As filed with the Securities and Exchange Commission on August 13, 2001
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K/A
Amendment No. 1
(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, 2000 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) 987-4000
(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 Registered)
(Title of Each Class)
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, 2000 was $191,000,000 based
on the closing price of Common Stock of $15.625 and Class A Common Stock of
$11.625 on December 31, 2000 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 8,514,386 shares
Class A Common Stock, $.01 par value 8,985,045 shares
(Class) (Outstanding at December 31, 2000)
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 53 for a
listing of exhibits.
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This is an amendment to Form 10-K previously filed with the Securities and
Exchange Commission on January 25, 2001, which amendment is being filed solely
to expand certain disclosure as requested by the Securities and Exchange
Commission. Previously reported financial results have not changed. The changes
are on pages 15, 34, 35, 38 and 49, although the entire document (excluding
exhibits except Exhibit 23) is being refiled for ease of use.
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:
. Lower commercial air travel;
. Our intention to introduce new products;
. Our ability to make acquisitions and achieve operating synergies from
acquired businesses;
. Product pricing levels;
. Product specification costs and requirements;
. Governmental and regulatory demands;
. Competition on military programs;
. Anticipated trends in our businesses, including trends in the markets for
aircraft engine parts, aircraft engine overhaul and electronics
equipment;
. Economic conditions within and outside of the aerospace, defense and
electronics industries; and
. 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
equipment to the aerospace, defense and electronics industries. The Company's
operations are divided into two segments, the Flight Support Group (FSG) and the
Electronic Technologies Group (ETG), formerly the Electronics and Ground Support
Group. 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 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, defense and commercial
applications. In fiscal 2000, the FSG accounted for 59% of our revenues. Through
our ETG, we manufacture various types of electrical equipment, including
electrical power supplies, back-up power supplies, electromagnetic interference
and radio frequency interference shielding and infrared simulation and test
equipment. In fiscal 2000, the ETG accounted for 41% of our revenues. In
September 2000, the Company sold Trilectron Industries, Inc. (Trilectron) and
its associated product line, which included ground support equipment for
commercial airlines and military agencies. See "Management's Discussion of
Financial Condition and Results of Operations" for details of the Company's
disposition. Adjusted to exclude the sales of Trilectron, the FSG accounted for
78% of our fiscal 2000 revenues and the ETG accounted for the remaining 22%.
1
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 $25.6 million in fiscal 1995 to $202.9 million in
fiscal 2000, a compound annual growth rate of 51% over the five-year period.
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 approximately $50 million
to date. This includes direct equity investments and the funding of specific
research and development projects. In connection with acquisitions by our FSG
since 1997, 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 and component replacement parts with significant
profit potential by utilizing Lufthansa's extensive operating data on engine and
component 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 1998, the Company, through acquisitions, has added
seven subsidiaries to its FSG and three subsidiaries to its ETG. 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 engine
parts and components such as combustion chambers, gas flow transition ducts,
airfoils 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.
Aircraft 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.
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
2
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
replacement parts that are sold to domestic and foreign commercial air carriers
and aircraft repair and overhaul companies. Our principal competitors are Pratt
& Whitney, a division of United Technologies Corporation (UTC) and General
Electric Company (General Electric), including its CFM International joint
venture. The FSG's factory-new replacement parts include various jet engine and
component 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 and component
replacement parts to design and manufacture through a selection process which
analyzes industry information to determine which 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 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. Most of our current sales of
PMA parts are for Pratt & Whitney engines, with a majority for the JT8D,
however, we are focusing efforts to increase our line of non-JT8D parts.
Currently over half of the PMA parts offered for sale are non-JT8D parts and our
strategy is to increase our market penetration for our non-JT8D parts.
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 1,900 Boeing 747 (100, 200 and 300
series) and 767 (200 series)
Airbus A300 and A310
McDonnell Douglas DC-10
PW2000 800 Boeing 757
PW4000 2,200 Boeing 747-400, 767-300 and 777
Airbus A300, A310 and A330
McDonnell Douglas MD-11
CFM International (a joint CFM56 8,500 Boeing 737 (300, 400, 500, 700,
venture of General Electric and 800 and 900 series)
SNECMA) Airbus A320 and A340-200
General Electric CF6 3,400 Boeing 747 and 767
Airbus A300, A310 and A330
McDonnell Douglas MD-11
IAE (a joint venture of Pratt & Whitney V2500 1,300 Airbus A320,
and Rolls Royce) McDonnell Douglas MD-90
Repair and Overhaul Services. We provide repair and overhaul services on
selected aircraft engine parts, as well as for avionics, instruments,
components, composites and flight surfaces for commercial aircraft. Our repair
and overhaul operations require a high level of expertise, advanced technology
and sophisticated equipment. Services include the repair, refurbishment and
overhaul of numerous accessories and parts mounted on gas turbine engines and
airframes. Components overhauled include fuel pumps, generators, fuel controls,
pneumatic valves, starters and actuators, turbo compressors and constant speed
drives, hydraulic pumps, valves and actuators, electro-mechanical
3
equipment and auxiliary power unit accessories. In June 2000, the Company
acquired the assets of Future Aviation, Inc., which expanded our repair and
overhaul services into the fast-growing regional aircraft market.
Manufacture of Specialty Aircraft/Defense Related Parts and Subcontracting
for OEMs. We also manufacture thermal insulation blankets primarily for
aerospace, defense and commercial applications. We also derive revenue from the
sale of specialty components as a subcontractor for OEMs and the U.S.
government.
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 by the FSG
increased from approximately $300,000 in 1991 to approximately $7.5 million in
fiscal 2000 including $5.2 million reimbursed in 2000 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 part of our growth strategy. As of October 31, 2000 an aggregate of
$700,000 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 complex parts. 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.
Electronic Technologies Group
Our ETG manufactures various types of electrically engineered products, such
as power supplies, shielding for communications, computer and aerospace
applications, infrared simulation and test equipment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
listing of operating subsidiaries included in the ETG.
4
Until the September 2000 sale of Trilectron, we also served the commercial
and military ground support equipment markets through the manufacture of
electrical ground power units, air start units, and air conditioning and heating
units that were sold to both domestic and foreign commercial and military
customers. This entire product line was sold in the sale discussed in Note 3 to
the Consolidated Financial Statements.
Products of the ETG include:
. On-board Aircraft Power Supplies. Our ETG 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 ETG'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.
. Infrared Simulation and Test Equipment. ETG is also a leading
international designer and manufacturer of state-of-the-art aerospace
and defense infrared simulation and 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 is used to project infrared scenes to assist with
product development and training for complex infrared targeting and
imaging systems and other items.
. Circuit Board Shielding. ETG also manufactures electromagnetic
interference and radio frequency interference shielding for circuit
boards and other items utilized in telecommunications, aerospace, and
microwave applications. The circuit board shielding technology reduces
electronic noise and protects sensitive components. We have a line of
patented products and the ability to fabricate in a wide variety of
shapes and applications, which we believe is a manufacturing advantage.
Financial information about operating segments, foreign and domestic operations
and export sales
See Note 15 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.
5
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 22% of total net sales during the year
ended October 31, 2000.
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.
Our jet engine replacement parts business competes primarily with Pratt &
Whitney and General Electric. The competition is principally based on price and
service inasmuch as our parts are interchangeable. 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 airframe and 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 ETG competes with several large and small domestic and foreign
competitors, some of which have greater financial resources than us. The market
for our electronic products are niche markets with several 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,
pre-plated phospher bronze and electrical components from various vendors. 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 $30.5 million on October 31, 2000
versus $35.5 million, excluding Trilectron, on October 31, 1999. Our FSG
operations had a backlog of unshipped orders as of October 31, 2000 of $13.9
million as compared to $17.3 million as of October 31, 1999. 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
ETG operations had a backlog of $16.6 million as of October 31, 2000 and $18.2
million, excluding Trilectron, as of October 31, 1999. Substantially all of the
backlog of orders as of October 31, 2000 are expected to
6
be delivered during fiscal 2001. Our backlogs are typically short-lead in nature
with many product orders being received by the Company within the month of
shipment.
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
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 sales largely consist of JT8D
aircraft engines, 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 and implementation of the ban has been delayed. U.S. and EU
officials are in discussion to reach a compromise. 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 19% of our net sales in fiscal 2000 consisted of
sales of factory-new FAA-approved replacement parts for the JT8D aircraft engine
down from 31% in fiscal 1999.
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.
7
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, 2000, the Company had 960 full-time employees, of which
737 were in the FSG, 211 were in the ETG, and 12 were corporate. None of our
employees are represented by a union. We believe that our employee relations are
good.
8
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 Overhaul and repair 45,000 Owned
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 September 30, 2002
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 - September 2003
engineering facility
Roswell, New Mexico Manufacturing and 45,000 Month to month
engineering facility
Naples, Florida Overhaul and repair 15,000 May 2005
facility
Electronic Technologies Group
-----------------------------
Square Owned/Lease
Location Description Footage Expiration
--------------------- ---------------------- -------- ------------
Palmetto, Florida Manufacturing and 10,000 April 2001
engineering facility and
offices
Tampa, Florida Manufacturing and 41,000 August 2003
engineering facility and
offices
Santa Barbara, California Manufacturing and 10,000 August 2003
engineering facility and
offices
Corporate
---------
Square Owned/Lease
Location Description Footage Expiration
--------------------- ---------------------- --------- --------------
Hollywood, Florida Corporate headquarters Included Owned
above
Miami, Florida Administrative offices 3,000 Month to month(1)
--------
(1) This facility is expected to be purchased in fiscal 2001.
For additional information with respect to our leases, see Note 7 of Notes
to our Consolidated Financial Statements.
9
We believe that our current capacity, coupled with our plans for facilities
expansion, is sufficient to handle our anticipated needs for the foreseeable
future.
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. 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. The Company filed counterclaims against UTC. UTC filed an
answer denying the counterclaims. All counts of UTC's complaint that were not
previously withdrawn by UTC were dismissed by the court and UTC appealed the
dismissal.
In March 2000, the Company settled the litigation with UTC. As part of the
settlement, the Company received a permanent license to make and sell parts
which were the subject of the litigation, and UTC was paid a prepaid sum for
such license by the Company's insurer (see below). The settlement is not
expected to materially affect the Company's earnings or financial condition.
In May 1998, the Company and its HEICO Aerospace Corporation and Jet Avion
Corporation subsidiaries were served with a lawsuit by Travelers Casualty &
Surety Co., f/k/a the Aetna Casualty and Surety Co. (Travelers). In June 1999,
the Travelers lawsuit was dismissed by the federal court based on a lack of
jurisdiction. Travelers is challenging the dismissal. The complaint sought
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 sought a declaratory judgment 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 partially offset the gain recognized by the Company
in connection with the sale of its health care operations in July 1996. In the
fourth quarter of fiscal 2000, the Company settled the claim as described in
Note 4 to the Consolidated Financial Statements.
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 2000.
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:
10
Director
Name Age Position(s) Since
---- ---- ----------- -------
Laurans A. Mendelson 62 Chairman of the Board, President and Chief 1989
Executive Officer
Thomas S. Irwin 54 Executive Vice President and Chief Financial
Officer
Eric A. Mendelson 35 Vice President and Director, President of HEICO 1992
Aerospace Holdings Corp.
Victor H. Mendelson 33 Vice President, General Counsel and Director, 1996
President of HEICO Electronics Technologies Corp.
James L. Reum 69 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. Mr. Mendelson serves on the board of governors of the AIA and on the
Board of Directors of Hawker Pacific Aerospace, which provides overhaul and
repair services to the aviation industry. Mr. Mendelson is also a member of the
Board of Trustees of Columbia University and the Board of Trustees of Mount
Sinai Medical Center in Miami Beach, Florida. Mr. Mendelson is a Certified
Public Accountant.
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 Electronic Technologies Corp., formerly 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 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
11
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 2000, the Company's
Directors, Executive Officers and 10% shareholders complied with all Section
16(a) filing requirements applicable to them.
12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
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 the American
Stock Exchange (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 July 2000, the Company paid a 10% stock dividend on both classes of
common stock in Class A Common Stock. The quarterly sales prices and cash
dividend amounts have been retroactively adjusted for the 10% stock dividend.
Class A Common Stock
--------------------
Cash Dividends
High Low Per Share
---- --- --------------
Fiscal 1999
First Quarter............................................... $ 21.94 $ 17.73 $ .022
Second Quarter.............................................. 22.39 17.22 --
Third Quarter............................................... 22.16 19.04 $ .023
Fourth Quarter.............................................. 20.28 13.64 --
Fiscal 2000:
First Quarter............................................... $ 19.32 $ 11.36 $ .023
Second Quarter.............................................. 16.14 10.00 --
Third Quarter............................................... 16.00 10.17 $ .025
Fourth Quarter.............................................. 16.44 10.88 --
On December 31, 2000 there were 1,141 holders of record of the Class A
Common Stock.
Common Stock
------------
Cash Dividends
High Low Per Share
---- --- --------------
Fiscal 1999:
First Quarter.................................. $ 29.32 $ 21.14 $ .022
Second Quarter................................. 24.89 18.24 --
Third Quarter.................................. 23.30 20.57 $ .023
Fourth Quarter................................. 21.71 15.40 --
Fiscal 2000:
First Quarter.................................. $ 20.34 $ 13.13 $ .023
Second Quarter................................. 16.42 12.05 --
Third Quarter.................................. 20.25 11.19 $ .025
Fourth Quarter................................. 20.13 11.75 --
On December 31, 2000, there were 1,146 holders of record of the Common
Stock.
13
Item 6. Selected Financial Data
Year Ended October 31,
-----------------------------------------------------
1996 1997 1998(5) 1999(5) 2000(5)
-------- -------- -------- ------- -------
(In thousands, except per share data)
Operating Data:
Net sales............................................... $ 34,565 $ 63,674 $ 95,351 $141,269 $202,909
-------- -------- -------- -------- --------
Gross profit............................................ 12,169 20,629 36,104 57,532 75,811
Selling, general and administrative expenses............ 7,657 11,515 17,140 24,717 36,576
Write-off of receivables(1)............................. -- -- -- -- 1,312
-------- -------- -------- -------- --------
Operating income........................................ 4,512 9,114 18,964 32,815 37,923
-------- -------- -------- -------- --------
Interest expense........................................ 185 477 984 2,173 5,611
-------- -------- -------- -------- --------
Gain on sale of product line(2)......................... -- -- -- -- 17,296
-------- -------- -------- -------- --------
Income (loss):
From continuing operations ........................... 3,665 7,019 10,509 16,337 27,739
From discontinued operations.......................... 963 -- -- -- --
From gain on sale of discontinued operations.......... 5,264 -- -- -- (1,422)(3)
-------- -------- -------- -------- --------
Net income.............................................. $ 9,892 $ 7,019 $ 10,509 $ 16,337 $ 26,317
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding:(4)
Basic................................................. 12,848 13,244 13,749 16,303 17,377
Diluted............................................... 14,610 15,860 17,095 19,407 19,917
Per Share Data:(4)
Income from continuing operations:
Basic................................................. $ .29 $ .53 $ .76 $ 1.00 $ 1.59(6)
Diluted............................................... .25 .44 .61 .84 1.39(6)
Net income:
Basic................................................. .77 .53 .76 1.00 1.51
Diluted............................................... .68 .44 .61 .84 1.32
Cash dividends(4)....................................... .035 .041 .045 .045 .048
Balance Sheet Data (at year end):
Working capital......................................... $ 25,248 $ 45,131 $ 40,587 $ 63,278 $55,469
Total assets............................................ 61,836 88,639 133,061 273,163 281,732
Total debt (including current portion).................. 6,516 10,800 30,520 73,501 40,042
Minority interest in consolidated subsidiary............ -- 3,273 14,892 30,022 33,351
Shareholders' equity.................................... 41,488 59,446 67,607 139,289 169,844
____________
(1) Represents write-off of receivables as a result of bankruptcy filings by
certain customers.
(2) Represents the gain on sale of Trilectron Industries, Inc. (Trilectron) in
September 2000.
(3) Represents adjustment to gain from the sale of the discontinued health care
operations that were sold in fiscal 1996.
(4) Information has been adjusted to reflect three-for-two stock splits
distributed in April 1996 and December 1997, 10% stock dividends paid in
February 1996, July 1996 and January 1997, a 50% stock distribution paid in
shares of Class A Common Stock in April 1998 and a 10% stock dividend paid
in shares of Class A Common Stock in July 2000.
(5) Results include the results of acquisitions and disposition of a product
line from each respective effective date as explained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
14
(6) The gain on sale of Trilectron referenced above increased basic and diluted
income per share from continuing operations by $0.61 and $0.53,
respectively, which was partially offset by the write-off of receivables
which reduced basic and diluted income per share from continuing operations
by $0.04 and $0.03, respectively.
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Our Flight Support Group (FSG) consists of HEICO Aerospace Holdings Corp.
and the following operating subsidiaries:
Name Description of Principal Operations
---- -----------------------------------
Jet Avion Corporation.............................. Design and manufacture of FAA-approved
replacement parts
McClain International, Inc. (McClain).............. Design, manufacture and overhaul of FAA-approved
replacement parts
Rogers-Dierks, Inc. (Rogers-Dierks)................ Design and manufacture of FAA-approved
replacement parts
Turbine Kinetics, Inc. (Turbine)................... Design and manufacture of FAA-approved
replacement parts
LPI Industries Corporation......................... Original equipment manufacturer subcontractor
Aircraft Technology, Inc........................... Repair and overhaul of jet engine parts
Northwings Accessories Corporation (Northwings).... Repair and overhaul of jet engine and airframe
components and accessories
Associated Composite, Inc. (ACI)................... Repair and overhaul of aircraft composites and
flight surfaces
Air Radio & Instruments Corp. (Air Radio).......... Repair and overhaul of avionics, instruments and
electronic equipment for aircraft
Future Aviation, Inc. (Future)..................... Repair and overhaul of regional and commuter
aircraft accessory components
Thermal Structures, Inc. (Thermal) ................ Manufacture of thermal insulation products and related
components
Our Electronic Technologies Group (ETG) consists of HEICO Electronic
Technologies Corp. and the following operating subsidiaries:
Name Description of Principal Operations
---- -----------------------------------
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 interference and radio
frequency interference 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
test equipment
16
Trilectron Industries, Inc., formerly a part of the ETG which designed and
manufactured electronically controlled ground support equipment for aircraft,
was sold in September 2000. The sale of this product line is further discussed
below and in Note 3 to our Consolidated Financial Statements.
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 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.
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 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 replacement parts on a worldwide basis. In
connection with subsequent acquisitions by HEICO Aerospace, Lufthansa invested
additional amounts aggregating $21 million pursuant to its option to maintain a
20% equity interest.
In July 1998, the Company completed the acquisition of McClain for
approximately $43.5 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 June 1999, the Company acquired Thermal for approximately $28.9
million in cash, and assumed approximately $4 million in debt.
In February 2000, the Company, through a subsidiary, acquired selected
assets of the former Air-A-Plane Corporation for cash. The purchase price was
not significant to the Company's consolidated financial statements. The
principal acquired assets of Air-A-Plane were subsequently sold as a part of the
product line sold in September 2000.
Effective June 1, 2000, the Company, through a subsidiary, acquired
substantially all of the assets and certain liabilities of Future for $14.7
million in cash.
On September 14, 2000, the Company consummated the sale of all of the
outstanding capital stock of Trilectron, to Hobart Brothers Company, a wholly-
owned subsidiary of Illinois Tool Works Inc. (Hobart). In consideration of the
sale of Trilectron's capital stock, the Company received $52,500,000 in cash, an
unsecured non-interest bearing promissory note for $12.0 million payable in
three equal installments over the next 90 days, a purchase price adjustment of
$4.5 million based on the net worth of Trilectron as of the closing date of the
sale, and retained certain property having a book value of approximately $1.5
million. The full amount of the promissory note and the purchase price
adjustment were collected subsequent to year end. The proceeds from the sale
were used to pay down the outstanding balance on the Company's Credit Facility.
The sale of Trilectron resulted in a pretax gain in fiscal 2000 of $17,296,000
($10,542,000 or $.53 per diluted share, net of income tax).
All net income per share, dividends per share and common stock outstanding
information has been adjusted for all years presented to give retroactive effect
to stock distributions and stock dividends.
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,
-------------------------------
1998 1999 2000
---------- ---------- -------
(Dollar amounts in thousands)
Net sales
FSG........................................................... $ 65,412 $ 94,617 $119,304
ETG........................................................... 29,939 46,652 83,605
-------- --------- --------
$ 95,351 $ 141,269 $202,909
======== ========= ========
Net sales...................................................... 100.0% 100.0% 100.0%
Gross profit................................................... 37.9% 40.7% 37.4%
Selling, general and administrative expenses................... 18.0% 17.5% 18.0%
Write-off of receivables....................................... -- -- 0.6%
Operating income............................................... 19.9% 23.2% 18.7%
Interest expense............................................... 1.0% 1.5% 2.8%
Interest and other income...................................... 2.2% 0.6% 0.5%
Gain on sale of product line................................... -- -- 8.5%
Income tax expense............................................. 7.3% 8.2% 9.6%
Minority interest.............................................. 2.7% 2.5% 1.6%
Net income..................................................... 11.0% 11.6% 13.0%
Comparison of Fiscal 2000 to Fiscal 1999
Net Sales
Net sales in fiscal 2000 totaled $202.9 million, up 44% when compared to
fiscal 1999 net sales of $141.3 million.
The increase in sales for fiscal 2000 reflects an increase of $24.7 million
(a 26% increase) to $119.3 million from the Company's FSG and an increase of
$37.0 million (a 79% increase) to $83.6 million in revenues from the Company's
ETG. Sales from the FSG reflect the addition of newly-acquired businesses and
increases in sales of new products and services, including newly developed and
acquired FAA-approved jet engine replacement parts, partially offset by softness
within the aviation aftermarket in the second half of fiscal 2000. The FSG sales
increase includes revenues of $17.9 million from businesses acquired during
fiscal 1999 (Air Radio and Thermal) and fiscal 2000 (Future). Sales from the ETG
reflect revenues from new products and increased market penetration as well as
$12.7 million from businesses acquired during fiscal 1999 (Radiant, Leader Tech,
and SBIR), net of the decrease in sales resulting from the product line sold in
September 2000 (Trilectron). Excluding sales of Trilectron, consolidated sales
were $152.8 million for fiscal 2000 and $104.7 million for fiscal 1999.
Gross Profits and Operating Expenses
The Company's gross profit margins averaged 37.4% for fiscal 2000 as
compared to 40.7% for fiscal 1999. Excluding the results of operations of
Trilectron, gross margins in fiscal 2000 were 43.7% compared to 48.0% in fiscal
1999. The lower gross margins in fiscal 2000 were primarily due to a decrease in
FSG gross profit margins. The decrease in the FSG gross margins was primarily
due to lower margins contributed by certain acquired businesses and higher new
product research and development expense due to lower reimbursements from
Lufthansa, softness in demand for our higher margin replacement parts, less
favorable product pricing and the benefit realized in fiscal 1999 from favorable
pricing under certain contracts. Fiscal 2000 and 1999 cost of sales amounts
include approximately $2.3 million and $1.2 million of new product research and
development expenses of the FSG, respectively. These amounts
18
are net of $5.2 million and $6.7 million received from Lufthansa in 2000 and
1999, respectively, and spent by the Company pursuant to the research and
development agreement with Lufthansa. As of October 31, 2000, the Company has
future reimbursements for research and development expenses aggregating $700,000
from Lufthansa which will be received through May 2001. New product research and
development expense of the FSG for fiscal 2001 is expected to increase by $3
million as a result of the lower reimbursements under the agreement with
Lufthansa. The decrease in the gross margin of the FSG was offset by an increase
in the gross margin of the ETG. The gross margin improvement in the ETG
primarily reflects higher gross profit margins contributed by businesses
acquired in fiscal 1999 and the addition of new products with higher profit
margins.
Selling, general and administrative (SG&A) expenses were $36.6 million for
fiscal 2000 and $24.7 million for fiscal 1999. The increase results from the
inclusion of SG&A expenses of the newly acquired companies, including additional
amortization of goodwill which totaled $6.1 million in fiscal 2000 versus $3.7
million in fiscal 1999, and higher marketing costs. As a percentage of net
sales, SG&A expenses remained stable at 18.0% in fiscal 2000 versus 17.5% in
fiscal 1999 reflecting continuing efforts to control costs while increasing
revenues.
In fiscal 2000, the Company wrote-off receivables of $1,312,000 as a result
of bankruptcy filings by certain customers. These customers contributed sales of
approximately $2 million in the first half of fiscal year 2000, substantially
all occurring prior to the bankruptcy filings. The charge reduced fiscal net
income by $651,000 or $.03 per diluted share, net of income tax. There were no
significant receivable write-offs resulting from bankruptcies during 1999 and
1998.
Operating Income
Operating income increased $5.1 million to $37.9 million (a 16% increase)
for fiscal 2000 from $32.8 million for fiscal 1999. The increase in operating
income reflects an increase of $6.5 million (a 110% increase) from $5.9 million
to $12.5 million in the Company's ETG offset by a decrease of $1.7 million (a 5%
decrease) from $31.3 million to $29.6 million in the Company's FSG. The decrease
in FSG operating income in fiscal 2000 was due primarily to the $1.3 million
write-off of receivables referenced above and higher new product research and
development expense discussed above. The increase in ETG operating income was
due primarily to increases in sales and gross profits in the ETG discussed
above. Operating income for fiscal 2000 was also affected by softness in certain
segments of the aviation aftermarket and the sale of Trilectron in September
2000.
As a percentage of net sales, operating income decreased from 23.2% in
fiscal 1999 to 18.7% in fiscal 2000 reflecting lower margins within the FSG
discussed above. The FSG's operating income as a percentage of net sales
declined from 33.1% in fiscal 1999 to 24.8% in fiscal 2000 due principally to
the receivable write-off referenced above, lower margins contributed by certain
acquired businesses and higher new product research and development expense. The
operating margins in the FSG were partially offset by improvements in the
operating margins of the ETG, as well as lower corporate costs. The ETG's
operating income as a percentage of net sales improved from 12.7% in fiscal 1999
to 14.9% in fiscal 2000. This improvement reflects higher operating margins
contributed by businesses acquired in fiscal 1999 and new products. Corporate
costs as a percent of consolidated sales were down 1% in fiscal 2000 versus
fiscal 1999.
Adjusted to exclude Trilectron's operations and the impact of the
aforementioned accounts receivable write-off, operating margins were 23.4% in
fiscal 2000.
Interest Expense
Interest expense increased $3.4 million to $5.6 million from fiscal 1999 to
fiscal 2000. 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 increased slightly by $35,000 to $929,000 from
fiscal 1999 to fiscal 2000 due to an increase in invested funds.
19
Gain on sale of product line
The gain represents the pretax gain on the aforementioned sale of
Trilectron.
Income Tax Expense
The Company's effective tax rate increased to 38.6% in fiscal 2000 from
36.8% in fiscal 1999, primarily due to lower tax benefit on export sales
attributable to the inclusion of the gain on the sale of Trilectron and
increased state taxes and non-deductible goodwill resulting from acquisitions.
For a detailed analysis of the provisions for income taxes, see Note 8 to the
Consolidated Financial Statements.
Minority Interest
Minority interest represents the 20% minority interest held by Lufthansa,
which decreased $304,000 from fiscal 1999 to fiscal 2000 due primarily to lower
net income of the FSG and higher corporate expenses allocable to the minority
interest.
Income from Continuing Operations
The Company's income from continuing operations totaled $27.7 million, or
$1.39 per diluted share, in fiscal 2000 improving 70% from income from
continuing operations of $16.3 million, or $.84 per diluted share, in fiscal
1999.
The increase in income from continuing operations is primarily due to the
gain on the sale of product line and increased operating income partially offset
by higher interest expense discussed above.
Excluding the gain on sale of product line and the write-off of receivables
referenced above, income from continuing operations increased by $1.5 million to
$17.8 million, or $.90 per diluted share, from $16.3 million, or $.84 per
diluted share, in fiscal 1999.
Cash earnings per share from continuing operations, or income from
continuing operations per diluted share before goodwill amortization (adjusted
for the after tax impact of goodwill), increased 66% to $1.59 in fiscal 2000
from $.96 in fiscal 1999.
Adjustment to Gain on Sale of Discontinued Operations
The adjustment to gain on sale of discontinued operations of $1.4 million
($0.07 per diluted share) represents the additional taxes and related interest
incurred in connection with the Company's settlement of a tax adjustment whereby
the IRS conceded one-third of the original tax adjustment proposed by the IRS.
For further information, see Note 4 to Consolidated Financial Statements.
Net Income
The Company's net income totaled $26.3 million, or $1.32 per diluted share,
in fiscal 2000, improving 61% from net income of $16.3 million, or $.84 per
diluted share, in fiscal 1999.
The improvement in net income for fiscal 2000 over fiscal 1999 reflects the
increase in income from continuing operations partially offset by the adjustment
to the gain on sale of the discontinued health care operations.
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.
20
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
ETG. 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 ETG
reflect revenues of $10.1 million from newly acquired businesses (Radiant,
Leader Tech, and SBIR). The balance of the ETG 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 research and development expenses, respectively.
These amounts are net of $6.7 million and $3.5 million received from Lufthansa
in 1999 and 1998, respectively. The gross margin improvement in the ETG
primarily reflects higher gross profit margins contributed by newly acquired
businesses and the addition of new products with higher profit margins.
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 goodwill which totaled $3.7 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
remained stable at 17.5% for fiscal 1999 versus 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 ETG. The increases
in operating income were due primarily to increases in sales and gross profits
in the FSG and ETG 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 ETG'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.
21
Income Tax Expense
The Company's effective tax rate increased 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 8 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 $.84 per diluted share,
in fiscal 1999, improving 55% from net income of $10.5 million, or $.61 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.
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.
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 fiscal
2000, the Company also generated cash from the sale of a product line.
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 $12.1 million for fiscal 2000, principally
reflecting net income of $26.3 million, adjustments for gain on sale of product
line, depreciation and amortization, minority interest, and tax benefits related
to stock option exercises of $17.3 million, $9.8 million, $3.3 million and $1.7
million, respectively, offset by an increase in net operating assets of $11.5
million. The increase in net operating assets primarily resulted from an
increase in accounts receivable resulting from extended payment terms, and an
increase in inventories to meet increased sales orders under certain ETG
contracts, as well as increases in income taxes payable and accrued expenses of
$7.9 million and $1.2 million, respectively, mainly due to the sale of
Trilectron. Excluding cash flow used in the operations of Trilectron prior to
its sale, cash flow from operations totaled approximately $21 million in fiscal
2000.
Cash flow from operations was $9.6 million in fiscal 1999 principally
reflecting net income of $16.3 million, adjustments for depreciation and
amortization, minority interest, and tax benefits related to stock option
exercises of $6.3 million, $3.6 million and $1.6 million, respectively, offset
by an increase in net operating assets of $18.2 million. This increase in net
operating assets primarily resulted from the net effect of an increase in
inventories to meet increased sales orders and an increase in accounts
receivable resulting from extended payment terms under
22
certain ETG contracts, 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 $10.0 million in fiscal 1998 principally
reflecting net income of $10.5 million, an adjustment 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. The
increase in net operating assets was primarily due to increases in inventories
and accounts receivable associated with higher levels of operations and deferred
reimbursement of research and development costs from Lufthansa.
Investing Activities
The principal cash provided by investing activities was $48.4 million
generated in fiscal 2000 as a result of the sale of Trilectron. Cash used in
investing activities the last three years was cash used in acquisitions totaling
$175.3 million, including $24.8 million in fiscal 2000. For further detail on
acquisitions see Notes 2 and 16 to the Consolidated Financial Statements.
Capital expenditures totaled $29.1 million primarily representing the purchase
of new facilities and expansion of existing production facilities and
capabilities.
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 in fiscal 1999 and proceeds from long-term debt of
$155.5 million, including $149.5 million from the Company's Credit Facility used
primarily to fund acquisitions. In addition, the Company received $20.5 million
from Lufthansa during fiscal 1999 and 1998 representing minority interest
investments to purchase and maintain its 20% equity position in the FSG. The
Company repaid $111.5 million of the outstanding balance on its Credit Facility
and $5.6 million in other long-term debt. The Company also used an aggregate of
$4.8 million to repurchase common stock primarily during fiscal 1999 and 1998.
In 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
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
6 to the Consolidated Financial Statements for further information regarding
credit facilities.
New Accounting Standards
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 was
amended in June 2000 by Statement of Financial Accounting Standards No. 138
(SFAS 138) for certain derivative instruments and hedging activities as
indicated by SFAS 138. The Company adopted SFAS 133 beginning November 1, 2000.
Adoption of SFAS 133 is not significant to the Company's consolidated financial
statements as of October 31, 2000.
23
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which among other guidance, clarifies certain conditions to be met in
order to recognize revenue. In October 2000, the staff deferred the
implementation date of SAB 101 until no later than the fourth quarter of fiscal
years beginning after December 15, 1999. The Company will adopt SAB 101 in
fiscal 2001, however, such adoption would not be significant to the Company's
consolidated financial statements as of October 31, 2000.
In July 2000, the Emerging Issues Task Force (EITF) issued "Classification
in the Statement of Cash Flows of the Income Tax Benefit Realized by a Company
upon Employee Exercise of a Non-qualified Stock Option" (EITF 00-15). This Issue
addresses the cash flow statement presentation of the windfall tax benefit
associated with nonqualified stock options. Companies receive an income tax
deduction for the difference between the exercise price and the market price of
a nonqualified stock option upon exercise by the employee. EITF 00-15 concludes
that the income tax benefit realized by the Company upon employee exercise
should be classified in the operating section of the cash flow statement. The
EITF is effective for all quarters ending after July 20, 2000. The Company
adopted EITF 00-15 as of July 31, 2000 and as such has reclassified the income
tax benefit realized on stock options into the cash provided by operating
activities for both periods presented.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The primary market risk to which the Company has exposure is interest rate
risk, mainly related to its revolving credit facility and industrial revenue
bonds, which had an aggregate outstanding balance of $40 million and $72 million
at October 31, 2000 and 1999, respectively. Interest rates on the revolving
credit facility borrowings are based on LIBOR plus a variable margin, while
interest rates on the industrial development revenue bonds are based on variable
rates. Changes in interest rates can affect the Company's net income and cash
flows. In order to manage its interest rate risk, in February 2000, the Company
entered into an interest rate swap with a bank pursuant to which it exchanged
floating rate interest based on three-month LIBOR on a notional principal amount
of $30 million for a fixed rate payment obligation of 6.59% for a two-year
period ending February 2, 2002. This allows the Company to reduce the effects
(positive or negative) of interest rate changes on operations. Based on the
outstanding debt balance at October 31, 2000 and 1999, a change of 1% in
interest rates would cause a change in interest expense of approximately
$100,000 and $720,000, respectively, on an annual basis.
As of October 31, 2000 and 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 rates 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.
24
Item 8. Financial Statements and Supplementary Data HEICO Corporation and
Subsidiaries
HEICO CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.................................................................. 26
Consolidated Balance Sheets at October 31, 2000 and 1999...................................... 27
Consolidated Statements of Operations for the years ended October 31, 2000, 1999 and
1998........................................................................................ 29
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years
Ended October 31, 2000, 1999 and 1998....................................................... 30
Consolidated Statements of Cash Flows for the years ended October 31, 2000, 1999 and
1998........................................................................................ 31
Notes to Consolidated Financial Statements.................................................... 32
25
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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
December 14, 2000
26
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2000 and 1999
2000 1999
----------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 4,807,000 $ 6,031,000
Receivable from sale of product line ............................ 12,412,000 --
Accounts receivable, net......................................... 29,553,000 35,326,000
Inventories...................................................... 34,362,000 45,172,000
Prepaid expenses and other current assets........................ 2,975,000 2,527,000
Deferred income taxes............................................ 2,543,000 1,534,000
---------------- ----------------
Total current assets..................................... 86,652,000 90,590,000
Property, plant and equipment, net................................. 26,903,000 28,336,000
Unexpended bond proceeds........................................... -- 280,000
Intangible assets, net............................................. 152,770,000 143,557,000
Long-term investments.............................................. 5,832,000 3,231,000
Deferred income taxes.............................................. -- 1,366,000
Other assets....................................................... 9,575,000 5,803,000
---------------- ----------------
Total assets............................................. $ 281,732,000 $ 273,163,000
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
27
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2000 and 1999
2000 1999
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..................................... $ 27,000 $ 551,000
Trade accounts payable................................................... 5,026,000 11,070,000
Accrued expenses and other current liabilities........................... 17,872,000 15,299,000
Income taxes payable..................................................... 8,258,000 392,000
--------------- ---------------
Total current liabilities........................................ 31,183,000 27,312,000
Long-term debt, net of current maturities.................................. 40,015,000 72,950,000
Deferred income taxes...................................................... 417,000 --
Other non-current liabilities.............................................. 6,922,000 3,590,000
--------------- ---------------
Total liabilities................................................ 78,537,000 103,852,000
--------------- ---------------
Minority interest in consolidated subsidiary............................... 33,351,000 30,022,000
--------------- ---------------
Commitments and contingencies (Notes 2, 3, 6, 7 and 17)
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 8,514,056 shares in 2000 and 8,408,821 in 1999 85,000 84,000
Class A Common Stock, $.01 par value; Authorized -- 30,000,000 shares;
Issued and Outstanding 8,984,740 shares in 2000 and 8,909,107 in 1999
(as restated)......................................................... 90,000 73,000
Capital in excess of par value........................................... 111,138,000 91,094,000
Accumulated other comprehensive loss..................................... (632,000) (2,235,000)
Retained earnings........................................................ 60,614,000 52,280,000
--------------- ---------------
171,295,000 141,296,000
Less: Note receivable from employee savings and investment plan.......... (1,451,000) (2,007,000)
--------------- ---------------
Total shareholders' equity....................................... 169,844,000 139,289,000
--------------- ---------------
Total liabilities and shareholders' equity....................... $ 281,732,000 $ 273,163,000
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
28
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
Net sales ................................................... $ 202,909,000 $ 141,269,000 $ 95,351,000
------------- ------------- -------------
Operating costs and expenses:
Cost of sales ............................................... 127,098,000 83,737,000 59,247,000
Selling, general and administrative expenses ................ 36,576,000 24,717,000 17,140,000
Write-off of receivables (Note 16) .......................... 1,312,000 -- --
------------- ------------- -------------
Total operating costs and expenses ................ 164,986,000 108,454,000 76,387,000
------------- ------------- -------------
Operating income ............................................ 37,923,000 32,815,000 18,964,000
Interest expense ............................................ (5,611,000) (2,173,000) (984,000)
Interest and other income ................................... 929,000 894,000 2,062,000
Gain on sale of product line ................................ 17,296,000 -- --
------------- ------------- -------------
Income from continuing operations
before income taxes and minority interest ................ 50,537,000 31,536,000 20,042,000
Income tax expense .......................................... 19,509,000 11,606,000 6,914,000
------------- ------------- -------------
Income from continuing operations before minority interest .. 31,028,000 19,930,000 13,128,000
Minority interest ........................................... 3,289,000 3,593,000 2,619,000
------------- ------------- -------------
Income from continuing operations ........................... 27,739,000 16,337,000 10,509,000
Adjustment to gain on sale of discontinued health care opera-
tions, net of applicable income tax benefit of $208,000 .. (1,422,000) -- --
------------- ------------- -------------
Net income .................................................. $ 26,317,000 $ 16,337,000 $ 10,509,000
============= ============= =============
Basic per share data:
Income from continuing operations ......................... $ 1.59 $ 1.00 $ .76
Adjustment to gain on sale of discontinued health care
operations .............................................. (.08) -- --
------------- ------------- -------------
Net income ................................................ $ 1.51 $ 1.00 $ .76
============= ============= =============
Diluted per share data:
Income from continuing operations ......................... $ 1.39 $ .84 $ .61
Adjustment to gain on sale of discontinued health care
operations .............................................. (.07) -- --
------------- ------------- -------------
Net income ................................................ $ 1.32 $ .84 $ .61
============= ============= =============
Weighted average number of common shares outstanding:
Basic ..................................................... 17,376,657 16,302,791 13,748,987
============= ============= =============
Diluted ................................................... 19,916,794 19,407,399 17,094,682
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
29
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
For the years ended OCTOBER 31, 2000, 1999 and 1998
Accumulated
Class A Capital in Other
Common Common Excess of Comprehensive Retained Note Comprehensive
Stock Stock Par Value Loss Earnings Receivable Income
-------- ------- ----------- ------------- -------- ----------- -------------
Balances, October 31, 1997............. $83,000 $ -- $ 35,533,000 $ -- $ 26,772,000 $(2,942,000)
Distribution of one share of Class A
Common Stock for each two shares of
Common Stock made April 23, 1998..... -- 42,000 (42,000) -- -- --
Repurchase of stock.................... (1,000) (1,000) (2,036,000) -- -- --
Exercise of stock options.............. 1,000 -- 471,000 -- -- --
Tax benefit for stock option
exercises............................ -- -- 485,000 -- -- --
Payment on note receivable from
employee savings and investment
plan................................. -- -- -- -- -- 444,000
Cash dividends ($.045 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 ($.045 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................... -- -- -- -- -- -- $15,244,000
===========
Other.................................. -- -- 65,000 -- 2,000 --
------- ------- ------------ ------------ ------------ -----------
Balances, October 31, 1999............. 84,000 73,000 91,094,000 (2,235,000) 52,280,000 (2,007,000)
10% Common and Class A stock dividend
paid in Class A shares.............. -- 15,000 17,125,000 -- (17,158,000) --
Repurchase of stock.................... -- -- (105,000) -- -- --
Exercise of stock options.............. 1,000 2,000 978,000 -- -- --
Tax benefit for stock option
exercises............................ -- -- 1,736,000 -- -- --
Payment on note receivable from
employee savings and investment
plan................................. -- -- -- -- -- 556,000
Cash dividends ($.048 per share)....... -- -- -- -- (828,000) --
Net income for the year................ -- -- -- -- 26,317,000 -- $26,317,000
Unrealized gain on investments, net of
tax of $998,000...................... -- -- -- 1,603,00 -- -- 1,603,000
-----------
Comprehensive income................... -- -- -- -- -- -- $27,920,000
===========
Other.................................. -- -- 310,000 -- 3,000 --
------- ------- ------------ ------------ ------------ -----------
Balances, October 31, 2000............. $85,000 $90,000 $111,138,000 $ (632,000) $ 60,614,000 $(1,451,000)
======= ======= ============ ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
30
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
Cash flows from operating activities:
Net income .............................................................. $ 26,317,000 $ 16,337,000 $ 10,509,000
Adjustments to reconcile net income to cash provided by operating
activities:
Gain on sale of product line .......................................... (17,296,000) -- --
Depreciation and amortization ......................................... 9,775,000 6,289,000 2,761,000
Deferred income taxes ................................................. (175,000) 31,000 (342,000)
Deferred financing costs .............................................. 8,000 -- (1,039,000)
Minority interest in consolidated subsidiary .......................... 3,289,000 3,593,000 2,619,000
Tax benefit on stock option exercises ................................. 1,736,000 1,610,000 485,000
Change in assets and liabilities, net of acquisitions and dispositions:
Increase in accounts receivable ..................................... (11,569,000) (5,442,000) (3,822,000)
Increase in inventories ............................................. (7,471,000) (12,209,000) (4,642,000)
Increase in prepaid expenses and other current assets ............... (1,662,000) (393,000) (182,000)
Increase in trade payables, accrued expenses and
other current liabilities ......................................... 1,159,000 231,000 4,653,000
Increase (decrease) in income taxes payable ......................... 7,866,000 (569,000) (961,000)
Other ............................................................... 155,000 134,000 (15,000)
------------- ------------- -------------
Net cash provided by operating activities ............................... 12,132,000 9,612,000 10,024,000
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of product line, net of expenses ..................... 44,377,000 -- --
Proceeds from receivable from sale of product line ...................... 4,000,000 -- --
Acquisitions, net of cash acquired ...................................... (24,799,000) (104,861,000) (45,627,000)
Capital expenditures .................................................... (8,665,000) (14,217,000) (6,171,000)
Net change in available-for-sale investments ............................ -- (2,366,000) (3,864,000)
Payment received from employee savings and investment plan note
receivable ............................................................ 556,000 491,000 444,000
Other ................................................................... (724,000) (517,000) (171,000)
------------- ------------- -------------
Net cash provided by (used in) investing activities ..................... 14,745,000 (121,470,000) (55,389,000)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt:
Revolving credit facility ............................................. 29,000,000 95,500,000 25,000,000
Bond reimbursement .................................................... 287,000 513,000 3,384,000
Other ................................................................. 880,000 836,000 95,000
Principal payments on long-term debt .................................... (58,381,000) (53,187,000) (5,493,000)
Proceeds from Class A Common Stock offering, net ........................ -- 56,265,000 --
Minority interest investments ........................................... -- 11,537,000 9,000,000
Proceeds from the exercise of stock options ............................. 981,000 1,339,000 472,000
Repurchases of common stock ............................................. (105,000) (2,626,000) (2,038,000)
Cash dividends paid ..................................................... (846,000) (708,000) (643,000)
Other ................................................................... 83,000 (189,000) (2,000)
------------- ------------- -------------
Net cash (used in) provided by financing activities ..................... (28,101,000) 109,280,000 29,775,000
------------- ------------- -------------
Net decrease in cash and cash equivalents .............................. (1,224,000) (2,578,000) (15,590,000)
Cash and cash equivalents at beginning of year .......................... 6,031,000 8,609,000 24,199,000
------------- ------------- -------------
Cash and cash equivalents at end of year ................................ $ 4,807,000 $ 6,031,000 $ 8,609,000
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
31
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 31, 2000, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
HEICO Corporation, through its principal subsidiaries HEICO Aerospace
Holdings Corp. (HEICO Aerospace) and HEICO Electronic Technologies Corp. (HEICO
Electronic), formerly HEICO Aviation Products Corp. and their subsidiaries
(collectively, the Company), is principally engaged in the design, manufacture
and sale of aerospace, defense and electronics 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), Air Radio & Instruments Corp. (Air Radio), Turbine Kinetics, Inc.
(Turbine), Thermal Structures, Inc. (Thermal), and Future Aviation, Inc.
(Future) acquired June 2000. HEICO Electronic's subsidiaries include Trilectron
Industries, Inc. (Trilectron) sold September 2000, Radiant Power Corp. (Radiant
Power), Leader Tech, Inc. (Leader Tech) and Santa Barbara Infrared, Inc. (SBIR).
For further detail of acquired and sold subsidiaries discussed above, see Notes
2 and 3. The Company's customer base is primarily the commercial airline,
defense and electronics industries. As of October 31, 2000, the Company's
principal operations are located in Atlanta, Georgia; Anacortes, Washington;
Glastonbury, Connecticut; Corona and Santa Barbara, California; and Hollywood,
Miami, Tampa, Naples 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 (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.
32
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.
Long-term investments are stated at fair value based on quoted market
prices.
33
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. Revisions
in cost estimates as contracts progress have the effect of increasing or
decreasing profits in the current period. For contracts in which costs cannot be
dependably estimated, revenue is recognized on the completed-contract method. A
contract is considered complete when all costs except insignificant items have
been incurred or the item has been accepted by the customer. The aggregate
effects of changes in estimates relating to inventories and/or long-term
contracts were not material in any period presented, including the unaudited
quarterly financial information presented in Note 14 to the Financial
Statements. Revenues earned from rendering services represented less than 10% of
net sales for all periods presented.
Long-term contracts
Accounts receivable and accrued expenses and current liabilities include
amounts related to the production of products under fixed-price contracts
exceeding terms of one year. Certain of these contracts recognize revenues on
the percentage-of-completion method, measured by the percentage of costs
incurred to date to estimated total costs for each contract. This method is used
because management considers costs incurred to be the best available measure of
progress on these contracts. Certain other contracts have revenues recognized on
the completed-contract method. This method is used where the Company does not
have adequate historical data to ensure that estimates are reasonably
dependable.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and are recognized in the period in which the revisions are
determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted percentage of completion contracts," included in accounts
receivable, represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
percentage of completion contracts," included in accrued expenses and other
current liabilities, represents billings in excess of revenues recognized.
Billings are made based on the completion of certain milestones as provided for
in the contracts.
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.
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."
34
The Company has elected to continue using the accounting methods prescribed by
APB No. 25 and to provide in Note 12 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
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 was
amended in June 2000 by Statement of Financial Accounting Standards No. 138
(SFAS 138) for certain derivative instruments and hedging activities as
indicated by SFAS 138. The Company adopted SFAS 133 beginning November 1, 2000.
Adoption of SFAS 133 is not significant to the Company's consolidated financial
statements as of October 31, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which among other guidance, clarifies certain conditions to be met in
order to recognize revenue. In October 2000, the staff deferred the
implementation date of SAB 101 until no later than the fourth quarter of fiscal
years beginning after December 15, 1999. The Company will adopt SAB 101 in
fiscal 2001, however, such adoption would not be significant to the Company's
consolidated financial statements as of October 31, 2000.
In July 2000, the Emerging Issues Task Force (EITF) issued "Classification
in the Statement of Cash Flows of the Income Tax Benefit Realized by a Company
upon Employee Exercise of a Non-qualified Stock Option" (EITF 00-15). This Issue
addresses the cash flow statement presentation of the windfall tax benefit
associated with nonqualified stock options. Companies receive an income tax
deduction for the difference between the exercise price and the market price of
a nonqualified stock option upon exercise by the employee. EITF 00-15 concludes
that the income tax benefit realized by the Company upon employee exercise
should be classified in the operating section of the cash flow statement. The
EITF is effective for all quarters ending after July 20, 2000. The Company
adopted EITF 00-15 as of July 31, 2000 and as such has reclassified the income
tax benefit realized on stock options into the cash provided by operating
activities for all periods presented.
In September 2000, the EITF issued "Accounting for Shipping and Handling
Fees and Costs" (EITF 00-10). This Issue addresses the income statement
classification for shipping and handling fees and costs by companies that record
revenue based on the gross amount billed to customers. EITF 00-10 concludes that
all amounts billed to a customer in a sale transaction related to shipping and
handling, if any, represent revenues earned for goods provided and should be
classified as revenue. In addition, the shipping and handling costs should be
included in cost of sales. If shipping costs or handling costs are significant
and are not included in cost of sales, the amount and the line item on the
income statement that include them should be disclosed. The Company will adopt
EITF 00-10 in the quarter ending October 31, 2001. The Company does not expect
the impact of such adoption to be significant to the Company's results of
operations.
35
2. ACQUISITIONS AND STRATEGIC ALLIANCE
Acquisitions
In July 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
Federal Aviation Administration (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 6).
In October 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 Electronic. 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 11. 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% equity interest in HEICO Aerospace.
In connection with the Rogers-Dierks acquisition, the Company committed to
pay $1.1 million in deferred payments over the next two-year period ending in
fiscal 2001. The Company paid $250,000 related to this deferred payment in
fiscal 2000. In March 2000, as a result of Rogers-Dierks meeting earnings
objectives, the Company paid $3.1 million in additional purchase consideration
to the former shareholders of Rogers-Dierks. Subject to meeting additional
earnings objectives, the former shareholders of Rogers-Dierks could receive
additional consideration of up to $3.1 million payable in cash or shares of the
Company's Class A Common Stock payable in fiscal 2001. 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 replacement parts.
Air Radio is engaged in the overhaul and repair of avionics, instruments
and electronic equipment for commercial aircraft. As a result of meeting certain
earnings objectives, the former shareholders of Air Radio received additional
consideration of $1.25 million in fiscal 2000 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.
36
In June 1999, the Company, through HEICO Aerospace, acquired all of the
outstanding capital stock of 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.
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 purchase price of this transaction was
insignificant. In September 2000, the Company sold its 40% investment in the
outstanding stock of Phillips in connection with the sale of product line
discussed in Note 3. Prior to the sale, the Company accounted for this
investment under the equity method.
In February 2000, the Company, through a subsidiary, acquired selected
assets of the former Air-A-Plane Corporation for cash. The purchase price was
not significant to the Company's consolidated financial statements. The
principal acquired assets of Air-A-Plane were subsequently sold as a part of the
product line sold in September 2000 (Note 3).
Effective June 1, 2000, the Company, through a subsidiary, acquired
substantially all of the assets and certain liabilities of Future for $14.7
million in cash. The source of the purchase price was proceeds from the
Company's Credit Facility. Future is engaged in the repair and overhaul of
aircraft accessory components principally serving the regional and commuter
aircraft market.
Had the acquisitions of the assets of Air-A-Plane and Future been
consummated as of the beginning of fiscal 2000, the proforma consolidated
operating results would not have been materially different from the reported
results.
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 $20.0 million, $92.6 million, and $40.5
million in fiscal 2000, 1999, and 1998, respectively, and are being amortized
over a range of 20 to 30 years using the straight-line method.
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 pursuant to a research
and development cooperation agreement, which has partially funded the
accelerated development of additional FAA-approved replacement parts. 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 (Note 16). In addition, Lufthansa and HEICO Aerospace have agreed to
cooperate regarding technical services and marketing support for jet engine
parts on a worldwide basis. In connection with subsequent acquisitions by HEICO
Aerospace, Lufthansa invested additional amounts aggregating $21 million
pursuant to its option to maintain a 20% equity interest.
37
3. SALE OF PRODUCT LINE
On September 14, 2000, the Company consummated the sale of all of the
outstanding capital stock of HEICO Electronic's wholly-owned subsidiary,
Trilectron, to Hobart Brothers Company, a wholly-owned subsidiary of Illinois
Tool Works Inc. (Hobart). In consideration of the sale of Trilectron's capital
stock, including its 40% investment in the outstanding capital stock of
Phillips, the Company received $52,500,000 in cash, an unsecured non-interest
bearing promissory note for $12.0 million payable in three equal installments
over the next 90 days, a purchase price adjustment of $4.5 million based on the
net worth of Trilectron as of the closing date of the sale, and retained certain
property having a book value of approximately $1.5 million. The proceeds from
the sale were used to pay down the outstanding balance on the Company's Credit
Facility.
The sale of Trilectron did not meet the requirements for classification as
a discontinued operation in accordance with Accounting Principles Board Opinion
No. 30 because its activities could not be clearly distinguished, physically and
operationally and for financial reporting purposes, from the other assets,
results of operations, and activities of the Company's Electronic Technologies
Group (ETG) operating segment of which it was a part. Trilectron was managed as
part of the ETG and the ETG was treated as a single operating segment. The ETG
shared facilities, staff, information technology processing and other centrally
provided services with no allocation of costs and interest expense between the
divisions within the ETG. Accordingly, the sale was reported as a sale of a
product line and Trilectron's results of operations through the date of the
closing have been reported in the Company's consolidated statements of
operations.
The sale of Trilectron resulted in a pretax gain in fiscal 2000 of
$17,296,000 ($10,542,000 or $.53 per diluted share, net of income tax). The
pretax gain is net of expenses of $10.8 million directly related to the
transaction.
A summary of the components of the expenses of the sale of the Trilectron
product line are as follows:
Bonuses and related costs $ 6,700,000 (a)
Professional service fees 2,500,000 (b)
Contract indemnification, reserves and
miscellaneous costs and expenses 1,600,000 (c)
-----------
Total expenses of sale $10,800,000
===========
(a) Represents incentive bonus payments which were approved by the
Board of Directors contingent upon the sale of Trilectron and paid
from the proceeds of the sale.
(b) Represents investment banking, legal, accounting and tax consulting
fees, all of which were incurred in connection with the sale.
(c) Represents reserves related to indemnification provisions entered
into in connection with the sale of Trilectron, estimated expenses
of relocating Radiant Power from the Trilectron facility to new
facilities and miscellaneous other expenses and costs which were
incurred in connection with the sale of Trilectron.
The receivable from sale of product line of $12,412,000 reported in the
October 31, 2000 Consolidated Balance Sheet includes $7.9 million outstanding as
of October 31, 2000 under the $12.0 million unsecured promissory note referenced
above. The full amount of the receivable was collected subsequent to year end.
38
4. ADJUSTMENT TO GAIN ON SALE OF DISCONTINUED OPERATIONS
In January 1999, the Company received notice of a proposed adjustment
pursuant to an examination by the Internal Revenue Service (IRS) of the
Company's fiscal 1995 and 1996 tax returns, disallowing the utilization of a
$4.6 million capital loss carryforward to partially offset the gain recognized
by the Company in connection with the sale of its health care operations in July
1996. In the fourth quarter of 2000, the Company reached a settlement pursuant
to which the IRS conceded one-third of the original tax adjustment. Accordingly,
the additional taxes and related interest, aggregating $1.4 million ($.07 per
diluted share) is reflected as adjustment to gain on sale of discontinued health
care operations in the consolidated statement of operations.
5. INVESTMENTS
Long-term investments consist of equity securities with an aggregate cost
of $6,858,000 as of October 31, 2000 and 1999. These investments are classified
as available-for-sale and stated at a fair value of $5,832,000 and $3,231,000 as
of October 31, 2000 and 1999, respectively. The gross unrealized losses were
$1,026,000 and $3,627,000 as of October 31, 2000 and 1999, respectively.
Unrealized gains and losses, net of deferred taxes, are reflected as a component
of comprehensive income. There were no realized gains or losses during fiscal
2000 and 1999. Gross realized gains were $288,000 in fiscal 1998.
6. CREDIT FACILITIES AND LONG-TERM DEBT
Long-term debt consists of:
October 31,
-----------------------------
2000 1999
------------ ------------
Borrowings under revolving credit facility ................. $ 38,000,000 $ 66,000,000
Industrial Development Revenue Bonds-- Series 1997A ........ -- 3,000,000
Industrial Development Revenue Bonds-- Series 1997C ........ -- 995,000
Industrial Development Revenue Refunding Bonds-- Series 1988 1,980,000 1,980,000
Equipment loans ............................................ 62,000 1,526,000
------------ ------------
40,042,000 73,501,000
Less current maturities .................................... (27,000) (551,000)
------------ ------------
$ 40,015,000 $ 72,950,000
============ ============
The amount of long-term debt maturing in each of the next five years is
$27,000 in fiscal 2001, $27,000 in fiscal 2002, $4,756,000 in fiscal 2003,
$19,002,000 in fiscal 2004, $14,250,000 in fiscal 2005 and $1,980,000
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
$38,000,000 will be converted to term loans in July 2003 and amortized over a
two-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 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
39
ratios as well as minimum net worth requirements. At October 31, 2000, the
Company had a total of $38 million borrowed under the Credit Facility at a
weighted average interest rate of 7.6%, which was borrowed to partially fund
acquisitions (Note 2).
Interest rate swap
In February 2000, the Company entered into an interest rate swap with a bank
pursuant to which it exchanged floating rate interest based on three-month LIBOR
on a notional principal amount of $30 million for a fixed rate payment
obligation of 6.59% for a two-year period ending February 1, 2002. The fixing of
the interest rate for this period offsets the Company's exposure to the
uncertainty of floating interest rates on a portion of indebtedness under the
Credit Facility. The differential paid or received on the interest rate swap is
recognized as an adjustment to interest expense. The bank has the option to call
the swap February 2001. The market value of the interest rate swap was
insignificant to the consolidated financial statements as of October 31, 2000.
Industrial development revenue bonds
The industrial development revenue bonds outstanding October 31, 2000
represent bonds issued by Broward County, Florida in 1988 (the 1988 bonds). The
1988 bonds are due April 2008 and bear interest at a variable rate calculated
weekly (4.25% and 3.4% at October 31, 2000 and 1999, respectively). The 1988
bonds as amended are secured by a letter of credit expiring February 2004 and a
mortgage on the related properties pledged as collateral.
The Series 1997A and 1997C bonds were issued in 1997 by Manatee County,
Florida 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 September 2000, the facility in Palmetto, Florida and the Company's
obligation under the 1997 bonds were sold in connection with the sale of the
product line discussed in Note 3.
Equipment loan facility
In March 1994, a bank committed to advance up to $2,000,000 through
September 2001, 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. In
October 2000, the Company paid off the balance outstanding under the equipment
loan facility.
7. 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.
40
Minimum payments for operating leases having initial or remaining
noncancelable terms in excess of one year are as follows:
Year ending October 31,
2001................................................................. $ 1,915,000
2002................................................................. 1,513,000
2003................................................................. 1,279,000
2004................................................................. 610,000
2005................................................................. 254,000
After 2005........................................................... --
-----------
Total minimum lease commitments...................................... $ 5,571,000
===========
Total rent expense charged to operations for operating leases in fiscal
2000, fiscal 1999 and fiscal 1998 amounted to $2,041,000, $976,000 and $319,000,
respectively.
8. INCOME TAXES
The provision for income taxes on income from continuing operations for each
of the three years ended October 31 was as follows:
2000 1999 1998
------------- ------------ -----------
Current:
Federal............................................... $ 17,690,000 $ 10,540,000 $ 6,687,000
State................................................. 1,994,000 1,035,000 569,000
------------- ------------ -----------
19,684,000 11,575,000 7,256,000
Deferred................................................ (175,000) 31,000 (342,000)
------------- ------------ -----------
Total income tax expense................................ $ 19,509,000 $ 11,606,000 $ 6,914,000
============= ============ ===========
A deferred tax charge of $998,000 and deferred tax benefits of $721,000 and
$671,000, relating to gross unrealized losses on available-for-sale equity
securities, were recorded as adjustments to shareholders' equity in fiscal 2000,
1999 and 1998, respectively.
In connection with its acquisitions, the Company assumed net deferred tax
assets of $37,000 in fiscal 2000 and net deferred tax liabilities of $295,000 in
fiscal 1999.
The following table reconciles the federal statutory tax rate to the Company's
effective tax rate from continuing operations:
2000 1999 1998
------ ------ -----
Federal statutory tax rate............................................ 35.0% 35.0% 35.0%
State taxes, less applicable federal income tax reduction............. 2.5 2.1 2.1
Tax benefits on export sales.......................................... (1.4) (2.0) (2.1)
Nondeductible amortization of intangible assets....................... 1.6 1.3 .8
Tax benefits from tax-free investments................................ -- -- (.2)
Other, net............................................................ .9 .4 (1.1)
----- ----- -----
Effective tax rate.......................................... 38.6% 36.8% 34.5%
===== ===== =====
41
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, 2000 and
1999 are as follows:
October 31,
-----------------------
2000 1999
----------- -----------
Deferred tax assets:
Inventories............................................ $ 660,000 $ 924,000
Bad debt allowances.................................... 254,000 271,000
Deferred compensation liability........................ 1,616,000 809,000
Vacation accruals...................................... 138,000 257,000
Customer rebates and credits........................... 267,000 142,000
Retirement plan liability.............................. 228,000 212,000
Warranty accruals...................................... 280,000 210,000
Unrealized loss on investments......................... 394,000 1,392,000
Accrued items related to sale of product line.......... 1,073,000 --
Other.................................................. 158,000 102,000
----------- -----------
Total deferred tax assets.................... 5,068,000 4,319,000
----------- -----------
Deferred tax liabilities:
Accelerated depreciation............................... 635,000 396,000
Intangible asset amortization.......................... 2,054,000 857,000
Other.................................................. 253,000 166,000
----------- -----------
Total deferred tax liabilities............... 2,942,000 1,419,000
----------- -----------
Net deferred tax asset....................... 2,126,000 2,900,000
Less current portion......................... (2,543,000) (1,534,000)
---------- -----------
Net deferred tax asset (liability),
long-term portion......................... $ (417,000) $ 1,366,000
============ ===========
9. STOCK DIVIDENDS
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 in April 1998. In June 2000, the
Board of Directors declared a 10% stock dividend on all shares outstanding
payable in Class A Common shares. The dividend was paid on July 21, 2000 to
shareholders of record July 10, 2000. The 10% dividend was valued based on the
closing market price of the Company's Class A Common stock as of the day prior
to the declaration date. All income per share, dividend per share, price per
share, exercise price, stock options and common shares outstanding information
has been retroactively restated to reflect stock dividends and splits.
10. 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
42
commences or announces an intention to commence a tender offer for 30% or more
of the outstanding common stock.
11. 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 3,293,455 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, 6,600 shares of
Common Stock were repurchased in fiscal 2000 at a total cost of approximately
$105,000. In fiscal 1999, 96,300 and 42,190 shares of Common Stock and Class A
Common Stock, respectively, were repurchased at a total cost of approximately
$2.6 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.
12. 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). A total of
2,891,272 Common and 2,338,971 Class A Common shares of the Company's stock are
reserved for issuance to directors, officers and key employees as of October 31,
2000. 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 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.
43
Information concerning all of the stock option transactions for the three years
ended October 31, 2000 is as follows:
Shares Under Option
Shares ------------------------------------
Available Price
For Option Shares Per Share
------------- --------------- ------------------
Outstanding, October 31, 1997.............................. 75,790 4,305,608 $1.33--$11.24
Additional shares approved by shareholders
for 1993 Stock Option Plan............................... 645,552 -- --
Granted.................................................... (471,902) 471,902 $9.02--$27.85
Cancelled.................................................. 2,620 (23,672) $8.94--$14.85
Exercised.................................................. -- (169,340) $1.77--$14.85
--------- ----------- -------------
Outstanding, October 31, 1998.............................. 252,060 4,584,498 $1.33--$27.85
Additional shares approved by shareholders
for 1993 Stock Option Plan............................... 660,000 -- --
Shares approved by Board of Directors for
grant to former shareholders of SBIR ..................... 417,175 -- --
Granted.................................................... (979,110) 979,110 $18.38--$23.58
Cancelled.................................................. 28,980 (29,394) $ 1.77--$26.52
Exercised.................................................. -- (463,806) $ 1.77--$10.61
--------- ----------- -------------
Outstanding, October 31, 1999.............................. 379,105 5,070,408 $ 1.33--$27.85
Granted.................................................... (307,615) 307,615 $10.80--$14.77
Cancelled.................................................. 661,217 (691,218) $ 3.69--$26.52
Exercised.................................................. -- (189,269) $ 1.77--$10.61
--------- ----------- -------------
Outstanding, October 31, 2000.............................. 732,707 4,497,536 $1.33--$27.85
========= =========== =============
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..................................... 175,403 2,848,884 $1.33--$27.85
Class A Common Stock............................. 203,702 2,221,524 $1.33--$26.52
------- ---------
Outstanding, October 31, 1999 379,105 5,070,408
======= =========
Common Stock..................................... 532,869 2,358,403 $1.33--$27.85
Class A Common Stock............................. 199,838 2,139,133 $1.33--$26.52
------- ---------
Outstanding, October 31, 2000 732,707 4,497,536
======= =========
44
Information concerning stock options outstanding and exercisable by class of
common stock as of October 31, 2000 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
---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.33 - $ 3.03 1,290,325 $ 2.04 1.7 1,290,325 $ 2.04
$ 3.04 - $ 6.66 407,410 4.17 4.3 387,175 4.14
$ 6.67 - $11.24 453,418 9.15 6.2 372,925 9.09
$11.25 - $27.85 207,250 20.06 8.5 101,551 18.33
--------- ------ --- ---------- -------
2,358,403 $ 5.36 3.6 2,151,976 $ 4.40
========= ====== === ========== =======
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
---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.33 - $ 3.03 708,415 $ 2.02 1.9 708,415 $ 2.02
$ 3.04 - $ 6.66 255,957 4.15 4.2 241,333 4.12
$ 6.67 - $11.24 299,459 9.30 6.5 220,786 9.11
$11.25 - $26.52 875,302 18.80 8.6 516,325 18.99
--------- ------ --- --------- ------
2,139,133 $10.16 5.6 1,686,859 $ 8.44
========= ====== === ========= ======
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
---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.33 - $ 3.03 1,314,691 $ 2.04 2.6 1,309,563 $ 2.04
$ 3.04 - $ 6.66 451,178 4.12 5.2 395,975 4.07
$ 6.67 - $11.24 534,465 9.03 7.4 350,304 8.95
$11.25 - $27.85 548,550 25.46 9.0 54,150 27.43
--------- ------ --- ---------- ------
2,848,884 $ 8.19 5.2 2,109,992 $ 4.22
========= ====== === ========== ======
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
---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.33 - $ 3.03 730,090 $ 2.01 2.8 726,757 $ 2.01
$ 3.04 - $ 6.66 283,030 4.09 5.1 247,143 4.05
$ 6.67 - $11.24 319,554 9.09 7.4 199,897 9.03
$11.25 - $26.52 888,850 20.98 9.5 478,495 19.42
--------- ------ --- --------- ------
2,221,524 $10.88 6.4 1,652,292 $ 8.20
========= ====== === ========= ======
45
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
---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.33 - $ 3.03 1,423,362 $ 2.03 3.5 1,407,013 $ 2.03
$ 3.04 - $ 6.66 502,895 4.06 5.8 405,425 4.01
$ 6.67 - $ 11.24 566,925 9.05 8.4 303,754 8.97
$ 11.25 - $ 27.85 272,750 27.42 9.6 -- --
--------- ------ ---- --------- ------
2,765,932 $ 6.35 5.5 2,116,192 $ 3.40
========= ====== ==== ========= ======
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
---------------- ------------ -------------- ------------------------ ------------ --------------
$ 1.33 - $ 3.03 925,023 $ 2.03 3.3 914,384 $ 2.03
$ 3.04 - $ 6.66 327,041 4.06 5.6 263,673 4.01
$ 6.67 - $ 11.24 368,588 9.05 8.4 197,572 8.97
$ 11.25 - $ 26.52 197,914 25.18 9.6 27,500 25.00
--------- ------- ----- --------- ------
1,818,566 $ 6.34 5.4 1,403,129 $ 3.82
========= ======= ===== ========= ======
If there were a change in control of the Company, options for an additional
206,427 shares of Common Stock and 452,274 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 $22,953,000 ($1.32 and $1.15
basic and diluted net income per share, respectively) for fiscal 2000,
$10,666,000 ($.65 and $.55 basic and diluted net income per share, respectively)
for fiscal 1999, and $8,913,000 ($.65 and $.52 basic and diluted net income per
share, respectively) for fiscal 1998.
The estimated weighted average fair value of options granted was $10.07 per
share for Common Stock and $9.85 per share for Class A Common Stock in fiscal
2000, $16.45 per share for Common Stock and $12.96 per share for Class A Common
Stock in fiscal 1999 and $20.77 per share for Common Stock and $18.68 per share
for Class A Common Stock in fiscal 1998.
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:
2000 1999 1998
---- ---- ----
Class A Class A Class A
Common Common Common Common Common Common
Stock Stock Stock Stock Stock Stock
----- ----- ----- ----- ----- -----
Volatility....................................... 55.83% 55.12% 59.42% 56.74% 59.69% 58.55%
Risk free interest rate (weighted average)....... 6.22% 6.16% 5.21% 5.17% 4.94% 5.44%
Dividend yield (weighted average)................ .0031% .0033% .0019% .0021% .0017% .0019%
Expected life (years)............................ 8 8 8 8 10 10
46
13. 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 642,005 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 2000, 1999 and 1998 totaled $907,000,
$503,000, and $452,000, respectively, net of interest income earned on the note
received from the Plan of $168,000 in fiscal 2000, $202,000 in fiscal 1999 and
$182,000 in fiscal 1998.
In 1991, the Company established a Directors Retirement Plan covering its
then current directors. The net assets of this plan as of October 31, 2000 and
1999 are not material to the financial position of the Company. During fiscal
2000, 1999 and 1998, $62,000, $67,000, and $80,000, respectively, was expensed
for this plan.
47
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- -------- --------- ---------
Net sales:
2000............................................... $47,940,000 $53,548,000 $53,912,000 $47,509,000
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
Gross profit:
2000............................................... 17,858,000 19,679,000 19,679,000 18,595,000
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
Income from continuing operations:
2000............................................... 4,015,000 4,789,000 4,721,000 14,214,000
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
Net income:
2000............................................... 4,015,000 4,789,000 4,721,000 12,792,000
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
Income per share from continuing operations:
Basic
2000............................................... .23 .28 .27 .81
1999............................................... .23 .24 .25 .27
1998............................................... .17 .18 .19 .23
Diluted
2000............................................... .20 .24 .24 .71
1999............................................... .19 .20 .21 .23
1998............................................... .14 .14 .15 .19
Net income per share:
Basic
2000............................................... .23 .28 .27 .73
1999............................................... .23 .24 .25 .27
1998............................................... .17 .18 .19 .23
Diluted
2000............................................... .20 .24 .24 .64
1999............................................... .19 .20 .21 .23
1998............................................... .14 .14 .15 .19
Income from continuing operations in the fourth quarter of fiscal 2000
includes the gain on sale of product line and write-off of certain receivables
referenced in Notes 3 and 16, respectively. Excluding these items, income from
continuing operations in the fourth quarter of fiscal 2000 was $4,323,000 ($.22
per diluted share). Net income in the fourth quarter of fiscal 2000 also
includes the adjustment to gain on sale of discontinued operations referenced in
Note 4, which reduced net income by $1,422,000 ($.07 per diluted share).
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.
48
15. OPERATING SEGMENTS
The Company has two operating segments: the Flight Support Group (FSG) which
represents HEICO Aerospace and its subsidiaries and the Electronic Technologies
Group (ETG), formerly the Electronics & Ground Support Group, which represents
HEICO Electronic and its subsidiaries. See Note 1 for the list of operating
subsidiaries aggregated in each reportable operating segment. The FSG designs
and manufactures FAA-approved replacement parts, provides FAA-authorized repair
and overhaul services and provides subcontracting services to OEMs in the
aviation industry and the U.S. Government. The ETG designs and manufactures
commercial and military power supplies, circuit board shielding and infrared
simulation and test equipment primarily for the aerospace, defense and
electronics industries.
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.
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 ETG Corporate Totals
--- --- --------- ------
For the year ended October 31, 2000:
-----------------------------------
Net sales $ 119,304,000 $ 83,605,000 $ -- $ 202,909,000
Depreciation and amortization 6,808,000 2,762,000 205,000 9,775,000
Operating income 29,621,000 12,464,000 (4,162,000) 37,923,000
Total assets 197,442,000 54,997,000 29,293,000 281,732,000
Capital expenditures 7,301,000 1,360,000 4,000 8,665,000
For the year ended October 31, 1999:
-----------------------------------
Net sales $ 94,617,000 $ 46,652,000 $ -- $ 141,269,000
Depreciation and amortization 4,727,000 1,364,000 198,000 6,289,000
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
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 $56,626,000 in fiscal 2000, $42,167,000 in fiscal 1999 and
$22,874,000 in fiscal 1998.
49
16. OTHER CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS
OF CASH FLOWS INFORMATION
Accounts receivable are composed of the following:
Balance at October 31,
------------------------------
2000 1999
------------ ------------
Accounts receivable............................................ $ 30,110,000 $ 36,047,000
Less allowance for doubtful accounts........................... (557,000) (721,000)
------------ ------------
Accounts receivable, net............................. $ 29,553,000 $ 35,326,000
============ ============
In the fourth quarter of fiscal 2000, the Company wrote off receivables
aggregating $1,312,000 as a result of bankruptcy filings by certain customers.
The charge is included in the operating income section of the consolidated
results of operations. The charge reduced fiscal 2000 net income by $651,000
($.03 per diluted share). There were no significant receivables write-offs
resulting from customer bankruptcies during 1999 or 1998.
Costs and estimated earnings on uncompleted percentage of completion
contracts are as follows:
October 31, 2000
----------------
Costs incurred on uncompleted contracts....................... $ 5,911,000
Estimated earnings............................................ 6,436,000
------------
12,347,000
Less billings to date......................................... (11,689,000)
------------
$ 658,000
============
Included in accompanying balance
sheets under the following captions:
Accounts receivable, net (costs and estimated
earnings in excess of billings)......................... $ 1,372,000
Accrued expenses, net of other current liabilities (billings
in excess of costs and estimated earnings).............. (714,000)
------------
$ 658,000
============
Costs and estimated earnings in excess of billings and billings in excess of
costs and estimated earnings on percentage of completion contracts were not
material in fiscal 1999.
Inventories are composed of the following:
Balance at October 31,
----------------------------
2000 1999
------------ -----------
Finished products............................................. $ 17,364,000 $ 15,401,000
Work in process............................................... 6,074,000 12,801,000
Materials, parts, assemblies and supplies..................... 10,924,000 16,970,000
------------ -------------
Total inventories................................... $ 34,362,000 $ 45,172,000
============ =============
Inventories related to long-term contracts were not significant as of
October 31, 2000 and 1999.
50
Property, plant and equipment are composed of the following:
Balance at October 31,
----------------------------
2000 1999
------------- ------------
Land........................................... $ 2,258,000 $ 1,799,000
Buildings and improvements..................... 16,549,000 16,954,000
Machinery and equipment........................ 26,927,000 22,412,000
Construction in progress....................... 957,000 5,759,000
------------ ------------
46,691,000 46,924,000
Less accumulated depreciation.................. (19,788,000) (18,588,000)
------------ ------------
Property, plant and equipment, net....... $ 26,903,000 $ 28,336,000
============ ============
Depreciation and amortization expense on property, plant, and equipment
amounted to approximately $3,011,000, $2,430,000 and $1,973,000 for the years
ended October 31, 2000, 1999 and 1998, respectively.
Intangible assets are composed of the following:
Balance at October 31,
------------------------------
2000 1999
------------- -------------
Excess of cost over the fair value of net assets acquired..... $ 161,976,000 $ 146,964,000
Deferred charges ............................................. 2,748,000 2,504,00
------------- -------------
164,724,000 149,468,000
Less accumulated amortization ................................ (11,954,000) (5,911,000)
------------- -------------
Intangible assets, net ....................................... $ 152,770,000 $ 143,557,000
============= =============
Amortization expense related to excess of costs over the fair value of net
assets acquired and deferred charges amounted to approximately $6,764,000,
$3,859,000 and $788,000 for the years ended October 31, 2000, 1999 and 1998,
respectively.
Accrued expenses and other current liabilities are composed of the
following:
Balance at October 31,
2000 1999
------------ -----------
Accrued employee compensation ................................... $ 4,004,000 $ 3,321,000
Deferred purchase price adjustments related to acquisitions...... 3,024,000 2,481,000
Accrued customer rebates and credits ............................ 1,893,000 1,631,000
Accrued acquisition costs ....................................... 191,000 879,000
Accrued expenses related to sale of product line................. 2,757,000 --
Deferred reimbursement of research and development costs......... -- 1,404,000
Accrued license payment ......................................... -- 1,043,000
Other ........................................................... 6,003,000 4,540,000
----------- -----------
Total accrued expenses and other current
liabilities ......................................... $17,872,000 $15,299,000
=========== ===========
Other non-current liabilities include deferred compensation of $4,117,000 as
of October 31, 2000. Deferred compensation as of October 31, 1999 was
insignificant.
Research and development expenses
Fiscal 2000, 1999 and 1998 cost of sales amounts include approximately
$2,300,000, $1,200,000 and $900,000, respectively, of new product research and
development expenses of HEICO Aerospace. The expenses for fiscal 2000, 1999 and
1998 are net of $5,200,000, $6,700,000 and $3,500,000, respectively, received
from Lufthansa and spent by the Company for all three years pursuant to a
research and development cooperation agreement entered into
51
October 1997 (Note 2). Amounts received from Lufthansa and not used as of
October 31, 1999 totaled $1,404,000 and are recorded as accrued expenses on the
consolidated balance sheets. There were no amounts received from Lufthansa and
not used as of October 31, 2000. As of October 31, 2000, the Company has future
reimbursements for research and development expenses aggregating $700,000 from
Lufthansa which will be received through May 2001.
Supplemental disclosures of cash flow information are as follows:
Cash paid for interest was $5,575,000, $2,052,000 and $996,000 in fiscal
2000, 1999 and 1998, respectively. Cash paid for income taxes was $10,248,000,
$10,312,000 and $6,753,000 in fiscal 2000, 1999 and 1998, respectively.
Non-cash investing and financing activities related to the acquisitions and
contingent note payments during fiscal 2000, 1999 and 1998 were as follows:
2000 1999 1998
------------ ------------- -------------
Fair value of assets acquired:
Intangible assets ......................... $ 19,974,000 $ 93,347,000 $ 40,468,000
Inventories ............................... 1,698,000 8,640,000 1,327,000
Accounts receivable ....................... 1,567,000 10,381,000 3,040,000
Property, plant and equipment ............. 83,000 1,597,000 1,985,000
Other assets .............................. 1,508,000 2,213,000 95,000
Cash paid, including contingent note
payments................................... (24,799,000) (104,861,000) (45,627,000)
------------ ------------- -------------
Liabilities assumed ......................... $ 31,000 $ 11,317,000 $ 1,288,000
============ ============= =============
There were no significant capital lease financing activities during fiscal
2000, 1999 and 1998. As part of the consideration in connection with the sale of
the product line, the Company received an unsecured promissory note for $12.0
million (Note 3). Additionally, retained earnings was charged $17,158,000 as a
result of the 10% stock dividend described in Note 9 above.
17. 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. 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. The Company filed counterclaims against UTC. UTC filed an
answer denying the counterclaims. All counts of UTC's complaint that were not
previously withdrawn by UTC were dismissed by the court and UTC appealed the
dismissal.
In March 2000, the Company settled the litigation with UTC. As part of the
settlement, the Company received a permanent license to make and sell parts
which were the subject of the litigation, and UTC was paid a prepaid sum for
such license by the Company's insurer (see below). The settlement is not
expected to materially affect the Company's earnings or financial condition.
In May 1998, the Company and its HEICO Aerospace Corporation and Jet Avion
Corporation subsidiaries were served with a lawsuit by Travelers Casualty &
Surety Co., f/k/a the Aetna Casualty and Surety Co. (Travelers). In June 1999,
the Travelers lawsuit was dismissed by the federal court based on a lack of
jurisdiction. Travelers is challenging the dismissal. The complaint sought
reimbursement of legal fees and costs totaling in excess of $15
52
million paid by Travelers in defending the Company in the above referenced
litigation with UTC. In addition, Travelers sought a declaratory judgment 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 partially offset the gain recognized by the Company
in connection with the sale of its health care operations in July 1996. In the
fourth quarter of fiscal 2000, the Company settled the claim as described in
Note 4.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
53
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 2000.
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 2000.
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 2000.
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 2000.
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, 2000 and 1999................................ 26 - 27
Consolidated Statements of Operations for the years ended October 31, 2000,
1999 and 1998......................................................................... 28
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended October 31, 2000, 1999 and 1998.................................. 29
Consolidated Statements of Cash Flows for the years ended October 31, 2000,
1999 and 1998......................................................................... 30
Notes to Consolidated Financial Statements.............................................. 31 - 51
(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.
54
(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.*
2.6 -- Stock Purchase Agreement, dated August 1, 2000, by
and between HEICO Aviation Products Corp., and
Hobart Brothers Company (without schedules and
exhibits) is incorporated by reference to Exhibit
2.1 to Form 8-K dated September 14, 2000.*
2.7 -- First Amendment to Stock Purchase Agreement,
effective as of September 14, 2000, between HEICO
Aviation Products Corp. and Hobart Brothers Company
is incorporated by reference to Exhibit 2.2 to Form
8-K dated September 14, 2000.*
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.*
55
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.*
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 is incorporated by reference
to Exhibit 10.4 to the Form 10-K for the year ended
October 31, 1999.*
10.5 -- Amendment, dated July 20, 2000, to the SunBank
Reimbursement Agreement dated February 28, 1994,
between HEICO Aerospace Corporation and SunTrust
Bank is incorporated by reference to Exhibit 10.5 to
the Form 10-K for the year ended October 31, 2000.*
10.6 -- 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.*
10.7 -- 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.*
10.8 -- 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.*
10.9 -- 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.*
10.10 -- 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.*
10.11 -- Fourth Loan Modification Agreement, dated August 24,
1999, between HEICO Corporation and Eagle National
Bank of Miami is incorporated by reference to
Exhibit 10.10 to the Form 10-K for the year ended
October 31, 1999.*
56
10.12 -- Fifth Loan Modification Agreement, dated October 23,
2000, between HEICO Corporation and Eagle National
Bank of Miami is incorporated by reference to
Exhibit 10.12 to the Form 10-K for the year ended
October 31, 2000.*
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 -- 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.*
10.21 -- 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*
10.22 -- 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.*
10.23 -- 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.*
10.24 -- 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.*
10.25 -- 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.*
10.26 -- 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.*
10.27 -- 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 is incorporated
by reference to Exhibit 10.31 to the Form 10-K for the
year ended October 31, 1999.*
10.28 -- 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 is incorporated
by reference to Exhibit 10.32 to the Form 10-K for the
year ended October 31, 1999.*
10.29 -- Third Amendment, dated as of June 23, 2000, to Credit
Agreement among HEICO Corporation and SunTrust Bank
(formerly known as SunTrust Bank, South Florida, N.A.) as
Agent dated as of July 31, 1998, is incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarterly
period ended July 31,2000.*
10.30 -- 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 is incorporated by reference
to Exhibit 21 to the Form 10-K for the year ended October
31, 2000.*
23 -- Consent of Deloitte & Touche LLP.**
27 -- Financial Data Schedule is incorporated by reference to
Exhibit 27 to the Form 10-K for the year ended October 31,
2000.*
_____________
* Previously filed.
** Filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K dated September 14, 2000 relating to the sale of all of
the outstanding stock of Trilectron Industries, Inc. was filed by the Company
during the fourth quarter of fiscal 2000. See Item 1. "Business."
(c) Exhibits
See Item 14(a)(3).
(d) Separate Financial Statements Required
Not applicable.
58
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: August 13, 2001
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
-------------------------------------------
Laurans A. Mendelson Executive Officer and
Director (Principal
Executive Officer)
/s/ SAMUEL L. HIGGINBOTTOM Director
-------------------------------------------
Samuel L. Higginbottom
/s/WOLFGANG MAYRHUBER Director
-------------------------------------------
Wolfgang Mayrhuber
/s/ERIC A. MENDELSON Director
-------------------------------------------
Eric A. Mendelson
/s/ VICTOR H. MENDELSON Director
-------------------------------------------
Victor H. Mendelson
/s/ ALBERT MORRISON, JR Director
-------------------------------------------
Albert Morrison, Jr.
/s/ ALAN SCHRIESHEIM Director
-------------------------------------------
Alan Schriesheim