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.
Turbine Kinetics, Inc.
HEICO Aerospace Corporation
HEICO Repair Group
Aviation Engineered Services Corp.
Future Aviation, Inc.
HEICO Repair Group - Miami
Inertial Airline Services, Inc.
Niacc-Avitech Technologies, Inc.
Prime Air, LLC and Prime Air Europe
Sunshine Avionics LLC
HEICO Specialty Products Group
Jetseal, Inc.
Thermal Structures, Inc.
HEICO Distribution Group
Seal Dynamics LLC
HEICO Electronic Technologies Corp.
Miami, Florida
Analog Modules, Inc.
Connectronics Corp. and Wiremax
Dukane Seacom, Inc.
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
VPT, Inc.
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310-1900
Telephone 800 307 3056
http:// www.bnymellon.com/shareowner/isd
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 2009, 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.
annual meeting
The Annual Meeting of Shareholders
will be held at the
JW Marriott Hotel Miami
1109 Brickell Avenue
Miami, FL 33131
Telephone 305 329 3500 on Monday,
March 29, 2010 at 10:00 a.m.
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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CORPORATION
HEICO® Corporation
Moving ahead
20
09
Annual Report
financial highlightS
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
2007
2008
2009
$ 507,924
86,014
3,293
39,005(2)
$ 582,347
105,788(3)
2,314
48,511(3)
$ 538,296
88,255
615
44,626(4)
25,716
26,931
26,309
27,243
26,205
27,024
$
1.52(2)
1.45(2)
.08
$
1.84(3)
1.78(3)
.10
$
1.70(4)
1.65(4)
.12
$ 631,302
55,952
$ 676,542
37,601
$ 732,910
55,431
72,938
371,601
83,978
417,760
89,742
457,853
(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 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.
(3) 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.
(4) Includes a benefit related to a settlement with the Internal Revenue Service concerning the income tax credit claimed by the Company on its U.S. federal filings for
qualified research and development activities incurred during fiscal years 2002 through 2005 as well as an aggregate reduction to the related reserve for fiscal
years 2006 through 2008, which increased net income by $1,225, or $.05 per basic and diluted share.
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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 aviation, defense, space, medical, telecommunication and electronic 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.
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
Co-President,
HEICO Corporation
lAuRAnS A. mEndElSOn
Chairman and
Chief Executive Officer,
HEICO Corporation
VICtOR H. mEndElSOn
Co-President,
HEICO Corporation
mItCHEll I. QuAIn
Managing Director,
ACI Capital, LLC
dR. AlAn SCHRIESHEIm
Retired Director,
Argonne National Laboratory
fRAnk J. SCHWIttER
Retired Partner,
Arthur Andersen LLP
Samuel L. Higginbottom
Mark H. Hildebrandt
Wolfgang Mayrhuber
Eric A. Mendelson
Laurans A. Mendelson
Victor H. Mendelson
Mitchell I. Quain
Dr. Alan Schriesheim
Frank J. Schwitter
Net SaleS
(in millions)
$582.3
$538.3
$507.9
OperatiNg
iNcOme
(in millions)
$105.8
Net iNcOme
(in millions)
$48.5
$44.6
$86.0
$88.3
$39.0
Net iNcOme
per Share
(diluted)
$1.78
$1.65
$1.45
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
Corporate profile
Heico corporation has been associated with growth and innovation for more than 50 years as a
leading designer, manufacturer and provider of critical and high-reliability 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 producer of commercial, non-oeM,
Faa-approved aircraft replacement parts; a significant provider of aircraft accessories component repair
& overhaul services for hydraulic, pneumatic, electro-mechanical, avionic and flight surface applications;
a leader in niche aircraft parts distribution; 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 worldwide.
Heico’s customers include most of the world’s airlines, airmotives, numerous major prime defense
contractors, satellite manufacturers, medical equipment manufacturers and government agencies.
Hei co corporation >>
Chairman’s
message
Dear Fellow Heico Shareholder:
as we look forward into fiscal 2010, we are planning
challenging year we experienced in 2009. Although
for continued growth at HEICO, despite the
we fared better than many companies within and outside
of our industries, we were displeased with our results,
given that our sales and income rarely decline. Since 1990,
our company has grown, on a compound basis, its net
income by 18% per annum and its sales by 17% per
Eric Mendelson and
Victor Mendelson were
named Co-Presidents of
HEICO Corporation in order
to match their titles with the
roles in which they’ve been
acting for many years and
I remain Chairman & Chief
Executive Officer. Eric, Victor,
Tom Irwin (our Executive
annum, so it was very difficult for me and all of our Team
Vice President and Chief Financial Officer) and I have
Members to see our net income drop by 8% last year.
worked as a team since reconstituting our management
Fortunately, we believe HEICO will resume its growth in
and Board in 1990.
the new fiscal year.
Mitchell I. Quain, an experienced hand at finance
Our company typically maintains a conservative
and corporate governance, joined our Board of Directors
balance sheet with low debt levels and strong cash flow.
in December 2009, shortly before Board Member Albert
In 2009, this strategy allowed us to avoid the serious
Morrison, Jr., passed away. Al was a unique talent who
financial distress which destroyed or nearly destroyed
came to HEICO’s Board in 1989 and he chaired our
countless companies and we were able to continue to
Finance/Audit Committee for nearly all of his tenure;
invest as we believed appropriate. It also permitted us
Al will be sorely missed.
to raise our dividend by 20% in fiscal 2009 and to pay,
A “Question and Answer Interview” with senior
in January 2010, our 63rd consecutive semi-annual cash
management containing more details about fiscal 2009
dividend since 1979 at the same rate as we paid in the
and other matters follows this letter and I encourage you
prior year. Our shareholders, Team Members, customers
to read it. As always, I am indebted to the unparalleled
and suppliers could rely on our sterling balance sheet
efforts of our Team Members, the support of our share-
throughout the financial crisis.
holders, the guidance and confidence of our Board of
For the fiscal year ended October 31, 2009, net
Directors and the loyalty of our customers and vendors —
income was $44,626,000, or $1.65 per diluted share,
without which we would not succeed.
compared to the $48,511,000, or $1.78 per diluted share,
reported for the fiscal year ended October 31, 2008. Net
Sincerely,
sales totaled $538,296,000 compared to $582,347,000
for the fiscal year ended October 31, 2008.
Laurans a. Mendelson
Chairman and Chief Executive Officer
February 1, 2010
<< Hei co corporatio n
Questions / answers
in order to provide more insight into Heico, we include this Question and answer interview with our “office of the ceo,”
which consists of Laurans a. Mendelson, our chairman & chief executive officer, co-presidents eric a. Mendelson and
Victor H. Mendelson, and thomas S. irwin, our executive Vice president & chief Financial officer.
Q: how did the global recession impact heicO in fiscal 2009?
a: in the months immediately following the financial crisis, we didn’t see the heavy downturn of the broader economy, but
around February 009 order intake from customers in most of our markets started sliding downward and that appears to
have bottomed for us on a consolidated basis around the fall of 009. then, after several “flat” months, we started seeing
order level improvement in some of our markets.
Q: Did the company reduce its product development or sales & marketing activities during the recession?
a: Generally speaking, we decided that we should not curtail these activities, as that would sacrifice the core of our philosophies
that we need to constantly develop products that our customers need and that we need to remain “in front” of customers,
even when times are tough. However, our businesses looked more closely at their activities to evaluate whether all of the
activities were effective and that the resources devoted to those activities were appropriate for the market opportunities.
in cases where the resources needed to be redirected or eliminated, they were.
Q: Do you believe your commercial aviation activities can grow despite last year’s downturn in commercial air travel?
a: absolutely. in fact some of our commercial aviation-related business actually grew in 009 and our experience in prior
downturns taught us that we generally gain customers and market share as a result of the difficulties because aircraft
operators want to avail themselves of our cost-saving products and services in order to offset higher costs elsewhere in
their operations or lower revenue yield from their customers.
Q: tell us about the 2009 acquisitions.
a: We acquired two excellent businesses during the year. the first, Vpt, inc., is one of the world’s key designers and manu-
facturers of hybrid Dc-to-Dc power converters and similar electronic products used in aerospace, defense, satellite and
similar applications. Second, we acquired the world leader in aircraft and marine vessel Underwater Locator Beacon (“ULB”)
products, the Seacom product line of Dukane corp. ULBs, which are often referred to as “pingers” are the acoustic devices
affixed to aircraft cockpit voice and flight data recorders and marine vessel voyage recorders to allow the recorders to be
found in the event of certain accidents.
Q: Does heicO plan to continue making acquisitions and, if yes, what kinds of acquisitions are you looking for?
a: We will definitely continue to seek additional great businesses or product lines to acquire. We devote significant resources
to our constant effort to bring more companies into the Heico fold. We are very flexible as to the types of companies we
acquire, but at this point we feel strongly they should be in the aerospace, defense, space, electronics or medical indus-
tries, as we serve those markets now and are very comfortable with them.
Q: has heicO typically acquired very entrepreneurial businesses from their owner/managers or divisions of other companies?
a: We’ve done both very successfully. We understand that entrepreneurs have unique skills and that they focus on their
businesses in critical ways; we generally go to great lengths to avoid losing that. this entails greater autonomy for the
businesses than many large companies are willing to give and an aversion to consolidating acquired companies, but we
are committed to this model. at the same time, corporate divisions often offer strong strategic, oversight and planning
attributes which are excellent for Heico, so we like to have these “professional” managers bring their talents to us as well.
Q: What was the rationale behind naming eric mendelson and Victor mendelson as co-presidents?
a: For many years, they have functioned in those roles and we-- all four members of the office of the ceo—along with the
Board of Directors felt that their titles should reflect what they do. they were major forces behind Heico’s growth and
strategy for more than twenty years, since Victor Mendelson first suggested to Laurans Mendelson and eric Mendelson
that they acquire a significant stake in Heico and lead a reconstitution of the company’s management and Board structure.
eric Mendelson devised and has lead Heico’s commercial aviation strategy, including our well known Faa-approved
aircraft replacement parts business, while Victor Mendelson founded our electronic technologies Group and has lead that
while he also served as the company’s General counsel for almost 8 years until 008. Further, they have been intimately
involved with issues relating to our capital structure and investor base.
Hei co corporation >>
Top photo: HEICO’s Parts Group supplies important FAA-approved replacement parts for aircraft engines, interiors, airframes and other control and accessory parts on commercial
jetliners, such as the Lufthansa Airbus A-330 plane shown above. Bottom photo: A custom designed and built Transmissivity Test System shown above at the HEICO Repair
Group facility in Miami, Florida is used to test repairs on aircraft radomes. The HEICO Repair Group is a leading provider of aircraft component overhaul and repair services.
<< Hei co corporatio n
CommerCial
aviation
airlines and other aircraft operators need high quality,
government-approved alternatives to high cost replacement
parts and maintenance services.
With our substantial commitment to maintaining
along with specially trained production Team
comprehensive engineering departments,
Members and advanced equipment, HEICO’s Flight
As we’ve said many times, our goal is to provide what
our customers need and not just what we want them to
purchase. By doing this, we have become critical to many
airlines’ operational and cost containment strategies.
Support Group offers a remarkably deep array of choices
for the world’s airlines and others.
By listening closely to our customers’ and potential
customers’ unique needs and by developing proprietary
products and processes, we have enabled them to realize
enormous cost savings while ensuring the reliability and
quality which are critical to all airline operations.
Starting with a pioneering partnership and ownership
arrangement with Lufthansa Technik, the technical services
subsidiary of Lufthansa, we have partnering or similar
arrangements with American Airlines, British Airways,
Delta Air Lines, ExpressJet, Japan Airlines and United
Airlines. These arrangements allow HEICO unique insight
and technical cooperation with aircraft operators so that
HEICO operations in both the Electronic
we accelerate product development activities and provide
precisely what our customers need.
Through FAA-approved replacement parts design and/
or manufacturing operations at six locations and four FAA-
Technologies Group and the Flight Support
Group design, manufacture and repair
avionics and lighting components, such as
those used in aircraft cockpits. Inset, these
automated test systems are used to repair
complex aircraft navigation equipment at the
licensed repair station locations, we consistently strive for
Company’s Cleveland, Ohio facility.
innovative solutions to our customers’ problems.
moving ahead
Hei co corporation >> 5
HEICO’s Electronic Technologies Group
subsidiaries provide critical flight hardware
for numerous satellites, including the GPS-III
satellite shown here. Electronic Technologies
Group subsidiaries also supply various
electronic and electro-optical subcomponents
used in Unmanned Aerial Vehicles, such as
the Predator “drone” shown below.
defense, eleCtroniCs,
mediCal and spaCe
<< Hei co corporatio n
innovation. Quality. Dependability. those are three words
which are at the heart of everything Heico’s electronic
technologies Group does.
W e don’t want to be “all things to all people” by
Rather, our business is centered on providing
trying to supply low value-added integrations.
mission-critical and high reliability subcomponents which
are difficult for our customers to obtain reliably and cost-
effectively elsewhere.
We view our Electronic Technologies companies as
solution providers, not hardware providers. By taking this
view, we become seamless with our customers’ design
activities and we are partners in getting their programs
delivered on time, within cost estimates and functioning
perfectly like they intend. While our ultimate sale is typically
a piece of physical product that is then integrated into a
ElectroMagnetic and Radio Frequency Interference Shielding designed
and manufactured by an Electronic Technologies Group subsidiary in
Tampa, Florida is used in aerospace, computer, electronics, medical and
larger subsystem, we know that our unique and proprietary
telecommunication equipment.
know-how separates us from mere “commodity” suppliers.
Around half of our Electronic Technologies Group’s
sales come from defense or homeland security applications,
while the balance comes from general electronics, space
and medical markets. Often, our products are sold to
more than one end-market, so that our end-market
exposure is reasonably diversified to partially protect us
against the large swings often witnessed in individual
markets. This provides us with stability and exposure to
many different technologies.
Our products are found on aircraft, satellites, radar,
ships, unmanned aircraft, land vehicles, targeting systems,
Numerous Electronic Technologies Group subsidiaries supply critical
missiles, defense laboratories, laser surgery equipment,
components for medical equipment, such as power supplies and
medical x-ray systems, medical CT scanning systems,
baggage scanning systems, testing equipment, surveillance
systems, computers, network devices, telecom equipment
and many other electronic or electro-optical devices.
high-voltage cable assemblies that allow x-rays and CT scans, such
as the one shown above, to be taken.
moving ahead
Hei co corporation >>
Right photo: HEICO’s
outstanding manufacturing
capabilities allow us to
produce such exacting parts
as our jet engine compressor
blades shown here.
Bottom photo: A semi-robotic
coating system applies an
advanced protective coating
to a jet engine component.
8 << Hei co corporatio n
The Metrology
Laboratory of the
Parts Group in
Hollywood, Florida
employs advanced
measurement and
testing equipment
to ensure complete
accuracy.
produCt
development and
produCtion
the key to our growth strategy starts with our product
development and research activities. We believe that
businesses must always develop new products, services
and technologies to not only grow, but even to survive.
companies that rely on old product lines and
designs are eventually surpassed by the new and
nimble. That is why all HEICO product companies
and repair/overhaul operations are required to make significant
In both our product development and production
activities, we invest first in our most important assets —
our people. Team Member development, compensation
and benefits are commensurate with the importance
investment in research and development activities and
these unique people have to our business overall. Beyond
they report on their progress regularly to their customers,
that, we invest whatever we believe is needed in order
regulators and HEICO’s senior leadership.
to efficiently design, produce and test our products and
Efficient and reliable production is equally important
to us. HEICO operates more than 30 production locations
in the United States, the United Kingdom and Canada. At
services to the high reliability levels required in our “no
failure” industries. When the equipment is not commercially
available to us, we often design our own equipment to
each of these facilities, our production teams are committed
our specifications.
to a “get it right the first time” philosophy, while ensuring
efficiency that allows us to provide economical solutions
to our customers.
moving ahead
Hei co corporation >> 9
international
reaCh
Left photo: HEICO Team Members from around the globe collaborate to provide seamless service for our customers worldwide.
Right photo: HEICO sells its parts and services to all of the top twenty airlines in the world.
0 << Heico corporatio n
international
reaCh
recognizing the opportunities outside of the United States,
Heico has made a concerted and successful effort to
diversify its international activities.
in canada, india, the United Kingdom and Singapore to enable
in addition to our United States operations, we have facilities
us to be closer to our worldwide customers. We also maintain
sales and customer service staff in Germany, china and taiwan
so that we are a truly hour operation. today, roughly one-third
of our sales come from outside of the United States, with our
Flight Support Group generating significant revenues from non-
U.S. customers.
accordingly, our products and services are found throughout
the world — and even outside of this world in space!
moving ahead
Heico corporation >>
20
09
finanCial statements
and other information
s
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o
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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 equity and
related Stockholder Matters
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<< Heico corporatio 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)
2005
2006
2007
2008
2009
(in thousands, except per share data)
Operating Data:
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Other income (expense)
Net income
$ 269,647
100,996
56,347
44,649
1,136
528
22,812
$ 392,190
142,513
75,646
66,867
3,523
639
31,888(2)
$ 507,924
177,458
91,444
86,014
3,293
95
39,005(3)
$ 582,347
210,495
104,707
105,788(4)
2,314
(637)
48,511(4)
$ 538,296
181,011
92,756
88,255
615
205
44,626(5)
Weighted average number of common
shares outstanding:
Basic
Diluted
Per Share Data:
Net income:
Basic
Diluted
Cash dividends
24,460
26,323
25,085
26,598
25,716
26,931
26,309
27,243
26,205
27,024
$
$
.93
.87
.05
1.27(2) $
1.20(2)
.08
1.52(3) $
1.45(3)
.08
$
1.84(4)
1.78(4)
.10
1.70(5)
1.65(5)
.12
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
$
5,330
435,624
34,124
49,035
273,503
$
4,999
534,815
55,061
63,301
317,258
$
4,947
631,302
55,952
72,938
371,601
$
12,562
676,542
37,601
83,978
417,760
$
7,167
732,910
55,431
89,742
457,853
(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.
(5) Includes a benefit related to a settlement with the Internal Revenue Service concerning the income tax credit claimed by the Company on its U.S. federal filings for
qualified research and development activities incurred during fiscal years 2002 through 2005 as well as an aggregate reduction to the related reserve for fiscal years
2006 through 2008, which increased net income by $1,225, or $.05 per basic and diluted share.
Heico corporation >> 13
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
Overview
Our business is comprised of two operating segments, the Flight Support Group (“FSG”) and the Electronic
Technologies Group (“ETG”).
The Flight Support Group consists of HEICO Aerospace Holdings Corp. (“HEICO Aerospace”) and its subsidiaries,
which primarily:
• 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 replacement
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; power conversion products serving the high-reliability military, space and commercial
avionics end-markets; underwater locator beacons used to locate data and voice recorders utilized on aircraft and
marine vessels; 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, simulation 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.
Our results of operations during each of the past three fiscal years have been affected by a number of transactions.
This discussion of our financial condition and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included herein. For further information regarding the acquisitions 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 our results of operations from the effective dates of
acquisition.
In April and September 2007, we acquired, through HEICO Electronic, all of the stock of a U.S. company engaged in
the design and manufacture of Radio Frequency Interference and Electromagnetic Frequency Interference Suppressors for
a variety of markets and a Canadian company that 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, respectively. In August 2007, we acquired, through HEICO Aerospace, substantially all of the assets of a
U.S. company that designs and manufactures FAA-approved aircraft and engine parts.
In November 2007, we acquired, through an 80%-owned subsidiary of HEICO Aerospace, 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, we acquired, through HEICO Aerospace, 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. The remaining 20% of the
repair station’s equity interests are principally owned by certain members of the acquired company’s management.
In April 2008, we acquired, through HEICO Aerospace, an additional 7% equity interest in one of our subsidiaries,
which increased our ownership interest to 58%. In December 2008, we acquired, through HEICO Aerospace, and
additional 14% equity interest in the subsidiary, which increased our ownership interest to 72%.
In May 2009, we acquired, through HEICO Electronic, 82.5% of the stock of VPT, Inc. (“VPT”). VPT is a designer and
provider of power conversion products principally serving the defense, space and aviation industries. The remaining
17.5% continues to be owned by an existing VPT shareholder which is also a supplier to the acquired company.
14 << Heico corporatio n
In October 2009, we acquired, through HEICO Electronic, the business, assets and certain liabilities of the Seacom
division of privately-held Dukane Corp. and formed a new subsidiary, Dukane Seacom, Inc. (“Seacom”). Seacom is a
designer and manufacturer of underwater locator beacons used to locate aircraft cockpit voice recorders, flight data
recorders, marine ship voyage recorders and various other devices which have been submerged under water.
The purchase price of each of the above referenced acquisitions was paid in cash using proceeds from the Company’s
revolving credit facility and was not material or significant to our consolidated financial statements. The aggregate cost
of all of our acquisitions, including payments made in cash and contingent payments, was $71.1 million, $29.0 million and
$48.4 million in fiscal 2009, 2008 and 2007, respectively.
CritiCal aCCOunting POliCieS
We believe that the following are our 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 our net sales recognized under
the percentage-of-completion method was approximately 1%, 3% and 3% in fiscal 2009, 2008 and 2007, 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 2009, 2008 or 2007.
Valuation of accounts receivable
The valuation of accounts receivable requires that we set up an allowance for estimated uncollectible accounts and
record a corresponding charge to bad debt expense. We estimate uncollectible receivables based on such factors as our
prior experience, our appraisal of a customer’s ability to pay and economic conditions within and outside of the aviation,
defense, space, medical, telecommunication and electronic 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.
We periodically evaluate the carrying value of inventory, giving consideration to factors such as its physical condition,
sales patterns and expected future demand in order to estimate 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
We apply the purchase method of accounting to our 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. We determine the fair values of such assets, principally
intangible assets, generally in consultation with third-party valuation advisors.
Heico corporation >> 15
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
Valuation of Goodwill and other intangible assets
We test 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 us to compare the fair value
of each of our 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 us to make a number of estimates, assumptions and judgments of such factors
as earnings multiples, projected revenues and operating expenses and our weighted average cost of capital. If there is a
material change in such assumptions used by us in determining fair value or if there is a material change in the conditions or
circumstances influencing fair value, we could be required to recognize a material impairment charge. See Risk Factors,
for a list of factors of which any may cause our actual results to differ materially from anticipated results. Based on the
annual goodwill test for impairment as of October 31, 2009, 2008 and 2007, we determined there is no impairment of our
goodwill.
We test 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. We also test 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, we recognize an impairment loss
based on the excess of the carrying amount over the fair value of the assets. The determination of fair value requires us
to make a number of estimates, assumptions and judgments of such factors as projected revenues and earnings and
discount rates. Based on the impairment tests conducted during fiscal 2009 and 2008, we recognized pre-tax impairment
losses of $.2 million and $.1 million, respectively, and $1.3 million and $.5 million, respectively, 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. Based on the impairment tests conducted during fiscal 2007, we determined
there was no impairment of our intangible assets.
reSultS OF OPeratiOnS
The following table sets forth the results of our operations, net sales and operating income by segment and the
percentage of net sales represented by the respective items in our Consolidated Statements of Operations:
For the year ended October 31,
2009
2008
2007
Net sales
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Operating income
$ 538,296,000
357,285,000
92,756,000
450,041,000
88,255,000
$
$ 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
$
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 << Heico corporatio n
$ 395,423,000
143,372,000
(499,000)
$ 538,296,000
$ 436,810,000
146,044,000
(507,000)
$ 582,347,000
$ 383,911,000
124,035,000
(22,000)
$ 507,924,000
$
60,003,000
39,981,000
(11,729,000)
$
81,184,000
38,775,000
(14,171,000)
$
88,255,000
$ 105,788,000
$
$
67,408,000
33,870,000
(15,264,000)
86,014,000
table continues on next page
For the year ended October 31,
2009
2008
2007
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Other income (expense)
Income tax expense
Minority interests’ share of income
Net income
COmPariSOn OF FiSCal 2009 tO FiSCal 2008
net Sales
100.0%
33.6%
17.2%
16.4%
.1%
–
5.2%
2.8%
8.3%
100.0%
36.1%
18.0%
18.2%
.4%
(.1%)
6.1%
3.2%
8.3%
100.0%
34.9%
18.0%
16.9%
.6%
–
5.4%
3.2%
7.7%
Net sales in fiscal 2009 decreased by 7.6% to $538.3 million compared to net sales of $582.3 million in fiscal 2008.
The decrease in net sales reflects a decrease of $41.4 million (a 9.5% decrease) to $395.4 million in net sales within
the FSG and a decrease of $2.7 million (a 1.8% decrease) to $143.4 million in net sales within the ETG. The net sales
decline in both the FSG and the ETG reflects the impact of the continued global recession on our businesses, which
has resulted in a reduction in customer demand. The net sales decrease within the FSG reflects lower demand for our
aftermarket replacement parts and repair and overhaul services resulting from worldwide airline capacity cuts and efforts
to reduce spending and conserve cash by the airline industry. Within the ETG, we are generally seeing some strength in
our defense related businesses, including space and homeland security products, but continued weakness in customer
demand for certain of our medical, telecommunication and electronic products. The net sales decline in the ETG was
partially offset by the favorable impact on net sales from acquisitions of approximately $17 million.
Our net sales in fiscal 2009 and 2008 by market approximated 68% and 69%, respectively, from the commercial
aviation industry, 20% and 16%, respectively, from the defense and space industries, and 12% and 15%, respectively,
from other industrial markets including medical, electronics and telecommunications.
Gross profit and operating expenses
Our consolidated gross profit margin decreased to 33.6% in fiscal 2009 as compared to 36.1% in fiscal 2008, mainly
reflecting lower margins within the FSG due principally to a less favorable product mix as well as the impact of lower
sales volumes on fixed manufacturing costs and a higher investment by HEICO in the research and development of new
products and services. Consolidated cost of sales in fiscal 2009 and 2008 includes approximately $19.7 million and $18.4
million, respectively, of new product research and development expenses.
SG&A expenses were $92.8 million and $104.7 million in fiscal 2009 and 2008, respectively. The decrease in SG&A
expenses was mainly due to lower operating costs, principally personnel related, associated with cost reduction initiatives
and the decline in net sales discussed above, partially offset by the additional operating costs associated with the
acquired businesses. These cost reductions resulted in a decrease of SG&A expenses as a percentage of net sales from
18.0% in fiscal 2008 to 17.2% in fiscal 2009.
operating income
Operating income in fiscal 2009 decreased by 16.6% to $88.3 million, compared to operating income of $105.8
million in fiscal 2008. The decrease in operating income reflects a decrease of $21.2 million (a 26.1% decrease) to $60.0
million in operating income of the FSG in fiscal 2009, partially offset by an increase of $1.2 million (a 3.1% increase) to
$40.0 million in operating income of the ETG in fiscal 2009 and a $2.4 million decrease in corporate expenses.
As a percentage of net sales, operating income decreased to 16.4% in fiscal 2009 compared to 18.2% in fiscal 2008.
The decrease in operating income as a percentage of net sales reflects a decrease in the FSG’s operating income as a
percentage of net sales to 15.2% in fiscal 2009 compared to 18.6% in fiscal 2008, partially offset by an increase in the
ETG’s operating income as a percentage of net sales from 26.6% in fiscal 2008 to 27.9% in fiscal 2009. The decrease
in operating income as a percentage of net sales for the FSG principally reflects the aforementioned impact of the lower
sales volume and a less favorable product mix on gross profit and operating income margins. The increase in operating
income as a percentage of net sales for the ETG principally reflects a favorable product mix.
Heico corporation >> 17
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
interest expense
Interest expense decreased to $.6 million in fiscal 2009 from $2.3 million in fiscal 2008. The decrease was principally
due to lower variable interest rates under our revolving credit facility in 2009.
other income (expense)
Other income (expense) in fiscal 2009 and 2008 were not material.
income tax expense
Our effective tax rate for fiscal 2009 decreased to 31.9% from 34.5% in fiscal 2008. The decrease was principally
related to a settlement reached with the Internal Revenue Service (“IRS”) during fiscal 2009. The IRS settlement pertained
to the income tax credits claimed on HEICO’s U.S. federal filings for qualified research and development activities incurred
for fiscal years 2002 through 2005 and a resulting reduction to the related reserve for fiscal years 2002 through 2008
based on new information obtained during the examination, which increased net income by approximately $1,225,000, or
$.05 per diluted share, for fiscal 2009.
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 interest held in the
FSG and the minority interests held in certain subsidiaries of the FSG and the ETG. Minority interests’ share of income
decreased to $15.2 million in fiscal 2009 from $18.9 million in fiscal 2008. The decrease in the minority interests’ share
of income for fiscal 2009 compared to fiscal 2008 is principally attributable to the acquired additional equity interests of
certain FSG subsidiaries in which minority interests exist as well as the lower earnings of the FSG, partially offset by the
higher earnings of certain ETG subsidiaries in which minority interests exist and the mid-year acquisition of an 82.5%
interest in VPT.
net income
Our net income was $44.6 million, or $1.65 per diluted share, in fiscal 2009 compared to $48.5 million, or $1.78 per
diluted share, in fiscal 2008 reflecting the decreased operating income referenced above, partially offset by the aforementioned
favorable IRS settlement, the decreased minority interests’ share of income of certain consolidated subsidiaries and lower
interest expense.
outlook
As we look forward to fiscal 2010, HEICO will continue its focus on developing new products and services, further
market penetration, additional acquisition opportunities and maintaining its financial strength. We are targeting growth
in net sales, earnings and net cash provided by operating activities in fiscal 2010 over fiscal 2009 results despite the
uncertainty as to the duration of the global economic recession.
COmPariSOn OF FiSCal 2008 tO FiSCal 2007
net Sales
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.
Our 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.
18 << Heico corporatio n
Gross profit and operating expenses
Our 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.
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.
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.
other income (expense)
Other income (expense) in fiscal 2008 and 2007 were not material.
income tax expense
Our 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, we 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 the
FSG and the minority interests held in certain subsidiaries of the FSG and the ETG. Minority interests’ share of income
increased to $18.9 million in fiscal 2008 from $16.3 million in fiscal 2007. 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
Our 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.
Heico corporation >> 19
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
inFlatiOn
We have generally experienced increases in our costs of labor, materials and services consistent with overall rates of
inflation. The impact of such increases on our net income has been generally minimized by efforts to lower costs through
manufacturing efficiencies and cost reductions.
liquiDity anD CaPital reSOurCeS
Our 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
$
2009
7,167,000
55,431,000
457,853,000
513,284,000
11%
2008
$
12,562,000
37,601,000
417,760,000
455,361,000
8%
In addition to cash and cash equivalents of $7.2 million, we had approximately $243 million of unused availability
under the terms of our revolving credit facility as of October 31, 2009. Our principal uses of cash include acquisitions,
payments of principal and interest on debt, capital expenditures, cash dividends and increases in working capital. We
finance our activities primarily from our operating activities and financing activities, including borrowings under short-term
and long-term credit agreements.
Based on our current outlook, we believe that our net cash provided by operating activities and available borrowings
under our revolving credit facility will be sufficient to fund cash requirements for the foreseeable future.
operating activities
Net cash provided by operating activities was $75.8 million for fiscal 2009, principally reflecting net income of $44.6
million, minority interests’ share of income of $15.2 million, depreciation and amortization of $15.0 million, a tax benefit
related to stock option exercises of $1.9 million, and a decrease in net operating assets of $2.5 million, partially offset by
the presentation of $1.6 million of excess tax benefit from stock option exercises as a financing activity and a deferred
income tax benefit of $2.7 million. The decrease in net operating assets (current assets used in operating activities net
of current liabilities) primarily reflects a decrease in accounts receivable due to the timing of cash collections and lower
net sales, partially offset by a decrease in accrued expenses, including employee compensation, customer rebates and
credits and additional accrued purchase consideration since October 31, 2008.
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 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.
20 << Heico corporatio n
investing activities
Net cash used in investing activities during the three-year fiscal period ended October 31, 2009 primarily relates to
several acquisitions, including payments of additional contingent purchase consideration and the acquisitions of certain
minority interests, totaling $148.5 million, including $71.1 million in fiscal 2009, $29.0 million in fiscal 2008 and $48.4
million in fiscal 2007. Further details on acquisitions may be found at the beginning of this Item 7 under the caption
“Overview” and Note 2, Acquisitions, of the Notes to Consolidated Financial Statements. Capital expenditures aggregated
$36.6 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-year fiscal period ended October 31, 2009, the Company borrowed an aggregate $187.0 million
under its revolving credit facility principally to fund acquisitions and for working capital needs, including $91.0 million in
fiscal 2009, $50.0 million in fiscal 2008 and $46.0 million in fiscal 2007. 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 $185.0 million over the last three fiscal years, including $73.0 million in fiscal 2009,
$66.0 million in fiscal 2008 and $46.0 million in fiscal 2007. For the three-year fiscal period ended October 31, 2009, we
made distributions to minority interest owners aggregating $23.5 million, made repurchases of our common stock aggregating
$8.1 million, paid cash dividends aggregating $7.8 million, and paid the matured industrial development revenue bonds
aggregating $2.0 million. For the three-year fiscal period ended October 31, 2009, we received proceeds from stock
option exercises aggregating $10.5 million. Net cash provided by financing activities also includes the presentation of
$1.6 million, $4.3 million and $5.3 million of excess tax benefit from stock option exercises in fiscal 2009, 2008 and 2007,
respectively.
In May 2008, we amended our 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 circum-
stances, the maturity may be extended for two one-year periods. The Credit Facility also includes a feature that will allow
us 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 our choice of the “Base Rate” or the London Interbank Offered Rate (“LIBOR”) plus applicable margins
(based on our 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 our 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 our leverage
ratio exceeds a specified level, the Credit Facility would become secured by the capital stock owned in substantially all
of our subsidiaries. As of October 31, 2009, our 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.
Heico corporation >> 21
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
COntraCtual OBligatiOnS
The following table summarizes our contractual obligations as of October 31, 2009:
Payments due by fiscal period
total
2010
2011 - 2012
2013 - 2014
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)
$ 55,374,000
$
193,000
$
161,000
$ 55,020,000
$
–
57,000
28,188,000
8,746,000
203,000
44,000
6,012,000
2,775,000
56,000
13,000
9,604,000
5,971,000
80,000
–
5,487,000
–
67,000
–
7,085,000
–
–
Total contractual obligations
$ 92,568,000
$ 9,080,000
$ 15,829,000
$ 60,574,000
$ 7,085,000
(1) Excludes interest charges on borrowings and the fee on the amount of any unused commitment that we may be obligated to pay under our 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 our long-term debt
and capital lease obligations and equipment loans.
(2) See Note 15, Commitments and Contingencies – Lease Commitments, of the Notes to Consolidated Financial Statements for additional information regarding our operating
lease obligations.
(3) Includes an aggregate of $273,000 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 $1,775,000 payable in fiscal 2010 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 we may have to pay based on
future earnings of certain acquired businesses, which is further discussed in “Off-Balance Sheet Arrangements – Acquisitions – Additional Contingent Purchase Consideration”
below. The aggregate maximum amount of such contingent purchase consideration that we could be required to pay is approximately $94 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 purchase consideration that we would be required to pay is approximately
$12 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 us to purchase their equity interests beginning in fiscal 2010 through fiscal 2018. The Put Rights provide that cash
consideration be paid for minority interests (“Redemption Amount”). The amounts in the table include $6,698,000 as management’s estimate of the aggregate Redemption
Amount payable in fiscal years 2010 through 2012 pursuant to past exercises of such Put Rights by the minority interest holders of certain of our subsidiaries. As the actual
Redemption Amount payable in fiscal 2011 and 2012 are based on a multiple of future earnings, such amounts will likely be different. Management’s estimate of the aggre-
gate Redemption Amount related to all other Put Rights of approximately $50 million has been excluded from the table as the timing of such payments is contingent upon the
exercise of the Put Rights.
(6) Represents projected payments aggregating $203,000 under our Directors Retirement Plan, which is explained further in Note 10, Retirement Plans, of the Notes to Consolidated
Financial Statements (the plan is unfunded and we pay benefits directly). The amounts in the table do not include amounts related to the Leadership Compensation Plan
or our other deferred compensation arrangement as there is a related asset or an offsetting asset, respectively, included in our Consolidated Balance Sheets. See Note 3,
Selected Financial Statement Information – Other Long-Term 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 $3,121,000 of our liability for unrecognized tax benefits due to the uncertainty with respect to the timing of future cash
flows associated with these unrecognized tax benefits as we are unable to make reasonably reliable estimates of the timing of any cash settlements. See Note 6, Income
Taxes, of the Notes to Consolidated Financial Statements for further information about our liability for unrecognized tax benefits.
22 << Heico corporatio n
OFF-BalanCe Sheet arrangementS
Guarantees
We have arranged for a standby letter of credit for $1.5 million, which is supported by our revolving credit facility, to
meet the security requirement of our insurance company for potential workers’ compensation claims. As of October 31,
2009, one of our subsidiaries has guaranteed its performance related to a customer contract through a letter of credit for
$.4 million, expiring May 2010, which is supported by our revolving credit facility. The subsidiary is also a beneficiary of a
letter of credit related to the same contract.
acquisitions – put/call rights
As part of the agreement to acquire an 80% interest in a subsidiary by the ETG in fiscal 2004, the minority interest
holders currently have the right to cause us to purchase their interests over a five-year period and we have the right to
purchase the minority interests over a five-year period beginning in fiscal 2015, or sooner under certain conditions.
Pursuant to the purchase agreement related to the acquisition of an 85% interest in a subsidiary by the ETG in fiscal
2005, certain minority interest holders exercised their option during fiscal 2007 to cause us to purchase their aggregate
3% interest over a four-year period ending in fiscal 2010. Pursuant to this same purchase agreement, certain other
minority interest holders exercised their option during fiscal 2009 to cause us to purchase their aggregate 10.5% interest
over a four-year period ending in fiscal 2012. Accordingly, we increased our ownership interest in the subsidiary by an
aggregate 4.9% (or one-fourth of such applicable minority interest holders’ aggregate interest in fiscal years 2007 through
2009) to 89.9% effective April 2009. Further, the remaining minority interest holders currently have the right to cause us
to purchase their aggregate 1.5% 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 us to purchase an aggregate 28%
interest over a four-year period ending in fiscal 2011. Accordingly, we increased our ownership interest in the subsidiary
by 7% (or one-fourth of such minority interest holders’ aggregate interest) to 58% effective April 2008. We 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), which increased our ownership interest to 72% effective December 2008. The remaining 7% interest is
scheduled to be purchased in April 2011. Further, we have the right to purchase the remaining 21% of the equity interests
of the subsidiary over a three-year period beginning in fiscal 2012, or sooner under certain conditions, and the minority
interest holders have the right to cause us to purchase the same equity interests over the same period.
As part of the agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2006, we have the right to
purchase the minority interests over a four-year period beginning in fiscal 2014, or sooner under certain conditions, and
the minority interest holders have the right to cause us 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, we have the right to
purchase the minority interests over a five-year period beginning in fiscal 2014, or sooner under certain conditions, and
the minority interest holders have the right to cause us to purchase the same equity interest over the same period.
As part of an agreement to acquire an 82.5% interest in a subsidiary by the ETG in fiscal 2009, we have the right to
purchase the minority interests beginning in fiscal 2014, or sooner under certain conditions, and the minority interest
holder has the right to cause us to purchase the same equity interests over the same period.
Heico corporation >> 23
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
The above referenced rights of the minority interest holders (“Put Rights”) may be exercised on varying dates causing
us to purchase their equity interests beginning in fiscal 2010 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. As described in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial
Statements, we are required to adopt new guidance regarding the accounting for our Put Rights (known as “redeemable
noncontrolling interests”) effective as of the beginning of fiscal 2010. Effective November 1, 2009, we will adjust our
redeemable noncontrolling interests to the higher of their carrying cost or management’s estimate of the Redemption
Amount with a corresponding charge to retained earnings and classify such interests outside of permanent equity in
our Consolidated Balance Sheets. Under this guidance, subsequent adjustments to the carrying amount of redeemable
noncontrolling interests (the Redemption Amount) based on fair value will be recorded to retained earnings and have no
effect on net income per diluted share. Subsequent adjustments to the carrying amount of redeemable noncontrolling
interests based solely on a multiple of future earnings that reflect a redemption in excess of fair value will be recorded to
retained earnings and will be reflected in net income per diluted share under the two-class method. As of October 31,
2009, management’s estimate of the aggregate Redemption Amount of all Put Rights that we would be required to pay is
approximately $57 million. The actual Redemption Amount will likely be different. The portion of the estimated Redemption
Amount as of October 31, 2009 redeemable at fair value is $25 million and the portion redeemable based solely on a
multiple of future earnings is $32 million.
acquisitions – additional contingent purchase consideration
As part of the agreement to purchase a subsidiary by the ETG in fiscal 2005, we may be obligated to pay additional
purchase consideration currently estimated to be $.9 million should the subsidiary meet certain product line-related
earnings objectives during calendar year 2009.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2007, we may be obligated to pay additional
purchase consideration up to 73 million Canadian dollars in aggregate, which translates to approximately $68 million U.S.
dollars based on the October 31, 2009 exchange rate, should the subsidiary meet certain earnings objectives through
fiscal 2012.
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2008, we may be obligated to pay additional
purchase consideration of up to approximately $.4 million should the subsidiary meet certain earnings objectives during
fiscal 2010, 2011 and 2012.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2009, we may be obligated to pay additional
purchase consideration of up to approximately $1.3 million in fiscal 2010, $1.3 million in fiscal 2011 and $10.1 million
in fiscal 2012 should the subsidiary meet certain earnings objectives during each of the first three years following the
acquisition.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2009, we may be obligated to pay additional
purchase consideration of up to approximately $11.7 million should the subsidiary meet certain earnings objectives during
the first two 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 us or
providing future services to us. 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 << Heico corporatio n
new aCCOunting PrOnOunCementS
In September 2006, the Financial Accounting Standards Board (“FASB”) issued new guidance which defines fair value,
establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. In
February 2008, the FASB issued additional guidance which delays the effective date by one year for nonfinancial assets
and liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis. We
adopted all required portions of the new guidance effective November 1, 2008. The adoption did not have a material
effect on our results of operations, financial position or cash flows. See Note 7, Fair Value Measurements, of the Notes
to Consolidated Financial Statements, which provides information about the extent to which fair value is used to measure
assets and liabilities and the methods and assumptions used to measure fair value. We will adopt the portions of the new
guidance that were delayed at the beginning of fiscal 2010, and we are currently in the process of evaluating the effect
such adoption will have on our results of operations, financial position and cash flows.
In February 2007, the FASB issued new guidance that permits entities to choose to measure certain financial assets and
liabilities at fair value that are not currently required to be measured at fair value, and report unrealized gains and losses
on items for which the fair value option has been elected in earnings. We adopted this guidance effective November 1,
2008 and have not elected to measure any financial assets and financial liabilities at fair value that were not previously
required to be measured at fair value. Accordingly, the adoption of the new guidance did not impact our results of
operations, financial position or cash flows.
In December 2007, the FASB issued new guidance on business combinations that retains the fundamental requirements
of previous guidance 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, the new guidance
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 acquisi-
tion date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. The new guidance 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 beginning on or after December 15,
2008, or in fiscal 2010 for us. We will apply this new guidance for all business combinations consummated on or after
November 1, 2009.
In December 2007, the FASB issued new guidance that requires the recognition of certain noncontrolling interests
(previously referred to as minority interests) 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. The new guidance is effective for fiscal years
beginning on or after December 15, 2008, or in fiscal 2010 for us. The adoption of this new guidance will affect the
presentation of noncontrolling interests in our results of operations, financial position and cash flows.
Heico corporation >> 25
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 diScUSSiOn and analYSiS
OF Financial cOnditiOn and ReSUltS OF OPeRatiOnS
In March 2008, the FASB Emerging Issues Task Force (“EITF”) made certain revisions to the guidance on the financial
statement classification and measurement of redeemable noncontrolling interests which are required to be applied no
later than the effective date of the above referenced guidance for noncontrolling interests, or in fiscal 2010 for us. As
further detailed in Note 15, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, the
holders of interests in certain of our subsidiaries have rights (“Put Rights”) that require us to provide cash consideration
for their equity interests (the “Redemption Amount”) at fair value or at a formula that management intended to reasonably
approximate fair value, as defined in the applicable agreements based solely on a multiple of future earnings over a
measurement period. The Put Rights are embedded in the shares owned by the noncontrolling interest holders and
are not freestanding. Historically, we have recorded such redeemable noncontrolling interests at historical cost plus an
allocation of subsidiary earnings based on ownership interests, less dividends paid to the noncontrolling interest holders.
Effective November 1, 2009, we will adjust our redeemable noncontrolling interests to the higher of their carrying cost or
management’s estimate of the Redemption Amount with a corresponding charge to retained earnings and classify such
interests outside of permanent equity. Under this guidance, subsequent adjustments to the carrying amount of redeemable
noncontrolling interests (the Redemption Amount) based on fair value will be recorded to retained earnings and have no
effect on net income per diluted share. Subsequent adjustments to the carrying amount of redeemable noncontrolling
interests based solely on a multiple of future earnings that reflect a redemption in excess of fair value will be recorded to
retained earnings and will be reflected in net income per diluted share under the two-class method. If both the guidance
on noncontrolling interests and redeemable noncontrolling interests was effective as of October 31, 2009, we would
have reclassified approximately $78 million from minority interests in consolidated subsidiaries to permanent equity for
non-redeemable noncontrolling interests and recorded an approximately $45 million increase to minority interests in
consolidated subsidiaries (to be renamed as “redeemable noncontrolling interests”) with a corresponding decrease to
retained earnings in our Consolidated Balance Sheets. The resulting $57 million of redeemable noncontrolling interests
represents management’s estimate of the aggregate Redemption Amount of all Put Rights that the Company would be
required to pay of which approximately $25 million is redeemable at fair value and approximately $32 million is redeemable
based solely on a multiple of future earnings. The actual Redemption Amount will likely be different.
In March 2008, the FASB issued new guidance that expands the disclosure requirements 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; and (iii) how derivative instruments
and related hedged items affect an entity’s financial position, financial performance and cash flows. We adopted the new
guidance effective February 1, 2009. The new guidance affects financial statement disclosures only, and we will make the
required additional disclosures in reporting periods for which we use derivative instruments.
In May 2008, the FASB issued new guidance that 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. The new guidance became effective November 15, 2008. The adoption of the new
guidance did not have a material effect on our results of operations, financial position or cash flows.
In May 2009, the FASB issued new guidance on subsequent events that establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The new
guidance requires the disclosure of the date through which an entity has evaluated subsequent events, which is through
the date the financial statements are issued for a public entity such as ours. We adopted the new guidance in the third
quarter of fiscal 2009. The adoption of the new guidance did not impact our results of operations, financial position or
cash flows.
In June 2009, the FASB issued new guidance that establishes the FASB Accounting Standards CodificationTM as the
source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”). We adopted
the new guidance in the fourth quarter of fiscal 2009. The new guidance is not intended to change GAAP, therefore the
adoption of the new guidance did not impact our results of operations, financial position or cash flows.
26 << Heico corporatio n
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 “anticipate,” “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;
• Our ability to introduce new products and product pricing levels, which could reduce our sales or sales growth; and
• Our 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, medical, telecommunication
and electronic industries, which could negatively impact our costs and revenues.
For further information on these and other factors that potentially could materially affect our financial results, see Risk
Factors. 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 we have exposure is interest rate risk, mainly related to our revolving credit facility,
which has variable interest rates. Interest rate risk associated with our variable rate debt is the potential increase in
interest expense from an increase in interest rates. Periodically, we enter into interest rate swap agreements to manage
our interest expense. We did not have any interest rate swap agreements in effect as of October 31, 2009. Based on our
aggregate outstanding variable rate debt balance of $55 million as of October 31, 2009, a hypothetical 10% increase in
interest rates would not have a material effect on our results of operations, financial position or cash flows.
We maintain a portion of our 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, 2009 would not have a material effect on our results of operations, financial position or cash flows.
We are also exposed to foreign currency exchange rate fluctuations on the United States dollar value of our foreign
currency denominated transactions, which are principally in Canadian dollar and British pound sterling. During fiscal 2008,
we entered into a one year foreign currency forward contract to mitigate a portion of foreign exchange risk at one of our
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 our 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, 2009 would not have a material effect on our results of operations, financial position or cash flows.
Heico corporation >> 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 15)
Commitments and contingencies (Notes 2 and 15)
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
2009
2008
$
7,167,000
77,864,000
137,585,000
4,290,000
16,671,000
243,577,000
$
12,562,000
88,403,000
132,910,000
3,678,000
13,957,000
251,510,000
60,528,000
365,243,000
41,588,000
21,974,000
$ 732,910,000
59,966,000
323,393,000
24,983,000
16,690,000
$ 676,542,000
$
237,000
26,978,000
36,978,000
1,320,000
65,513,000
$
220,000
29,657,000
49,586,000
1,765,000
81,228,000
55,194,000
41,340,000
23,268,000
185,315,000
89,742,000
37,381,000
39,192,000
17,003,000
174,804,000
83,978,000
–
–
Common Stock, $.01 par value per share; 30,000,000 shares authorized;
10,409,141 and 10,572,641 shares issued and outstanding, respectively
104,000
106,000
Class A Common Stock, $.01 par value per share; 30,000,000 shares
authorized; 15,713,234 and 15,829,790 shares issued and
outstanding, respectively
Capital in excess of par value
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
157,000
224,625,000
(1,381,000)
234,348,000
457,853,000
$ 732,910,000
158,000
229,443,000
(4,819,000)
192,872,000
417,760,000
$ 676,542,000
28 << Heico corporatio 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,
2009
2008
2007
Net sales
$ 538,296,000
$ 582,347,000
$ 507,924,000
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
357,285,000
92,756,000
371,852,000
104,707,000
330,466,000
91,444,000
Total operating costs and expenses
450,041,000
476,559,000
421,910,000
Operating income
88,255,000
105,788,000
86,014,000
Interest expense
Other income (expense)
(615,000)
205,000
(2,314,000)
(637,000)
(3,293,000)
95,000
Income before income taxes and minority interests
87,845,000
102,837,000
82,816,000
Income tax expense
28,000,000
35,450,000
27,530,000
Income before minority interests
59,845,000
67,387,000
55,286,000
Minority interests’ share of income
15,219,000
18,876,000
16,281,000
Net income
$
44,626,000
$
48,511,000
$
39,005,000
Net income per share:
Basic
Diluted
$
$
1.70
1.65
$
$
1.84
1.78
$
$
1.52
1.45
Weighted average number of common shares outstanding:
Basic
Diluted
26,204,799
27,024,031
26,309,139
27,243,356
25,715,899
26,931,048
The accompanying notes are an integral part of these consolidated financial statements.
Heico corporation >> 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
Income (Loss)
Retained
Earnings
Comprehensive
Income
Balances as of October 31, 2006 $ 103,000 $ 151,000 $ 206,260,000 $
Net income
Foreign currency translation
adjustments
Comprehensive income
–
–
–
–
–
–
–
–
–
62,000 $ 110,682,000
–
39,005,000 $ 39,005,000
2,966,000
–
–
2,966,000
– $ 41,971,000
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
Net income
Foreign currency translation
adjustments
Comprehensive income
–
–
–
–
(2,056,000)
–
–
6,873,000
–
–
2,000
5,000
6,868,000
–
–
–
–
105,000
–
–
–
156,000
–
658,000
(1,000)
220,658,000
–
–
22,000
3,050,000
–
–
1,000
147,632,000
48,511,000 $ 48,511,000
–
–
–
–
–
–
–
(7,706,000)
–
–
(7,706,000)
– $ 40,805,000
–
–
–
(2,631,000)
–
–
–
–
(639,000)
–
–
6,248,000
–
–
1,000
2,000
2,395,000
–
–
–
–
106,000
–
–
–
158,000
–
142,000
–
229,443,000
–
–
(163,000)
(4,819,000)
–
–
(1,000)
192,872,000
44,626,000 $ 44,626,000
–
–
–
–
–
–
3,276,000
–
–
3,276,000
– $ 47,902,000
(2,000)
–
(2,000)
–
(8,094,000)
–
Repurchases of common stock
Cash dividends ($.12 per share)
Tax benefit from stock option
exercises
Proceeds from stock option
exercises
Stock option compensation
–
expense
Other
–
Balances as of October 31, 2009 $ 104,000 $ 157,000 $ 224,625,000 $ (1,381,000) $ 234,348,000
–
(3,150,000)
–
–
–
–
–
162,000
181,000
(1,000)
1,206,000
1,890,000
–
–
–
–
–
1,000
–
–
–
–
The accompanying notes are an integral part of these consolidated financial statements.
30 << Heico corporatio 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,
2009
2008
2007
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 (benefit) 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 operating assets and liabilities,
net of acquisitions:
Decrease (increase) in accounts receivable
Increase in inventories
Decrease (increase) in prepaid expenses and
other current assets
(Decrease) increase in trade accounts payable
(Decrease) 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:
Borrowings on revolving credit facility
Payments on revolving credit facility
Borrowings on short-term line of credit
Payments on short-term line of credit
Payment of industrial development revenue bonds
Distributions to minority interest owners
Repurchases of common stock
Cash dividends paid
Excess tax benefit from stock option exercises
Proceeds from stock option exercises
Other
Net cash (used in) provided by financing activities
$
44,626,000
$
48,511,000
$ 39,005,000
14,967,000
300,000
(2,651,000)
15,219,000
1,890,000
(1,573,000)
181,000
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
15,214,000
(87,000)
(4,749,000)
(16,597,000)
(13,790,000)
(14,701,000)
5,216,000
(5,619,000)
(11,296,000)
(936,000)
366,000
75,817,000
(71,066,000)
(10,253,000)
20,000
(81,299,000)
91,000,000
(73,000,000)
–
–
–
(9,591,000)
(8,098,000)
(3,150,000)
1,573,000
1,207,000
(219,000)
(278,000)
650,000
808,000
(266,000)
4,265,000
3,803,000
(1,040,000)
330,000
73,162,000
7,013,000
1,523,000
865,000
57,450,000
(29,038,000)
(13,455,000)
166,000
(42,327,000)
(48,367,000)
(12,886,000)
59,000
(61,194,000)
50,000,000
(66,000,000)
500,000
(500,000)
(1,980,000)
(7,456,000)
–
(2,631,000)
4,324,000
2,398,000
(1,158,000)
(22,503,000)
46,000,000
(46,000,000)
1,000,000
(1,000,000)
–
(6,448,000)
–
(2,056,000)
5,262,000
6,875,000
(57,000)
3,576,000
Effect of exchange rate changes on cash
365,000
(717,000)
116,000
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(5,395,000)
12,562,000
7,167,000
$
7,615,000
4,947,000
12,562,000
(52,000)
4,999,000
4,947,000
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Heico corporation >> 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 princi-
pally 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, medical, telecommunication and electronic 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 72%-owned subsidiary, two
80%-owned subsidiaries, and a joint venture formed in March 2001, which is 16%-owned by American Airlines’ parent
company, AMR Corporation. Also, HEICO Electronic consolidates three subsidiaries, which are 80%, 89.9% and 82.5%
owned, respectively. (See Note 2, Acquisitions.) All significant intercompany balances and transactions are eliminated.
The consolidated financial statements reflect management’s evaluation of subsequent events through December 23,
2009, the date of issuance of this Annual Report on Form 10-K.
Use of estimates and assumptions
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 revenue 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 revenue 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, age of receivables outstanding 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 physi-
cal condition, sales patterns and expected future demand in order to estimate 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 << Heico corporatio n
property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation and amortization is generally provided 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
2
3
2
to 40 years
to 20 years
to 10 years
5 years
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 expensed as incurred.
Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in earnings.
Business combinations
The Company applies the purchase method of accounting to its acquisitions. Under this method, acquired busi-
nesses are included in the consolidated financial statements from the date of acquisition. The purchase price, including
any capitalized acquisition costs, is allocated to the underlying tangible and identifiable intangible assets and liabilities
acquired 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 carry-
ing 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 most of its 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
Trade names
3
4
12
2
5
5
to
8 years
to 15 years
to 17 years
to
7 years
to 20 years
to 10 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 instru-
ments. The carrying value of long-term debt approximates fair market value due to its variable interest rates.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
temporary cash investments and trade accounts receivable. 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. Concen-
trations 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. The Company performs
ongoing credit evaluations of its customers, but does not generally require collateral to support customer receivables.
Heico corporation >> 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 Consolidated
Balance Sheets, while those intended to be held for longer than one year are classified 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
From time to time, 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 revolv-
ing 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 2009, 2008 or 2007.
During fiscal 2008, the Company entered into a one year 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 cur-
rency. The impact of this forward contract did not have a material effect on the Company’s results of operations, financial
position or cash flows in fiscal 2009 or 2008. The Company did not enter into any foreign currency forward contracts in
fiscal 2009 or 2007.
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.
Revenue 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
1%, 3%, and 3% in fiscal 2009, 2008 and 2007, 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 << Heico corporatio n
The asset, “costs and estimated earnings in excess of billings” on uncompleted percentage-of-completion contracts,
included in accounts receivable, represents revenue 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 revenue 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 2009, 2008 or 2007.
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 fair value of each stock option on the date of grant is
estimated using the Black-Scholes pricing model based on certain valuation assumptions. Expected volatilities are based
on the Company’s historical stock prices over the contractual terms of the options and other factors. The risk-free interest
rates used are based on the published U.S. Treasury yield curve in effect at the time of the grant for instruments with a
similar life. The dividend yield reflects the Company’s dividend yield at the date of grant. The expected life represents the
period that the stock options are expected to be outstanding, taking into consideration the contractual terms of the op-
tions and employee historical exercise behavior. 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. The
excess tax benefit resulting from tax deductions in excess of the cumulative compensation expense recognized for stock
options exercised is presented as a financing activity in the Company’s Consolidated Statements of Cash Flows. All other
tax benefits related to stock options have been presented as a component of operating activities.
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 new guidance related to accounting for uncertainty in income
taxes 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
the new guidance, 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 the new guidance, 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 administrative expenses, respectively, in the Company’s Consolidated Statements of Operations. Further information
regarding income taxes can be found in Note 6, Income Taxes.
Heico corporation >> 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
net income per Share
Basic net income per share is computed by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period plus potentially dilutive common shares arising from the
assumed exercise of stock options, if dilutive. The dilutive impact of potentially dilutive common shares is determined by
applying the treasury stock method.
Foreign currency translation
All assets and liabilities of foreign subsidiaries that do not utilize the United States dollar as its functional currency
are translated at period-end exchange rates, while revenue 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 Financial Accounting Standards Board (“FASB”) issued new guidance which defines fair value,
establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. In
February 2008, the FASB issued additional guidance which delays the effective date by one year for nonfinancial assets
and liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis. The
Company adopted all required portions of the new guidance effective November 1, 2008. The adoption did not have a
material effect on the Company’s results of operations, financial position or cash flows. See Note 7, Fair Value Measure-
ments, which provides information about the extent to which fair value is used to measure assets and liabilities and
the methods and assumptions used to measure fair value. The portions of the new guidance that were delayed will be
adopted by the Company at the beginning of fiscal 2010, and the Company is currently in the process of evaluating the
effect such adoption will have on its results of operations, financial position and cash flows.
In February 2007, the FASB issued new guidance that permits entities to choose to measure certain financial assets
and liabilities at fair value that are not currently required to be measured at fair value, and report unrealized gains and
losses on items for which the fair value option has been elected in earnings. The Company adopted this guidance
effective November 1, 2008 and has not elected to measure any financial assets and financial liabilities at fair value that
were not previously required to be measured at fair value. Accordingly, the adoption of the new guidance did not impact
the Company’s results of operations, financial position or cash flows.
In December 2007, the FASB issued new guidance for business combinations that retains the fundamental require-
ments of previous guidance 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, the new
guidance changes the approach of applying the acquisition method in a number of significant areas, including that acquisi-
tion 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. The new guidance 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 beginning on or
after December 15, 2008, or in fiscal 2010 for HEICO. The Company will apply this new guidance in the accounting for all
business combinations consummated on or after November 1, 2009.
36 << Heico corporatio n
In December 2007, the FASB issued new guidance that requires the recognition of certain noncontrolling interests
(previously referred to as minority interests) 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. The new guidance is effective for fiscal years
beginning on or after December 15, 2008, or in fiscal 2010 for HEICO. The adoption of this new guidance will affect the
presentation of noncontrolling interests in the Company’s results of operations, financial position and cash flows.
In March 2008, the FASB Emerging Issues Task Force (“EITF”) made certain revisions to the guidance on the financial
statement classification and measurement of redeemable noncontrolling interests which are required to be applied no
later than the effective date of the above referenced guidance for noncontrolling interests, or in fiscal 2010 for HEICO.
As further detailed in Note 15, Commitments and Contingencies, the holders of interests in certain of the Company’s
subsidiaries have rights (“Put Rights”) that require the Company to provide cash consideration for their equity interests
(the “Redemption Amount”) at fair value or at a formula that management intended to reasonably approximate fair
value, as defined in the applicable agreements based solely on a multiple of future earnings over a measurement period.
The Put Rights are embedded in the shares owned by the noncontrolling interest holders and are not freestanding.
Historically, the Company has recorded such redeemable noncontrolling interests at historical cost plus an allocation of
subsidiary earnings based on ownership interests, less dividends paid to the noncontrolling interest holders. Effective
November 1, 2009, the Company will adjust its redeemable noncontrolling interests to the higher of their carrying cost or
management’s estimate of the Redemption Amount with a corresponding charge to retained earnings and classify such
interests outside of permanent equity. Under this guidance, subsequent adjustments to the carrying amount of redeem-
able noncontrolling interests (the Redemption Amount) based on fair value will be recorded to retained earnings and have
no effect on net income per diluted share. Subsequent adjustments to the carrying amount of redeemable noncontrolling
interests based solely on a multiple of future earnings that reflect a redemption in excess of fair value will be recorded to
retained earnings and will be reflected in net income per diluted share under the two-class method. If both the guidance
on noncontrolling interests and redeemable noncontrolling interests was effective as of October 31, 2009, the Company
would have reclassified approximately $78 million from minority interests in consolidated subsidiaries to permanent equity
for non-redeemable noncontrolling interests and recorded an approximately $45 million increase to minority interests in
consolidated subsidiaries (to be renamed as “redeemable noncontrolling interests”) with a corresponding decrease to
retained earnings in the Company’s Consolidated Balance Sheets. The resulting $57 million of redeemable noncontrolling
interests represents management’s estimate of the aggregate Redemption Amount of all Put Rights that the Company
would be required to pay of which approximately $25 million is redeemable at fair value and approximately $32 million is
redeemable based solely on a multiple of future earnings. The actual Redemption Amount will likely be different.
In March 2008, the FASB issued new guidance that expands the disclosure requirements 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; and (iii) how derivative instru-
ments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Company
adopted the new guidance effective February 1, 2009. The new guidance affects financial statement disclosures only, and
the Company will make the required additional disclosures in reporting periods for which it uses derivative instruments.
In May 2008, the FASB issued new guidance that 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. The new guidance became effective November 15, 2008. The adoption of the new
guidance did not have a material effect on the Company’s results of operations, financial position or cash flows.
In May 2009, the FASB issued new guidance on subsequent events that establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The new
guidance requires the disclosure of the date through which an entity has evaluated subsequent events, which is through
the date the financial statements are issued for a public entity such as HEICO. The Company adopted the new guidance
in the third quarter of fiscal 2009. The adoption of the new guidance did not have a material effect on the Company’s
results of operations, financial position or cash flows.
In June 2009, the FASB issued new guidance that establishes the FASB Accounting Standards CodificationTM as the
source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”). The Company
adopted the new guidance in the fourth quarter of fiscal 2009. The new guidance is not intended to change GAAP, therefore
the adoption of the new guidance did not impact the Company’s results of operations, financial position or cash flows.
Heico corporation >> 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
nOte 2 aCquiSitiOnS
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 the first
quarter of fiscal 2009, the Company, through HEICO Aerospace, acquired the remaining 10% equity interest, which
increased the Company’s ownership interest to 100% effective October 31, 2008. The purchase price of both acquired
equity interests was paid using cash provided by operating activities.
In April 2007, the Company, through HEICO Electronic, acquired all the stock of a U.S. company 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 the acquired entity into the operations of one of
its existing subsidiaries.
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%. In April 2009,
the Company, through HEICO Electronic, acquired an additional 3.4% equity interest, which increased the Company’s
ownership interest to 89.9%. The purchase prices of the acquired equity interests were paid using cash provided by
operating activities.
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 a Canadian company
that 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. 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 approximately $68 million
U.S. dollars based on the October 31, 2009 exchange rate.
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 purchase 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 li-
abilities 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.
In April 2008, the Company, through HEICO Aerospace, acquired an additional 7% equity interest in one of its
subsidiaries, which increased the Company’s ownership interest to 58%. In December 2008, the Company, through
HEICO Aerospace, acquired an additional 14% equity interest in the subsidiary, which increased the Company’s owner-
ship interest to 72%.
In May 2009, the Company, through HEICO Electronic, acquired 82.5% of the stock of VPT, Inc., a U.S. company that
designs and provides power conversion products principally serving the defense, space and aviation industries. The
remaining 17.5% continues to be owned by an existing VPT shareholder which is also a supplier to the acquired company.
The Company has the right to purchase the minority interests beginning at the fifth anniversary of the acquisition, or
sooner under certain conditions, and the minority interest holder has the right to cause the Company to purchase the
38 << Heico corporatio n
same equity interests over the same period. In addition, subject to meeting certain earnings objectives during each of the
first three years following the acquisition, the Company may be obligated to pay additional purchase consideration of up
to approximately $1.3 million in fiscal 2010, $1.3 million in fiscal 2011 and $10.1 million in fiscal 2012.
In October 2009, the Company, through HEICO Electronic, acquired the business, assets and certain liabilities of the
Seacom division of privately-held Dukane Corp. and formed a new subsidiary, Dukane Seacom, Inc. (“Seacom”). Seacom
is a designer and manufacturer of underwater locator beacons used to locate aircraft cockpit voice recorders, flight data
recorders, marine ship voyage recorders and various other devices which have been submerged under water. Subject to
meeting certain earnings objectives during the first two years following the acquisition, the Company may be obligated to
pay additional purchase consideration of up to approximately $11.7 million.
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 objectives are
met. During fiscal 2009, the Company, through HEICO Electronic, paid $2.2 million of such additional purchase consid-
eration related to an acquisition made previously, which was accrued as of October 31, 2008. In addition, the Company,
through HEICO Electronic, paid $1.6 million of additional purchase consideration in the fourth quarter of fiscal 2009 related
to a previous acquisition for which the earnings objective was met during fiscal 2009. 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, the Company, through HEICO Electronic, paid $7.3 million of such additional purchase consideration
related to acquisitons made in previous years, of which $7.2 million was accrued as of October 31, 2006. As of October
31, 2009, the Company, through HEICO Electronic, accrued $1.8 million of additional purchase consideration related to a
prior year acquisition, which it expects to pay in fiscal 2010. The amounts paid in fiscal 2009, 2008 and 2007 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 15, Commitments and Contingencies.
All of the acquisitions described above were accounted for using the purchase method of accounting. The purchase
price of each acquisition was paid in cash using proceeds from the Company’s revolving credit facility unless otherwise
noted and was not material or significant to the Company’s consolidated financial statements. The operating results 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 2009
and 2008 acquisitions had been consummated as of the beginning of fiscal 2008. 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 beginning fiscal 2008. 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 applicable
adjustments to minority interest in net income as well as the exclusion of any acquisition-related expenses.
For the year ended October 31,
2009
2008
Net sales
Net income
Net income per share:
Basic
Diluted
$ 559,923
$ 47,220
$ 619,665
$ 51,975
$
$
1.80
1.75
$
$
1.98
1.91
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 2009 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 16, Supplemental Disclosures of Cash Flow Information). The ag-
gregate cost of acquisitions, including payments made in cash and contingent payments, was $71.1 million, $29.0 million
and $48.4 million in fiscal 2009, 2008 and 2007, respectively.
Heico corporation >> 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
costs and estimated earnings on Uncompleted percentage-of-completion contracts
nOte 3 SeleCteD FinanCial Statement inFOrmatiOn
accounts receivable
as of October 31,
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
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)
2009
2008
$
$
80,399,000
(2,535,000)
77,864,000
2009
$
$
10,280,000
8,070,000
18,350,000
(12,543,000)
5,807,000
$
$
$
$
90,990,000
(2,587,000)
88,403,000
2008
21,505,000
12,545,000
34,050,000
(28,337,000)
5,713,000
$
5,832,000
$
6,115,000
(25,000)
5,807,000
$
(402,000)
5,713,000
$
Changes in estimates pertaining to percentage of completion contracts did not have a material effect on net income
or diluted net income per share in fiscal 2009, 2008 or 2007.
inventories
as of October 31,
Finished products
Work in process
Materials, parts, assemblies and supplies
Inventories, net
2009
2008
$
79,665,000
14,279,000
43,641,000
$ 137,585,000
$
74,281,000
17,897,000
40,732,000
$ 132,910,000
Inventories related to long-term contracts were not significant as of October 31, 2009 and 2008.
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
2009
2008
$
$
3,656,000
38,091,000
80,697,000
5,331,000
127,775,000
(67,247,000)
60,528,000
$
$
3,656,000
36,229,000
73,038,000
5,446,000
118,369,000
(58,403,000)
59,966,000
40 << Heico corporatio n
The amounts set forth above include tooling costs having a net book value of $4,369,000 and $4,037,000 as of
October 31, 2009 and 2008, respectively. Amortization expense on capitalized tooling was $1,825,000, $1,575,000 and
$1,448,000 for the fiscal years ended October 31, 2009, 2008 and 2007, respectively. Expenditures for capitalized tooling
costs were $2,193,000, $1,412,000 and $1,634,000 in fiscal 2009, 2008 and 2007, respectively.
Depreciation and amortization expense, exclusive of tooling, on property, plant and equipment was $8,365,000,
$7,990,000 and $6,678,000 for the fiscal years ended October 31, 2009, 2008 and 2007, 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 $631,000
and $908,000 as of October 31, 2009 and 2008, 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
2009
2008
$
$
14,745,000
9,689,000
1,775,000
10,769,000
36,978,000
$
$
25,157,000
11,758,000
3,427,000
9,244,000
49,586,000
The total customer rebates and credits deducted within net sales for the fiscal years ended October 31, 2009, 2008
and 2007 were $8,315,000, $10,249,000 and $9,574,000, respectively.
other Long-term 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. During fiscal 2009, 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 2009, 2008 and 2007 totaled $2,195,000, $2,075,000
and $2,119,000, respectively. In the accompanying Consolidated Balance Sheets, $241,000 was included in accrued
expenses and other current liabilities and $15,552,000 in other long-term liabilities as of October 31, 2009, and $623,000
was included in accrued expenses and other current liabilities and $7,136,000 in other long-term liabilities as of October
31, 2008. The assets of the LCP, totaling $15,811,000 and $7,148,000 as of October 31, 2009, and 2008, respectively, are
classified within other assets and principally 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 long-term liabilities also includes deferred compensation of $3,953,000 and $3,860,000 as of October 31, 2009
and 2008, 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 in the accompanying Consolidated Balance Sheets. Additional information regarding the assets of this
deferred compensation plan and the LCP may be found in Note 7, Fair Value Measurements.
Heico corporation >> 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 2009 and 2008 by operating segment are as follows:
Segment
FSg
etg
Balances as of October 31, 2007
Goodwill acquired
Adjustments to goodwill
Accrued additional purchase consideration
Foreign currency translation adjustments
Balances as of October 31, 2008
Goodwill acquired
Adjustments to goodwill
Accrued additional purchase consideration
Foreign currency translation adjustments
Balances as of October 31, 2009
$ 169,689,000
9,094,000
1,491,000
1,215,000
(363,000)
181,126,000
6,444,000
866,000
–
23,000
$ 188,459,000
$ 140,813,000
74,000
2,673,000
2,212,000
(3,505,000)
142,267,000
29,269,000
1,612,000
1,775,000
1,861,000
$ 176,784,000
Consolidated
totals
$ 310,502,000
9,168,000
4,164,000
3,427,000
(3,868,000)
323,393,000
35,713,000
2,478,000
1,775,000
1,884,000
$ 365,243,000
The goodwill acquired during fiscal 2009 and 2008 is a result of certain of the Company’s acquisitions described in
Note 2, Acquisitions. Adjustments to goodwill during fiscal 2009 by the FSG and fiscal 2008 by the FSG and ETG consist
primarily of final purchase price adjustments related to the preliminary allocation of the purchase price during the alloca-
tion period for certain prior year acquisitions to the assets acquired and liabilities assumed. The adjustment to goodwill
during fiscal 2009 by the ETG represents additional purchase consideration paid in the fourth quarter of fiscal 2009 related
to a previous acquisition for which the earnings objective was met during fiscal 2009 (see Note 15, Commitments and
Contingencies). The $1.8 million and $2.2 million accrued additional purchase consideration recognized during fiscal 2009
and 2008, respectively, by the ETG is the result of a subsidiary meeting certain earnings objectives in fiscal 2009 and 2008,
respectively (see Note 2, Acquisitions). 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 the equity interests of a 90%-
owned subsidiary effective October 31, 2008. The foreign currency translation adjustments reflect unrealized translation
(losses) gains on the goodwill recognized in connection with foreign subsidiaries. Foreign currency translation adjust-
ments are included in other comprehensive income in the Company’s Consolidated Statements of Shareholders’ Equity
and Comprehensive Income. The Company estimates that approximately $25 million and $13 million of the goodwill
recognized in fiscal 2009 and 2008, respectively, will be deductible for income tax purposes. Based on the annual
goodwill test for impairment as of October 31, 2009, the Company determined there is no impairment of its goodwill.
Identifiable intangible assets consist of:
as of October 31, 2009
as of October 31, 2008
gross
Carrying
amount
accumulated
amortization
net
Carrying
amount
gross
Carrying
amount
accumulated
amortization
net
Carrying
amount
Amortizing assets:
Customer relationships
Intellectual property
$ 33,237,000 $ (9,944,000) $ 23,293,000 $ 16,845,000 $ (6,451,000) $ 10,394,000
1,594,000
3,369,000
526,000
1,000,000
Licenses
426,000
Non-compete agreements 1,221,000
386,000
575,000
Patents
–
569,000
Trade names
13,326,000
39,971,000
(628,000) 2,741,000
453,000
(547,000)
252,000
(969,000)
329,000
(246,000)
569,000
–
(12,334,000) 27,637,000
3,427,000
1,000,000
1,086,000
575,000
–
22,933,000
(1,833,000)
(474,000)
(660,000)
(189,000)
–
(9,607,000)
13,951,000
11,657,000
$ 53,922,000 $ (12,334,000) $ 41,588,000 $ 34,590,000 $ (9,607,000) $ 24,983,000
13,951,000
11,657,000
–
–
Non-Amortizing assets:
Trade names
42 << Heico corporatio n
The increase in the gross carrying amount of customer relationships, trade names and non-compete agreements
as of October 31, 2009 compared to October 31, 2008 principally relates to the intangible assets recognized in connec-
tion with the fiscal 2009 acquisitions (see Note 2, Acquisitions, and Note 16, Supplemental Disclosures of Cash Flow
Information). The increase in the gross carrying amount of intellectual property recognized in connection with the fiscal
2009 acquisitions (see Notes 2 and 16) was more than offset by the write-off of certain such fully amortized intangible
assets. During the fourth quarter of fiscal 2009 and 2008, the Company recognized impairment losses of $200,000 and
$1,313,000, respectively, and $100,000 and $522,000, respectively, from the write-down of certain customer relationships
and trade names, respectively, within the ETG to their estimated 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 Statements of Operations.
The weighted average amortization period of the customer relationships, intellectual property, finite-lived trade names
and non-compete agreements acquired during fiscal 2009 is six years, six years, five years and two years, respectively.
The weighted average amortization period of the customer relationships and non-compete agreements acquired during
fiscal 2008 is approximately six and four years, respectively. Amortization expense of other intangible assets was
$4,499,000, $5,156,000 and $3,647,000 for the fiscal years ended October 31, 2009, 2008 and 2007, respectively. Amorti-
zation expense for each of the next five fiscal years is expected to be $6,162,000 in fiscal 2010, $5,345,000 in fiscal 2011,
$4,638,000 in fiscal 2012, $4,178,000 in fiscal 2013 and $3,881,000 in fiscal 2014.
nOte 5 ShOrt-term anD lOng-term DeBt
The $2.5 million short-term line of credit that one of the Company’s subsidiaries had with a bank expired in June 2009.
Long-term debt consists of:
as of October 31,
Borrowings under revolving credit facility
Notes payable, capital leases and equipment loans
Less: Current maturities of long-term debt
2009
2008
$
$
55,000,000
431,000
55,431,000
(237,000)
55,194,000
$
$
37,000,000
601,000
37,601,000
(220,000)
37,381,000
The aggregate amount of long-term debt maturing in each of the next five fiscal years is $237,000 in fiscal 2010,
$134,000 in fiscal 2011, $40,000 in fiscal 2012 and $55,020,000 in fiscal 2013.
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.
Heico corporation >> 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
As of October 31, 2009 and 2008, the Company had a total of $55 million and $37 million, respectively, borrowed
under its revolving credit facility at weighted average interest rates of .9% and 3.6%, respectively. The amounts were
primarily borrowed to fund acquisitions (see Note 2, Acquisitions) as well as for working capital and general corporate
purposes. The revolving credit facility contains both financial and non-financial covenants. As of October 31, 2009, 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 components of the provision for income taxes on income before income taxes and minority interests is as follows:
For the year ended October 31,
2009
2008
2007
Current:
Federal
State
Foreign
Deferred:
Total income tax expense
$
$
25,920,000
3,890,000
841,000
30,651,000
(2,651,000)
28,000,000
$
$
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
The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:
For the year ended October 31,
Federal statutory income tax rate
State taxes, less applicable federal income tax reduction
Net tax benefit on minority interests’ share of income
Net tax benefit on qualified research and development activities
Net tax benefit on qualified domestic production activities
Other, net
Effective tax rate
2009
35.0%
2.5
(2.7)
(2.9)
(.6)
.6
31.9%
2008
2007
35.0%
2.9
(3.0)
(.3)
(.7)
.6
34.5%
35.0%
3.3
(3.4)
(1.8)
(.4)
.5
33.2%
44 << Heico corporatio n
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company believes that
it is more likely than not that it will generate sufficient future taxable income to utilize all of its deferred tax assets and has
therefore not recorded a valuation allowance on any such asset. Significant components of the Company’s deferred tax
assets and liabilities are as follows:
as of October 31,
Deferred tax assets:
Inventories
Deferred compensation liability
Net operating loss carryforward of acquired business
Foreign R&D carryforward and credit
Bonus accrual
Allowance for doubtful accounts receivable
Vacation accrual
Customer rebates accrual
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
2009
2008
$
$
13,123,000
7,407,000
4,184,000
1,714,000
1,214,000
880,000
795,000
671,000
2,382,000
32,370,000
50,113,000
3,700,000
1,622,000
1,604,000
57,039,000
(24,669,000)
$
$
7,483,000
4,240,000
–
269,000
2,684,000
821,000
884,000
1,097,000
3,051,000
20,529,000
40,695,000
3,778,000
1,019,000
272,000
45,764,000
(25,235,000)
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
2009
2008
$
$
16,671,000
41,340,000
(24,669,000)
$
$
13,957,000
39,192,000
(25,235,000)
The decrease in the net deferred tax liability from $25.2 million as of October 31, 2008 to $24.7 million as of October
31, 2009 is principally due to the $2.7 million deferred income tax benefit for 2009 offset by a $1.8 million reduction in a
deferred tax asset that was released during the second quarter of fiscal 2009 upon the filing of an application with the
Internal Revenue Service (“IRS”) for an accounting methodology change as referenced below.
As discussed in Note 1, Summary of Significant Accounting Policies – Income Taxes, the Company adopted the provi-
sions of certain new guidance related to income taxes 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 the new guidance), 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 classi-
fied within other long-term liabilities and long-term income tax assets are classified within other assets in the Company’s
Consolidated Balance Sheets.
As of October 31, 2009 and 2008, the Company’s liability for gross unrecognized tax benefits related to uncertain tax
positions was $3,328,000 and $5,742,000, respectively, of which $2,859,000 and $3,438,000, respectively, would decrease
the Company’s income tax expense and effective income tax rate if the tax benefits were recognized.
Heico corporation >> 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
A reconciliation of the activity related to the liability for gross unrecognized tax benefits during fiscal 2009 and 2008 is
as follows:
year ended October 31,
Balance as of beginning of fiscal year
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statutes of limitations
Balance as of October 31,
2009
5,742,000
91,000
(3,562,000)
1,234,000
(211,000)
34,000
3,328,000
$
$
$
$
2008
7,396,000
2,000
(4,380,000)
2,793,000
–
(69,000)
5,742,000
The Company’s net liability for unrecognized tax benefits was $3,121,000 as of October 31, 2009, including $176,000
of interest and $148,000 of penalties and net of $530,000 in related deferred tax assets. It is the Company’s policy to
recognize interest and penalties related to income tax matters as a component of income tax expense. During the fiscal
year ended October 31, 2009, the Company accrued penalties of $52,000 related to the unrecognized tax benefits noted
above. The liability for interest decreased by $56,000 during fiscal 2009 due to the lapse of statutes of limitations.
The $2,414,000 decrease in the liability during fiscal 2009 was principally related to the release of liabilities for tax
positions for which the uncertainty was only related to the timing of such tax benefits and the effect of a favorable settle-
ment reached with the IRS during fiscal 2009, partially offset by increases related to current year tax positions. During
the IRS’ examination of the income tax credits claimed by the Company in its U.S. federal filings for qualified research
and development activities incurred for fiscal years 2002 through 2005, new information was obtained that supported an
aggregate reduction of the liability for uncertain tax positions concerning research and development activities for fiscal
years 2002 through 2008. As a result of the IRS settlement and associated liability adjustment, the Company recognized a
tax benefit, which increased net income by approximately $1,225,000 for fiscal 2009. Further, the Company believes that
it is reasonably possible that within the next twelve months the California Franchise Tax Board examination of the income
tax credit claimed for qualified research and development activities on the Company’s state of California filings for fiscal
years 2001 through 2005 will be settled. Accordingly, the Company reclassified the related liability for unrecognized tax
benefits from other long-term liabilities to accrued expenses and other current liabilities in the Company’s Condensed
Consolidated Balance Sheets. In addition, the Company reclassified the $554,000 of income tax refund receivables for the
state of California filings from other assets to prepaid expenses and other current assets in the Company’s Condensed
Consolidated Balance Sheets.
The Company files income tax returns in the United States (“U.S.”) federal jurisdiction and in multiple state jurisdic-
tions. 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 2005. The Company’s state of California filings for
fiscal years 2001 through 2005 are currently under examination by the 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 the guidance related to account-
ing for uncertainty in income taxes. 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.
During the second quarter of fiscal 2009, the Company filed an application with the IRS for an accounting methodol-
ogy change that does not require the IRS’ advanced approval. As this change removes the uncertainty surrounding
certain tax positions that was related only to the timing of such tax benefits, the Company released the related liability,
including interest, and deferred tax asset upon filing the application, which did not have a material effect on net income
for the fiscal year 2009.
In December 2006, Section 41 of the Internal Revenue Code, “Credit for Increasing Research Activities,” was retroac-
tively 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.
46 << Heico corporatio n
nOte 7 Fair value meaSurementS
The Company adopted new guidance issued by the FASB regarding fair value measurements effective November
1, 2008 for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair
value on a recurring basis. The guidance defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also
establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement. The
guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three
categories:
level 1 Quoted prices in active markets for identical assets or liabilities;
level 2
Inputs, other than quoted prices included within Level 1, that are observable for the
asset or liability either directly or indirectly; or
level 3 Unobservable inputs for the asset or liability where there is little or no market data,
requiring management to develop its own assumptions.
The following table sets forth by level within the fair value hierarchy, the Company’s financial assets and liabilities and
nonfinancial assets and liabilities that were measured at fair value on a recurring basis as of October 31, 2009:
level 1
level 2
level 3
total
Assets:
Deferred compensation plans:
Corporate owned life insurance
Mutual funds
Equity securities
Other
Total
Liabilities
$
$
–
2,776,000
1,057,000
1,000
3,834,000
$
$ 15,687,000
–
–
243,000
$ 15,930,000 $
–
–
–
–
–
–
–
–
$ 15,687,000
2,776,000
1,057,000
244,000
$ 19,764,000
–
The Company maintains two non-qualified deferred compensation plans. The assets of the HEICO Corporation
Leadership Compensation Plan (the “LCP”) principally represent cash surrender values of life insurance policies, which
derive their fair values from investments in mutual funds that are managed by an insurance company and are classified
within Level 2. Certain other assets of the LCP represent investments in publicly-traded mutual funds and equity securi-
ties and are classified within Level 1. The assets of the Company’s other deferred compensation plan are principally
invested in publicly-traded mutual funds and equity securities and a life insurance policy, and the fair values of this plan’s
assets are classified within Level 1 and Level 2, respectively. The assets of both plans are held within irrevocable trusts
and classified within other assets in the Company’s Consolidated Balance Sheets. The related liabilities of the two
deferred compensation plans are included within other long-term liabilities in the Company’s Consolidated Balance Sheets
and have an aggregate value of $19,505,000 as of October 31, 2009.
nOte 8 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 outstand-
ing 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.
Heico corporation >> 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
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 entitled to a
1/10 vote per share. Holders of the Company’s Common Stock and Class A Common Stock are entitled to receive when,
as and if declared by the Board of Directors, dividends and other distributions payable in cash, property, stock or other-
wise. In the event of liquidation, after payment of debts and other liabilities of the Company, and after making provision
for the holders of preferred stock, if any, the remaining assets of the Company will be distributable ratably among the
holders of all classes of common stock.
Share repurchases
In accordance with the Company’s share repurchase program, 193,736 shares of Class A Common Stock were
repurchased at a total cost of $3.9 million and 184,500 shares of Common Stock were repurchased at a total cost of $4.2
million during the second quarter of fiscal 2009.
In March 2009, the Company’s Board of Directors approved an increase in the Company’s share repurchase program
by an aggregate 1,000,000 shares of either or both Class A Common Stock and Common Stock, bringing the total
authorized for future purchase to 1,024,742 shares.
The Company did not repurchase any shares of its common stock in fiscal 2008 or 2007.
nOte 9 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 in fiscal 2002 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 3,189,126
shares of the Company’s stock are reserved for issuance to employees, directors, officers and consultants as of October
31, 2009, including 1,863,062 shares currently under option and 1,326,064 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.
48 << Heico corporatio n
Information concerning stock option activity for each of the three fiscal years ended October 31 is as follows:
Outstanding as of October 31, 2006
Cancelled
Exercised
Outstanding as of October 31, 2007
Shares approved by the Shareholders
for the 2002 Stock Option Plan
Cancelled
Exercised
Outstanding as of October 31, 2008
Granted
Exercised
Outstanding as of October 31, 2009
Shares
available
For grant
162,683
221
–
162,904
1,500,000
660
–
1,663,564
(337,500)
–
1,326,064
Shares under Option
Shares
2,734,018
(16,787)
(841,901)
1,875,330
–
(710)
(250,878)
1,623,742
337,500
(98,180)
1,863,062
weighted average
exercise Price
$ 10.16
$ 13.11
$ 10.94
9.79
$
–
$
6.66
$
9.56
$
$
9.83
$ 36.45
$ 12.29
$ 14.52
Information concerning stock options outstanding and stock options exercisable by class of common stock as of
October 31, 2009 is as follows:
Common Stock
Class A Common Stock
Common Stock
Class A Common Stock
number
Outstanding
1,131,182
731,880
1,863,062
number
exercisable
931,182
594,180
1,525,362
Options Outstanding
weighted
average
exercise Price
weighted average
remaining Contractual
life (years)
aggregate
intrinsic
value
$ 15.76
$ 12.62
$ 14.52
3.5
3.6
3.6
$ 25,488,000
13,549,000
$ 39,037,000
Options exercisable
weighted
average
exercise Price
weighted average
remaining Contractual
life (years)
aggregate
intrinsic
value
$ 10.66
$ 8.12
$ 9.67
2.2
2.2
2.2
$ 25,488,000
13,511,000
$ 38,999,000
Information concerning stock options exercised is as follows:
For the year ended October 31,
2009
2008
2007
Cash proceeds from stock option exercises
Tax benefit realized from stock option exercises
Intrinsic value of stock option exercises
$ 1,207,000
1,890,000
1,586,000
$ 2,398,000
6,248,000
7,854,000
$ 6,875,000
6,873,000
20,900,000
The Company’s net income for the fiscal years ended October 31, 2009, 2008 and 2007 includes compensation
expense of $181,000, $142,000 and $658,000, respectively, and an income tax benefit of $64,000, $43,000 and $165,000,
respectively, related to the Company’s stock options. 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, 2009, there was $5,882,000 of pre-tax unrecognized compensation expense related to
nonvested stock options, which is expected to be recognized over a weighted average period of approximately 4.9 years.
The total fair value of stock options that vested in 2009, 2008 and 2007 was $14,000, $408,000 and $795,000, respectively.
For the fiscal years ended October 31, 2009, 2008 and 2007, the excess tax benefit resulting from tax deductions
in excess of the cumulative compensation cost recognized for stock options exercised was $1,573,000, $4,324,000 and
$5,262,000, respectively, and is presented as a financing activity in the Consolidated Statements of Cash Flows.
Heico corporation >> 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
The weighted-average fair value of stock options granted during fiscal 2009 was $20.99 per share for Common Stock and
$13.45 per share for Class A Common Stock. The Company did not grant any stock options in fiscal 2008 or 2007. If there were
a change in control of the Company, 337,500 of the unvested options outstanding would become immediately exercisable.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing
model based on the following weighted average assumptions for the year ended October 31, 2009:
Common
Stock
44.13%
3.22%
.28%
9
Class a
Common
Stock
39.94%
2.80%
.33%
6
Expected stock price volatility
Risk-free interest rate
Dividend yield
Expected option life (years)
nOte 10 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 contribu-
tions 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 2009, 2008 and 2007 totaled $40,000, $230,000 and $164,000, respectively.
Company contributions are made with the use of forfeited shares within the Plan. As of October 31, 2009, the Plan held
approximately 64,000 forfeited shares of Common Stock and 95,000 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, 2009, 2008 and 2007 were not material to the financial position of the Company. During fiscal
2009, 2008 and 2007, $27,000, $23,000 and $20,000, respectively, were expensed for this plan.
nOte 11 reSearCh anD DevelOPment eXPenSeS
Cost of sales amounts in fiscal 2009, 2008 and 2007 include approximately $19.7 million, $18.4 million and $16.5
million, respectively, of new product research and development expenses.
nOte 12 net inCOme Per Share
The computation of basic and diluted net income per share is as follows:
For the year ended October 31,
2009
2008
2007
Numerator:
Net income
Denominator:
Weighted average common shares outstanding - basic
Effect of dilutive stock options
Weighted average common shares outstanding - diluted
Net income per share - basic
Net income per share - diluted
Anti-dilutive stock options excluded
50 << Heico corporatio n
$ 44,626,000
$ 48,511,000
$ 39,005,000
26,204,799
819,232
27,024,031
26,309,139
934,217
27,243,356
25,715,899
1,215,149
26,931,048
$
$
1.70
1.65
86,291
$
$
$
$
1.84
1.78
–
1.52
1.45
–
nOte 13 quarterly FinanCial inFOrmatiOn (unauDiteD)
Net sales:
2009
2008
Gross profit:
2009
2008
Net income:
2009
2008
Net income per share:
Basic:
2009
2008
Diluted:
2009
2008
First
quarter
Second
quarter
third
quarter
Fourth
quarter
$ 130,437,000
134,287,000
$ 130,166,000
144,039,000
$ 134,086,000
147,305,000
$ 143,607,000
156,716,000
$ 43,904,000
46,829,000
$ 42,518,000
52,356,000
$ 45,811,000
53,851,000
$ 48,778,000
57,459,000
$ 11,317,000
10,086,000
$ 10,541,000
11,948,000
$ 11,132,000
12,827,000
$ 11,636,000
13,650,000
$
$
.43
.39
.42
.37
$
$
.40
.45
.39
.44
$
$
.43
.49
.41
.47
$
$
.45
.52
.43
.50
During the first and second quarters of fiscal 2009, the Company reached a settlement with the Internal Revenue
Service concerning the income tax credit claimed by the Company on its U.S. federal filings for qualified research and
development activities incurred during fiscal years 2002 through 2005 as well as an aggregate reduction to the related
liability for unrecognized tax benefits for fiscal years 2006 through 2008, which increased net income by approximately
$1,225,000, or $.05 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.
nOte 14 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, high voltage advanced power electronics products, power
conversion products and underwater locator beacons primarily for the aviation, defense, space, medical, telecommunica-
tion and electronic 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.
Heico corporation >> 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
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, 2009:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
For the year ended October 31, 2008:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
For the year ended October 31, 2007:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
FSg
etg
Other,
Primarily
Corporate and
intersegment
Consolidated
totals
$ 395,423,000
9,801,000
60,003,000
8,518,000
414,030,000
$ 143,372,000
4,728,000
39,981,000
1,670,000
285,602,000
$
(499,000)
438,000
(11,729,000)
65,000
33,278,000
$ 538,296,000
14,967,000
88,255,000
10,253,000
732,910,000
$ 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
$ 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
Major customer 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 approximately 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,
2009
2008
2007
United States
Other
Total
$ 367,736,000
170,560,000
$ 538,296,000
$ 400,447,000
181,900,000
$ 582,347,000
$ 365,588,000
142,336,000
$ 507,924,000
nOte 15 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.
52 << Heico corporatio n
Future 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,
2010
2011
2012
2013
2014
Thereafter
Total minimum lease commitments
$ 6,012,000
5,120,000
4,484,000
3,466,000
2,021,000
7,085,000
$ 28,188,000
Total rent expense charged to operations for operating leases in fiscal 2009, 2008 and 2007 amounted to $6,274,000,
$6,074,000 and $4,221,000, respectively.
Guarantees
The Company has arranged for a standby letter of credit for $1.5 million, which is supported by the Company’s
revolving credit facility, to meet the security requirement of its insurance company for potential workers’ compensation
claims. As of October 31, 2009, one of the Company’s subsidiaries has guaranteed its performance related to a customer
contract through a letter of credit for $.4 million, expiring May 2010, which is supported by the Company’s revolving credit
facility. The subsidiary is also a beneficiary of a letter of credit related to the same contract.
product Warranty
Changes in the Company’s product warranty liability for fiscal 2009 and 2008 are as follows:
Balance as of October 31, 2007
Accruals for warranties
Warranty claims settled
Balance as of October 31, 2008
Acquired warranty liabilities
Accruals for warranties
Warranty claims settled
Balance as of October 31, 2009
acquisitions
Put/Call Rights
$ 1,181,000
1,201,000
(1,711,000)
671,000
13,000
1,566,000
(1,228,000)
$ 1,022,000
As part of the agreement to acquire an 80% interest in a subsidiary by the ETG in fiscal 2004, the minority interest holders
currently have the right to cause the Company to purchase their interests over a five-year period and the Company has the right
to purchase the minority interests over a five-year period beginning in fiscal 2015, or sooner under certain conditions.
Pursuant to the purchase agreement related to the acquisition of an 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. Pursuant to this same purchase agreement, certain
other minority interest holders exercised their option during fiscal 2009 to cause the Company to purchase their aggregate
10.5% interest over a four-year period ending in fiscal 2012. Accordingly, the Company increased its ownership interest in
the subsidiary by an aggregate 4.9% (or one-fourth of such applicable minority interest holders’ aggregate interest in fiscal
years 2007 through 2009) to 89.9% effective April 2009. Further, the remaining minority interest holders currently have
the right to cause the Company to purchase their aggregate 1.5% interest over a four-year period.
Heico corporation >> 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
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. 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), which increased the Company’s ownership interest to 72%
effective December 2008. The remaining 7% interest is scheduled to be purchased in April 2011. Further, the Company
has the right to purchase the remaining 21% of the equity interests of the subsidiary over a three-year period beginning in
fiscal 2012, or sooner under certain conditions, and the minority interest holders have the right to cause the Company to
purchase the same equity interests 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 in fiscal 2014, or sooner under certain conditions,
and the minority interest holders have the right to cause the Company to purchase the same equity interests 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 in fiscal 2014, or sooner under certain conditions,
and the minority interest holders have the right to cause the Company to purchase the same equity interests over the
same period.
As part of an agreement to acquire an 82.5% interest in a subsidiary by the ETG in fiscal 2009, the Company has
the right to purchase the minority interests beginning in fiscal 2014, or sooner under certain conditions, and the minority
interest holder has the right to cause the Company to purchase the same equity interests 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 2010 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 fair value or at a formula that management intended to
reasonably approximate fair value, as defined in the applicable agreements based solely on a multiple of future earnings over
a measurement period. As described in Note 1, Summary of Significant Accounting Policies, the Company is required
to adopt new guidance regarding the accounting for its Put Rights (known as “redeemable noncontrolling interests”)
effective as of the beginning of fiscal 2010. Effective November 1, 2009, the Company will adjust its redeemable
noncontrolling interests to the higher of their carrying cost or management’s estimate of the Redemption Amount with
a corresponding charge to retained earnings and classify such interests outside of permanent equity in its Consolidated
Balance Sheets. Under this guidance, subsequent adjustments to the carrying amount of redeemable noncontrolling
interests (the Redemption Amount) based on fair value will be recorded to retained earnings and have no effect on net
income per diluted share. Subsequent adjustments to the carrying amount of redeemable noncontrolling interests
based solely on a multiple of future earnings that reflect a redemption in excess of fair value will be recorded to retained
earnings and will be reflected in net income per diluted share under the two-class method. As of October 31, 2009,
management’s estimate of the aggregate Redemption Amount of all Put Rights that the Company would be required to
pay is approximately $57 million. The actual Redemption Amount will likely be different. The portion of the estimated
Redemption Amount as of October 31, 2009 redeemable at fair value is $25 million and the portion redeemable based
solely on a multiple of future earnings is $32 million.
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 be $.9 million should the subsidiary meet certain product
line-related earnings objectives during calendar year 2009.
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 approximately $68
million U.S. dollars based on the October 31, 2009 exchange rate, should the subsidiary meet certain earnings objectives
through fiscal 2012.
54 << Heico corporatio n
As part of the agreement to acquire a subsidiary by the FSG in fiscal 2008, the Company may be obligated to pay
additional purchase consideration of up to approximately $.4 million should the subsidiary meet certain earnings objec-
tives during fiscal 2010, 2011 and 2012.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2009, the Company may be obligated to pay
additional purchase consideration of up to approximately $1.3 million in fiscal 2010, $1.3 million in fiscal 2011 and $10.1
million in fiscal 2012 should the subsidiary meet certain earnings objectives during each of the first three years following
the acquisition.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2009, the Company may be obligated to pay
additional purchase consideration of up to approximately $11.7 million should the subsidiary meet certain earnings
objectives during the first two 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 aggregate maximum amount of such contingent purchase consid-
eration that the Company could be required to pay is approximately $94 million payable over 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 have performed in the comparable historical measurement periods, the aggregate amount
of such contingent purchase consideration that the Company would be required to pay is approximately $12 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 16 SuPPlemental DiSClOSureS OF CaSh FlOw inFOrmatiOn
Cash paid for interest was $617,000, $2,443,000 and $3,287,000 in fiscal 2009, 2008 and 2007, respectively. Cash
paid for income taxes was $30,209,000, $26,669,000 and $16,572,000 in fiscal 2009, 2008 and 2007, respectively. Cash
received from income tax refunds in fiscal 2009, 2008 and 2007 was $5,398,000, $29,000 and $243,000 respectively.
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,
Fair value of assets acquired:
Liabilities assumed
Minority interests in consolidated subsidiaries
Less:
Goodwill
Identifiable intangible assets
Accounts receivable, net
Inventories, net
Accrued additional purchase consideration
Property, plant and equipment
Other assets
Acquisitions and related costs, net of cash acquired
$
2009
2008
2007
$
3,881,000
135,000
$
1,581,000
(412,000)
$
7,460,000
(412,000)
37,367,000
21,562,000
4,720,000
4,096,000
3,427,000
553,000
3,357,000
(71,066,000)
9,685,000
3,991,000
2,045,000
1,252,000
11,736,000
1,394,000
104,000
$ (29,038,000)
22,296,000
15,902,000
2,569,000
3,539,000
7,180,000
2,142,000
1,787,000
$ (48,367,000)
In connection with certain acquisitions, the Company accrued additional purchase consideration aggregating $1.8
million, $3.4 million and $11.7 million in fiscal 2009, 2008 and 2007, respectively, which was allocated to goodwill (see
Note 2, Acquisitions, and Note 4, Goodwill and Other Intangible Assets).
There were no significant capital lease or other equipment financing activities during fiscal 2009, 2008 and 2007.
Heico corporation >> 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 misstatements.
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, 2009.
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, 2009 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, 2009, 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 2009 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 << Heico corporatio 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 “Com-
pany”) as of October 31, 2009 and 2008, 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, 2009. We also have
audited the Company’s internal control over financial reporting as of October 31, 2009, 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, and testing and evaluating the design and operating effectiveness 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, 2009 and 2008, and the results of their operations and
their cash flows for each of the three years in the period ended October 31, 2009, 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, 2009, 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 23, 2009
Heico corporation >> 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
Our 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 our Class A Common Stock and our 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
Cash Dividends
high
low
Per Share
Cash Dividends
high
low
Per Share
Fiscal 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2009:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 44.63
42.24
41.68
36.19
$ 32.05
32.80
24.87
19.82
$ 31.36
30.63
32.76
35.00
$ 18.27
17.34
23.26
26.01
$
$
.05
–
.05
–
.06
–
.06
–
Fiscal 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2009:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 56.92
52.78
54.35
48.27
$ 42.00
41.80
30.16
26.49
$ 42.78
41.64
40.50
44.02
$ 24.30
21.40
26.32
35.00
$
$
.05
–
.05
–
.06
–
.06
–
As of December 17, 2009, there were 569 holders of
record of our Class A Common Stock.
As of December 17, 2009, there were 584 holders of
record of our Common Stock.
In addition, as of December 17, 2009, 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 5,000 holders of both classes of common stock.
In December 2009, the Board of Directors declared a regular semi-annual cash dividend of $.06 per share payable in
January 2010.
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, 2004 through October 31, 2009. 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
HEICO Class A
Common Stock
NYSE Composite Index
Dow Jones
U.S. Aerospace Index
$400
$300
$200
$100
$0
58 << Heico corporatio n
2004
2005
2006
2007
2008
2009
Continues on next page
Cumulative total return as of October 31,
2004
2005
2006
2007
2008
2009
HEICO Common Stock
HEICO Class A Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
$ 100.00
100.00
100.00
100.00
$ 122.76
122.23
111.06
121.17
$ 201.48
217.16
131.11
158.41
$ 302.93
314.51
154.07
209.17
$ 214.60 $ 212.80
225.62
204.39
100.70
90.56
141.69
125.95
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
09
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
100.00
341.65
100.00
130.31
130.67
186.32
252.00
138.76
122.00
156.09
158.36
155.68
176.11
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
289.55
393.19
376.36
326.98
378.66
284.59
343.88
400.81
418.32
328.78
333.32
376.40
295.99
2004
2005
2006
2007
2008
2009
$ 1,366.57 $ 1,674.40 $ 2,846.48 $ 4,208.54 $ 2,872.01 $ 2,984.13
383.57
380.91
678.00
478.49
586.87
1,000.84
423.05
579.77
344.96
602.66
499.42
757.97
(1) Information has been adjusted retroactively to give effect to all stock dividends paid during the nineteen-year period.
Heico corporation >> 59
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
OFFiCerS & SeniOr leaDerShiP
Laurans a. Mendelson
Chairman of the Board of Directors and
Chief Executive Officer,
HEICO Corporation
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 Repair Group - Miami
russ carlson
Senior Vice President -
Hardware & Accessories,
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
Mike Garcia
Vice President and General Manager,
Aviation Engineered Services Corp.
Jerry Goldlust
President and Founder,
HVT Group, Inc. and Dielectric Sciences, Inc.
thomas a. Greenacre
President,
Dukane Seacom, Inc.
William S. Harlow
Vice President - Acquisitions,
HEICO Corporation
Walter Howard
Senior Vice President -
Avionics & Power Systems,
HEICO Parts Group
John F. Hunter
Executive Vice President and
Chief Operating Officer,
HEICO Parts Group and
HEICO Aerospace Holdings Corp.
tung Hyunh
President and Co-Founder,
Lumina Power, Inc.
thomas S. irwin
Executive Vice President and
Chief Financial Officer,
HEICO Corporation
elizabeth r. Letendre
Corporate Secretary,
HEICO Corporation
Jack Lewis
Senior Vice President -
Engines and Accessories,
HEICO Parts Group
omar Lloret
Vice President and General Manager,
HEICO 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
Co-President,
HEICO Corporation
Victor H. Mendelson
Co-President,
HEICO Corporation
Luis J. Morell
President,
HEICO Repair Group
Dario negrini
President,
Leader Tech, Inc.
Buddy padilla
Vice President - Sales,
HEICO Repair Group
Joseph W. pallot
General Counsel,
HEICO Corporation
James L. reum
Executive Vice President,
HEICO Aerospace Holdings Corp.
rex reum
Vice President and General Manager,
Jetseal, Inc.
thomas L. ricketts
CEO 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
Dr. Daniel M. Sable
President and Co-Founder,
VPT, Inc.
Katherine Schaefer
Senior Vice President -
Business Development and Marketing,
HEICO Parts Group
charles Schofield
Vice President and General Manager,
Radiant Power Corp.
Val Shelley
Vice President - Strategy,
HEICO Corporation
Michael W. Siegel
Senior Vice President -
Finance and Administration,
HEICO Aerospace Holdings Corp.
rick Stine
Senior Vice President,
HEICO Aerospace Holdings Corp.
David Susser
President,
HEICO Distribution Group and
Seal Dynamics LLC
Gregg tuttle
Vice President and General Manager,
Future Aviation, Inc.
Steven Walker
Corporate Controller and Assistant Treasurer,
HEICO Corporation
nicholas “tony” Wright
Vice President and General Manager,
Inertial Airline Services, Inc.
60 << Heico corporatio n
!
financial highlightS
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
2007
2008
2009
$ 507,924
86,014
3,293
39,005(2)
$ 582,347
105,788(3)
2,314
48,511(3)
$ 538,296
88,255
615
44,626(4)
25,716
26,931
26,309
27,243
26,205
27,024
$
1.52(2)
1.45(2)
.08
$
1.84(3)
1.78(3)
.10
$
1.70(4)
1.65(4)
.12
$ 631,302
55,952
$ 676,542
37,601
$ 732,910
55,431
72,938
371,601
83,978
417,760
89,742
457,853
(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 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.
(3) 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.
(4) Includes a benefit related to a settlement with the Internal Revenue Service concerning the income tax credit claimed by the Company on its U.S. federal filings for
qualified research and development activities incurred during fiscal years 2002 through 2005 as well as an aggregate reduction to the related reserve for fiscal
years 2006 through 2008, which increased net income by $1,225, or $.05 per basic and diluted share.
A
e
r
A
e
u
l
G
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 aviation, defense, space, medical, telecommunication and electronic 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.
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
Co-President,
HEICO Corporation
lAuRAnS A. mEndElSOn
Chairman and
Chief Executive Officer,
HEICO Corporation
VICtOR H. mEndElSOn
Co-President,
HEICO Corporation
mItCHEll I. QuAIn
Managing Director,
ACI Capital, LLC
dR. AlAn SCHRIESHEIm
Retired Director,
Argonne National Laboratory
fRAnk J. SCHWIttER
Retired Partner,
Arthur Andersen LLP
Samuel L. Higginbottom
Mark H. Hildebrandt
Wolfgang Mayrhuber
Eric A. Mendelson
Laurans A. Mendelson
Victor H. Mendelson
Mitchell I. Quain
Dr. Alan Schriesheim
Frank J. Schwitter
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.
Turbine Kinetics, Inc.
HEICO Aerospace Corporation
HEICO Repair Group
Aviation Engineered Services Corp.
Future Aviation, Inc.
HEICO Repair Group - Miami
Inertial Airline Services, Inc.
Niacc-Avitech Technologies, Inc.
Prime Air, LLC and Prime Air Europe
Sunshine Avionics LLC
HEICO Specialty Products Group
Jetseal, Inc.
Thermal Structures, Inc.
HEICO Distribution Group
Seal Dynamics LLC
HEICO Electronic Technologies Corp.
Miami, Florida
Analog Modules, Inc.
Connectronics Corp. and Wiremax
Dukane Seacom, Inc.
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
VPT, Inc.
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310-1900
Telephone 800 307 3056
http:// www.bnymellon.com/shareowner/isd
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 2009, 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.
annual meeting
The Annual Meeting of Shareholders
will be held at the
JW Marriott Hotel Miami
1109 Brickell Avenue
Miami, FL 33131
Telephone 305 329 3500 on Monday,
March 29, 2010 at 10:00 a.m.
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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CORPORATION
HEICO® Corporation
Moving ahead
20
09
Annual Report