Annual Report
Innovative ideas giving flight to new technologies.
HEICO®
C o r p o r a t i o n
Financial Highlights
For the year ended October 31,
(In thousands, except per share data)
Operating Data:
Net sales
Operating income
Interest expense
Interest and other income
Life insurance proceeds
Net income
Weighted average number of common
shares outstanding:(1)
Basic
Diluted
Per Share Data:(1)
Net income per share:
Basic
Diluted
Cash dividends
2003
2004
2005
$ 176,453
$ 215,744
$ 269,647
23,205
1,189
93
–
32,619(2)
1,090
26
5,000(3)
44,649
1,136
528
–
$ 12,222
$ 20,630(2)(3)
$ 22,812
23,237
24,531
24,037
25,755
24,460
26,323
$ .53
.50
.045
$ .86(2)(3)
.80(2)(3)
.050
$ .93
.87
.050
Balance Sheet Data (as of October 31):
Total assets
Total debt (including current portion)
Minority interests in consolidated subsidiaries
Shareholders’ equity
$ 333,244
32,013
40,577
221,518
$ 364,255
18,129
44,644
247,402
$ 435,624
34,124
49,035
273,503
(1) Information has been adjusted retroactively to give effect to a 10% stock dividend paid in shares of Class A Common Stock in January 2004.
(2) Operating income was reduced by an aggregate of $850 in restructuring expenses, which decreased net income by $427, or $.02 per basic and
diluted share.
(3) Represents proceeds from a $5,000 key-person life insurance policy. The minority interest’s share of this income totaled $1,000, which is reported
as a component of minority interests’ share of income. Accordingly, the life insurance proceeds increased net income by $4,000, or $.17 per basic
and $.16 per diluted share.
Corporate Profile
HEICO Corporation is a rapidly-growing and highly successful technology-driven aerospace,
defense and electronics company which has, for more than 40 years, thrived by serving niche
segments of these industries.
Our Flight Support Group is renowned worldwide as the pioneering and leading designer and
manufacturer of FAA-approved, non-OEM aircraft replacement parts found in jet engines and
other aircraft. The Flight Support Group has innovative partnerships with several of the world’s
largest airlines and is also one of the leading repair and overhaul sources for commercial
aircraft accessory components in the United States. The products we manufacture and repair
are found on most large commercial aircraft produced today, as well as many regional,
commuter and business aircraft.
Our Electronic Technologies Group’s products are also integral subcomponents of many
advanced defense systems and are used in developing critical defense equipment. Additionally,
HEICO’s products are utilized in satellites, medical equipment, homeland security equipment,
computers, telecommunication equipment and other industrial applications.
HEICO focuses on underserved niche markets where it believes it can either be a market leader
or have the significant potential of becoming a market leader. We stress our unique problem
solving and cost savings abilities to our customers worldwide.
Net Sales
(in millions)
269.6
Operating
Income
(in millions)
44.6
Net Income
(in millions)
22.8
20.6
Net Income
Per Share
(diluted)
.80
.87
215.7
32.6
176.5
23.2
12.2
.50
03
04
05
03
04
05
03
04
05
03
04
05
Chairman’s Message
Dear Fellow Shareholder:
I am very proud to report that 2005 was another
excellent year for HEICO. Our Company reported
record revenue of $269.6 million, a 25% increase
above the $215.7 million reported in fiscal 2004.
Our operating income increased 37% to a record
$44.6 million in fiscal 2005 from $32.6 million in
fiscal 2004. In fiscal 2005, net income increased
11% to $22.8 million, or $.87 per diluted share,
from $20.6 million, or $.80 per diluted share, for
fiscal 2004. We note that fiscal 2004 included
tax-free income of $4.0 million ($.16 per diluted
share) in life insurance proceeds, which was a
special, unusual item which, if one were to
exclude this item, one would see net income in
fiscal 2005 as 37% higher than in fiscal 2004.
You have frequently heard me say that HEICO’s
strategy remains constant and we follow it in both
good and bad times. Fortunately, our resolution to
stay with that strategy during the more difficult
years following the 9/11 attacks, the SARS
epidemic and Iraq war, yielded strong results in
2005, after also delivering strong results in 2004.
This strategy is to continue to develop new
products, market them assertively, treat our Team
Members fairly, maintain a conservative balance
sheet, place our customers first and continue to
make and pursue strategic acquisitions.
During fiscal 2005, we completed three acquisi-
tions and, in the first quarter of fiscal 2006 we
completed two additional acquisitions.
As our Company was prospering, it is gratifying
As has been our tradition over the past 12 years,
to note that both our Class A Common Stock
we are including a Question and Answer section
and Common Stock generally outperformed the
to tell you more about HEICO. This year, however,
broader U.S. equity markets.
we have changed the format so that it is interwoven
Effective January 2006, we increased our
with the rest of the report.
semi-annual cash dividend by 60%. This resulted
Finally, as I always do, I thank each and every
in a $.04 semi-annual dividend, which was our
HEICO Team Member for his and her support and
55th consecutive semi-annual dividend payment
hard work on our Company’s behalf during the
year. I also thank our talented Board of Directors
for their ongoing guidance and support. My
deepest thanks also go to my fellow shareholders
for your steadfastness and friendship.
Sincerely,
Laurans A. Mendelson
Chairman, President and
Chief Executive Officer
since 1979.
As of the date of this letter, we believe that 2006
offers HEICO continued growth and we believe
that our long-term outlook remains excellent. We
have become a critical part of our customers’
development and cost-containment plans, which
we believe renders us in a perfect position to
grow. This, coupled with our acquisition programs,
we believe should allow us to continue to yield
superior results.
Since 1994, I am pleased to note that our net
income has increased from $1.9 million to
$22.8 million in fiscal 2005, which represents
an 1,100% increase, while our revenues have
increased from $32.4 million in fiscal 1994 to
$269.6 million in fiscal 2005, a 732% increase.
A $100,000 investment in HEICO shares in
1990 (which is when present management took
over operation of the business) became worth
$1,822,000 as of December 31, 2005 (adjusted
for stock splits and stock dividends). This represents
a 21% Compound Annual Growth Rate.
2|3
Question: What is the largest
part of HEICO’s business and what
is that operation’s outlook?
HEICO’s Flight Support Group maintains partnerships with
major airlines. Some of the relationships include substantial
investments in HEICO, like the one made by the Lufthansa
Technik subsidiary of Deutsche Lufthansa AG.
A Team Member at the Flight Support
Group’s Component Repair operations
conducts a sophisticated repair of a critical
aircraft accessory used on a large jetliner.
A:The largest part of HEICO’s business
is the design, manufacture and sale of
FAA-approved genuine aircraft replacement parts
(mostly jet engine-related) which we design and
select in cooperation with our airline and other
partners in order to provide them with significant
cost savings. We employ a proprietary and very
sophisticated engineering process at numerous
locations in the United States and have become
the undisputed world leader in this market.
Sixteen of the world’s twenty largest airlines use
HEICO Genuine Parts, and all twenty are HEICO
customers. In addition, our Flight Support Group
is believed to be one of the largest independent
accessory component repair and overhaul
operations in the United States offering repairs
of accessories used onboard large commercial,
regional, business, and commuter aircraft, and
general aviation. We conduct these operations at
multiple locations around the United States.
The HEICO Flight Support Group’s Parts business ships more
than 2 million parts annually, such as the one shown above,
to airlines and other aircraft operators worldwide.
4|5
Question: What role do acquisitions
play in HEICO’s growth and how will they
effect the Company in the future?
Different HEICO operations produce critical components for
commercial and military satellites, such as the satellite shown
below. We are a leading producer of certain critical microwave
components used in satellites and we produce items such as
the complex and custom-designed interconnection device shown
on the left.
An engineer at an Electronic Technologies Group facility in
Florida inspects and tests a complex laser rangefinder receiver
photo-diode product prior to shipment to a defense customer.
A:Acquisitions have been an important
part of HEICO’s growth. Since 1996, we
have completed 25 acquisitions, all of which have
been in the aerospace, defense and electronics
industries. All of the companies we acquired
have been small, entrepreneurially-managed
businesses which focus on niche-markets. In
our Flight Support Group, we have followed a
tightly-centered program of buying companies or
product lines that design, manufacture and sell
FAA-approved aircraft replacement parts which
are critical to aircraft operators’ cost savings
programs or companies that repair and overhaul
accessory components that are utilized on
substantially larger systems for defense, space,
aircraft. In our Electronic Technologies Group, our
medical and other industrial applications. These
acquisitions have been focused on designers and
companies are more loosely aligned than our
manufacturers of niche subcomponents utilized in
Flight Support Group companies.
We intend to continue to aggressively pursue
acquisitions, as they have helped HEICO grow
substantially and our returns on the investments
have typically been very good.
A key component of our acquisition strategy is to
ensure breadth of product lines across multiple
platforms and multiple industries.
Interconnection devices designed and produced by an
Electronic Technologies Group facility are used in a variety
of fighter aircraft “heads-up” display helmets.
6|7
Question: What was HEICO’s
strategic focus in fiscal 2005 and what do
you expect it to be in fiscal 2006 and beyond?
A:Our strategic focus has remained
constant for approximately 15 years and
it has paid handsome dividends to HEICO and its
shareholders. That focus is to maintain consistent
new product development efforts geared toward
producing products which our customers request
and which save our customers money or other
resources. We believe this gives us strong
customer relationships which leads to another
strategic focus: market penetration and investment
in sales activities. All HEICO companies are
required to maintain constant product development
and sales/marketing growth plans. We fully intend
to continue this in the years to come.
In the past few years, HEICO has greatly
expanded its offering of sophisticated
products used in medical applications, such
as Computed Tomography (CT) systems.
Pictured above is the world’s largest infrared projection array, a million pixel two inch-by-two inch custom
MEMS array, produced by an Electronic Technologies Group company. The array is used in simulation
laboratories at government facilities and aerospace companies to develop next generation infrared missiles.
A member of the engineering department from the
Flight Support Group’s FAA-approved HEICO Genuine
Parts team uses a sophisticated Coordinate Measuring
Machine to verify dimensions of an aircraft part which
will be added to our already substantial product offering.
8|9
Question: How has HEICO’s global
footprint and sales breakdown strategy
evolved and how do you see it evolving?
HEICO operates worldwide. The stars in this
map show our current locations.
Question: How has HEICO’s global
footprint and sales breakdown strategy
evolved and how do you see it evolving?
HEICO operates worldwide. The stars in this
map show our current locations.
The chart below depicts the HEICO Sales breakdown between commercial
The chart below depicts the HEICO Sales breakdown between
aviation, defense & space and other markets sales.
our international and domestic sales.
■ Commercial Aviation
■ Domestic
64%
23%
74%
13%
■ Defense & Space
■ Other Markets
26%
■ International
A:While we originally focused almost
exclusively on the United States markets,
our Company has increasingly expanded its
international sales and, this year, production
efforts. For the first time in our history, HEICO
now operates a manufacturing facility in the
United Kingdom, which facility is in addition to
sales and service centers located in Germany,
India, Singapore and an additional location in
the United Kingdom. Otherwise, our engineering
and production locations have generally evolved
around the United States as a result of our
acquisition programs and we have concluded that
having multiple, smaller facilities is more efficient
and effective than combining and consolidating
operations into giant work centers. We find that
this results in far greater creativity, entrepreneurship
and efficiency.
Meanwhile, approximately 26% of our consolidated
revenues are derived from international sales and
74% comes from within the United States.
We expect our foreign sales component to
increase in 2006 and beyond.
10|11
2005 Financial Statements and Other Information
13 Selected Financial Data
14
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
26 Consolidated Balance Sheets
27 Consolidated Statements of Operations
28
Consolidated Statements of Shareholders’ Equity
and Comprehensive Income
30 Consolidated Statements of Cash Flows
31 Notes to Consolidated Financial Statements
52
53
54
55
Management’s Report on Internal Control
Over Financial Reporting
Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting
Firm on Consolidated Financial Statements
Market for the Company’s Common Stock
and Related Stockholder Matters
Selected Financial Data
HEICO CORPORATION AND SUBSIDIARIES
For the year ended October 31, (1)
2001
2002
2003
2004
2005
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Interest and other income
Life insurance proceeds
Gain on sale of product line
Net income
Weighted average number of common
shares outstanding:(2)
Basic
Diluted
Per Share Data:(2)
Net income:
Basic
Diluted
Cash dividends
(In thousands, except per share data)
$ 171,259
$ 172,112
$ 176,453
$ 215,744
$ 269,647
71,146
40,155
30,991
2,486
1,598
–
–
61,502
39,102
22,400
2,248
97
–
1,230(3)
58,104
34,899
23,205
1,189
93
–
–
75,812
43,193
32,619(5)
1,090
26
5,000(5)
–
100,996
56,347
44,649
1,136
528
–
–
$ 15,833
$ 15,226(4) $ 12,222
$ 20,630(5)(6) $ 22,812
21,917
24,536
23,004
24,733
23,237
24,531
24,037
25,755
24,460
26,323
$ .72
.65
.041
$ .66(4) $ .53
.50
.045
.62(4)
.045
$ .86(5)(6)
.80(5)(6)
.05
$ .93
.87
.05
Balance Sheet Data (as of October 31):
Total assets
$ 325,640
$ 336,332
$ 333,244
$ 364,255
$ 435,624
Total debt (including current portion)
Minority interests in consolidated subsidiaries
67,014
36,845
55,986
38,313
32,013
40,577
18,129
44,644
34,124
49,035
Shareholders’ equity
188,769
207,064
221,518
247,402
273,503
(1) Results include the results of acquisitions from each respective effective date.
(2) Information has been adjusted retroactively to give effect to 10% stock dividends paid in shares of Class A Common Stock in August 2001 and
January 2004.
(3) Represents an increase in the gain on sale of Trilectron Industries, Inc., a product line sold in September 2000, of $1,230 ($765, or $.03 per basic
and diluted share, net of tax) resulting from the elimination of certain reserves upon expiration of indemnification provisions of the sale.
(4) Includes the recovery of a portion of taxes paid in prior years resulting from an income tax audit, which increased net income by $2,107, or $.09
per basic and diluted share, net of related expenses. The aggregate increase in net income from the gain on sale of a product line (see Note 3
above) and the recovery of taxes was $2,872, or $.12 per basic and diluted share.
(5) Operating income was reduced by an aggregate of $850 in restructuring expenses recorded by certain subsidiaries of the Flight Support Group
that provide repair and overhaul services including $350 recorded in cost of sales and $500 recorded in selling, general and administrative expenses.
The restructuring expenses decreased net income by $427, or $.02 per basic and diluted share.
(6) Represents proceeds from a $5,000 key-person life insurance policy maintained by a subsidiary of the Flight Support Group. The minority interest’s
share of this income totaled $1,000, which is reported as a component of minority interests’ share of income. Accordingly, the life insurance
proceeds increased net income by $4,000, or $.17 per basic and $.16 per diluted share.
|13
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Overview
The Company’s operations are comprised of two operating segments, the Flight Support Group (FSG) and the
Electronic Technologies Group (ETG).
The Flight Support Group consists of HEICO Aerospace Holdings Corp. (HEICO Aerospace) and its subsidiaries,
which primarily:
n Manufactures Jet Engine and Aircraft Component Replacement Parts. The Flight Support Group designs
and manufactures jet engine and aircraft component replacement parts for sale at lower prices than those
manufactured by original equipment manufacturers. The parts are approved by the Federal Aviation
Administration (FAA) and they are the functional equivalent of parts sold by original equipment manufacturers.
The Flight Support Group also manufactures and sells specialty parts as a subcontractor for original equip-
ment manufacturers and the United States government.
n Repairs and Overhauls Jet Engine and Aircraft Components. The Flight Support Group repairs and overhauls
jet engine and aircraft components for domestic and foreign commercial air carriers, military aircraft
operators and aircraft repair and overhaul companies.
The Electronic Technologies Group consists of HEICO Electronic Technologies Corp. (HEICO Electronic) and its
subsidiaries, which primarily:
n Manufactures Electronic and Electro-Optical Equipment. The Electronic Technologies Group designs, manu-
factures and sells various types of electronic, microwave and electro-optical equipment and components,
including power supplies, laser rangefinder receivers, infra-red simulation, calibration and testing equipment
and electromagnetic interference shielding for commercial and military aircraft operators, electronics
companies and telecommunications equipment suppliers.
n Repairs and Overhauls Aircraft Electronic Equipment. The Electronic Technologies Group repairs and
overhauls inertial navigation systems and other avionics, instruments, and components for commercial,
military and business aircraft operators.
n Designs and Manufactures High Voltage Interconnection Devices. The Electronic Technologies Group
designs and manufactures high voltage interconnection devices, cable assemblies and wire for the medical
equipment, defense and other industrial markets.
The Company’s results of operations during each of the past three fiscal years have been affected by a number
of transactions. This discussion of the Company’s financial condition and results of operations should be read in
conjunction with the Consolidated Financial Statements and Notes thereto included herein. For further information
regarding the acquisitions and strategic alliances discussed below, see Note 2, Acquisitions, of the Notes to
Consolidated Financial Statements. The acquisitions have been accounted for using the purchase method of
accounting and are included in the Company’s results of operations from the effective dates of acquisition.
During fiscal 2003, the Company acquired Niacc Technology, Inc. The purchase price of the acquisition was paid
primarily by using proceeds from the Company’s revolving credit facility and was not significant to the Company’s
consolidated financial statements. Had the acquisition been made at the beginning of the fiscal year, the pro forma
consolidated operating results would not have been materially different from the reported results.
In December 2003, the Company acquired an 80% interest in Sierra Microwave Technology, Inc., (Sierra) through
its Electronic Technologies Group. Under the transaction, the Company formed a new subsidiary, Sierra Microwave
Technology, LLC (Sierra LLC), which acquired substantially all of the assets and assumed certain liabilities of Sierra.
The new subsidiary is owned 80% by the Company and 20% by certain members of Sierra’s management group.
The purchase price was principally paid in cash using proceeds from the Company’s revolving credit facility and
with shares of HEICO’s Class A Common Stock. The purchase price of the acquisition was not significant to the
Company’s consolidated financial statements and the pro forma consolidated operating results assuming Sierra
had been acquired as of the beginning of fiscal 2004 would not have been materially different from the reported
results. However, the operating results of Sierra LLC had a positive impact on the Electronic Technologies Group
in fiscal 2004, as further explained under the caption “Comparison of Fiscal 2004 to Fiscal 2003”.
During fiscal 2005, the Company, through its HEICO Electronic Technologies Corp. subsidiary, acquired
Connectronics, Corp. and its affiliate, Wiremax, Ltd. (collectively “Connectronics”) in December 2004, Lumina
Power, Inc. (Lumina) in February 2005, and an 85% interest in HVT Group, Inc. (HVT) in September 2005. The
remaining 15% interest is held by certain members of HVT’s management group. The operating results of each
14|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
acquired company were included in the Company’s results from their effective acquisition date. The purchase
price of each acquisition was principally paid in cash using proceeds from the Company’s revolving credit facility
and was not significant to the Company’s consolidated financial statements individually or in aggregate. Had each
acquisition been made at the beginning of the fiscal year, the pro forma consolidated operating results would not
have been materially different from the reported results.
Critical Accounting Policies
The Company believes that the following are its most critical accounting policies, some of which require
management to make judgments about matters that are inherently uncertain.
Revenue Recognition
Revenue is recognized on an accrual basis, primarily upon the shipment of products and the rendering of services.
Revenue from certain fixed price contracts for which costs can be dependably estimated is recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs
for each contract. Variations in actual labor performance, changes to estimated profitability and final contract
settlements may result in revisions to cost estimates. Revisions in cost estimates as contracts progress have the
effect of increasing or decreasing profits in the period of revision. For fixed price contracts in which costs cannot
be dependably estimated, revenue is recognized on the completed-contract method. A contract is considered
complete when all significant costs 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 did not have a
significant effect on net income or diluted net income per share in fiscal 2005, 2004 or 2003.
Valuation of Accounts Receivable
The valuation of accounts receivable requires that the Company set up an allowance for estimated uncollectible
accounts and record a corresponding charge to bad debt expense. The Company estimates uncollectible receiv-
ables based on such factors as its prior experience, its appraisal of a customer’s ability to pay, and economic
conditions within and outside of the aviation, defense, space, and electronics industries. Actual bad debt expense
could differ from estimates made.
Valuation of Inventory
Inventory is stated at the lower of cost or market, with cost being determined on the first-in, first-out or the
average cost basis. Losses, if any, are recognized fully in the period when identified.
The Company periodically evaluates the carrying value of inventory, giving consideration to factors such as its
physical condition, sales patterns, and expected future demand and estimates the amount necessary to write-down
its slow moving, obsolete or damaged inventory. These estimates could vary significantly from actual requirements
based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen
or did not exist when the estimated write-downs were made.
Valuation of Goodwill
The Company tests goodwill for impairment annually as of October 31 or more frequently if events or changes
in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The test requires
the Company to compare the fair value of each of its reporting units to its carrying value to determine potential
impairment. If the carrying value of a reporting unit exceeds its fair value, the implied fair value of that reporting
unit’s goodwill is to be calculated and an impairment loss shall be recognized in the amount by which the carrying
value of a reporting unit’s goodwill exceeds its implied fair value, if any. The determination of fair value requires
the Company to make a number of estimates, assumptions and judgments of such factors as earnings multiples,
projected revenues and operating expenses and the Company’s weighted average cost of capital. If there is a
material change in such assumptions used by the Company in determining fair value or if there is a material
change in the conditions or circumstances influencing fair value, the Company could be required to recognize a
material impairment charge. Based on the annual goodwill test for impairment as of October 31, 2005, the
Company determined there is no impairment of its goodwill.
One of the Company’s reporting units has experienced a decline in sales to foreign military customers over the
past three fiscal years. The reporting unit is actively developing various expanded capabilities, but experienced
|15
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
some delays in fiscal 2004 and 2005. Based on progress to date, the Company continues to expect that the various
expanded capabilities will result in significant sales and earnings for the reporting unit beginning in fiscal 2006
and beyond. The timing of such sales and earnings are primarily based upon certain regulatory and sales matters.
Using management’s best estimates of these assumptions, the Company determined that there is no impairment
of the reporting unit’s goodwill as of October 31, 2005. Should the reporting unit incur significant delays in further
developing the expanded capabilities and successfully selling and marketing them, the Company could be
required to recognize an impairment of all or a portion of the reporting unit’s goodwill, which had a carrying value
of $17.3 million as of October 31, 2005.
Results of Operations
The following table sets forth the results of the Company’s operations, net sales and operating income by
operating segment, and the percentage of net sales represented by the respective items in the Company’s
Consolidated Statements of Operations:
For the year ended October 31,
2003
2004
2005
Net sales
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Operating income
$ 176,453,000
$ 215,744,000
$ 269,647,000
118,349,000
34,899,000
153,248,000
139,932,000
43,193,000
168,651,000
56,347,000
183,125,000
224,998,000
$ 23,205,000
$ 32,619,000
$ 44,649,000
Net sales by segment:
Flight Support Group
Electronic Technologies Group
Intersegment sales
Operating income by segment:
Flight Support Group
Electronic Technologies Group
Other, primarily Corporate
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Interest and other income
Life insurance proceeds
Income tax expense
Minority interests’ share of income
Net income
$ 128,277,000
48,597,000
(421,000)
$ 153,238,000
62,648,000
(142,000)
$ 185,716,000
84,094,000
(163,000)
$ 176,453,000
$ 215,744,000
$ 269,647,000
$ 19,187,000
8,497,000
(4,479,000)
$ 24,251,000
15,259,000
(6,891,000)
$ 35,142,000
18,631,000
(9,124,000)
$ 23,205,000
$ 32,619,000
$ 44,649,000
100.0%
32.9%
19.8%
13.2%
0.7%
0.1%
–
4.5%
1.1%
6.9%
100.0%
35.1%
20.0%
15.1%
0.5%
–
2.3%
5.1%
2.3%
9.6%
100.0%
37.5%
20.9%
16.6%
0.4%
0.2%
–
6.0%
1.9%
8.5%
16|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Comparison of Fiscal 2005 to Fiscal 2004
Net Sales
Net sales in fiscal 2005 increased by 25.0% to $269.6 million, as compared to net sales of $215.7 million in fiscal
2004. The increase in net sales reflects an increase of $32.5 million (a 21.2% increase) to $185.7 million in net sales
within the FSG, and an increase of $21.4 million (a 34.2% increase) to $84.1 million in net sales within the ETG.
The FSG’s net sales increase primarily reflects improved demand for its aftermarket replacement parts and repair
and overhaul services, which reflects continuing recovery within the commercial airline industry, as well as
increased sales of new products. The increase in net sales within the ETG primarily resulted from the acquisition
of Connectronics in December 2004, Lumina in February 2005 and HVT Group in September 2005 as well as
improved demand for the Company’s defense and industrial electronics components.
The Company’s net sales in fiscal 2005 by market approximated 64% from the commercial aviation industry,
23% from the defense and space industries and 13% from other industrial markets including medical, electronics
and telecommunications. Net sales in fiscal 2004 by market approximated 63% from the commercial aviation
industry, 24% from the defense and space industries and 13% from other markets.
Gross Profit and Operating Expenses
The Company’s gross profit margin improved to 37.5% in fiscal 2005 as compared to 35.1% in fiscal 2004,
reflecting higher margins within the FSG offset by a slight decrease in the ETG margin. The FSG’s gross profit
margin increase was due principally to improved operating efficiencies resulting from the higher sales volumes
within the FSG, lower new product research and development expenses as a percentage of net sales and lower
charges related to excess or slow-moving inventory. The ETG’s gross profit margin decrease was primarily due
to softness in the commercial satellite market. Consolidated cost of sales in fiscal 2005 and fiscal 2004 included
approximately $11.3 million and $10.4 million, respectively, of new product research and development expenses.
SG&A expenses were $56.3 million and $43.2 million in fiscal 2005 and fiscal 2004, respectively. The increase
in SG&A expenses was mainly due to higher operating costs, principally personnel related, associated with the
increase in net sales discussed above, the acquisitions of Connectronics, Lumina and HVT Group and an increase
in Corporate expenses. Corporate expenses are up due to increased costs to comply with the Sarbanes-Oxley Act
of 2002 and higher accrued performance awards. As a percentage of net sales, SG&A expenses increased slightly
to 20.9% in fiscal 2005 compared to 20.0% in fiscal 2004, primarily due to increased costs to comply with the
Sarbanes-Oxley Act of 2002.
Operating Income
Operating income in fiscal 2005 increased by 36.9% to $44.6 million, compared to operating income of $32.6 million
in fiscal 2004. The increase in operating income reflects an increase of $3.3 million (a 22.1% increase) in operating
income of the ETG from $15.3 million in fiscal 2004 to $18.6 million in fiscal 2005 reflecting the acquisitions of
Connectronics, Lumina and HVT Group and an increase of $10.8 million (a 44.9% increase) in operating income
of the FSG from $24.3 million in fiscal 2004 to $35.1 million in fiscal 2005 reflecting the higher net sales. These
increases were partially offset by the increase in Corporate expenses. As a percentage of net sales, operating
income increased from 15.1% in fiscal 2004 to 16.6% in fiscal 2005. The improvement in operating income as a
percentage of net sales reflects an increase in the FSG’s operating income as a percentage of net sales from 15.8%
in fiscal 2004 to 18.9% in fiscal 2005 and a decrease in the ETG’s operating income as a percentage of net sales
from 24.4% in fiscal 2004 to 22.2% in fiscal 2005. The increase in the FSG’s operating income as a percentage of
net sales reflects the improved gross margins discussed previously. The decrease in the ETG’s operating income
as a percentage of net sales reflects the decreased gross margins discussed previously.
Interest Expense
Interest expense in fiscal 2005 and fiscal 2004 was comparable as the lower weighted average balance out-
standing under the revolving credit facility in fiscal 2005 was offset by higher interest rates. Additional information
about the Company’s revolving credit facility may be found within “Financing Activities”, which follows.
Interest and Other Income
Interest and other income increased to $528,000 in fiscal 2005 from $26,000 in fiscal 2004. The increase was
primarily due to the gain on the sale of a 50%-owned joint venture in the third quarter of fiscal 2005 (see Note 11,
Sale of Investment in Joint Venture, of the Notes to Consolidated Financial Statements).
|17
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Life Insurance Proceeds
In fiscal 2004, the Company received $5.0 million in proceeds from a key-person life insurance policy maintained
by a subsidiary of the FSG. The life insurance proceeds, which are non-taxable, increased net income (after the
minority interest’s share of the income) in fiscal 2004 by $4.0 million, or $.16 per diluted share.
Income Tax Expense
The Company’s effective tax rate increased from 29.9% in fiscal 2004 to 36.6% in fiscal 2005. The increase is
principally due to the aforementioned $5.0 million in life insurance proceeds received in fiscal 2004 that were
excluded from the Company’s income that was subject to federal income taxes as well as higher state taxes
principally related to recent acquisitions and a reduction in the tax benefit on export sales under the federal
Extraterritorial Income Exclusion provisions that began phasing out in fiscal 2005. For a detailed analysis of the
provision for income taxes see Note 6, Income Taxes, of the Notes to Consolidated Financial Statements.
Minority Interests’ Share of Income
Minority interests’ share of income of consolidated subsidiaries principally relates to the minority interests held
in HEICO Aerospace and the 20% minority interest held in Sierra LLC. Minority interests’ share of income in fiscal
2005 approximated that of fiscal 2004 as higher operating income of the FSG was offset by the minority interests’
share of life insurance proceeds received in fiscal 2004.
Net Income
The Company’s net income was $22.8 million, or $.87 per diluted share, in fiscal 2005 compared to $20.6 million,
or $.80 per diluted share, in fiscal 2004. The net impact of the life insurance proceeds reduced by the restructuring
expenses increased net income by $3.6 million, or $.14 per diluted share in fiscal 2004.
Outlook
Both the FSG and the ETG reported significantly improved sales and operating income in fiscal 2005 compared
to fiscal 2004. Operating margins within the FSG continued to show year-over-year improvement and operating
margins within the ETG continued at a strong level.
As the Company looks forward to fiscal 2006 and beyond, HEICO will continue to focus on new products, further
market penetration, additional acquisition opportunities and maintaining its financial strength. Based on current
market conditions and including the results of the Company’s recent acquisitions, the Company is targeting fiscal
2006 net sales and earnings growth over fiscal 2005 results with some operating margin improvement.
Comparison of Fiscal 2004 to Fiscal 2003
Net Sales
Net sales in fiscal 2004 increased by 22.3% to $215.7 million, as compared to net sales of $176.5 million in fiscal
2003. The increase in net sales reflects an increase of $25.0 million (a 19.5% increase) to $153.2 million in net sales
within the FSG, and an increase of $14.1 million (a 28.9% increase) to $62.6 million in net sales within the ETG. The
FSG’s net sales increase primarily reflects improved demand for its aftermarket replacement parts and repair and
overhaul services, which reflects continuing recovery within the commercial airline industry, as well as increased
sales of new products. The increase in net sales within the ETG primarily resulted from the acquisition of Sierra in
December 2003 and improved demand for the Company’s defense and industrial electronics components.
The Company’s net sales in fiscal 2004 by market approximated 63% from the commercial aviation industry,
24% from the defense and space industries and 13% from other industrial markets including medical, electronics
and telecommunications. Net sales in fiscal 2003 by market approximated 68% from the commercial aviation
industry, 22% from the defense and space industries and 10% from other markets.
Gross Profit and Operating Expenses
The Company’s gross profit margin improved to 35.1% in fiscal 2004 as compared to 32.9% in fiscal 2003,
reflecting higher margins within the ETG. The ETG’s gross profit margin increase was primarily due to the acquisi-
tion of Sierra. The FSG’s gross profit margin in fiscal 2004 approximated 2003 margins principally due to higher
18|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
costs from write-offs of excess inventory in the first quarter of fiscal 2004 and the restructuring expenses referred
to below, partially offset by a reduction of the product warranty reserve and lower research and development
expenses as a percentage of net sales. Consolidated cost of sales in fiscal 2004 and fiscal 2003 included approxi-
mately $10.4 million and $9.2 million, respectively, of new product research and development expenses.
During the third and fourth quarters of fiscal 2004, the Company incurred an aggregate of $850,000 of restruc-
turing expenses within certain subsidiaries of the FSG that provide repair and overhaul services (“repair and
overhaul subsidiaries”). The unexpected death of an executive of certain of the repair and overhaul subsidiaries
(see “Life Insurance Proceeds” below) was the impetus for the commencement of the restructuring activities,
which the Company believes will allow it to better service its customers and improve operating margins. The
restructuring expenses include $350,000 of inventory write-downs, which were recorded within cost of sales,
and $261,000 of management hiring/relocation related expenses, $168,000 of moving costs and other associated
expenses and $71,000 of contract termination costs that were all recorded within selling, general and administrative
(SG&A) expenses. The inventory written down is related to older generation aircraft for which repair and overhaul
services are being discontinued by the Company. The management hiring/relocation related expenses include
one-time employee termination/hiring benefits and relocation costs. The moving costs and other associated
expenses consist of moving costs related to the consolidation of two repair and overhaul facilities. Contract
termination costs include the lease termination on a facility.
SG&A expenses were $43.2 million and $34.9 million in fiscal 2004 and fiscal 2003, respectively. The increase in
SG&A expenses reflects higher sales within the FSG, the acquisition of Sierra, an increase in Corporate expenses,
the aforementioned restructuring expenses, and litigation-related expenses referred to below. The increase in
Corporate expenses from $4.5 million in fiscal 2003 to $6.9 million in fiscal 2004 reflects accrued performance
awards of $1.4 million in fiscal 2004 and a reversal of approximately $400,000 of professional fees in fiscal 2003
that were accrued at the end of fiscal 2002 pursuant to a contractual arrangement that was renegotiated in the
first quarter of fiscal 2003.
The Company also incurred $410,000 of legal and other costs related to litigation brought by a subsidiary of the
ETG against two former employees for breach of contract and other possible causes of action against the former
employees and others, which were recorded within SG&A expenses.
The restructuring expenses and litigation-related expenses decreased net income by $684,000, or $.03 per diluted
share in fiscal 2004. For more information on the restructuring activities, see Note 13, Restructuring Expenses, of
the Notes to Consolidated Financial Statements.
As a percentage of net sales, SG&A expenses remained stable at 20.0% in fiscal 2004 compared to 19.8% in
fiscal 2003 despite a .4% increase attributable to the aforementioned restructuring expenses and litigation-related
expenses, which reflects efforts to control costs while increasing revenues.
Operating Income
Operating income in fiscal 2004 increased by 40.6% to $32.6 million, compared to operating income of $23.2 million
in fiscal 2003. The increase in operating income reflects an increase of $6.8 million (a 79.6% increase) in operating
income of the ETG from $8.5 million in fiscal 2003 to $15.3 million in fiscal 2004 reflecting the acquisition of Sierra
and an increase of $5.1 million (a 26.4% increase) in operating income of the FSG from $19.2 million in fiscal 2003
to $24.3 million in fiscal 2004 reflecting the higher net sales. These increases were partially offset by the increase
in Corporate expenses. As a percentage of net sales, operating income increased from 13.2% in fiscal 2003 to 15.1%
in fiscal 2004. The improvement in operating income as a percentage of net sales reflects an increase in the ETG’s
operating income as a percentage of net sales from 17.5% in fiscal 2003 to 24.4% in fiscal 2004 and an increase in
the FSG’s operating income as a percentage of net sales from 15.0% in fiscal 2003 to 15.8% in fiscal 2004 despite
a .4% decrease attributable to the aforementioned restructuring expenses and litigation-related expenses. The
improvement in the ETG’s operating income and operating income as a percentage of net sales reflects the purchase
of Sierra and the increased sales, discussed previously. The increase in the FSG’s operating income and operating
income as a percentage of net sales reflects the increased sales previously discussed and lower SG&A expenses
as a percentage of net sales.
|19
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Interest Expense
Interest expense in fiscal 2004 and fiscal 2003 was comparable as average borrowings outstanding and associated
interest rates remained at approximately the same levels. Additional information about the Company’s revolving
credit facility may be found within “Financing Activities”, which follows.
Interest and Other Income
Interest and other income in fiscal 2004 and fiscal 2003 were not material.
Life Insurance Proceeds
In the third quarter of fiscal 2004, the Company received $5.0 million in proceeds from a key-person life insurance
policy maintained by a subsidiary of the FSG. The life insurance proceeds, which are non-taxable, increased net
income (after the minority interest’s share of the income) in fiscal 2004 by $4.0 million, or $.16 per diluted share.
Income Tax Expense
The Company’s effective tax rate decreased from 35.6% in fiscal 2003 to 29.9% in fiscal 2004 as the aforemen-
tioned $5.0 million in life insurance proceeds and the minority interest’s share of the income of Sierra LLC are
excluded from the Company’s income that is subject to federal income taxes. For a detailed analysis of the
provision for income taxes see Note 6, Income Taxes, of the Notes to Consolidated Financial Statements.
Minority Interests’ Share of Income
Minority interests’ share of income of consolidated subsidiaries relates to the minority interests held in HEICO
Aerospace and the 20% minority interest held in Sierra LLC. The increase from fiscal 2003 to fiscal 2004 was
attributable to higher earnings of the FSG and income of Sierra LLC.
Net Income
The Company’s net income was $20.6 million, or $.80 per diluted share, in fiscal 2004 compared to $12.2 million,
or $.50 per diluted share, in fiscal 2003. The net impact of the life insurance proceeds reduced by the restructuring
expenses and litigation-related expenses increased net income by $3.3 million, or $.13 per diluted share in fiscal 2004.
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 its operating activities and financing activities, including borrowings
under long-term credit agreements.
Principal uses of cash by the Company include acquisitions, payments of principal and interest on debt, capital
expenditures, cash dividends and increases in working capital.
The Company believes that its net cash provided by operating activities and available borrowings under its
revolving credit facility will be sufficient to fund cash requirements for the foreseeable future.
Operating Activities
Net cash provided by operating activities was $35.8 million for fiscal 2005, principally reflecting net income of
$22.8 million, depreciation and amortization of $7.4 million, minority interests’ share of income of $5.1 million, a
deferred income tax provision of $3.0 million and a tax benefit related to stock option exercises of $2.8 million,
partially offset by an increase in net operating assets of $5.3 million. The increase in net operating assets (current
assets used in operating activities net of current liabilities) primarily reflects a higher investment in inventories
required to meet increased sales demand associated with new product offerings, sales growth, and increased
lead times on certain raw materials; and an increase in accounts receivable due to sales growth, partially
offset by higher current liabilities associated with increased sales and purchases and higher accrued employee
compensation and related payroll taxes. (See Note 3, Selected Financial Statement Information, of the Notes to
Consolidated Financial Statements.)
20|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Net cash provided by operating activities was $44.1 million for fiscal 2004, consisting primarily of net income
of $20.6 million, including $4.0 million of cash proceeds from life insurance net of the minority interest’s share,
depreciation and amortization of $6.8 million, minority interests’ share of income of consolidated subsidiaries of
$5.0 million, a deferred income tax provision of $4.1 million, a tax benefit on stock option exercises of $1.3 million,
and a decrease in net operating assets of $6.5 million. The decrease in net operating assets (current assets used
in operating activities net of current liabilities) primarily reflects lower inventories resulting from efforts to improve
inventory turnover by reducing the level of finished goods maintained on hand, higher accounts receivable and
current liabilities associated with increased sales levels and higher income taxes payable resulting from the timing
of required income tax payments.
Net cash provided by operating activities was $28.9 million for fiscal 2003, principally reflecting net income of
$12.2 million, depreciation and amortization of $6.7 million, deferred income tax provision of $3.5 million, minority
interests’ share of income of consolidated subsidiaries of $2.0 million, and a decrease in net operating assets of
$4.0 million. The decrease in net operating assets (current assets used in operating activities net of current liabilities)
primarily reflects lower inventories resulting from efforts to improve inventory turnover by reducing the level of
finished goods maintained on hand.
Investing Activities
Net cash used in investing activities during the three fiscal year period ended October 31, 2005 primarily relates
to several acquisitions, including contingent payments, totaling $71.2 million, including $41.5 million in fiscal 2005
and $28.1 million in fiscal 2004. Further details on acquisitions may be found under the caption “Overview”. Capital
expenditures aggregated $18.7 million over the last three fiscal years, primarily reflecting the expansion of existing
production facilities and capabilities, which were generally funded using cash provided by operating activities. In
fiscal 2005, the Company received proceeds of $3.5 million from the sale of a building held for sale (see Note 3,
Selected Financial Statement Information – Property, Plant and Equipment, of the Notes to Consolidated Financial
Statements).
Financing Activities
The Company borrowed a net $16.0 million under its revolving credit facility in fiscal 2005 and used cash provided
by operating activities to make net payments on its revolving credit facility of $14.0 million in fiscal 2004 and
$24.0 million in fiscal 2003. The net borrowings made in fiscal 2005 reflect $37.0 million borrowed to fund the
aforementioned acquisitions, net of repayments of $21.0 million. The net payments made in fiscal 2004 reflect
$27.0 million borrowed to fund an aforementioned acquisition, net of repayments of $41.0 million. For the three
fiscal year period ended October 31, 2005, the Company paid cash dividends aggregating $3.5 million and
received proceeds from stock option exercises of $3.7 million.
In August 2005, the Company amended its revolving credit facility by entering into a $130 million Amended and
Restated Revolving Credit Agreement (“Credit Facility”) with a bank syndicate, which expires in August 2010. The
Credit Facility includes a feature that will allow the Company to increase the Credit Facility, at its option, up to an
aggregate amount of $175 million through increased commitments from existing lenders or the addition of new
lenders. The Credit Facility may be used for working capital and general corporate needs of the Company, including
letters of credit, capital expenditures and to finance acquisitions (generally not in excess of an aggregate total of
$50 million over any trailing twelve-month period without the requisite approval of the bank syndicate). Advances
under the Credit Facility accrue interest at the Company’s choice of the “Base Rate” or the London Interbank Offered
Rate (LIBOR) plus applicable margins (based on the Company’s ratio of total funded debt to earnings before interest,
taxes, depreciation and amortization, minority interest, and non-cash charges or “leverage ratio”). The Base Rate is
the higher of (i) the Prime Rate or (ii) the Federal Funds rate plus .50%. The applicable margins range from .75% to
2.00% for LIBOR based borrowings and from .00% to .50% for Base Rate based borrowings. A fee is charged on
the amount of the unused commitment ranging from .20% to .50% (depending on the Company’s leverage ratio).
The Credit Facility also includes a $10 million swingline sublimit and a $15 million sublimit for letters of credit. The
Credit Facility is secured by substantially all assets other than real property of the Company and its subsidiaries and
contains covenants that require, among other things, the maintenance of the leverage ratio and a fixed charge
coverage ratio as well as minimum net worth requirements. See Note 5, Long-Term Debt, of the Notes to
Consolidated Financial Statements for further information regarding the revolving credit facility.
|21
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of October 31, 2005:
Payments due by fiscal period
Total
2006
2007-2008
2009-2010
Thereafter
Long-term debt obligations(1)
$ 33,980,000
$ – $ 1,980,000
$ 32,000,000 $ –
Capital lease obligations
and equipment loans(1)
144,000
63,000
54,000
27,000
–
Operating lease obligations(2)
11,660,000
2,519,000
4,116,000
1,843,000
3,182,000
Purchase obligations(3)
Other long-term liabilities(4)
3,171,000
3,171,000
–
–
–
843,000
274,000
303,000
119,000
147,000
Total contractual obligations
$ 49,798,000
$ 6,027,000
$ 6,453,000
$ 33,989,000 $ 3,329,000
(1) Excludes interest charges on borrowings and the fee on the amount of any unused commitment that the Company may be obligated to pay under
its revolving credit facility as such amounts vary. Also excludes interest charges associated with capital lease obligations and equipment loans as
such amounts are not material. See Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements and Financing Activities above for
additional information regarding the Company’s long-term debt and capital lease obligations and equipment loans.
(2) See Note 17, Commitments and Contingencies – Lease Commitments, of the Notes to Consolidated Financial Statements for additional
information regarding the Company’s operating lease obligations.
(3) Includes additional purchase consideration aggregating $3.0 million relating to the Connectronics and HVT acquisitions. See Note 2, Acquisitions,
of the Notes to Consolidated Financial Statements. Also includes commitments for capitalized expenditures and excludes all purchase obligations
for inventory and supplies in the ordinary course of business.
(4) Includes projected payments aggregating $488,000 under our Directors Retirement Plan, which is explained further in Note 9, Retirement Plans,
of the Notes to Consolidated Financial Statements. The plan is unfunded and we pay benefits directly. The amounts in the table do not include
amounts related to the Company’s deferred compensation arrangement for which there is an offsetting asset included in the Company’s
Consolidated Balance Sheets. Also includes $355,000 of guaranteed minimum royalty payments as part of an agreement for exclusive license
rights to intellectual property.
Off-Balance Sheet Arrangements
The Company has arranged for standby letters of credit aggregating $1.8 million to meet the security requirement
of its insurance company for potential workers’ compensation claims. As of October 31, 2005, one of the Company’s
subsidiaries had guaranteed its performance related to a customer contract through two letters of credit, aggregating
$.3 million, both expiring December 2005. In November 2005, the letters of credit were extended to April 2006 and
increased to an aggregate of $1.2 million. All of these letters of credit are supported by the Company’s revolving
credit facility. In addition, the Company’s industrial development revenue bonds are secured by a $2.0 million
letter of credit expiring April 2008 and a mortgage on the related properties pledged as collateral.
As part of the agreement to acquire an 80% interest in Sierra Microwave Technology, Inc., the Company has
the right to purchase the minority interests beginning at approximately the tenth anniversary of the acquisition, or
sooner under certain conditions, and the minority holders have the right to cause the Company to purchase their
interests commencing at approximately the fifth anniversary of the acquisition, or sooner under certain conditions.
As part of the agreement to purchase Connectronics Corporation, the Company may be obligated to pay additional
purchase consideration of up to $3.8 million in aggregate should Connectronics meet certain earnings objectives
22|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
during the first four years following the acquisition. The Company accrued $2.2 million of such additional purchase
consideration as of October 31, 2005 based on the year-to-date earnings of Connectronics relative to its target,
which it expects to pay in fiscal 2006.
As part of the agreement to purchase Lumina Power, Inc., the Company may be obligated to pay additional
purchase consideration in fiscal 2010 currently estimated to total up to $2.3 million should Lumina meet certain
product line-related earnings objectives during the fourth and fifth years following the acquisition. The additional
purchase consideration will be accrued when the earnings objectives are met.
As part of the agreement to acquire an 85% interest in HVT Group, Inc., the minority holders have the right to
cause the Company to purchase their interests over a four-year period starting around the second anniversary of
the acquisition, or sooner under certain conditions.
The Company also accrued additional purchase consideration aggregating $.8 million as of October 31, 2005 in
accordance with the agreements related to the Connectronics and HVT acquisitions based principally on the actual
value of the net assets acquired. The Company expects to pay this amount in fiscal 2006.
For additional information on the aforementioned acquisitions, see Note 2, Acquisitions, of the Notes to
Consolidated Financial Statements.
As part of an agreement for exclusive license rights to intellectual property, one of the Company’s subsidiaries
has guaranteed minimum royalty payments aggregating $355,000 through fiscal 2007.
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 requires
the allocation of fixed production overhead costs be based on the normal capacity of the production facilities and
unallocated overhead costs recognized as an expense in the period incurred. The Statement also clarifies that
abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials
(spoilage) are required to be recognized as current period charges. The provisions of SFAS No. 151 are effective
for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of the Statement will
have a material effect on its results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This Statement revises SFAS
No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees”. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 107 (“SAB 107”) to provide public companies with its interpretive guidance in applying the provisions of
SFAS No. 123(R). SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires companies to recognize in the
statement of operations the cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards (with limited exceptions). This Statement is effective for fiscal
years beginning after June 15, 2005; therefore, the Company plans to adopt the new requirements in its first
quarter of fiscal 2006. Based on the number of stock options outstanding as of October 31, 2005 and the insignificant
number of stock options granted during the last two fiscal years, the Company expects the net income effect in
fiscal 2006 from the adoption of SFAS No. 123(R) and SAB 107 to be less than the fiscal 2005 pro forma effect
included in the table under the Stock Based Compensation section of Note 1, Summary of Significant Accounting
Policies, of the Notes to Consolidated Financial Statements.
In December 2004, the FASB issued Staff Position No. FAS 109-1 (“FSP FAS No. 109-1”), “Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004”. FSP FAS No. 109-1 states that qualified production activities should
be accounted for as a special deduction under SFAS No. 109 and not be treated as a rate reduction. Accordingly,
the special deduction has no effect on the Company’s deferred tax assets and liabilities existing as of the enactment
date. The Company is currently evaluating the impact of the American Jobs Creation Act of 2004, which will allow
the Company to claim a deduction from taxable income attributable to qualified domestic production activities
beginning in fiscal 2006.
|23
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29”. SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The Statement eliminates the exception of nonmonetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance (i.e. the future cash flows of the entity are not expected to change
significantly as a result of the exchange). The provisions of SFAS No. 153 are effective as of the first reporting
period beginning after June 15, 2005. The adoption of SFAS No. 153 did not have a material effect on the
Company’s results of operations or financial position.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of
APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 changes the requirements for the accounting and
reporting of a change in accounting principle. The Statement eliminates the requirement in APB 20 to include the
cumulative effect of changes in accounting principle in the income statement in the period of change, and instead
requires that changes in accounting principle be retrospectively applied unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change. The Statement applies to all voluntary
changes in accounting principle. SFAS No. 154 is effective for changes made in fiscal years beginning after
December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material effect on its
results of operations or financial position.
In September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on issue EITF 05-6,
“Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in
a Business Combination”. EITF 05-6 resolves that leasehold improvements that are placed in service significantly
after and not contemplated at or near the beginning of the lease term or that are acquired in a business combination
should be amortized over the shorter of the useful life of the assets or a term that includes the required lease
periods and renewals that are deemed to be reasonably assured as of the date the leasehold improvements are
purchased or the date of acquisition, as applicable. EITF 05-6 is effective the first reporting period beginning after
June 29, 2005. The adoption of EITF 05-6 did not have a material effect on the Company’s results of operations
or financial position.
Forward Looking Statements
Certain statements in this Report constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature
may be forward-looking and the words “believe,” “expect,” “estimate” and similar expressions are generally
intended to identify forward-looking statements. Any forward-looking statements contained herein, in press releases,
written statements or other documents filed with the Securities and Exchange Commission or in communications
and discussions with investors and analysts in the normal course of business through meetings, phone calls and
conference calls, concerning our operations, economic performance and financial condition are subject to known
and unknown risks, uncertainties and contingencies. We have based these forward-looking statements on our
current expectations and projections about future events. All forward-looking statements involve risks and
uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements
to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are
based upon management’s estimates of fair values and of future costs, using currently available information.
24|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
HEICO CORPORATION AND SUBSIDIARIES
Therefore, actual results may differ materially from those expressed or implied in those statements. Factors that
could cause such differences include, but are not limited to:
n Lower demand for commercial air travel or airline fleet changes, which could cause lower demand for our
goods and services;
n Product specification costs and requirements, which could cause an increase to our costs to complete contracts;
n Governmental and regulatory demands, export policies and restrictions, reductions in defense or space
spending by U.S. and/or foreign customers, or competition from existing and new competitors, which could
reduce our sales;
n HEICO’s ability to introduce new products and product pricing levels, which could reduce our sales or sales
growth;
n HEICO’s ability to make acquisitions and achieve operating synergies from acquired businesses, customer
credit risk, interest rates and economic conditions within and outside of the aviation, defense, space and
electronics industries, which could negatively impact our costs and revenues; and
n HEICO’s ability to maintain effective internal controls, which could adversely affect our business and the
market price of our common stock.
We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
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 have variable interest rates. Interest rate risk associated with
the Company’s variable rate debt is the potential increase in interest expense from an increase in interest rates.
Periodically, the Company enters into interest rate swap agreements to manage its interest expense. The Company
did not have any interest rate swap agreements in effect as of October 31, 2005. Based on the Company’s aggregate
outstanding variable rate debt balance of $34 million as of October 31, 2005, a hypothetical 10% increase in interest
rates would increase the Company’s interest expense by approximately $156,000 in fiscal 2006.
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, a hypothetical 10% increase in
interest rates as of October 31, 2005 would not have a material effect on the Company’s results of operations or
financial position.
The Company is also exposed to foreign currency exchange rate fluctuations on the United States dollar value
of its foreign currency denominated transactions, which are principally in British pound sterling. A hypothetical 10%
weakening in the exchange rate of the British pound sterling to the United States dollar as of October 31, 2005
would not have a material effect on the Company’s results of operations or financial position.
|25
HEICO CORPORATION AND SUBSIDIARIES
2005
2004
$ 5,330,000
47,668,000
62,758,000
3,159,000
7,218,000
$ 214,000
36,798,000
48,020,000
3,208,000
5,672,000
126,133,000
93,912,000
46,663,000
248,229,000
14,599,000
40,558,000
216,674,000
13,111,000
$ 435,624,000
$ 364,255,000
$ 63,000
11,129,000
32,473,000
6,285,000
$ 58,000
7,969,000
20,244,000
3,771,000
49,950,000
32,042,000
34,061,000
22,431,000
6,644,000
113,086,000
49,035,000
18,071,000
16,262,000
5,834,000
72,209,000
44,644,000
–
–
101,000
99,000
145,000
192,523,000
(65,000)
80,799,000
143,000
187,950,000
–
59,210,000
273,503,000
247,402,000
$ 435,624,000
$ 364,255,000
Consolidated Balance Sheets
As of October 31,
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property, plant and equipment, net
Goodwill
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current maturities of long-term debt
Trade accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Long-term debt, net of current maturities
Deferred income taxes
Other non-current liabilities
Total liabilities
Minority interests in consolidated subsidiaries
Commitments and contingencies (Notes 2 and 17)
Shareholders’ equity:
Preferred Stock, $.01 par value per share; 10,000,000 shares
authorized; 300,000 shares designated as Series B Junior
Participating Preferred Stock and 300,000 shares designated
as Series C Junior Participating Preferred Stock; none issued
Common Stock, $.01 par value per share; 30,000,000 shares authorized;
10,057,690 and 9,898,451 shares issued and outstanding, respectively
Class A Common Stock, $.01 par value per share; 30,000,000 shares
authorized; 14,517,669 and 14,325,304 shares issued and
outstanding, respectively
Capital in excess of par value
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
26|
Consolidated Statements of Operations
HEICO CORPORATION AND SUBSIDIARIES
For the year ended October 31,
2005
2004
2003
Net sales
Operating costs and expenses:
$ 269,647,000
$ 215,744,000
$ 176,453,000
Cost of sales
Selling, general and administrative expenses
168,651,000
56,347,000
139,932,000
43,193,000
118,349,000
34,899,000
Total operating costs and expenses
224,998,000
183,125,000
153,248,000
Operating income
Interest expense
Interest and other income
Life insurance proceeds
44,649,000
32,619,000
23,205,000
(1,136,000)
528,000
–
(1,090,000)
26,000
5,000,000
(1,189,000)
93,000
–
Income before income taxes and minority interests
44,041,000
36,555,000
22,109,000
Income tax expense
16,100,000
10,948,000
7,872,000
Income before minority interests
27,941,000
25,607,000
14,237,000
Minority interests’ share of income
5,129,000
4,977,000
2,015,000
Net income
Net income per share:
Basic
Diluted
Weighted average number of common
shares outstanding:
Basic
Diluted
$ 22,812,000
$ 20,630,000
$ 12,222,000
$ .93
$ .87
$ .86
$ .80
$ .53
$ .50
24,460,185
26,323,302
24,036,980
25,754,598
23,236,841
24,531,280
The accompanying notes are an integral part of these consolidated financial statements.
|27
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
Balances as of October 31, 2002
Net income
Comprehensive income
Proceeds from shares of common stock sold in
connection with business acquisition (Note 17)
Cash dividends ($.045 per share)
Tax benefit from stock options exercises
Proceeds from stock option exercises
Repurchase of common stock
Other
Common
Stock
Class A
Common
Stock
$ 94,000
$ 116,000
P
3,000
1,000
Balances as of October 31, 2003
97,000
117,000
10% stock dividend on Common Stock and Class A Common Stock
paid in shares of Class A Common Stock (Note 7)
Net income
Comprehensive income
Shares issued in connection with business acquisition (Note 2)
Proceeds from shares of common stock sold in
connection with business acquisition (Note 17)
Adjustment to guaranteed resale value of common stock
issued in connection with business acquisition (Note 17)
Cash dividends ($.05 per share)
Tax benefit from stock options exercises
Proceeds from stock option exercises
Other
Balances as of October 31, 2004
Net income
Foreign currency translation adjustment (Note 1)
Comprehensive income
Cash dividends ($.05 per share)
Tax benefit from stock options exercises
Proceeds from stock option exercises
Other
22,000
3,000
2,000
99,000
2,000
(1,000)
143,000
2,000
2,000
Balances as of October 31, 2005
$ 101,000
$ 145,000
The accompanying notes are an integral part of these consolidated financial statements.
28|
HEICO CORPORATION AND SUBSIDIARIES
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive Loss
Retained
Earnings
Note
Receivable
Comprehensive
Income
$ 153,847,000
$ –
$ 58,007,000
$ (5,000,000)
12,222,000
$ 12,222,000
$ 12,222,000
(1,055,000)
2,068,000
348,000
985,000
(120,000)
4,000
(2,000)
155,064,000
–
69,172,000
(2,932,000)
29,342,000
2,997,000
(1,673,000)
1,258,000
959,000
3,000
187,950,000
2,830,000
1,742,000
1,000
1,259,000
1,673,000
–
$ 20,630,000
$ 20,630,000
$ 22,812,000
(65,000)
$ 22,747,000
(29,393,000)
20,630,000
(1,201,000)
2,000
59,210,000
22,812,000
(1,224,000)
1,000
–
(65,000)
$ 192,523,000
$ (65,000)
$ 80,799,000
$ –
|29
Consolidated Statements of Cash Flows
HEICO CORPORATION AND SUBSIDIARIES
For the year ended October 31,
2005
2004
2003
Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Deferred income tax provision
Minority interests’ share of income
Tax benefit from stock option exercises
Change in estimate of product warranty liability
Restructuring expense related to inventory write-downs
Changes in assets and liabilities, net of acquisitions:
Increase in amounts receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses
and other current assets
Increase (decrease) in trade account payables,
accrued expenses and other current liabilities
Increase in income taxes payable
Other
$ 22,812,000
$ 20,630,000
$ 12,222,000
7,409,000
3,031,000
5,129,000
2,830,000
–
–
6,779,000
4,125,000
4,977,000
1,258,000
(535,000)
350,000
6,720,000
3,520,000
2,015,000
348,000
–
–
(6,852,000)
(10,113,000)
(6,193,000)
3,576,000
(101,000)
3,705,000
(119,000)
263,000
999,000
9,548,000
2,163,000
(30,000)
6,036,000
2,951,000
(167,000)
(1,390,000)
820,000
6,000
Net cash provided by operating activities
35,808,000
44,050,000
28,864,000
Investing Activities:
Acquisitions and related costs, net of cash acquired
Capital expenditures
Proceeds from sale of building held for sale
Other
(41,500,000)
(8,273,000)
3,520,000
357,000
(28,099,000)
(5,737,000)
–
(335,000)
Net cash used in investing activities
(45,896,000)
(34,171,000)
Financing Activities:
Borrowings on revolving credit facility
Payments on revolving credit facility
Cash dividends paid
Proceeds from stock option exercises
Proceeds from shares of common stock in
connection with business acquisition
Repurchases of common stock
Other
37,000,000
(21,000,000)
(1,224,000)
1,746,000
–
–
(1,300,000)
27,000,000
(41,000,000)
(1,201,000)
963,000
1,259,000
–
(1,007,000)
(1,554,000)
(4,723,000)
–
85,000
(6,192,000)
–
(24,000,000)
(1,055,000)
989,000
2,068,000
(120,000)
(772,000)
Net cash provided by (used in) financing activities
15,222,000
(13,986,000)
(22,890,000)
Effect of exchange rate changes on cash
(18,000)
–
–
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
5,116,000
214,000
(4,107,000)
4,321,000
(218,000)
4,539,000
Cash and cash equivalents at end of year
$ 5,330,000
$ 214,000
$ 4,321,000
The accompanying notes are an integral part of these consolidated financial statements.
30|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
NOTE 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) 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 principal subsidiaries include
HEICO Aerospace Corporation, Jet Avion Corporation, LPI Industries Corporation, Aircraft Technology, Inc.,
Northwings Accessories Corporation, McClain International, Inc., Rogers-Dierks, Inc., Turbine Kinetics, Inc.,
Thermal Structures, Inc., Future Aviation, Inc., Aero Design, Inc., HEICO Aerospace Parts Corp., Aviation Facilities,
Inc., Jetseal, Inc. and Niacc-Avitech Technologies Inc. HEICO Electronic’s principal subsidiaries include Radiant
Power Corp., Leader Tech, Inc., Santa Barbara Infrared, Inc., Analog Modules, Inc., Inertial Airline Services, Inc.,
Sierra Microwave Technology, LLC, Connectronics Corporation, Lumina Power, Inc. and HVT Group, Inc. The
Company’s customer base is primarily the commercial airline, defense, space and electronics industries. As of
October 31, 2005, the Company’s principal operations are located in Glastonbury, Connecticut; Atlanta, Georgia;
Chelmsford and Peabody, Massachusetts; Cleveland and Toledo, Ohio; Georgetown, Texas; Mt. Juliet, Tennessee;
Anacortes and Spokane, Washington; Corona, Fresno, and Santa Barbara, California; Fort Myers, Hollywood,
Miami, Orlando, Sarasota, Tampa and Titusville, Florida; and Great Dunmow, U.K.
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, which is 20%-owned by Lufthansa Technik AG, the technical
services subsidiary of Lufthansa German Airlines, and two subsidiaries within HEICO Electronic, which are 80% and
85% owned, respectively. In addition, HEICO Aerospace consolidates a joint venture formed in March 2001,
which is 16%-owned by American Airlines’ parent company, AMR Corporation, and an 80%-owned subsidiary.
(See Note 2, Acquisitions, of the Notes to Consolidated Financial Statements.) All significant intercompany
balances and transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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.
Inventory
Inventory is stated at the lower of cost or market, with cost being determined on the first-in, first-out or the
average cost basis. Losses, if any, are recognized fully in the period 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 improvements
Leasehold improvements
Machinery and equipment
Tooling
20 to 55 years
2 to 20 years
3 to 10 years
2 to 5 years
The costs of major additions and improvements are capitalized. Leasehold improvements are amortized over
the shorter of the leasehold improvement’s useful life or the lease term. 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.
|31
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Goodwill and Other Intangible Assets
The Company tests goodwill for impairment annually as of October 31 or more frequently if events or changes
in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. The test requires the
Company to compare the fair value of each of its reporting units to its carrying value to determine potential
impairment. If the carrying value of a reporting unit exceeds its fair value, the implied fair value of that reporting
unit’s goodwill is to be calculated and an impairment loss shall be recognized in the amount by which the carrying
value of a reporting unit’s goodwill exceeds its implied fair value, if any.
The Company’s intangible assets subject to amortization consist primarily of licenses, patents and non-compete
agreements and are amortized on the straight-line method over the following estimated useful lives:
Licenses
Patents
Non-compete agreements
12 to 17 years
10 to 17 years
2 to 7 years
The Company’s intangible assets not subject to amortization consist of trade names. The Company tests each
non-amortizing asset for impairment annually as of October 31, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The test consists of a comparison of the fair value of
each intangible asset to its carrying amount. If the carrying amount of an intangible asset exceeds its fair value,
an impairment loss shall be recognized in an amount equal to that excess.
Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, trade 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 (included within other assets in the Company’s Consolidated Balance Sheets) are stated
at fair value based on quoted market prices.
Interest Rate Swap Agreements
Periodically, the Company enters into interest rate swap agreements to manage interest expense related to its
revolving credit facility. Interest rate risk associated with the Company’s variable rate revolving credit facility is the
potential increase in interest expense from an increase in interest rates. A derivative instrument (e.g. interest rate
swap agreement) that hedges the variability of cash flows related to a recognized liability is designated as a cash
flow hedge.
On an ongoing basis, the Company assesses whether derivative instruments used in hedging transactions are
highly effective in offsetting changes in cash flows of the hedged items and therefore qualify as cash flow hedges.
For a derivative instrument that qualifies as a cash flow hedge, the effective portion of changes in fair value of the
derivative is deferred and recorded as a component of other comprehensive income until the hedged transaction
occurs and is recognized in earnings. All other portions of changes in the fair value of a cash flow hedge are
recognized in earnings immediately.
The Company did not enter into any interest rate swap agreements in fiscal 2005, 2004 or 2003.
Product Warranties
Product warranty liabilities are estimated at the time of shipment and recorded as a component of accrued
expenses and other current liabilities in the Company’s Consolidated Balance Sheets. The amount recognized is
based on historical claims cost experience.
Revenue Recognition
Revenue is recognized on an accrual basis, primarily upon the shipment of products and the rendering of services.
Revenue from certain fixed price contracts for which costs can be dependably estimated is recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs
32|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
for each contract. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing
profits in the period of revision. For fixed price 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 did not have a significant effect on net
income or diluted net income per share in fiscal 2005, 2004 or 2003. Revenues earned from rendering services
represented less than 10% of consolidated net sales for all periods presented.
Long-term Contracts
Accounts receivable and accrued expenses and other current liabilities include amounts related to the production
of products under fixed-price contracts exceeding terms of one year. Revenues are recognized on the percentage-
of-completion method for certain of these contracts, 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. Revenues are recognized on the completed-contract
method for certain other contracts. This method is used when 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. Variations in actual labor performance, changes to estimated profitability
and final contract settlements may result in revisions to cost estimates and are recognized in income 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,” included in accrued expenses and other current liabilities,
represents billings in excess of revenues recognized on contracts accounted for under either the percentage-of-
completion method or the completed-contract method. 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 periods recognized for income tax purposes.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted net income per share is computed by dividing net income by the
weighted average number of common 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.
Foreign Currency Translation
All assets and liabilities of foreign subsidiaries that do not utilize the United States dollar as its functional currency
are translated at year-end rates of exchange, while revenues and expenses are translated at monthly weighted
average rates of exchange for the year. Unrealized translation gains or losses are reported as foreign currency
translation adjustments through other comprehensive income (loss) in shareholders’ equity.
Stock Based Compensation
The Company accounts for stock-based employee compensation using the intrinsic value method. Accordingly,
compensation expense has been recorded in the accompanying consolidated financial statements for any stock
options granted below fair market value of the underlying stock as of the date of grant. The following table illustrates
the pro forma effects on net income and net income per share as if the Company had applied the fair-value
recognition provisions (an alternative method) to stock-based employee compensation. The fair value of each
option grant is estimated as of the date of grant using the Black-Scholes option-pricing model.
|33
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
For the year ended October 31,
2005
2004
2003
Net income, as reported
Add: Stock-based employee compensation expense
included in reported net income, net of tax
Deduct: Stock-based employee compensation expense
$ 22,812,000
$ 20,630,000
$ 12,222,000
2,000
2,000
3,000
determined under a fair value method, net of tax
(1,162,000)
(1,481,000)
(1,724,000)
Pro forma net income
Net income per share:
Basic – as reported
Basic – pro forma
Diluted – as reported
Diluted – pro forma
Contingencies
$ 21,652,000
$ 19,151,000
$ 10,501,000
$ .93
$ .89
$ .86
$ .80
$ .53
$ .45
$ .87
$ .82
$ .80
$ .74
$ .50
$ .43
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 until they have been realized.
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 requires
the allocation of fixed production overhead costs be based on the normal capacity of the production facilities and
unallocated overhead costs recognized as an expense in the period incurred. The Statement also clarifies that
abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials
(spoilage) are required to be recognized as current period charges. The provisions of SFAS No. 151 are effective
for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of the Statement will
have a material effect on its results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This Statement revises SFAS
No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees”. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 107 (“SAB 107”) to provide public companies with its interpretive guidance in applying the provisions of
SFAS No. 123(R). SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires companies to recognize in
the statement of operations the cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards (with limited exceptions). This Statement is effective for fiscal
years beginning after June 15, 2005; therefore, the Company plans to adopt the new requirements in its first
quarter of fiscal 2006. Based on the number of stock options outstanding as of October 31, 2005 and the insignificant
number of stock options granted during the last two fiscal years, the Company expects the net income effect in
fiscal 2006 from the adoption of SFAS No. 123(R) and SAB 107 to be less than the fiscal 2005 pro forma effect
included in the table under the Stock Based Compensation section of this Note 1.
In December 2004, the FASB issued Staff Position No. FAS 109-1 (“FSP FAS No. 109-1”), “Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004”. FSP FAS No. 109-1 states that qualified production activities should
be accounted for as a special deduction under SFAS No. 109 and not be treated as a rate reduction. Accordingly,
the special deduction has no effect on the Company’s deferred tax assets and liabilities existing as of the enactment
date. The Company is currently evaluating the impact of the American Jobs Creation Act of 2004, which will allow
the Company to claim a deduction from taxable income attributable to qualified domestic production activities
beginning in fiscal 2006.
34|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29”. SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The Statement eliminates the exception of nonmonetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance (i.e. the future cash flows of the entity are not expected to change
significantly as a result of the exchange). The provisions of SFAS No. 153 are effective as of the first reporting
period beginning after June 15, 2005. The adoption of SFAS No. 153 did not have a material effect on the
Company’s results of operations or financial position.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of
APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 changes the requirements for the accounting and
reporting of a change in accounting principle. The Statement eliminates the requirement in APB 20 to include the
cumulative effect of changes in accounting principle in the income statement in the period of change, and instead
requires that changes in accounting principle be retrospectively applied unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change. The Statement applies to all voluntary
changes in accounting principle. SFAS No. 154 is effective for changes made in fiscal years beginning after
December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material effect on
its results of operations or financial position.
In September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on issue EITF 05-6,
“Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in
a Business Combination”. EITF 05-6 resolves that leasehold improvements that are placed in service significantly
after and not contemplated at or near the beginning of the lease term or that are acquired in a business combination
should be amortized over the shorter of the useful life of the assets or a term that includes the required lease
periods and renewals that are deemed to be reasonably assured as of the date the leasehold improvements are
purchased or the date of acquisition, as applicable. EITF 05-6 is effective the first reporting period beginning after
June 29, 2005. The adoption of EITF 05-6 did not have a material effect on the Company’s results of operations
or financial position.
NOTE 2. ACQUISITIONS
In May 2003, the Company, through a subsidiary, acquired substantially all of the assets and liabilities of Niacc
Technology, Inc. (Niacc). Niacc is engaged in the repair and overhaul of aircraft components and accessories
principally serving the regional commuter and business aircraft market. The Company paid the purchase price of
this acquisition primarily by using proceeds from its revolving credit facility.
In December 2003, the Company, through its HEICO Electronic Technologies Corp. subsidiary, acquired an 80%
interest in the assets and business of Sierra Microwave Technology, Inc., (Sierra). Under the transaction, the
Company formed a new subsidiary, Sierra Microwave Technology, LLC (Sierra LLC), which acquired substantially
all of the assets and assumed certain liabilities of Sierra. The new subsidiary is owned 80% by the Company and
20% by certain members of Sierra’s management group. The purchase price was principally paid in cash using
proceeds from the Company’s revolving credit facility and with shares of HEICO’s Class A Common Stock. Sierra
LLC is engaged in the design and manufacture of certain niche microwave components used in satellites and
military products. As part of the agreement to acquire an 80% interest in Sierra, the Company has the right to
purchase the minority interests beginning at approximately the tenth anniversary of the acquisition, or sooner
under certain conditions, and the minority holders have the right to cause the Company to purchase their interests
commencing at approximately the fifth anniversary of the acquisition, or sooner under certain conditions.
In December 2004, the Company, through its HEICO Electronic Technologies Corp. subsidiary, acquired
substantially all of the assets and assumed certain liabilities of Connectronics, Corp. and its affiliate, Wiremax, Ltd.
(collectively “Connectronics”). The purchase price was principally paid in cash using proceeds from the
Company’s revolving credit facility. Subject to meeting certain earnings objectives during the first four years
following the acquisition, the Company may be obligated to pay additional purchase consideration of up to
$3.8 million in aggregate. The Company accrued $2.2 million of such additional purchase consideration as of
October 31, 2005 based on the year-to-date earnings of Connectronics relative to its target, which it expects to
pay in fiscal 2006. Connectronics is engaged in the production of specialty high voltage interconnection devices
and wire primarily for defense applications and other markets.
|35
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
In February 2005, the Company, through its HEICO Electronic Technologies Corp. subsidiary, acquired substan-
tially all of the assets and assumed certain liabilities of Lumina Power, Inc. (Lumina). The purchase price was
principally paid in cash using proceeds from the Company’s revolving credit facility. Subject to meeting certain
product line-related earnings objectives during the fourth and fifth years following the acquisition, the Company
may be obligated to pay additional purchase consideration after the fifth year, which is currently estimated to
total up to $2.3 million. The additional purchase consideration will be accrued when the earnings objectives are
met. Lumina is engaged in the design and manufacture of power supplies for the laser industry.
In September 2005, the Company, through its HEICO Electronic Technologies Corp. subsidiary, acquired an 85%
interest in the stock of HVT Group, Inc., (HVT). The remaining 15% interest is held by certain members of HVT’s
management group. The purchase price was principally paid in cash using proceeds from the Company’s revolving
credit facility. As part of the agreement to acquire an 85% interest in HVT, the minority holders have the right to
cause the Company to purchase their interests over a four-year period starting around the second anniversary of
the acquisition, or sooner under certain conditions. HVT is a leading provider of very high voltage interconnection
devices and cable assemblies for the medical equipment, defense and industrial markets.
In September 2005, the Company, through its HEICO Aerospace Holdings Corp. subsidiary, acquired certain assets
and assumed certain liabilities in an aerospace and defense product line acquisition, which will be used in the opera-
tions of one of its existing subsidiaries. The purchase price was paid in cash provided by operating activities.
The Company also accrued additional purchase consideration aggregating $.8 million as of October 31, 2005
in accordance with the agreements related to the Connectronics and HVT acquisitions based principally on the
actual value of net assets acquired. The Company expects to pay this amount in fiscal 2006.
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 purchase dates. The purchase
price of each acquisition was not significant to the Company’s consolidated financial statements individually or in
aggregate and the pro forma consolidated operating results assuming each acquisition had been consummated
as of the beginning of its respective fiscal year would not have been materially different from the reported results.
The costs of each acquisition have been allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values as of the date of acquisition as determined by management.
The allocation of the purchase price of HVT to the tangible and identifiable intangible assets acquired and liabilities
assumed in these consolidated financial statements is preliminary until the Company obtains final information
regarding their fair values. The excess of the purchase price over the net of the amounts assigned to assets
acquired and liabilities assumed has been recorded as goodwill (See Note 18, Supplemental Disclosures of Cash
Flow Information, of the Notes to Consolidated Financial Statements). The aggregate cost of acquisitions,
including payments made in cash and with shares of the Company’s common stock and contingent payments,
was $41.5 million, $31.1 million and $1.6 million in fiscal 2005, 2004 and 2003, respectively.
NOTE 3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
As of October 31,
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
2005
2004
$ 49,816,000
(2,148,000)
$ 37,380,000
(582,000)
$ 47,668,000
$ 36,798,000
The $1.6 million net increase in the Company’s allowance for doubtful accounts in fiscal 2005 is principally as a
result of bankruptcy filings in the fourth quarter by certain customers in the aviation industry. The associated charge
is included in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.
(See Note 15, Quarterly Financial Information, of the Notes to Consolidated Financial Statements). The 30% increase
in accounts receivable from $36.8 million as of October 31, 2004 to $47.7 million as of October 31, 2005 exceeds
the 25% increase the Company experienced in net sales during fiscal 2005 as accounts receivable as of October 31,
2005 reflects the full impact of the fiscal 2005 acquisitions, which only affected net sales since their respective
acquisition dates.
36|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts
As of October 31,
Costs incurred on uncompleted contracts
Estimated earnings
Less: Billing to date
Included in accompanying consolidated balance
sheets under the following captions:
Accounts receivable, net (costs and estimated
earnings in excess of billings)
Accrued expenses and other current liabilities
(billings in excess of costs and estimated earnings)
2005
2004
$ 18,344,000
11,252,000
29,596,000
(21,747,000)
$ 14,798,000
8,686,000
23,484,000
(19,663,000)
$ 7,849,000
$ 3,821,000
$ 7,889,000
$ 4,612,000
(40,000)
(791,000)
$ 7,849,000
$ 3,821,000
Changes in estimates did not have a material effect on net income or diluted net income per share in fiscal
2005, 2004, or 2003.
Inventories
As of October 31,
Finished products
Work in process
Materials, parts, assemblies and supplies
Inventories, net
2005
2004
$ 26,136,000
12,634,000
23,988,000
$ 19,838,000
9,597,000
18,585,000
$ 62,758,000
$ 48,020,000
Inventories related to long-term contracts were not significant as of October 31, 2005 and 2004.
During the second quarter of fiscal 2005, the Company reclassified certain inventory (with a carrying value of
$4.5 million) within one of its repair and overhaul subsidiaries from finished products to materials, parts, assemblies
and supplies based on a review of how the inventory is utilized in its operations. Inventory balances as of October 31,
2004 (also with a carrying value of $4.5 million) have been reclassified to conform to the current year presentation.
Property, Plant and Equipment
As of October 31,
Land
Buildings and improvements
Machinery, equipment and tooling
Construction in progress
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
2005
2004
$ 3,155,000
25,344,000
53,460,000
3,128,000
85,087,000
(38,424,000)
$ 2,157,000
20,007,000
55,869,000
2,239,000
80,272,000
(39,714,000)
$ 46,663,000
$ 40,558,000
The amounts set forth above include tooling costs having a net book value of $3,441,000 and $3,652,000 as of
October 31, 2005 and 2004, respectively. Amortization expense on capitalized tooling was $1,346,000, $1,484,000
and $1,639,000 for the fiscal years ended October 31, 2005, 2004 and 2003, respectively. Expenditures for capital-
ized tooling costs were $885,000, $955,000 and $952,000 in fiscal 2005, 2004 and 2003, respectively.
Depreciation and amortization expense, exclusive of tooling, on property, plant and equipment, amounted
to approximately $5,574,000, $4,841,000 and $4,659,000 for the fiscal years ended October 31, 2005, 2004 and
2003, respectively.
|37
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Included in the Company’s property, plant and equipment is rotable equipment located at various customer
locations in connection with certain repair and maintenance agreements. The rotables are stated at a net book
value of $3,256,000 and $3,781,000 as of October 31, 2005 and 2004, respectively. Under the terms of the agree-
ments, the customers may purchase the equipment at specified prices, which are no less than net book value,
upon termination of the agreements. The equipment is currently being depreciated over its estimated life.
In January 2005, the Company received proceeds of $3,520,000 from the sale of vacated building and associated
land previously classified as held for sale. The $3,468,000 carrying value of the property was included within other
assets in the Company’s Consolidated Balance Sheet as of October 31, 2004.
Accrued Expenses and Other Current Liabilities
As of October 31,
Accrued employee compensation and related payroll taxes
Accrued customer rebates and credits
Accrued additional purchase consideration
Other
Total accrued expenses and other current liabilities
2005
2004
$ 13,794,000
8,222,000
3,045,000
7,412,000
$ 9,105,000
5,961,000
–
5,178,000
$ 32,473,000
$ 20,244,000
Other Non-Current Liabilities
Other non-current liabilities include deferred compensation of $5,847,000 and $5,216,000 as of October 31, 2005
and 2004, respectively, principally related to elective deferrals of salary and bonuses under a Company sponsored
non-qualified deferred compensation plan available to selected employees. The Company makes no contributions
to this plan. The assets of this plan related to this deferred compensation liability are held within an irrevocable
trust and classified within other assets (long-term) in the accompanying Consolidated Balance Sheets.
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has two operating segments: the Flight Support Group (FSG) and the Electronic Technologies
Group (ETG). Changes in the carrying amount of goodwill during fiscal 2005 and 2004 by operating segment are
as follows:
Balances as of October 31, 2003
Goodwill acquired
Adjustments to goodwill
Balances as of October 31, 2004
Goodwill acquired
Accrued additional purchase consideration
Adjustments to goodwill
Segment
Consolidated
FSG
ETG
Totals
$ 119,729,000
–
559,000
120,288,000
1,092,000
–
661,000
$ 68,971,000
27,349,000
66,000
$ 188,700,000
27,349,000
625,000
96,386,000
26,757,000
3,045,000
–
216,674,000
27,849,000
3,045,000
661,000
Balances as of October 31, 2005
$ 122,041,000
$ 126,188,000
$ 248,229,000
The goodwill acquired and accrued additional purchase consideration during fiscal 2005 are a result of the
Company’s acquisitions described in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements.
Adjustments to goodwill consist primarily of additional purchase price payments and contingent purchase price
payments to previous owners of acquired businesses.
38|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Identifiable intangible assets, which are recorded within other assets in the Company’s Consolidated Balance
Sheets, consist of:
As of October 31,
Amortizing Assets
2005
2004
Gross
Carrying
Amount
Net
Gross
Net
Accumulated Carrying
Amount
Amortization
Carrying Accumulated Carrying
Amortization Amount
Amount
Licenses
Patents
Non-compete agreements
$ 1,000,000
477,000
660,000
$ (252,000)
(60,000)
(129,000)
$ 748,000 $ 1,000,000
338,000
110,000
417,000
531,000
$ (178,000) $ 822,000
306,000
61,000
(32,000)
(49,000)
2,137,000
(441,000)
1,696,000
1,448,000
(259,000)
1,189,000
Non-Amortizing Assets
Trade names
3,650,000
–
3,650,000
–
–
–
$ 5,787,000
$ (441,000) $ 5,346,000 $ 1,448,000
$ (259,000) $ 1,189,000
The increase in the gross carrying amount of non-compete agreements and trade names as of October 31, 2005
compared to October 31, 2004 principally relates to such intangible assets recognized in connection with fiscal
2005 acquisitions. (See Note 2, Acquisitions, and Note 18, Supplemental Disclosures of Cash Flow Information,
of the Notes to Consolidated Financial Statements.) The weighted average amortization period of the non-compete
agreements acquired in fiscal 2005 is approximately six years. Acquisitions of intangible assets were not signifi-
cant in fiscal 2004.
Amortization expense of other intangible assets was $193,000, $112,000 and $98,000 for the fiscal years ended
October 31, 2005, 2004 and 2003, respectively. Amortization expense for each of the next five fiscal years is
expected to be $259,000 in fiscal 2006, $196,000 in fiscal 2007, $180,000 in fiscal 2008, $166,000 in fiscal 2009,
and $166,000 in fiscal 2010.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of:
As of October 31,
Borrowings under revolving credit facility
Industrial Development Revenue Refunding Bonds – Series 1988
Capital leases and equipment loans
Less: Current maturities of long-term debt
2005
2004
$ 32,000,000
1,980,000
144,000
34,124,000
(63,000)
$ 16,000,000
1,980,000
149,000
18,129,000
(58,000)
$ 34,061,000
$ 18,071,000
The aggregate amount of long-term debt maturing by fiscal year is $63,000 in fiscal 2006, $39,000 in fiscal 2007,
$1,995,000 in fiscal 2008, $18,000 in fiscal 2009, and $32,009,000 in fiscal 2010.
Revolving Credit Facility
In August 2005, the Company amended its revolving credit facility by entering into a $130 million Amended and
Restated Revolving Credit Agreement (“Credit Facility”) with a bank syndicate, which expires in August 2010. The
Credit Facility includes a feature that will allow the Company to increase the Credit Facility, at its option, up to an
aggregate amount of $175 million through increased commitments from existing lenders or the addition of new
lenders. The Credit Facility may be used for working capital and general corporate needs of the Company, including
letters of credit, capital expenditures and to finance acquisitions (generally not in excess of an aggregate total of
$50 million over any trailing twelve-month period without the requisite approval of the bank syndicate). Advances
under the Credit Facility accrue interest at the Company’s choice of the “Base Rate” or the London Interbank
|39
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Offered Rate (LIBOR) plus applicable margins (based on the Company’s ratio of total funded debt to earnings
before interest, taxes, depreciation and amortization, minority interest, and non-cash charges or “leverage ratio”).
The Base Rate is the higher of (i) the Prime Rate or (ii) the Federal Funds rate plus .50%. The applicable margins
range from .75% to 2.00% for LIBOR based borrowings and from .00% to .50% for Base Rate based borrowings.
A fee is charged on the amount of the unused commitment ranging from .20% to .50% (depending on the
Company’s leverage ratio). The Credit Facility also includes a $10 million swingline sublimit and a $15 million
sublimit for letters of credit. The Credit Facility is secured by substantially all assets other than real property of
the Company and its subsidiaries and contains covenants that require, among other things, the maintenance of
the leverage ratio and a fixed charge coverage ratio as well as minimum net worth requirements.
As of October 31, 2005 and 2004, the Company had a total of $32 million and $16 million, respectively, borrowed
under its revolving credit facility at weighted average interest rates of 4.7% and 2.9%, respectively. The amounts
were primarily borrowed to partially fund acquisitions (see Note 2, Acquisitions, of the Notes to Consolidated
Financial Statements).
Industrial Development Revenue Bonds
The industrial development revenue bonds outstanding as of October 31, 2005 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 (2.8% and 1.8% as of October 31, 2005 and 2004, respectively). The 1988 bonds as amended
are secured by a $2.0 million letter of credit expiring April 2008 and a mortgage on the related properties pledged
as collateral.
NOTE 6. INCOME TAXES
The provision for income taxes on income before income taxes and minority interests for each of the three
fiscal years ended October 31 is as follows:
For the year ended October 31,
2005
2004
2003
Current:
Federal
State
Foreign
Deferred
$ 11,346,000
1,667,000
56,000
13,069,000
3,031,000
$ 6,088,000
735,000
–
6,823,000
4,125,000
$ 3,908,000
444,000
–
4,352,000
3,520,000
Total income tax expense
$ 16,100,000
$ 10,948,000
$ 7,872,000
The following table reconciles the federal statutory tax rate to the Company’s effective tax rate for each of the
three fiscal years ended October 31:
Federal statutory tax rate
State taxes, less applicable federal income tax reduction
Net tax benefit related to non-taxable life
insurance proceeds
Net tax benefit on export sales
Net tax benefit (liability) on minority interest’s
share of income
Other, net
2005
35.0%
3.2
–
(1.8)
(.5)
.7
2004
35.0%
2.2
(4.8)
(2.3)
(.9)
.7
2003
35.0%
2.5
–
(2.3)
.4
–
Effective tax rate
36.6%
29.9%
35.6%
40|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
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. The Company
believes that it is more likely than not that it will generate sufficient future taxable income to utilize all of its deferred
tax assets and has therefore not recorded a valuation allowance on any such asset. Significant components of
the Company’s deferred tax assets and liabilities are as follows:
As of October 31,
Deferred tax assets:
Inventories
Deferred compensation liability
Allowance for doubtful accounts receivable
Customer rebates accrual
Capitalized research and development expenses
Other
Total deferred tax assets
Deferred tax liabilities:
Intangible asset amortization
Accelerated depreciation
Other
Total deferred tax liabilities
Net deferred tax liability
The net deferred tax liability is classified on the balance sheet as follows:
As of October 31,
Current asset
Long-term liability
Net deferred tax liability
2005
2004
$ 4,268,000
2,286,000
810,000
739,000
502,000
1,535,000
$ 3,744,000
2,096,000
187,000
623,000
709,000
1,640,000
$ 10,140,000
$ 8,999,000
20,722,000
4,504,000
127,000
25,353,000
15,545,000
3,966,000
78,000
19,589,000
$ (15,213,000)
$ (10,590,000)
2005
2004
$ 7,218,000
(22,431,000)
$ 5,672,000
(16,262,000)
$ (15,213,000)
$ (10,590,000)
The increase in the net deferred tax liability from $10.6 million as of October 31, 2004 to $15.2 million as of
October 31, 2005 is due to the $3.0 million deferred income tax expense for fiscal 2005 and $1.6 million in net
deferred tax liabilities recognized in connection with an acquisition in fiscal 2005. The net deferred tax liabilities
recognized principally relate to differences between the assigned values and the tax bases of identifiable intangible
assets and property, plant and equipment acquired. No deferred tax assets or liabilities were recognized in
connection with the Company’s acquisitions in fiscal 2004 or 2003.
Certain individual holders of non-qualified stock options issued by the Company exchanged certain stock options
for annuity contracts in 1999 – 2002. As a result, the recognition of compensation income otherwise reportable
upon the exercise of stock options was deferred. Accordingly, the Company has reported the compensation
income to the individuals for income tax purposes and taken the corresponding tax deduction on the Company’s
income tax returns beginning in fiscal 2004 on an installment basis over the lives of the annuity contracts. The
individuals and the Company each are in discussions with the Internal Revenue Service, which could accelerate
the income reportable by the individuals and accelerate the Company’s corresponding compensation deduction
benefit allowable on its income tax returns. If the income is accelerated, the Company would receive a tax refund
of approximately $5 million, which would be recorded as a tax benefit from stock option exercises by increasing
Capital in Excess of Par Value, a component of Shareholders’ Equity in the Company’s Consolidated Balance Sheets.
Absent a resolution, the Company expects to continue to report the compensation income to the individuals and
record the corresponding tax credit and increase in Capital in Excess of Par Value over the lives of the annuity
contracts through fiscal 2016.
|41
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
NOTE 7. SHAREHOLDERS’ EQUITY
Preferred Stock Purchase Rights Plan
The Company’s Board of Directors adopted, as of November 2, 2003, a new Shareholder Rights Agreement
(the “2003 Plan”) to replace the expiring one (the “1993 Plan”). Pursuant to the 2003 Plan, the Board declared a
dividend of one preferred share purchase right for each outstanding share of Common Stock and Class A Common
Stock (with the preferred share purchase rights collectively as “the Rights”). 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 15% or more of the outstanding common stock. Absent either of the
aforementioned events transpiring, the Rights will expire as of the close of business on November 2, 2013.
The Rights have certain anti-takeover effects and, therefore, will cause substantial dilution to a person or group
who attempts to acquire the Company on terms not approved by the Company’s Board of Directors or who
acquires 15% or more of the outstanding common stock without approval of the Company’s Board of Directors.
The Rights should not interfere with any merger or other business combination approved by the Board since they
may be redeemed by the Company at $.01 per Right at any time until the close of business on the tenth day after
a person or group has obtained beneficial ownership of 15% or more of the outstanding common stock or until a
person commences or announces an intention to commence a tender offer for 15% or more of the outstanding
common stock. The 2003 Plan also contains a provision to help ensure a potential acquiror pays all shareholders
a fair price for the Company.
Common Stock and Class A Common Stock
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.
Share Repurchases
In accordance with the Company’s share repurchase program, 22,000 shares of Class A Common Stock were
repurchased at a total cost of $120,000 in fiscal 2003. No shares were repurchased in fiscal 2005 or 2004.
Stock Dividend
In January 2004, the Company paid a 10% stock dividend on both classes of common stock outstanding with
shares of Class A Common Stock. 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 net income per share, dividend
per share, price and other data per share, exercise price, stock option, and common share data has been
adjusted retroactively to give effect to the stock dividend.
NOTE 8. STOCK OPTIONS
The Company currently has two stock option plans, the 2002 Stock Option Plan (2002 Plan) and the Non-Qualified
Stock Option Plan under which stock options may be granted. The Company’s 1993 Stock Option Plan (1993 Plan)
terminated in March 2003 on the tenth anniversary of its effective date. No options may be granted under the 1993
Plan after such termination date; however, options outstanding as of the termination date may be exercised pursuant
to their terms. In addition, the Company granted stock options to two former shareholders of an acquired business
pursuant to employment agreements entered into in connection with the acquisition in fiscal 1999. A total of
42|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
3,744,983 shares of the Company’s stock are reserved for issuance to employees, directors, officers, and consult-
ants as of October 31, 2005, including 3,588,680 shares currently under option and 156,303 shares available for
future grants. Options issued under the 2002 Plan may be designated as incentive stock options or non-qualified
stock options. Incentive stock options are granted with an exercise price of not less than 100% of the fair market
value of the Company’s common stock as of date of grant (110% thereof in certain cases) and are exercisable in
percentages specified as of the date of grant over a period up to ten years. Only employees are eligible to receive
incentive stock options. Non-qualified stock options under the 2002 Plan may be granted at less than fair market
value and may be immediately exercisable. Options granted under the Non-Qualified Stock Option Plan may be
granted with an exercise price of no less than the fair market value of the Company’s common stock as of the
date of grant and are generally exercisable in four equal annual installments commencing one year from the date
of grant. The options granted pursuant to the 2002 Plan may be with respect to Common Stock and/or Class A
Common Stock, in such proportions as shall be determined by the Board of Directors or the Stock Option Plan
Committee in its sole discretion. The stock options granted to two former shareholders of an acquired business
were fully vested and transferable as of the grant date and expire ten years from the date of grant. The exercise
price of such options was the fair market value as of the date of grant. Options under all stock option plans expire
not later than ten years after the date of grant, unless extended by the Stock Option Plan Committee or the Board
of Directors.
Information concerning stock option activity for each of the three fiscal years ended October 31 is as follows:
Outstanding as of October 31, 2002
Granted
Cancelled
Exercised
Outstanding as of October 31, 2003
Granted
Cancelled
Exercised
Outstanding as of October 31, 2004
Granted
Cancelled
Exercised
Outstanding as of October 31, 2005
Shares
Available
For Grant
338,591
(503,250)
331,082
–
166,423
(10,000)
880
–
157,303
(1,000)
–
–
156,303
Shares Under Option
Weighted
Average
Exercise Price
$ 8.31
$ 7.20
$ 13.10
$ 2.30
$ 8.62
$ 13.19
$ 12.26
$ 2.75
$ 9.20
$ 19.08
$ 13.38
$ 5.36
$ 9.50
Shares
4,866,501
503,250
(334,749)
(586,327)
4,448,675
10,000
(20,332)
(403,076)
4,035,267
1,000
(82,637)
(364,950)
3,588,680
|43
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Information concerning stock options outstanding and stock options exercisable by class of common stock as
of October 31, 2005 is as follows:
Common Stock
Range of
Exercise Prices
Number
Outstanding
$ 1.16 – $ 2.90
$ 2.91 – $ 7.00
$ 7.01 – $ 12.00
$ 12.01 – $ 21.92
111,182
308,017
642,250
479,501
1,540,950
Class A Common Stock
Range of
Exercise Prices
Number
Outstanding
$ 1.16 – $ 2.90
$ 2.91 – $ 7.00
$ 7.01 – $ 12.00
$ 12.01 – $ 21.92
110,795
436,278
848,244
652,413
2,047,730
Options Outstanding
Options Exercisable
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual
Life (Years)
$ 1.84
$ 4.75
$ 8.99
$ 14.43
$ 9.32
0.9
0.7
5.6
5.2
4.1
Number
Exercisable
111,182
308,017
459,249
403,501
1,281,949
Weighted
Average
Exercise Price
$ 1.84
$ 4.75
$ 9.32
$ 14.50
$ 9.20
Options Outstanding
Options Exercisable
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual
Life (Years)
$ 1.84
$ 4.97
$ 8.60
$ 15.40
$ 9.63
0.9
2.5
5.2
4.3
4.1
Number
Exercisable
110,795
355,428
733,942
598,775
1,798,940
Weighted
Average
Exercise Price
$ 1.84
$ 4.85
$ 8.55
$ 15.60
$ 9.75
If there were a change in control of the Company, options outstanding for an additional 183,560 shares of
Common Stock and 225,530 shares of Class A Common Stock would become immediately exercisable.
The estimated weighted average fair value of the Class A Common Stock options granted was $9.16, $6.16 and
$3.55 per share, respectively in fiscal years 2005, 2004 and 2003. The estimated weighted average fair value of the
Common Stock options granted was $4.64 per share in fiscal 2003. There were no grants of Common Stock
options in fiscal 2005 and 2004.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing
model based on the following weighted average assumptions for each of the three fiscal years ended October 31:
2005
2004
2003
Common
Stock
Expected stock price volatility
Risk free interest rate
Dividend yield
Expected option life (years)
–
–
–
–
Class A
Common
Stock
43.84%
4.09%
.38%
6
Common
Stock
–
–
–
–
Class A
Common
Stock
46.87%
3.28%
.38%
6
Common
Stock
52.65%
3.37%
.26%
8
Class A
Common
Stock
52.24%
3.43%
.33%
8
44|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
NOTE 9. 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 make elective deferral contributions, effective January 1, 2005,
up to the limitations set forth in Section 402(g) of the Internal Revenue Code. Prior to calendar 2005, deferrals were
permitted up to 15% of an eligible employee’s annual compensation as defined by the Plan. The Company generally
makes a 25% or 50% employer matching contribution, as determined by the Board of Directors, based on a
participant’s Elective Deferral Contribution up to 6% of the Participant’s compensation for the Elective Deferral
Contribution period. The match is made in the Company’s common stock or cash, as determined by the Company.
The Company’s match of employee contributions paid in common stock is based on the fair market value of the
shares as of the date of contribution. 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. Employee contributions can not be invested
in Company stock.
Participants receive 100% vesting in employee contributions. Vesting in Company contributions is based on a
participant’s number of years of vesting service. Contributions to the Plan charged to income in fiscal 2005, 2004
and 2003 totaled $148,000, $189,000 and $403,000, respectively. The decline in charges to income results principally
from the use of forfeited shares within the Plan to make Company contributions. As of October 31, 2005, the Plan
held approximately 230,000 forfeited shares of Common Stock and 231,000 forfeited shares of Class A Common
Stock, which are available to make future Company contributions.
In 1991, the Company established a Directors Retirement Plan covering its then current directors. The net assets
of this plan as of October 31, 2005, 2004 and 2003 are not material to the financial position of the Company. During
fiscal 2005, 2004 and 2003, $59,000, $88,000, and $34,000, respectively, were expensed for this plan.
NOTE 10. RESEARCH AND DEVELOPMENT EXPENSES
Cost of sales amounts in fiscal 2005, 2004 and 2003 include approximately $11,311,000, $10,446,000 and
$9,224,000 respectively, of new product research and development expenses. The expenses are net of reimburse-
ments pursuant to research and development cooperation and joint venture agreements. Such reimbursements
were not significant in fiscal 2005, 2004 and 2003.
NOTE 11. SALE OF INVESTMENT IN JOINT VENTURE
During the third quarter of fiscal 2005, the Company’s HEICO Aerospace Holdings Corp. subsidiary sold its
investment in a 50%-owned joint venture that was accounted for under the equity method and recognized a gain
on the sale of $276,000, which is included in interest and other income in the Company’s Consolidated Statements
of Operations. The Company’s investment in the 50%-owned joint venture and its share of the operating results
were not significant to the Company’s consolidated financial statements.
NOTE 12. LIFE INSURANCE PROCEEDS
In fiscal 2004, the Company received $5.0 million in proceeds from the death benefit of a key-person life insurance
policy maintained by a subsidiary of the Flight Support Group that provides repair and overhaul services. The life
insurance proceeds, which are non-taxable, increased fiscal 2004 net income (after the minority interest’s share of
the income) by $4.0 million, or $.16 per diluted share.
NOTE 13. RESTRUCTURING EXPENSES
During the first quarter of fiscal 2005, the Company completed restructuring activities initiated in fiscal 2004
within certain subsidiaries of the Flight Support Group that provide repair and overhaul services. The unexpected
death of an executive of certain of the repair and overhaul subsidiaries (see Note 12, Life Insurance Proceeds, of
the Notes to Consolidated Financial Statements) was the impetus for the commencement of the restructuring
activities, which the Company believes will allow it to better service its customers and improve operating margins.
The Company incurred $22,000 of restructuring expenses in fiscal 2005 and $850,000 in fiscal 2004. The fiscal
2004 restructuring expenses include $350,000 of inventory write-downs, which were recorded within cost of sales
in the accompanying Consolidated Statements of Operations, and $261,000 of management hiring/relocation related
expenses, $168,000 of moving costs and other associated expenses and $71,000 of contract termination costs
|45
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
that were all recorded within selling, general and administrative expenses. The inventory written down is related to
older generation aircraft for which repair and overhaul services are being discontinued by the Company. The
management hiring/relocation related expenses include one-time employee termination/hiring benefits and
relocation costs. The moving costs and other associated expenses consist of moving costs related to the consoli-
dation of two repair and overhaul facilities. Contract termination costs include the lease termination on a facility.
The repair and overhaul subsidiaries’ restructuring expenses decreased net income (after income taxes and the
minority interest’s share of the expenses) in fiscal 2004 by $427,000.
The following table details the restructuring activity that occurred in fiscal 2005 and 2004:
Balances as of November 1, 2003
Restructuring expenses
Cash payments
Non-cash amount
Balances as of October 31, 2004
Additional charges and reversals
Cash payments
Management
Hiring/
Relocation
Related
Expenses
$ –
261,000
(197,000)
–
64,000
69,000
(133,000)
Moving
Costs and
Other
Associated
Expenses
$ –
168,000
(57,000)
–
111,000
(47,000)
(64,000)
Inventory
Write-
downs
$ –
350,000
–
(350,000)
–
–
–
Contract
Termination
Costs
$ –
71,000
–
–
71,000
–
(71,000)
Totals
$ –
850,000
(254,000)
(350,000)
246,000
22,000
(268,000)
Balances as of October 31, 2005
$ –
$ –
$ –
$ –
$ –
NOTE 14. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share for each of the three
fiscal years ended October 31:
Numerator:
Net income
Denominator:
2005
2004
2003
$ 22,812,000
$ 20,630,000
$ 12,222,000
Weighted average common shares outstanding – basic
Effect of dilutive stock options
24,460,185
1,863,117
24,036,980
1,717,618
23,236,841
1,294,439
Weighted average common shares outstanding – diluted
26,323,302
25,754,598
24,531,280
Net income per share – basic
Net income per share – diluted
Anti-dilutive stock options excluded
$ .93
$ .87
181,760
$ .86
$ .80
579,837
$ .53
$ .50
2,144,694
46|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
NOTE 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Net sales:
2005
2004
Gross profit:
2005
2004
Net income:
2005
2004
Net income per share:
Basic
2005
2004
Diluted
2005
2004
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 56,981,000
46,151,000
$ 66,973,000
52,793,000
$ 69,169,000
55,820,000
$ 76,524,000
60,980,000
20,280,000
15,536,000
4,428,000
3,241,000
25,045,000
18,714,000
5,713,000
4,108,000
25,999,000
19,616,000
29,672,000
21,946,000
6,046,000
8,115,000
6,625,000
5,166,000
$
.18
.14
.17
.13
$
.23
.17
.22
.16
$
.25
.34
.23
.32
$
.27
.21
.25
.20
During the third quarter of fiscal 2004, the Company received $5.0 million in life insurance proceeds as referenced
in Note 12, Life Insurance Proceeds, of the Notes to Consolidated Financial Statements, which increased net
income (after the minority interest’s share of the income) by $4.0 million, or $.16 per diluted share.
During the third and fourth quarters of fiscal 2004 and the first quarter of fiscal 2005, the Company incurred
restructuring expenses within certain subsidiaries of its Flight Support Group as referenced in Note 13, Restructuring
Expenses, of the Notes to Consolidated Financial Statements. In the third quarter of fiscal 2004, restructuring
expenses decreased gross profit by $350,000 and net income by $301,000, or $.01 per diluted share. The net impact
of the restructuring expenses in the fourth quarter of fiscal 2004 and first quarter of fiscal 2005 was not significant.
During the fourth quarter of fiscal 2005, the Company increased its allowance for doubtful accounts by $1.6 million
as a result of bankruptcy filings by certain customers in the aviation industry as referenced in Note 3, Selected
Financial Statement Information, of the Notes to Consolidated Financial Statements. The associated charge
decreased net income by $829,000, or $.03 per diluted share.
Due to changes in the average number of common shares outstanding, net income per share for the full fiscal
year may not equal the sum of the four individual quarters.
NOTE 16. OPERATING SEGMENTS
The Company has two operating segments: the Flight Support Group (FSG) consisting of HEICO Aerospace and
its subsidiaries and the Electronic Technologies Group (ETG), consisting of HEICO Electronic and its subsidiaries.
See Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements for a
list of operating subsidiaries aggregated in each reportable operating segment. The Flight Support Group designs
and manufactures FAA-approved jet engine and aircraft component replacement parts, provides FAA-authorized
repair and overhaul services and provides subcontracting services to original equipment manufacturers in the
aviation industry and the U.S. Government. The Electronic Technologies Group designs and manufactures com-
mercial and military power supplies, circuit board shielding, laser and electro-optical products, infrared simulation
and test equipment, and high voltage interconnection devices and cable assemblies and repairs and overhauls
aircraft electronic equipment primarily for the aviation, defense, space, 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.
|47
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Segment Profit or Loss
The accounting policies of the Company’s operating segments are the same as those described in Note 1,
Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements. Management
evaluates segment performance based on segment operating income.
Segment
FSG
ETG
Other, Primarily
Corporate and Consolidated
Intersegment
Totals
For the year ended October 31, 2005:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
For the year ended October 31, 2004:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
For the year ended October 31, 2003:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
$ 185,716,000
4,522,000
35,142,000
7,059,000
230,229,000
$ 153,238,000
4,580,000
24,251,000
3,964,000
212,615,000
$ 128,277,000
4,895,000
19,187,000
2,102,000
214,292,000
$ 84,094,000
2,470,000
18,631,000
1,163,000
188,851,000
$ 62,648,000
1,762,000
15,259,000
1,767,000
136,860,000
$ 48,597,000
1,399,000
8,497,000
2,617,000
103,798,000
$ (163,000)
417,000
(9,124,000)
51,000
16,544,000
$ (142,000)
437,000
(6,891,000)
6,000
14,780,000
$ (421,000)
426,000
(4,479,000)
4,000
15,154,000
$ 269,647,000
7,409,000
44,649,000
8,273,000
435,624,000
$ 215,744,000
6,779,000
32,619,000
5,737,000
364,255,000
$ 176,453,000
6,720,000
23,205,000
4,723,000
333,244,000
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’s net sales originating and long-lived assets held outside of the United States
during each of the last three fiscal years were not material.
Export sales were $69,792,000 in fiscal 2005, $55,695,000 in fiscal 2004 and $47,013,000 in fiscal 2003.
NOTE 17. COMMITMENTS AND CONTINGENCIES
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 the lease at the then fair rental value. Generally,
management expects that leases will be renewed or replaced by other leases in the normal course of business.
Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year
are as follows:
Year ending October 31,
2006
2007
2008
2009
2010
Thereafter
Total minimum lease commitments
$ 2,519,000
2,201,000
1,915,000
949,000
894,000
3,182,000
$11,660,000
48|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
Total rent expense charged to operations for operating leases in fiscal 2005, fiscal 2004 and fiscal 2003 amounted
to $2,679,000, $2,737,000 and $2,768,000, respectively.
Guarantees
The Company has arranged for standby letters of credit aggregating to $1.8 million to meet the security require-
ment of its insurance company for potential workers’ compensation claims. As of October 31, 2005, one of the
Company’s subsidiaries had guaranteed its performance related to a customer contract through two letters of
credit aggregating $.3 million, both expiring December 2005. In November 2005, the letters of credit were extended
to April 2006 and increased to an aggregate of $1.2 million. All of these letters of credit are supported by the
Company’s revolving credit facility. In addition, the Company’s industrial development revenue bonds are secured
by a $2.0 million letter of credit expiring April 2008 and a mortgage on the related properties pledged as collateral.
Changes in the Company’s product warranty liability for fiscal 2005 and 2004 are as follows:
Balance as of October 31, 2003
Change in estimate of warranty liability
Accruals for warranties
Warranty claims settled
Balance as of October 31, 2004
Acquired warranty liabilities
Accruals for warranties
Warranty claims settled
Balance as of October 31, 2005
$ 633,000
(535,000)
345,000
(314,000)
129,000
89,000
488,000
(311,000)
$ 395,000
The acquired warranty liabilities in fiscal 2005 pertain to the acquisitions made as further discussed in Note 2,
Acquisitions, of the Notes to Consolidated Financial Statements. Based on an analysis of its historical claims cost
experience, the Company reduced its estimated warranty liability in fiscal 2004.
As partial consideration in the acquisition of Inertial Airline Services, Inc. (IAS) in August 2001, the Company
issued $5 million in HEICO Class A Common Stock (318,960 shares) and guaranteed that the resale value of such
Class A Common Stock would be at least $5 million through August 31, 2004. Concurrent with the acquisition,
the Company loaned the seller $5 million, which was due August 31, 2004 and secured by the 318,960 shares of
HEICO Class A Common Stock. The loan was reflected as a reduction of shareholders’ equity in the Company’s
Consolidated Balance Sheets under the caption, “Note Receivable Secured by Class A Common Stock.” In fiscal
2003, the seller sold 220,000 shares of the HEICO Class A Common Stock and the Company received the net
proceeds of $2.1 million to reduce the note receivable. In fiscal 2004, the Company received net proceeds of
$1.2 million from the seller upon the sale of the remaining 98,960 shares of the HEICO Class A Common Stock.
Pursuant to the Company’s guarantee that the aggregate resale value of the 318,960 shares of Class A Common
Stock would be at least $5 million, the $1.7 million difference between the guaranteed value and the $3.3 million
of aggregate net proceeds ($2.1 million received in fiscal 2003 and $1.2 million received in fiscal 2004) from the
sales of the Class A Common Stock was recorded in fiscal 2004 as a reduction of both capital in excess of par
value and the note receivable.
As part of the agreement to acquire an 80% interest in Sierra Microwave Technology, Inc., in December 2003,
the Company has the right to purchase the minority interests beginning at approximately the tenth anniversary of
the acquisition, or sooner under certain conditions, and the minority holders have the right to cause the Company
to purchase their interests commencing at approximately the fifth anniversary of the acquisition, or sooner under
certain conditions.
As part of the agreement to purchase Connectronics Corporation in December 2004, the Company may be
obligated to pay additional purchase consideration of up to $3.8 million in aggregate should Connectronics meet
certain earnings objectives during the first four years following the acquisition. The Company accrued $2.2 million
of such additional purchase consideration as of October 31, 2005 based on the year-to-date earnings of
Connectronics relative to its target, which it expects to pay in fiscal 2006.
As part of the agreement to purchase Lumina Power, Inc. in February 2005, the Company may be obligated to
pay additional purchase consideration currently estimated to total up to $2.3 million should Lumina meet certain
product line-related earnings objectives during the fourth and fifth years following the acquisition. The additional
purchase consideration will be accrued when the earnings objectives are met.
|49
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
As part of the agreement to acquire an 85% interest in HVT Group, Inc. in September 2005, the minority holders
have the right to cause the Company to purchase their interests over a four-year period starting around the second
anniversary of the acquisition, or sooner under certain conditions.
The Company also accrued additional purchase consideration aggregating $.8 million as of October 31, 2005 in
accordance with the agreements related to the Connectronics and HVT acquisitions based principally on the actual
value of the net assets acquired. The Company expects to pay this amount in fiscal 2006.
As part of an agreement for exclusive license rights to intellectual property, one of the Company’s subsidiaries
has guaranteed minimum royalty payments aggregating $355,000 through fiscal 2007.
Litigation
The Company is involved in various legal actions arising in the normal course of business. Based upon the
Company’s and its legal counsel’s evaluations of any claims or assessments, management is of the opinion that
the outcome of these matters will not have a material adverse effect on the Company’s results of operations or
financial position.
NOTES 18. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was $1,062,000, $1,099,000 and $1,291,000 in fiscal 2005, 2004 and 2003, respectively. Cash
paid for income taxes was $8,176,000, $2,688,000 and $3,460,000 in fiscal 2005, 2004 and 2003, respectively. Cash
received from income tax refunds in fiscal 2005, 2004 and 2003 was $101,000, $72,000 and $1,300,000, respectively.
Cash investing activities related to acquisitions, including contingent payments, for each of the three fiscal years
ended October 31, is as follows:
Fair value of assets acquired:
Liabilities assumed
Less:
Goodwill
Accounts receivable
Inventories
Property, plant and equipment
Trade names
Non-compete agreements
Other assets
2005
2004
2003
$ 5,202,000
$ 684,000
$ 698,000
28,510,000
4,055,000
4,645,000
4,904,000
3,650,000
560,000
378,000
24,974,000
1,785,000
707,000
1,311,000
–
–
6,000
1,023,000
312,000
431,000
408,000
–
–
78,000
Cash paid, including contingent payments
$ (41,500,000)
$ (28,099,000)
$ (1,554,000)
50|
Notes to Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
In connection with the purchase of Sierra in December 2003 (see Note 2, Acquisitions, of the Notes to Consolidated
Financial Statements), the Company issued shares of HEICO’s Class A Common Stock valued at $3 million,
which was allocated to goodwill.
In connection with the acquisitions of Connectronics and HVT in fiscal 2005, the Company accrued additional
purchase consideration aggregating $3.0 million, which was allocated to goodwill (see Note 2, Acquisitions, of the
Notes to Consolidated Financial Statements).
Retained earnings were reduced by $29,393,000 in fiscal 2004 as a result of the 10% stock dividend described in
Note 7, Shareholders’ Equity – Stock Dividend, of the Notes to Consolidated Financial Statements.
There were no significant capital lease and/or other equipment financing activities during fiscal 2005, 2004, or 2003.
NOTE 19. SUBSEQUENT EVENTS (UNAUDITED)
In November 2005, the Company, through its HEICO Aerospace Holdings Corp. subsidiary, acquired a 51%
interest in the assets and business of Seal Dynamics LLC (SDI). SDI is a distributor and designer of FAA-Approved
hydraulic, pneumatic, mechanical and electro-mechanical components for the commercial, regional and general
aviation markets.
In November 2005, the Company, through its HEICO Electronic Technologies Corp. subsidiary, acquired all of the
stock of Engineering Design Team, Inc. (EDT) and substantially all of the assets of an EDT affiliate. EDT specializes
in the design, manufacture and sale of advanced high-technology, high-speed interface products that link devices
such as telemetry receivers, digital cameras, high resolution scanners, simulation systems and test systems to
almost any computer. EDT’s products are utilized in homeland security, defense, medical, research, astronomical
and other applications across numerous industries.
The purchase price of each acquisition was not significant to the Company’s consolidated financial statements
individually or in aggregate and was principally paid using proceeds from the Company’s revolving credit facility.
|51
Management’s Report on Internal Control Over Financial Reporting
HEICO CORPORATION AND SUBSIDIARIES
Management of HEICO Corporation is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision
of, the Company’s principal executive and principal financial officers and effected by the Company’s board of
directors, management and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
n Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
n Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company; and
n Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
October 31, 2005. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on our assessment, management believes that, as of October 31, 2005, the Company’s internal control
over financial reporting is effective.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation
report on our assessment of the Company’s internal control over financial reporting. Their report appears on the
following page.
Date: January 17, 2006
/s/ LAURANS A. MENDELSON
Laurans A. Mendelson
Chief Executive Officer
/s/ THOMAS S. IRWIN
Thomas S. Irwin
Chief Financial Officer
52|
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
HEICO CORPORATION AND SUBSIDIARIES
To the Board of Directors and
Shareholders of HEICO Corporation:
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, that HEICO Corporation and subsidiaries (the “Company”) maintained effective
internal control over financial reporting as of October 31, 2005, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accor-
dance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial
reporting as of October 31, 2005, is fairly stated, in all material respects, based on the criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of October 31, 2005, based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended October 31, 2005 of the
Company and our report dated January 17, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
January 17, 2006
|53
Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements
HEICO CORPORATION AND SUBSIDIARIES
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, 2005 and 2004, and the related consolidated statements of operations, shareholders’
equity and comprehensive income, and cash flows for each of the three years in the period ended October 31, 2005.
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 the standards of the Public Company Accounting Oversight Board
(United States). 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 HEICO Corporation and subsidiaries as of October 31, 2005 and 2004, and the results of their operations and
their cash flows for each of the three years in the period ended October 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over financial reporting as of October 31, 2005,
based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated January 17, 2006 expressed an
unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over
financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
January 17, 2006
54|
Market for Company’s Common Stock and Related Stockholder Matters
HEICO CORPORATION AND SUBSIDIARIES
The Company’s Class A Common Stock and Common Stock are listed and traded on the New York Stock
Exchange (NYSE) under the symbols “HEI.A” and “HEI,” respectively. The following tables sets forth, for the periods
indicated, the high and low share prices for the Class A Common Stock and the Common Stock as reported on
the NYSE, as well as the amount of cash dividends paid per share during such periods.
Class A Common Stock
Fiscal 2004:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2005:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 14.40
13.89
14.00
15.18
$ 17.80
17.63
19.10
19.69
$ 10.77
9.99
11.55
12.06
$ 13.70
14.67
14.52
16.17
As of January 6, 2006, there were 966 holders of the Company’s Class A Common Stock.
Common Stock
Fiscal 2004:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2005:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 18.45
17.45
18.45
19.70
$ 23.41
22.72
25.08
25.41
$ 13.71
12.90
14.45
16.00
$ 17.86
18.55
18.32
21.03
Cash
Dividends
Per Share
$ .025
–
.025
–
$ .025
–
.025
–
Cash
Dividends
Per Share
$ .025
–
.025
–
$ .025
–
.025
–
As of January 6, 2006, there were 910 holders of record of the the Company’s Common Stock.
In addition, as of January 6, 2006, there were approximately 4,000 holders of the Company’s Class A
Common Stock and Common Stock who held their shares in brokerage or nominee accounts. The combined
total of all record holders and brokerage or nominee holders is approximately 6,000 holders of both classes of
common stock.
|55
HEICO Corporation
Corporate Offices
3000 Taft Street
Hollywood, Florida 33021
Telephone 954 - 987- 4000
Facsimile 954 - 987- 8228
http://www.heico.com
Subsidiaries
HEICO Aerospace Holdings Corp.
Hollywood, Florida
HEICO Parts Group
Aero Design, Inc.
Aircraft Technology, Inc.
Aviation Facilities, Inc.
HEICO Aerospace Parts Corp.
Jet Avion Corporation
LPI Corporation
McClain International, Inc.
Rogers-Dierks, Inc.
Turbine Kinetics, Inc.
HEICO Aerospace Corporation
HEICO Repair Group
Future Aviation, Inc.
Niacc/Avitech Technology, Inc.
Northwings Accessories Corp.
HEICO Specialty Products Group
Jetseal, Inc.
Thermal Structures, Inc.
HEICO Distribution Group
Seal Dynamics LLC
HEICO Electronic Technologies Corp.
Miami, Florida
Analog Modules, Inc.
Connectronics Corp. and Wiremax
Engineering Design Team, Inc.
HVT Group, Inc.
Dielectric Sciences, Inc.
Essex X-Ray & Medical Equipment LTD
Inertial Airline Services, Inc.
Leader Tech, Inc.
Lumina Power, Inc.
Radiant Power Corp.
Santa Barbara Infrared, Inc.
Sierra Microwave Technology, LLC
Registrar & Transfer Agent
Mellon Investor Services
Atlanta, GA
New York Stock Exchange Symbols
Class A Common Stock – “HEI.A”
Common Stock – “HEI”
Form 10-K
The Company’s Annual Report on
Form 10-K for 2005, as filed with the
Securities and Exchange Commission,
is available without charge upon written
request to the Corporate Secretary at
the Company’s headquarters.
Annual Meeting
The Annual Meeting of Shareholders
will be held at JW Marriott Miami Hotel
1109 Brickell Avenue
Miami, Florida 33131
305 - 329 -3500 on Monday,
March 27, 2006 at 10:00 a.m.
Shareholder Information
Elizabeth R. Letendre
Corporate Secretary
HEICO Corporation
3000 Taft Street, Hollywood, FL 33021
954 - 987- 4000, 954 - 987- 8228 (fax)
eletendre@heico.com
Officers & Key Team Members
Laurans A. Mendelson
Chairman of the Board of Directors,
President and Chief Executive Officer,
HEICO Corporation
Joshua S. Abelson
Executive Vice President and Chief Marketing
Officer, HEICO Aerospace Holdings Corp.
Jeff Andrews
Vice President and General Manager,
Niacc/Avitech Technology, Inc.
Vaughn Barnes
President, HEICO Specialty Products
Group and Thermal Structures, Inc.
Robb M. Baumann
President, HEICO Parts Group
Ian D. Crawford
President and Founder, Analog Modules, Inc.
James Davis
Vice President and General Manager,
Aero Design, Inc.
John DeFries
President, Essex X-Ray & Medical
Equipment LTD
Mike Garcia
General Manager, Structures,
HEICO Repair Group – Miami
Jerry Goldlust
President and Founder, HVT Group, Inc.
and Dielectric Sciences, Inc.
William S. Harlow
Vice President, Corporate Development,
HEICO Corporation
John F. Hunter
Executive Vice President and Chief Operating
Officer, HEICO Aerospace Holdings Corp.
Thomas S. Irwin
Executive Vice President and Chief Financial
Officer, HEICO Corporation
Kevin Kelly
President, Rogers-Dierks, Inc.
Elizabeth R. Letendre
Corporate Secretary, HEICO Corporation
Jack Lewis
President, Aviation Facilities, Inc.
Omar Lloret
General Manager, Accessories,
HEICO Repair Group – Miami
David A. Lowry
President and Co-Founder,
Engineering Design Team, Inc.
Pat Markham
Vice President and General Manager,
HEICO Airfoils
Steve McHugh
President and Co-Founder,
Santa Barbara Infrared, Inc.
Bruce McQuerry
Vice President and General Manager,
McClain International, Inc.
Eric A. Mendelson
President, Flight Support Group,
HEICO Corporation
Victor H. Mendelson
President, Electronic Technologies Group
and General Counsel, HEICO Corporation
Luis J. Morell
President, HEICO Repair Group
Dario Negrini
President, Leader Tech, Inc.
William O’Brien
President & Co-Founder, Lumina Power, Inc.
Bryan Peters
Senior Vice President and General Manager,
Turbine Kinetics, Inc.
John Pollard
Vice President and General Manager, Jet
Avion Corp. and Aircraft Technology, Inc.
James L. Reum
Executive Vice President,
HEICO Aerospace Holdings Corp.
Michael B. Rezman
Vice President, Product Strategy,
HEICO Parts Group
Thomas L. Ricketts
President and Co-Founder,
Connectronics Corp. and Wiremax
Troy J. Rodriguez
President & Co-Founder,
Sierra Microwave Technology, LLC
James E. Roubian
President, LPI Corporation
Alain Ruiz
General Manager, Avionics & Instruments,
HEICO Repair Group – Miami
Kate Schaefer
Vice President, Sales and Marketing,
HEICO Parts Group
Val Shelley
Senior Vice President, Development,
HEICO Parts Group
Michael W. Siegel
Senior Vice President, Finance & Administra-
tion, HEICO Aerospace Holdings Corp.
Rick Stine
Senior Vice President, Operations,
HEICO Parts Group
David Susser
President, HEICO Distribution Group
and Seal Dynamics LLC
Stephen J. Szpunar
Senior Vice President, Technical,
HEICO Parts Group
Gregg Tuttle
General Manager, Future Aviation, Inc.
Steven Walker
Corporate Controller, HEICO Corporation
Jeff Williams
Vice President and General Manager, Flight
Specialties and Inertial Airline Services, Inc.
56|
Board of Directors
Laurans A. Mendelson
Chairman, President and
Chief Executive Officer,
HEICO Corporation
Samuel L. Higginbottom
Former Chairman, President
and Chief Executive Officer,
Rolls-Royce, Inc.
Wolfgang Mayrhuber
Chairman of the Executive Board
and Chief Executive Officer,
Deutsche Lufthansa AG
Eric A. Mendelson
President, Flight Support Group,
HEICO Corporation
Victor H. Mendelson
President, Electronic Technologies
Group and General Counsel,
HEICO Corporation
Albert Morrison, Jr.
Chairman Emeritus, Morrison,
Brown, Argiz & Company,
Certified Public Accountants
Joseph W. Pallot
Partner, Devine Goodman
Pallot & Wells, P.A.
Dr. Alan Schriesheim
Former Director,
Argonne National Laboratory
Laurans A. Mendelson
Samuel L. Higginbottom
Wolfgang Mayrhuber
Eric A. Mendelson
Victor H. Mendelson
Albert Morrison, Jr.
Joseph W. Pallot
Dr. Alan Schriesheim
Executive Officer Certifications
HEICO Corporation has filed with the U.S. Securities and Exchange Commission all required
certifications of its Chief Executive Officer (CEO) and Chief Financial Officer regarding the
quality of its public disclosures. HEICO Corporation’s CEO also has submitted to the New
York Stock Exchange (NYSE) the annual CEO certification stating that he is not aware of
any violation by HEICO Corporation of the NYSE’s corporate governance listing standards.
All Board of Directors Committee Charters, Corporate Governance Guidelines as well as
HEICO’s Code of Ethics and Business Conduct are located on HEICO’s web site at
www.heico.com
3000 Taft Street, Hollywood, Florida 33021
Telephone 954.987.4000 | Fax 954.987.8228
http://www.heico.com
CORPORATION