H E I C O ® C O r p O r a t I O n
executive officer Certifications
HEICO Corporation has filed with the U.S. Securities and Exchange Commission as exhibits 31.1 and 31.2 to its Form 10-K for the year
ended October 31, 2008, the required certifications of its Chief Executive Officer (CEO) and Chief Financial Officer under Section 302
of the Sarbanes-Oxley Act regarding the quality of its public disclosures. HEICO Corporation’s CEO also has submitted to the New
York Stock Exchange (NYSE) following the March 2008 annual meeting of shareholders, 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.
Certain statements in this annual report constitute forward-looking statements which may involve risks and uncertainties. HEICO’s
actual experience may differ materially from that discussed as a result of factors, including, but not limited to: lower demand for
commercial air travel or airline fleet changes, which could cause lower demand for our goods and services; product specification
costs and requirements, which could cause our costs to complete contracts to increase; governmental and regulatory demands,
export policies and restrictions, military program funding by U.S. and non-U.S. Government agencies or competition on military
programs, which could reduce our sales; HEICO’s ability to introduce new products and product pricing levels, which could re-
duce our sales or sales growth; HEICO’s ability to make acquisitions and achieve operating synergies from acquired businesses,
customer credit risk, interest rates and economic conditions within and outside of the aerospace, defense and electronics in-
dustries, which could negatively impact our costs and revenues. Parties receiving this material are encouraged to review all of
HEICO’s filings with the Securities and Exchange Commission, including, but not limited to filings on Form 10-K, Form 10-Q and
Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
StrOnG and
BuIlt
FOr GrOwtH
CoRpoRAtion
3000 Taft Street, Hollywood, Florida 33021
Telephone 954 987 4000 | Fax 954 987 8228
http://www.heico.com
08AnnuAl RepoRt
F I n a n C I a l H I G H l I G H t S
for the year ended october 31,(1)
(in thousands, except per share data)
operating data:
net sales
operating income
interest expense
net income
Weighted average number of
common shares outstanding:
basic
diluted
per share data:
net income:
basic
diluted
Cash dividends
Balance sheet data (as of october 31):
Total assets
Total debt (including current portion)
minority interests in consolidated
subsidiaries
Shareholders’ equity
2006
2007
2008
$ 392,190
66,867
3,523
31,888(2)
$ 507,924
86,014
3,293
39,005(3)
$ 582,347
105,788(4)
2,314
48,511(4)
25,085
26,598
25,716
26,931
26,309
27,243
$
1.27(2)
1.20(2)
.08
$
1.52(3)
1.45(3)
.08
$
1.84(4)
1.78(4)
.10
$ 534,815
55,061
$ 631,302
55,952
63,301
317,258
72,938
371,601
$ 676,542
37,601
83,978
417,760
(1) Results include the results of acquisitions from each respective effective date.
(2) Includes the benefit of a tax credit (net of related expenses) for qualified research and development activities claimed for certain prior years, which
increased net income by $1,002, or $.04 per basic and diluted share.
(3) Includes the benefit of a tax credit (net of related expenses) for qualified research and development activities recognized for the full fiscal 2006 year
pursuant to the retroactive extension in December 2006 of Section 41, “Credit for Increasing Research Activities,” of the Internal Revenue Code, which
increased net income by $535, or $.02 per basic and diluted share.
(4) Operating income was reduced by an aggregate of $1,835 in impairment losses related to the write-down of certain intangible assets within the Electronic
Technologies Group to their estimated fair values. The impairment losses were recorded as a component of selling, general and administrative expenses
and decreased net income by $1,140, or $.04 per basic and diluted share.
net sAles
(in millions)
$582.3
opeRAting
inCome
(in millions)
$105.8
$507.9
$86.0
$392.2
$66.9
net inCome
(in millions)
$48.5
$39.0
$31.9
net inCome
peR shARe
(diluted)
$1.78
$1.45
$1.20
06
07
08
06
07
08
06
07
08
06
07
08
BoARd of diReCtoRs
Samuel l. HigginboTTom
Former Chairman, President and
Chief executive officer,
Rolls-Royce, inc.
maRk H. HildebRandT
Partner, Waldman, Feluren
Hildebrandt, & Trigoboff, P.a.
WolFgang mayRHubeR
Chairman of the executive board
and Chief executive officer,
deutsche lufthansa ag
eRiC a. mendelSon
Samuel L. Higginbottom
Mark H. Hildebrandt
President, Flight Support group,
Wolfgang Mayrhuber
Eric A. Mendelson
HeiCo Corporation
lauRanS a. mendelSon
Chairman, President and
Chief executive officer,
HeiCo Corporation
ViCToR H. mendelSon
President,
electronic Technologies group,
HeiCo Corporation
albeRT moRRiSon, JR.
Chairman emeritus, morrison, brown,
argiz & Farra, llP,
Certified Public accountants
dR. alan SCHRieSHeim
Retired director,
argonne national laboratory
FRank J. SCHWiTTeR
Retired Partner,
arthur andersen llP
Laurans A. Mendelson
Victor H. Mendelson
Albert Morrison, Jr.
Dr. Alan Schriesheim
Frank J. Schwitter
08
C o r p o r a t e p r o f i l e
For more than 50 years, HEICO Corporation has been associated with growth and innovation.
HEICO businesses design, manufacture and sell critical and highly-reliable products and services
for the most demanding applications. HEICO’s products are found in both commercial and military
aircraft, satellites, medical equipment, computers, surveillance equipment, ships, targeting and
weapons systems, ground vehicles and many other types of systems.
Today, through our Flight Support Group we are: the world’s largest independent producer of
FAA-approved aircraft replacement parts; a significant provider of aircraft accessory component
repair & overhaul services for hydraulic, pneumatic, electro-mechanical, avionic and structures
applications; a niche aircraft parts distributor; and a manufacturer of other critical aircraft parts.
Through our Electronic Technologies Group, we offer mission-critical niche electronics, electro-
optical, microwave and other subcomponents found in defense, space, medical, homeland security,
telecom and other equipment used internationally.
HEICO’s customers include most of the world’s airlines, airmotives, numerous major prime defense
contractors, satellite manufacturers, medical equipment manufacturers and government agencies.
Forward Looking StatementS
Certain statements in this annual report constitute forward-looking statements which may involve risks and uncertainties. HEICO’s actual experience may
differ materially from that discussed as a result of factors, including, but not limited to: lower demand for commercial air travel or airline fleet changes, which
could cause lower demand for our goods and services; product specification costs and requirements, which could cause our costs to complete contracts to
increase; governmental and regulatory demands, export policies and restrictions, military program funding by U.S. and non-U.S. Government agencies or
competition on military programs, which could reduce our sales; HEICO’s ability to introduce new products and product pricing levels, which could reduce our
sales or sales growth; HEICO’s ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest rates and
economic conditions within and outside of the aerospace, defense and electronics industries, which could negatively impact our costs and revenues. Parties
receiving this material are encouraged to review all of HEICO’s filings with the Securities and Exchange Commission, including, but not limited to filings on
Form 10-K, Form 10-Q and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
H e i c o c o r p o r a t i o n /
P r e s i d e n t ’ s M e s s a g e
Dear Fellow Shareholder:
Fiscal 2008 was another excellent year for HEICO. Net income increased
24% to a record $48,511,000, or $1.78 per diluted share, for the fiscal year
ended October 31, 2008, up from $39,005,000, or $1.45 per diluted share,
in fiscal 2007. Net sales increased 15% to a record $582,347,000 in fiscal
2008 from $507,924,000 for the fiscal year ended October 31, 2007.
At the same time, HEICO reported record cash flow from operations, which
allowed our company to reduce our already low total debt by approximately
one-third and to pay our 61st consecutive semi-annual cash dividend
since 1979. In fact, our strong cash generation gave our Board of Directors
the confidence to increase our cash dividend 20% for our first payment of
fiscal 2009.
As financial markets faltered and the global economy weakened, HEICO
remained true to its principles of growth through new products and service
development, investment in our people and facilities, high quality product
and service delivery, strategic acquisitions and maintenance of a conserva-
tive balance sheet. We believe that these principles will help us to continue
to grow.
As usual, my annual message is followed by a question and answer session
with the members of HEICO’s Office of the President. I encourage you to
read the question and answer session, as it provides further insight into
our management philosophy.
I am especially indebted to all of HEICO’s Team Members who continue
to diligently perform on our Company’s behalf, as well as our wonderful
customers, suppliers and partners. Naturally, I am grateful to all of
our shareholders for their confidence in HEICO and I thank our Board of
Directors for its guidance and insight.
Sincerely,
Laurans A. Mendelson
Chairman, President and
Chief Executive Officer
February 1, 2009
/ H e i c o c o r p o r a t i o n
Q A
Q u e s t i o n s A n d A n s w e r s
We are pleased to include this question and answer session with the members of HEICO’s Office of the President: Laurans A.
Mendelson, Chairman, President and Chief Executive Officer; Thomas S. Irwin, Executive Vice President and Chief Financial Officer;
Eric A. Mendelson, President of the Flight Support Group; and Victor H. Mendelson, President of the Electronic Technologies Group.
The members of the Office of the President work closely together and have overseen HEICO’s approximately 20% compound annual
growth rate in sales and earnings since 1990.
Q:
What were some of HEICO’s major achievements in fiscal 2008?
A:
Aside from our record sales, earnings and cash flow, we are proud that our operating income margin increased to 18.2% of sales
from 16.9% in fiscal 2007. This was achieved through increased efficiencies and a healthy sales mix. We are also pleased that
our businesses continued to successfully develop and sell new products and services to our customers worldwide.
Q: Did you make any acquisitions in fiscal 2008?
A:
We completed three small acquisitions in the Flight Support Group during fiscal 2008, but we considered several other transactions
on which we ultimately decided to pass. Even though we have historically pursued an active acquisition policy, we remain
careful to buy businesses only if we believe they will continue to grow, offer healthy cash flow potential and are available at fair
prices. In 2008, we were cautious to avoid several acquisitions we considered because they did not meet our strict criteria.
Q:
Will you continue to pursue acquisitions?
A:
Absolutely. HEICO remains committed to acquiring excellent businesses at fair prices. We believe that we can offer sellers an
attractive opportunity to gain liquidity, but remain connected to businesses which they have developed and understand well.
Q:
What’s your current view on the Flight Support Group strategy?
A:
We remain optimistic about our long term future. Typically, in downturns such as the current one, our market share expands
and more customers become committed to our cost saving offerings. Although it does not happen instantly, we believe that our
medium and long-term growth are enhanced in difficult times. Our strategy of aggressive product development and active sales
programs continues unchanged, as it has been tested in prior downturns and upcycles.
Q:
How has the Electronic Technologies Group strategy changed in the past fiscal year?
A:
The Electronic Technologies Group increased its product offerings during the past year. Right now we are being cautious
about longer term defense budget commitments, but we believe that our broad niche product offerings found on multiple
platforms in multiple industries will remain successful over time. We believe that our expansion in niche medical equipment
subcomponents will offer growth, even though we expect near-term weakness in medical equipment end-markets.
Q:
What changes occurred in your balance sheet and borrowing capacity last year?
A:
Our balance sheet remained extremely healthy and even improved. Although we have not utilized it, the size of our revolving
credit facility increased from $130 million to $300 million in May, 2008. Our banking group, lead by JPMorgan and SunTrust,
continues to show great confidence in HEICO and we believe that our conservative management of our balance sheet remains
attractive to lenders, investors and even our customers. The conservative management of our balance sheet, plus our strong
cash flow, allowed us to declare our 61st consecutive semi-annual cash dividend and to increase that dividend by 20% for our
first payment of fiscal 2009 paid on January 21, 2009.
Q:
How are you investing in your facilities and people to help ensure HEICO’s competitiveness?
A:
It has always been our company’s policy to advance with the times. Typically, a few of our subsidiaries move into new facilities
each year in order to replace ones that they outgrow. Fiscal 2008 was no exception, with two of our subsidiaries (one in each of
our Electronic Technologies Group and the Flight Support Group) leaving their old locations and moving into nearby new, state-
of-the-art facilities. We also continue to replace older equipment and to purchase new equipment for growth. Most important,
we invest in our people by offering our Team Members critical training in various environments, including on-the-floor training.
H E I C O C O R P O R A T I O n /
grOWtH tHrOUgH
strategiC Partnering
BuiLt For GroWtH
19% Compound AnnuAl
SAleS Growth rAte
SinCe 990
/ H e i c o c o r p o r a t i o n
HEICO believes that it must be more than a supplier to its customers world-
wide. We believe that we must partner with our customers in order to provide
strategic cost saving solutions to address their specific needs in both good
and bad times. For over a decade, HEICO has pioneered innovative partnering
arrangements with major customers, such as American Airlines, British
Airways, China Aviation Import and Export Group Corporation, Delta Air
Lines, Japan Airlines, Lufthansa and United Airlines.
opposite page, global Heico
partnerships with airlines such as
Lufthansa provide a broad array of
parts and services to a large range
of modern commercial jetliners, such
as the airbus a-330 shown here.
Crucial to these partnering arrangements is HEICO’s ability to supply a wide
range of the highest quality new parts and repair services to both commercial
and military aircraft operators. HEICO’s goal is 100% on-time delivery with no
room for error.
above, Heico provides parts and repair services in
numerous sections of aircraft, including, but not limited
to, avionics, engines, wheels & brakes, landing gear and
other airframe components.
Left, Heico’s repair Group team Members in Miami, FL
finalize the repair of a fuselage section for a jetliner.
H e i c o c o r p o r a t i o n /
grOWtH tHrOUgH innOVatiVe
PrOdUCt deVeLOPMent
BuiLt For GroWtH
25% Compound AnnuAl
Growth in operAtinG
inCome SinCe 990
/ H e i c o c o r p o r a t i o n
HEICO’s lifeblood is new product and service development. In both our
Electronic Technologies Group and our Flight Support Group, HEICO Team
Members employ state-of-the-art technology and equipment to develop new
products and services to respond to customer needs. All HEICO companies
are committed to the concept of constant new product development.
Our businesses first learn exactly what problems our customers and partners
want resolved prior to expending effort and resources. This allows us to in-
vest the most we can into products and services with an immediate market,
which strengthens our customers/partners and HEICO at the same time.
opposite page, Heico’s electronic technologies Group produces critical power components
above, through a u.K. subsidiary, our electronic
technologies Group supplies the rutherford
appleton laboratories with resin-bonded boron
carbide neutron shielding panels at the iSiS
accelerator in oxford, england. the electronic
technologies Group has deep experience in
for laser systems used in medical applications, such as the dental laser system being used.
such niche products.
above, analog Modules, an electronic technologies Group company located
near orlando, FL, has developed the critical operating components for the
Stabilized portable optical target tracking receiver, “Spottr.” Spottr
systems, such as the one shown here, allow u.S. and allied military to locate
and decode laser signals on the battlefield and allow precision engagement
of targets by laser guided munitions.
H e i c o c o r p o r a t i o n /
grOWtH tHrOUgH
effiCient and
HigH QUaLitY PrOdUCtiOn
BuiLt For GroWtH
$677million in
totAl ASSetS
/ H e i c o c o r p o r a t i o n
Efficient production is important to HEICO’s success. All of our businesses
exhibit the discipline to obtain advanced production machinery and
systems, but are careful to request only what they need to service partner
and customer demands. In short, we believe in staying ahead of the curve,
but not in extravagant spending.
As we have said many times, our production Team Members are even
more important than the equipment we use. HEICO recognizes that our
Team Members are the reason why our top-notch equipment can be put
to effective use. Our Team Members also know that everything we produce
operates in an unforgiving and high-reliability environment where the
opposite page, using an automated
Surface Mount technology assembly
system, an electronic technologies
Group team Member sets the param-
eters and controls for a production run.
greatest quality requirements exist.
above, a Flight Support Group manufacturing
specialist monitors a Laser cutting Machine
System in the manufacture of aircraft parts.
Left, the Flight Support Group manufactures
and sells over 5,000 parts found on commercial
and military aircraft.
H e i c o c o r p o r a t i o n / 9
grOWtH tHrOUgH
teCHnOLOgY
BuiLt For GroWtH
$418 million of
ShAreholderS’
equity
0 / H e i c o c o r p o r a t i o n
All of HEICO’s businesses operate in high technology fields. In order to do
this, we must employ high technology processes throughout our operations.
Whether in our new product development, production, quality or information
systems departments, we have invested significantly in equipment, software
and people to avail ourselves of advanced technology offerings.
By adapting to and embracing new technologies, we have been able to
develop more products and services, produce these products and services
more efficiently and to better manage our overall operations.
opposite page, an engineer at an
electronic technologies Group sub-
sidiary located in Santa Barbara, ca
calibrates the digital emitter engine
in our MiraGe WFra system, which
is the world’s largest dynamic infra-
red scene simulator ever developed
or currently in production.
above, the materials laboratory at our parts Group
facility in Hollywood, FL performs critical analysis
on aircraft replacement parts.
Left, the parts Group uses advanced computer
modeling software in its development processes.
H e i c o c o r p o r a t i o n /
08
F i n a n c i a l S t a t e m e n t S
a n d o t h e r i n F o r m a t i o n
Selected Financial Data
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity
and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management’s Report on Internal Control Over
Financial Reporting and Executive Officer Certifications
Report of Independent Registered Public
Accounting Firm
Market for Company’s Common Stock and
Related Stockholder Matters
13
14
28
29
30
31
32
56
57
58
12 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
Selected Financial data
For the year ended October 31,(1)
2004
2005
2006
2007
2008
(in thousands, except per share data)
Operating Data:
Net sales
Gross profit
Selling, general and administrative
expenses
Operating income
Interest expense
Interest and other income (expense)
Life insurance proceeds
Net income
Weighted average number of common
shares outstanding:
Basic
Diluted
Per Share Data:
Net income:
Basic
Diluted
Cash dividends
$ 215,744
75,812
$ 269,647
100,996
$ 392,190
142,513
$ 507,924
177,458
$ 582,347
210,495
43,193
32,619(2)
1,090
26
5,000(3)
20,630(2)(3)
56,347
44,649
1,136
528
–
22,812
75,646
66,867
3,523
639
–
91,444
86,014
3,293
95
–
104,707
105,788(6)
2,314
(637)
–
31,888(4)
39,005(5)
48,511(6)
24,037
25,755
24,460
26,323
25,085
26,598
25,716
26,931
26,309
27,243
$
.86(2)(3) $
.80(2)(3)
.05
$
.93
.87
.05
1.27(4) $
1.20(4)
.08
$
1.52(5)
1.45(5)
.08
1.84(6)
1.78(6)
.10
Balance Sheet Data (as of October 31):
Cash and cash equivalents
Total assets
Total debt (including current portion)
Minority interests in consolidated
subsidiaries
Shareholders’ equity
214
$
364,255
18,129
5,330
$
435,624
34,124
4,999
$
534,815
55,061
4,947
$
631,302
55,952
$ 12,562
676,542
37,601
44,644
247,402
49,035
273,503
63,301
317,258
72,938
371,601
83,978
417,760
(1) results include the results of acquisitions from each respective effective date.
(2) 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 within cost of sales and $500 recorded within selling, general and administrative expenses. the restructuring
expenses decreased net income by $427, or $.02 per basic and diluted share.
(3) 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.
(4) includes the benefit of a tax credit (net of related expenses) for qualified research and development activities claimed for certain prior years, which increased net
income by $1,002, or $.04 per basic and diluted share.
(5) includes the benefit of a tax credit (net of related expenses) for qualified research and development activities recognized for the full fiscal 2006 year pursuant to
the retroactive extension in December 2006 of Section 41, “credit for increasing research activities,” of the internal revenue code, which increased net income
by $535, or $.02 per basic and diluted share.
(6) operating income was reduced by an aggregate of $1,835 in impairment losses related to the write-down of certain intangible assets within the electronic
technologies Group to their estimated fair values. the impairment losses were recorded as a component of selling, general and administrative expenses and
decreased net income by $1,140, or $.04 per basic and diluted share.
H e i c o c o r p o r a t i o n / 13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
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 subsidiar-
ies, which primarily:
Designs, Manufactures, Repairs and Distributes Jet Engine and Aircraft Component Replacement Parts. The Flight
Support Group designs, manufactures, repairs and distributes jet engine and aircraft component replace-
ment parts. The parts and services are approved by the Federal Aviation Administration (“FAA”). The Flight
Support Group also manufactures and sells specialty parts as a subcontractor for aerospace and industrial
original equipment manufacturers and the United States government.
The Electronic Technologies Group consists of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and
its subsidiaries, which primarily:
Designs and Manufactures Electronic, Microwave and Electro-Optical Equipment, High-Speed Interface Products,
High Voltage Interconnection Devices and High Voltage Advanced Power Electronics. The Electronic Technologies
Group designs, manufactures and sells various types of electronic, microwave and electro-optical equipment
and components, including power supplies, laser rangefinder receivers, infrared simulation, calibration and
testing equipment; electromagnetic interference shielding for commercial and military aircraft operators,
electronics companies and telecommunication equipment suppliers; advanced high-technology interface
products that link devices such as telemetry receivers, digital cameras, high resolution scanners, simula-
tion systems and test systems to computers; high voltage energy generators interconnection devices, cable
assemblies and wire for the medical equipment, defense and other industrial markets; and high frequency
power delivery systems for the commercial sign industry.
The Company’s results of operations during each of the past three fiscal years have been affected by a num-
ber 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 informa-
tion regarding the acquisitions 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.
In May 2006 and September 2006, the Company, through HEICO Aerospace, acquired all of the stock of Arger
Enterprises, Inc. and its related companies (collectively “Arger”) and an 80% interest in Prime Air, Inc. and its
affiliate (collectively “Prime”), respectively. Under the Prime transaction, a new subsidiary was formed, Prime Air,
LLC (“Prime Air”), which acquired substantially all of the assets and assumed certain liabilities of Prime. Prime Air
is owned 80% by the Company and 20% by certain members of Prime’s management group.
In April and September 2007, the Company, through HEICO Electronic, acquired all of the stock of FerriShield,
Inc. (“FerriShield”) and EMD Technologies Inc. (“EMD”), respectively. In May 2007 and August 2007, the Company,
through HEICO Aerospace, acquired certain assets of a supplier and substantially all of the assets of a U.S. company
that designs and manufactures FAA-approved aircraft and engine parts, respectively. The purchase price of the
supplier’s assets was paid using cash provided by operating activities.
During the first quarter of fiscal 2007, the Company, through HEICO Aerospace, acquired an additional 10%
of the equity interests in one of its subsidiaries, which increased the Company’s ownership interest to 90%.
During both April 2007 and 2008, the Company, through HEICO Electronic, acquired an additional .75% of the
equity interests in one of its subsidiaries, which increased the Company’s ownership interest from 85% to 86.5%.
The purchase prices of the acquired equity interests were paid using cash provided by operating activities.
In November 2007, the Company, through an 80%-owned subsidiary of HEICO Aerospace, acquired all of the
stock of a European company that supplies aircraft parts for sale and exchange and provides repair management
services. In January and February 2008, the Company, through HEICO Aerospace, acquired certain assets and
assumed certain liabilities of a U.S. company that designs and manufactures FAA-approved aircraft and engine parts
and acquired an 80% interest in certain assets and certain liabilities of a U.S. company that is an FAA-approved
repair station which specializes in avionics, respectively. The remaining 20% of the repair station’s equity interests
are principally owned by certain members of the acquired company’s management.
14 / H e i c o c o r p o r a t i o n
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
In April 2008, the Company, through HEICO Aerospace, acquired an additional 7% of the equity interests in
one of its subsidiaries, which increased the Company’s ownership interest to 58%.
The purchase price of each fiscal 2007 and 2008 acquisition was paid in cash using proceeds from the Company’s
revolving credit facility unless otherwise noted and was not significant to the Company’s consolidated financial
statements individually.
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. This method is used because management considers costs incurred to be the best
available measure of progress on these contracts. 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. Provisions for
estimated losses on uncompleted contracts are made in the period in which such losses are determined. 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 percentage of the Company’s net sales recognized under the percentage-of-com-
pletion method was approximately 3%, 3% and 4% in fiscal 2008, 2007 and 2006, respectively. The aggregate
effects of changes in estimates relating to long-term contracts did not have a significant effect on net income or
diluted net income per share in fiscal 2008, 2007 or 2006.
valuation of accounts receivable
The valuation of accounts receivable requires that the Company set up an allowance for estimated uncol-
lectible accounts and record a corresponding charge to bad debt expense. The Company estimates uncollectible
receivables 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 amounts
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.
Purchase accounting
The Company applies the purchase method of accounting to its acquisitions. Under this method, the purchase
price, including any capitalized acquisition costs, is allocated to the underlying tangible and identifiable intangible
assets acquired and liabilities assumed based on their estimated fair market values, with any excess recorded as
goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment
and often involves the use of significant estimates and assumptions, including assumptions with respect to future
cash inflows and outflows, discount rates, asset lives and market multiples, among other items. The Company
determines the fair values of such assets, principally intangible assets, generally in consultation with third-party
valuation advisors.
H e i c o c o r p o r a t i o n / 15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
valuation of 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 is 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, 2008, the
Company determined there is no impairment of its goodwill.
The Company tests each non-amortizing intangible 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 Company also
tests each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be
impaired. These tests consist of determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the
carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying
amount over the fair value of the assets. The determination of fair value requires the Company to make a number
of estimates, assumptions and judgments of such factors as projected revenues and earnings and from discount
rates. Based on the impairment tests conducted during fiscal 2008, the Company recognized pre-tax impairment
losses of $1.3 million and $.5 million related to the write-down of certain customer relationships and trade names,
respectively, within the ETG to their estimated fair values. The impairment losses were recorded as a component
of selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.
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,
2008
2007
2006
Net sales
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Operating income
$ 582,347,000
371,852,000
104,707,000
476,559,000
$ 105,788,000
$ 507,924,000
330,466,000
91,444,000
421,910,000
86,014,000
$
$ 392,190,000
249,677,000
75,646,000
325,323,000
$ 66,867,000
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
16 / H e i c o c o r p o r a t i o n
$ 436,810,000
146,044,000
(507,000)
$ 582,347,000
$ 383,911,000
124,035,000
(22,000)
$ 507,924,000
$ 277,255,000
115,021,000
(86,000)
$ 392,190,000
$
81,184,000
38,775,000
(14,171,000)
$ 105,788,000
$
$
67,408,000
33,870,000
(15,264,000)
86,014,000
$ 46,840,000
34,026,000
(13,999,000)
$ 66,867,000
table continues on next page
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
For the year ended October 31,
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Interest and other (expense) income
Income tax expense
Minority interests’ share of income
Net income
COmPariSOn OF FiSCal 2008 tO FiSCal 2007
net Sales
2008
100.0%
36.1%
18.0%
18.2%
0.4%
(0.1%)
6.1%
3.2%
8.3%
2007
100.0%
34.9%
18.0%
16.9%
0.6%
0.0%
5.4%
3.2%
7.7%
2006
100.0%
36.3%
19.3%
17.0%
0.9%
0.2%
5.3%
2.9%
8.1%
Net sales in fiscal 2008 increased by 14.7% to $582.3 million, as compared to net sales of $507.9 million in
fiscal 2007. The increase in net sales reflects an increase of $52.9 million (a 13.8% increase) to $436.8 million in
net sales within the FSG and an increase of $22.0 million (a 17.7% increase) to $146.0 million in net sales within
the ETG. The FSG’s net sales increase reflects organic growth of approximately 10% as well as the impact on net
sales from the fiscal 2008 acquisitions. The organic growth principally represents higher sales of new products
and services and increased demand for the FSG’s aftermarket replacement parts and repair and overhaul services.
The ETG’s net sales increase reflects the impact on net sales from prior year acquisitions as well as organic growth
of approximately 9% principally due to increased demand for certain products.
The Company’s net sales in both fiscal 2008 and 2007 by market approximated 69% from the commercial
aviation industry, 16% from the defense and space industries and 15% from other industrial markets including
medical, electronics and telecommunications.
gross Profit and Operating expenses
The Company’s gross profit margin increased to 36.1% in fiscal 2008 as compared to 34.9% in fiscal 2007,
principally reflecting higher margins within the FSG and the ETG primarily due to a more favorable product mix.
Consolidated cost of sales in fiscal 2008 and 2007 includes approximately $18.4 million and $16.5 million, respectively,
of new product research and development expenses.
Selling, general and administrative (“SG&A”) expenses were $104.7 million and $91.4 million in fiscal 2008
and 2007, respectively. The increase in SG&A expenses was mainly due to higher operating costs, principally
personnel related, associated with the growth in net sales discussed above and the additional operating costs
associated with the acquired businesses. As a percentage of net sales, SG&A expenses were 18.0% in fiscal
2008 and 2007.
Operating income
Operating income in fiscal 2008 increased by 23.0% to $105.8 million, compared to operating income of $86.0
million in fiscal 2007. The increase in operating income reflects an increase of $13.8 million (a 20.4% increase) to
$81.2 million in operating income of the FSG in fiscal 2008, an increase of $4.9 million (a 14.5% increase) to $38.8
million in operating income of the ETG in fiscal 2008 and a $1.1 million decrease in corporate expenses.
As a percentage of net sales, operating income increased to 18.2% in fiscal 2008 compared to 16.9% in fiscal
2007. The increase in operating income as a percentage of net sales reflects an increase in the FSG’s operating
income as a percentage of net sales to 18.6% in fiscal 2008 compared to 17.6% in fiscal 2007, partially offset by a
decrease in the ETG’s operating income as a percentage of net sales from 27.3% in fiscal 2007 to 26.6% in fiscal
2008. The increase in the FSG’s operating income as a percentage of net sales principally reflects the aforementioned
increased gross profit margins. The decrease in the ETG’s operating income as a percentage of net sales principally
reflects an aggregate of $1.8 million in impairment losses related to the write-down of certain intangible assets to
their estimated fair values recognized in fiscal 2008.
H e i c o c o r p o r a t i o n / 17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
interest expense
Interest expense decreased to $2.3 million in fiscal 2008 from $3.3 million in fiscal 2007. The decrease was
principally due to lower interest rates.
interest and Other (expense) income
Interest and other (expense) income in fiscal 2008 and 2007 were not material.
income tax expense
The Company’s effective tax rate for fiscal 2008 increased to 34.5% from 33.2% in fiscal 2007. The increase
was principally related to the December 2006 retroactive extension for the two year period covering January 1,
2006 to December 31, 2007 of Section 41, “Credit for Increasing Research Activities,” of the Internal Revenue
Code. As a result of this retroactive extension, the Company recognized an income tax credit for qualified research
and development activities for the full fiscal 2006 year in fiscal 2007, which increased net income, net of expenses,
by approximately $.5 million.
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 20% minority interests held in
HEICO Aerospace and the minority interests held in certain subsidiaries of HEICO Aerospace and HEICO Electronic.
The increase in the minority interests’ share of income in fiscal 2008 compared to fiscal 2007 was attributable to
the higher earnings of the FSG and certain ETG subsidiaries in which the minority interests exist.
net income
The Company’s net income was $48.5 million, or $1.78 per diluted share, in fiscal 2008 compared to $39.0
million, or $1.45 per diluted share, in fiscal 2007 reflecting the increased operating income referenced above,
partially offset by the increased minority interests’ share of certain consolidated subsidiaries.
Outlook
As the Company looks forward to fiscal 2009, HEICO will continue its focus on developing new products and
services, further market penetration, additional acquisition opportunities and maintaining its financial strength. The
Company is targeting growth in net sales, earnings and net cash provided by operating activities in fiscal 2009 over
fiscal 2008 results despite the global economic strains facing its markets and customers, including the impact of
expected capacity reductions in the commercial airline industry.
COmPariSOn OF FiSCal 2007 tO FiSCal 2006
net Sales
Net sales in fiscal 2007 increased by 29.5% to $507.9 million, as compared to net sales of $392.2 million in
fiscal 2006. The increase in net sales reflects an increase of $106.7 million (a 38.5% increase) to $383.9 million in
net sales within the FSG and an increase of $9.0 million (a 7.8% increase) to $124.0 million in net sales within the
ETG. The FSG’s net sales increase reflects organic growth of approximately 21% and certain prior year acquisitions,
principally Arger and Prime Air. The organic growth reflects increased sales of new products and services and
continued increased demand for the FSG’s aftermarket replacement parts and repair and overhaul services within
the commercial airline industry. The ETG’s net sales increase reflects organic growth of approximately 5% as well
as the impact on net sales from the fiscal 2007 acquisitions. The organic growth principally reflects increased
demand for certain products.
The Company’s net sales in fiscal 2007 by market approximated 69% from the commercial aviation industry,
16% from the defense and space industries and 15% from other industrial markets including medical, electronics
and telecommunications. The Company’s net sales in fiscal 2006 by market approximated 64% from the commercial
aviation industry, 19% from the defense and space industries and 17% from other industrial markets including
medical, electronics and telecommunications.
18 / H e i c o c o r p o r a t i o n
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
gross Profit and Operating expenses
The Company’s gross profit margin decreased to 34.9% in fiscal 2007 as compared to 36.3% in fiscal 2006, re-
flecting lower margins within the ETG due principally to a less favorable product mix. Consolidated cost of sales in
fiscal 2007 and 2006 includes approximately $16.5 million and $15.3 million, respectively, of new product research
and development expenses.
SG&A expenses were $91.4 million and $75.6 million in fiscal 2007 and 2006, respectively. The increase
in SG&A expenses was mainly due to higher operating costs, principally personnel related, associated with the
growth in net sales discussed above including acquisitions and an increase in corporate expenses. The increase in
corporate expenses reflects higher compensation and performance awards based on improvement in consolidated
operating results.
As a percentage of net sales, SG&A expenses decreased to 18.0% in fiscal 2007 compared to 19.3% in fiscal
2006. The decrease as a percentage of net sales is due to efficiencies in controlling costs while increasing revenues.
Operating income
Operating income in fiscal 2007 increased by 28.6% to $86.0 million, compared to operating income of $66.9
million in fiscal 2006. The increase in operating income reflects an increase of $20.6 million (a 43.9% increase)
to $67.4 million in operating income of the FSG in fiscal 2007, partially offset by a $.2 million decrease (a .5%
decrease) in operating income of the ETG to $33.9 million in fiscal 2007 and a $1.3 million increase in corporate
expenses as discussed above.
As a percentage of net sales, operating income decreased slightly to 16.9% in fiscal 2007 compared to 17.0%
in fiscal 2006. The decrease in operating income as a percentage of net sales reflects a decrease in the ETG’s
operating income as a percentage of net sales from 29.6% in fiscal 2006 to 27.3% in fiscal 2007, partially offset
by an increase in the FSG’s operating income as a percentage of net sales from 16.9% in fiscal 2006 to 17.6% in
fiscal 2007. The decrease in the ETG’s operating income as a percentage of net sales principally reflects the lower
gross profit margins discussed previously. The increase in the FSG’s operating income as a percentage of net
sales reflects the increase in net sales and operating efficiencies within SG&A expenses.
interest expense
Interest expense decreased to $3.3 million in fiscal 2007 from $3.5 million in fiscal 2006. The decrease was
principally due to a lower weighted average balance outstanding under the revolving credit facility in fiscal 2007,
partially 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 in fiscal 2007 and 2006 were not material.
income tax expense
The Company’s effective tax rate for fiscal 2007 increased to 33.2% from 32.7% in fiscal 2006. The increase
is principally due to the phase-out of the extraterritorial income (“ETI”) exclusion provisions pursuant to the Ameri-
can Jobs Creation Act of 2004 that had resulted in a tax benefit on export sales, partially offset by a higher amount
of the minority interests’ share of income excluded from the Company’s 2007 consolidated income subject to
federal income taxes.
The effective tax rate for fiscal 2007 reflects an income tax credit (net of expenses) for qualified research
and development activities recognized for the full fiscal 2006 year in fiscal 2007. The fiscal 2006 tax credit was
recorded pursuant to the December 2006 retroactive extension for the two year period covering January 1, 2006 to
December 31, 2007 of Section 41, “Credit for Increasing Research Activities,” of the Internal Revenue Code and
increased net income by approximately $.5 million in fiscal 2007.
Income tax expense in fiscal 2006 includes an income tax credit for qualified research and development activi-
ties claimed in the Company’s income tax return for fiscal 2005 and amended returns for previous tax years that
were filed in fiscal 2006. The aggregate tax credit, net of expenses, increased net income by approximately $1.0
million in fiscal 2006.
For a detailed analysis of the provision for income taxes, see Note 6, Income Taxes, of the Notes to Consoli-
dated Statements of Operations.
H e i c o c o r p o r a t i o n / 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
minority interests’ Share of income
Minority interests’ share of income of consolidated subsidiaries relates to the 20% minority interest held in
HEICO Aerospace and the minority interests held in certain subsidiaries of HEICO Aerospace and HEICO Electronic.
The increase in the minority interests’ share of income in fiscal 2007 compared to fiscal 2006 is primarily attributable
to the higher earnings of the FSG as well as the September 2006 acquisition of Prime Air.
net income
The Company’s net income was $39.0 million, or $1.45 per diluted share, in fiscal 2007 compared to $31.9
million, or $1.20 per diluted share, in fiscal 2006 reflecting the increased operating income referenced above,
partially offset by the increased minority interests’ share of certain consolidated subsidiaries.
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’s capitalization was as follows:
as of October 31,
Cash and cash equivalents
Total debt (including current portion)
Shareholders’ equity
Total capitalization (debt plus equity)
Total debt to total capitalization
$
2008
12,562,000
37,601,000
417,760,000
455,361,000
8%
$
2007
4,947,000
55,952,000
371,601,000
427,553,000
13%
In addition to cash and cash equivalents of $12.6 million, the Company had $261.6 million of unused availability
under the terms of its revolving credit facility as of October 31, 2008. The Company’s principal uses of cash include
acquisitions, payments of principal and interest on debt, capital expenditures, cash dividends and increases in
working capital. The Company finances its activities primarily from its operating activities and financing activities,
including borrowings under short-term and long-term credit agreements.
Based on the Company’s current outlook, 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 $73.2 million for fiscal 2008, principally reflecting net income of
$48.5 million, minority interests’ share of income of $18.9 million, depreciation and amortization of $15.1 million,
a tax benefit related to stock option exercises of $6.2 million, deferred income tax provision of $3.6 million and
impairment losses of intangible assets aggregating $1.8 million, partially offset by an increase in net operating
assets of $17.1 million and the presentation of $4.3 million of excess tax benefit from stock option exercises as a
financing activity. The increase in net operating assets (current assets used in operating activities net of current
liabilities) primarily reflects a higher investment in inventories by the FSG required to meet 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.
Net cash provided by operating activities was $57.5 million for fiscal 2007, principally reflecting net income of
$39.0 million, minority interests’ share of income of $16.3 million, depreciation and amortization of $12.2 million,
a tax benefit related to stock option exercises of $6.9 million, and a deferred income tax provision of $2.8 million,
partially offset by an increase in net operating assets of $16.0 million and the presentation of $5.3 million of excess
tax benefit from stock option exercises as a financing activity. The increase in net operating assets primarily
reflects a higher investment in inventories by the FSG required to meet increased sales demand associated with
20 / H e i c o c o r p o r a t i o n
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
new product offerings, sales growth, improved product delivery times, and higher prices of 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.
Net cash provided by operating activities was $46.9 million for fiscal 2006, principally reflecting net income of
$31.9 million, minority interests’ share of income of $11.2 million, depreciation and amortization of $10.6 million, a
tax benefit related to stock option exercises of $2.2 million, a deferred income tax provision of $2.6 million, and stock
option compensation expense of $1.4 million, partially offset by an increase in net operating assets of $12.0 million
and the presentation of $1.6 million of excess tax benefit from stock option exercises as a financing activity. The
increase in net operating assets 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.
investing activities
Net cash used in investing activities during the three fiscal year period ended October 31, 2008 primarily
relates to several acquisitions, including contingent payments and the acquisitions of certain minority interests,
totaling $135.5 million, including $29.0 million in fiscal 2008, $48.4 million in fiscal 2007 and $58.1 million in fiscal
2006. Further details on acquisitions may be found under the caption “Overview” and Note 2, Acquisitions, of the
Notes to Consolidated Financial Statements. Capital expenditures aggregated $36.3 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.
Financing activities
During the three fiscal year period ended October 31, 2008, the Company borrowed an aggregate $155.0
million under its revolving credit facility principally to fund acquisitions, including $50.0 million in fiscal 2008,
$46.0 million in fiscal 2007 and $59.0 million in fiscal 2006. Further details on acquisitions may be found under
the caption “Overview” and Note 2, Acquisitions, of the Notes to Consolidated Financial Statements. Repayments
on the revolving credit facility aggregated $150.0 million over the last three fiscal years, including $66.0 million in
fiscal 2008, $46.0 million in fiscal 2007 and $38.0 million in fiscal 2006. For the three year fiscal period ended
October 31, 2008, the Company received proceeds from stock option exercises aggregating $14.3 million, made
distributions to minority interest owners aggregating $17.2 million, paid cash dividends aggregating $6.7 million,
paid the matured industrial development revenue bonds aggregating $2.0 million, and made net repayments of
$2.0 million on the Company’s short-term line of credit. Net cash provided by financing activities also includes the
presentation of $4.3 million, $5.3 million and $1.6 million of excess tax benefit from stock option exercises in fiscal
2008, 2007 and 2006, respectively.
In May 2008, the Company amended its revolving credit facility by entering into a $300 million Second Amended
and Restated Revolving Credit Agreement (“Credit Facility”) with a bank syndicate, which matures in May 2013.
Under certain circumstances, the maturity may be extended for two one-year periods. The Credit Facility also
includes a feature that will allow the Company to increase the Credit Facility, at its option, up to $500 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. 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 for LIBOR-based borrowings range from .625% to 2.25%. A fee is charged on the amount of the
unused commitment ranging from .125% to .35% (depending on the Company’s leverage ratio). The Credit Facility
also includes a $50 million sublimit for borrowings made in euros, a $30 million sublimit for letters of credit and a $20
million swingline sublimit. The Credit Facility is unsecured and contains covenants that require, among other things,
the maintenance of the leverage ratio, a senior leverage ratio and a fixed charge coverage ratio. In the event the
Company’s leverage ratio exceeds a specified level, the Credit Facility would become secured by the capital stock
owned in substantially all of the Company’s subsidiaries. As of October 31, 2008, the Company’s leverage ratio was
significantly below such specified level. See Note 5, Short-Term and Long-Term Debt, of the Notes to Consolidated
Financial Statements for further information regarding the revolving credit facility.
H e i c o c o r p o r a t i o n / 21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
ContraCtual obligations
The following table summarizes the Company’s contractual obligations as of October 31, 2008:
Payments due by fiscal period
total
2009
2010 - 2011
2012 - 2013
thereafter
Short-term and long-term debt
obligations(1)
Capital lease obligations
and equipment loans(1)
Operating lease obligations(2)
Purchase obligations(3)(4)(5)
Other long-term liabilities(6)(7)
$ 37,489,000
$
162,000
$
275,000
$ 37,052,000
$
–
112,000
32,193,000
8,960,000
259,000
58,000
5,749,000
8,758,000
56,000
54,000
10,079,000
202,000
99,000
–
7,300,000
–
76,000
–
9,065,000
–
28,000
Total contractual obligations
$ 79,013,000
$ 14,783,000
$ 10,709,000
$ 44,428,000
$ 9,093,000
(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 notes payable, capital lease obligations and equipment loans as such
amounts are not material. See note 5, Short-term and 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 14, commitments and contingencies – Lease commitments, of the notes to consolidated Financial Statements for additional information regarding the
company’s operating lease obligations.
(3) includes an aggregate of $735,000 of commitments for capital expenditures as well as purchase obligations of inventory and supplies that extend beyond one
year. all purchase obligations of inventory and supplies in the ordinary course of business (i.e., with deliveries scheduled within the next year) are excluded
from the table.
(4) also includes accrued additional contingent purchase consideration of $2,197,000 payable in fiscal 2009 relating to a previous year acquisition (see note 2,
acquisitions, of the notes to consolidated Financial Statements). the amounts in the table do not include the additional contingent purchase consideration the
company may have to pay based on future earnings of certain acquired businesses, which is further discussed in “off-Balance Sheet arrangements – acquisi-
tions – additional contingent purchase consideration” below. the maximum amount of such contingent consideration that the company could be required to
pay aggregates approximately $82 million payable over the future periods beginning in fiscal 2010 through fiscal 2013. assuming the subsidiaries perform over
their respective future measurement periods at the same earnings levels they performed in the comparable historical measurement periods, the aggregate
amount of such contingent consideration that the company would be required to pay is approximately $5 million. the actual contingent purchase consideration
will likely be different.
(5) as further explained below in “off-Balance Sheet arrangements – acquisitions – put/call rights,” the minority interest holders of certain subsidiaries have
rights (“put rights”) that may be exercised on varying dates causing the company to purchase their equity interests beginning in fiscal 2009 through fiscal 2018.
the amounts in the table include $6,028,000 payable in 2009 (of which $1.2 million was accrued as of october 31, 2008) pursuant to the exercise of such put
rights by the minority interest holders of three of the company’s subsidiaries. amounts that may be paid in years subsequent to fiscal 2009 have been excluded
from the table as such amounts are either contingent upon the exercise of put rights and/or based on a multiple of future earnings, both which are uncertain at
this time. assuming the subsidiaries perform over their respective future measurement periods at the same earnings levels they performed in the comparable
historical measurement periods and assuming all put rights are exercised, the aggregate additional amount that the company would be required to pay is
approximately $44 million. the actual amount will likely be different. in December 2008, the company and the minority interest holders of one of the company’s
subsidiaries agreed to accelerate the company’s purchase of a portion of the minority interests from fiscal 2010 to fiscal 2009 for an estimated purchase price of
$4.7 million (see note 16, Subsequent event, of the notes to consolidated Financial Statements). this amount is not reflected in the table above.
(6) represents projected payments aggregating $259,000 under the company’s Directors retirement plan, which is explained further in note 9, retirement plans, of
the notes to consolidated Financial Statements (the plan is unfunded and the company pays benefits directly). the amounts in the table do not include amounts
related to the Leadership compensation plan or the company’s other deferred compensation arrangement as there is a related asset or an offsetting asset,
respectively, included in the company’s consolidated Balance Sheets. See note 3, Selected Financial Statement information – other non-current Liabilities, of
the notes to consolidated Financial Statements for further information about these two deferred compensation plans.
(7) the amounts in the table do not include approximately $5,513,000 of the company’s Fin 48 liability for unrecognized tax benefits as it is uncertain as to if or when
such amounts may be settled with taxing authorities. See note 6, income taxes, of the notes to consolidated Financial Statements and “new accounting
pronouncements” below for additional information regarding the company’s adoption of Fin 48 provisions.
22 / H e i c o c o r p o r a t i o n
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
OFF-BalanCe Sheet arrangementS
guarantees
The Company has arranged for standby letters of credit aggregating $1.4 million to meet the security requirement
of its insurance company for potential workers’ compensation claims, which are supported by the Company’s
revolving credit facility.
acquisitions – Put/Call rights
Pursuant to the purchase agreement related to the acquisition of an 80% interest in a subsidiary by the FSG
in fiscal 2001, the Company acquired an additional 10% of the equity interests of the subsidiary in fiscal 2007.
The Company has provided notice to the minority interest holder that it will purchase the remaining 10% interest
effective October 31, 2008. Accordingly, the Company accrued $1.2 million as of October 31, 2008 related to the
purchase of this equity interest, which was paid in December 2008.
As part of the agreement to acquire an 80% interest in a subsidiary by the ETG in fiscal 2004, the Company
has the right to purchase the minority interests over a five-year period beginning at approximately the tenth an-
niversary of the acquisition, or sooner under certain conditions, and the minority interest holders have the right
to cause the Company to purchase their interests over a five-year period commencing on approximately the fifth
anniversary of the acquisition, or sooner under certain conditions.
Pursuant to the purchase agreement related to the acquisition of a 85% interest in a subsidiary by the ETG
in fiscal 2005, certain minority interest holders exercised their option during fiscal 2007 to cause the Company
to purchase their aggregate 3% interest over a four-year period ending in fiscal 2010. Accordingly, the Company
increased its ownership interest in the subsidiary by 1.5% (or one-fourth of such minority interest holders’ aggregate
interest in fiscal 2007 and 2008, respectively) to 86.5% effective April 2008. Further, the remaining minority
interest holders currently have the right to cause the Company to purchase their aggregate 12% interest over a
four-year period.
Pursuant to the purchase agreement related to the acquisition of a 51% interest in a subsidiary by the FSG
in fiscal 2006, the minority interest holders exercised their option during fiscal 2008 to cause the Company to
purchase an aggregate 28% interest over a four-year period ending in fiscal 2011. Accordingly, the Company
increased its ownership interest in the subsidiary by 7% (or one-fourth of such minority interest holders’ aggregate
interest) to 58% effective April 2008. In December 2008, the Company and the minority interest holders agreed to
accelerate the purchase of 14% of these equity interests (7% from April 2009 and 7% from April 2010) to December
2008. The estimated purchase price of this 14% interest is $9.3 million (see Note 16, Subsequent Event, of the
Notes to Consolidated Financial Statements). Further, the Company has the right to purchase the remaining 21%
of the equity interests of the subsidiary over a three-year period beginning approximately after the fourth anniversary
of the acquisition, or sooner under certain conditions, and the minority interest holders have the right to cause the
Company to purchase the same equity interest over the same period.
As part of the agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2006, the Company
has the right to purchase the minority interests over a four-year period beginning at approximately the eighth
anniversary of the acquisition, or sooner under certain conditions, and the minority interest holders have the right
to cause the Company to purchase the same equity interest over the same period.
As part of an agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2008, the Company has
the right to purchase the minority interests over a five-year period beginning at approximately the sixth anniversary
of the acquisition, or sooner under certain conditions, and the minority interest holders have the right to cause the
Company to purchase the same equity interest over the same period.
H e i c o c o r p o r a t i o n / 23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
The above referenced rights of the minority interest holders (“Put Rights”) may be exercised on varying dates
causing the Company to purchase their equity interests beginning in fiscal 2009 through fiscal 2018. The Put
Rights, all of which relate either to common shares or membership interests in limited liability companies, provide
that the cash consideration to be paid for the minority interests (“Redemption Amount”) be at a formula that
management intended to reasonably approximate fair value, as defined in the applicable agreements based on a
multiple of future earnings over a measurement period. Upon exercise of any Put Right, the Company’s ownership
interest in the subsidiary would increase and minority interest expense would decrease. The Put Rights are
embedded in the shares owned by the minority interest holders and are not freestanding. Consistent with
Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” minority interests have been recorded
on the Company’s consolidated balance sheets at historical cost plus an allocation of subsidiary earnings based
on ownership interests, less dividends paid to the minority interest holders. As described in Note 1, Summary
of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 160 in December
2007 that will change the current accounting and financial reporting for non-controlling (minority) interests. SFAS
No. 160 will be effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS No.
160 on November 1, 2009. SFAS No. 160 will require that non-controlling (minority) interests be reported in the
consolidated balance sheet within equity. The Company is not yet in a position to assess the full impact and
related disclosure of adopting SFAS No. 160 on its minority interest liabilities and related Put Rights.
acquisitions – additional Contingent Purchase Consideration
As part of the agreement to purchase a subsidiary by the ETG in fiscal 2005, the Company may be obligated
to pay additional purchase consideration currently estimated to total up to $2.7 million should the subsidiary meet
certain product line-related earnings objectives during the fourth and fifth years following the acquisition.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2006, the Company may be obligated to
pay additional purchase consideration up to $19.2 million based on the subsidiary’s fiscal 2009 earnings relative to
target.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2007, the Company may be obligated to
pay additional purchase consideration up to 73 million Canadian dollars in aggregate, which translates to $59.7
million U.S. dollars based on the October 31, 2008 exchange rate, should the subsidiary meet certain earnings
objectives during the first five years following the acquisition.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2008, the Company may be obligated
to pay additional consideration of up to approximately $.4 million in aggregate should the subsidiary meet certain
earnings objectives during the third, fourth and fifth years following the acquisition.
The above referenced additional contingent purchase consideration will be accrued when the earnings
objectives are met. Such additional contingent consideration is based on a multiple of earnings above a threshold
(subject to a cap in certain cases) and is not contingent upon the former shareholders of the acquired entities
remaining employed by the Company or providing future services to the Company. Accordingly, such consideration
will be recorded as an additional cost of the respective acquired entity when paid.
For additional information on the aforementioned acquisitions see Note 2, Acquisitions, of the Notes to
Consolidated Financial Statements.
24 / H e i c o c o r p o r a t i o n
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
new aCCOunting PrOnOunCementS
Effective November 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” and began evaluating tax positions
utilizing a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will
be sustained upon examination based on the technical merits of the position. The second step is to measure the
benefit to be recorded from tax positions that meet the more-likely-than-not recognition threshold by determining
the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement
and recognizing that amount in the financial statements. As a result of adopting the provisions of FIN 48, the
Company recognized a cumulative effect adjustment that decreased retained earnings as of the beginning of fiscal
2008 by $639,000. Further, effective with the adoption of FIN 48, the Company’s policy is to recognize interest
and penalties related to income tax matters as a component of income tax expense. Interest and penalties, which
were not significant in fiscal 2007, were previously recorded in interest expense and in selling, general and admin-
istrative expenses, respectively, in the Company’s Consolidated Statements of Operations. Further information
regarding income taxes can be found in Note 6, Income Taxes, of the Notes to Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced
guidance for using fair value to measure assets and liabilities. SFAS No. 157 provides a common definition of fair
value and establishes a framework to make the measurement of fair value in accordance with generally accepted
accounting principles more consistent and comparable. SFAS No. 157 also requires expanded disclosures to
provide information about the extent to which fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value and the effect of fair value measures on earnings. SFAS No. 157 is effec-
tive for fiscal years beginning after November 15, 2007, or in fiscal 2009 for HEICO. In February 2008, the FASB
issued FASB Staff Position (“FSP”) No. SFAS 157-2, “Effective Date of FASB Statement No. 157.” FSP No. SFAS
157-2 delays the effective date of SFAS No. 157 by one year for nonfinancial assets and nonfinancial liabilities,
except for the items that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The Company is currently in the process of evaluating the effect, if any, the adoption of SFAS No. 157 will have on
its results of operations, financial position and cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to
measure certain financial assets and liabilities at fair value and report unrealized gains and losses on items for
which the fair value option has been elected in earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007, or in fiscal 2009 for HEICO. The Company has not yet determined if it will elect to apply any
of the provisions of SFAS No. 159 and is currently evaluating the effect, if any, the adoption of SFAS No. 159 will
have on its results of operations, financial position and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) is a revi-
sion of SFAS No.141 and retains the fundamental requirements in SFAS 141 that the acquisition method of ac-
counting (formerly the “purchase accounting” method) be used for all business combinations and for an acquirer
to be identified for each business combination. However, SFAS No. 141(R) changes the approach of applying the
acquisition method in a number of significant areas, including that acquisition costs will generally be expensed as
incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and de-
velopment will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring
costs associated with a business combination will generally be expensed subsequent to the acquisition date; and
changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date gener-
ally will affect income tax expense. SFAS No.141(R) is effective on a prospective basis for all business combina-
tions for which the acquisition date is on or after the beginning of the first fiscal year subsequent to December 15,
2008, or in fiscal 2010 for HEICO. The Company is in the process of evaluating the effect the adoption of SFAS
No. 141(R) will have on its results of operations, financial position and cash flows.
H e i c o c o r p o r a t i o n / 25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial State-
ments - an amendment of ARB No. 51.” This statement requires the recognition of a noncontrolling interest
(previously referred to as minority interest) as a separate component within equity in the consolidated balance sheet.
It also requires the amount of consolidated net income attributable to the parent and the noncontrolling interest be
clearly identified and presented within the consolidated statement of operations. SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008, or in fiscal 2010 for HEICO. The Company is in the process of evalu-
ating the effect the adoption of SFAS No. 160 will have on its results of operations, financial position and cash flows.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133.” SFAS No. 161 expands the disclosure requirements in
SFAS No. 133 about an entity’s derivative instruments and hedging activities. It requires enhanced disclosures
about (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations; and (iii) how derivative instruments
and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161
is effective for fiscal years and interim periods beginning after November 15, 2008, or in the second quarter of
fiscal 2009 for HEICO. The Company is currently in the process of evaluating the effect the adoption of SFAS No.
161 will have on its financial statement disclosures.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”
SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used
in the preparation of financial statements that are presented in conformity with generally accepted accounting
principles. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the
Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting
principles from the auditing standards. The Company is currently in the process of evaluating the effect, if any, the
adoption of SFAS No. 162 will have on its results of operations, financial position and cash flows.
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. 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:
Lower demand for commercial air travel or airline fleet changes, which could cause lower demand for our
goods and services;
Product specification costs and requirements, which could cause an increase to our costs to complete
contracts;
Governmental and regulatory demands, export policies and restrictions, reductions in defense, space or
homeland security spending by U.S. and/or foreign customers or competition from existing and new
competitors, which could reduce our sales;
HEICO’s ability to introduce new products and product pricing levels, which could reduce our sales or
sales growth;
26 / H e i c o c o r p o r a t i o n
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
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
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, which has 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, 2008. Based on the Company’s aggregate outstanding variable rate
debt balance of $37 million as of October 31, 2008, a hypothetical 10% increase in interest rates would increase
the Company’s interest expense by approximately $133,000 in fiscal 2008.
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, 2008 would not have a material effect on the Company’s results of operations,
financial position or cash flows.
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 Canadian dollar and British pound sterling.
During fiscal 2008, the Company entered into a foreign currency forward contract to mitigate a portion of foreign
exchange risk at one of its foreign subsidiaries for transactions denominated in a currency other than its functional
currency. The impact of this forward contract did not have a material effect on the Company’s results of operations,
financial position or cash flows. A hypothetical 10% weakening in the exchange rate of the Canadian dollar or
British pound sterling to the United States dollar as of October 31, 2008 would not have a material effect on the
Company’s results of operations, financial position or cash flows.
H e i c o c o r p o r a t i o n / 27
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
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
Intangible assets, net
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 (Note 14)
Commitments and contingencies (Notes 2 and 14)
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
2008
2007
$ 12,562,000
88,403,000
132,910,000
3,678,000
13,957,000
251,510,000
$
4,947,000
82,399,000
115,770,000
4,557,000
10,135,000
217,808,000
59,966,000
323,393,000
24,983,000
16,690,000
$ 676,542,000
55,554,000
310,502,000
35,333,000
12,105,000
$ 631,302,000
$
220,000
29,657,000
49,586,000
1,765,000
81,228,000
$
2,187,000
28,161,000
53,878,000
3,112,000
87,338,000
37,381,000
39,192,000
17,003,000
174,804,000
83,978,000
53,765,000
35,296,000
10,364,000
186,763,000
72,938,000
–
–
Common Stock, $.01 par value par share; 30,000,000 shares authorized;
10,572,641 and 10,538,691 shares issued and outstanding, respectively
106,000
105,000
Class A Common Stock, $.01 par value per share; 30,000,000 shares
authorized; 15,829,790 and 15,612,862 shares issued and
outstanding, respectively
Capital in excess of par value
Accumulated other comprehensive (loss) income
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
the accompanying notes are an integral part of these consolidated financial statements.
158,000
229,443,000
(4,819,000)
192,872,000
417,760,000
$ 676,542,000
156,000
220,658,000
3,050,000
147,632,000
371,601,000
$ 631,302,000
28 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended October 31,
2008
2007
2006
Net sales
$ 582,347,000
$ 507,924,000
$ 392,190,000
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
371,852,000
104,707,000
330,466,000
91,444,000
249,677,000
75,646,000
Total operating costs and expenses
476,559,000
421,910,000
325,323,000
Operating income
105,788,000
86,014,000
66,867,000
Interest expense
Interest and other (expense) income
(2,314,000)
(637,000)
(3,293,000)
95,000
(3,523,000)
639,000
Income before income taxes and minority interests
102,837,000
82,816,000
63,983,000
Income tax expense
35,450,000
27,530,000
20,900,000
Income before minority interests
67,387,000
55,286,000
43,083,000
Minority interests’ share of income
18,876,000
16,281,000
11,195,000
Net income
$
48,511,000
$ 39,005,000
$ 31,888,000
Net income per share:
Basic
Diluted
$
$
1.84
1.78
$
$
1.52
1.45
$
$
1.27
1.20
Weighted average number of common shares outstanding:
Basic
Diluted
26,309,139
27,243,356
25,715,899
26,931,048
25,084,532
26,597,603
the accompanying notes are an integral part of these consolidated financial statements.
H e i c o c o r p o r a t i o n / 29
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
CONSOLIDATED STATEMENTS OF ShAREhOLDERS’ EqUITY AND COMPREhENSIvE INCOME
Common
Stock
Class A
Common
Stock
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Comprehensive
Income
(65,000) $ 80,799,000
–
127,000
–
–
–
–
–
–
62,000
–
2,966,000
–
–
–
–
–
–
–
–
–
–
–
–
–
2,000
–
–
–
6,000
–
–
–
7,300,000
5,063,000
–
–
–
–
–
–
–
–
103,000
–
1,373,000
1,000
151,000 206,260,000
–
Balances as of October 31, 2005 $ 101,000 $ 145,000 $ 192,523,000 $
Net income
Foreign currency translation
adjustments
Comprehensive income
Cash dividends ($.08 per share)
Tax benefit from stock option
exercises
Proceeds from stock option
exercises
Stock option compensation
expense
Other
Balances as of October 31, 2006
Net income
Foreign currency translation
adjustments
Comprehensive income
Cash dividends ($.08 per share)
Tax benefit from stock option
exercises
Proceeds from stock option
exercises
Stock option compensation
expense
Other
Balances as of October 31, 2007
Net income
Foreign currency translation
adjustments
Comprehensive income
Cash dividends ($.10 per share)
Cumulative effect of adopting
FIN 48 (Note 6)
Tax benefit from stock option
exercises
Proceeds from stock option
exercises
Stock option compensation
expense
Other
Balances as of October 31, 2008
–
–
105,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,000
5,000
2,000
1,000
6,873,000 –
6,868,000 –
–
658,000 –
22,000
–
156,000 220,658,000 3,050,000
–
–
–
(1,000)
(7,706,000)
–
–
–
6,248,000 –
2,395,000 –
31,888,000 $ 31,888,000
–
127,000
– $ 32,015,000
(2,004,000)
–
–
–
(1,000)
110,682,000
39,005,000 $ 39,005,000
2,966,000
–
– $ 41,971,000
(2,056,000)
–
–
–
1,000
147,632,000
48,511,000 $ 48,511,000
(7,706,000)
–
– $ 40,805,000
(2,631,000)
(639,000)
–
–
–
–
(1,000)
$ 106,000 $ 158,000 $ 229,443,000 $ (4,819,000) $ 192,872,000
142,000 –
(163,000)
–
–
the accompanying notes are an integral part of these consolidated financial statements.
30 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
CONSOLIDATED STATEMENTS OF CASh FLOwS
For the year ended October 31,
2008
2007
2006
Operating Activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Impairment of intangible assets
Deferred income tax provision
Minority interests’ share of income
Tax benefit from stock option exercises
Excess tax benefit from stock option exercises
Stock option compensation expense
Changes in assets and liabilities, net of acquisitions:
$ 48,511,000
$
39,005,000
$ 31,888,000
15,052,000
1,835,000
3,617,000
18,876,000
6,248,000
(4,324,000)
142,000
12,167,000
–
2,819,000
16,281,000
6,873,000
(5,262,000)
658,000
10,565,000
–
2,557,000
11,195,000
2,210,000
(1,550,000)
1,373,000
Increase in accounts receivable
Increase in inventories
(4,749,000)
(16,597,000)
(13,790,000)
(14,701,000)
(5,018,000)
(13,148,000)
Decrease (increase) in prepaid expenses and
other current assets
Increase in trade accounts payable
Increase in accrued expenses and other current
liabilities
(Decrease) increase in income taxes payable
Other
Net cash provided by operating activities
Investing Activities:
Acquisitions and related costs, net of cash acquired
Capital expenditures
Other
Net cash used in investing activities
Financing Activities:
Payments on revolving credit facility
Borrowings on revolving credit facility
Payments on short-term line of credit
Borrowings on short-term line of credit
Payment of industrial development revenue bonds
Distributions to minority interest owners
Cash dividends paid
Proceeds from stock option exercises
Excess tax benefit from stock option exercises
Other
Net cash (used in) provided by financing activities
650,000
808,000
(266,000)
4,265,000
431,000
3,696,000
3,803,000
(1,040,000)
330,000
73,162,000
7,013,000
1,523,000
865,000
57,450,000
1,698,000
362,000
649,000
46,908,000
(29,038,000)
(13,455,000)
166,000
(42,327,000)
(48,367,000)
(12,886,000)
59,000
(61,194,000)
(58,117,000)
(9,964,000)
520,000
(67,561,000)
(66,000,000)
50,000,000
(500,000)
500,000
(1,980,000)
(7,456,000)
(2,631,000)
2,398,000
4,324,000
(1,158,000)
(22,503,000)
(46,000,000)
46,000,000
(1,000,000)
1,000,000
–
(6,448,000)
(2,056,000)
6,875,000
5,262,000
(57,000)
3,576,000
(38,000,000)
59,000,000
(3,000,000)
1,000,000
–
(3,306,000)
(2,004,000)
5,071,000
1,550,000
(26,000)
20,285,000
Effect of exchange rate changes on cash
(717,000)
116,000
37,000
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
7,615,000
4,947,000
$ 12,562,000
(52,000)
4,999,000
4,947,000
(331,000)
5,330,000
4,999,000
$
$
the accompanying notes are an integral part of these consolidated financial statements.
H e i c o c o r p o r a t i o n / 31
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company’s customer base is primarily the
commercial aviation, defense, space and electronics industries.
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. In addition, HEICO Aerospace consolidates a joint venture
formed in March 2001, which is 16%-owned by American Airlines’ parent company, AMR Corporation, a 58%-
owned subsidiary, two 80%-owned subsidiaries and a 90%-owned subsidiary. Also, HEICO Electronic consolidates
two subsidiaries, which are 80% and 86.5% owned, respectively. (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
such as U.S. Treasury bills and money market funds with an original maturity of three months or less to be cash
equivalents.
accounts receivable
Accounts receivable consist of amounts billed and currently due from customers and unbilled costs and estimated
earnings related to revenues from certain fixed price contracts recognized on the percentage-of-completion method
that have been recognized for accounting purposes, but not yet billed to customers. 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 receivables 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.
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 amounts
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.
32 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company’s property, plant and
equipment is depreciated over the following estimated useful lives:
Buildings and improvements
Leasehold improvements
Machinery and equipment
Tooling
15 to 40 years
2 to 20 years
3 to 10 years
5 years
2 to
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.
Purchase accounting
The Company applies the purchase method of accounting to its acquisitions. Under this method, the purchase
price, including any capitalized acquisition costs, is allocated to the underlying tangible and identifiable intangible
assets acquired and liabilities assumed based on their estimated fair market values, with any excess recorded as
goodwill.
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 is 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 not subject to amortization consist of trade names. The Company’s intangible
assets subject to amortization are amortized on the straight-line method over the following estimated useful lives:
Customer relationships
Intellectual property
Licenses
Non-compete agreements
Patents
3 to
8 years
4 to 15 years
12 to 17 years
7 years
2 to
5 to 20 years
The Company tests each non-amortizing intangible 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 Company also
tests each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be
impaired. These tests consist of determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the
carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying
amount over the fair value of the assets.
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 variable 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.
H e i c o c o r p o r a t i o n / 33
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments are stated at fair value based on quoted market prices. Investments that are intended to be held
for less than one year are included within prepaid expenses and other current assets in the Company’s Consoli-
dated Balance Sheets, while those intended to be held for longer than one year are classified as non-current within
other assets. Unrealized gains or losses associated with available-for-sale securities are reported net of tax within
other comprehensive income in shareholders’ equity. Unrealized gains or losses associated with trading securities
are recorded as a component of other income in the Company’s Consolidated Statement of Operations.
Derivative instruments
The Company utilizes certain derivative instruments (e.g. interest rate swap agreements and foreign currency
forward contracts) to hedge the variability of expected future cash flows of certain transactions. 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 has previously utilized 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. The Company did not enter into any interest
rate swap agreements in fiscal 2008, 2007, or 2006.
During fiscal 2008, the Company entered into a foreign currency forward contract to mitigate foreign exchange
risk at one of its foreign subsidiaries for transactions denominated in a currency other than its functional currency.
The impact of this forward contract did not have a material effect on the Company’s results of operations, financial
position or cash flows. The Company did not enter into any foreign currency forward contracts in fiscal 2007 or 2006.
Customer rebates and Credits
The Company records accrued customer rebates and credits as a component of accrued expenses and other
current liabilities in the Company’s Consolidated Balance Sheets. These amounts generally relate to discounts
negotiated with customers as part of certain sales contracts that are usually tied to sales volume thresholds. The
Company accrues customer rebates and credits as a reduction within net sales as the revenue is recognized based
on the estimated level of discount rate expected to be earned by each customer over the life of the contract period
(generally one year). Accrued customer rebates and credits are monitored by management and discount levels are
updated at least quarterly.
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 experience.
revenue recognition
Revenue is recognized on an accrual basis, primarily upon the shipment of products and the rendering of
services. Revenues earned from rendering services represented less than 10% of consolidated net sales for all
periods presented. 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. The percentage of the Company’s net sales recognized under the
percentage-of-completion method was approximately 3%, 3%, and 4% in fiscal 2008, 2007 and 2006, respectively.
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.
Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the
period of revision. 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.
34 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 long-term
contracts did not have a significant effect on net income or diluted net income per share in fiscal 2008, 2007 or 2006.
Stock Based Compensation
The Company records compensation expense associated with stock options in its Consolidated Statements
of Operations based on the grant date fair value of those awards. The Company generally recognizes stock option
compensation expense ratably over the award’s vesting period. The Company calculates the amount of excess tax
benefit that is available to offset future write-offs of deferred tax assets, or additional paid-in-capital pool (“APIC
Pool”) by tracking each stock option award granted after November 1, 1996 on an employee-by-employee basis
and on a grant-by-grant basis to determine whether there is a tax benefit situation or tax deficiency situation for
each such award. The Company then compares the fair value expense to the tax deduction received for each stock
option grant and aggregates the benefits and deficiencies, which have the effect of increasing or decreasing,
respectively, the APIC Pool. Should the amount of future tax deficiencies be greater than the available APIC Pool,
the Company will record the excess as income tax expense in its Consolidated Statements of Operations.
income taxes
Income tax expense includes United States and foreign income taxes, plus the provision for United States
taxes on undistributed earnings of foreign subsidiaries not deemed to be permanently invested. 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.
Effective November 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation
No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,”
and began evaluating tax positions utilizing a two-step process. The first step is to determine whether it is more-
likely-than-not that a tax position will be sustained upon examination based on the technical merits of the position.
The second step is to measure the benefit to be recorded from tax positions that meet the more-likely-than-not
recognition threshold by determining the largest amount of tax benefit that is greater than 50 percent likely of
being realized upon ultimate settlement and recognizing that amount in the financial statements. As a result of
adopting the provisions of FIN 48, the Company recognized a cumulative effect adjustment that decreased retained
earnings as of the beginning of fiscal 2008 by $639,000. Further, effective with the adoption of FIN 48, the
Company’s policy is to recognize interest and penalties related to income tax matters as a component of income
tax expense. Interest and penalties, which were not significant in fiscal 2007 and 2006, were previously recorded
in interest expense and in selling, general and administrative expenses, respectively, in the Company’s Consolidated
Statements of Operations. Further information regarding income taxes can be found in Note 6, Income Taxes, of
the Notes to Consolidated Financial Statements.
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.
H e i c o c o r p o r a t i o n / 35
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 period-end exchange rates, while revenues and expenses are translated using average
exchange rates for the period. Unrealized translation gains or losses are reported as foreign currency translation
adjustments through other comprehensive income in shareholders’ equity.
Contingencies
Losses for contingencies such as product warranties, litigation and environmental matters are recognized in
income when they are probable and can be reasonably estimated. Gain contingencies are not recognized in income
until they have been realized.
new accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair
Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities.
SFAS No. 157 provides a common definition of fair value and establishes a framework to make the measurement
of fair value in accordance with generally accepted accounting principles more consistent and comparable. SFAS
No. 157 also requires expanded disclosures to provide information about the extent to which fair value is used
to measure assets and liabilities, the methods and assumptions used to measure fair value and the effect of fair
value measures on earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, or in
fiscal 2009 for HEICO. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS 157-2, “Effective
Date of FASB Statement No. 157.” FSP No. SFAS 157-2 delays the effective date of SFAS No. 157 by one year for
nonfinancial assets and nonfinancial liabilities, except for the items that are recognized or disclosed at fair value in
the financial statements on a recurring basis. The Company is currently in the process of evaluating the effect, if
any, the adoption of SFAS No. 157 will have on its results of operations, financial position and cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to
measure certain financial assets and liabilities at fair value and report unrealized gains and losses on items for
which the fair value option has been elected in earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007, or in fiscal 2009 for HEICO. The Company has not yet determined if it will elect to apply any
of the provisions of SFAS No. 159 and is currently evaluating the effect, if any, the adoption of SFAS No. 159 will
have on its results of operations, financial position and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) is a
revision of SFAS No.141 and retains the fundamental requirements in SFAS 141 that the acquisition method of
accounting (formerly the “purchase accounting” method) be used for all business combinations and for an acquirer
to be identified for each business combination. However, SFAS No. 141(R) changes the approach of applying the
acquisition method in a number of significant areas, including that acquisition costs will generally be expensed as
incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and
development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring
costs associated with a business combination will generally be expensed subsequent to the acquisition date; and
changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally
will affect income tax expense. SFAS No.141(R) is effective on a prospective basis for all business combinations
for which the acquisition date is on or after the beginning of the first fiscal year subsequent to December 15, 2008,
or in fiscal 2010 for HEICO. The Company is in the process of evaluating the effect the adoption of SFAS
No. 141(R) will have on its results of operations, financial position and cash flows.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements
- an amendment of ARB No. 51.” This statement requires the recognition of a noncontrolling interest (previously
referred to as minority interest) as a separate component within equity in the consolidated balance sheet. It also
requires the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly
identified and presented within the consolidated statement of operations. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008, or in fiscal 2010 for HEICO. The Company is in the process of evaluating
the effect the adoption of SFAS No. 160 will have on its results of operations, financial position and cash flows.
36 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activi-
ties - an amendment of FASB Statement No. 133.” SFAS No. 161 expands the disclosure requirements in SFAS
No. 133 about an entity’s derivative instruments and hedging activities. It requires enhanced disclosures about (i)
how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (iii) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective
for fiscal years and interim periods beginning after November 15, 2008, or in the second quarter of fiscal 2009 for
HEICO. The Company is currently in the process of evaluating the effect the adoption of SFAS No. 161 will have on
its financial statement disclosures.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”
SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used
in the preparation of financial statements that are presented in conformity with generally accepted accounting
principles. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the
Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted account-
ing principles from the auditing standards. The Company is currently in the process of evaluating the effect, if any,
the adoption of SFAS No. 162 will have on its results of operations, financial position and cash flows.
nOte 2 | aCquiSitiOnS
In November 2005, the Company, through HEICO Aerospace, acquired a 51% interest in Seal Dynamics LLC
(“Seal LLC”) with the remaining 49% interest held principally by a member of Seal LLC’s management group.
During fiscal 2008, the minority interest holders exercised their option to cause the Company to purchase an
aggregate 28% interest over the four-year period ending in fiscal 2011. Accordingly, the Company increased its
ownership interest in the subsidiary by 7% (or one-fourth of such minority interest holders’ aggregate interest) to
58% effective April 2008. Further, the Company has the right to purchase the remaining 21% of the equity inter-
ests of the subsidiary over a three-year period beginning approximately after the fourth anniversary of the acquisi-
tion, or sooner under certain conditions, and the minority interest holders have the right to cause the Company to
purchase the same equity interest over the same period. Seal LLC 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 HEICO Electronic, acquired all of the stock of Engineering Design
Team, Inc. and substantially all of the assets of its affiliate (collectively “EDT”). EDT specializes in the design, man-
ufacture, 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.
In May 2006, the Company, through HEICO Aerospace, acquired all of the stock of Arger Enterprises, Inc. and
its related companies (collectively “Arger”). Arger designs and distributes FAA-approved aircraft and engine parts
primarily for the commercial aviation market. The Company has since combined the operations of Arger within
other subsidiaries of HEICO Aerospace. As of the acquisition date, the Company recognized a $1.8 million restruc-
turing liability as part of the acquisition costs consisting principally of employee termination and relocation costs,
moving costs and associated expenses and contract termination costs. During the remainder of fiscal 2006, $1.1
million of such accrued costs were paid and $.6 million were deemed not necessary and reversed. The remaining
$.1 million of costs was paid during the first quarter of fiscal 2007.
H e i c o c o r p o r a t i o n / 37
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2006, the Company, through HEICO Aerospace, acquired an 80% interest in the business, as-
sets and certain liabilities of Prime Air, Inc., and its affiliate (collectively “Prime”). Under the transaction, a new
subsidiary was formed, Prime Air, LLC (“Prime Air”), which acquired substantially all of the assets and assumed
certain liabilities of Prime. Prime Air is owned 80% by the Company and 20% by certain members of Prime’s
management group. The Company has the right to purchase the remaining 20% minority interests beginning at
approximately the eighth anniversary of the acquisition, or sooner under certain conditions, and the minority interest
holders have the right to cause the Company to purchase the same equity interest over the same period. Prime
Air provides commercial airlines, regional operators, asset management companies and MRO providers with high
quality and cost effective niche accessory component exchange services as an alternative to OEMs’ spares services.
During the first quarter of fiscal 2007, the Company, through HEICO Aerospace, acquired an additional 10%
of the equity interests in one of its subsidiaries, which increased the Company’s ownership interest to 90%. The
purchase price of the acquired equity interest was paid using cash provided by operating activities.
In April 2007, the Company, through HEICO Electronic, acquired all the stock of FerriShield, Inc. (“FerriShield”).
FerriShield is engaged in the design and manufacture of Radio Frequency Interference and Electromagnetic
Frequency Interference Suppressors for a variety of markets. The Company has since integrated the operations
of FerriShield into the operations of one of its existing subsidiaries.
In May 2007, the Company, through HEICO Aerospace, acquired certain assets of a supplier. The acquired assets
were integrated into one of its existing subsidiaries and will be utilized to bring certain manufacturing operations
in-house. The purchase price was paid using cash provided by operating activities.
In August 2007, the Company, through HEICO Aerospace, acquired substantially all of the assets and assumed
certain liabilities of a U.S. company that designs and manufactures FAA-approved aircraft and engine parts primarily
for the commercial aviation market.
In September 2007, the Company, through HEICO Electronic, acquired all of the stock of EMD Technologies
Inc. (“EMD”). Subject to meeting certain earnings objectives during the first five years following the acquisition,
the Company may be obligated to pay additional purchase consideration of up to 73 million Canadian dollars in
aggregate, which translates to $59.7 million U.S. dollars based on the October 31, 2008 exchange rate. EMD
designs and manufactures high voltage energy generators for medical, baggage inspection and industrial imaging
manufacturers and high frequency power delivery systems for the commercial sign industry.
During both April 2007 and 2008, the Company, through HEICO Electronic, acquired an additional .75% of the
equity interests in one of its subsidiaries, which increased the Company’s ownership interest from 85% to 86.5%.
The purchase prices of the acquired equity interests were paid using cash provided by operating activities.
In November 2007, the Company, through an 80%-owned subsidiary of HEICO Aerospace, acquired all of
the stock of a European company. Subject to meeting certain earnings objectives during the third, fourth and fifth
years following the acquisition, the Company may be obligated to pay additional consideration of up to approximately
$.4 million in aggregate. The acquired company supplies aircraft parts for sale and exchange as well as repair
management services to commercial and regional airlines, asset management companies and FAA overhaul and
repair facilities.
In January 2008, the Company, through HEICO Aerospace, acquired certain assets and assumed certain
liabilities of a U.S. company that designs and manufactures FAA-approved aircraft and engine parts primarily for
the commercial aviation market. The Company has since combined the operations of the acquired entity within
other subsidiaries of HEICO Aerospace.
In February 2008, the Company, through HEICO Aerospace, acquired an 80% interest in certain assets and
certain liabilities of a U.S. company that is an FAA-approved repair station which specializes in avionics primarily
for the commercial aviation market. The remaining 20% is principally owned by certain members of the acquired
company’s management. The Company has the right to purchase the minority interests beginning at approximately
the sixth anniversary of the acquisition, or sooner under certain conditions, and the minority interest holders have
the right to cause the Company to purchase the same equity interest over the same period.
38 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As part of the purchase agreement associated with certain acquisitions, the Company may be obligated to pay
additional purchase consideration based on the acquired subsidiary meeting certain earnings objectives following
the acquisition. The Company accrues an estimate of additional purchase consideration when the earnings objec-
tives are met. During fiscal 2008, the Company, through HEICO Aerospace and HEICO Electronic, paid $7.0 million
and $4.7 million, respectively, of such additional purchase consideration related to acquisitions made in previous
years, all of which was accrued as of October 31, 2007. During fiscal 2007 and 2006, the Company, through HEICO
Electronic, paid $7.3 million and $2.2 million, respectively, of such additional purchase consideration related to
acquisitions made in previous years, of which $7.2 million and $2.2 million respectively, was accrued as of Octo-
ber 31, 2006 and 2005, respectively. As of October 31, 2008, the Company, through HEICO Electronic, accrued
$2.2 million of additional purchase consideration related to a prior year acquisition, which it expects to pay in fiscal
2009. The amounts paid in fiscal 2008, 2007 and 2006 were based on a multiple of each applicable subsidiary’s
earnings relative to target. Since these amounts were not contingent upon the former shareholders of each
acquired entity remaining employed by the Company or providing future services to the Company, the payments
were recorded as an additional cost of the respective acquired entity. Information regarding additional purchase
consideration related to acquisitions may be found in Note 14, Commitments and Contingencies – Acquisitions, of
the Notes to Consolidated Financial Statements.
All of the acquisitions described above were accounted for using the purchase method of accounting. The
purchase price of each acquisition was principally paid in cash using proceeds from the Company’s revolving credit
facility unless otherwise noted and was not significant to the Company’s consolidated financial statements. The
results of operations of each acquired company were included in the Company’s results of operations from their
effective acquisition date. The following table presents the Company’s unaudited pro forma consolidated operating
results assuming the fiscal 2008 and 2007 acquisitions had been consummated as of the beginning of fiscal 2007.
The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of
the results of operations that actually would have been achieved if the acquisitions had taken place as of the begin-
ning fiscal 2007. The unaudited pro forma financial information includes adjustments to historical amounts such as
additional amortization expense related to acquired intangible assets, increased interest expense associated with
borrowings to finance the acquisitions, and, when applicable, incremental minority interest in net income.
For the year ended October 31,
2008
2007
Net sales
Net income
Net income per share:
Basic
Diluted
$ 583,837
$ 48,638
$ 533,669
$ 38,886
$
$
1.85
1.79
$
$
1.51
1.44
The allocation of the purchase price of each acquisition to the tangible and identifiable intangible assets
acquired and liabilities assumed is based on their estimated fair values as of the date of acquisition. The Company
determines the fair values of such assets and liabilities, generally in consultation with third-party valuation advisors.
The allocation of the purchase price of the fiscal 2008 acquisitions 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 15, Supplemental Disclosures
of Cash Flow Information, of the Notes to Consolidated Financial Statements). The aggregate cost of acquisitions,
including payments made in cash and contingent payments, was $29.0 million, $48.4 million and $58.1 million in
fiscal 2008, 2007 and 2006, respectively.
H e i c o c o r p o r a t i o n / 39
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nOte 3 | SeleCteD FinanCial Statement inFOrmatiOn
accounts receivable
as of October 31,
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
2008
2007
$ 90,990,000
(2,587,000)
$ 88,403,000
$
$
84,111,000
(1,712,000)
82,399,000
Costs and estimated earnings on uncompleted Percentage-of-Completion Contracts
as of October 31,
Costs incurred on uncompleted contracts
Estimated earnings
Less: Billings 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)
2008
2007
$ 21,505,000
12,545,000
34,050,000
(28,337,000)
5,713,000
$
$
$
21,832,000
13,111,000
34,943,000
(25,661,000)
9,282,000
$
6,115,000
$
9,300,000
(402,000)
5,713,000
$
(18,000)
9,282,000
$
Changes in estimates did not have a material effect on net income or diluted net income per share in fiscal
2008, 2007 or 2006.
inventories
as of October 31,
Finished products
Work in process
Materials, parts, assemblies and supplies
Inventories, net
2008
2007
$ 74,281,000
17,897,000
40,732,000
$ 132,910,000
$
61,592,000
15,406,000
38,772,000
$ 115,770,000
Inventories related to long-term contracts were not significant as of October 31, 2008 and 2007.
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
2008
2007
$
3,656,000
36,229,000
73,038,000
5,446,000
118,369,000
(58,403,000)
$ 59,966,000
$
$
3,656,000
30,732,000
65,242,000
6,339,000
105,969,000
(50,415,000)
55,554,000
The amounts set forth above include tooling costs having a net book value of $4,037,000 and $4,165,000 as of
October 31, 2008 and 2007, respectively. Amortization expense on capitalized tooling was $1,575,000, $1,448,000
and $1,304,000 for the fiscal years ended October 31, 2008, 2007 and 2006, respectively. Expenditures for capital-
ized tooling costs were $1,412,000, $1,634,000 and $1,363,000 in fiscal 2008, 2007 and 2006, respectively.
40 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization expense, exclusive of tooling, on property, plant and equipment was
$7,990,000, $6,678,000 and $5,786,000 for the fiscal years ended October 31, 2008, 2007 and 2006, respectively.
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 $908,000 and $1,195,000 as of October 31, 2008 and 2007, respectively. Under the terms of the agreements,
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.
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
Accrued expenses and other current liabilities
2008
2007
$ 25,157,000
11,758,000
3,427,000
9,244,000
$ 49,586,000
$
$
21,551,000
10,452,000
11,736,000
10,139,000
53,878,000
The total customer rebates and credits deducted within net sales for the fiscal years ended October 31, 2008,
2007 and 2006 were $10,249,000, $9,574,000 and $7,611,000, respectively.
other non-Current liabilities
During fiscal 2006, the Company established the HEICO Corporation Leadership Compensation Plan (“LCP”),
a nonqualified deferred compensation plan that conforms to Section 409A of the Internal Revenue Code. The LCP
was effective October 1, 2006 and provides eligible employees, officers and directors of the Company the opportunity
to voluntarily defer base salary, bonus payments, commissions, long-term incentive awards and directors fees, as
applicable, on a pre-tax basis. The Company matches 50% of the first 6% of base salary deferred by each participant.
In September 2008, the LCP was amended principally to allow director fees that would otherwise be payable in
Company common stock to be deferred into the Plan, and, when distributed, amounts would be distributable in actual
shares of Company common stock. In December 2008, the LCP was amended to comply with the final Section
409A regulations issued by the Internal Revenue Service, which become effective January 1, 2009. Further, while
the Company has no obligation to do so, the LCP also provides the Company the opportunity to make discretionary
contributions. The Company’s matching contributions and any discretionary contributions are subject to vesting
and forfeiture provisions set forth in the LCP. Company contributions to the Plan charged to income in fiscal 2008,
2007 and 2006 totaled $2,075,000, $2,119,000 and $985,000, respectively. In the accompanying Consolidated
Balance Sheets, $623,000 was included in accrued expenses and other current liabilities and $7,136,000 in other
non-current liabilities as of October 31, 2008, and $688,000 was included in accrued expenses and other current
liabilities and $4,586,000 in other non-current liabilities as of October 31, 2007. The assets of the LCP, totaling
$7,148,000 and $4,559,000 as of October 31, 2008, and 2007, respectively, are classified within other assets
(long-term) and represent cash surrender values of life insurance policies that are held within an irrevocable trust
that may be used to satisfy the obligations under the LCP.
Other non-current liabilities also includes deferred compensation of $3,860,000 and $5,201,000 as of October
31, 2008 and 2007, 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.
H e i c o c o r p o r a t i o n / 41
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2008 and 2007 by operating segment are
as follows:
Segment
FSG
ETG
Balances as of October 31, 2006
Goodwill acquired
Accrued additional purchase consideration
Foreign currency translation adjustments
Adjustments to goodwill
Balances as of October 31, 2007
Goodwill acquired
Accrued additional purchase consideration
Foreign currency translation adjustments
Adjustments to goodwill
Balances as of October 31, 2008
$ 157,204,000
6,210,000
7,000,000
–
(725,000)
169,689,000
9,094,000
1,215,000
(363,000)
1,491,000
$ 181,126,000
$ 117,912,000
16,550,000
4,736,000
1,354,000
261,000
140,813,000
74,000
2,212,000
(3,505,000)
2,673,000
$ 142,267,000
Consolidated
Totals
$ 275,116,000
22,760,000
11,736,000
1,354,000
(464,000)
310,502,000
9,168,000
3,427,000
(3,868,000)
4,164,000
$ 323,393,000
The goodwill acquired and accrued additional purchase consideration recognized during fiscal 2008 and 2007
are principally a result of the Company’s acquisitions described in Note 2, Acquisitions, of the Notes to Consolidated
Financial Statements. The $1.2 million accrued additional purchase consideration recognized during fiscal 2008 by
the FSG is the result of the Company’s purchase of the remaining 10% of equity interests in a 90%-owned subsidiary
effective October 31, 2008 (see Note 14, Commitments and Contingencies, of the Notes to Consolidated Financial
Statements). The foreign currency translation adjustments reflect unrealized translation gains (losses) on the
goodwill recognized in connection with foreign subsidiaries. Foreign currency translation adjustments are included
in other comprehensive income in the Company’s Consolidated Statements of Shareholders’ Equity and Comprehensive
Income. Adjustments to goodwill during fiscal 2008 and 2007 consist primarily of final purchase price adjustments
related to the preliminary allocation of the purchase price during the allocation period for certain prior year acquisitions
to the assets acquired and liabilities assumed. The Company estimates that approximately $13 million and $30
million of the goodwill recognized in fiscal 2008 and 2007, respectively, will be deductible for income tax purposes.
Based on the annual goodwill test for impairment as of October 31, 2008, the Company determined there is no
impairment of its goodwill.
Identifiable intangible assets consist of:
as of October 31, 2008
as of October 31, 2007
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizing Assets:
Customer relationships
Intellectual property
$ 16,845,000 $ (6,451,000) $ 10,394,000 $ 19,784,000 $ (4,912,000) $ 14,872,000
(1,066,000) 5,138,000
3,427,000
600,000
Licenses
1,000,000
309,000
Non-compete agreements 1,086,000
575,000
428,000
Patents
(7,138,000) 21,347,000
22,933,000
6,204,000
1,000,000
937,000
560,000
28,485,000
1,594,000
526,000
426,000
386,000
13,326,000
(1,833,000)
(474,000)
(660,000)
(189,000)
(9,607,000)
(400,000)
(628,000)
(132,000)
13,986,000
11,657,000
$ 34,590,000 $ (9,607,000) $ 24,983,000 $ 42,471,000 $ (7,138,000) $ 35,333,000
13,986,000 –
11,657,000
–
Non-Amortizing Assets:
Trade names
42 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The decrease in the gross carrying amount of identifiable intangible assets as of October 31, 2008 compared
to October 31, 2007 principally relates to the final purchase price adjustments to the preliminary fair values of
such intangible assets recognized in connection with certain prior year acquisitions, the effect of foreign currency
translation adjustments on the intangible assets recognized as part of the aforementioned foreign subsidiaries,
the write-off of fully amortized intangible assets and impairment losses of certain intangible assets, partially offset
by the intangible assets recognized in connection with the fiscal 2008 acquisitions (see Note 2, Acquisitions, and
Note 15, Supplemental Disclosures of Cash Flow Information, of the Notes to Consolidated Financial Statements).
During the fourth quarter of fiscal 2008, the Company recognized impairment losses of $1,313,000 and $522,000,
from the write-down of certain customer relationships and trade names, respectively, within the ETG to their esti-
mated fair values, due to reductions in future cash flows associated with such assets. The impairment losses were
recorded as a component of selling, general and administrative expenses in the Company’s Consolidated State-
ments of Operations.
The weighted average amortization period of the customer relationships and non-compete agreements
acquired during fiscal 2008 is approximately six and four years, respectively. The weighted average amortization
period of the customer relationships, intellectual property, and non-compete agreements acquired during fiscal
2007 is approximately seven, fourteen and two years, respectively, after accounting for the aforementioned final
purchase price adjustments. Amortization expense of other intangible assets was $5,156,000, $3,647,000 and
$3,057,000 for the fiscal years ended October 31, 2008, 2007 and 2006, respectively. Amortization expense for
each of the next five fiscal years is expected to be $3,649,000 in fiscal 2009, $2,930,000 in fiscal 2010, $2,229,000
in fiscal 2011, $1,625,000 in fiscal 2012 and $1,119,000 in fiscal 2013.
nOte 5 | ShOrt-term anD lOng-term DeBt
In September 2008, one of the Company’s subsidiaries extended a short-term line of credit with a bank in the
amount of $2.5 million, which now expires in June 2009. The line of credit may be used for inventory purchases
and other working capital needs and is secured by all the assets of the subsidiary. Advances under the line of
credit bear interest at the subsidiary’s choice of the “Prime Rate Advance” (a rate equal to the greater of 4% or
prime rate less .75%) or “LIBOR Advance” (LIBOR rate plus .75%). As of October 31, 2008 and 2007, no borrow-
ings were outstanding under the line of credit.
Long-term debt consists of:
as of October 31,
Borrowings under revolving credit facility
Industrial Development Revenue Refunding Bonds - Series 1988
Notes payable, capital leases and equipment loans
Less: Current maturities of long-term debt
2008
2007
$ 37,000,000
–
601,000
37,601,000
(220,000)
$ 37,381,000
$
$
53,000,000
1,980,000
972,000
55,952,000
(2,187,000)
53,765,000
The aggregate amount of long-term debt maturing in each of the next five fiscal years is $220,000 in fiscal
2009, $214,000 in fiscal 2010, $115,000 in fiscal 2011, $35,000 in fiscal 2012 and $37,017,000 in fiscal 2013.
H e i c o c o r p o r a t i o n / 43
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
revolving Credit Facility
In May 2008, the Company amended its revolving credit facility by entering into a $300 million Second Amended
and Restated Revolving Credit Agreement (“Credit Facility”) with a bank syndicate, which matures in May 2013.
Under certain circumstances, the maturity may be extended for two one-year periods. The Credit Facility also
includes a feature that will allow the Company to increase the Credit Facility, at its option, up to $500 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. 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 for LIBOR-based borrowings range from .625% to 2.25%. A fee is charged
on the amount of the unused commitment ranging from .125% to .35% (depending on the Company’s leverage
ratio). The Credit Facility also includes a $50 million sublimit for borrowings made in euros, a $30 million sublimit
for letters of credit and a $20 million swingline sublimit. The Credit Facility is unsecured and contains covenants
that require, among other things, the maintenance of the leverage ratio, a senior leverage ratio and a fixed charge
coverage ratio. In the event the Company’s leverage ratio exceeds a specified level, the Credit Facility would
become secured by the capital stock owned in substantially all of the Company’s subsidiaries.
As of October 31, 2008 and 2007, the Company had a total of $37 million and $53 million, respectively,
borrowed under its revolving credit facility at weighted average interest rates of 3.6% and 5.8%, respectively.
The amounts were primarily borrowed to fund acquisitions (see Note 2, Acquisitions, of the Notes to Consolidated
Financial Statements) as well as for working capital and general corporate needs. The revolving credit facility
contains both financial and non-financial covenants. As of October 31, 2008, the Company was in compliance
with all such covenants.
industrial Development revenue Bonds
In April 2008, the Company paid the matured Series 1988 industrial development revenue bonds aggregating
$1,980,000.
nOte 6 | inCOme taXeS
The provision for income taxes on income before income taxes and minority interests is as follows:
For the year ended October 31,
2008
2007
2006
Current:
Federal
State
Foreign
Deferred
Total income tax expense
$
$
27,118,000
4,225,000
490,000
31,833,000
3,617,000
35,450,000
$
$
20,688,000
3,746,000
277,000
24,711,000
2,819,000
27,530,000
$ 15,301,000
2,780,000
262,000
18,343,000
2,557,000
$ 20,900,000
The reconciliation of the federal statutory tax rate to the Company’s effective tax rate is as follows:
For the year ended October 31,
Federal statutory tax rate
State taxes, less applicable federal income tax reduction
Net tax benefit on minority interests’ share of income
Net tax benefit on qualified domestic production activities
Net tax benefit on qualified research and development activities
Net tax benefit on export sales
Other, net
Effective tax rate
2008
35.0%
2.9
(3.0)
(.7)
(.3)
–
0.6
34.5%
2007
2006
35.0%
3.3
(3.4)
(.4)
(1.8)
(.2)
0.7
33.2%
35.0%
3.5
(2.7)
(.5)
(2.4)
(1.3)
1.1
32.7%
44 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 de-
ferred 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
FIN 48 liability - related
Customer rebates accrual
Vacation accrual
Allowance for doubtful accounts receivable
Other
Total deferred tax assets
Deferred tax liabilities:
Intangible asset amortization
Accelerated depreciation
Software development costs
Other
Total deferred tax liabilities
Net deferred tax liability
2008
2007
$
7,483,000
4,240,000
2,684,000
1,097,000
884,000
821,000
3,320,000
20,529,000
$
6,791,000
4,603,000
–
875,000
786,000
526,000
2,668,000
16,249,000
40,695,000
3,778,000
1,019,000
272,000
45,764,000
(25,235,000)
$
37,252,000
3,194,000
836,000
128,000
41,410,000
(25,161,000)
$
The net deferred tax liability is classified in the accompanying Consolidated Balance Sheets as follows:
as of October 31,
Current asset
Long-term liability
Net deferred tax liability
2008
2007
$ 13,957,000
39,192,000
(25,235,000)
$
$
$
10,135,000
35,296,000
(25,161,000)
As discussed in Note 1, Summary of Significant Accounting Policies – Income Taxes, of the Notes to Con-
solidated Financial Statements, the Company adopted the provisions of FIN 48 effective November 1, 2007. As a
result, the Company increased its liabilities related to uncertain tax positions by $4,622,000 and accounted for this
change as a $3,889,000 increase to deferred tax assets, a $639,000 decrease to retained earnings (the cumulative
effect of adopting FIN 48), and a $94,000 decrease to deferred tax liabilities. Upon adoption, the Company also
reclassified $2,680,000 in unrecognized tax benefits and $2,621,000 of income tax refunds (related to research and
development activities as further described below) from income taxes payable to long-term income tax liabilities
and long-term income tax assets, respectively, since the Company does not anticipate payment or receipt of cash
within one year. Long-term income tax liabilities are classified within other non-current liabilities and long-term
income tax assets are classified within other assets in the Company’s Consolidated Balance Sheets.
As of November 1, 2007 and October 31, 2008, the Company’s liability for gross unrecognized tax benefits re-
lated to uncertain tax positions was $7,396,000 and $5,742,000, respectively, of which $2,948,000 and $3,438,000,
respectively, would decrease the Company’s income tax expense and effective income tax rate if the tax benefits
were recognized. The remaining liability was for tax positions for which the uncertainty was only related to the
timing of such tax benefits. A reconciliation of the activity related to the liability for gross unrecognized tax benefits
during fiscal 2008 follows:
Balance as of November 1, 2007
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Lapse of statutes of limitations
Balance as of October 31, 2008
$ 7,396,000
2,000
(4,380,000)
2,793,000
(69,000)
$ 5,742,000
H e i c o c o r p o r a t i o n / 45
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s liability for unrecognized tax benefits was $5,513,000 as of October 31, 2008, including
$232,000 of interest and $96,000 of penalties and net of $557,000 in related deferred tax assets. Effective with
the adoption of FIN 48, it is the Company’s policy to recognize interest and penalties related to income tax matters
as a component of income tax expense. Interest and penalties, which were not significant in fiscal 2007, were
previously recorded in interest expense and in selling, general and administrative expenses, respectively, in the
Company’s Consolidated Statements of Operations. During the fiscal year ended October 31, 2008, the Company
accrued penalties of $23,000 related to the unrecognized tax benefits noted above. The liability for interest
decreased by $252,000 during fiscal 2008 due to the lapse of statutes of limitations.
The Company files income tax returns in the United States (“U.S.”) federal jurisdiction and in multiple state
jurisdictions. The Company is also subject to income taxes in certain jurisdictions outside the U.S., none of which
are individually material to the accompanying consolidated financial statements. Generally, the Company is no
longer subject to U.S. federal or state examinations by tax authorities for fiscal years prior to 2001. The Company’s
U.S. federal filings and state of California filings for fiscal years 2001 through 2005 are currently under examination
by the Internal Revenue Service and California Franchise Tax Board, respectively, who are reviewing the income
tax credit claimed by the Company for qualified research and development activities incurred during those years.
The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities,
lapse of applicable statutes of limitations and the recognition and measurement criteria under FIN 48. The Company
is unable to estimate what this change could be within the next twelve months, but does not believe it would be
material to its consolidated financial statements.
In December 2006, Section 41 of the Internal Revenue Code, “Credit for Increasing Research Activities,” was
retroactively extended for two years to cover the period from January 1, 2006 to December 31, 2007. As a result, the
Company recognized an income tax credit for qualified research and development activities in fiscal 2007 for the full
fiscal 2006 year. The tax credit, net of expenses, increased fiscal 2007 net income by approximately $.5 million.
The Company claimed an income tax credit for qualified research and development activities in its income tax
return for fiscal 2005 and amended returns for previous tax years that were filed in the third and fourth quarters
of fiscal 2006 upon completion of a study conducted by outside tax consultants. The aggregate tax credit, net of
expenses, increased fiscal 2006 net income by approximately $1.0 million.
nOte 7 | SharehOlDerS’ equity
Preferred Stock Purchase rights Plan
The Company’s Board of Directors adopted, as of November 2, 2003, a Shareholder Rights Agreement (the
“2003 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 acquirer 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 en-
titled to a 1/10 vote per share. Holders of the Company’s Common Stock and Class A Common Stock are entitled
46 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
The Company did not repurchase any shares of its common stock in fiscal 2008, 2007 or 2006.
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 a former shareholder of an
acquired business pursuant to an employment agreement entered into in connection with the acquisition in fiscal
1999. A total of 3,287,306 shares of the Company’s stock are reserved for issuance to employees, directors,
officers and consultants as of October 31, 2008, including 1,623,742 shares currently under option and 1,663,564
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 immediately
exercisable. In March 2008, the Company’s shareholders approved two amendments to the 2002 Plan, which
principally increased the number of shares available for issuance under the plan and now requires options be
granted with an exercise price of no less than fair market value of the Company’s common stock as of the date of
the grant. The options granted pursuant to the 2002 Plan may be designated as 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 at its sole discretion. 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 stock
options granted to a former shareholder 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 no 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, 2005
Granted
Cancelled
Exercised
Outstanding as of October 31, 2006
Granted
Cancelled
Exercised
Outstanding as of October 31, 2007
Shares approved by the Shareholders
for the 2002 Stock Option Plan
Granted
Cancelled
Exercised
Outstanding as of October 31, 2008
Shares
Available
For Grant
156,303
–
6,380
–
162,683
–
221
–
162,904
1,500,000
–
660
–
1,663,564
Shares Under Option
Shares
3,588,680
–
(10,371)
(844,291)
2,734,018
–
(16,787)
(841,901)
1,875,330
–
–
(710)
(250,878)
1,623,742
Weighted Average
Exercise Price
9.50
$
–
$
8.96
$
$
7.34
$ 10.16
$
–
$ 13.11
$ 10.94
9.79
$
$
$
$
$
$
–
–
6.66
9.56
9.83
H e i c o c o r p o r a t i o n / 47
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning stock options outstanding and stock options exercisable by class of common stock as
of October 31, 2008 is as follows:
Common Stock
Range of
Exercise Prices
$ 1.16 - $ 2.90
$ 2.91 - $ 7.00
$ 7.01 - $ 12.00
$12.01 - $ 21.92
Range of
Exercise Prices
$ 1.16 - $ 2.90
$ 2.91 - $ 7.00
$ 7.01 - $ 12.00
$12.01 - $ 21.92
Class a Common Stock
Range of
Exercise Prices
$ 1.16 - $ 2.90
$ 2.91 - $ 7.00
$ 7.01 - $ 12.00
$ 12.01 - $ 21.92
Range of
Exercise Prices
$ 1.16 - $ 2.90
$ 2.91 - $ 7.00
$ 7.01 - $ 12.00
$ 12.01 - $ 21.92
Number
Outstanding
90,182
–
430,000
432,000
952,182
Number
Exercisable
90,182
–
430,000
432,000
952,182
Number
Outstanding
95,795
66,880
309,756
199,129
671,560
Number
Exercisable
95,795
66,880
309,756
196,729
669,160
Options Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
$ 2.00
$
–
$ 9.20
$ 13.81
$ 10.61
.9
–
4.1
2.4
3.0
Options Exercisable
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
$ 2.00
$
–
$ 9.20
$ 13.81
$ 10.61
.9
–
4.1
2.4
3.0
Options Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
$ 1.71
$ 5.54
$ 8.30
$ 13.83
$ 8.72
.9
4.4
3.6
2.2
2.9
Options Exercisable
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
$ 1.71
$ 5.54
$ 8.30
$ 13.83
$ 8.70
.9
4.4
3.6
2.2
2.9
Aggregate
Intrinsic
Value
$ 3,288,000
–
12,586,000
10,654,000
$ 26,528,000
Aggregate
Intrinsic
Value
$ 3,288,000
–
12,586,000
10,654,000
$ 26,528,000
Aggregate
Intrinsic
Value
$ 2,525,000
1,507,000
6,125,000
2,835,000
$ 12,992,000
Aggregate
Intrinsic
Value
$ 2,525,000
1,507,000
6,125,000
2,802,000
$ 12,959,000
The aggregate intrinsic values in the tables above are calculated based on the difference between the closing
price per share of the underlying common stock as reported on the New York Stock Exchange as of October 31,
2008 less the option exercise price (if a positive spread) multiplied by the number of stock options.
48 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning stock options exercised is as follows:
For the year ended October 31,
2008
2007
2006
Cash proceeds from stock option exercises
Tax benefit realized from stock option exercises
Intrinsic value of stock option exercises
$
2,398,000
6,248,000
7,854,000
$
6,875,000
6,873,000
20,900,000
$
5,071,000
1,385,000
16,105,000
The Company’s net income for the fiscal years ended October 31, 2008, 2007 and 2006 includes compensation
expense of $142,000, $658,000 and $1,373,000, respectively, and an income tax benefit related to the Company’s
stock options of $43,000, $165,000 and $391,000, respectively. Substantially all of the stock option compensation
expense was recorded as a component of selling, general and administrative expenses in the Company’s Consolidated
Statements of Operations. As of October 31, 2008, there was $14,000 of pre-tax unrecognized compensation
expense related to nonvested stock options, which is expected to be recognized over a weighted average period
of approximately 1.1 years.
For the fiscal years ended October 31, 2008, 2007 and 2006, the excess tax benefit resulting from tax
deductions in excess of the cumulative compensation cost recognized for stock options exercised was $4,324,000,
$5,262,000 and $1,550,000, respectively, and is presented as a financing activity in the Consolidated Statements
of Cash Flows.
The Company did not grant any stock options in fiscal 2008, 2007 or 2006. If there were a change in control of
the Company, none of the unvested options outstanding would become immediately exercisable.
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 up to the limitations
set forth in Section 402(g) of the Internal Revenue Code. 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 Employer Matching
Contribution may be contributed to the Plan in the form of the Company’s common stock or cash, as determined
by the Company. The Company’s match of a portion of a participant’s contribution is invested in Company common
stock and 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 to the Plan additional amounts in its common stock or cash at the discretion of the
Board of Directors. Employee contributions can not be invested in Company common stock.
Participants receive 100% vesting of employee contributions and cash dividends received on Company common
stock. 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 2008, 2007, and 2006 totaled $230,000, $164,000 and $170,000, respectively.
Company contributions are made with the use of forfeited shares within the Plan. As of October 31, 2008, the Plan
held approximately 117,000 forfeited shares of Common Stock and 139,000 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, 2008, 2007 and 2006 were not material to the financial position of the Company.
During fiscal 2008, 2007 and 2006, $23,000, $20,000 and $64,000, respectively, were expensed for this plan.
nOte 10 | reSearCh anD DevelOPment eXPenSeS
Cost of sales amounts in fiscal 2008, 2007 and 2006 include approximately $18.4 million, $16.5 million and
$15.3 million, respectively, of new product research and development expenses.
H e i c o c o r p o r a t i o n / 49
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nOte 11 | net inCOme Per Share
The computation of basic and diluted net income per share is as follows:
For the year ended October 31,
2008
2007
2006
Numerator:
Net income
Denominator:
Weighted average common
shares outstanding - basic
Effect of dilutive stock options
Weighted average common
shares outstanding - diluted
$
48,511,000
$
39,005,000
$ 31,888,000
26,309,139
934,217
25,715,899
1,215,149
25,084,532
1,513,071
27,243,356
26,931,048
26,597,603
Net income per share - basic
Net income per share - diluted
$
$
1.84
1.78
$
$
1.52
1.45
$
$
1.27
1.20
Anti-dilutive stock options excluded
–
–
12,540
nOte 12 | quarterly FinanCial inFOrmatiOn (unauDiteD)
Net sales:
2008
2007
Gross profit:
2008
2007
Net income:
2008
2007
Net income per share:
Basic:
2008
2007
Diluted:
2008
2007
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 134,287,000
113,684,000
$ 144,039,000
121,215,000
$ 147,305,000
133,155,000
$ 156,716,000
139,870,000
46,829,000
37,488,000
52,356,000
43,667,000
53,851,000
47,705,000
57,459,000
48,598,000
10,086,000
7,921,000
11,948,000
9,407,000
12,827,000
10,914,000
13,650,000
10,763,000
$
$
.39
.31
.37
.30
$
.45
.37
.44
.35
$
.49
.42
.47
.40
.52
.41
.50
.40
During the first and second quarters of fiscal 2007, the Company recorded the benefit of a tax credit (net of related
expenses) for qualified research and development activities recognized for fiscal 2006 pursuant to the retroactive
extension in December 2006 of Section 41, “Credit for Increasing Research Activities,” of the Internal Revenue
Code, which increased net income by $332,000 and $167,000, respectively, or $.01 each per diluted share.
During the fourth quarter of fiscal 2008, the Company recorded impairment losses related to the write-down
of certain intangible assets to their estimated fair values, which decreased net income by $1,140,000, or $.04 per
diluted share, in aggregate.
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.
50 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nOte 13 | 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.
The Flight Support Group designs, manufactures, repairs and distributes jet engine and aircraft component replacement
parts. The parts and services are approved by the FAA. The FSG also manufactures and sells specialty parts as a
subcontractor for aerospace and industrial original equipment manufacturers and the United States government.
The Electronic Technologies Group designs and manufactures electronic, microwave, and electro-optical equipment
and components, high-speed interface products, high voltage interconnection devices, and high voltage advanced
power electronics products primarily for the aviation, defense, space, homeland security, electronics and medical
industries.
The Company’s reportable operating segments offer distinctive products and services that are marketed through
different channels. They are managed separately because of their unique technology and service requirements.
Segment Profit or loss
The accounting policies 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.
Information on the Company’s two operating segments, the FSG and the ETG, for each of the fiscal years
ended October 31 is as follows:
For the year ended October 31, 2008:
FSG
ETG
Other,
Primarily
Corporate and
Intersegment
Consolidated
Totals
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
$ 436,810,000
9,339,000
81,184,000
10,735,000
418,079,000
$ 146,044,000
5,238,000
38,775,000
2,093,000
220,888,000
$
(507,000)
475,000
(14,171,000)
627,000
37,575,000
$ 582,347,000
15,052,000
105,788,000
13,455,000
676,542,000
For the year ended October 31, 2007:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
$ 383,911,000
8,047,000
67,408,000
10,146,000
379,433,000
$ 124,035,000
3,786,000
33,870,000
2,300,000
230,448,000
$
(22,000)
334,000
(15,264,000)
440,000
21,421,000
$ 507,924,000
12,167,000
86,014,000
12,886,000
631,302,000
For the year ended October 31, 2006:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
$ 277,255,000
6,822,000
46,840,000
8,189,000
337,020,000
$ 115,021,000
3,437,000
34,026,000
1,607,000
180,359,000
$
(86,000)
306,000
(13,999,000)
168,000
17,436,000
$ 392,190,000
10,565,000
66,867,000
9,964,000
534,815,000
H e i c o c o r p o r a t i o n / 51
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
major Customers and geographic information
No one customer accounted for 10% 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.
The Company markets its products and services in over 100 countries. Other than in the United States,
the Company does not conduct business in any other country in which its sales in that country exceed 10% of
consolidated sales. Sales are attributed to countries based on the location of customers. The composition of the
Company’s sales to customers between those in the United States and those in other locations for each of the
three fiscal years ended October 31 as follows:
For the year ended October 31,
2008
2007
2006
United States
Other
Total
$ 400,447,000
181,900,000
$ 582,347,000
$ 365,588,000
142,336,000
$ 507,924,000
$ 284,048,000
108,142,000
$ 392,190,000
nOte 14 | 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:
For the year ending October 31,
2009
2010
2011
2012
2013
Thereafter
Total minimum lease commitments
$ 5,749,000
5,487,000
4,592,000
4,040,000
3,260,000
9,065,000
$ 32,193,000
Total rent expense charged to operations for operating leases in fiscal 2008, 2007 and 2006 amounted to
$6,074,000, $4,221,000 and $3,409,000, respectively.
guarantees
The Company has arranged for standby letters of credit aggregating $1.4 million to meet the security requirement
of its insurance company for potential workers’ compensation claims, which are supported by the Company’s
revolving credit facility.
Product warranty
Changes in the Company’s product warranty liability for fiscal 2008 and 2007 are as follows:
$
Balance as of October 31, 2006
Acquired warranty liabilities
Accruals for warranties
Warranty claims settled
Balance as of October 31, 2007
Accruals for warranties
Warranty claims settled
Balance as of October 31, 2008
$
534,000
52,000
1,451,000
(856,000)
1,181,000
1,201,000
(1,711,000)
671,000
52 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquisitions
Put/Call Rights
Pursuant to the purchase agreement related to the acquisition of an 80% interest in a subsidiary by the FSG
in fiscal 2001, the Company acquired an additional 10% of the equity interests of the subsidiary in fiscal 2007.
The Company has provided notice to the minority interest holder that it will purchase the remaining 10% interest
effective October 31, 2008. Accordingly, the Company accrued $1.2 million as of October 31, 2008 related to the
purchase of this equity interest, which was paid in December 2008.
As part of the agreement to acquire an 80% interest in a subsidiary by the ETG in fiscal 2004, the Company
has the right to purchase the minority interests over a five-year period beginning at approximately the tenth an-
niversary of the acquisition, or sooner under certain conditions, and the minority interest holders have the right
to cause the Company to purchase their interests over a five-year period commencing on approximately the fifth
anniversary of the acquisition, or sooner under certain conditions.
Pursuant to the purchase agreement related to the acquisition of a 85% interest in a subsidiary by the ETG
in fiscal 2005, certain minority interest holders exercised their option during fiscal 2007 to cause the Company
to purchase their aggregate 3% interest over a four-year period ending in fiscal 2010. Accordingly, the Company
increased its ownership interest in the subsidiary by 1.5% (or one-fourth of such minority interest holders’ aggre-
gate interest in fiscal 2007 and 2008, respectively) to 86.5% effective April 2008. Further, the remaining minority
interest holders currently have the right to cause the Company to purchase their aggregate 12% interest over a
four-year period.
Pursuant to the purchase agreement related to the acquisition of a 51% interest in a subsidiary by the FSG
in fiscal 2006, the minority interest holders exercised their option during fiscal 2008 to cause the Company to
purchase an aggregate 28% interest over a four-year period ending in fiscal 2011. Accordingly, the Company
increased its ownership interest in the subsidiary by 7% (or one-fourth of such minority interest holders’ aggregate
interest) to 58% effective April 2008. In December 2008, the Company and the minority interest holders agreed to
accelerate the purchase of 14% of these equity interests (7% from April 2009 and 7% from April 2010) to December
2008. The estimated purchase price of this 14% interest is $9.3 million (see Note 16, Subsequent Event, of the
Notes to Consolidated Financial Statements). Further, the Company has the right to purchase the remaining 21%
of the equity interests of the subsidiary over a three-year period beginning approximately after the fourth anniversary
of the acquisition, or sooner under certain conditions, and the minority interest holders have the right to cause the
Company to purchase the same equity interest over the same period.
As part of the agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2006, the Company
has the right to purchase the minority interests over a four-year period beginning at approximately the eighth
anniversary of the acquisition, or sooner under certain conditions, and the minority interest holders have the right
to cause the Company to purchase the same equity interest over the same period.
As part of an agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2008, the Company has
the right to purchase the minority interests over a five-year period beginning at approximately the sixth anniversary
of the acquisition, or sooner under certain conditions, and the minority interest holders have the right to cause the
Company to purchase the same equity interest over the same period.
The above referenced rights of the minority interest holders (“Put Rights”) may be exercised on varying dates
causing the Company to purchase their equity interests beginning in fiscal 2009 through fiscal 2018. The Put
Rights, all of which relate either to common shares or membership interests in limited liability companies, provide
that the cash consideration to be paid for the minority interests (“Redemption Amount”) be at a formula that
management intended to reasonably approximate fair value, as defined in the applicable agreements based on a
multiple of future earnings over a measurement period. Assuming the subsidiaries perform over their respective
future measurement periods at the same earnings levels they performed in the comparable historical measurement
periods and assuming all Put Rights are exercised, the aggregate Redemption Amount that the Company would
be required to pay is approximately $49 million (which excludes the aforementioned $1.2 million accrued as of
October 31, 2008). The actual Redemption Amount will likely be different. Upon exercise of any Put Right, the
Company’s ownership interest in the subsidiary would increase and minority interest expense would decrease.
H e i c o c o r p o r a t i o n / 53
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Put Rights are embedded in the shares owned by the minority interest holders and are not freestanding.
Consistent with Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” minority interests
have been recorded on the Company’s consolidated balance sheets at historical cost plus an allocation of subsidiary
earnings based on ownership interests, less dividends paid to the minority interest holders. As described in Note
1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, the FASB
issued SFAS No. 160 in December 2007 that will change the current accounting and financial reporting for non-
controlling (minority) interests. SFAS No. 160 will be effective for fiscal years beginning after December 15, 2008.
The Company will adopt SFAS No. 160 on November 1, 2009. SFAS No. 160 will require that non-controlling (minority)
interests be reported in the consolidated balance sheet within equity. The Company is not yet in a position to
assess the full impact and related disclosure of adopting SFAS No. 160 on its minority interest liabilities and related
Put Rights.
Additional Contingent Purchase Consideration
As part of the agreement to purchase a subsidiary by the ETG in fiscal 2005, the Company may be obligated
to pay additional purchase consideration currently estimated to total up to $2.7 million should the subsidiary meet
certain product line-related earnings objectives during the fourth and fifth years following the acquisition.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2006, the Company may be obligated to pay
additional purchase consideration up to $19.2 million based on the subsidiary’s fiscal 2009 earnings relative to target.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2007, the Company may be obligated to
pay additional purchase consideration up to 73 million Canadian dollars in aggregate, which translates to $59.7
million U.S. dollars based on the October 31, 2008 exchange rate, should the subsidiary meet certain earnings
objectives during the first five years following the acquisition.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2008, the Company may be obligated
to pay additional consideration of up to approximately $.4 million in aggregate should the subsidiary meet certain
earnings objectives during the third, fourth and fifth years following the acquisition.
The above referenced additional contingent purchase consideration will be accrued when the earnings
objectives are met. Such additional contingent consideration is based on a multiple of earnings above a threshold
(subject to a cap in certain cases) and is not contingent upon the former shareholders of the acquired entities
remaining employed by the Company or providing future services to the Company. Accordingly, such consideration
will be recorded as an additional cost of the respective acquired entity when paid. The maximum amount of such
contingent consideration that the Company could be required to pay aggregates approximately $82 million payable
over the future periods beginning in fiscal 2010 through fiscal 2013. Assuming the subsidiaries perform over their
respective future measurement periods at the same earnings levels they performed in the comparable historical
measurement periods, the aggregate amount of such contingent consideration that the Company would be
required to pay is approximately $5 million. The actual contingent purchase consideration will likely be different.
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,
financial position or cash flows.
nOte 15 | SuPPlemental DiSClOSureS OF CaSh FlOw inFOrmatiOn
Cash paid for interest was $2,443,000, $3,287,000 and $3,459,000 in fiscal 2008, 2007 and 2006, respectively.
Cash paid for income taxes was $26,669,000, $16,572,000 and $15,823,000 in fiscal 2008, 2007 and 2006,
respectively. Cash received from income tax refunds in fiscal 2008, 2007 and 2006 was $29,000, $243,000 and
$51,000 respectively.
54 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash investing activities related to acquisitions, including contingent purchase price payments to previous
owners of acquired businesses, is as follows:
For the year ended October 31,
2008
2007
2006
Fair value of assets acquired:
Liabilities assumed
Minority interests in consolidated subsidiaries
Less:
$ 1,581,000
(412,000)
$ 7,460,000
(412,000)
$ 13,937,000
6,301,000
Goodwill
Identifiable intangible assets
Accrued additional purchase consideration
Inventories, net
Accounts receivable, net
Property, plant and equipment
Other assets
9,685,000
3,991,000
11,736,000
1,252,000
2,045,000
1,394,000
104,000
22,296,000
15,902,000
7,180,000
3,539,000
2,569,000
2,142,000
1,787,000
19,707,000
19,640,000
3,045,000
21,342,000
12,213,000
690,000
1,718,000
Acquisitions and related costs,
net of cash acquired
$ (29,038,000)
$ (48,367,000)
$ (58,117,000)
In connection with certain acquisitions, the Company accrued additional purchase consideration aggregating
$3.4 million, $11.7 million and $7.2 million in fiscal 2008, 2007 and 2006, respectively, which was allocated to
goodwill (see Note 2, Acquisitions, and Note 4, Goodwill and Other Intangible Assets, of the Notes to Consolidated
Financial Statements).
There were no significant capital lease and/or other equipment financing activities during fiscal 2008, 2007 or 2006.
nOte 16 | SuBSequent event
Pursuant to the agreement to acquire a 51% interest in a subsidiary by the Flight Support Group in fiscal 2006,
the minority interest holders exercised their option during fiscal 2008 to cause the Company to purchase their
aggregate 28% interest over a four-year period ending in fiscal 2011. In December 2008, the Company and the
minority interest holders agreed to accelerate the purchase of 14% of these equity interests (7% from April 2009
and 7% from April 2010) to December 2008. The estimated purchase price of this 14% interest is $9.3 million. The
remaining 7% interest is anticipated to be purchased in April 2011.
H e i c o c o r p o r a t i o n / 55
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
ManageMent’s RepoRt on InteRnal ContRol oveR FInanCIal RepoRtIng
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 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 (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) 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 (iii) 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, under the supervision of and with the participation of the Company’s Chief Executive Officer
and the Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting
based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Based on its assessment, management believes that the Company’s
internal control over financial reporting is effective as of October 31, 2008.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Company’s consolidated
financial statements and the effectiveness of internal controls over financial reporting as of October 31, 2008 as
stated in their report included on the following page.
ExEcutivE OfficEr cErtificatiOns
HEICO Corporation has filed with the U.S. Securities and Exchange Commission as exhibits 31.1 and 31.2 to its
Form 10-K for the year ended October 31, 2008, the required certifications of its Chief Executive Officer (CEO) and
Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act regarding the quality of its public disclosures.
HEICO Corporation’s CEO also has submitted to the New York Stock Exchange (NYSE) following the March 2008
annual meeting of shareholders, 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.
56 / H e i c o c o r p o r a t i o n
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
HEICO Corporation
Hollywood, Florida
We have audited the accompanying consolidated balance sheets of HEICO Corporation and subsidiaries (the
“Company”) as of October 31, 2008 and 2007, 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, 2008.
We have also audited the Company’s internal control over financial reporting as of October 31, 2008, 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 these financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal
control over financial reporting 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 and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effective-
ness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide 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 accordance 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, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of HEICO Corporation and subsidiaries as of October 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended October 31, 2008, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of October 31, 2008, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
December 24, 2008
H e i c o c o r p o r a t i o n / 57
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
MaRKet FoR CoMpanY’s CoMMon eQUItY anD RelateD stoCKHolDeR MatteRs
Market Information
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 set 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
Common Stock
High
Low
Cash Dividends
Per Share
High
Low
Cash Dividends
Per Share
Fiscal 2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 33.01 $ 28.72
29.10
30.65
32.65
34.29
37.58
44.36
$ 44.63 $ 32.05
32.80
24.87
19.82
42.24
41.68
36.19
$
$
.04
–
.04
–
.05
–
.05
–
Fiscal 2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 40.07 $ 34.01
33.76
35.81
39.51
40.35
44.43
54.52
$ 56.92 $ 42.00
41.80
30.16
26.49
52.78
54.35
48.27
$
$
.04
–
.04
–
.05
–
.05
–
As of December 19, 2008, there were 672 holders
As of December 19, 2008, there were 652 holders
of record of the Company’s Class A Common Stock.
of record of the Company’s Common Stock.
In addition, as of December 19, 2008, there were approximately 3,800 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 5,100 holders of both classes of
common stock.
In December 2008, the Board of Directors declared a regular semi-annual cash dividend of $.06 per share
payable in January 2009. The cash dividend represents a 20% increase over the prior per share amount of $.05.
Performance Graphs
The following graph and table compare the total return on $100 invested in HEICO Common Stock and HEICO
Class A Common Stock with the total return of $100 invested in the New York Stock Exchange (NYSE) Composite
Index and the Dow Jones U.S. Aerospace Index for the five-year period from October 31, 2003 through October
31, 2008. The NYSE Composite Index measures all common stock listed on the NYSE. The Dow Jones U.S.
Aerospace Index is comprised of large companies which make aircraft, major weapons, radar and other defense
equipment and systems as well as providers of satellites used for defense purposes. The total returns include the
reinvestment of cash dividends.
Comparison of Five -Year Cumulative Total Return
Heico common Stock
nYSe composite index
Heico class a
common Stock
Dow Jones
U.S. aerospace index
$500
$400
$300
$200
$100
$0
58 / H e i c o c o r p o r a t i o n
03
04
05
06
07
08
continues on next page
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
MaRKet FoR CoMpanY’s CoMMon eQUItY anD RelateD stoCKHolDeR MatteRs
Cumulative Total Return as of October 31,
2003
2004
2005
2006
2007
2008
HEICO Common Stock(1)
HEICO Class A Common Stock(1)
NYSE Composite Index
Dow Jones U.S. Aerospace Index
$ 100.00 $ 127.76 $ 156.79 $ 258.85 $ 388.10 $ 273.25
262.51
100.00
101.71
100.00
153.28
100.00
278.92
147.26
192.78
156.98
124.74
147.45
403.94
173.04
254.54
128.44
112.31
121.70
(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.
The following graph and table compare the total return on $100 invested in HEICO Common Stock since October
31, 1990 using the same indices shown on the five-year performance graph on the previous page. October 31, 1990
was the end of the first fiscal year following the date the current executive management team assumed leadership of
the Company. No Class A Common Stock was outstanding as of October 31, 1990. As with the five-year performance
graph, the total returns include the reinvestment of cash dividends.
Comparison of Eighteen-Year Cumulative Total Return
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Heico common Stock
nYSe composite index
Dow Jones U.S. aerospace index
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Cumulative Total Return as of October 31,
1990
1991
1992
1993
1994
1995
1996
HEICO Common Stock(1)
NYSE Composite Index
Dow Jones U.S.
Aerospace Index
HEICO Common Stock(1)
NYSE Composite Index
Dow Jones U.S.
Aerospace Index
HEICO Common Stock(1)
NYSE Composite Index
Dow Jones U.S.
Aerospace Index
$ 100.00 $ 141.49 $ 158.35 $ 173.88 $ 123.41 $ 263.25 $ 430.02
225.37
186.32
130.31
100.00
156.09
138.76
155.68
100.00
130.67
122.00
158.36
176.11
252.00
341.65
1997
1998
1999
2000
2001
2002
2003
$ 1,008.31 $ 1,448.99 $ 1,051.61 $ 809.50 $ 1,045.86 $ 670.39 $ 1,067.42
339.15
284.59
289.55
326.98
400.81
376.40
328.78
376.36
378.66
295.99
418.32
333.32
343.88
393.19
2004
2005
2006
2007
2008
$ 1,366.57 $ 1,674.40 $ 2,846.48 $ 4,208.54 $ 2,872.01
344.96
380.91 423.05
499.42
586.87
478.49
579.77
757.97
1,000.84
602.66
(1) information has been adjusted retroactively to give effect to all stock dividends paid during the eighteen-year period.
H e i c o c o r p o r a t i o n / 59
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 Technologies, Inc.
Vaughn barnes
President,
HEICO Specialty Products Group
and Thermal Structures, Inc.
Paul belisle
Vice President - Marketing,
HEICO Repair Group
Jeffrey s. biederwolf
Senior Vice President,
HEICO Component Repair Group - Miami
Vickie y. brint
Vice President -
Organizational Development,
HEICO Aerospace Holdings Corp.
russ carlson
Vice President - PMA Operations,
HEICO Parts Group
barry cohen
Chief Executive Officer and Founder,
Prime Air, LLC
ian D. crawford
President and Founder,
Analog Modules, Inc.
John Defries
President,
Essex X-Ray and Medical Equipment LTD
Vital Dumais
President and Co-Founder,
EMD Technologies Company
Philip famiglietti
Vice President and General Manager,
Turbine Kinetics, Inc.
mike Garcia
Vice President and
General Manager - Structures,
HEICO Component Repair Group - Miami
Jerry Goldlust
President and Founder,
HVT Group, Inc. and Dielectric Sciences, Inc.
rick Hamill
Vice President and General Manager,
DEC Technologies, Inc.
William s. Harlow
Vice President - Corporate Development,
HEICO Corporation
H e i c o c o r p o r a t i o n a n D S U B S i D i a r i e S
Walter Howard
Vice President and General Manager,
Aero Design, Inc.
Joseph W. Pallot
General Counsel,
HEICO Corporation
Jason Humphries
General Manager,
Aircraft Technology, Inc.
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
frank Kyler
Vice President - Human Resources,
HEICO Aerospace Holdings Corp.
elizabeth r. Letendre
Corporate Secretary,
HEICO Corporation
Jack Lewis
Vice President and General Manager,
Jet Avion Corporation
Omar Lloret
Vice President and
General Manager - Accessories,
HEICO Component Repair Group - Miami
David a. Lowry
President and Co-Founder,
Engineering Design Team, Inc.
Pat markham
Vice President - Technical Services,
HEICO Parts Group
steve mcHugh
Chief Operating Officer,
Electronic Technologies Group and
President and Co-Founder,
Santa Barbara Infrared, Inc.
eric a. mendelson
President, Flight Support Group
and Executive Vice President,
HEICO Corporation
Victor H. mendelson
President, Electronic Technologies
Group and Executive Vice President,
HEICO Corporation
Luis J. morell
President,
HEICO Repair Group
Dario Negrini
President,
Leader Tech, Inc.
carrie Novello
Vice President - Finance,
HEICO Parts Group
William O’brien
President and Co-Founder,
Lumina Power, Inc.
buddy Padilla
Vice President - Sales,
HEICO Repair Group
John Pollard
Vice President and General Manager,
McClain International, Inc.
James L. reum
Executive Vice President,
HEICO Aerospace Holdings Corp.
rex reum
Vice President and General Manager,
Jetseal, Inc.
Thomas L. ricketts
President and Co-Founder,
Connectronics Corp. and Wiremax
Troy J. rodriguez
President and Co-Founder,
Sierra Microwave Technology, LLC
James e. roubian
Senior Vice President - Manufacturing,
HEICO Parts Group and President,
LPI Corporation
Katherine schaefer
Senior Vice President - Sales and Marketing,
HEICO Parts Group
charles schofield
Senior Vice President and General Manager,
Radiant Power Corp.
Val shelley
Senior Vice President - Development,
HEICO Aerospace Holdings Corp.
michael W. siegel
Senior Vice President -
Finance and Administration,
HEICO Aerospace Holdings Corp.
rick stine
President,
HEICO Parts Group
David susser
President,
HEICO Distribution Group and
Seal Dynamics LLC
Karl Trowbridge
Managing Director and Founder,
Avisource, Ltd.
Gregg Tuttle
Vice President and General Manager,
Future Aviation, Inc.
steven Walker
Corporate Controller and
Assistant Treasurer,
HEICO Corporation
Jeff Williams
Vice President and General Manager,
Flight Specialties Components
Nicholas “Tony” Wright
Vice President and General Manager,
Inertial Airline Services, Inc.
60 / H e i c o c o r p o r a t i o n
!
F I n a n C I a l H I G H l I G H t S
for the year ended october 31,(1)
(In thousands, except per share data)
operating data:
Net sales
Operating income
Interest expense
Net income
Weighted average number of
common shares outstanding:
Basic
Diluted
per Share data:
Net income:
Basic
Diluted
Cash dividends
balance Sheet data (as of october 31):
Total assets
Total debt (including current portion)
Minority interests in consolidated
subsidiaries
Shareholders’ equity
2006
2007
2008
$ 392,190
66,867
3,523
31,888(2)
$ 507,924
86,014
3,293
39,005(3)
$ 582,347
105,788(4)
2,314
48,511(4)
25,085
26,598
25,716
26,931
26,309
27,243
$
1.27(2)
1.20(2)
.08
$
1.52(3)
1.45(3)
.08
$
1.84(4)
1.78(4)
.10
$ 534,815
55,061
$ 631,302
55,952
63,301
317,258
72,938
371,601
$ 676,542
37,601
83,978
417,760
A
E
R
A
E
U
L
G
(1) Results include the results of acquisitions from each respective effective date.
(2) Includes the benefit of a tax credit (net of related expenses) for qualified research and development activities claimed for certain prior years, which
increased net income by $1,002, or $.04 per basic and diluted share.
(3) Includes the benefit of a tax credit (net of related expenses) for qualified research and development activities recognized for the full fiscal 2006 year
pursuant to the retroactive extension in December 2006 of Section 41, “Credit for Increasing Research Activities,” of the Internal Revenue Code, which
increased net income by $535, or $.02 per basic and diluted share.
(4) Operating income was reduced by an aggregate of $1,835 in impairment losses related to the write-down of certain intangible assets within the Electronic
Technologies Group to their estimated fair values. The impairment losses were recorded as a component of selling, general and administrative expenses
and decreased net income by $1,140, or $.04 per basic and diluted share.
net SAleS
(in millions)
$582.3
opeRAting
income
(in millions)
$105.8
$507.9
$86.0
$392.2
$66.9
net income
(in millions)
$48.5
$39.0
$31.9
net income
peR ShARe
(diluted)
$1.78
$1.45
$1.20
06
07
08
06
07
08
06
07
08
06
07
08
boARd of diRectoRS
SAMuEL L. HIGGINBOTTOM
Former Chairman, President and
Chief Executive Officer,
Rolls-Royce, Inc.
MARK H. HILDEBRANDT
Partner,
Waldman, Feluren, Hildebrandt
& Trigoboff, P.A.
WOLFGANG MAYRHuBER
Chairman of the Executive Board
and Chief Executive Officer,
Deutsche Lufthansa AG
Samuel L. Higginbottom
Mark H. Hildebrandt
ERIC A. MENDELSON
Wolfgang Mayrhuber
Eric A. Mendelson
President, Flight Support Group,
and Executive Vice President,
HEICO Corporation
LAuRANS A. MENDELSON
Chairman, President and
Chief Executive Officer,
HEICO Corporation
VICTOR H. MENDELSON
President,
Electronic Technologies Group,
and Executive Vice President,
HEICO Corporation
ALBERT MORRISON, JR.
Chairman Emeritus,
Morrison, Brown, Argiz & Farra, LLP,
Certified Public Accountants
DR. ALAN SCHRIESHEIM
Retired Director,
Argonne National Laboratory
FRANK J. SCHWITTER
Retired Partner,
Arthur Andersen LLP
Laurans A. Mendelson
Victor H. Mendelson
Albert Morrison, Jr.
Dr. Alan Schriesheim
Frank J. Schwitter
H E I C O ® C O r p O r a t I O n
heico coRpoRAtion
Corporate Offices
3000 Taft Street
Hollywood, Florida 33021
Telephone 954 987 4000
Facsimile 954 987 8228
World Wide Web Site:
http://www.heico.com
SubSidiARieS
RegiStRAR & tRAnSfeR Agent
HEICO Aerospace Holdings Corp.
Hollywood, Florida
HEICO Parts Group
Aero Design, Inc.
Aircraft Technology, Inc.
DEC Technologies, 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.
HEICO Component Repair
Group - Miami
Inertial Airline Services, Inc.
Niacc-Avitech Technologies, Inc.
Prime Air, LLC
Avisource, Ltd.
Sunshine Avionics LLC
Mellon Investor Services
Atlanta, GA
New York Stock Exchange Symbols:
Class A Common Stock - “HEI.A”
Common Stock - “HEI”
foRm 10-K And boARd of
diRectoRS inquiRieS
The Company’s Annual Report on Form
10-K for 2008, as filed with the Securities
and Exchange Commission, is available
without charge upon written request to
the Corporate Secretary at the Company’s
headquarters. Any inquiry to any member of
the Company’s Board of Directors, including,
but not limited to “independent” Directors,
should be addressed to such Director(s) care
of the Company’s Headquarters and such
inquiries will be forwarded to the Director(s)
of whom the inquiry is being made.
HEICO Specialty Products Group
AnnuAl meeting
Jetseal, Inc.
Thermal Structures, Inc.
HEICO Distribution Group
Seal Dynamics LLC
HEICO Electronic Technologies Corp.
Miami, Florida
Analog Modules, Inc.
Connectronics Corp. and Wiremax
EMD Technologies Company
Engineering Design Team, Inc.
HVT Group, Inc.
Dielectric Sciences, Inc.
Essex X-Ray & Medical
Equipment LTD
Leader Tech, Inc.
Lumina Power, Inc.
Radiant Power Corp.
Santa Barbara Infrared, Inc.
Sierra Microwave Technology, LLC
The Annual Meeting of Shareholders
will be held on Friday,
March 27, 2009 at 10:00 a.m. at:
Conrad Miami Hotel
at Espirito Santo Plaza
1395 Brickell Avenue
Miami, Florida 33131
Telephone 305 503 6500
ShAReholdeR infoRmAtion
Elizabeth R. Letendre
Corporate Secretary
HEICO Corporation
3000 Taft Street
Hollywood, Florida 33021
Telephone 954 987 4000
Facsimile 954 987 8228
eletendre@heico.com
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StrOnG and
BuIlt
FOr GrOwtH
coRpoRAtion
08AnnuAl RepoRt