission on sales.
We believe that direct relationships are crucial to establishing and
maintaining a strong customer base and, accordingly, our senior management is
actively involved in our marketing activities, particularly with established
customers. We are also a member of various trade and business organizations
related to the commercial aviation industry, such as the Aerospace Industries
Association ("AIA"), the leading trade association representing the nation's
manufacturers of commercial, military and business aircraft, aircraft engines
and related components and equipment. Due in large part to our established
industry presence, we enjoy strong customer relations, name recognition and
repeat business.
We sell our products to a broad customer base consisting of domestic and
foreign commercial and cargo airlines, repair and overhaul facilities, other
aftermarket suppliers of aircraft engine and airframe materials, OEMs, military
units, electronic manufacturing services companies, manufacturers for the
defense industry and telecommunications companies. No one customer accounted for
sales of 10% or more of total consolidated sales from continuing operations
during any of the last three fiscal years. Net sales to our five largest
customers accounted for approximately 20% of total net sales during the year
ended October 31, 1999.
COMPETITION
The aerospace product and service industry is characterized by intense
competition and some of our competitors have substantially greater name
recognition, inventories, complementary product and service offerings,
financial, marketing and other resources than us. As a result, such competitors
may be able to respond more quickly to customer requirements than us. Moreover,
smaller competitors may be in a position to offer more attractive pricing of
engine parts as a result of lower labor costs and other factors.
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Our jet engine replacement parts business competes primarily with Pratt &
Whitney and, to a much lesser extent, General Electric. The competition is
principally based on price and service inasmuch as our parts are interchangeable
with the parts produced by Pratt & Whitney. We believe that we supply over 50%
of the market for certain JT8D engine parts for which we hold a PMA from the
FAA, with Pratt & Whitney controlling the balance. With respect to other
aerospace products and services sold by the FSG, we compete with both the
leading jet engine OEMs and a large number of machining, fabrication and repair
companies, some of which have greater financial and other resources than us.
Competition is based mainly on price, product performance, service and technical
capability.
Competition for the repair and overhaul of jet engine components comes from
three principal sources: OEMs, major commercial airlines and other independent
service companies. Some of these companies have greater financial and other
resources than us. Some major commercial airlines own and operate their own
service centers and sell repair and overhaul services to other aircraft
operators. Foreign airlines that provide repair and overhaul services typically
provide these services for their own components and for third parties. OEMs also
maintain service centers that provide repair and overhaul services for the
components they manufacture. Other independent service organizations also
compete for the repair and overhaul business of other users of aircraft
components. We believe that the principal competitive factors in the airmotive
market are quality, turnaround time, overall customer service and price.
Our EGSG competes with several large and small domestic and foreign
competitors, some of which have greater financial resources than us. We believe
the market for our GSE is highly fragmented, with competition based mainly on
price, product performance and service. The market for our electronic products
are niche markets with few competitors with competition based mainly on design,
technology, quality, price and customer satisfaction.
RAW MATERIALS
We purchase a variety of raw materials, primarily consisting of high
temperature alloy sheet metal and castings, forgings, pre-plated steel and
pre-plated phospher bronze from various vendors. We also purchase parts,
including electrical components, diesel and gas powered engines, compressors and
generators. The materials used by our operations are generally available from a
number of sources and in sufficient quantities to meet current requirements
subject to normal lead times.
BACKLOGS
Our total backlog of unshipped orders was $60.1 million on October 31, 1999
versus $18.5 million on October 31, 1998. Our FSG operations had a backlog of
unshipped orders as of October 31, 1999 of $17.4 million as compared to $11.7
million as of October 31, 1998. This backlog excludes forecasted shipments for
certain contracts of the FSG pursuant to which customers provide only estimated
annual usage and not firm purchase orders. Our EGSG operations had a backlog of
$42.7 million as of October 31, 1999 and $6.8 million as of October 31, 1998.
Substantially all of the backlog of orders as of October 31, 1999 are expected
to be delivered during fiscal 2000.
GOVERNMENT REGULATION
The FAA regulates the manufacture, repair and operation of all aircraft and
aircraft parts operated in the United States. Its regulations are designed to
ensure that all aircraft and aviation equipment are continuously maintained in
proper condition to ensure safe operation of the aircraft. Similar rules apply
in other countries. All aircraft must be maintained under a continuous condition
monitoring program and must periodically undergo thorough inspection and
maintenance. The inspection, maintenance and repair procedures for the various
types of aircraft and equipment are prescribed by regulatory authorities and can
be performed only by certified repair facilities utilizing certified
technicians. Certification and conformance is required prior to installation of
a part on an aircraft. Aircraft operators must maintain logs concerning the
utilization and condition of aircraft engines, life-limited engine parts and
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airframes. In addition, the FAA requires that various maintenance routines be
performed on aircraft engines, some engine parts and airframes at regular
intervals based on cycles or flight time. Engine maintenance must also be
performed upon the occurrence of certain events, such as foreign object damage
in an aircraft engine or the replacement of life-limited engine parts. Such
maintenance usually requires that an aircraft engine be taken out of service.
Our operations may in the future be subject to new and more stringent regulatory
requirements. In that regard, we closely monitor the FAA and industry trade
groups in an attempt to understand how possible future regulations might impact
us.
Because our jet engine replacement parts largely consist of older model JT8D
aircraft engines and engine parts, we are substantially impacted by the FAA's
noise regulations. The ability of aircraft operators to utilize such JT8D
aircraft engines in domestic flight operations is significantly influenced by
regulations promulgated by the FAA governing, among other things, noise emission
standards. Pursuant to the Aircraft Noise and Capacity Act, the FAA has required
all aircraft operating in the United States with a maximum weight of more than
75,000 pounds to have met Stage 3 noise restriction levels by December 31, 1999,
unless waived by the FAA. Aircraft which require hush-kits or other
modifications to be in compliance with Stage 3 include the Boeing 727-200s,
Boeing 737-200s and McDonnell Douglas DC-9-30/40/50s. This ban on operation in
the United States of non-Stage 3 compliant aircraft applies to both domestic and
foreign aircraft operators. The European Union (EU) established regulation
effective May 1, 2000 which would bar the operation in EU countries of both
hushkitted and certain re-engined U.S. aircraft that have not been operated in
those countries previously. The EU's ban results from efforts of environmental
lobbyists in the EU. The U.S. Aviation Industry has endorsed a putative
Administration decision to file an Article 84 complaint under the Chicago
Convention with the International Civil Aviation Organization (ICAO). Article 84
is the means through which disputes are settled among ICAO member nations. U.S.
and EU officials may meet to reach a compromise to avoid ICAO involvement.
Various communities surrounding the larger European cities also have adopted
more stringent local regulations which restrict the operation of non-hush-kitted
aircraft in such jurisdictions. Approximately 40% of our net sales in fiscal
1999 consisted of sales of replacement parts and overhaul services for the JT8D
aircraft engine down from 48% in fiscal 1998.
There has been no material adverse effect to the Company's consolidated
financial statements as a result of these government regulations.
ENVIRONMENTAL REGULATION
Our operations are subject to extensive, and frequently changing, federal,
state and local environmental laws and substantial related regulation by
government agencies, including the Environmental Protection Agency (the "EPA").
Among other matters, these regulatory authorities impose requirements that
regulate the operation, handling, transportation, and disposal of hazardous
materials, the health and safety of workers, and require us to obtain and
maintain licenses and permits in connection with our operations. This extensive
regulatory framework imposes significant compliance burdens and risks on us.
Notwithstanding these burdens, we believe that we are in material compliance
with all federal, state, and local laws and regulations governing our
operations.
We are principally subject to the requirements of the Clean Air Act of 1970
(the "CAA"), as amended in 1990; the Clean Water Act of 1977; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"); the
Resource Conservation Recovery Act of 1976 (the "RCRA"); and the Hazardous and
Solid Waste Amendments of 1984. The following is a summary of the material
regulations that are applicable to us.
The CAA imposes significant requirements upon owners and operators of
facilities that discharge air pollutants into the environment. The CAA mandates
that facilities which emit air pollutants comply with certain operational
criteria and secure appropriate permits. Additionally, authorized states such as
Florida may implement various aspects of the CAA and develop their own
regulations for air pollution control. Our facilities presently hold air
emission permits and we intend to conduct an air emissions inventory and health
and safety audit of our facilities and, depending upon the results of such
assessments, may find it necessary to secure additional permits and/or to
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install additional control technology, which could result in the initiation of
an enforcement action, the imposition of penalties and the possibility of
substantial capital expenditures.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), is designed to respond to the release of hazardous substances.
CERCLA's most notable objectives are to provide criteria and funding for the
cleanup of sites contaminated by hazardous substances and impose strict
liability on parties responsible for such contamination, namely owners and
operators of facilities or vessels from which such releases or threatened
releases occur, and persons who generated, transported, or arranged for the
transportation of hazardous substances to a facility from which such release or
threatened release occurs.
RCRA and EPA's implementing regulations establish the basic framework for
federal regulation of hazardous waste. RCRA governs the generation,
transportation, treatment, storage and disposal of hazardous waste through a
comprehensive system of hazardous waste management techniques and requirements.
RCRA requires facilities such as ours that treat, store, or dispose of hazardous
waste to comply with enumerated operating standards. Many states, including
Florida, have created programs similar to RCRA for the purpose of issuing annual
operating permits and conducting routine inspections of such facilities to
ensure regulatory compliance. We believe that our facilities are in material
compliance with all currently applicable RCRA and similar state requirements,
hold all applicable permits required under RCRA, and are operating in material
compliance with the terms of all such permits.
In addition, Congress has enacted federal regulations governing the
underground storage of petroleum products and hazardous substances. The federal
underground storage tank ("UST") regulatory scheme mandates that EPA establish
requirements for leak detection, construction standards for new USTs, reporting
of releases, corrective actions, on-site practices and record-keeping, closure
standards, and financial responsibility. Some states, including Florida, have
promulgated their own performance criteria for new USTs, including requirements
for spill and overfill protection, UST location, as well as primary and
secondary containment. We believe that our facilities are in material compliance
with the federal and state UST regulatory requirements and performance criteria.
OTHER REGULATION. We are also subject to a variety of other regulations
including work-related and community safety laws. The Occupational Safety and
Health Act of 1970 ("OSHA") mandates general requirements for safe workplaces
for all employees. In particular, OSHA provides special procedures and measures
for the handling of some hazardous and toxic substances. In addition, specific
safety standards have been promulgated for workplaces engaged in the treatment,
disposal or storage of hazardous waste. Requirements under state law, in some
circumstances, may mandate additional measures for facilities handling materials
specified as extremely dangerous. We believe that our operations are in material
compliance with OSHA's health and safety requirements.
INSURANCE
We are a named insured under policies which include the following coverage:
(i) product liability, including grounding; (ii) personal property, inventory
and business income at our facilities; (iii) general liability coverage; (iv)
employee benefit liability; (v) international liability and automobile
liability; (vi) umbrella liability coverage; and (vii) various other activities
or items subject to certain limits and deductibles. We believe that coverages
are adequate to insure against the various liability risks of our business.
EMPLOYEES
As of December 31, 1999, the Company had 1,105 full-time employees, of which
691 were in the FSG, 402 were in the EGSG, and 12 were corporate. None of our
employees are represented by a union. We believe that our employee relations are
good.
9
ITEM 2. PROPERTIES
We own or lease the following facilities:
FLIGHT SUPPORT GROUP
SQUARE OWNED/LEASE
LOCATION DESCRIPTION FOOTAGE EXPIRATION
--------------------- ---------------------- --------------------------
Hollywood, Florida Manufacturing and 140,000 Owned
engineering facility and
corporate headquarters
Hollywood, Florida Manufacturing and 45,000(1) Owned
overhaul/repair facility
Atlanta, Georgia Manufacturing and 40,000 Owned
engineering facility
Miami, Florida Overhaul and repair 56,000 Owned
facility
Miami, Florida Overhaul and repair 12,000 July 2001
facility
Miami, Florida Warehouse facility 9,000 December 2000
Anacortes, Washington Engineering and 10,000 June 2003
manufacturing facility
Glastonbury, Connecticut Engineering facility 5,000 June 2002
Corona, California Manufacturing and 91,000 August 2001 - June 2003
engineering facility
Roswell, New Mexico Manufacturing and 34,000 October 2000
engineering facility
ELECTRONICS & GROUND SUPPORT GROUP
SQUARE OWNED/LEASE
LOCATION DESCRIPTION FOOTAGE EXPIRATION
--------------------- ---------------------- --------------------------
Palmetto, Florida Manufacturing and 113,000 Owned
engineering facility and
offices
Tampa, Florida Manufacturing and 41,000 August 2000
engineering facility and
offices
Santa Barbara, California Manufacturing and 15,000 August 2003
engineering facility
CORPORATE
SQUARE OWNED/LEASE
LOCATION DESCRIPTION FOOTAGE EXPIRATION
--------------------- ---------------------- --------------------------
Hollywood, Florida Corporate headquarters Included Owned
above
Miami, Florida Administrative offices 3,000 August 2000
- --------
(1) After completion of current construction expected by February 2000.
For additional information with respect to our leases, see Note 5 of Notes
to our Consolidated Financial Statements.
We believe that our current capacity, coupled with our plans for facilities
expansion, is sufficient to handle our anticipated needs for the foreseeable
future.
10
ITEM 3. LEGAL PROCEEDINGS
In November 1989, HEICO Aerospace Corporation and Jet Avion were named
defendants in a complaint filed by United Technologies Corporation (UTC) in the
United States District Court for the Southern District of Florida. All counts of
UTC's complaint that were not previously withdrawn by UTC have been dismissed by
the court. UTC has appealed the dismissal. The complaint, as amended in fiscal
1995, alleged infringement of a patent, misappropriation of trade secrets and
unfair competition relating to certain jet engine parts and coatings sold by Jet
Avion in competition with Pratt & Whitney, a division of UTC. UTC sought
approximately $8 million in damages for the patent infringement and
approximately $30 million in damages for the misappropriation of trade secrets
and unfair competition claims. The aggregate damages referred to in the
preceding sentence did not exceed approximately $30 million because a portion of
the misappropriation and unfair competition damages duplicate the patent
infringement damages. UTC also sought, among other things, pre-judgment interest
and treble damages.
The Company has counterclaims against UTC for, among other things, malicious
prosecution, trade disparagement, tortious interference and unfair competition.
The Company is seeking compensatory and punitive damages in amounts to be
determined at trial. UTC filed an answer denying the counterclaims. No trial
date is currently set.
The ultimate outcome of this litigation is not certain at this time and no
provision for gain or loss, if any, has been made in the consolidated financial
statements.
In May 1998, the Company and its HEICO Aerospace Corporation and Jet Avion
subsidiaries were served with a lawsuit by Travelers Casualty & Surety Co.,
f/k/a the Travelers Casualty and Surety Co. (Travelers). In June 1999, the
Travelers lawsuit was dismissed by the federal court based on a lack of
jurisdiction. Travelers has appealed the dismissal. The complaint seeks
reimbursement of legal fees and costs totaling in excess of $15 million paid by
Travelers in defending the Company in the above referenced litigation with UTC.
In addition, Travelers seeks a declaratory judgement that the Company did not
and does not have insurance coverage under certain insurance policies with
Travelers and accordingly, that Travelers did not have and does not have a duty
to defend or indemnify the Company under such policies. Also named as defendants
in Travelers' lawsuit are UTC and one of the law firms representing the Company
in the UTC litigation.
The Company believes that it has significant counterclaims against Travelers
for damages. After taking into consideration legal counsel's evaluation of
Travelers' claim, management is of the opinion that the outcome of the Travelers
litigation will not have a significant adverse effect on the Company's
consolidated financial statements. No provision for gain or loss, if any, has
been made in the consolidated financial statements.
The Company is involved in various other 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 other matters
will not have a significant effect on the Company's consolidated financial
statements.
OTHER CONTINGENCIES
In January 1999, the Company received notice of a proposed adjustment
pursuant to an examination by the Internal Revenue Service of the Company's
fiscal 1995 and 1996 tax returns, disallowing the utilization of a $4.6 million
capital loss carryforward to offset the gain recognized by the Company in
connection with the sale of its health care operations in July 1996. The Company
has filed a protest requesting an appeal of such proposed adjustment, which
would result in additional taxes of approximately $1.8 million on the gain on
the sale of the discontinued health care operations. The outcome of this matter
is uncertain, accordingly, no provision for additional taxes, if any, has been
made in the consolidated financial statements.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
There were no matters submitted to a vote of securities holders during the
fourth quarter of fiscal 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers are elected by the Board of Directors at the first
meeting following the annual meeting of shareholders and serve at the discretion
of the Board. The names and ages of, and offices held by, the executive officers
of the Company are as follows:
DIRECTOR
NAME AGE POSITION(S) SINCE
- ---- ---- ----------- -------
Laurans A. Mendelson 61 Chairman of the Board, President and Chief 1989
Executive Officer
Thomas S. Irwin 53 Executive Vice President and Chief Financial
Officer
Eric A. Mendelson 34 Vice President and Director, President of HEICO 1992
Aerospace Holdings Corp.
Victor H. Mendelson 32 Vice President, General Counsel and Director, 1996
President of HEICO Aviation Products Corp.
James L. Reum 68 Executive Vice President of HEICO
Aerospace Holdings Corp.
LAURANS A. MENDELSON has served as Chairman of the Board of the Company
since December 1990. Mr. Mendelson has also served as Chief Executive Officer of
the Company since February 1990, President of the Company since September 1991
and served as President of MediTek Health Corporation from May 1994 until its
sale in July 1996. He has been Chairman of the Board of Ambassador Square, Inc.
(a Miami, Florida real estate development and management company) since 1980 and
President of that company since 1988. He has been Chairman of Columbia Ventures,
Inc. (a private investment company) since 1985 and President of that company
since 1988. In 1997 and 1999, Mr. Mendelson served on the board of governors of
the AIA. Mr. Mendelson is a Certified Public Accountant. Mr. Mendelson is a
member of the Board of Trustees of Columbia University and the Board of Trustees
of Mount Sinai Medical Center in Miami Beach, Florida.
THOMAS S. IRWIN has served as Executive Vice President and Chief Financial
Officer of the Company since September 1991 and served as Senior Vice President
of the Company from 1986 to 1991 and Vice President and Treasurer from 1982 to
1986. Mr. Irwin is a Certified Public Accountant.
ERIC A. MENDELSON has served as Vice President of the Company since 1992,
and has been President of HEICO Aerospace Holdings Corp. ("HEICO Aerospace"), a
subsidiary of HEICO, since is formation in 1997 and President of HEICO Aerospace
Corporation since 1993. He also served as President of HEICO's Jet Avion
Corporation, a wholly owned subsidiary of HEICO Aerospace, from 1993 to 1996 and
served as Jet Avion's Executive Vice President and Chief Operating Officer from
1991 to 1993. From 1990 to 1991, Mr. Mendelson was Director of Planning and
Operations of the Company. Mr. Mendelson is a co-founder, and, since 1987, has
been Managing Director of Mendelson International Corporation ("MIC"), a private
investment company which is a shareholder of HEICO. Eric Mendelson is the son of
Laurans Mendelson and the brother of Victor Mendelson.
VICTOR H. MENDELSON has served as Vice President of the Company since 1996,
as President of HEICO Aviation Products Corp., a subsidiary of HEICO, since
September 1996 and as General Counsel of the Company since 1993. He served as
Executive Vice President of MediTek Health Corporation from 1994 and its Chief
Operating Officer
12
from 1995 until its sale in July 1996. He was the Company's Associate General
Counsel from 1992 until 1993. From 1990 until 1992, he worked on a consulting
basis with the Company developing and analyzing various strategic opportunities.
Mr. Mendelson is a co-founder, and, since 1987, has been President, of Mendelson
International Corporation (a private investment company which is a shareholder
of HEICO). He is a Trustee of St. Thomas University, Miami, Florida. Victor
Mendelson is the son of Laurans Mendelson and the brother of Eric Mendelson.
JAMES L. REUM has served as Executive Vice President of HEICO Aerospace
since April 1993 and Chief Operating Officer of HEICO Aerospace from May 1995
until September 1999. He also served as President of LPI Industries Corporation
from 1991 to 1998 and President of Jet Avion Corporation from 1996 to 1998. From
January 1990 to August 1991, he served as Director of Research and Development
for Jet Avion Corporation. From 1986 to 1989, Mr. Reum was self-employed as a
management and engineering consultant to companies primarily within the
aerospace industry. From 1957 to 1986, he was employed in various management
positions with Chromalloy Gas Turbine Corp., Cooper Airmotive (later named
Aviall, Inc.), United Airlines, Inc. and General Electric Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's Directors, Executive Officers and 10% shareholders to file initial
reports of ownership and changes in ownership of Common Stock with the
Securities and Exchange Commission and the New York Stock Exchange. Directors,
Executive Officers and 10% shareholders are required to furnish the Company with
copies of all Section 16(a) forms they file. Based on the review of such reports
furnished to the Company, the Company believes that during 1999, the Company's
Directors, Executive Officers and 10% shareholders complied with all Section
16(a) filing requirements applicable to them.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Commencing April 24, 1998, the Class A Common Stock began trading on the
American Stock Exchange (AMEX) under the symbol "HEI.A." On January 29, 1999,
the Class A Common Stock and the Common Stock commenced trading on the New York
Stock Exchange (NYSE) under the symbols "HEI.A" and "HEI," respectively, and
both classes of stock ceased trading on AMEX. The following table sets forth,
for the periods indicated, the high and low sales prices for the Class A Common
Stock and the Common Stock as reported on AMEX and NYSE, as applicable, as well
as the amount of cash dividends paid per share during such periods. Lufthansa
Technik, as a 20% shareholder of our FSG, will be entitled to 20% of any
dividends paid by our FSG.
In November 1997, the Company declared a three-for-two stock split. In April
1998, the Company paid a 50% stock distribution in shares of Class A Common
Stock. The quarterly sales prices and cash dividend amounts have been
retroactively adjusted for the stock split and stock distribution.
CLASS A COMMON STOCK
CASH DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
FISCAL 1998:
Third Quarter (commencing April 24, 1998)................... $ 29.75 $ 21.25 $ .025
Fourth Quarter.............................................. 23.75 12.13 --
FISCAL 1999
First Quarter............................................... 24.13 19.50 $ .025
Second Quarter.............................................. 24.63 18.94 --
Third Quarter............................................... 24.38 20.94 $ .025
Fourth Quarter.............................................. 22.31 15.00 --
On January 10, 2000 there were 1,080 holders of record of the Class A
Common Stock.
COMMON STOCK
CASH DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
FISCAL 1998:
First Quarter.................................. $ 19.25 $ 13.78 $ .025
Second Quarter................................. 33.50 19.20 --
Third Quarter.................................. 33.75 23.06 .025
Fourth Quarter................................. 25.63 15.94 --
FISCAL 1999:
First Quarter.................................. $ 32.25 $ 23.25 $ .025
Second Quarter................................. 27.38 20.06 --
Third Quarter.................................. 25.63 22.63 .025
Fourth Quarter................................. 23.88 16.94 --
On January 10, 2000, there were 1,193 holders of record of the Common Stock.
14
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1995 1996 1997(3) 1998(3) 1999(3)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Net sales .................................... $ 25,613 $ 34,565 $ 63,674 $ 95,351 $141,269
-------- -------- -------- -------- --------
Gross profit ................................. 8,116 12,169 20,629 36,104 57,532
Selling, general and administrative expenses . 6,405 7,657 11,515 17,140 24,717
-------- -------- -------- -------- --------
Operating income ............................. 1,711 4,512 9,114 18,964 32,815
-------- -------- -------- -------- --------
Interest expense ............................. 169 185 477 984 2,173
-------- -------- -------- -------- --------
Income:
From continuing operations ................. 1,437 3,665 7,019 10,509 16,337
From discontinued operations(1) ............ 1,258 963 -- -- --
From gain on sale of discontinued operations -- 5,264 -- -- --
-------- -------- -------- -------- --------
Net income ................................... $ 2,695 $ 9,892 $ 7,019 $ 10,509 $ 16,337
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding:(2)
Basic ...................................... 11,307 11,680 12,040 12,499 14,821
Diluted .................................... 11,930 13,282 14,418 15,541 17,643
PER SHARE DATA:(2)
Income from continuing operations
Basic ...................................... $ .13 $ .31 $ .58 $ .84 $ 1.10
Diluted .................................... .12 .28 .49 .68 .93
Net income:
Basic ...................................... .24 .84 .58 .84 1.10
Diluted .................................... .23 .75 .49 .68 .93
Cash dividends(2) ............................ .032 .038 .045 .050 .050
BALANCE SHEET DATA (AT YEAR END):
Working capital .............................. $ 14,755 $ 25,248 $ 45,131 $ 40,587 63,278
Total assets ................................. 47,401 61,836 88,639 133,061 273,163
Total debt (including current portion) ....... 7,870 6,516 10,800 30,520 73,501
Minority interest in consolidated subsidiary . -- -- 3,273 14,892 30,022
Shareholders' equity ......................... 30,146 41,488 59,446 67,607 139,289
- ----------
(1) Represents income from the discontinued health care operations that were
sold in fiscal 1996.
(2) Information has been adjusted to reflect three-for-two stock splits
distributed in April 1996 and December 1997, 10% stock dividends paid in
July 1995, February 1996, July 1996 and January 1997 and a 50% stock
distribution, paid in shares of Class A Common Stock in April 1998.
(3) Results include the results of acquisitions from each respective effective
date as explained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In addition, the Company acquired
Trilectron Industries, Inc. effective September 1, 1996.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Our Flight Support Group (FSG), which currently accounts for approximately
67% of our revenues, consists of the following ten operating subsidiaries:
NAME DESCRIPTION OF PRINCIPAL OPERATIONS
- ---- -----------------------------------
Jet Avion Corporation.............................. Design and manufacture of FAA-approved jet engine
replacement parts
McClain International, Inc. (McClain).............. Design, manufacture and overhaul of FAA-approved jet
engine replacement parts
Rogers-Dierks, Inc. (Rogers-Dierks)................ Design and manufacture of FAA-approved jet engine
replacement parts
Turbine Kinetics, Inc. (Turbine)................... Design and manufacture of FAA-approved jet engine
replacement parts
Aircraft Technology, Inc........................... Repair and overhaul of jet engine components
Northwings Accessories Corp. (Northwings).......... Repair and overhaul of jet engine and airframe
components and accessories
Associated Composite, Inc. (ACI)................... Repair and overhaul of aircraft fuselage structures
Air Radio & Instruments Corp. (Air Radio).......... Repair and overhaul of avionics, instruments and
electronic equipment for aircraft
LPI Industries Corporation......................... Original equipment manufacturer subcontractor
Thermal Structures, Inc. (Thermal) ................ Manufacture of thermal insulation products and related
components
Our Electronic & Ground Support Group (EGSG), which currently accounts for
approximately 33% of our revenues, consists of the following four operating
subsidiaries:
NAME DESCRIPTION OF PRINCIPAL OPERATIONS
- ---- -----------------------------------
Trilectron Industries, Inc........................ Design and manufacture of electronically controlled
ground support equipment for aircraft
Radiant Power Corp. (Radiant)..................... Manufacture of electrical back-up power supplies and
battery packs for commercial aircraft applications.
Leader Tech, Inc. (Leader Tech)................... Manufacture of electromagnetic and radio frequency
shielding for primarily communications, computer
and aerospace applications.
Santa Barbara Infrared, Inc. (SBIR)............... Design and manufacture of aerospace and defense
electronically controlled infrared simulation and
ground test equipment.
Our results of operations during the current and prior fiscal years have
been affected by a number of significant transactions. This discussion of our
financial condition and results of operations should be read in conjunction with
our Consolidated Financial Statements and Notes thereto included or incorporated
by reference herein. For further
16
information regarding the acquisitions and strategic alliance discussed below,
see Note 2 to our Consolidated Financial Statements. These acquisitions have
been accounted for using the purchase method of accounting and are included in
the Company's results of operations from the effective date of acquisition.
Effective September 1997, the Company acquired Northwings. In consideration
of this acquisition, the Company paid approximately $6.7 million in cash and
232,360 shares of the Company's common stock, having an aggregate fair value of
approximately $3.5 million.
In October 1997, the Company entered into a strategic alliance with
Lufthansa (see "Item 1 - Business"), whereby Lufthansa agreed to invest
approximately $26 million in HEICO Aerospace Holdings Corp. (HEICO Aerospace)
including $10 million paid at closing pursuant to a stock purchase agreement and
approximately $16 million to be paid to HEICO Aerospace over three years
pursuant to a research and development cooperation agreement, which has
partially funded the accelerated development of additional Federal Aviation
Administration (FAA)-approved replacement parts for jet engines. The funds
received as a result of the research and development cooperation agreement
reduce research and development expenses in the period such expenses are
incurred. In addition, Lufthansa and HEICO Aerospace have agreed to cooperate
regarding technical services and marketing support for jet engine parts on a
worldwide basis. As part of the strategic alliance, the Company sold 20% of
HEICO Aerospace to Lufthansa. As of October 31, 1999, an aggregate of $4.5
million remained available under Lufthansa's commitment to reimburse research
and development expenditures. In connection with subsequent acquisitions by
HEICO Aerospace described below, Lufthansa invested additional amounts
aggregating approximately $21 million pursuant to its option to maintain a 20%
equity interest.
In July 1998, the Company completed the acquisition of McClain for
approximately $41 million in cash. The Company also acquired McClain's
headquarters and manufacturing facility for $2.5 million in cash.
In October 1998, the Company acquired ACI for cash consideration. The
purchase price was not significant.
Between December 1998 and September 1999, the Company acquired
Rogers-Dierks, Radiant, Air Radio, Leader Tech, Turbine and SBIR for an
aggregate purchase price of approximately $73 million.
In connection with the Roger-Dierks acquisition, the Company committed to
pay $1.1 million in deferred payments over the next two years, with additional
consideration of up to $7.3 million payable in cash or shares of the Company's
Class A Common Stock.
Subject to meeting certain earnings objectives, the former shareholders of
Air Radio could receive additional consideration of up to $1.25 million under
the terms of the acquisition.
Effective June 30, 1999, the Company acquired Thermal for approximately
$28.9 million in cash, and assumed approximately $4 million in debt. The assumed
debt was repaid by the Company at closing. Subject to meeting certain earnings
objectives, one of Thermal's selling shareholders would receive additional
consideration of up to $1 million over the three years following the acquisition
date.
The Company paid a 10% stock dividend in January 1997 and distributed a
3-for-2 stock split in December 1997. In April 1998, the Company paid a 50%
stock distribution in shares of Class A Common Stock. All net income per share,
dividends per share and common stock outstanding information has been adjusted
for all years presented to give effect to the stock dividends and stock splits.
17
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth net sales by
operating segment and the percentage of net sales represented by the respective
items in the Company's Consolidated Statements of Operations.
YEAR ENDED OCTOBER 31,
----------------------------------------
1997 1998 1999
--------- --------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales
FSG ...................................... $ 41,522 $ 65,412 $ 94,617
EGSG ..................................... 22,152 29,939 46,652
--------- --------- ----------
$ 63,674 $ 95,351 $ 141,269
========= ========= ==========
Net sales .................................. 100.0% 100.0% 100.0%
Gross profit ............................... 32.4% 37.9% 40.7%
Selling, general and administrative expenses 18.1% 18.0% 17.5%
Operating income ........................... 14.3% 19.9% 23.2%
Interest expense ........................... 0.7% 1.0% 1.5%
Interest and other income .................. 2.7% 2.2% 0.6%
Income tax expense ......................... 5.2% 7.3% 8.2%
Minority interest .......................... -- 2.7% 2.5%
Net income ................................. 11.0% 11.0% 11.6%
COMPARISON OF FISCAL 1999 TO FISCAL 1998
NET SALES
Net sales in fiscal 1999 totaled $141.3 million, up 48% when compared to
fiscal 1998 net sales of $95.4 million.
The increase in sales for fiscal 1999 reflects an increase of $29.2 million
(a 45% increase) to $94.6 million from the Company's FSG and an increase of
$16.7 million (a 56% increase) to $46.7 million in revenues from the Company's
EGSG. Sales from the FSG reflect increases in sales of new products and
services, including newly developed and acquired FAA-approved jet engine
replacement parts, and increased demand from engine component and accessory
overhaul services. The FSG sales increase also includes revenues of $11.1
million from newly acquired businesses (ACI, Air Radio and Thermal). Sales from
the EGSG reflect revenues of $10.1 million from newly acquired businesses
(Radiant, Leader Tech, and SBIR). The balance of the EGSG sales increase
reflects internal growth, primarily attributed to sales of new products and
increased market penetration.
GROSS PROFITS AND OPERATING EXPENSES
The Company's gross profit margins averaged 40.7% for fiscal 1999 as
compared to 37.9% for fiscal 1998 resulting from improved margins in both
operating segments. The increase in the FSG operations was due to favorable
sales price terms under certain contracts, continuing efforts to lower
manufacturing costs, the reimbursement of research and development costs from
Lufthansa and higher gross margins contributed by newly developed and acquired
FAA-approved jet engine replacement parts as well as newly acquired businesses.
Fiscal 1999 and 1998 cost of sales amounts include approximately $1.2 million
and $900,000 of new product and development expenses. These amounts are net of
$6.7 million and $3.5 million received from Lufthansa in 1999 and 1998,
respectively. Pursuant to the research and development agreement with Lufthansa,
a total of $4.5 million remained available to reimburse new product and
development expenses. Accordingly, new product development expense is likely to
increase by approximately $2 million in fiscal 2000. The gross margin
improvement in the EGSG primarily reflects higher gross profit margins
contributed by newly acquired businesses and the addition of new products with
higher profit margins.
18
Selling, general and administrative (SG&A) expenses were $24.7 million for
fiscal 1999 and $17.1 million for fiscal 1998. The increase results from the
inclusion of SG&A expenses of the newly acquired companies, including additional
amortization of intangibles which totaled $3.9 million in fiscal 1999 and $.8
million in fiscal 1998, increases in both segments related to internal sales
growth, partially offset by a reduction in corporate expenses due to lower
executive compensation expense. As a percentage of net sales, SG&A expenses
declined to 17.5% for fiscal 1999 from 18.0% for fiscal 1998 reflecting
continuing efforts to control costs while increasing revenues.
OPERATING INCOME
Operating income increased $13.8 million to $32.8 million (a 73% increase)
for fiscal 1999 from $19.0 million for fiscal 1998. The increase in operating
income reflects an increase of $9.0 million (a 41% increase) from $22.3 million
to $31.3 million in the Company's FSG and an increase of $4.0 million (a 215%
increase) from $1.9 million to $5.9 million in the Company's EGSG. The increases
in operating income were due primarily to increases in sales and gross profits
in the FSG and EGSG discussed above.
As a percentage of net sales, operating income improved from 19.9% in fiscal
1998 to 23.2% in fiscal 1999 reflecting the increase in gross profit margins and
the decline in SG&A expenses as a percentage of net sales discussed above. The
FSG's operating income as a percentage of net sales declined slightly from 34.0%
in fiscal 1998 to 33.1% in fiscal 1999 due principally to growth in the
Company's repair and overhaul services, which generally have lower margins than
sales of the Company's FAA-approved jet engine replacement parts. The EGSG's
operating income as a percentage of net sales improved significantly from 6.3 %
in fiscal 1998 to 12.7% in fiscal 1999. This improvement reflects higher
operating margins contributed by newly acquired businesses and newly developed
products as well as manufacturing cost improvements.
INTEREST EXPENSE
Interest expense increased $1.2 million to $2.2 million from fiscal 1998 to
fiscal 1999. The increase was principally due to increased outstanding debt
balances during the period related to borrowings on the Company's Credit
Facility used principally to finance acquisitions.
INTEREST AND OTHER INCOME
Interest and other income decreased $1.2 million to $894,000 from fiscal
1998 to fiscal 1999 due principally to the decrease in invested funds used for
acquisitions.
INCOME TAX EXPENSE
The Company's effective tax rate increased 2.3 percentage points to 36.8% in
fiscal 1999 from 34.5% in fiscal 1998, principally due to an increase in
non-deductible goodwill, a decrease in tax free investments, and an increase in
other miscellaneous non-deductible items. For a detailed analysis of the
provision for income taxes, see Note 6 to the Consolidated Financial Statements.
MINORITY INTEREST
Minority interest represents the 20% minority interest held by Lufthansa
which increased $974,000 from fiscal 1998 to fiscal 1999 due to higher net
income of the FSG.
NET INCOME
The Company's net income totaled $16.3 million, or $.93 per diluted share,
in fiscal 1999, improving 55% from net income of $10.5 million, or $.68 per
diluted share, in fiscal 1998. The percentage increase in net income exceeded
the earnings per share percentage increase due to an increase in common stock
shares outstanding resulting from the offering of 3.0 million shares of Class A
Common Stock during the second quarter of fiscal 1999.
19
The improvement in net income for fiscal 1999 over fiscal 1998 is primarily
attributable to the increased sales and operating income discussed above. These
increases were partially offset by the aforementioned higher interest costs and
increase in minority interest as well as an increase in the Company's effective
tax rate.
COMPARISON OF FISCAL 1998 TO FISCAL 1997
NET SALES
Net sales in fiscal 1998 totaled $95.4 million, up 50% when compared to
fiscal 1997 net sales of $63.7 million.
The increase in fiscal 1998 sales reflects an increase of $23.9 million (a
58% increase) to $65.4 million from the Company's FSG. This increase includes
incremental sales of $12.7 million from newly acquired businesses (Northwings
and ACI), with the balance reflecting increased sales of jet engine replacement
parts. The net sales increase also reflects an increase of $7.8 million (a 35%
increase) to $29.9 million in revenues from the Company's EGSG principally due
to higher demand for the Company's Ground Support products as well as sales of
new products.
GROSS PROFITS AND OPERATING EXPENSES
The Company's gross profit margins averaged 37.9% in fiscal 1998 as compared
to 32.4% in fiscal 1997. This increase reflects improvements in gross margins in
both of the Company's operating segments. The improvement in gross profit
margins in the FSG reflects an increase resulting from the reimbursement of
research and development costs from Lufthansa and higher gross profit margins
for Northwings. Fiscal 1998 and 1997 cost of sales amounts include approximately
$900,000 and $3.1 million, respectively, of new product research and development
expenses. The expenses for fiscal 1998 are net of $3.5 million received from
Lufthansa. The improved gross margins in the EGSG resulted principally from
manufacturing cost efficiencies and increased sales of products with higher
profit margins.
SG&A expenses were $17.1 million in fiscal 1998 and $11.5 million in fiscal
1997. As a percentage of net sales, SG&A expenses remained comparable at 18.0%
in fiscal 1998 and 18.1% in fiscal 1997, despite higher corporate expenses and
the inclusion of a full year of Northwings' SG&A expenses, reflecting continuing
efforts to control costs while increasing revenues.
OPERATING INCOME
Operating income increased $9.9 million to $19.0 million (a 108% increase)
in fiscal 1998 from $9.1 million in fiscal 1997. The increase in operating
income reflects an increase of $10.1 million (an 82% increase) from $12.2
million to $22.3 million in the Company's FSG and an increase of $.9 million (an
80% increase) from $1.0 million to $1.9 million in operating income from the
EGSG. The improvements in operating income were due primarily to increases in
sales and gross profits in the FSG and EGSG discussed above.
As a percentage of net sales, operating income improved from 14.3% in fiscal
1997 to 19.9% in fiscal 1998 reflecting the increase in gross profit margins
discussed above. The FSG's operating income as a percentage of net sales
improved from 29.4% in fiscal 1997 to 34.0% in fiscal 1998 and the EGSG's
operating income as a percentage of net sales improved from 4.9% in fiscal 1997
to 6.3% in fiscal 1998 due principally to the improvements in gross profit
margins discussed above.
INTEREST EXPENSE
Interest expense increased $507,000 to $984,000 from fiscal 1997 to fiscal
1998. The increase was principally due to increased outstanding debt balances
during the period related to borrowings on the Company's Credit Facility, used
principally to finance the Company's acquisitions.
INTEREST AND OTHER INCOME
Interest and other income increased $340,000 to $2.1 million from fiscal
1997 to fiscal 1998 due principally to the investment of cash received from the
sale of a 20% interest in the FSG to Lufthansa in October 1997.
20
INCOME TAX EXPENSE
The Company's effective tax rate increased 2.3 percentage points to 34.5% in
fiscal 1998 from 32.2% in fiscal 1997 due to a decrease in benefits from export
sales and a reduction in tax-free investments. For a detailed analysis of the
provisions for income taxes, see Note 6 to the Consolidated Financial
Statements.
MINORITY INTEREST
Minority interest in fiscal 1998 represents the previously discussed 20%
minority interest held by Lufthansa.
NET INCOME
The Company's net income totaled $10.5 million, or $.68 per diluted share in
fiscal 1998, improving 50% from net income of $7.0 million, or $.49 per diluted
share in fiscal 1997.
The improvement in net income for fiscal 1998 over fiscal 1997 is primarily
attributable to the increased sales volumes and improved profit margins
discussed above, offset by the minority interest in earnings of the FSG as well
as an increase in the Company's effective tax rate.
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. In 1997, the
Company also generated cash from the sale of its health care operations.
Principal uses of cash by the Company include acquisitions, payments of
interest and principal on debt, capital expenditures and increases in working
capital.
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
Cash flow from operations was $8.0 million for fiscal 1999, principally
reflecting net income of $16.3 million, adjustments for depreciation and
amortization and minority interest of $6.1 million and $3.6 million,
respectively, offset by an increase in net operating assets of $18.1 million.
The increase in net operating assets primarily resulted from an increase in
inventories to meet increased sales orders and an increase in accounts
receivable resulting from extended payment terms under certain EGSG contracts.
Cash flow from operations was $9.5 million in fiscal 1998 principally
reflecting net income of $10.5 million, adjustments for depreciation and
amortization and minority interest of $2.8 million and $2.6 million,
respectively, offset by an increase in net operating assets of $5.0 million.
This increase in net operating assets primarily resulted from the net effect of
an increase in inventory and accounts receivable offset by an increase in trade
payables and other current liabilities associated with higher levels of
operations and deferred reimbursement of research and development costs from
Lufthansa.
Cash flow from operations was $1.7 million in fiscal 1997 principally
reflecting net income of $7.0 million, an adjustment for depreciation and
amortization of $1.6 million offset by an increase in net operating assets of
$6.3 million. The increase in net operating assets was primarily due to
increases in inventory and accounts receivable associated with higher levels of
operations.
21
INVESTING ACTIVITIES
The principal cash used in investing activities the last three years was
cash used in acquisitions totaling $157.2 million (See Note 2 to the
Consolidated Financial Statements). Capital expenditures totaled $23.9 million
primarily representing the purchase of new facilities and improvements to and
expansion of existing facilities. The Company also purchased short-term
investments totaling approximately $6.9 million. Principal cash proceeds was
$10.0 million in fiscal 1997 resulting from the sale of the Company's health
care operations in fiscal 1996.
FINANCING ACTIVITIES
The Company's principal financing activities over the last three years
included net proceeds from the offering of 3.0 million shares of Class A Common
Stock totaling $56.3 million and long-term debt of $127.6 million, including
$120.5 million from the Company's Credit Facility used primarily to fund
acquisitions. In addition, the Company received $30.2 million from Lufthansa
representing minority interest investments over the last three years to purchase
and maintain its 20% equity position in the FSG, $2.7 million from stock option
exercises and $2.4 million in tax benefits related to stock option exercises.
The Company repaid $54.5 million of the outstanding balance on its Credit
Facility and $5.1 million in other long-term debt. The Company also used an
aggregate of $4.7 million to repurchase common stock during fiscal 1999 and
1998.
In July 1998, the Company entered into a $120 million revolving credit
facility with a bank syndicate, which contains both revolving credit and term
loan features. The credit facility may be used for working capital and general
corporate needs of the Company and to finance acquisitions (generally not in
excess of $25.0 million for any single acquisition nor in excess of an aggregate
of $25.0 million for acquisitions during any four fiscal quarter period without
the requisite approval of the bank syndicate) on a revolving basis through July
2002. The revolving credit portion may be extended by mutual consent through
July 2003. Advances under the credit facility accrue interest, at the Company's
option, at a premium (based on the Company's ratio of total funded debt to
earnings before interest, taxes, depreciation and amortization) over the LIBOR
rate or the higher of the prime lending rate and the Federal Funds Rate. The
Company is required to maintain certain financial covenants, including minimum
net worth, limitations on capital expenditures (excluding expenditures for the
acquisition of businesses) and limitations on additional indebtedness. See Note
4 to the Consolidated Financial Statements for further information regarding
credit facilities.
IMPACT OF THE YEAR 2000
Many older computer software programs refer to years in terms of their final
two digits only. Such programs may interpret the year 2000 to mean the year 1900
instead. If not corrected, those programs could cause date-related transaction
failures.
We developed a compliance assurance process to address this concern. A
project team performed a detailed assessment of all internal computer systems
and developed and implemented plans to correct any problems.
Year 2000 problems could affect our research and development, production,
distribution, financial, administrative and communication operations. Systems
critical to our business which were identified as non-Year 2000 compliant were
either replaced or corrected through programming modifications. In addition, the
project team looked at Year 2000 readiness from other aspects of our business,
including customer order-taking, manufacturing, raw materials supply and plant
process equipment. We remediated and replaced systems as needed and have been
successfully testing and verifying our modifications. In addition to our
in-house efforts, we have asked vendors, major customers, service suppliers,
communications providers and banks whose systems failures potentially could have
a significant impact on our operations to verify their Year 2000 readiness.
As part of our compliance process we developed a contingency plan for those
areas that are critical to the Company's business. These plans were designed to
mitigate serious disruptions to our business flow beyond the end of 1999, and
will operate independently of our external providers' Year 2000 compliance. The
major drive for contingency planning was in the first half of 1999. To date, we
have not encountered any significant effects related to the Year 2000 and we
22
do not anticipate that any unforeseen Year 2000 problems will have a material
effect on our results of operations or financial condition.
External and internal costs specifically associated with modifying internal
use software for Year 2000 compliance were expensed as incurred. To date, we
have spent less than $200,000 on this project. Such costs do not include normal
system upgrades and replacements.
The above expectations are subject to uncertainties. For example, if we were
unsuccessful in identifying or fixing all Year 2000 problems in our critical
operations, or if we are affected by the inability of suppliers or major
customers to continue operations due to such a problem, our results of
operations or financial condition could be materially impacted.
NEW ACCOUNTING STANDARDS
Effective November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS 130 requires companies to report all changes in
equity during a period, except those resulting from investment by owners and
distributions to owners, in a financial statement for the period in which they
are recognized. The Company has chosen to disclose Comprehensive Income which
encompasses net income and unrealized holding losses on investments, in the
Consolidated Statements of Shareholders' Equity and Comprehensive Income. Prior
years have been reclassified to conform to the SFAS 130 requirements.
Effective November 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131,
establishes standards for the way that public companies report selected
information about operating segments in annual financial statements and requires
that those companies report selected information about segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Adoption of this statement did not impact the Company's consolidated
financial position, results of operations or cash flows, and any effect was
limited to the form and content of its disclosures. Prior years have been
reclassified to conform to the SFAS 131 requirements. See Note 13 to the
Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of October 31, 1999, the Company maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments are subject to interest rate risk and will
decline in value if interest increase. Due to the short duration of these
financial instruments, an immediate increase of 1% in interest rates would not
have a material effect on the Company's financial condition.
The Company's outstanding debt under the revolving credit facility and
industrial development revenue bonds at October 31, 1999 was $72.0 million.
Interest rates on the revolving credit facility borrowings are based on LIBOR
plus a variable margin. Interest rates on the industrial development revenue
bonds are based on variable rates. Based on the outstanding balance, a change of
1% in interest rates would cause a change in interest expense of approximately
$720,000 on an annual basis.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA HEICO CORPORATION AND
SUBSIDIARIES
HEICO CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.................................................................. 25
Consolidated Balance Sheets at October 31, 1999 and 1998...................................... 26
Consolidated Statements of Operations for the years ended October 31, 1999, 1998 and
1997........................................................................................ 28
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years
Ended October 31, 1999, 1998 and 1997....................................................... 29
Consolidated Statements of Cash Flows for the years ended October 31, 1999, 1998 and
1997........................................................................................ 30
Notes to Consolidated Financial Statements.................................................... 31
24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of HEICO Corporation:
We have audited the accompanying consolidated balance sheets of HEICO
Corporation and subsidiaries (the "Company") as of October 31, 1999 and 1998,
and the related consolidated statements of operations, of shareholders' equity
and comprehensive income, and of cash flows for each of the three years in the
period ended October 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of October 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 1999, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
December 21, 1999
25
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ............... $ 6,031,000 $ 8,609,000
Short-term investments .................. -- 2,051,000
Accounts receivable, net ................ 35,326,000 19,422,000
Inventories ............................. 45,172,000 24,327,000
Prepaid expenses and other current assets 2,527,000 1,768,000
Deferred income taxes ................... 1,534,000 2,010,000
------------ ------------
Total current assets ............ 90,590,000 58,187,000
Property, plant and equipment, net ........ 28,336,000 14,795,000
Unexpended bond proceeds .................. 280,000 2,252,000
Intangible assets, net .................... 143,557,000 53,964,000
Long-term investments ..................... 3,231,000 --
Deferred income taxes ..................... 1,366,000 495,000
Other assets .............................. 5,803,000 3,368,000
------------ ------------
Total assets .................... $273,163,000 $133,061,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
26
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
1999 1998
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .................................... $ 551,000 $ 377,000
Trade accounts payable .................................................. 11,070,000 6,158,000
Accrued expenses and other current liabilities .......................... 15,299,000 10,401,000
Income taxes payable .................................................... 392,000 664,000
------------- -------------
Total current liabilities ....................................... 27,312,000 17,600,000
Long-term debt, net of current maturities ................................. 72,950,000 30,143,000
Other non-current liabilities ............................................. 3,590,000 2,819,000
------------- -------------
Total liabilities ............................................... 103,852,000 50,562,000
------------- -------------
Minority interest in consolidated subsidiary .............................. 30,022,000 14,892,000
------------- -------------
Commitments and contingencies (Notes 2, 5 and 15)
Shareholders' equity:
Preferred stock, par value $.01 per share; Authorized -- 10,000,000
shares issuable in series, 200,000 designated as Series A Junior
Participating Preferred Stock, none issued ........................... -- --
Common stock, $.01 par value; Authorized -- 30,000,000 shares;
Issued and Outstanding 8,408,821 shares in 1999 and 8,323,036 in 1998 84,000 83,000
Class A Common stock, $.01 par value; Authorized -- 30,000,000 shares;
Issued and Outstanding 7,334,750 shares in 1999 and 4,140,404 in 1998 73,000 41,000
Capital in excess of par value .......................................... 91,094,000 34,474,000
Accumulated other comprehensive loss .................................... (2,235,000) (1,142,000)
Retained earnings ....................................................... 52,280,000 36,649,000
------------- -------------
141,296,000 70,105,000
Less: Note receivable from employee savings and investment plan ......... (2,007,000) (2,498,000)
------------- -------------
Total shareholders' equity ...................................... 139,289,000 67,607,000
------------- -------------
Total liabilities and shareholders' equity ...................... $ 273,163,000 $ 133,061,000
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
27
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------- ------------- -------------
Net sales ........................................... $ 141,269,000 $ 95,351,000 $ 63,674,000
------------- ------------- -------------
Operating costs and expenses:
Cost of sales ....................................... 83,737,000 59,247,000 43,045,000
Selling, general and administrative expenses ........ 24,717,000 17,140,000 11,515,000
------------- ------------- -------------
Total operating costs and expenses ........ 108,454,000 76,387,000 54,560,000
------------- ------------- -------------
Operating income .................................... 32,815,000 18,964,000 9,114,000
Interest expense .................................... (2,173,000) (984,000) (477,000)
Interest and other income ........................... 894,000 2,062,000 1,722,000
------------- ------------- -------------
Income from continuing operations before income taxes
and minority interest ............................. 31,536,000 20,042,000 10,359,000
Income tax expense .................................. 11,606,000 6,914,000 3,340,000
------------- ------------- -------------
Income before minority interest ..................... 19,930,000 13,128,000 7,019,000
Minority interest ................................... 3,593,000 2,619,000 --
------------- ------------- -------------
Net income .......................................... $ 16,337,000 $ 10,509,000 $ 7,019,000
============= ============= =============
Net income per share:
Basic ............................................. $ 1.10 $ .84 $ .58
============= ============= =============
Diluted ........................................... $ .93 $ .68 $ .49
============= ============= =============
Weighted average number of common shares outstanding:
Basic ............................................. 14,820,719 12,499,079 12,040,359
============= ============= =============
Diluted ........................................... 17,643,090 15,540,620 14,418,308
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
28
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
ACCUMULATED
CLASS A CAPITAL IN OTHER
COMMON COMMON EXCESS OF OMPREHENSIVE RETAINED NOTE COMPREHENSIVE
STOCK STOCK PAR VALUE LOSS EARNINGS RECEIVABLE INCOME
-------- -------- ------------ ------------ ------------ ------------ ------------
Balances, October 31, 1996 ........... $ 53,000 $ -- $ 30,881,000 $ -- $ 13,893,000 $ (3,339,000)
Exercise of stock options ............ 1,000 -- 850,000 -- -- --
Tax benefit for stock option exercises -- -- 267,000 -- -- --
Payment on note receivable from
employee savings and investment
plan ............................... -- -- -- -- -- 397,000
Cash dividends ($.045 per share) ..... -- -- -- -- (548,000) --
Stock issued in acquisition .......... 2,000 -- 3,542,000 -- -- --
Excess of purchase price over book
value on sale of minority interest . -- -- -- -- 6,427,000 --
Three-for-two Common Stock split
distributed December 16, 1997 ...... 27,000 -- (27,000) -- -- --
Net income for the year .............. -- -- -- -- 7,019,000 -- $ 7,019,000
Other ................................ -- -- 20,000 -- (19,000) -- ===========
-------- -------- ------------ ------------ ------------ ------------
Balances, October 31, 1997 ........... 83,000 -- 35,533,000 -- 26,772,000 (2,942,000)
Distribution of one share of Class A
Common Stock for each two shares of
Common Stock made April 23, 1998 .. -- 42,000 (42,000) -- -- --
Repurchase of stock .................. (1,000) (1,000) (2,036,000) -- -- --
Exercise of stock options ............ 1,000 -- 471,000 -- -- --
Tax benefit for stock option exercises -- -- 485,000 -- -- --
Payment on note receivable from
employee savings and investment plan -- -- -- -- -- 444,000
Cash dividends ($.05 per share) ...... -- -- -- -- (643,000) --
Net income for the year .............. -- -- -- -- 10,509,000 -- $ 10,509,000
Unrealized loss on investments, net of
tax of $671,000 .................... -- -- -- (1,142,000) -- -- (1,142,000)
------------
Comprehensive income ................. -- -- -- -- -- -- $ 9,367,000
============
Other ................................ -- -- 63,000 -- 11,000 --
-------- -------- ------------ ------------ ------------ ------------
Balances, October 31, 1998 ........... 83,000 41,000 34,474,000 (1,142,000) 36,649,000 (2,498,000)
Secondary offering of Class A Common
shares ............................. -- 30,000 56,235,000 -- -- --
Repurchase of stock .................. (1,000) -- (2,625,000) -- -- --
Exercise of stock options ............ 2,000 2,000 1,335,000 -- -- --
Tax benefit for stock option exercises -- -- 1,610,000 -- -- --
Payment on note receivable from
employee savings and investment plan -- -- -- -- -- 491,000
Cash dividends ($.05 per share) ...... -- -- -- -- (708,000) --
Net income for the year .............. -- -- -- -- 16,337,000 -- 16,337,000
Unrealized loss on investments, net
of tax of $721,000 ................. -- -- -- (1,093,000) -- -- (1,093,000)
------------
Comprehensive income ................. -- -- -- -- -- -- $ 15,244,000
============
Other ................................ -- -- 65,000 -- 2,000 --
-------- -------- ------------ ------------ ------------ ------------
Balances, October 31, 1999 ........... $ 84,000 $ 73,000 $ 91,094,000 $ (2,235,000) $ 52,280,000 $ (2,007,000)
======== ======== ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
29
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------- ------------- -------------
Cash flows from operating activities:
Net income ...................................................... $ 16,337,000 $ 10,509,000 $ 7,019,000
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization ................................. 6,097,000 2,761,000 1,624,000
Deferred income taxes ......................................... 31,000 (342,000) (486,000)
Deferred financing costs ...................................... -- (1,039,000) (144,000)
Minority interest in consolidated subsidiary .................. 3,593,000 2,619,000 --
Change in assets and liabilities, net of acquisitions:
Increase in accounts receivable ............................. (5,442,000) (3,822,000) (2,713,000)
Increase in inventories ..................................... (12,209,000) (4,642,000) (2,912,000)
Increase in prepaid expenses and other current assets ....... (393,000) (182,000) (605,000)
Increase in unexpended bond proceeds ........................ (134,000) (229,000) (222,000)
Increase (decrease) in trade payables, accrued expenses and
other current liabilities ................................. 231,000 4,653,000 (215,000)
(Decrease) increase in income taxes payable ................. (569,000) (961,000) 118,000
(Decrease) increase in other non-current liabilities ........ (114,000) -- 266,000
Other ....................................................... 574,000 214,000 (14,000)
------------- ------------- -------------
Net cash provided by operating activities ....................... 8,002,000 9,539,000 1,716,000
------------- ------------- -------------
Cash flows from investing activities:
Acquisitions, net of cash acquired .............................. (104,861,000) (45,627,000) (6,737,000)
Net change in available-for-sale investments .................... (2,366,000) (3,864,000) --
Capital expenditures ............................................ (14,217,000) (6,171,000) (3,551,000)
Payment received from employee savings and investment plan note
receivable .................................................... 491,000 444,000 397,000
(Issuance) sale of note receivable .............................. (81,000) -- 10,000,000
Other ........................................................... (436,000) (171,000) (268,000)
------------- ------------- -------------
Net cash used in investing activities ........................... (121,470,000) (55,389,000) (159,000)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from Class A Common Stock offering, net ................ 56,265,000 -- --
Proceeds from the issuance of long-term debt:
Proceeds from revolving credit facility ....................... 95,500,000 25,000,000 --
Bond reimbursement proceeds ................................... 513,000 3,384,000 1,427,000
Other ......................................................... 836,000 95,000 845,000
Principal payments on long-term debt ............................ (53,187,000) (5,493,000) (926,000)
Minority interest investments ................................... 11,537,000 9,000,000 9,700,000
Proceeds from the exercise of stock options ..................... 1,339,000 472,000 851,000
Tax benefit on stock option exercises ........................... 1,610,000 485,000 267,000
Repurchases of common stock ..................................... (2,626,000) (2,038,000) --
Cash dividends paid ............................................. (708,000) (643,000) (548,000)
Other ........................................................... (189,000) (2,000) 1,000
------------- ------------- -------------
Net cash provided by financing activities ....................... 110,890,000 30,260,000 11,617,000
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents ............ (2,578,000) (15,590,000) 13,174,000
Cash and cash equivalents at beginning of year .................. 8,609,000 24,199,000 11,025,000
------------- ------------- -------------
Cash and cash equivalents at end of year ........................ $ 6,031,000 $ 8,609,000 $ 24,199,000
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
30
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
HEICO Corporation, through its principal subsidiaries HEICO Aerospace
Holdings Corp. (HEICO Aerospace) and HEICO Aviation Products Corp. (HEICO
Aviation) and their subsidiaries (collectively, the Company), is principally
engaged in the design, manufacture and sale of aerospace related products and
services throughout the United States and internationally. HEICO Aerospace's
subsidiaries include HEICO Aerospace Corporation, Jet Avion Corporation (Jet
Avion), LPI Industries Corporation (LPI), Aircraft Technology, Inc. (Aircraft
Technology), Northwings Accessories Corporation (Northwings), McClain
International, Inc. (McClain), Associated Composite, Inc. (ACI), Rogers-Dierks,
Inc. (Rogers-Dierks) acquired December 1998, Air Radio & Instruments Corp. (Air
Radio) acquired May 1999, Turbine Kinetics, Inc. and AeroKinetics, Inc.
(together Turbine) acquired June 1999, Thermal Structures, Inc. and its Quality
Honeycomb, Inc. affiliate (together Thermal) acquired effective June 1999. HEICO
Aviation's subsidiaries include Trilectron Industries, Inc. (Trilectron),
Radiant Power Corp (Radiant Power) acquired January 1999, Leader Tech, Inc.
(Leader Tech) acquired May 1999 and Santa Barbara Infrared, Inc. (SBIR) acquired
September 1999. For further detail of acquired subsidiaries discussed above, see
Note 2. The Company's customer base is primarily the commercial airline and
defense industries. As of October 31, 1999, the Company's principal operations
are located in Atlanta, Georgia; Anacortes, Washington; Glastonbury,
Connecticut; Corona and Santa Barbara, California; and Hollywood, Miami, Tampa
and Palmetto, Florida.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of HEICO
Corporation and its subsidiaries, all of which are wholly-owned except for HEICO
Aerospace, of which a 20% interest was sold to Lufthansa Technik AG (Lufthansa)
in October 1997 (see Note 2). All significant intercompany balances and
transactions are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated financial statements, the Company considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
31
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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation and
amortization is provided mainly on the straight-line method over the estimated
useful lives of the various assets. Property, plant and equipment useful lives
are as follows:
Buildings and components.................................. 7 to 55 years
Building and leasehold improvements....................... 3 to 15 years
Machinery and equipment................................... 3 to 20 years
The costs of major renewals and betterments are capitalized. Repairs and
maintenance are charged to operations as incurred. Upon disposition, the cost
and related accumulated depreciation are removed from the accounts and any
related gain or loss is reflected in earnings.
INTANGIBLE ASSETS
Intangible assets include the excess of cost over the fair value of net
assets acquired and deferred charges which are amortized on the straight-line
method over their legal or estimated useful lives, whichever is shorter, as
follows:
Excess of cost over the fair market value of net
assets acquired.......................................... 20 to 40 years
Deferred charges........................................... 3 to 20 years
The Company reviews the carrying value of the excess of cost over the fair
value of net assets acquired (goodwill) for impairment whenever events or
changes in circumstances indicate that it may not be recoverable. An impairment
would be recognized in operating results, based upon the difference between each
consolidated entities' respective present value of future cash flows and the
carrying value of the goodwill, if a permanent diminution in value were to
occur.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and other current liabilities approximate
fair value due to the relatively short maturity of the respective instruments.
The carrying value of long-term debt approximates fair market value due to its
floating interest rates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit quality financial institutions and limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different geographical regions.
Short and long-term investments are stated at fair value based on quoted
market prices.
32
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. 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.
INCOME TAXES
Deferred income taxes are provided on elements of income that are recognized
for financial accounting purposes in periods different from such items
recognized for income tax purposes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
NET INCOME PER SHARE
Basic net income per share is calculated on the basis of the weighted
average number of shares outstanding during the period, excluding dilution.
Diluted net income per share is computed on the basis of the weighted average
number of shares outstanding during the period plus potentially dilutive common
shares arising from the assumed exercise of stock options, if dilutive. The
dilutive impact of potentially dilutive common shares is determined by applying
the treasury stock method. Per share information for fiscal 1997 has been
restated in accordance with Statement of Financial Accounting Standard No. 128,
"Earnings Per Share."
STOCK BASED COMPENSATION
The Company measures compensation cost for stock options using the intrinsic
value method of accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
elected to continue using the accounting methods prescribed by APB No. 25 and to
provide in Note 10 the pro forma disclosures required by SFAS No. 123.
CONTINGENCIES
Losses for contingencies such as product warranties, litigation and
environmental matters are recognized in income when they are probable and can be
reasonably estimated. Gain contingencies are not recognized in income.
NEW ACCOUNTING STANDARDS
Effective November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS 130 requires companies to report all changes in
equity during a period, except those resulting from investment by owners and
distributions to owners, in a financial statement for the period in which they
are recognized. The Company has chosen to disclose comprehensive income which
encompasses net income and unrealized holding losses on investments, in the
Consolidated Statements of Shareholders' Equity and Comprehensive Income. Prior
years have been reclassified to conform to the SFAS 130 requirements.
Effective November 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131,
establishes standards for the way that public companies report selected
information about operating segments in annual financial statements and requires
that those companies report selected information about segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Adoption of this statement did not impact the Company's consolidated
financial position, results of operations or cash flows, and
33
any effect was limited to the form and content of its disclosures. Prior years
have been reclassified to conform to the SFAS 131 requirements (Note 13).
2. STRATEGIC ALLIANCE AND ACQUISITIONS
STRATEGIC ALLIANCE AND SALE OF MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
In October 1997, the Company entered into a strategic alliance with
Lufthansa, the technical services subsidiary of Lufthansa German Airlines,
whereby Lufthansa agreed to invest approximately $26 million in HEICO Aerospace,
including $10 million paid at closing pursuant to a stock purchase agreement and
approximately $16 million to be paid to HEICO Aerospace over three years
pursuant to a research and development cooperation agreement, which has
partially funded the accelerated development of additional Federal Aviation
Administration (FAA)-approved replacement parts for jet engines. The funds
received as a result of the research and development cooperation agreement
reduce research and development expenses in the period such expenses are
incurred. In addition, Lufthansa and HEICO Aerospace have agreed to cooperate
regarding technical services and marketing support for jet engine parts on a
worldwide basis.
As part of the strategic alliance, the Company sold 20% of HEICO Aerospace
(200 shares) with an approximate book value of $3,273,000 to Lufthansa for $10
million. The Company's accounting policy is to treat the sale of a subsidiary's
stock as an equity transaction, recording the difference between the purchase
price, net of transaction costs incurred, and book value of the subsidiary, to
the subsidiary's retained earnings. As a result of this sale, $6,427,000 was
recorded as an increase to the retained earnings of the Company in the
consolidated financial statements.
In connection with subsequent acquisitions by HEICO Aerospace, Lufthansa
invested additional amounts aggregating $20.7 million pursuant to its option to
maintain a 20% equity interest as described below.
ACQUISITIONS
Pursuant to a Stock Purchase Agreement, the Company, through a subsidiary,
acquired effective as of September 1, 1997 all of the outstanding stock of
Northwings. In consideration of this acquisition, the Company paid approximately
$6.7 million in cash and 232,360 shares of the Company's common stock, having an
aggregate fair value of approximately $3.5 million. Northwings is an
FAA-authorized overhaul and repair facility servicing aircraft engine components
and airframe accessories.
On July 31, 1998, the Company, through a subsidiary, acquired all of the
outstanding capital stock of McClain. In consideration of this acquisition, the
Company paid approximately $41 million in cash. The Company also purchased from
one of McClain's selling shareholders, McClain's headquarters and manufacturing
facility for $2.5 million in cash. McClain designs, manufactures and overhauls
FAA-approved aircraft jet engine replacement components. The source of the
purchase price was $10 million from available funds, $9 million from an
additional minority interest investment by Lufthansa and $25 million from
proceeds of the Company's Credit Facility (Note 4).
On October 19, 1998, the Company, through a subsidiary, acquired all of the
outstanding capital stock of ACI for cash. The purchase price was not
significant. ACI is an FAA-licensed repair and overhaul company.
Between December 1998 and September 1999, the Company acquired substantially
all of the assets of Rogers-Dierks, Radiant, Turbine and all of the outstanding
capital stock of Air Radio, Leader Tech and SBIR for an aggregate purchase price
of approximately $72.6 million. Rogers-Dierks, Turbine and Air Radio were
acquired through HEICO Aerospace. Radiant, Leader Tech, and SBIR were acquired
through HEICO Aviation. The source of the purchase price for these acquisitions
was proceeds from the Company's Credit Facility, excluding Air Radio and
Turbine, which were funded primarily from the proceeds of the Company's public
offering discussed in Note 9.
34
Subsequent to the closings of the HEICO Aerospace transactions, Lufthansa made
additional investments of approximately $5.0 million in HEICO Aerospace pursuant
to Lufthansa's option to maintain its 20 percent equity interest in HEICO
Aerospace.
In connection with the Roger-Dierks acquisition, the Company committed to
pay $1.1 million in deferred payments over the next two years. Subject to
meeting certain earnings objectives, the former shareholders' of Rogers-Dierks
could receive additional consideration of up to $7.3 million payable in cash or
shares of the Company's Class A Common Stock. Rogers-Dierks formerly designed
and manufactured FAA-approved, factory-new jet engine replacement parts for sale
to commercial airlines. The Company has continued to use the acquired assets for
the same purposes as formerly used by Rogers-Dierks.
The Radiant Power product line includes back-up power supplies and battery
packs for a variety of aircraft applications.
Turbine is engaged in the design and manufacture of FAA-approved,
factory-new aircraft jet engine replacement parts.
Air Radio is engaged in the overhaul and repair of avionics, instruments and
electronic equipment for commercial aircraft. Subject to meeting certain
earnings objectives, the former shareholders of Air Radio could receive
additional consideration of up to $1.25 million under the terms of the
acquisition.
Leader Tech manufactures electromagnetic and radio frequency shielding for
circuit boards primarily utilized in telecommunications, computer, aerospace and
microwave applications.
SBIR is an international designer and manufacturer of aerospace and defense
infrared simulation and ground test equipment.
Effective June 30, 1999, the Company, through HEICO Aerospace, acquired all
of the outstanding capital stock of Thermal Structures, Inc. and its Quality
Honeycomb, Inc. affiliate (together "Thermal"). Thermal manufactures thermal
insulation products and related components primarily for aerospace and defense
applications. In consideration of this acquisition, the Company paid
approximately $28.9 million in cash, and assumed approximately $4 million in
debt. The assumed debt was repaid by the Company at closing. Subject to meeting
certain earnings objectives, one of Thermal's selling shareholders would receive
additional consideration of up to $1 million over the three years following the
acquisition date. The source of the purchase price was proceeds from the
Company's Credit Facility. Subsequent to the closing of the transaction,
Lufthansa made an additional investment of $6.7 million in HEICO Aerospace
pursuant to Lufthansa's option to maintain its 20% equity interest in HEICO
Aerospace.
All of the acquisitions described above were accounted for using the
purchase method of accounting and the results of each company were included in
the Company's results from their effective dates. The costs of each acquisition
have been allocated to the assets acquired and liabilities assumed based on
their fair values at the date of acquisition as determined by management. The
excess of the purchase prices over the fair value of the identifiable net assets
acquired aggregated approximately $92.6 million, $40.5 million, and $8.6 million
in fiscal 1999, 1998, and 1997, respectively, and are being amortized over a
range of 20 to 30 years using the straight-line method.
In June 1999, the Company, through its newly formed subsidiary, Trilectron
Europe, LTD, acquired 40% of the outstanding capital stock of R.H. Phillips and
Sons Engineers. LTD (Phillips) along with the exclusive worldwide rights to
certain Phillips' products. The Company accounts for this investment under the
equity method. The purchase price of this transaction was insignificant.
35
The following table presents unaudited pro forma consolidated operating
results as if the Company's acquisitions of McClain and Thermal, acquired July
31, 1998, and June 30, 1999, respectively, had been consummated as of November
1, 1997. The acquisition of Rogers-Dierks, Radiant, Air Radio, Leader Tech,
Turbine and SBIR have not been considered in the unaudited proforma results
below as such acquisitions were insignificant to the Company's consolidated
financial statements. The unaudited pro forma results include adjustments to
historical amounts including additional amortization of the excess of costs over
the fair value of net assets acquired, increased interest on borrowings to
finance the acquisitions, discontinuance of certain compensation previously paid
by the acquired companies to their shareholders, reduced investment income on
available funds used to finance the acquisitions, and the incremental minority
interest of Lufthansa in the net income of the acquired companies. The pro forma
consolidated operating results do not purport to present actual operating
results had the acquisition been made at the beginning of fiscal 1998, or the
results which may occur in the future.
(Unaudited)
Year Ended October 31,
1999 1998
------------- -------------
Net sales $ 152,732,000 $ 124,617,000
Net income $ 16,450,000 $ 12,243,000
Net income per share:
Basic $ 1.11 $ .98
Diluted $ .93 $ .79
3. INVESTMENTS
Long-term and short-term investments consist of equity securities with an
aggregate cost of $6,858,000 and $3,864,000 as of October 31, 1999 and 1998,
respectively. These investments are classified as available-for-sale and stated
at a fair value of $3,231,000 and $2,051,000 as of October 31, 1999 and 1998,
respectively. The gross unrealized losses were $3,627,000 and $1,813,000 as of
October 31, 1999 and 1998, respectively. There were no investments during the
year ended October 31, 1997. Unrealized gains and losses, net of deferred taxes,
are reflected as a component of comprehensive income (loss). Gross realized
gains on sales of securities classified as available-for-sale, using the average
cost method, were $0 and $288,000 for fiscal 1999 and 1998, respectively. There
were no realized losses during these periods. The investments were reclassified
to non-current in fiscal 1999 to correspond with management's intentions to hold
the investments a minimum of one year.
4. CREDIT FACILITIES AND LONG-TERM DEBT
Long-term debt consists of:
OCTOBER 31,
------------------------------
1999 1998
------------ ------------
Borrowings under revolving credit facility ................. $ 66,000,000 $ 20,000,000
Industrial Development Revenue Bonds -- Series 1997A ....... 3,000,000 3,000,000
Industrial Development Revenue Bonds -- Series 1997C ....... 995,000 995,000
Industrial Development Revenue Bonds -- Series 1996 ........ -- 3,500,000
Industrial Development Revenue Refunding Bonds -- Series 1988 1,980,000 1,980,000
Equipment loans ............................................ 1,526,000 1,045,000
------------ ------------
73,501,000 30,520,000
Less current maturities .................................... (551,000) (377,000)
------------ ------------
$ 72,950,000 $ 30,143,000
============ ============
36
The amount of long-term debt maturing in each of the next five years is
$551,000 in fiscal 2000, $413,000 in fiscal 2001, $5,769,000 in fiscal 2002,
$22,195,000 in 2003, $22,098,000 in fiscal 2004 and $22,475,000 thereafter. The
amount of long-term debt maturing in each of the next five years assumes the
outstanding borrowings under the revolving credit facility of $66,000,000 will
be converted to term loans in July 2002 and amortized over a three year period
in accordance with the terms of the facility.
REVOLVING CREDIT FACILITY
In July 1998, the Company entered into a $120 million credit facility
(Credit Facility) with a bank syndicate replacing its $7 million credit
facility. Funds are available for funding acquisitions, working capital and
general corporate requirements on a revolving basis through July 2002. The
Credit Facility may be extended by mutual consent through July 2003. The Company
has the option to convert outstanding advances to term loans amortizing over a
five year period, with a maximum Credit Facility term of seven years.
Outstanding borrowings bear interest at the Company's choice of prime rate or
London Interbank Offering Rates (LIBOR) plus applicable margins. The applicable
margins range from .00% to .50% for prime rate borrowings and from .75% to 2.00%
for LIBOR based borrowings depending on the leverage ratio of the Company. A fee
of .20% to .40% is charged on the amount of the unused commitment depending on
the leverage ratio of the Company. The Credit Facility is secured by all the
assets, excluding real estate, of the Company and its subsidiaries and contains
covenants which, among other things, requires the maintenance of certain working
capital, leverage and debt service ratios as well as minimum net worth
requirements. At October 31, 1999, the Company had a total of $66 million
borrowed under the Credit Facility at a weighted average interest rate of 6.42%,
which was borrowed to partially fund acquisitions (Note 2).
INDUSTRIAL DEVELOPMENT REVENUE BONDS
The industrial development revenue bonds represent bonds issued by Manatee
County, Florida in 1997 (the 1997 bonds), and bonds issued by Broward County,
Florida in 1996 (the 1996 bonds) and in 1988 (the 1988 bonds).
Series 1997A and 1997B bonds were issued in March 1997 in the amounts of
$3,000,000 and $1,000,000, respectively, for the purpose of constructing and
purchasing equipment for a new facility in Palmetto, Florida. In November 1997,
the Series 1997B bonds were refinanced by the issuance of Series 1997C bonds. As
of October 31, 1999 and 1998, the Company had been reimbursed $513,000 and
$3,384,000 for such expenditures, and the balance of the unexpended bond
proceeds of $280,000 and $785,000, respectively, including investment earnings,
was held by the trustee and is available for future qualified expenditures. The
Series 1997A and 1997C bonds bear interest at variable rates calculated weekly
(3.80% and 3.25% at October 31, 1999 and 1998, respectively). The 1997A and
1997C bonds are due March 2017 and are secured by a letter of credit expiring in
March 2004 and a mortgage on the related properties pledged as collateral. The
letter of credit requires annual sinking fund payments of $200,000 beginning in
March 1998.
In September 1999, the Company redeemed its Series 1996 bonds using the
related unexpended bond proceeds of approximately $1.5 million and proceeds of a
$2.0 million additional minority interest investment by Lufthansa (Note 2). The
Series 1996 bonds interest rates were 3.45% and 3.20% at September 1, 1999 and
October 31,1998, respectively.
The 1988 bonds are due April 2008 and bear interest at a variable rate
calculated weekly (3.40% and 3.05% at October 31, 1999 and 1998, respectively).
The 1988 bonds are secured by a letter of credit expiring in February 2004, a
bond sinking fund ($8,250 payable monthly) and a mortgage on the related
properties pledged as collateral.
37
EQUIPMENT LOAN FACILITY
In March 1994, a bank committed to advance up to $2,000,000 through August
2000, as amended, for the purpose of purchasing equipment to be used in the
Company's operations. Each term loan is limited to 80% of the purchase price of
the related equipment and is repayable up to a maximum of 60 months with
interest at a rate equal to prime rate (as defined). The term loans are secured
by collateral representing the related purchased equipment. Equipment loans
beared interest at rates ranging from 8.5% to 9.0% at October 31, 1999 and 1998.
5. LEASE COMMITMENTS
The Company leases certain property and equipment, including manufacturing
facilities and office equipment under operating leases. Some of these leases
provide the Company with the option after the initial lease term either to
purchase the property at the then fair market value or renew its lease at the
then fair rental value. Generally, management expects that leases will be
renewed or replaced by other leases in the normal course of business.
Minimum payments for operating leases having initial or remaining
noncancelable terms in excess of one year are as follows:
Year ending October 31,
2000......................................................... $ 1,482,000
2001......................................................... 1,257,000
2002......................................................... 900,000
2003......................................................... 782,000
2004......................................................... 475,000
After 2004................................................... 158,000
-----------
Total minimum lease commitments.............................. $ 5,054,000
===========
Total rent expense charged to operations for operating leases in fiscal
1999, fiscal 1998 and fiscal 1997 amounted to $976,000, $319,000 and $240,000,
respectively.
6. INCOME TAXES
The provision for income taxes on income from operations for each of the
three years ended October 31, was as follows:
1999 1998 1997
----------- ----------- -----------
Current:
Federal .............. $10,540,000 $ 6,687,000 $ 3,468,000
State ................ 1,035,000 569,000 358,000
----------- ----------- -----------
11,575,000 7,256,000 3,826,000
Deferred ............... 31,000 (342,000) (486,000)
----------- ----------- -----------
Total income tax expense $11,606,000 $ 6,914,000 $ 3,340,000
=========== =========== ===========
A deferred tax benefit of $721,000 and $671,000, relating to gross
unrealized losses on available-for-sale equity securities, was recorded as an
adjustment to shareholders' equity in fiscal 1999 and 1998, respectively.
In connection with its acquisitions during fiscal 1999, the Company assumed
net deferred tax liabilities of $295,000.
38
The following table reconciles the federal statutory tax rate to the Company's
effective tax rate from operations:
1999 1998 1997
------ ------ ------
Federal statutory tax rate .............................. 35.0% 35.0% 34.0%
State taxes, less applicable federal income tax reduction 2.1 2.1 1.9
Tax benefits on export sales ............................ (2.0) (2.1) (3.6)
Tax benefits from tax free investments .................. -- (.2) (1.0)
Nondeductible amortization of intangible assets ......... 1.3 .8 .5
Other, net .............................................. .4 (1.1) .4
------ ------ ------
Effective tax rate ............................ 36.8% 34.5% 32.2%
====== ====== ======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of October 31, 1999, 1998
and 1997 are as follows:
OCTOBER 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
Deferred tax assets:
Inventory ......................................... $ 924,000 $ 486,000 $ 571,000
Bad debt allowances ............................... 271,000 119,000 124,000
Deferred compensation liability ................... 809,000 586,000 445,000
Vacation accruals ................................. 257,000 222,000 121,000
Customer rebates and credits ...................... 142,000 511,000 169,000
Retirement plan liability ......................... 212,000 183,000 156,000
Warranty accruals ................................. 210,000 243,000 256,000
Unrealized loss on short-term investments ......... 1,392,000 671,000 --
Other ............................................. 102,000 -- 113,000
----------- ----------- -----------
Total deferred tax assets ............... 4,319,000 3,021,000 1,955,000
----------- ----------- -----------
Deferred tax liabilities:
Accelerated depreciation .......................... 396,000 259,000 436,000
Intangible asset amortization ..................... 857,000 176,000 22,000
Other ............................................. 166,000 81,000 5,000
----------- ----------- -----------
Total deferred tax liabilities .......... 1,419,000 516,000 463,000
----------- ----------- -----------
Net deferred tax asset .................. 2,900,000 2,505,000 1,492,000
Less current portion
(1,534,000) (2,010,000) (1,098,000)
----------- ----------- -----------
Net deferred tax asset, long-term portion $ 1,366,000 $ 495,000 $ 394,000
=========== =========== ===========
7. STOCK DIVIDENDS AND SPLITS
In December 1996, the Company's Board of Directors declared a 10% stock
dividend that was paid in January 1997. The dividend was valued based on the
closing market prices of the Company's stock as of the declaration date. In
November 1997, the Company's Board of Directors declared a three-for-two stock
split that was distributed in December 1997. In March 1998, the Company's Board
of Directors declared a stock distribution payable of one share of
newly-authorized Class A Common Stock to each shareholder of Common Stock for
each two shares of Common Stock held. The Class A Common Stock distribution was
made on April 23, 1998 to shareholders of record on April 9, 1998. All income
per share, dividend per share, stock options and common shares outstanding
information has been retroactively restated to reflect these stock dividends and
splits.
39
8. PREFERRED STOCK PURCHASE RIGHTS PLAN
In November 1993, pursuant to a plan adopted by the Board of Directors on
such date, the Board declared a distribution of one Preferred Stock Purchase
Right (the Rights) for each outstanding share of common stock of the Company.
The Rights trade with the common stock and are not exercisable or transferable
apart from the Common Stock and Class A Common Stock until after a person or
group either acquires 15% or more of the outstanding common stock or commences
or announces an intention to commence a tender offer for 30% or more of the
outstanding common stock. Absent either of the aforementioned events
transpiring, the Rights will expire at the close of business on November 2,
2003.
The Rights have certain anti-takeover effects and, therefore, will cause
substantial dilution to a person or group who attempts to acquire the Company on
terms not approved by the Company's Board of Directors or who acquires 15% or
more of the outstanding common stock without approval of the Company's Board of
Directors. The Rights should not interfere with any merger or other business
combination approved by the Board since they may be redeemed by the Company at
$.01 per Right at any time until the close of business on the tenth day after a
person or group has obtained beneficial ownership of 15% or more of the
outstanding common stock or until a person commences or announces an intention
to commence a tender offer for 30% or more of the outstanding common stock.
9. COMMON STOCK AND CLASS A COMMON STOCK
In February and March 1999, the Company completed, through a public
offering, the issuance of an aggregate of 2,994,050 shares of Class A Common
Stock, including over-allotment options granted to the underwriters. The net
proceeds of the offering to the Company were $56.3 million. A portion of the
proceeds of the offering were used to repay the outstanding balance under the
Company's Credit Facility and to acquire Air Radio and Turbine (Note 2). The
remaining proceeds were used for working capital and general corporate purposes.
In accordance with the Company's share repurchase program, 96,300 and 29,600
shares of Common Stock and Class A Common Stock, respectively, were repurchased
in fiscal 1999 at a total cost of approximately $2.6 million. In fiscal 1998,
58,300 and 75,400 shares of Common Stock and Class A Common Stock, respectively,
were repurchased at a total cost of approximately $2.0 million.
Each share of Common Stock is entitled to one vote per share. Each share of
Class A Common Stock is entitled to a 1/10 vote per share. Holders of the
Company's Common Stock and Class A Common Stock are entitled to receive when, as
and if declared by the Board of Directors, dividends and other distributions
payable in cash, property, stock, or otherwise. In the event of liquidation,
after payment of debts and other liabilities of the Company, and after making
provision for the holders of preferred stock, if any, the remaining assets of
the Company will be distributable ratably among the holders of all classes of
common stock.
10. STOCK OPTIONS
The Company currently has two stock option plans, the 1993 Stock Option Plan
(1993 Plan) and the Non-Qualified Stock Option Plan (NQSOP). In March 1999, 1998
and 1997, shareholders of the Company approved increases in the number of shares
issuable pursuant to the 1993 Plan by 600,000, 586,865 and 596,421,
respectively. In September 1999, the Board of Directors reserved 379,250 shares
of Class A Common Stock for the issuance of non-qualified stock options in
conjunction with the employment of the former shareholders of SBIR. A total of
3,024,287 Common and 1,929,816 Class A Common shares of the Company's stock are
reserved for issuance to directors, officers and key employees as of October 31,
1999. Options issued under the 1993 Plan may be designated incentive stock
options (ISO) or non-qualified stock options (NQSO). ISOs are granted at not
less than 100% of the fair market value at the date of grant (110% thereof in
certain cases) and are exercisable in percentages specified at date of grant
over a period up to ten years. Only employees are eligible to receive ISOs.
NQSOs may be granted at
40
less than fair market value and may be immediately exercisable. Options granted
under the NQSOP may be granted to directors, officers and employees at no less
than the fair market value at the date of grant and are generally exercisable in
four equal annual installments commencing one year from date of grant.
All stock option share and price per share information has been
retroactively restated for stock dividends and splits.
Information concerning all of the stock option transactions for the three
years ended October 31, 1999 is as follows:
SHARES UNDER OPTION
SHARES --------------------------------
AVAILABLE PRICE
FOR OPTION SHARES PER SHARE
---------- ---------- ----------------
Outstanding, October 31, 1996 .................. 281,771 3,396,057 $1.46 -- $7.39
Additional shares approved for 1993
Stock Option Plan ............................ 596,421 -- --
Granted ........................................ (814,500) 814,500 $6.22 -- $12.36
Cancelled ...................................... 5,208 (87,991) $2.65 -- $10.89
Exercised ...................................... -- (208,377) $1.95 -- $7.39
---------- ---------- ----------------
Outstanding, October 31, 1997 .................. 68,900 3,914,189 $1.46 -- $12.36
Additional shares approved for 1993
Stock Option Plan ............................ 586,865 -- --
Granted ........................................ (429,002) 429,002 $9.92 -- $30.63
Cancelled ...................................... 2,382 (21,521) $9.83 -- $16.33
Exercised ...................................... -- (153,945) $1.95 -- $16.33
---------- ---------- ----------------
Outstanding, October 31, 1998 .................. 229,145 4,167,725 $1.46 -- $30.63
Additional shares approved for 1993
Stock Option Plan ............................ 600,000 -- --
Shares approved for grant to former shareholders
of SBIR ....................................... 379,250 -- --
Granted ........................................ (890,100) 890,100 $20.22 -- $25.94
Cancelled ...................................... 26,346 (26,721) $1.95 -- $29.17
Exercised ...................................... -- (421,642) $1.95 -- $11.67
---------- ---------- ----------------
Outstanding, October 31, 1999 .................. 344,641 4,609,462 $1.46 -- $30.63
========== ==========
Summary of shares available for option and shares under option by class of
common stock is as follows:
SHARES UNDER OPTION
SHARES -----------------------------
AVAILABLE PRICE
FOR OPTION SHARES PER SHARE
------- --------- ---------------
Common Stock ................ 41,190 2,765,932 $1.46 -- $30.63
Class A Common Stock ........ 187,955 1,401,793 $1.46 -- $29.17
------- ---------
Outstanding, October 31, 1998 229,145 4,167,725
======= =========
Common Stock ................ 175,403 2,848,884 $1.46 -- $30.63
Class A Common Stock ........ 169,238 1,760,578 $1.46 -- $29.17
------- ---------
Outstanding, October 31, 1999 344,641 4,609,462
======= =========
41
Information concerning stock options outstanding and exercisable by class of
common stock as of October 31, 1999 is as follows:
COMMON STOCK
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE (YEARS) EXERCISABLE EXERCISE PRICE
- ---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.46 - $ 3.33 1,314,691 $ 2.24 2.6 1,309,563 $ 2.24
$ 3.34 - $ 7.33 451,178 4.53 5.2 395,975 4.48
$ 7.34 - $12.36 534,465 9.93 7.4 350,304 9.85
$12.37 - $30.63 548,550 28.01 9.0 54,150 30.17
--------- ------ --- --------- ------
2,848,884 $ 9.01 5.2 2,109,992 $ 4.64
========= ====== === ========= ======
CLASS A COMMON STOCK
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE (YEARS) EXERCISABLE EXERCISE PRICE
- ---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.46 - $ 3.33 544,201 $ 2.20 2.8 541,637 $ 2.20
$ 3.34 - $ 7.33 216,284 4.50 5.1 188,678 4.45
$ 7.34 - $12.36 241,916 10.01 7.4 149,879 9.96
$12.37 - $29.17 758,177 22.76 9.5 430,073 21.26
--------- ------ --- --------- ------
1,760,578 $12.41 6.6 1,310,267 $ 9.67
========= ====== === ========= ======
Information concerning stock options outstanding and exercisable by class of
Common Stock as of October 31, 1998, is as follows:
COMMON STOCK
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE (YEARS) EXERCISABLE EXERCISE PRICE
- ---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.46 - $ 3.33 1,423,362 $ 2.23 3.5 1,407,013 $ 2.23
$ 3.34 - $ 7.33 502,895 4.47 5.8 405,425 4.41
$ 7.34 - $12.36 566,925 9.96 8.4 303,754 9.87
$12.37 - $30.63 272,750 30.16 9.6 -- --
--------- ------ --- --------- ------
2,765,932 $ 6.98 5.5 2,116,192 $ 3.74
========= ====== === ========= ======
CLASS A COMMON STOCK
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE (YEARS) EXERCISABLE EXERCISE PRICE
- ---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.46 - $ 3.33 711,533 $ 2.23 3.3 703,348 $ 2.23
$ 3.34 - $ 7.33 251,592 4.47 5.6 202,846 4.41
$ 7.34 - $12.36 283,541 9.96 8.4 151,997 9.87
$12.37 - $29.17 155,127 27.30 9.6 25,000 27.50
--------- ------ --- --------- ------
1,401,793 $ 6.97 5.4 1,083,191 $ 4.29
========= ====== === ========= ======
Information concerning stock options outstanding and exercisable as of
October 31, 1997, all of which related to Common Stock, is as follows:
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE (YEARS) EXERCISABLE EXERCISE PRICE
- ---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.46 - $ 3.33 2,299,653 $ 2.25 3.9 2,248,029 $ 2.25
$ 3.34 - $ 7.33 755,486 4.47 6.3 546,770 4.39
$ 7.34 - $12.36 859,050 9.97 9.4 355,072 9.87
--------- ------ --- --------- ------
3,914,189 $ 4.37 5.6 3,149,871 $ 3.48
========= ====== === ========= ======
42
If there were a change in control of the Company, options for an additional
738,892 shares of Common Stock and 450,311 shares of Class A Common Stock would
become immediately exercisable.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, compensation expense has
been recorded in the accompanying consolidated financial statements for those
options granted below the fair market value of the stock on the date of grant.
Had the fair value of all grants under these plans been recognized as
compensation expense over the vesting period of the grants, consistent with SFAS
No. 123, the Company's net income would have been $10,665,988 ($.72 and $.60
basic and diluted net income per share, respectively) for fiscal 1999,
$8,913,000 ($.71 and $.57 basic and diluted net income per share, respectively)
for fiscal 1998, and $4,805,000 ($.40 and $.33 basic and diluted net income per
share, respectively) for fiscal 1997.
The estimated weighted average fair value of options granted was $18.10 per
share for Common Stock and $14.26 per share for Class A Common Stock in fiscal
1999, $22.85 per share for Common Stock and $20.55 per share for Class A Common
Stock in fiscal 1998 and $7.73 per share, all of which was Common Stock, in
fiscal 1997.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
1999 1998 1997
---- ---- ----
CLASS A CLASS A
COMMON COMMON COMMON COMMON COMMON
STOCK STOCK STOCK STOCK STOCK
------ ------ ------ ------ ------
Volatility ............................... 59.42% 56.74% 59.69% 58.55% 66.21%
Risk free interest rate (weighted average) 5.21% 5.17% 4.94% 5.44% 6.35%
Dividend yield (weighted average) ........ .0019% .0021% .0017% .0019% .67%
Expected life (years) .................... 8 8 10 10 10
11. RETIREMENT PLANS
The Company has a qualified defined contribution retirement plan (the Plan)
under which eligible employees of the Company and its participating subsidiaries
may contribute up to 10% of their annual compensation, as defined, and the
Company will contribute specified percentages ranging from 25% to 50% of
employee contributions up to 3% of annual pay in Company stock or cash, as
determined by the Company. The Plan also provides that the Company may
contribute additional amounts in its common stock or cash at the discretion of
the Board of Directors.
In September 1992, the Company sold 987,699 shares of the Company's Common
Stock and 493,850 shares of Class A Common Stock to the Plan for an aggregate
price of $4,122,000 entirely financed through a promissory note with the
Company. The promissory note is payable in nine equal annual installments,
inclusive of principal and interest at the rate of 8% per annum, of $655,000
each and a final installment of $640,000 in September 2002 and is prepayable in
full or in part without penalty at any time.
Participants receive 100% vesting in employee contributions. Vesting in
Company contributions is based on number of years of service. Contributions to
the Plan charged to income for fiscal 1999, 1998 and 1997 totaled $503,000,
$452,000, and $498,000, respectively, net of interest income earned on the note
received from the Plan of $202,000 in fiscal 1999, $182,000 in fiscal 1998 and
$267,000 in fiscal 1997.
43
In 1991, the Company established a Directors Retirement Plan covering its
then current directors. The net assets of this plan as of October 31, 1999 and
1998 are not material to the financial position of the Company. During fiscal
1999, 1998 and 1997, $67,000, $80,000, and $76,000 respectively, was expensed
for this plan.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Net sales:
1999 .............. $28,211,000 $32,731,000 $35,593,000 $44,734,000
1998 .............. 19,783,000 22,673,000 24,062,000 28,833,000
1997 .............. 14,267,000 13,552,000 16,716,000 19,139,000
Gross profit:
1999 .............. $11,683,000 $13,429,000 $14,479,000 $17,941,000
1998 .............. 7,304,000 8,156,000 8,808,000 11,836,000
1997 .............. 4,741,000 4,536,000 4,869,000 6,483,000
Net income:
1999 .............. $ 3,203,000 $ 4,090,000 $ 4,351,000 $ 4,693,000
1998 .............. 2,282,000 2,451,000 2,613,000 3,163,000
1997 .............. 1,594,000 1,640,000 1,712,000 2,073,000
Net income per share:
Basic
1999 .............. $ .26 $ .27 $ .28 $ .30
1998 .............. .18 .20 .21 .25
1997 .............. .13 .14 .14 .17
Diluted
1999 .............. $ .21 $ .23 $ .24 $ .26
1998 .............. .15 .16 .17 .21
1997 .............. .11 .11 .12 .14
Due to changes in the average number of common shares outstanding, net
income per share for the full fiscal year does not equal the sum of the four
individual quarters.
13. OPERATING SEGMENTS
The Company has two operating segments: the Flight Support Group (FSG) which
represents HEICO Aerospace and its subsidiaries and the Electronics & Ground
Support Group (EGSG) which represents HEICO Aviation and its subsidiaries. The
FSG designs and manufactures jet engine replacement parts, provides
FAA-authorized repair and overhaul services and provides subcontracting services
to OEMs in the aerospace industry. The EGSG designs and manufactures commercial
and military electronics and ground support equipment, back-up power supplies,
circuit board shielding and infrared simulation and ground test equipment
primarily for the aerospace industry.
The Company's reportable business divisions offer distinctive products and
services that are marketed through different channels. They are managed
separately because of their unique technology and service requirements.
44
SEGMENT PROFIT OR LOSS
The accounting policies for segments are the same as those described in the
summary of significant accounting policies (Note 1). Management evaluates
segment performance based on segment operating income.
SEGMENTS
-----------------------------
OTHER,
PRIMARILY CONSOLIDATED
FSG EGSG CORPORATE TOTALS
------------ ------------ ------------ ------------
FOR THE YEAR ENDED OCTOBER 31, 1999:
Net sales .......................... $ 94,617,000 $ 46,652,000 $ -- $141,269,000
Depreciation and amortization ...... 4,727,000 1,172,000 198,000 6,097,000
Operating income ................... 31,338,000 5,937,000 (4,460,000) 32,815,000
Total assets ....................... 173,635,000 89,486,000 10,042,000 273,163,000
Capital expenditures ............... 13,359,000 835,000 23,000 14,217,000
FOR THE YEAR ENDED OCTOBER 31, 1998:
Net sales .......................... $ 65,412,000 $ 29,939,000 $ -- $ 95,351,000
Depreciation and amortization ...... 2,353,000 325,000 83,000 2,761,000
Operating income ................... 22,263,000 1,882,000 (5,181,000) 18,964,000
Total assets ....................... 100,835,000 24,354,000 7,872,000 133,061,000
Capital expenditures ............... 1,192,000 4,920,000 59,000 6,171,000
FOR THE YEAR ENDED OCTOBER 31, 1997:
Net sales .......................... $ 41,522,000 $ 22,152,000 $ -- $ 63,674,000
Depreciation and amortization ...... 1,347,000 230,000 47,000 1,624,000
Operating income ................... 12,205,000 1,049,000 (4,140,000) 9,114,000
Total assets ....................... 41,713,000 19,068,000 27,395,000 88,176,000
Capital expenditures ............... 2,951,000 589,000 11,000 3,551,000
MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION
No one customer accounted for 10 percent or more of the Company's
consolidated net sales during the last three fiscal years. The Company had no
material sales originating or long-lived assets held outside of the United
States during the last three fiscal years.
Export sales were $42,167,000 in fiscal 1999, $22,874,000 in fiscal 1998 and
$9,806,000 in fiscal 1997.
45
14. OTHER CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS
OF CASH FLOWS INFORMATION
Accounts receivable are composed of the following:
BALANCE AT OCTOBER 31,
------------------------------
1999 1998
------------ ------------
Accounts receivable ................ $ 36,047,000 $ 19,681,000
Less allowance for doubtful accounts (721,000) (259,000)
------------ ------------
Accounts receivable, net . $ 35,326,000 $ 19,422,000
============ ============
Revenue amounts set forth in the accompanying Consolidated Statements of
Operations do not include any material amounts in excess of billings related to
long-term contracts.
Inventories are composed of the following:
BALANCE AT OCTOBER 31,
---------------------------
1999 1998
----------- -----------
Finished products ....................... $15,401,000 $ 9,306,000
Work in process ......................... 12,801,000 5,213,000
Materials, parts, assemblies and supplies 16,970,000 9,808,000
----------- -----------
Total inventories ............. $45,172,000 $24,327,000
=========== ===========
Inventories related to long-term contracts were not significant as of
October 31, 1999 and 1998.
Property, plant and equipment are composed of the following:
BALANCE AT OCTOBER 31,
------------------------------
1999 1998
------------ ------------
Land ....................................... $ 1,799,000 $ 707,000
Buildings and improvements ................. 16,954,000 7,477,000
Machinery and equipment .................... 22,412,000 17,581,000
Construction in progress ................... 5,759,000 5,058,000
------------ ------------
46,924,000 30,823,000
Less accumulated depreciation .............. (18,588,000) (16,028,000)
------------ ------------
Property, plant and equipment, net $ 28,336,000 $ 14,795,000
============ ============
Depreciation and amortization expense on property, plant, and equipment
amounted to approximately $2,238,000, $1,973,000 and $1,243,000 for the years
ended October 31, 1999, 1998 and 1997, respectively.
Intangible assets are composed of the following:
BALANCE AT OCTOBER 31,
------------------------------
1999 1998
------------- -------------
Excess of cost over the fair value of net
assets acquired .......................... $ 146,964,000 $ 54,247,000
Deferred charges ............................ 2,504,000 1,691,000
------------- -------------
149,468,000 55,938,000
Less accumulated amortization ............... (5,911,000) (1,974,000)
------------- -------------
Intangible assets, net ...................... $ 143,557,000 $ 53,964,000
============= =============
Amortization expense related to excess of costs over the fair value of net
assets acquired and deferred charges amounted to approximately $3,859,000,
$788,000 and $381,000 for the years ended October 31, 1999, 1998 and 1997,
respectively.
46
Accrued expenses and other current liabilities are composed of the
following:
BALANCE AT OCTOBER 31,
---------------------------
1999 1998
----------- -----------
Accrued employee compensation .............................. $ 3,321,000 $ 3,515,000
Accrued customer rebates and credits ....................... 1,631,000 2,434,000
Estimated purchase price adjustments related to acquisitions 2,481,000 1,000,000
Deferred reimbursement of research and development costs ... 1,404,000 990,000
Accrued license payment .................................... 1,043,000 --
Accrued acquisition costs .................................. 879,000 --
Other ...................................................... 4,540,000 2,462,000
----------- -----------
Total accrued expenses and other current
liabilities .................................... $15,299,000 $10,401,000
=========== ===========
RESEARCH AND DEVELOPMENT EXPENSES
Fiscal 1999, 1998, and 1997 cost of sales amounts include approximately
$1,300,000, $900,000 and $3,100,000, respectively, of new product research and
development expenses. The expenses for fiscal 1999 and 1998 are net of
$6,700,000 and $3,500,000, respectively, received from Lufthansa and spent by
the Company for both years pursuant to a research and development cooperation
agreement entered into October 1997. Amounts received from Lufthansa and not
used as of October 31, 1999 and 1998 totaled $1,404,000 and $990,000,
respectively and are recorded as deferred income on the consolidated balance
sheets.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ARE AS FOLLOWS:
Cash paid for interest was $2,052,000, $996,000, and $477,000 in fiscal
1999, 1998 and 1997, respectively. Cash paid for income taxes was $10,312,000,
$6,753,000 and $3,438,000 in fiscal 1999, 1998 and 1997, respectively.
Non-cash investing and financing activities related to the acquisitions and
contingent note payments during fiscal 1999, 1998 and 1997 were as follows:
1999 1998 1997
------------- ------------- -------------
Fair value of assets acquired:
Intangible assets ......................... $ 93,347,000 $ 40,468,000 $ 8,395,000
Inventories ............................... 8,640,000 1,327,000 669,000
Accounts receivable ....................... 10,381,000 3,040,000 2,032,000
Property, plant and equipment ............. 1,597,000 1,985,000 421,000
Other assets .............................. 2,213,000 95,000 24,000
Cash paid, including contingent note payments (104,861,000) (45,627,000) (6,737,000)
Fair value of common stock issued ........... -- -- (3,544,000)
------------- ------------- -------------
Liabilities assumed ......................... $ 11,317,000 $ 1,288,000 $ 1,260,000
============= ============= =============
There were no significant capital lease financing activities during fiscal
1999, 1998 and 1997.
47
15. CONTINGENCIES
PENDING LITIGATION
In November 1989, HEICO Aerospace Corporation and Jet Avion were named
defendants in a complaint filed by United Technologies Corporation (UTC) in the
United States District Court for the Southern District of Florida. All counts of
UTC's complaint that were not previously withdrawn by UTC have been dismissed by
the court. UTC has appealed the dismissal. The complaint, as amended in fiscal
1995, alleged infringement of a patent, misappropriation of trade secrets and
unfair competition relating to certain jet engine parts and coatings sold by Jet
Avion in competition with Pratt & Whitney, a division of UTC. UTC sought
approximately $8 million in damages for the patent infringement and
approximately $30 million in damages for the misappropriation of trade secrets
and unfair competition claims. The aggregate damages referred to in the
preceding sentence did not exceed approximately $30 million because a portion of
the misappropriation and unfair competition damages duplicate the patent
infringement damages. UTC also sought, among other things, pre-judgment interest
and treble damages.
The Company has counterclaims against UTC for, among other things, malicious
prosecution, trade disparagement, tortious interference and unfair competition.
The Company is seeking compensatory and punitive damages in amounts to be
determined at trial. UTC filed an answer denying the counterclaims. No trial
date is currently set.
The ultimate outcome of this litigation is not certain at this time and no
provision for gain or loss, if any, has been made in the consolidated financial
statements.
In May 1998, the Company and its HEICO Aerospace Corporation and Jet Avion
subsidiaries were served with a lawsuit by Travelers Casualty & Surety Co.,
f/k/a the Travelers Casualty and Surety Co. (Travelers). In June 1999, the
Travelers lawsuit was dismissed by the federal court based on a lack of
jurisdiction. Travelers has appealed the dismissal. The complaint seeks
reimbursement of legal fees and costs totaling in excess of $15 million paid by
Travelers in defending the Company in the above referenced litigation with UTC.
In addition, Travelers seeks a declaratory judgement that the Company did not
and does not have insurance coverage under certain insurance policies with
Travelers and accordingly, that Travelers did not have and does not have a duty
to defend or indemnify the Company under such policies. Also named as defendants
in Travelers' lawsuit are UTC and one of the law firms representing the Company
in the UTC litigation.
The Company believes that it has significant counterclaims against Travelers
for damages. After taking into consideration legal counsel's evaluation of
Travelers' claim, management is of the opinion that the outcome of the Travelers
litigation will not have a significant adverse effect on the Company's
consolidated financial statements. No provision for gain or loss, if any, has
been made in the consolidated financial statements.
The Company is involved in various other 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 other matters
will not have a significant effect on the Company's consolidated financial
statements.
OTHER CONTINGENCIES
In January 1999, the Company received notice of a proposed adjustment
pursuant to an examination by the Internal Revenue Service of the Company's
fiscal 1995 and 1996 tax returns, disallowing the utilization of a $4.6 million
capital loss carryforward to offset the gain recognized by the Company in
connection with the sale of its health care operations in July 1996. The Company
has filed a protest requesting an appeal of such proposed adjustment, which
would result in additional taxes of approximately $1.8 million on the gain on
the sale of the discontinued health care operations. The outcome of this matter
is uncertain, accordingly, no provison for additional taxes, if any, has been
made in the consolidated financial statements.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Directors of the Company is incorporated by
reference to the Company's definitive proxy statement which will be filed with
the Securities and Exchange Commission (Commission) within 120 days after the
close of fiscal 1999.
Information concerning the executive officers of the Company is set forth at
Part I hereof under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is hereby incorporated by
reference to the Company's definitive proxy statement which will be filed with
the Commission within 120 days after the close of fiscal 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference to the Company's definitive proxy
statement which will be filed with the Commission within 120 days after the
close of fiscal 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
hereby incorporated by reference to the Company's definitive proxy statement
which will be filed with the Commission within 120 days after the close of
fiscal 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
The following consolidated financial statements of the Company and
subsidiaries are included in Part II, Item 8:
PAGE
----
Independent Auditors' Report............................................................ 25
Consolidated Balance Sheets at October 31, 1999 and 1998................................ 26 - 27
Consolidated Statements of Operations for the years ended October 31, 1999,
1998 and 1997......................................................................... 28
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended October 31, 1999, 1998 and 1997.................................. 29
Consolidated Statements of Cash Flows for the years ended October 31, 1999,
1998 and 1997......................................................................... 30
Notes to Consolidated Financial Statements.............................................. 31 - 48
49
(a)(2) FINANCIAL STATEMENT SCHEDULES:
No schedules have been submitted because they are not applicable or the
required information is included in the financial statements or notes thereto.
(a)(3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 -- Amended and Restated Agreement of Merger and Plan of
Reorganization, dated as of March 22, 1993, by and among
HEICO Corporation, HEICO Industries, Corp. and New HEICO,
Inc. is incorporated by reference to Exhibit 2.1 to the
Registrant's Registration Statement on Form S-4 (Registration
No. 33-57624) Amendment No. 1 filed on March 19, 1993.*
2.2 -- Stock Purchase Agreement, dated June 20, 1996, by and
among HEICO Corporation, MediTek Health Corporation and U.S.
Diagnostic Inc. is incorporated by reference to Exhibit 2 to
The Form 8-K dated July 11, 1996.*
2.3 -- Stock Purchase Agreement, dated as of September 16, 1996,
by and between HEICO Corporation and Sigmund Borax is
incorporated by reference to Exhibit 2 to the Form 8-K dated
September 16, 1996.*
2.4 -- Stock Purchase Agreement dated July 25, 1997, among HEICO
Corporation, N.A.C. Acquisition Corporation, Northwings
Accessories Corporation, Ramon Portela and Otto Newman
(without schedules) is incorporated by reference to Exhibit 2
to Form 8-K dated September 16, 1997.*
2.5 -- Stock Purchase Agreement dated as of July 12, 1999 among
HEICO Corporation, Thermal Structures, Inc., Quality
Honeycomb, Inc., David A. Janes, Vaughn Barnes, Stephen T.
Braunheim, DLD Investments, LLC, and Acme Freight, LLC
(without schedules and exhibits) is incorporated by reference
to Exhibit 2.1 to Form 8-K dated July 30, 1999.*
3.1 -- Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (Registration No.
33-57624) Amendment No. 1 filed on March 19, 1993.*
3.2 -- Articles of Amendment of the Articles of Incorporation of
the Registrant, dated April 27, 1993, are incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form 8-B dated April 29, 1993.*
3.3 -- Articles of Amendment of the Articles of Incorporation of
the Registrant, dated November 3, 1993, are incorporated by
reference to Exhibit 3.3 to the Form 10-K for the year ended
October 31, 1993.*
3.4 -- Articles of Amendment of the Articles of Incorporation of
the Registrant, dated March 19, 1998, are incorporated by
reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-3 (Registration No. 333-48439) filed on
March 23, 1998.*
3.5 -- Bylaws of the Registrant are incorporated by reference to
Exhibit 3.4 to the Form 10-K for the year ended October 31,
1996.*
50
4.0 -- The description and terms of Preferred Stock Purchase
Rights are set forth in a Rights Agreement between the
Company and SunBank, N.A., as Rights Agent, dated as of
November 2, 1993, incorporated by reference to Exhibit 1 to
the Form 8-K dated November 2, 1993.*
10.1 -- Loan Agreement, dated March 1, 1988, between HEICO
Corporation and Broward County, Florida is incorporated by
reference to Exhibit 10.1 to the Form 10-K for the year ended
October 31, 1994.*
10.2 -- SunBank Reimbursement Agreement, dated February 28, 1994,
between HEICO Aerospace Corporation and SunBank/South
Florida, N.A. is incorporated by reference to Exhibit 10.2 to
the Form 10-K for the year ended October 31, 1994.*
10.3 -- Amendment, dated March 1, 1995, to the SunBank
Reimbursement Agreement dated February 28, 1994 between HEICO
Aerospace Corporation and SunBank/South Florida, N.A. is
incorporated by reference to Exhibit 10.3 to the Form 10-K
from the year ended October 31, 1995.*
10.4 -- Amendment and Extension, dated February 28, 1999 to Loan
Agreement dated February 28, 1994, between SunTrust Bank,
South Florida, N.A. and HEICO Aerospace Corporation.**
10.5 -- Loan Agreement, dated March 31, 1994, between HEICO
Corporation and Eagle National Bank of Miami is incorporated
by reference to Exhibit 10.5 to the Form 10-K for the year
ended October 31, 1994.*
10.6 -- The First Amendment, dated May 31, 1994, to Loan Agreement
dated March 31, 1994 between HEICO Corporation and Eagle
National Bank of Miami is incorporated by reference to
Exhibit 10.6 to the Form 10-K for the year ended October 31,
1994.*
10.7 -- The Second Amendment, dated August 9, 1995, to the Loan
Agreement dated March 31, 1994 between HEICO Corporation and
Eagle National Bank of Miami is incorporated by reference to
Exhibit 10.9 to the Form 10-K for the year ended October 31,
1995.*
10.8 -- Second Loan Modification Agreement, dated February 27,
1997, between HEICO Corporation and Eagle National Bank of
Miami is Incorporated by reference to Exhibit 10.3 to the
Form 10-Q for the three months ended April 30, 1997.*
10.9 -- Third Loan Modification Agreement, dated February 6, 1998,
between HEICO Corporation and Eagle National Bank of Miami is
Incorporated by reference to Exhibit 10.1 to the Form 10-Q
for The three months ended January 31, 1998.*
10.10 -- Fourth Loan Modification Agreement, dated August 24, 1999,
between HEICO Corporation and Eagle National Bank of Miami.**
10.11 -- Loan Agreement, dated October 1, 1996, between HEICO
Aerospace Corporation and Broward County, Florida is
incorporated by Reference to Exhibit 10.10 to the Form 10-K
for the year ended October 31, 1996.*
51
10.12 -- SunTrust Bank Reimbursement Agreement, dated October 1,
1996, between HEICO Aerospace Corporation and SunTrust Bank,
South Florida, N.A. is incorporated by reference to Exhibit
10.11 to the Form 10-K for the year ended October 31, 1996.*
10.13 -- HEICO Savings and Investment Plan and Trust, as amended
and restated effective January 2, 1987 is incorporated by
reference to Exhibit 10.2 to the Form 10-K for the year ended
October 31, 1987.*
10.14 -- HEICO Savings and Investment Plan, as amended and restated
December 19, 1994, is incorporated by reference to Exhibit
10.11 to the Form 10-K for the year ended October 31, 1994.*
10.15 -- HEICO Corporation 1993 Stock Option Plan, as amended, is
incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-8 (Registration No.
333-81789) filed on June 29, 1999.*
10.16 -- HEICO Corporation Combined Stock Option Plan, dated March
15, 1988, is incorporated by reference to Exhibit 10.3 to the
Form 10-K for the year ended October 31, 1989.*
10.17 -- Non-Qualified Stock Option Agreement for Directors,
Officers and Employees is incorporated by reference to
Exhibit 10.8 to the Form 10-K for the year ended October 31,
1985.*
10.18 -- HEICO Corporation Directors' Retirement Plan, as amended,
dated as of May 31, 1991, is incorporated by reference to
Exhibit 10.19 to the Form 10-K for the year ended October 31,
1992.*
10.19 -- Key Employee Termination Agreement, dated as of April 5,
1988, between HEICO Corporation and Thomas S. Irwin is
incorporated by reference to Exhibit 10.20 to the Form 10-K
for the year ended October 31, 1992.*
10.20 -- Employment and Non-compete Agreement, dated as of
September 16, 1996, by and between HEICO Corporation and
Sigmund Borax is incorporated by reference to Exhibit 10.1 to
the Form 8-K dated September 16, 1996.*
10.21 -- Employment and Non-compete Agreement, dated as of
September 16, 1996, by and between HEICO Corporation and
Charles Kott is incorporated by reference to Exhibit 10.2 to
the Form 8-K dated September 16, 1996.*
10.22 -- Loan Agreement, dated as of March 1, 1997, between
Trilectron Industries, Inc. and Manatee County, Florida is
incorporated by reference to Exhibit 10.1 to the Form 10-Q
for the three Months ended April 30, 1997.*
10.23 -- Letter of Credit and Reimbursement Agreement, dated as of
March 1, 1997, between Trilectron Industries, Inc., and First
Union National Bank of Florida (excluding referenced
exhibits) is incorporated by reference to Exhibit 10.2 to the
Form 10-Q for the three months ended April 30, 1997.*
52
10.24 -- Registration Rights Agreement, dated September 15, 1997,
by and between HEICO Corporation and Ramon Portela is
incorporated by reference to Exhibit 10.1 to Form 8-K dated
September 16, 1997.*
10.25 -- Employment and Non-compete Agreement dated September 16,
1997, by and between Northwings Accessories Corporation and
Ramon Portela is incorporated by reference to Exhibit 10.2 to
Form 8-K dated September 16, 1997.*
10.26 -- Stock Purchase Agreement, dated October 30, 1997, by and
among HEICO Corporation, HEICO Aerospace Holdings Corp. and
Lufthansa Technik AG is incorporated by reference to Exhibit
10.31 to Form 10-K/A for the year ended October 31, 1997.*
10.27 -- Shareholders Agreement, dated October 30, 1997, by and
between HEICO Aerospace Holdings Corp., HEICO Aerospace
Corporation and all of the shareholders of HEICO Aerospace
Holdings Corp. and Lufthansa Technik AG is incorporated by
reference to Exhibit 10.32 to Form 10-K/A for the year ended
October 31, 1997.*
10.28 -- Stock Purchase Agreement dated as of June 9, 1998 among
HEICO Aerospace Holdings Corp., McClain International, Inc.,
Randolph S. McClain, Janet M. Wallace and Paul R. Schwinne
(without schedules) is incorporated by reference to Exhibit 2
to Form 8-K dated August 4, 1998.*
10.29 -- Agreement for the Sale and Purchase of Real Property, by
and among Randolph S. McClain and HEICO Aerospace Holdings
Corp., is incorporated by reference to Exhibit 10.1 to Form
8-K dated August 4, 1998.*
10.30 -- Credit Agreement among HEICO Corporation and SunTrust
Bank, South Florida, N.A., as Agent, dated as of July 30,
1998, is incorporated by reference to Exhibit 10.2 to Form
8-K dated August 4, 1998.*
10.31 -- First Amendment, dated July 30, 1998 to Credit Agreement
among HEICO Corporation and SunTrust Bank, South Florida,
N.A., as agent, dated as of July 31, 1998.**
10.32 -- Second Amendment, dated May 12, 1999, to Credit Agreement
among HEICO Corporation and SunTrust Bank, South Florida,
N.A., as agent, dated as of July 31, 1998.**
10.33 -- Asset Purchase Agreement, dated as of December 4, 1998,
among RDI Acquisition Corp., HEICO Aerospace Holdings Corp.,
HEICO Corporation, Rogers-Dierks, Inc., William Rogers and
John Dierks (without schedules and exhibits) is incorporated
by Reference to Exhibit 2.1 to Form 8-K dated December 22,
1998.*
21 -- Subsidiaries of the Company.**
23.1 -- Consent of Deloitte & Touche LLP.**
27.1 -- Financial Data Schedule.**
27.2 -- Financial Data Schedule.**
27.3 -- Financial Data Schedule.**
27.4 -- Financial Data Schedule.**
27.5 -- Financial Data Schedule.**
27.6 -- Financial Data Schedule.**
27.7 -- Financial Data Schedule.**
27.8 -- Financial Data Schedule.**
27.9 -- Financial Data Schedule.**
- ----------
* Previously filed.
** Filed herewith.
53
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K by the Company during the fourth
quarter of fiscal 1999.
(c) EXHIBITS
See Item 14(a)(3).
(d) SEPARATE FINANCIAL STATEMENTS REQUIRED
Not applicable.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
HEICO CORPORATION
By: /s/ THOMAS S. IRWIN
------------------------------
Thomas S. Irwin
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Date: January 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ LAURANS A. MENDELSON Chairman, President, Chief
- ---------------------------------------------------- Executive Officer and
Laurans A. Mendelson Director (Principal
Executive Officer)
/s/ JACOB T. CARWILE Director
- ----------------------------------------------------
Jacob T. Carwile
/s/ SAMUEL L. HIGGINBOTTOM Director
- ----------------------------------------------------
Samuel L. Higginbottom
/s/ ERIC A. MENDELSON Director
- ----------------------------------------------------
Eric A. Mendelson
/s/ VICTOR H. MENDELSON Director
- ----------------------------------------------------
Victor H. Mendelson
/s/ ALBERT MORRISON, JR Director
- ----------------------------------------------------
Albert Morrison, Jr.
Director
- ----------------------------------------------------
Alan Schriesheim
/s/ GUY C. SHAFER Director
- ----------------------------------------------------
Guy C. Shafer
55
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.4 -- Amendment and Extension, dated February 28, 1999 to Loan
Agreement dated February 28, 1994, between SunTrust Bank,
South Florida, N.A. and HEICO Aerospace Corporation.
10.10 -- Fourth Loan Modification Agreement, dated August 24, 1999,
between HEICO Corporation and Eagle National Bank of Miami.
10.31 -- First Amendment, dated July 30, 1998 to Credit Agreement
among HEICO Corporation and SunTrust Bank, South Florida,
N.A., as agent, dated as of July 31, 1998.
10.32 -- Second Amendment, dated May 12, 1999, to Credit Agreement
among HEICO Corporation and SunTrust Bank, South Florida,
N.A., as agent, dated as of July 31, 1998.
21 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP.
27.1 -- Financial Data Schedule.
27.2 -- Financial Data Schedule.
27.3 -- Financial Data Schedule.
27.4 -- Financial Data Schedule.
27.5 -- Financial Data Schedule.
27.6 -- Financial Data Schedule.
27.7 -- Financial Data Schedule.
27.8 -- Financial Data Schedule.
27.9 -- Financial Data Schedule.