HEICO Corporation
Corporate Offices
3000 Taft Street
Hollywood, FL 33021
Telephone: 954-987-4000
Facsimile: 954-987-8228
www.heico.com
Subsidiaries
Flight Support Group
Action Research Corporation
Aero Design, Inc.
Aeroworks International Holdings, B.V.
Aircraft Technology, Inc.
Blue Aerospace LLC
CSI Aerospace, Inc.
DEC Technologies, Inc.
Future Aviation, Inc.
HEICO Aerospace Corporation
HEICO Aerospace Holdings Corp.
HEICO Aerospace Parts Corp.
HEICO Component Repair Group - Miami
HEICO Flight Support Corp.
HEICO Parts Group
HEICO Repair Group
Inertial Airline Services, Inc.
Jet Avion Corporation
Jetseal, Inc.
LPI Corporation
McClain International, Inc.
Niacc-Avitech Technologies, Inc.
Prime Air, LLC and Prime Air Europe
Reinhold Industries, Inc.
Seal Dynamics LLC
Sunshine Avionics LLC
Thermal Structures, Inc.
Turbine Kinetics, Inc.
Electronic Technologies Group
3D-Plus, SAS
Analog Modules, Inc.
Connectronics Corp. and Wiremax
dB Control Corp.
Dukane Seacom, Inc.
EMD Technologies Incorporated
Engineering Design Team, Inc.
HVT Group, Inc.
Dielectric Sciences, Inc.
Essex X-Ray & Medical Equipment LTD
Leader Tech, Inc.
Lucix Corporation
Lumina Power, Inc.
Radiant Power Corp.
Ramona Research, Inc.
Santa Barbara Infrared, Inc.
Sierra Microwave Technology, LLC
Switchcraft, Inc. and Conxall
VPT, Inc.
Registrar & Transfer Agent
Computershare Investor Services
P.O. BOX 30170
College Station, TX 77842-3170
Telephone: 800-307-3056
www.computershare.com/investor
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 2014, 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 on Friday,
March 20, 2015 at 10:00 a.m.
at the JW Marriott Miami
1109 Brickell Avenue
Miami, FL 33131
Telephone: 305-329-3500
Shareholder Information
Elizabeth R. Letendre
Corporate Secretary
HEICO Corporation
3000 Taft Street
Hollywood, FL 33021
Telephone: 954-987-4000
Facsimile: 954-987-8228
eletendre@heico.com
CORPORATION
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F I N A N C I A L H I G H L I G H T S
B O A R D O F D I R E C T O R S
Year ended October 31, (1)
(in thousands, except per share data)
Operating Data:
Net sales
Operating income
Interest expense
Net income attributable to HEICO
Weighted average number of common shares outstanding: (2)
Basic
Diluted
Per Share Data: (2)
Net income per share attributable to HEICO shareholders:
Basic
Diluted
Cash dividends per share (2)
Balance Sheet Data (as of October 31):
Total assets
Total debt (including current portion)
Redeemable noncontrolling interests
Total shareholders’ equity
2012
2013
2014
$ 897,347
163,294
2,432
85,147
$ 1,008,757
183,590
3,717
102,396 (3)
$ 1,132,311
203,388
5,441
121,293 (4)
65,861
66,624
66,298
66,982
66,463
67,453
$
1.29
1.28
.086
$
$
1.54 (3)
1.53 (3)
1.816
1.82 (4)
1.80 (4)
.470
$ 1,192,846
131,820
67,166
719,759
$ 1,533,015
377,515
59,218
723,235
$ 1,489,214
329,109
39,966
774,619
(1) Results include the results of acquisitions from each respective effective date.
(2) All share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock splits effected in October 2013 and April 2012.
(3) Includes the aggregate tax benefit from an income tax credit for qualified research and development activities for the last ten months of fiscal 2012 recognized in fiscal
2013 upon the retroactive extension in January 2013 of the U.S. research and development tax credit and higher research and development tax credits recognized upon
the filing of HEICO’s fiscal 2012 U.S. federal and state tax returns, which, net of expenses, increased net income attributable to HEICO by $1.8 million, or $.03 per
basic and diluted share.
(4) Operating income was increased by a $28.1 million reduction in accrued contingent consideration related to a fiscal 2013 and a fiscal 2012 acquisition within the
Electronic Technologies Group (“ETG”), partially offset by $15.0 million in impairment losses related to the write-down of certain intangible assets at the fiscal 2013
and fiscal 2012 acquisitions to their estimated fair values as well as lower than expected operating income at the fiscal 2013 acquired business, which in aggregate
increased net income attributable to HEICO by $10.2 million, or $.15 per basic and diluted share. The reduction in the value of contingent consideration and $13.1
million of the impairment losses were recorded as a component of selling, general and administrative expenses, while the remaining impairment losses of $1.9 million
were recorded as a component of cost of sales.
F O R W A R D - L O O K I N G S T A T E M E N T S
Certain statements in this report constitute forward-looking statements, which are subject to risks, uncertainties and contingencies.
HEICO’s actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of fac-
tors including, but not limited to: lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which
could cause lower demand for our goods and services; product development or 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; product development difficulties, which could increase our product development costs and delay sales; our ability
to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest and income tax rates and
economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which
could negatively impact our costs and revenues; and defense budget cuts, which could reduce our defense-related revenue. 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 statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.
THOMAS M. CULLIGAN
retired Sr. Vice President and
CEO of Raytheon International,
The Raytheon Company
ADOLFO HENRIQUES
Chairman and CEO,
Gibraltar Private Bank and Trust
SAMUEL L. HIGGINBOTTOM
retired Chairman, President and
Chief Executive Officer,
Rolls-Royce, Inc.
Thomas M. Culligan
Adolfo Henriques
MARK H. HILDEBRANDT
Samuel L. Higginbottom
Mark H. Hildebrandt
Managing Member and Partner,
Waldman, Trigoboff, Hildebrandt,
Marx & Calnan, P.A.
WOLFGANG MAYRHUBER
Chairman of the Supervisory Board,
Deutsche Lufthansa AG
Chairman of the Supervisory Board,
Infineon Technologies 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
JULIE NEITZEL
Partner,
WE Family Offices
DR. ALAN SCHRIESHEIM
retired Director,
Argonne National Laboratory
FRANK J. SCHWITTER
retired Partner,
Arthur Andersen LLP
Wolfgang Mayrhuber
Eric A. Mendelson
Laurans A. Mendelson
Victor H. Mendelson
Julie Neitzel
Dr. Alan Schriesheim
Frank J. Schwitter
C O R P O R A T E P R O F I L E
HEICO Corporation is a rapidly growing aerospace and electronics
company focused on niche markets and cost-saving solutions
for its customers. HEICO’s products are found in the most demanding
Our Electronic Technologies
applications requiring high-reliability parts and components, such
Group designs and manufactures
as aircraft, spacecraft, defense equipment, medical equipment,
mission-critical niche electronic,
and telecommunications systems. Through our Flight Support
electro-optical, microwave and
Group, we are: the world’s largest independent provider of
other components found in aviation,
commercial, FAA-approved aircraft replacement parts;
broadcast, defense, homeland security,
a significant provider of aircraft accessories component
medical, space, telecom and other complex
repair & overhaul services for avionic, electro-me-
equipment used worldwide.
chanical, flight surface, hydraulic and pneumatic
applications; a leader in niche aircraft parts
HEICO’s customers include most of the world’s
distribution; and a manufacturer of other
airlines, overhaul shops, satellite manufacturers,
critical aircraft parts.
commercial and defense equipment producers,
medical equipment manufacturers, government agencies,
telecommunications equipment suppliers and others.
N E T S A L E S
(in millions)
$1,132.3
$1,008.8
$897.3
O P E R A T I N G I N C O M E
(in millions)
$203.4
$183.6
$163.3
2012 2013 2014
2012 2013 2014
N E T I N C O M E
(in millions)
$121.3
N E T I N C O M E P E R S H A R E
(diluted)
$1.80
$102.4
$85.1
$1.53
$1.28
2012 2013 2014
2012 2013 2014
H E I C O C O R P O R A T I O N / 1
M A N A G E M E N T ’ S M E S S A G E
increased the semi-annual dividend by 17% over the
prior payment level payable on both classes of our
common shares.
The Electronic Technologies Group’s 3D Plus subsidiary
supplied mission critical components on the European
Space Agency’s Rosetta program, which successfully
landed a robotic probe on a comet for the first time
in history. Additionally, 3D Plus and the Electronic
Technologies Group’s VPT subsidiary each supplied
high-reliability electronic products for NASA’s successful
Orion launch in late 2014.
Strength in our commercial aviation markets, the
possibility of improvement in defense budgets and
lower oil prices leave us cautiously optimistic for 2015
and beyond. We will remain focused on growing HEICO
to maximize these opportunities.
HEICO is blessed to have an incomparable group
of Team Members who are dedicated to serving
our customers, their fellow Team Members and our
shareholders (who include most HEICO Team
Members). We credit and thank our Team Members
for the exemplary results borne by their efforts.
We suggest you read the Question and Answer session
which follows this letter to learn more about HEICO’s
2014 and some thoughts on our future.
As always, we thank our customers, our fellow share-
holders and our Board of Directors for their confidence
and support.
Sincerely,
Laurans A. Mendelson
Chairman & Chief Executive Officer
Eric A. Mendelson
Co-President
Victor H. Mendelson
Co-President
Dear Fellow Shareholder:
2014 was another excellent year for HEICO Corpora-
tion. Our company again reported record net sales,
operating income, net income and net operating cash
flow for the fiscal year.
Net income increased 18% to a record $121.3 million, or
$1.80 per diluted share, up from $102.4 million, or $1.53
per diluted share, in Fiscal 2013.
Our cash flow provided by operating activities was
$190.7 million, an increase from $131.8 million in Fiscal
2013. Fiscal 2014’s cash flow was 157% of the Company’s
net income. Net sales increased 12% to a record $1.132
billion, up from $1.009 billion in Fiscal 2013.
Our Flight Support Group’s net sales increased 15% to
a record $762.8 million, up from $665.1 million in Fiscal
2013. This was fueled mostly by organic growth, as well
as some growth from a Fiscal 2013 acquisition. The
Flight Support Group’s operating income increased
12% to a record $136.5 million, up from $122.1 million
in Fiscal 2013.
The Electronic Technologies Group’s net sales increased
8% to a record $379.4 million, up from $350.0 million
in Fiscal 2013. Most of the increase came from a Fiscal
2013 acquisition, as well as some organic growth. The
Electronic Technologies Group’s operating income
increased 7% to a record $88.9 million, up from $83.1
million in Fiscal 2013.
Please see the accompanying financial statements for
details about our Company’s financial performance.
During Fiscal 2014, HEICO Corporation paid its 72nd
consecutive semi-annual cash dividend since 1979, and,
in December 2014, the Company’s Board of Directors
2 / H E I C O C O R P O R A T I O N
Q U E S T I O N S A N S W E R S
We are often asked the same or similar questions by investors,
Team Members and others during the year. Therefore, we
have been including a Question and Answer section in our Annual
Report for many years, and this year’s questions and answers are below:
Shown in the photo: seated, left to right, Thomas S. Irwin, Senior Executive
Vice President, Laurans A. Mendelson, Chairman and Chief Executive Officer;
standing, left to right, Victor H. Mendelson, Co-President, Joseph W. Pallot,
General Counsel, Carlos L. Macau, Jr., Executive Vice President, Chief Financial
Officer and Treasurer, Eric A. Mendelson, Co-President.
Q. What stood out for HEICO in 2014?
A. Overall, our commercial aviation businesses stood out among our companies. We attribute
this to their strong emphasis on product and service development (which is something we did
even when conditions were more difficult a few years ago) and growth in commercial aircraft
travel, along with greater commercial aircraft utilization. Some of our space operations were also
strong in Fiscal 2014 as a result of product development and customer relationships.
Q. What was most challenging for HEICO in 2014?
A. The continuing contraction in U.S. Defense spending was difficult for a few of our companies, even though
other HEICO defense-focused businesses performed admirably. Slower orders and some technical issues also
needed to be overcome at a newly acquired space company.
Q. Can you update us on HEICO’s acquisition approach?
A. We continue to seek high-quality acquisitions and our Flight Support Group completed a small purchase during
the year. Despite the fact that we remain very active in acquisition activities, we are very cautious about how
we deploy HEICO’s capital and will only buy businesses that we believe fit well with our financial, operational
and high-quality culture philosophies.
Q. How do you see the defense market outlook in the future?
A. Although we expect continued pressure on the U.S. defense budget in the near term, world affairs have started
to reverse some of those pressures. We expect the intermediate and longer term outlook for defense markets to
be healthy and we remain committed to them.
Q. What is HEICO’s strategy for growth in 2015 and beyond?
A. Our strategy is to do as we have historically done - - stay committed to our core markets with product and
service development, seek and make acquisitions, grow our market share, develop our Team Members and keep
our absolute commitment to quality.
H E I C O C O R P O R A T I O N / 3
C O M M E R C I A L A V I A T I O N
4 / H E I C O C O R P O R A T I O N
Commercial air travel continues to grow with
HEICO’s broad products and services offerings
found on many types of jetliners around the world.
Quality, Service and
Dependability have
been HEICO’s hallmarks
for decades.
S tarting with devoted and quality-focused Team Members around
the globe, every product made, serviced or distributed by our Flight
Support Group must meet our industry’s uniquely demanding quality
requirements. Our Team Members demonstrate this commitment in
everything we do - - starting with product design, and then following
to production, inspection and sale.
An aircraft accessory component undergoing final testing
in a specially-designed test chamber at the HEICO Repair
Group facility in Miami, FL.
Jet engine replacement parts, such as these
compressor blades, are manufactured and
sold by the HEICO Parts Group.
H E I C O C O R P O R A T I O N / 5
6 / H E I C O C O R P O R A T I O N
The Flight Support Group’s distribution companies
operate domestic and international facilities to serve
aviation and defense companies without delay.
Commercial Aviation Continued
Our Team Members are equally committed to service excellence. To us,
service begins with creative design and engineering to provide our customers
with the innovative solutions they require. To accomplish this, we rely on
diverse and extensive engineering departments in numerous locations where
they employ sophisticated techniques and equipment to solve complex
problems. But, it doesn’t end at product design and engineering. Our service
continues through and after the sales processes with extensive follow-up
by our customer service teams to validate that our customers’ satisfaction
levels remain high.
Dependability means our customers can rely on HEICO’s products to
operate in environments where these products cannot fail and it means
our customers must know that we deliver as promised. We recognize our
reputation is built every day by each action our Team Members undertake.
We can never rest on our laurels or be satisfied with yesterday’s results.
Tomorrow beckons us with the requirement for constant improvements.
Of course, safety is placed above all else. While meeting safety needs, our
Team Members are expert at innovative solutions which further commercial
aerospace development and address changing customer requirements.
Sophisticated aircraft components are manufactured on
advanced machining equipment by expert machinists
at a HEICO Flight Support Group facility.
A quality technician in the HEICO
Parts Group’s Inspection Laboratory in
Hollywood, FL evaluates a part prior
to completion.
H E I C O C O R P O R A T I O N / 7
S P A C E D E F E N S E
8 / H E I C O C O R P O R A T I O N
Multiple Electronic Technologies Group
companies supply critical components
on the U.S. Air Force’s Global Positioning
Satellite program, commonly known as “GPS.”
Above, a GPS satellite is successfully launched
into space from Cape Canaveral, Florida in 2014.
Photo courtesy of United Launch Alliance.
The Electronic Technologies Group’s products also operate in supremely
demanding environments where failure cannot be tolerated.
Numerous Electronic Technologies Group companies supply high-reliability
components utilized on communications, scientific, Earth-observation and
military satellites. These components include, among others, microwave
assemblies, power supplies, power converters, memory modules, frequency
converters, master local oscillators and connectors. Our uncommonly talented
engineering and design teams are called upon to develop exacting products
and solutions for remarkably sophisticated customers. Our Team Members
succeed at this every day.
Similarly, the Electronic Technologies Group’s companies that supply defense
products provide an extensive variety of components ranging from Laser
Rangefinder Receivers, power supplies, amplifiers, connectors, infrared cameras
and testing equipment, power converters and many other products for mostly
airborne equipment. Knowing the life-and-death nature of the systems which
use our products heightens our focus. Our customers, which include govern-
ments, commercial satellite markets, major defense contractors and others,
count on the Electronic Technologies Group’s companies for inventive designs.
The Electronic Technologies Group’s 3D Plus subsidiary’s
memory modules, similar to the ones shown below, were
used in the European Space Agency’s Rosetta comet
landing program and NASA’s Orion program.
HEICO subsidiaries, in both the
Electronic Technologies Group and
the Flight Support Group, supply
mission-critical components on
various missile defense programs,
such as the Patriot missile system
shown above.
H E I C O C O R P O R A T I O N / 9
O T H E R E X P A N D I N G
E L E C T R O N I C S M A R K E T S
1 0 / H E I C O C O R P O R A T I O N
A proprietary power supply system for radiology
applications designed and built by the Electronic
Technologies Group’s EMD Technologies subsidiary
is shown above. In addition to the Company’s
traditional aerospace and defense markets, multiple
Electronic Technologies Group companies also serve the
growing medical equipment markets.
HEICO’s Electronic Technologies companies also serve the commercial
aviation industry with emergency backup power supplies, power distribution
equipment, underwater locator beacons, wireless switches and controls, as
well as connectors and power controls. Commercial aviation requirements are
as exacting as the ones we must meet with our space and defense products.
The Electronic Technologies Group Companies that serve medical equipment
markets are also subject to stringent requirements, which is one of the many
reasons why our companies are perfectly positioned to meet customer needs
in this market. From power supplies that are used in medically-related lasers,
to large power generating systems used on X-ray, CT and radiation therapy
equipment, as well as high voltage cable assemblies, our Team Members work
to customer requirements and standards which demand perfection.
We also provide harsh environment and regulator-required electronic
components that are used in a variety of non-aerospace, defense or medical
applications. Among these are Electro-Magnetic and Radio Frequency
Interference shielding, high-voltage connectors, other connectors and power
supplies to meet rigorous operating environment standards. Some Electronic
Technologies Group Companies provide their products to multiple industries
and are on multiple platforms in those industries.
The Electronic Technologies Group’s VPT subsidiary is a leading designer
and maker of mission-critical, hybrid power products. Below, a VPT
Team Member in Blacksburg, VA uses unique wire bonding equipment to
create a hybrid DC-to-DC power converter.
H E I C O C O R P O R A T I O N / 1 1
2 0 1 4
F I N A N C I A L S T A T E M E N T S
A N D O T H E R I N F O R M A T I O N
Selected Financial Data
13
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Consolidated Balance Sheets
14
25
Consolidated Statements of Operations
26
Consolidated Statements of Comprehensive Income
27
Consolidated Statements of Shareholders’ Equity
28
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
30
31
Management’s Annual Report on Internal Control Over
Financial Reporting and Executive Officer Certifications
59
Reports of Independent Registered Public
Accounting Firm
Market for Company’s Common Equity and
Related Stockholder Matters
60
62
1 2 / H E I C O C O R P O R A T I O N
S E L E C T E D F I N A N C I A L D A T A
Year ended October 31, (1)
2014
2013
2012
2011
2010
(in thousands, except per share data)
Operating Data:
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Other income
Net income attributable to HEICO
Weighted average number of common
shares outstanding (2)
Basic
Diluted
Per Share Data: (2)
Net income per share attributable to
HEICO shareholders:
Basic
Diluted
Cash dividends per share (2)
Balance Sheet Data (as of October 31):
Cash and cash equivalents
Total assets
Total debt (including current portion)
Redeemable noncontrolling interests
Total shareholders’ equity
$ 1,132,311
398,312
194,924
203,388 (3)
5,441
625
121,293 (3)
$ 1,008,757
371,181
187,591
183,590
3,717
888
102,396 (4)
$ 897,347
327,436
164,142
163,294
2,432
313
85,147
$ 764,891
274,441
136,010
138,431 (5)
142
64
72,820 (5)(6)
$ 617,020
222,347
113,174
109,173
508
390
54,938
66,463
67,453
66,298
66,982
65,861
66,624
65,050
66,408
64,126
65,959
$
1.82 (3)
1.80 (3)
.470
$
1.54 (4)
1.53 (4)
1.816
$
1.29
1.28
.086
$
1.12 (5)(6)
1.10 (5)(6)
.069
$
.86
.83
.055
$
20,229
1,489,214
329,109
39,966
774,619
$
15,499
1,533,015
377,515
59,218
723,235
$
21,451
1,192,846
131,820
67,166
719,759
$ 17,500
941,069
40,158
65,430
620,154
$
6,543
781,643
14,221
55,048
554,826
(1) Results include the results of acquisitions from each respective effective date. See Note 2, Acquisitions, of the Notes to Consolidated Financial Statements for more information.
(2) All share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock splits effected in October 2013 and April 2012, 2011 and 2010.
(3) Operating income was increased by a $28.1 million reduction in accrued contingent consideration related to a fiscal 2013 and a fiscal 2012 acquisition within the Electronic Technologies
Group (“ETG”), partially offset by $15.0 million in impairment losses related to the write-down of certain intangible assets at the fiscal 2013 and fiscal 2012 acquisitions to their estimated
fair values as well as lower than expected operating income at the fiscal 2013 acquired business, which in aggregate increased net income attributable to HEICO by $10.2 million, or $.15
per basic and diluted share. The reduction in the value of contingent consideration and $13.1 million of the impairment losses were recorded as a component of selling, general and
administrative expenses, while the remaining impairment losses of $1.9 million were recorded as a component of cost of sales.
(4) Includes the aggregate tax benefit from an income tax credit for qualified research and development activities for the last ten months of fiscal 2012 recognized in fiscal 2013 upon the
retroactive extension in January 2013 of the U.S. research and development tax credit and higher research and development tax credits recognized upon the filing of HEICO’s fiscal 2012
U.S. federal and state tax returns, which, net of expenses, increased net income attributable to HEICO by $1.8 million, or $.03 per basic and diluted share.
(5) Operating income was reduced by a net aggregate of $3.8 million due to $5.0 million in impairment losses related to the write-down of certain intangible assets within the ETG to their
estimated fair values, partially offset by a $1.2 million reduction in accrued contingent consideration related to a prior year acquisition. Approximately $4.5 million of the impairment
losses and the reduction in accrued contingent consideration were recorded as a component of selling, general and administrative expenses, while the remaining impairment losses of $.5
million were recorded as a component of cost of sales, which decreased net income attributable to HEICO by $2.4 million, or $.04 per basic and diluted share, in aggregate.
(6) Includes the aggregate tax benefit principally from state income apportionment updates and higher research and development tax credits recognized upon the filing of HEICO’s fiscal
2010 U.S. federal and state tax returns and amendments of certain prior year state tax returns as well as the benefit from an income tax credit for qualified research and development
activities for the last ten months of fiscal 2010 recognized in fiscal 2011 upon the retroactive extension in December 2010 of the U.S. research and development tax credit, which, net
of expenses, increased net income attributable to HEICO by $2.8 million, or $.04 per basic and diluted share, in aggregate.
H E I C O C O R P O R A T I O N / 1 3
HEICO CORPORATION AND SUBSIDIARIES
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”), which is 80% owned, and HEICO
Flight Support Corp., which is wholly owned, and their collective subsidiaries, which primarily:
• Designs, Manufactures, Repairs, Overhauls and Distributes Jet Engine and Aircraft Component Replacement Parts. The Flight
Support Group designs, manufactures, repairs, overhauls 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. Additionally, the Flight Support Group is a leading supplier, distributor, and integrator of military aircraft parts and
support services primarily to foreign military organizations allied with the United States and a leading manufacturer of advanced
niche components and complex composite assemblies for commercial aviation, defense and space applications.
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, traveling wave tube amplifiers and microwave power modules used in radar, electronic warfare, on-board jamming and
countermeasure systems, 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 sys-
tems to computers; high voltage energy generators interconnection devices, cable assemblies and wire for the medical equipment,
defense and other industrial markets; high frequency power delivery systems for the commercial sign industry; high voltage power
supplies found in satellite communications, CT scanners and in medical and industrial x-ray systems; three-dimensional micro-
electronic and stacked memory products that are principally integrated into larger subsystems equipping satellites and spacecraft;
harsh environment connectivity products and custom molded cable assemblies; RF and microwave amplifiers, transmitters and
receivers used to support military communications on unmanned aerial systems, other aircraft, helicopters and ground-based
data/communications systems, wireless cabin control systems, solid state power distribution and management systems and fuel
level sensing systems for business jets and for general aviation, as well as for the military/defense market and microwave modules,
units and integrated sub-systems for commercial and military satellites.
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. All applicable share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock
splits effected in October 2013 and April 2012. See Note 1, Summary of Significant Accounting Policies – Stock Splits, of the Notes
to Consolidated Financial Statements for additional information regarding these stock splits. For further information regarding the
acquisitions discussed below, see Note 2, Acquisitions, of the Notes to Consolidated Financial Statements. Acquisitions are included in
our results of operations from the effective dates of acquisition.
In June 2014, we acquired, through a subsidiary of HEICO Flight Support Corp., certain assets and liabilities of Quest Aviation
Supply, Inc. (“Quest Aviation”). Quest Aviation is a niche supplier of parts to repair thrust reversers on various aircraft engines.
In October 2013, we acquired, through HEICO Electronic, all of the outstanding stock of Lucix Corporation (“Lucix”) in a trans-
action carried out by means of a merger. Lucix is a leading designer and manufacturer of high performance, high reliability microwave
modules, units, and integrated sub-systems for commercial and military satellites.
On May 31, 2013, we acquired, through HEICO Flight Support Corp., Reinhold Industries, Inc. (“Reinhold”) through the
acquisition of all of the outstanding stock of Reinhold’s parent company in a transaction carried out by means of a merger. Reinhold is
a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation, defense and space
applications.
1 4 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In October 2012, we acquired, through HEICO Flight Support Corp., 80.1% of the assets and assumed certain liabilities of Action
Research Corporation (“Action Research”). Action Research is an FAA-Approved Repair Station that has developed unique proprietary
repairs that extend the lives of certain engine and airframe components. The remaining 19.9% interest continues to be owned by
an existing member of Action Research’s management team. The purchase price of this acquisition was paid using cash provided by
operating activities.
In August 2012, we acquired, through HEICO Flight Support Corp., 84% of the assets and assumed certain liabilities of CSI Aero-
space, Inc. (“CSI Aerospace”). CSI Aerospace is a leading repair and overhaul provider of specialized components for airlines, military
and other aerospace related organizations. The remaining 16% interest continues to be owned by certain members of CSI Aerospace’s
management team.
In April 2012, we acquired, through HEICO Electronic, certain aerospace assets of Moritz Aerospace, Inc. (“Moritz Aerospace”)
in an aerospace product line acquisition. The Moritz Aerospace product line designs and manufactures next generation wireless cabin
control systems, solid state power distribution and management systems and fuel level sensing systems for business jets and for general
aviation, as well as for the military/defense market segments. The purchase price of this acquisition was paid using cash provided by
operating activities.
In March 2012, we acquired, through HEICO Electronic, the business and substantially all of the assets of Ramona Research, Inc.
(“Ramona Research”). Ramona Research designs and manufactures RF and microwave amplifiers, transmitters and receivers primarily
used to support military communications on unmanned aerial systems, other aircraft, helicopters and ground-based data/communica-
tions systems.
On November 22, 2011, we acquired, through HEICO Electronic, Switchcraft, Inc. (“Switchcraft”) through the purchase of all of the
stock of Switchcraft’s parent company, Switchcraft Holdco, Inc. Switchcraft is a leading designer and manufacturer of high performance,
high reliability and harsh environment electronic connectors and other interconnect products.
Unless otherwise noted, the purchase price of each of the above referenced acquisitions was paid in cash principally using proceeds
from our revolving credit facility. The aggregate cost paid in cash for acquisitions, including additional purchase consideration pay-
ments, was $8.7 million, $222.6 million and $197.3 million in fiscal 2014, 2013 and 2012, respectively.
In February 2012, we acquired, through HEICO Aerospace, an additional 6.7% equity interest in one of our subsidiaries, which
increased our ownership interest to 86.7%. In December 2012, we acquired the remaining 13.3% equity interest in the subsidiary.
In February 2014, we acquired the 20% noncontrolling interest held by Lufthansa Technik AG (“LHT”) in four of our existing
subsidiaries principally operating in the specialty products and distribution businesses within HEICO Aerospace. For further informa-
tion regarding this acquisition, see Note 8, Shareholder’s Equity, of the Notes to the Consolidated Financial Statements.
Critical Accounting Policies
We believe that the following are our most critical accounting policies, which require management to make judgments about
matters that are inherently uncertain.
Assumptions utilized to determine fair value in connection with business combinations, contingent consideration arrangements and
in goodwill and intangible assets impairment tests are highly judgmental. If there is a material change in such assumptions 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.
Revenue Recognition
Revenue from the sale of products and the rendering of services is recognized when title and risk of loss passes to the customer,
which is generally at the time of shipment. 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. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the period of revision.
Revisions in cost estimates may be caused by factors such as the price or availability of raw materials and component parts or variations
in the amount of labor required and/or the materials necessary to meet customer specifications and requirements. Provisions for
estimated losses on uncompleted contracts are made in the period in which such losses are determined. The percentage of our net sales
recognized under the percentage-of-completion method was approximately 3%, 1% and 1% in fiscal 2014, 2013 and 2012, respectively.
Changes in estimates pertaining to percentage-of-completion contracts did not have a material or significant effect on net income or net
income per share in fiscal 2014, 2013 and 2012.
H E I C O C O R P O R A T I O N / 1 5
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Progress
billings and customer advances received on fixed price contracts accounted for under the completed-contract method are classified as a
reduction to contract costs that are included in inventories, if any, and any remaining amount is included in accrued expenses and other
current liabilities.
Valuation of Accounts Receivable
The valuation of accounts receivable requires that we set up an allowance for estimated uncollectible accounts and record a corre-
sponding 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, age of receivables outstanding and economic conditions within and outside of the aviation, defense, space,
medical, telecommunications and electronics industries. Actual bad debt expense could differ from estimates made.
Valuation of Inventory
Inventory is stated at the lower of cost or market, with cost being determined on the first-in, first-out or the average cost basis.
Losses, if any, are recognized fully in the period when identified.
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 any 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.
In accordance with industry practice, all inventories are classified as a current asset including portions with long production cycles,
some of which may not be realized within one year.
Business Combinations
We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and
liabilities and any noncontrolling interests assumed based on their estimated fair values, with any excess recorded as goodwill. Deter-
mining 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 intangible assets acquired generally in consultation with third-party
valuation advisors.
As part of the agreement to acquire certain subsidiaries, we may be obligated to pay contingent consideration should the acquired
entity meet certain earnings objectives subsequent to the date of acquisition. As of the acquisition date, contingent consideration is
recorded at fair value as determined through the use of a probability-based scenario analysis approach. Under this method, a set of
discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions
for each scenario. A probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant
contingent consideration is calculated and discounted using a weighted average discount rate reflecting the credit risk of a market partici-
pant. Subsequent to the acquisition date, the fair value of such contingent consideration is measured each reporting period and any
changes are recorded within our Consolidated Statements of Operations. Changes in either the revenue growth rates, related earnings or
the discount rate could result in a material change to the amount of contingent consideration accrued. As of October 31, 2014 and 2013,
$1.2 million and $29.3 million of contingent consideration was accrued within our Consolidated Balance Sheets, respectively. During
fiscal 2014, 2013 and 2012, such fair value measurement adjustments resulted in a net gain of $28.1 million, a net gain of $1.6 million and
a loss of $.1 million, respectively. For further information regarding the adjustment above, see Note 7, Fair Value Measurements, of the
Notes to Consolidated Financial Statements.
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. In evaluating the recoverability of goodwill, we 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 the reporting unit’s goodwill exceeds its implied fair value, if any. The fair values of our reporting units
were determined using a weighted average of a market approach and an income approach. Under the market approach, fair values
are estimated using published market multiples for comparable companies. We calculate fair values under the income approach by
taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management
and discounting them using an estimated weighted average cost of capital. Based on the annual goodwill impairment test as of October
31, 2014, 2013 and 2012, we determined there was no impairment of our goodwill. The fair value of each of our reporting units as of
October 31, 2014 significantly exceeded its carrying value.
1 6 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We test each non-amortizing intangible asset (principally trade names) for impairment annually as of October 31, or more
frequently if events or changes in circumstances indicate that the asset might be impaired. To derive the fair value of our trade names,
we utilize an income approach, which relies upon management’s assumptions of royalty rates, projected revenues and discount rates. We
also test each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be impaired. The test
consists 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 intangible
impairment tests conducted, we recognized pre-tax impairment losses within the ETG during fiscal 2014 related to the write-down of
certain customer relationships, non-amortizing trade names, and intellectual property of $11.2 million, $1.9 million and $1.9 million,
respectively, to their estimated fair values. The impairment losses pertaining to customer relationships and non-amortizing trade names
were recorded as a component of selling, general and administrative expenses in the Company’s Consolidated Statement of Operations
and the impairment losses pertaining to intellectual property were recorded as a component of cost of sales. For additional information
regarding the impairment losses discussed above, including the assumptions made when determining the asset’s fair value, see Note 7,
Fair Value Measurements, of the Notes to Consolidated Financial Statements.
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 (in thousands):
Year ended October 31,
Net sales
Cost of sales
Selling, general and administrative expenses
Total operating costs and expenses
Operating income
Net sales by segment:
Flight Support Group
Electronic Technologies Group
Intersegment sales
Operating income by segment:
Flight Support Group
Electronic Technologies Group
Other, primarily corporate
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Other income
Income tax expense
Net income attributable to noncontrolling interests
Net income attributable to HEICO
2014
$ 1,132,311
733,999
194,924
928,923
$ 203,388
$ 762,801
379,404
(9,894)
$ 1,132,311
$ 136,480
88,914
(22,006)
$ 203,388
100.0%
35.2%
17.2%
18.0%
.5%
.1%
5.3%
1.5%
10.7%
2013
$ 1,008,757
637,576
187,591
825,167
$ 183,590
$ 665,148
350,033
(6,424)
$ 1,008,757
$ 122,058
83,063
(21,531)
$ 183,590
100.0%
36.8%
18.6%
18.2%
.4%
.1%
5.6%
2.2%
10.2%
2012
$ 897,347
569,911
164,142
734,053
$ 163,294
$ 570,325
331,598
(4,576)
$ 897,347
$ 103,943
77,438
(18,087)
$ 163,294
100.0%
36.5%
18.3%
18.2%
.3%
—%
6.1%
2.4%
9.5%
H E I C O C O R P O R A T I O N / 1 7
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Fiscal 2014 to Fiscal 2013
Net Sales
Our net sales in fiscal 2014 increased by 12% to a record $1,132.3 million, as compared to net sales of $1,008.8 million in fiscal
2013. The increase in net sales principally reflects an increase of $97.7 million (a 15% increase) to a record $762.8 million in net sales
within the FSG as well as an increase of $29.4 million (an 8% increase) to a record $379.4 million in net sales within the ETG. The net
sales increase in the FSG reflects organic growth of approximately 9% as well as additional net sales of $37.7 million from a fiscal 2013
acquisition. The organic growth in the FSG principally reflects new product offerings and favorable market conditions resulting in
net sales increases of $58.6 million within our aftermarket replacement parts and repair and overhaul services product lines. The net
sales increase in the ETG resulted from additional net sales of $23.5 million from a fiscal 2013 acquisition as well as organic growth of
approximately 2%. The organic growth in the ETG principally reflects an increase in demand for certain space and aerospace products
resulting in a $7.5 million and $2.1 million increase in net sales, respectively, partially offset by a decrease in demand for certain defense
products resulting in a decrease in net sales of $3.4 million. Sales price changes were not a significant contributing factor to the FSG and
ETG net sales growth in fiscal 2014.
Our net sales in fiscal 2014 and 2013 by market approximated 56% and 54%, respectively, from the commercial aviation industry,
26% and 26%, respectively, from the defense and space industries, and 18% and 20%, respectively, from other industrial markets
including medical, electronics and telecommunications.
Gross Profit and Operating Expenses
Our consolidated gross profit margin decreased to 35.2% in fiscal 2014 as compared to 36.8% in fiscal 2013 principally reflects a decrease
of 4.2% in the ETG’s gross profit margin. The decrease in the ETG’s gross profit margin is mainly attributed to a less favorable product mix
for certain of our space and defense products inclusive of the impact of the fiscal 2013 acquisition as well as a .5% impact from an impairment
loss related to the write-down of a certain intangible asset to its estimated fair value. Total new product research and development expenses
included within our consolidated cost of sales increased to $37.4 million in fiscal 2014 compared to $32.9 million in fiscal 2013.
Selling, general and administrative (“SG&A”) expenses were $194.9 million and $187.6 million in fiscal 2014 and 2013, respectively.
The increase in SG&A expenses is principally attributable to additional costs to support the higher net sales volumes. During fiscal 2014,
SG&A expenses were reduced by $15.0 million from the net impact of a $28.1 million decrease in the estimated fair value of accrued
contingent consideration associated with the fiscal 2013 and a fiscal 2012 acquisition of the ETG that was partially offset by $13.1 million
of impairment losses related to the write-down of certain intangible assets of the acquired entities to their estimated fair values. The
reductions in accrued contingent consideration and impairment losses were principally due to less favorable projected market conditions
for certain of the acquired entities’ space and defense products. See Note 7, Fair Value Measurements, for additional information regard-
ing the contingent consideration arrangements and valuations thereof as well as further information pertaining to the measurement and
recognition of the impairment losses associated with intangible assets.
SG&A expenses as a percentage of net sales decreased from 18.6% in fiscal 2013 to 17.2% in fiscal 2014 principally reflecting the
previously mentioned net impact of fair value adjustments to accrued contingent consideration and intangible asset impairment losses.
Operating Income
Operating income in fiscal 2014 increased by 11% to a record $203.4 million as compared to operating income of $183.6 million in
fiscal 2013. The increase in operating income reflects a $14.4 million increase (a 12% increase) to a record $136.5 million in operating
income of the FSG in fiscal 2014, up from $122.1 million in fiscal 2013 and a $5.8 million increase (a 7% increase) in operating income
of the ETG to a record $88.9 million in fiscal 2014, up from $83.1 million in fiscal 2013. The increase in operating income of the FSG is
principally attributed to the previously mentioned net sales growth. The increase in operating income of the ETG is attributable to the
previously mentioned organic net sales growth and reductions in accrued contingent consideration partially offset by the less favorable
product mix, impairment losses and lower than expected operating income from the fiscal 2013 acquisition.
Our consolidated operating income as a percentage of net sales decreased to 18.0% in fiscal 2014 from 18.2% in fiscal 2013. The
decrease in consolidated operating income as a percentage of net sales reflects a reduction in the FSG’s operating income as a percentage
of net sales from 18.4% in fiscal 2013 to 17.9% in fiscal 2014 and a reduction in the ETG’s operating income as a percentage of net sales
from 23.7% in fiscal 2013 to 23.4% in fiscal 2014. The decrease in the FSG’s operating income as a percentage of net sales principally
reflects a slightly lower gross profit margin as well as increases in certain SG&A expenses to support the higher net sales volumes. The
decrease in the ETG’s operating income as a percentage of net sales is primarily attributed to the previously mentioned lower gross profit
margin and impairment losses partially offset by the reductions in accrued contingent consideration.
Interest Expense
Interest expense increased to $5.4 million in fiscal 2014 from $3.7 million in fiscal 2013. The increase was principally due to a
higher weighted average balance outstanding under our revolving credit facility in fiscal 2014 associated with fiscal 2013 acquisitions and
the acquisition of certain noncontrolling interests during fiscal 2014.
1 8 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Income
Other income in fiscal 2014 and 2013 was not material.
Income Tax Expense
Our effective tax rate in fiscal 2014 decreased to 30.1% from 31.1% in fiscal 2013. The decrease is principally attributed to the im-
pact of a nontaxable reduction in accrued contingent consideration during fiscal 2014 associated with a fiscal 2013 acquisition acquired
by means of a stock transaction. The aforementioned decrease in the effective tax rate was partially offset by lower U.S. federal research
and development (“R&D”) tax credits recognized in fiscal 2014 due to the expiration of the U.S. federal R&D tax credit in December
2013 compared to fiscal 2013 during which the retroactive extension of the U.S. federal R&D tax credit in the first quarter resulted in
twenty-two months of U.S. federal R&D tax credits recognized that year. Additionally, the decrease in the effective rate was partially
offset by higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation
Leadership Compensation Plan (“LCP”) in fiscal 2013 compared to fiscal 2014. For a detailed analysis of the provision for income taxes,
see Note 6, Income Taxes, of the Notes to Consolidated Financial Statements.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by LHT in HEICO Aerospace
and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling
interests was $17.5 million in fiscal 2014 compared to $22.2 million in fiscal 2013. The decrease principally reflects lower allocations of
net income to noncontrolling interests in fiscal 2014 due to the acquisition of certain noncontrolling interests during the current year.
Net Income Attributable to HEICO
Net income attributable to HEICO increased to a record $121.3 million, or $1.80 per diluted share, in fiscal 2014 from $102.4
million, or $1.53 per diluted share, in fiscal 2013, principally reflecting the previously mentioned increased operating income, lower
allocation of net income to noncontrolling interests and the lower effective tax rate.
Outlook
As we look ahead to fiscal 2015, we anticipate continued growth within the FSG’s aftermarket replacement parts and repair and
overhaul services product lines partially offset by declines in demand for certain of our industrial products within our specialty products
lines. Furthermore, we anticipate improved demand and moderate levels of growth within the ETG as compared to fiscal 2014. During
fiscal 2015, we will continue our focus on developing new products and services, further market penetration, additional acquisition
opportunities and maintaining our financial strength. Overall, we are targeting growth in fiscal 2015 full year net sales and net income
over fiscal 2014 levels.
Comparison of Fiscal 2013 to Fiscal 2012
Net Sales
Our net sales in fiscal 2013 increased by 12% to a record $1,008.8 million, as compared to net sales of $897.3 million in fiscal 2012.
The increase in net sales reflects an increase of $94.8 million (a 17% increase) to a record $665.1 million within the FSG as well as an
increase of $18.4 million (a 6% increase) to a record $350.0 million within the ETG. The net sales increase in the FSG reflects organic
growth of approximately 9% as well as additional net sales of $42.3 million from the fiscal 2013 and 2012 acquisitions. The organic
growth in the FSG principally reflects an increase in net sales from new product offerings and improving market conditions resulting
in a $40.7 million increase in net sales within our aftermarket replacement parts and repair and overhaul services product lines and
an $11.8 million increase in net sales within our specialty products lines. The net sales increase in the ETG reflects organic growth of
approximately 3% as well as additional net sales of $8.0 million from fiscal 2013 and 2012 acquisitions. The organic growth in the ETG
principally reflects increased demand for certain space and aerospace products resulting in a $12.2 million and $3.3 million increase in
net sales from these product lines, respectively, partially offset by a decrease in demand for certain of our defense and medical products
resulting in a $3.1 million and $1.9 million decrease in net sales from these product lines, respectively. Sales price changes were not a
significant contributing factor to the FSG and ETG net sales growth for fiscal 2013.
Our net sales in fiscal 2013 and 2012 by market approximated 54% and 53%, respectively, from the commercial aviation industry,
26% and 26%, respectively, from the defense and space industries, and 20% and 21%, respectively, from other industrial markets
including medical, electronics and telecommunications.
Gross Profit and Operating Expenses
Our consolidated gross profit margin increased to 36.8% in fiscal 2013 as compared to 36.5% in fiscal 2012, principally reflecting
a 1.4% and .1% increase in the ETG’s and FSG’s gross profit margin, respectively. The increase in the ETG’s gross profit margin is
principally attributed to increased net sales and a more favorable product mix for certain of our space products partially offset by lower
net sales and a less favorable product mix for certain of our defense products. Total new product research and development expenses
included within our consolidated cost of sales increased to $32.9 million in fiscal 2013 compared to $30.4 million in fiscal 2012.
H E I C O C O R P O R A T I O N / 1 9
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SG&A expenses were $187.6 million and $164.1 million for fiscal 2013 and fiscal 2012, respectively. The increase in SG&A expenses
reflects an increase of $18.5 million in general and administrative expenses principally attributed to an $8.9 million increase from the
fiscal 2013 and 2012 acquired businesses and the remainder to support the higher net sales volumes including an increase in accrued
performance awards based on the improved consolidated operating results. Additionally, the increase in SG&A expenses reflects an
increase of $5.0 million in selling expenses of which $1.3 million pertains to the acquired businesses and the remainder is attributed to
higher sales-related commissions and other costs from the nets sales growth. SG&A expenses as a percentage of net sales increased to
18.6% for fiscal 2013 as compared to 18.3% for fiscal 2012 principally reflecting the impact from the previously mentioned increase in
accrued performance awards.
Operating Income
Operating income for fiscal 2013 increased by 12% to a record $183.6 million as compared to operating income of $163.3 million for
fiscal 2012. The increase in operating income reflects an $18.1 million increase (a 17% increase) to a record $122.1 million in operating
income of the FSG for fiscal 2013, up from $103.9 million for fiscal 2012 and a $5.6 million increase (a 7% increase) in operating income of
the ETG to a record $83.1 million for fiscal 2013, up from $77.4 million for fiscal 2012, partially offset by a $3.4 million increase in corporate
expenses. The increase in the operating income of the FSG is principally attributed to the previously mentioned net sales growth. The
increase in the operating income of the ETG reflects the previously mentioned improved gross profit margin and net sales growth.
As a percentage of net sales, our consolidated operating income was 18.2% for both fiscal 2013 and fiscal 2012 despite operating
margin improvements of .3% and .2% within the ETG and FSG, respectively, as the FSG, and its lower operating income as a percentage
of net sales relative to the ETG, accounted for a larger percentage of our consolidated net sales for fiscal 2013 as compared to fiscal
2012. The ETG’s operating income as a percentage of net sales increased from 23.4% in fiscal 2012 to 23.7% in fiscal 2013 reflecting the
previously mentioned improved gross profit margin partially offset by an increase in SG&A expenses as a percentage of net sales. The
FSG’s operating income as a percentage of net sales increased from 18.2% in fiscal 2012 to 18.4% in fiscal 2013 reflecting the previously
mentioned improved gross profit margin.
Interest Expense
Interest expense increased to $3.7 million in fiscal 2013, up from $2.4 million in fiscal 2012. The increase was principally due to a
higher weighted average balance outstanding under our revolving credit facility during fiscal 2013 associated with fiscal 2013 and 2012
acquisitions and borrowings made to fund an aggregate $1.76 per share cash dividend paid in December 2012.
Other Income
Other income in fiscal 2013 and 2012 was not material.
Income Tax Expense
Our effective tax rate in fiscal 2013 decreased to 31.1% from 33.8% in fiscal 2012. The decrease is partially due to higher research
and development tax credits recognized in fiscal 2013 resulting from the retroactive extension of the U.S. federal R&D tax credit in
January 2013 to cover a two-year period from January 1, 2012 to December 31, 2013. The decrease in the effective tax rate was also
attributed to the benefit from higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP
and a larger income tax deduction recognized for the special and extraordinary cash dividend paid in December 2012 to participants of
the HEICO Savings and Investment Plan holding HEICO common stock. For a detailed analysis of the provision for income taxes, see
Note 6, Income Taxes, of the Notes to Consolidated Financial Statements.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by LHT in HEICO Aerospace
and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling
interests was $22.2 million in fiscal 2013 compared to $21.5 million in fiscal 2012. The increase for fiscal 2013 reflects the aggregate
impact of higher earnings of FSG and ETG subsidiaries in which noncontrolling interests are held, partially offset by our purchases of
certain noncontrolling interests during fiscal 2013 and 2012 resulting in lower allocations of net income to noncontrolling interests.
Net Income Attributable to HEICO
Net income attributable to HEICO increased to a record $102.4 million, or $1.53 per diluted share, in fiscal 2013, up from $85.1
million, or $1.28 per diluted share, in fiscal 2012, principally reflecting the previously mentioned increased operating income and the
favorable tax benefits recognized during fiscal 2013.
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 net income attributable to HEICO has been generally minimized by efforts to lower costs through manufac-
turing efficiencies and cost reductions.
2 0 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Our capitalization was as follows (in thousands):
As of October 31,
Total debt (including current portion)
Less: Cash and cash equivalents
Net debt (total debt less cash and cash equivalents)
Shareholders’ equity
Total capitalization (debt plus equity)
Net debt to shareholders’ equity
Total debt to total capitalization
$
2014
329,109
20,229
308,880
774,619
1,103,728
40%
30%
2013
$ 377,515
15,499
362,016
723,235
1,100,750
50%
34%
Our principal uses of cash include acquisitions, distributions to noncontrolling interests, cash dividends, capital expenditures and
working capital needs. Capital expenditures in fiscal 2015 are anticipated to approximate $25 million. We finance our activities primari-
ly from our operating and financing activities, including borrowings under our revolving credit facility.
As of December 16, 2014, we had approximately $480 million of unused committed availability under the terms of our revolving
credit facility. 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 at least the next twelve months.
Operating Activities
Net cash provided by operating activities was $190.7 million in fiscal 2014 and consisted primarily of net income from consolidated
operations of $138.8 million, depreciation and amortization of $47.8 million (a non-cash item), a decrease in working capital (current
assets minus current liabilities) of $16.0 million and impairment of intangible assets totaling $15.0 million (a non-cash item), partially
offset by a $28.1 million decrease in accrued contingent consideration (a non-cash item) associated with prior year acquisitions. Net
cash provided by operating activities increased by $58.9 million in fiscal 2014 from $131.8 million in fiscal 2013. The increase in net
cash provided by operating activities in fiscal 2014 is principally due to a $47.0 million decrease in working capital and increases of $15.0
million, $14.2 million and $11.0 million in impairment of intangible assets, net income from consolidated operations and depreciation
and amortization, respectively, partially offset by a $26.5 million decrease in accrued contingent consideration associated with a fiscal
2013 and a fiscal 2012 acquisition. The $47.0 million decrease in working capital principally reflects a $23.6 million decrease in accounts
receivable due to improved timeliness of cash collections and a $15.0 million decrease in inventories resulting from more efficient
inventory management at our subsidiaries.
Net cash provided by operating activities was $131.8 million in fiscal 2013 and consisted primarily of net income from consolidated
operations of $124.6 million and depreciation and amortization of $36.8 million, partially offset by an increase in working capital of
$30.9 million. The increase in working capital was principally attributed to increases in accounts receivable and inventory as a result
of net sales growth during the period. Net cash provided by operating activities decreased by $6.7 million in fiscal 2013 from $138.6
million in fiscal 2012. The decrease in cash provided by operating activities is principally attributed to a $27.8 million increase in
working capital reflecting increases in accounts receivable of $10.8 million and inventories of $7.4 million as a result of net sales growth,
a $9.0 million decrease in income taxes payable due to the timing of estimated payments and a $3.0 million increase in our deferred tax
benefit, partially offset by a $17.9 million and $6.1 million increase in net income from consolidated operations and depreciation and
amortization, respectively.
Net cash provided by operating activities was $138.6 million in fiscal 2012, principally reflecting net income from consolidated
operations of $106.7 million, depreciation and amortization of $30.7 million and stock option compensation expense of $3.9 million,
partially offset by an increase in working capital of $3.1 million. The increase in working capital of $3.1 million primarily reflects a build
in inventory levels to meet customer demand and increased accounts receivable related to higher net sales in fiscal 2012, partially offset
by the timing of certain payments pertaining to fiscal 2012 accruals and payables.
Investing Activities
Net cash used in investing activities during the three-year fiscal period ended October 31, 2014 primarily relates to several
acquisitions aggregating $428.6 million, including $8.7 million in fiscal 2014, $222.6 million in fiscal 2013, and $197.3 million in fiscal
2012. Further details on acquisitions may be found under the caption “Overview” and Note 2, Acquisitions, of the Notes to Consolidated
Financial Statements. Capital expenditures aggregated $50.0 million over the last three fiscal years, primarily reflecting the expansion,
replacement and betterment of existing production facilities and capabilities, which were generally funded using cash provided by
operating activities.
H E I C O C O R P O R A T I O N / 2 1
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
Net cash used in financing activities was $160.1 million in fiscal 2014 as compared to net cash provided by financing activities of
$103.2 million and $78.4 million in fiscal 2013 and 2012, respectively. During the three-year fiscal period ended October 31, 2014, we
borrowed an aggregate $675.0 million under our revolving credit facility including borrowings of $112.0 million in fiscal 2014, $372.0
million in fiscal 2013, and $191.0 million in fiscal 2012. The aforementioned borrowings were principally to fund acquisitions, special
and extraordinary cash dividends paid in fiscal 2014 and 2013, and distributions to noncontrolling interests. Further details on acqui-
sitions may be under the caption “Overview” and Note 2, Acquisitions, of the Notes to Consolidated Financial Statements. Payments
on the revolving credit facility aggregated $385.0 million over the last three fiscal years, including $159.0 million in fiscal 2014, $126.0
million in fiscal 2013, and $100.0 million in fiscal 2012. For the three-year fiscal period ended October 31, 2014, we paid an aggregate
$157.3 million in cash dividends, including $31.2 million in fiscal 2014, $120.4 million in fiscal 2013, and $5.7 million in fiscal 2012 and
we also made distributions to noncontrolling interests aggregating $95.9 million. Net cash (used in) provided by financing activities also
includes the presentation of an excess tax benefit from stock option exercises aggregating $17.3 million for the three-year fiscal period
ended October 31, 2014.
In December 2011, we entered into a $670 million Revolving Credit Agreement (“Credit Facility”) with a bank syndicate. The Cred-
it Facility may be used for our working capital and general corporate needs, including capital expenditures and to finance acquisitions.
In November 2013, we entered into an amendment to extend the maturity date of the Credit Facility by one year to December 2018 and
to increase the aggregate committed principal amount to $800 million. Furthermore, the amendment includes a feature that will allow us
to increase the aggregate committed principal amount by an additional $200 million to become a $1.0 billion facility through increased
commitments from existing lenders or the addition of new lenders.
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 the Company’s ratio of total funded debt to earnings before interest, taxes, depreciation and amortization,
noncontrolling interests and non-cash charges, or “leverage ratio”). The Base Rate is the highest of (i) the Prime Rate; (ii) the Federal Funds
rate plus .50% per annum; and (iii) the Adjusted LIBO Rate determined on a daily basis for an Interest Period of one month plus 1.00%
per annum, as such capitalized terms are defined in the Credit Facility. The applicable margins for LIBOR-based borrowings range from
.75% to 2.25%. The applicable margins for Base Rate borrowings range from 0% to 1.25%. 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 foreign currencies, letters of credit and swingline borrowings. Outstanding principal, accrued and unpaid interest and
other amounts payable under the Credit Facility may be accelerated upon an event of default, as such events are described in the Credit
Facility. The Credit Facility is unsecured and contains covenants that restrict the amount of certain payments, including dividends, and
require, among other things, the maintenance of a total 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, 2014, we were in compliance with all financial and nonfinancial covenants. See Note 5, Long-Term Debt, of
the Notes to Consolidated Financial Statements for further information regarding the Credit Facility.
2 2 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES 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, 2014 (in thousands):
Long-term debt obligations (1)
Capital lease obligations (2)
Operating lease obligations (3)
Purchase obligations (4)(5)
Other long-term liabilities (6)
Total contractual obligations
Total
$ 326,000
3,643
35,921
2,908
385
$ 368,857
2015
$
—
547
9,787
1,693
161
$ 12,188
Payments due by fiscal period
2018 - 2019
2016 - 2017
Thereafter
$
—
948
15,534
1,215
181
$ 17,878
$ 326,000
872
4,697
—
38
$ 331,607
$ —
1,276
5,903
—
5
$ 7,184
(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.
See Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements and “Liquidity and Capital Resources,” above for additional information regarding our long-term debt
obligations.
(2) Inclusive of $.5 million in interest charges. See Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements for additional information regarding our capital lease
obligations.
(3) See Note 15, Commitments and Contingencies – Lease Commitments, of the Notes to Consolidated Financial Statements for additional information regarding our operating lease
obligations.
(4) Includes contingent consideration aggregating $1.2 million related to a fiscal 2013 acquisition. See Note 7, Fair Value Measurements, of the Notes to Consolidated Financial Statements for
additional information.
(5) Also includes an aggregate $1.6 million of commitments principally for capital expenditures and inventory. 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.
(6) The amounts in the table do not include liabilities related to the HEICO Corporation Leadership Compensation Plan or our other deferred compensation arrangement as they are each
fully supported by assets held within irrecoverable trusts. See Note 3, Selected Financial Statement Information - Other Long-Term Assets and Liabilities, of the Notes to Consolidated
Financial Statements for further information about these two deferred compensation plans.
Off-Balance Sheet Arrangements
Guarantees
As of October 31, 2014, we have arranged for standby letters of credit aggregating $2.3 million, which are supported by our revolv-
ing credit facility. One letter of credit in the amount of $1.5 million is to satisfy the security requirement of our insurance company for
potential workers’ compensation claims and the remainder pertain to performance guarantees related to customer contracts entered into
by certain of our subsidiaries.
New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02,
“Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires disclosure about changes in
and amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present,
either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive
income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its
entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is
required to cross-reference to other disclosures that provide additional detail about those amounts. We adopted ASU 2013-02 in the first
quarter of fiscal 2014, resulting in only expanded disclosure regarding the changes in accumulated other comprehensive income and no
impact on our consolidated results of operations, financial position or cash flows.
In March 2013, the FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition
of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity,” which clarifies the applicable
guidance for the release of any cumulative translation adjustments into net earnings. ASU 2013-05 specifies that the entire amount of
cumulative translation adjustments should be released into earnings when an entity ceases to have a controlling financial interest in a
subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete
liquidation of the investment in the foreign entity. ASU 2013-05 is effective prospectively for fiscal years and interim reporting periods
within those years beginning after December 15, 2013, or in fiscal 2015 for HEICO. Early adoption is permitted. We are currently evaluating
the effect, if any, the adoption of this guidance will have on our consolidated results of operations, financial position or cash flows.
H E I C O C O R P O R A T I O N / 2 3
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which provides a comprehensive new
revenue recognition model that will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity will
recognize revenue when it transfers promised goods or services to a customer at an amount that reflects the consideration it expects to
receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 is effective for fiscal years and interim reporting
periods within those years beginning after December 15, 2016, or in fiscal 2018 for HEICO. Early adoption is not permitted. ASU
2014-09 shall be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of
initially applying ASU 2014-09 recognized at the date of initial application. We are currently evaluating which transition method we will
elect and the effect the adoption of this guidance will have on our consolidated results of operations, financial position or cash flows.
Forward-Looking Statements
Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words
“expect,” “anticipate,” “believe,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any
forward-looking statement 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
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 informa-
tion. Therefore, actual results may differ materially from those expressed or implied in those statements. Factors that could cause such
differences include:
• Lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand
for our goods and services;
• Product development or 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;
• Product development difficulties, which could increase our product development costs and delay sales; and
• Our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest and
income tax rates and economic conditions within and outside of the aviation, defense, space, medical, telecommunications and
electronics industries, which could negatively impact our costs and revenues; and defense budget cuts, which could reduce our
defense-related revenue.
We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information,
future events or otherwise, except to the extent required by applicable law.
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. Based on our aggregate outstanding variable rate debt balance of $326 million as of October 31, 2014, 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, 2014 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 Euros, Canadian dollars and British pounds sterling. A hypothetical 10% weakening
in the exchange rate of the Euro, Canadian dollar or British pound sterling to the United States dollar as of October 31, 2014 would not
have a material effect on our results of operations, financial position or cash flows.
2 4 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C O N S O L I D A T E D B A L A N C E S H E E T S
(in thousands, except per share data)
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
Deferred income taxes
Other assets
Total assets
LIABILITIES AND 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 long-term liabilities
Total liabilities
Commitments and contingencies (Notes 2 and 15)
2014
2013
$
20,229
149,669
218,042
8,868
34,485
431,293
93,865
686,271
200,810
1,063
75,912
$ 1,489,214
$
418
57,157
92,578
2,067
152,220
328,691
111,429
82,289
674,629
$
15,499
157,022
218,893
17,022
33,036
441,472
97,737
688,489
241,558
1,791
61,968
$ 1,533,015
$
697
54,855
105,734
—
161,286
376,818
128,482
83,976
750,562
Redeemable noncontrolling interests (Note 11)
39,966
59,218
Shareholders’ equity:
Preferred Stock, $.01 par value per share; 10,000 shares authorized; 300 shares designated
as Series B Junior Participating Preferred Stock and 300 shares designated as Series C
Junior Participating Preferred Stock; none issued
Common Stock, $.01 par value per share; 75,000 shares authorized; 26,847 and 26,790
shares issued and outstanding
Class A Common Stock, $.01 par value per share; 75,000 shares authorized; 39,699 and
39,586 shares issued and outstanding
Capital in excess of par value
Deferred compensation obligation
HEICO stock held by irrevocable trust
Accumulated other comprehensive (loss) income
Retained earnings
Total HEICO shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
—
268
397
269,351
1,138
(1,138)
(8,289)
437,757
699,484
75,135
774,619
$ 1,489,214
—
268
396
255,889
1,138
(1,138)
144
349,649
606,346
116,889
723,235
$ 1,533,015
H E I C O C O R P O R A T I O N / 2 5
HEICO CORPORATION AND SUBSIDIARIES
C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
(in thousands, except per share data)
Year ended October 31,
2014
2013
2012
Net sales
$ 1,132,311
$ 1,008,757
$ 897,347
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
733,999
194,924
637,576
187,591
569,911
164,142
Total operating costs and expenses
928,923
825,167
734,053
Operating income
Interest expense
Other income
203,388
183,590
163,294
(5,441)
625
(3,717)
888
(2,432)
313
Income before income taxes and noncontrolling interests
198,572
180,761
161,175
Income tax expense
59,800
56,200
54,500
Net income from consolidated operations
138,772
124,561
106,675
Less: Net income attributable to noncontrolling interests
17,479
22,165
21,528
Net income attributable to HEICO
$ 121,293
$ 102,396
$ 85,147
Net income per share attributable to HEICO shareholders (Note 13):
Basic
Diluted
$
$
1.82
1.80
$
$
1.54
1.53
$
$
1.29
1.28
Weighted average number of common shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
66,463
67,453
66,298
66,982
65,861
66,624
2 6 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
C O N S O L I D A T E D S T A T E M E N T S O F
C O M P R E H E N S I V E I N C O M E
(in thousands)
Year ended October 31,
2014
2013
2012
Net income from consolidated operations
Other comprehensive (loss) income:
Foreign currency translation adjustments
Unrealized (loss) gain on pension benefit obligation, net of tax
Total other comprehensive (loss) income
Comprehensive income from consolidated operations
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to HEICO
The accompanying notes are an integral part of these consolidated financial statements.
$ 138,772
$ 124,561
$ 106,675
(7,882)
(551)
(8,433)
130,339
17,479
$ 112,860
3,128
590
3,718
128,279
22,165
$ 106,114
(6,457)
—
(6,457)
100,218
21,528
$ 78,690
H E I C O C O R P O R A T I O N / 2 7
HEICO CORPORATION AND SUBSIDIARIES
C O N S O L I D AT E D S TAT E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y
(in thousands, except per share data)
Redeemable
Noncontrolling
Interests
Common
Stock
Class A
Common
Stock
Balances as of October 31, 2013
Comprehensive income (loss)
Cash dividends ($.47 per share)
Issuance of common stock to HEICO Savings and Investment Plan
Share-based compensation expense
Proceeds from stock option exercises
Tax benefit from stock option exercises
Redemptions of common stock related to share-based compensation
Distributions to noncontrolling interests
Acquisitions of noncontrolling interests
Reclassification of redeemable noncontrolling interests to noncontrolling interests
Adjustments to redemption amount of redeemable noncontrolling interests
Other
Balances as of October 31, 2014
Balances as of October 31, 2012
Comprehensive income
Cash dividends ($1.816 per share)
Five-for-four common stock split
Issuance of common stock to HEICO Savings and Investment Plan
Share-based compensation expense
Proceeds from stock option exercises
Tax benefit from stock option exercises
Redemptions of common stock related to share-based compensation
Distributions to noncontrolling interests
Acquisitions of noncontrolling interests
Adjustments to redemption amount of redeemable noncontrolling interests
Deferred compensation obligation
Other
Balances as of October 31, 2013
Balances as of October 31, 2011
Comprehensive income (loss)
Cash dividends ($.086 per share)
Five-for-four common stock split
Issuance of common stock to HEICO Savings and Investment Plan
Share-based compensation expense
Proceeds from stock option exercises
Tax benefit from stock option exercises
Redemptions of common stock related to share-based compensation
Distributions to noncontrolling interests
Acquisitions of noncontrolling interests
Adjustments to redemption amount of redeemable noncontrolling interests
Noncontrolling interests assumed related to acquisitions
Deferred compensation obligation
Other
Balances as of October 31, 2012
The accompanying notes are an integral part of these consolidated financial statements.
2 8 / H E I C O C O R P O R A T I O N
$ 59,218
5,313
—
—
—
—
—
—
(5,908)
(1,243)
(19,383)
1,969
—
$ 39,966
$ 67,166
8,386
—
—
—
—
—
—
—
(7,579)
(16,610)
7,454
—
401
$ 59,218
$ 65,430
9,526
—
—
—
—
—
—
—
(9,090)
(7,616)
3,775
3,918
—
1,223
$ 67,166
$ 268
—
—
—
—
—
—
—
—
—
—
—
—
$ 268
$ 213
—
—
54
—
—
1
—
—
—
—
—
—
—
$ 268
$ 171
—
—
42
—
—
—
—
—
—
—
—
—
—
—
$ 213
$ 396
—
—
—
1
—
—
—
—
—
—
—
—
$ 397
$ 315
—
—
79
—
—
2
—
—
—
—
—
—
—
$ 396
$ 250
—
—
63
—
—
2
—
—
—
—
—
—
—
—
$ 315
$ 269,351
$ 1,138
($ 1,138)
($ 8,289)
$ 437,757
$ 75,135
$ 774,619
$ 244,632
$ 823
($ 823)
($ 3,572)
3,718
Compensation
Irrevocable
Comprehensive
Noncontrolling
Shareholders’
HEICO Shareholders’ Equity
HEICO Stock
Accumulated
Deferred
Held by
Other
Obligation
Trust
Income (Loss)
$ 1,138
($ 1,138)
$ 144
(8,433)
Retained
Earnings
$ 349,649
121,293
(31,215)
Interests
$ 116,889
12,166
Capital in
Excess of
Par Value
$ 255,889
—
—
5,504
7,425
708
93
(273)
(133)
2,985
5,117
460
5,191
(2,364)
—
—
—
—
5
—
—
—
—
—
—
1
—
—
(105)
982
3,948
831
13,164
(307)
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
315
—
—
—
—
—
—
—
—
—
—
—
—
—
301
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,969)
(1)
$ 375,085
102,396
(120,361)
(17)
(7,454)
$ 299,497
85,147
(5,689)
(16)
—
—
—
—
—
—
—
—
—
(79)
(3,775)
(73,304)
19,383
$ 103,086
13,779
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
24
—
—
—
—
—
—
—
—
—
—
—
—
1
Total
Equity
$ 723,235
125,026
(31,215)
5,504
7,426
708
93
(273)
(73,304)
—
19,383
(1,969)
5
$ 719,759
119,893
(120,361)
(17)
2,985
5,117
463
5,191
(2,364)
(7,454)
—
—
—
23
90,692
(5,689)
(16)
982
3,948
833
13,164
(307)
(3,775)
—
—
—
—
(227)
$ 719,759
$ 255,889
$ 1,138
($ 1,138)
$ 349,649
$ 116,889
$ 723,235
$ 226,120
$ 522
($ 522)
$ 91,083
12,002
$ 620,154
(315)
(2)
$ 144
$ 3,033
(6,457)
$ 244,632
$ 823
($ 823)
$ 375,085
$ 103,086
(301)
(148)
($ 3,572)
HEICO CORPORATION AND SUBSIDIARIES
Redeemable
Noncontrolling
Common
Interests
Stock
Class A
Common
Stock
HEICO Shareholders’ Equity
Capital in
Excess of
Par Value
Deferred
Compensation
Obligation
HEICO Stock
Held by
Irrevocable
Trust
Accumulated
Other
Comprehensive
Income (Loss)
Issuance of common stock to HEICO Savings and Investment Plan
Redemptions of common stock related to share-based compensation
Reclassification of redeemable noncontrolling interests to noncontrolling interests
(19,383)
Adjustments to redemption amount of redeemable noncontrolling interests
Balances as of October 31, 2013
Comprehensive income (loss)
Cash dividends ($.47 per share)
Share-based compensation expense
Proceeds from stock option exercises
Tax benefit from stock option exercises
Distributions to noncontrolling interests
Acquisitions of noncontrolling interests
Other
Balances as of October 31, 2014
Balances as of October 31, 2012
Comprehensive income
Cash dividends ($1.816 per share)
Five-for-four common stock split
Share-based compensation expense
Proceeds from stock option exercises
Tax benefit from stock option exercises
Distributions to noncontrolling interests
Acquisitions of noncontrolling interests
Deferred compensation obligation
Other
Balances as of October 31, 2013
Balances as of October 31, 2011
Comprehensive income (loss)
Cash dividends ($.086 per share)
Five-for-four common stock split
Share-based compensation expense
Proceeds from stock option exercises
Tax benefit from stock option exercises
Distributions to noncontrolling interests
Acquisitions of noncontrolling interests
Deferred compensation obligation
Other
Balances as of October 31, 2012
Issuance of common stock to HEICO Savings and Investment Plan
Redemptions of common stock related to share-based compensation
Adjustments to redemption amount of redeemable noncontrolling interests
Issuance of common stock to HEICO Savings and Investment Plan
Redemptions of common stock related to share-based compensation
Adjustments to redemption amount of redeemable noncontrolling interests
Noncontrolling interests assumed related to acquisitions
The accompanying notes are an integral part of these consolidated financial statements.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 59,218
5,313
(5,908)
(1,243)
1,969
—
$ 39,966
$ 67,166
8,386
(7,579)
(16,610)
7,454
—
401
$ 59,218
$ 65,430
9,526
(9,090)
(7,616)
3,775
3,918
—
1,223
$ 67,166
$ 268
—
—
—
—
—
—
—
—
—
—
—
—
$ 268
$ 213
—
—
54
—
—
1
—
—
—
—
—
—
—
$ 268
$ 171
—
—
42
—
—
—
—
—
—
—
—
—
—
—
$ 213
$ 396
—
—
—
1
—
—
—
—
—
—
—
—
$ 397
$ 315
—
—
79
—
—
2
—
—
—
—
—
—
—
$ 396
$ 250
—
—
63
—
—
2
—
—
—
—
—
—
—
—
$ 315
$ 255,889
—
—
5,504
7,425
708
93
(273)
—
—
—
—
5
$ 269,351
$ 244,632
—
—
(133)
2,985
5,117
460
5,191
(2,364)
—
—
—
—
1
$ 255,889
$ 226,120
—
—
(105)
982
3,948
831
13,164
(307)
—
—
—
—
—
(1)
$ 244,632
$ 1,138
—
—
—
—
—
—
—
—
—
—
—
—
$ 1,138
$ 823
—
—
—
—
—
—
—
—
—
—
—
315
—
$ 1,138
$ 522
—
—
—
—
—
—
—
—
—
—
—
—
301
—
$ 823
($ 1,138)
—
—
—
—
—
—
—
—
—
—
—
—
($ 1,138)
($ 823)
—
—
—
—
—
—
—
—
—
—
—
(315)
—
($ 1,138)
($ 522)
—
—
—
—
—
—
—
—
—
—
—
—
(301)
—
($ 823)
$ 144
(8,433)
—
—
—
—
—
—
—
—
—
—
—
($ 8,289)
($ 3,572)
3,718
—
—
—
—
—
—
—
—
—
—
—
(2)
$ 144
$ 3,033
(6,457)
—
—
—
—
—
—
—
—
—
—
—
—
(148)
($ 3,572)
Retained
Earnings
$ 349,649
121,293
(31,215)
—
—
—
—
—
—
—
—
(1,969)
(1)
$ 437,757
$ 375,085
102,396
(120,361)
(17)
—
—
—
—
—
—
—
(7,454)
—
—
$ 349,649
$ 299,497
85,147
(5,689)
(16)
—
—
—
—
—
—
—
(3,775)
—
—
(79)
$ 375,085
Noncontrolling
Interests
Total
Shareholders’
Equity
$ 116,889
12,166
—
—
—
—
—
—
(73,304)
—
19,383
—
1
$ 75,135
$ 103,086
13,779
—
—
—
—
—
—
—
—
—
—
—
24
$ 116,889
$ 91,083
12,002
—
—
—
—
—
—
—
—
—
—
—
—
1
$ 103,086
$ 723,235
125,026
(31,215)
5,504
7,426
708
93
(273)
(73,304)
—
19,383
(1,969)
5
$ 774,619
$ 719,759
119,893
(120,361)
(17)
2,985
5,117
463
5,191
(2,364)
—
—
(7,454)
—
23
$ 723,235
$ 620,154
90,692
(5,689)
(16)
982
3,948
833
13,164
(307)
—
—
(3,775)
—
—
(227)
$ 719,759
H E I C O C O R P O R A T I O N / 2 9
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
(in thousands)
Year ended October 31,
2014
2013
2012
Operating Activities:
Net income from consolidated operations
Adjustments to reconcile net income from consolidated operations
to net cash provided by operating activities:
Depreciation and amortization
Impairment of intangible assets
Share-based compensation expense
Employer contributions to HEICO Savings and Investment Plan
Tax benefit from stock option exercises
Excess tax benefit from stock option exercises
Deferred income tax benefit
(Decrease) increase in accrued contingent consideration
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses and other current assets
Increase (decrease) in trade accounts payable
(Decrease) increase in accrued expenses and other current liabilities
Increase (decrease) in income taxes payable
Other long-term assets and liabilities, net
Net cash provided by operating activities
Investing Activities:
Acquisitions, 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
Distributions to noncontrolling interests
Cash dividends paid
Acquisitions of noncontrolling interests
Revolving credit facility issuance costs
Redemptions of common stock related to share-based compensation
Payment of contingent consideration
Excess tax benefit from stock option exercises
Proceeds from stock option exercises
Other
Net cash (used in) provided by financing activities
$ 138,772
$ 124,561
$ 106,675
47,757
15,000
6,426
6,302
93
(93)
(16,745)
(28,126)
6,999
126
8,033
2,511
(3,090)
1,462
5,262
190,689
(8,737)
(16,410)
(40)
(25,187)
112,000
(159,000)
(79,212)
(31,215)
(1,243)
(767)
(273)
—
93
708
(1,206)
(160,115)
36,790
—
5,117
2,985
5,191
(5,126)
(5,785)
(1,640)
(16,585)
(14,877)
(4,918)
(23)
12,766
(7,273)
653
131,836
(222,638)
(18,328)
(342)
(241,308)
372,000
(126,000)
(7,579)
(120,361)
(16,610)
(570)
(2,364)
(601)
5,126
463
(296)
103,208
30,656
—
3,948
982
13,164
(12,110)
(2,834)
119
(5,782)
(7,484)
(1,072)
4,269
5,182
1,759
1,113
138,585
(197,285)
(15,262)
(161)
(212,708)
191,000
(100,000)
(9,090)
(5,689)
(7,616)
(3,028)
(307)
—
12,110
833
214
78,427
Effect of exchange rate changes on cash
(657)
312
(353)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
4,730
15,499
$ 20,229
(5,952)
21,451
$ 15,499
3,951
17,500
$ 21,451
The accompanying notes are an integral part of these consolidated financial statements.
3 0 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
HEICO Corporation, through its principal subsidiaries HEICO Aerospace Holdings Corp. (“HEICO Aerospace”), HEICO Flight
Support Corp. and HEICO Electronic Technologies Corp. (“HEICO Electronic”) and their subsidiaries (collectively, the “Company”), is
principally engaged in the design, manufacture and sale of aerospace, defense and electronic related products and services throughout
the United States and internationally. The Company’s customer base is primarily the aviation, defense, space, medical, telecommunica-
tions and electronics industries.
Basis of Presentation
The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace and HEICO Flight
Support Corp. and their collective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic and its
subsidiaries.
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 (“LHT”), the technical services subsidiary of
Lufthansa German Airlines. In addition, HEICO Aerospace consolidates two subsidiaries which are 80.1% and 82.3% owned, respective-
ly, and a joint venture, which is 84% owned. Also, HEICO Flight Support Corp. consolidates three subsidiaries which are 80.1%, 80.1%,
and 84% owned, respectively. Furthermore, HEICO Electronic consolidates three subsidiaries, which are 80.1%, 82.5%, and 95.9%
owned, respectively, and a wholly owned subsidiary of HEICO Electronic consolidates a subsidiary which is 78% owned. See Note 11,
Redeemable Noncontrolling Interests. All intercompany balances and transactions are eliminated.
Stock Splits
In September 2013 and March 2012, the Company’s Board of Directors declared a 5-for-4 stock split on both classes of the Com-
pany’s common stock. The stock splits were effected as of October 23, 2013 and April 25, 2012, respectively, in the form of a 25% stock
dividend distributed to shareholders of record as of October 11, 2013 and April 13, 2012, respectively. All applicable share and per share
information has been adjusted retrospectively to give effect to the 5-for-4 stock splits.
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 at the time of purchase 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 allow-
ance 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, medical, telecommunications and electronics industries.
Concentrations of Credit Risk
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. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the Company’s customer base and their dispersion across
many different geographical regions. The Company performs ongoing credit evaluations of its customers, but does not generally require
collateral to support customer receivables.
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.
H E I C O C O R P O R A T I O N / 3 1
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Company periodically evaluates 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 any 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. In accordance
with industry practice, all inventories are classified as a current asset including portions with long production cycles, some of which may
not be realized within one year.
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 . . . . . . . . . . . . . . . . . . . . . . . .10 to 40 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 to 20 years
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .3 to 10 years
Tooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 to 5 years
The costs of major additions and improvements are capitalized. Leasehold improvements are amortized over the shorter of the
leasehold improvement’s useful life or the lease term. Repairs and maintenance costs are expensed as incurred. Upon disposition, the asset’s
cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected within earnings.
Capital Leases
Assets acquired under capital leases are recorded at the lower of the fair value of the asset or the present value of the future
minimum lease payments, excluding that portion of the payments representing executory costs. The discount rate used in determining
the present value of the minimum lease payments is the lower of the rate implicit in the lease or the Company’s incremental borrowing
rate. Assets under capital leases are included in property, plant and equipment and are depreciated over the shorter of the lease term or
the useful life of the leased asset. Lease payments under capital leases are recognized as a reduction of the capital lease obligation and as
interest expense.
Business Combinations
The Company allocates the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired
and liabilities and any noncontrolling interests assumed based on their estimated fair values, with any excess recorded as goodwill. The
operating results of acquired businesses are included in the Company’s results of operations beginning as of their effective acquisition
dates. Acquisition costs are generally expensed as incurred and were not material in fiscal 2014, 2013 or 2012.
For contingent consideration arrangements, a liability is recognized at fair value as of the acquisition date with subsequent fair
value adjustments recorded in operations. Information regarding additional contingent purchase consideration may be found in Note 2,
Acquisitions and Note 7, Fair Value Measurements.
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. In evaluating the recoverability of goodwill, the Company
compares the fair value of each of its reporting units to its carrying value to determine potential impairment. If the carrying value of a
reporting unit exceeds its fair value, the implied fair value of that reporting unit’s goodwill is to be calculated and an impairment loss
is recognized in the amount by which the carrying value of the reporting unit’s goodwill exceeds its implied fair value, if any. The fair
values of the Company’s reporting units are determined by using a weighted average of a market approach and an income approach.
Under the market approach, fair values are estimated using published market multiples for comparable companies. The Company
calculates fair values under the income approach by taking estimated future cash flows that are based on internal projections and other
assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital.
The Company’s intangible assets not subject to amortization consist principally of its trade names. The Company’s intangible assets
subject to amortization are amortized on the straight-line method (except for certain customer relationships amortized on an accelerated
method) over the following estimated useful lives:
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 to 10 years
Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 to 15 years
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 to 17 years
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 to 7 years
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 to 20 years
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 to 10 years
3 2 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Amortization expense of intellectual property, licenses and patents is recorded as a component of cost of sales, and amortization
expense of customer relationships, non-compete agreements and trade names is recorded as a component of selling, general and
administrative expenses in the Company’s Consolidated Statements of Operations. 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. To derive the fair value of its trade names, the Company utilizes an income approach, which relies upon management’s
assumptions of royalty rates, projected revenues and discount rates. The Company also tests each amortizing intangible asset for
impairment if events or circumstances indicate that the asset might be impaired. The test consists of determining whether the carrying
value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows
is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount
over the fair value of the assets. The determination of fair value requires us to make a number of estimates, assumptions and judgments
of such factors as projected revenues and earnings and discount rates.
Investments
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 Statements of Operations.
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.
Defined Benefit Pension Plan
In connection with a fiscal 2013 acquisition, the Company assumed a frozen qualified defined benefit pension plan (the “Plan”).
The Plan’s benefits are based on employee compensation and years of service. However, since the Plan was closed to new participants
effective December 31, 2004, the accrued benefit for Plan participants was fixed as of the date of acquisition. The Company uses an
actuarial valuation to determine the projected benefit obligation of the Plan and records the difference between the fair value of the
Plan’s assets and the projected benefit obligation as of October 31 in its Consolidated Balance Sheets. Additionally, any actuarial gain
or loss that arises during a fiscal year that is not recognized as a component of net periodic pension income or expense is recorded as a
component of other comprehensive income or (loss), net of tax. See Note 10, Employee Retirement Plans, for additional information and
disclosures about the Plan.
Revenue Recognition
Revenue from the sale of products and the rendering of services is recognized when title and risk of loss passes to the customer,
which is generally at the time of shipment. Revenue from the rendering of services represented less than 10% of consolidated net sales
for all periods presented. Revenue from certain fixed price contracts for which costs can be dependably estimated is recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. The
percentage of the Company’s net sales recognized under the percentage-of-completion method was approximately 3%, 1% and 1% in
fiscal 2014, 2013 and 2012, 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. Pro-
visions 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. Changes in estimates pertaining to percentage-of-completion
contracts did not have a material effect on net income from consolidated operations in fiscal 2014, 2013 or 2012.
H E I C O C O R P O R A T I O N / 3 3
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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 the percentage-of-completion 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. Progress
billings and customer advances (“billings to date”) received on fixed price contracts accounted for under the completed-contract method
are classified as a reduction to contracts in process (a component of inventories), if any, and any remaining amount is included in
accrued expenses and other current liabilities.
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 expected 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 options and employee historical exercise behavior. The Company generally recognizes stock option
compensation expense ratably over the award’s vesting period.
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.
The Company accounts for uncertainty in income taxes and evaluates 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. The Company’s policy is to recognize interest and penalties related to income tax
matters as a component of income tax expense. Further information regarding income taxes can be found in Note 6, Income Taxes.
Redeemable Noncontrolling Interests
As further detailed in Note 11, Redeemable Noncontrolling Interests, the holders of equity 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 “Redemp-
tion Amount”) at fair value or at a formula that management intended to reasonably approximate fair value 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. The Company tracks the carrying cost of such redeemable noncontrolling interests at historical cost plus an
allocation of subsidiary earnings based on ownership interest, less dividends paid to the noncontrolling interest holders. Redeemable
noncontrolling interests are recorded outside of permanent equity at the higher of their carrying cost or management’s estimate of
the Redemption Amount. The initial adjustment to record redeemable noncontrolling interests at the Redemption Amount results in
a corresponding decrease to retained earnings. Subsequent adjustments to the Redemption Amount of redeemable noncontrolling
interests may result in corresponding decreases or increases to retained earnings, provided any increases to retained earnings may only
be recorded to the extent of decreases previously recorded. Adjustments to Redemption Amounts based on fair value will have no effect
on net income per share attributable to HEICO shareholders whereas the portion of periodic adjustments to the carrying amount of
redeemable noncontrolling interests based solely on a multiple of future earnings that reflect a redemption amount in excess of fair value
will affect net income per share attributable to HEICO shareholders. Acquisitions of redeemable noncontrolling interests are treated as
equity transactions.
Net Income per Share Attributable to HEICO Shareholders
Basic net income per share attributable to HEICO shareholders is computed by dividing net income attributable to HEICO by
the weighted average number of common shares outstanding during the period. Diluted net income per share attributable to HEICO
shareholders is computed by dividing net income attributable to HEICO 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.
3 4 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As further detailed in “Redeemable Noncontrolling Interests” above, the portion of periodic adjustments to the carrying amount of
redeemable noncontrolling interests based solely on a multiple of future earnings that reflect a redemption amount in excess of fair value
affect net income attributable to HEICO for purposes of determining net income per share attributable to HEICO shareholders (see Note
12, Net Income per Share Attributable to HEICO Shareholders).
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 February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02,
“Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires disclosure about changes in
and amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present,
either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive
income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its
entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is
required to cross-reference to other disclosures that provide additional detail about those amounts. The Company adopted ASU 2013-02
in the first quarter of fiscal 2014, resulting in only expanded disclosure regarding the changes in accumulated other comprehensive
income and no impact on the Company’s consolidated results of operations, financial position or cash flows.
In March 2013, the FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition
of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity,” which clarifies the applicable
guidance for the release of any cumulative translation adjustments into net earnings. ASU 2013-05 specifies that the entire amount of
cumulative translation adjustments should be released into earnings when an entity ceases to have a controlling financial interest in a
subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete
liquidation of the investment in the foreign entity. ASU 2013-05 is effective prospectively for fiscal years and interim reporting periods
within those years beginning after December 15, 2013, or in fiscal 2015 for HEICO. Early adoption is permitted. The Company is
currently evaluating the effect, if any, the adoption of this guidance will have on its consolidated results of operations, financial position
or cash flows.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which provides a comprehensive new
revenue recognition model that will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity will
recognize revenue when it transfers promised goods or services to a customer at an amount that reflects the consideration it expects to
receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 is effective for fiscal years and interim reporting
periods within those years beginning after December 15, 2016, or in fiscal 2018 for HEICO. Early adoption is not permitted. ASU 2014-
09 shall be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially
applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating which transition method it will
elect and the effect the adoption of this guidance will have on its consolidated results of operations, financial position or cash flows.
NOTE 2. ACQUISITIONS
Reinhold Acquisition
On May 31, 2013, the Company, through its HEICO Flight Support Corp. subsidiary, acquired Reinhold Industries, Inc. (“Rein-
hold”) through the acquisition of all of the outstanding stock of Reinhold’s parent company for approximately $133.0 million, net of
$8.0 million of cash acquired, in a transaction carried out by means of a merger. The purchase price of this acquisition was paid in
cash, principally using proceeds from the Company’s revolving credit facility. Reinhold is a leading manufacturer of advanced niche
components and complex composite assemblies for commercial aviation, defense and space applications. This acquisition is consistent
with HEICO’s practice of acquiring outstanding, niche designers and manufacturers of critical components in the aerospace and defense
industries and will further enable the Company to broaden its product offerings, technologies and customer base.
H E I C O C O R P O R A T I O N / 3 5
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The following table summarizes the allocation of the purchase price of Reinhold to the estimated fair values of the tangible and
identifiable intangible assets acquired and liabilities assumed (in thousands):
Assets acquired:
Goodwill
Identifiable intangible assets
Inventories
Accounts receivable
Property, plant and equipment
Other assets
Total assets acquired, excluding cash
Liabilities assumed:
Deferred income taxes
Accrued expenses
Accounts payable
Defined benefit pension plan obligation, net
Accrued additional purchase consideration
Other liabilities
Total liabilities assumed
Net assets acquired, excluding cash
$ 76,424
66,500
10,753
8,830
7,994
2,756
$ 173,257
$ 25,613
6,994
2,923
2,865
1,499
390
$ 40,284
$ 132,973
During fiscal 2014, the company recorded certain immaterial measurement period adjustments to the purchase price allocation
of Reinhold, which are reflected in the table above. The primary items that generated the goodwill recognized were the premiums paid
by the Company for the future earnings potential of Reinhold and the value of its assembled workforce that do not qualify for separate
recognition. The operating results of Reinhold were included in the Company’s results of operations from the effective acquisition date.
The Company’s consolidated net sales and net income attributable to HEICO for fiscal 2013 includes approximately $30.8 million and
$2.8 million, respectively, from the acquisition of Reinhold.
The following table presents unaudited pro forma financial information for fiscal 2012 as if the acquisition of Reinhold had occurred
as of November 1, 2011 (in thousands):
Year ended October 31,
Net sales
Net income from consolidated operations
Net income attributable to HEICO
Net income per share attributable to HEICO shareholders:
Basic
Diluted
2012
$ 952,184
$ 109,923
$ 88,382
$
$
1.34
1.33
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 acquisition had taken place as of November 1, 2011. The unaudited pro
forma financial information includes adjustments to historical amounts such as additional amortization expense related to intangible
assets acquired, increased interest expense associated with borrowings to finance the acquisition and inventory purchase accounting
adjustments charged to cost of sales as the inventory is sold. Had the acquisition been consummated as of November 1, 2011, net sales,
net income from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to
HEICO shareholders on a pro forma basis for fiscal 2013 would not have been materially different than the reported amounts.
Switchcraft Acquisition
On November 22, 2011, the Company, through HEICO Electronic, acquired Switchcraft, Inc. (“Switchcraft”) through the purchase
of all of the stock of Switchcraft’s parent company, Switchcraft Holdco, Inc., for approximately $142.7 million, net of $3.7 million of cash
acquired. The purchase price of this acquisition was paid in cash, principally using proceeds from the Company’s revolving credit facility.
Switchcraft is a leading designer and manufacturer of high performance, high reliability and harsh environment electronic connectors
and other interconnect products. This acquisition is consistent with HEICO’s practice of acquiring outstanding, niche designers and
manufacturers of critical components in the aerospace and electronic industries and will further enable the Company to broaden its
product offerings, technologies and customer base.
3 6 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The following table summarizes the allocation of the purchase price of Switchcraft to the estimated fair values of the tangible and
identifiable intangible assets acquired and liabilities assumed (in thousands):
Assets acquired:
Goodwill
Identifiable intangible assets
Inventories
Property, plant and equipment
Accounts receivable
Other assets
Total assets acquired, excluding cash
Liabilities assumed:
Deferred income taxes
Accrued expenses
Accounts payable
Other liabilities
Total liabilities assumed
Net assets acquired, excluding cash
$ 73,405
72,500
13,086
10,884
6,123
1,358
$ 177,356
$ 30,244
2,252
1,889
258
$ 34,643
$ 142,713
The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings
potential of Switchcraft and the value of its assembled workforce that do not qualify for separate recognition. The operating results of
Switchcraft were included in the Company’s results of operations from the effective acquisition date. The Company’s consolidated net
sales and net income attributable to HEICO for fiscal 2012 includes approximately $54.6 million and $3.6 million, respectively, from the
acquisition of Switchcraft.
Other Acquisitions
In June 2014, the Company, through a subsidiary of its HEICO Flight Support Corp. subsidiary, acquired certain assets and
liabilities of Quest Aviation Supply, Inc. (“Quest Aviation”). Quest Aviation is a niche supplier of parts to repair thrust reversers on
various aircraft engines.
In October 2013, the Company acquired, through HEICO Electronic, all of the outstanding stock of Lucix Corporation (“Lucix”) in
a transaction carried out by means of a merger. Lucix is a leading designer and manufacturer of high performance, high reliability mi-
crowave modules, units, and integrated sub-systems for commercial and military satellites. The total consideration included an accrual
of $7.0 million as of the acquisition date representing the fair value of contingent consideration the Company may have been obligated
to pay had Lucix met certain earnings objectives during the last three months of the calendar year of acquisition. Additionally, the total
consideration included an accrual of $13.7 million as of the acquisition date representing the fair value of contingent consideration the
Company may be obligated to pay should Lucix meet certain earnings objectives during the subsequent two calendar years (2014 and
2015). As of the acquisition date, the maximum amount of contingent consideration that the Company could have been required to pay
was $50.0 million in aggregate. See Note 7, Fair Value Measurements, for additional information regarding the Company’s contingent
consideration obligation.
During fiscal 2013, the Company, through subsidiaries of HEICO Electronic, acquired certain product lines that will supplement
their existing operations. The purchase price of these acquisitions was paid using cash provided by operating activities.
In October 2012, the Company, through HEICO Flight Support Corp., acquired 80.1% of the assets and assumed certain liabilities
of Action Research Corporation (“Action Research”). Action Research is an FAA-Approved Repair Station that has developed unique
proprietary repairs that extend the lives of certain engine and airframe components. The remaining 19.9% interest continues to be
owned by an existing member of Action Research’s management team. The purchase price of this acquisition was paid using cash
provided by operating activities.
In August 2012, the Company, through HEICO Flight Support Corp., acquired 84% of the assets and assumed certain liabilities of
CSI Aerospace, Inc. (“CSI Aerospace”). CSI Aerospace is a leading repair and overhaul provider of specialized components for airlines,
military and other aerospace related organizations. The remaining 16% interest continues to be owned by certain members of CSI
Aerospace’s management team.
In April 2012, the Company, through a subsidiary of HEICO Electronic, acquired certain aerospace assets of Moritz Aerospace,
Inc. (“Moritz Aerospace”) in an aerospace product line acquisition. The Moritz Aerospace product line designs and manufactures next
generation wireless cabin control systems, solid state power distribution and management systems and fuel level sensing systems for
business jets and for general aviation, as well as for the military/defense market segments. The purchase price of this acquisition was
paid using cash provided by operating activities.
H E I C O C O R P O R A T I O N / 3 7
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
In March 2012, the Company, through HEICO Electronic, acquired the business and substantially all of the assets of Ramona
Research, Inc. (“Ramona Research”). Ramona Research designs and manufactures RF and microwave amplifiers, transmitters and
receivers primarily used to support military communications on unmanned aerial systems, other aircraft, helicopters and ground-based
data/communications systems. The total consideration included an accrual of approximately $10.8 million as of the acquisition date
representing the fair value of contingent consideration in aggregate that the Company may be obligated to pay if Ramona Research meets
certain earnings objectives during each of the first five years following the acquisition. As of the acquisition date, the maximum amount
of contingent consideration that the Company could be required to pay is $14.6 million. See Note 7, Fair Value Measurements, for
additional information regarding the Company’s contingent consideration obligation.
Unless otherwise noted, the purchase price of each of the above referenced other acquisitions was paid in cash principally using
proceeds from the Company’s revolving credit facility and is not material or significant to the Company’s consolidated financial statements.
The following table summarizes the allocation of the aggregate purchase price of the other acquisitions to the estimated fair values
of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed (in thousands):
Year ended October 31,
Assets acquired:
Goodwill
Identifiable intangible assets
Accounts receivable
Property, plant and equipment
Inventories
Other assets
Total assets acquired, excluding cash
Liabilities assumed:
Accrued additional purchase consideration
Deferred income taxes
Accrued expenses
Accounts payable
Other liabilities
Total liabilities assumed
2014
2013
2012
$ 2,552
3,400
251
248
250
70
$ 6,771
$ —
—
12
—
—
12
$
$ 68,095
39,843
9,233
6,286
3,112
2,565
$ 129,134
$ 21,223
13,857
3,846
1,746
—
$ 40,672
$ 18,499
21,831
4,390
1,361
4,688
171
$ 50,940
$ 11,982
—
645
445
—
$ 13,072
Noncontrolling interests in consolidated subsidiaries
$ —
$
—
$ 3,918
Acquisitions, net of cash acquired
$ 6,759
$ 88,462
$ 33,950
The purchase price allocation of the Company’s fiscal 2014 acquisition to the tangible and identifiable intangible assets acquired
and liabilities assumed is preliminary until the Company obtains final information regarding their fair values. During fiscal 2014, the
Company recorded certain immaterial measurement period adjustments to the purchase price allocation of its other fiscal 2013 acquisi-
tions, which are reflected in the table above. The primary items that generated the goodwill recognized were the premiums paid by the
Company for the future earnings potential of the businesses acquired and the value of their assembled workforces that do not qualify
for separate recognition, which, in the case of CSI Aerospace and Action Research, benefit both the Company and the noncontrolling
interest holders. Based on the factors comprising the goodwill recognized and consideration of an insignificant control premium, the
fair value of the noncontrolling interest in Action Research was determined based on the consideration of the purchase price paid by the
Company for its controlling ownership interest. The fair value of the noncontrolling interest in CSI Aerospace was determined based on
the consideration of the purchase price paid by the Company for its controlling ownership interest adjusted for a lack of control that a
market participant would consider when estimating the fair value of the noncontrolling interest.
The operating results of the Company’s fiscal 2014 acquisition were included in the Company’s results of operations from the
effective acquisition date. The amount of net sales and earnings of the fiscal 2014 acquisition included in the Consolidated Statements of
Operations is not material. Had the fiscal 2014 acquisition been consummated as of the beginning of fiscal 2013, net sales, net income
from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to HEICO
shareholders on a pro forma basis for fiscal 2014 and 2013 would not have been materially different than the reported amounts.
Additional Purchase Consideration
During fiscal 2014, 2013 and 2012, the Company made additional purchase consideration payments of $2.0 million, $1.2 million
and $5.5 million, respectively, pursuant to the terms of the purchase agreements related to certain recent acquisitions.
3 8 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As part of the purchase agreements associated with certain acquisitions consummated prior to fiscal 2010, the Company was
obligated to pay additional purchase consideration based on the acquired subsidiary meeting certain earnings objectives following the
acquisition. For such acquisitions, the Company accrued an estimate of additional purchase consideration when the earnings objectives
were met. During fiscal 2012, the Company, through HEICO Electronic, paid $15.1 million of such additional purchase consideration,
of which $4.8 million was accrued as of October 31, 2011. The amounts paid in fiscal 2012 were based on a multiple of each applicable
subsidiary’s earnings relative to target and were not contingent upon the former shareholders of the respective acquired entity remaining
employed by the Company or providing future services to the Company. Accordingly, the amounts paid were recorded as additional
goodwill as they represented an additional cost of the respective entity. As of October 31, 2014 and 2013, the Company had no remain-
ing obligation to pay additional purchase consideration for acquisitions consummated prior to fiscal 2010.
NOTE 3. SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
As of October 31,
(in thousands)
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
2014
2013
$ 151,812
(2,143)
$ 149,669
$ 160,118
(3,096)
$ 157,022
Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts
As of October 31,
(in thousands)
Costs incurred on uncompleted contracts
Estimated earnings
Less: Billings to date
Included in the 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)
2014
2013
$ 24,437
11,747
36,184
(29,829)
6,355
$
$
$
8,161
(1,806)
6,355
$ 22,548
25,391
47,939
(40,676)
7,263
$
$
$
9,540
(2,277)
7,263
Changes in estimates pertaining to percentage-of-completion contracts did not have a material effect on net income from
consolidated operations in fiscal 2014, 2013 or 2012.
Inventories
As of October 31,
(in thousands)
Finished products
Work in process
Materials, parts, assemblies and supplies
Contracts in process
Less: Billings to date
Inventories, net of valuation reserves
2014
2013
$ 106,229
30,056
79,163
2,594
—
$ 218,042
$ 103,234
26,810
79,863
9,941
(955)
$ 218,893
Contracts in process represents accumulated capitalized costs associated with fixed price contracts for which revenue is recognized
on the completed-contract method. Related progress billings and customer advances (“billings to date”) are classified as a reduction to
contracts in process, if any, and any excess is included in accrued expenses and other liabilities.
H E I C O C O R P O R A T I O N / 3 9
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Property, Plant and Equipment
As of October 31,
(in thousands)
Land
Buildings and improvements
Machinery, equipment and tooling
Construction in progress
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
2014
2013
$
4,501
60,332
139,963
6,905
211,701
(117,836)
$ 93,865
$
4,515
60,105
131,855
4,932
201,407
(103,670)
$ 97,737
The amounts set forth above include tooling costs having a net book value of $6.0 million and $5.7 million as of October 31, 2014
and 2013, respectively. Amortization expense on capitalized tooling was $2.4 million, $2.2 million and $2.1 million in fiscal 2014, 2013
and 2012, respectively.
The amounts set forth above also include $4.6 million and $5.5 million of assets under capital leases as of October 31, 2014 and
October 31, 2013, respectively. Accumulated depreciation associated with the assets under capital leases was $1.0 million and $1.1
million as of October 31, 2014 and October 31, 2013, respectively. See Note 5, Long-Term Debt, for additional information pertaining to
these capital lease obligations.
Depreciation and amortization expense, exclusive of tooling, on property, plant and equipment was $17.1 million, $13.4 million and
$11.6 million in fiscal 2014, 2013 and 2012, respectively.
Accrued Expenses and Other Current Liabilities
As of October 31,
2014
2013
(in thousands)
Accrued employee compensation and related payroll taxes
Deferred revenue
Accrued customer rebates and credits
Accrued additional purchase consideration
Other
Accrued expenses and other current liabilities
$ 52,480
12,481
10,924
90
16,603
$ 92,578
$ 52,435
11,529
14,787
9,142
17,841
$ 105,734
The total customer rebates and credits deducted within net sales in fiscal 2014, 2013 and 2012 was $8.3 million, $8.3 million and
$2.8 million, respectively. The principal reason why the amount of customer rebates and credits deducted within net sales in fiscal
2012 is less than it was in fiscal 2014 and 2013 is fiscal 2012 reflected a reduction in the net sales volume of certain customers eligible
for rebates as well as a reduction in the associated rebate percentages. The decrease in the amount of accrued customer rebates and
credits principally reflects payments made during fiscal 2014 of certain amounts accrued over a two to three year period. The decrease
in accrued additional purchase consideration pertains to a fiscal 2013 and a fiscal 2012 acquisition for which the underlying earnings
objectives were not met. See Note 7, Fair Value Measurements, for additional information regarding the Company’s contingent consider-
ation obligations.
Other Long-Term Assets and Liabilities
The Company 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 through the HEICO Corporation
Leadership Compensation Plan (“LCP”), a nonqualified deferred compensation plan that conforms to Section 409A of the Internal Revenue
Code. The Company matches 50% of the first 6% of base salary deferred by each participant. Director fees that would otherwise be payable
in Company common stock may be deferred into the LCP, and, when distributable, are distributed in actual shares of Company common
stock. The LCP does not provide for diversification of a director’s assets allocated to Company common stock. The deferred compensation
obligation associated with Company common stock is recorded as a component of shareholders’ equity at cost and subsequent changes in
fair value are not reflected in operations or shareholders’ equity of the Company. 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 LCP charged
to income in fiscal 2014, 2013 and 2012 totaled $5.3 million, $4.3 million and $3.8 million, respectively. The aggregate liabilities of the LCP
were $65.0 million and $51.9 million as of October 31, 2014 and 2013, respectively, and are classified within other long-term liabilities in the
Company’s Consolidated Balance Sheets. The assets of the LCP, totaling $65.9 million and $52.7 million as of October 31, 2014 and 2013,
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.
4 0 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Other long-term liabilities also includes deferred compensation of $5.5 million and $5.0 million as of October 31, 2014 and
2013, 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, which
equaled the deferred compensation liability as of October 31, 2014 and 2013, respectively, are held within an irrevocable trust and
classified within other assets in the Company’s 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.
Research and Development Expenses
The amount of new product research and development expenses (R&D expenses) included in cost of sales is as follows (in thousands):
Year ended October 31,
R&D expenses
Accumulated Other Comprehensive Income (Loss)
2014
$ 37,377
2013
$ 32,897
2012
$ 30,395
Changes in the components of accumulated other comprehensive income (loss) for the fiscal year ended October 31, 2014 are as
follows (in thousands):
Balances at October 31, 2013
Unrealized loss
Balances at October 31, 2014
Foreign Currency
Translation
Pension Benefit
Obligation
Accumulated
Other Comprehensive
Income (Loss)
($ 466)
(7,882)
($ 8,348)
$ 610
(551)
$ 59
$ 144
(8,433)
($ 8,289)
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill during fiscal 2014 and 2013 by operating segment are as follows (in thousands):
Balances as of October 31, 2012
Goodwill acquired
Foreign currency translation adjustments
Adjustments to goodwill
Balances as of October 31, 2013
Goodwill acquired
Foreign currency translation adjustments
Adjustments to goodwill
Balances as of October 31, 2014
Segment
Consolidated
FSG
$ 203,539
76,424
—
(108)
279,855
2,552
—
—
$ 282,407
ETG
$ 338,575
68,068
1,991
—
408,634
—
(4,797)
27
$ 403,864
Totals
$ 542,114
144,492
1,991
(108)
688,489
2,552
(4,797)
27
$ 686,271
The goodwill acquired during fiscal 2014 and 2013 relates to the acquisitions consummated in those respective years as described
in Note 2, Acquisitions. Goodwill acquired represents the residual value after the allocation of the total consideration to the tangible
and identifiable intangible assets acquired and liabilities assumed. The foreign currency translation adjustments reflect unrealized
translation gains or losses on the goodwill recognized in connection with foreign subsidiaries. Foreign currency translation adjustments
are included in other comprehensive income in the Company’s Consolidated Statements of Comprehensive Income. The adjustments to
goodwill during fiscal 2014 and 2013 represent immaterial measurement period adjustments to the purchase price allocations of certain
fiscal 2013 and 2012 acquisitions, respectively. The Company estimates that all $3 million and approximately $5 million of the goodwill
acquired in fiscal 2014 and 2013, respectively, is deductible for income tax purposes. Based on the annual test for goodwill impairment
as of October 31, 2014, the Company determined there is no impairment of its goodwill and the fair value of each of the Company’s
reporting units significantly exceeded their carrying value.
H E I C O C O R P O R A T I O N / 4 1
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Identifiable intangible assets consist of (in thousands):
As of October 31, 2014
As of October 31, 2013
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
($ 55,393)
(17,620)
(1,645)
(1,020)
(405)
(17)
(76,100)
$ 89,085
55,385
1,255
—
307
149
146,181
$ 156,801
75,095
2,900
1,132
642
566
237,136
($ 38,461)
(10,795)
(1,381)
(1,132)
(351)
(448)
(52,568)
Net
Carrying
Amount
$ 118,340
64,300
1,519
—
291
118
184,568
Amortizing Assets:
Customer relationships
Intellectual property
Licenses
Non-compete agreements
Patents
Trade names
Non-Amortizing Assets:
Trade names
$ 144,478
73,005
2,900
1,020
712
166
222,281
54,629
$ 276,910
—
($ 76,100)
54,629
$ 200,810
56,990
$ 294,126
—
($ 52,568)
56,990
$ 241,558
The decrease in the gross carrying amount of customer relationships, non-amortizing trade names and intellectual property
primarily reflects impairment losses of $11.2 million, $1.9 million and $1.9 million, respectively, recognized during fiscal 2014. The
impairment losses were due to reductions in the estimated future cash flows associated with such intangible assets within the ETG (see
Note 7, Fair Value Measurements). The impairment losses pertaining to customer relationships and trade names were recorded as a
component of selling, general and administrative expenses in the Company’s Consolidated Statement of Operations and the impairment
loss pertaining to intellectual property was recorded as a component of cost of sales. The Company recognized certain intangible assets
during fiscal 2014 in connection with an acquisition (see Note 2, Acquisitions). The amortization period of the customer relationships,
intellectual property and amortizing trade names acquired is 8 years, 15 years, and 8 years, respectively.
Amortization expense related to intangible assets was $27.7 million, $20.6 million and $16.2 million in fiscal 2014, 2013 and 2012,
respectively. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $23.4 million in fiscal 2015,
$21.8 million in fiscal 2016, $20.9 million in fiscal 2017, $19.1 million in fiscal 2018, $17.2 million in fiscal 2019 and $43.8 million
thereafter.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
As of October 31,
Borrowings under revolving credit facility
Capital leases and notes payable
Less: Current maturities of long-term debt
2014
$ 326,000
3,109
329,109
(418)
$ 328,691
2013
$ 373,000
4,515
377,515
(697)
$ 376,818
As of October 31, 2014, the Company’s long-term debt, excluding capital leases, consisted solely of $326.0 million of borrowings
under its revolving credit facility, all of which will mature in fiscal 2019.
4 2 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Capital Lease Obligations
A subsidiary of HEICO Electronic is a party to a capital lease for a manufacturing facility and related property in France. The lease
contains a bargain purchase option and has a twelve-year term, which began in fiscal 2011. Additionally, the subsidiary is a party to
various capital leases, principally for manufacturing equipment, with lease terms ranging from approximately three to five years. The
estimated future minimum lease payments of all capital leases for the next five fiscal years and thereafter are as follows (in thousands):
Year ending October 31,
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
Less: amount representing interest
Present value of minimum lease payments
Revolving Credit Facility
$ 547
506
442
436
436
1,276
3,643
534
$ 3,109
In December 2011, the Company entered into a $670 million Revolving Credit Agreement (“Credit Facility”) with a bank syndicate.
The Credit Facility may be used for working capital and general corporate needs of the Company, including capital expenditures and to
finance acquisitions. In December 2012, the Company entered into an amendment to extend the maturity date of the Credit Facility by one
year to December 2017. The Company also amended certain covenants contained within the Credit Facility agreement to accommodate
payment of a special and extraordinary cash dividend paid in December 2012. See Note 8, Shareholders’ Equity, for additional information.
In November 2013, the Company entered into an amendment to extend the maturity date of the Credit Facility by one year to
December 2018 and to increase the aggregate principal amount to $800 million. Furthermore, the amendment includes a feature that
will allow the Company to increase the aggregate principal amount by an additional $200 million to become a $1.0 billion facility
through increased commitments from existing lenders or the addition of new lenders.
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, noncontrolling interests and non-cash charges, or “leverage ratio”). The Base Rate is the highest of (i) the Prime Rate;
(ii) the Federal Funds rate plus .50% per annum; and (iii) the Adjusted LIBO Rate determined on a daily basis for an Interest Period of
one month plus 1.00% per annum, as such capitalized terms are defined in the Credit Facility. The applicable margins for LIBOR-based
borrowings range from .75% to 2.25%. The applicable margins for Base Rate borrowings range from 0% to 1.25%. 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 foreign currencies, letters of credit and swingline borrowings. Outstanding
principal, accrued and unpaid interest and other amounts payable under the Credit Facility may be accelerated upon an event of default,
as such events are described in the Credit Facility. The Credit Facility is unsecured and contains covenants that restrict the amount of
certain payments, including dividends, and require, among other things, the maintenance of a total leverage ratio, a senior leverage ratio
and a fixed charge coverage ratio. In the event the Company’s leverage ratio exceeds a specified level, the Credit Facility would become
secured by the capital stock owned in substantially all of the Company’s subsidiaries.
As of October 31, 2014 and 2013, the weighted average interest rate on borrowings under the Credit Facility was 1.3%. The Credit Facility
contains both financial and non-financial covenants. As of October 31, 2014, the Company was in compliance with all such covenants.
NOTE 6. INCOME TAXES
The components of income before income taxes and noncontrolling interests are as follows (in thousands):
Year ended October 31,
Domestic
Foreign
Income before taxes and noncontrolling interests
2014
$ 185,842
12,730
$ 198,572
2013
$ 168,643
12,118
$ 180,761
2012
$ 157,189
3,986
$ 161,175
H E I C O C O R P O R A T I O N / 4 3
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The components of the provision for income taxes on income before income taxes and noncontrolling interests are as follows (in
thousands):
Year ended October 31,
2014
2013
2012
Current:
Federal
State
Foreign
Deferred
Total income tax expense
$ 63,264
10,145
3,136
76,545
(16,745)
$ 59,800
$ 49,275
9,060
3,650
61,985
(5,785)
$ 56,200
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:
Year ended October 31,
Federal statutory income tax rate
State taxes, net of federal income tax benefit
Nontaxable reduction in accrued contingent consideration
Domestic production activities tax deduction
Research and development tax credits
Noncontrolling interests’ share of income
Tax-exempt gains on corporate owned life insurance policies
Other, net
Effective tax rate
2014
35.0%
2.9
(3.4)
(1.6)
(1.2)
(1.0)
(.6)
—
30.1%
2013
35.0%
3.1
—
(1.2)
(2.6)
(1.3)
(1.4)
(.5)
31.1%
$ 48,461
7,516
1,357
57,334
(2,834)
$ 54,500
2012
35.0%
3.1
—
(1.3)
(1.7)
(1.7)
(.5)
.9
33.8%
The Company’s effective tax rate in fiscal 2014 decreased to 30.1% from 31.1% in fiscal 2013. The decrease is principally attributed
to the impact of a nontaxable reduction in accrued contingent consideration during fiscal 2014 associated with a fiscal 2013 acquisition
acquired by means of a stock transaction. The aforementioned decrease in the effective tax rate was partially offset by lower U.S. federal
research and development (“R&D”) tax credits recognized in fiscal 2014 due to the expiration of the U.S. federal R&D tax credit in
December 2013 compared to fiscal 2013 during which the retroactive extension of the U.S. federal R&D tax credit in the first quarter
resulted in twenty-two months of U.S. federal R&D tax credits recognized that year. Additionally, the decrease in the effective rate
was partially offset by higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO
Corporation Leadership Compensation Plan (“LCP”) in fiscal 2013 compared to fiscal 2014.
The Company’s effective tax rate in fiscal 2013 decreased to 31.1% from 33.8% in fiscal 2012. The decrease is partially due to higher
research and development tax credits recognized in fiscal 2013 resulting from the retroactive extension of the U.S. federal R&D tax credit
in January 2013 to cover a two-year period from January 1, 2012 to December 31, 2013. The decrease in the effective tax rate was also
attributed to the benefit from higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP
and a larger income tax deduction recognized for the special and extraordinary cash dividend paid in December 2012 to participants of
the HEICO Savings and Investment Plan holding HEICO common stock.
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.
4 4 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
2014
2013
As of October 31,
Deferred tax assets:
Deferred compensation liability
Inventories
Share-based compensation
Bonus accrual
Deferred revenue
R&D related carryforward
Vacation accrual
Customer rebates accrual
Other
Total deferred tax assets
Deferred tax liabilities:
Goodwill and other intangible assets
Property, plant and equipment
Other
Total deferred tax liabilities
Net deferred tax liability
$ 27,568
23,099
7,427
4,031
2,660
2,068
1,724
1,635
8,258
78,470
(144,381)
(9,090)
(880)
(154,351)
($ 75,881)
$ 22,242
21,673
5,002
3,394
—
4,045
1,676
2,706
7,958
68,696
(148,711)
(12,486)
(1,154)
(162,351)
($ 93,655)
2013
$ 33,036
1,791
(128,482)
($ 93,655)
The net deferred tax liability is classified in the Company’s Consolidated Balance Sheets as follows (in thousands):
As of October 31,
Current asset
Long-term asset
Long-term liability
Net deferred tax liability
2014
$ 34,485
1,063
(111,429)
($ 75,881)
The decrease in the Company’s net deferred tax liability from $93.7 million as of October 31, 2013 to $75.9 million as of October
31, 2014 and the increase in the deferred income tax benefit from $5.8 million in fiscal 2013 to $16.7 million in fiscal 2014 is related to
several items including the impact of impairment losses and amortization expense associated with intangible assets recognized in con-
nection with fiscal 2013 acquisitions, the expiration of the bonus depreciation allowance on new property, plant and equipment acquired
on or after January 1, 2014, and an increase in long-term deferred revenue. Additionally, the increase in the deferred tax asset related to
the LCP resulting from additional compensation deferrals and higher earnings on deferred balances contributed to the decrease in the
Company’s net deferred tax liability.
As of October 31, 2014 and 2013, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was
$.9 million and $1.1 million, respectively, of which $.6 million and $.8 million, respectively, would decrease the Company’s income tax
expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross
unrecognized tax benefits during the fiscal years ended October 31, 2014 and 2013 is as follows (in thousands):
Year ended October 31,
Balances as of beginning of 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
Balances as of end of year
2014
$ 1,072
10
—
138
(22)
(319)
879
$
2013
$ 2,527
58
(967)
108
(570)
(84)
$ 1,072
The decreases related to settlements and prior year tax positions recognized in fiscal 2013 pertain to state income tax positions
regarding nexus and state apportionment, respectively, which were originally recognized in fiscal 2012 and resolved through the filing
of state income tax returns in fiscal 2013 and the finalization of a state tax audit, respectively. The Company does not expect the total
amount of unrecognized tax benefits to materially change in the next twelve months.
H E I C O C O R P O R A T I O N / 4 5
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Company’s net liability for unrecognized tax benefits was $.8 million as of October 31, 2014, including $.3 million of interest
and penalties and net of $.4 million in deferred tax assets. The Company’s net liability for unrecognized tax benefits was $1.0 million
as of October 31, 2013, including $.3 million of interest and penalties and net of $.4 million in deferred tax assets. The Company
recognized interest and penalties of ($.1) million, ($.2) million and $.4 million in fiscal 2014, 2013 and 2012, respectively, related to
unrecognized tax benefits.
The Company files income tax returns in the United States (“U.S.”) federal jurisdiction and in multiple state jurisdictions. The
Company is also subject to income taxes in certain jurisdictions outside the U.S., none of which are individually material to the accompa-
nying consolidated financial statements. Generally, the Company is no longer subject to U.S. federal, state or foreign examinations by tax
authorities for years prior to fiscal 2010.
NOTE 7. FAIR VALUE MEASUREMENTS
The Company’s assets and liabilities that were measured at fair value on a recurring basis are set forth by level within the fair value
hierarchy in the following tables (in thousands):
Quoted Prices
Significant
Significant
As of October 31, 2014
Assets:
Deferred compensation plans:
Corporate owned life insurance
Money market funds
Equity securities
Mutual funds
Other
Total assets
Liabilities:
Contingent consideration
Assets:
Deferred compensation plans:
Corporate owned life insurance
Money market deposit accounts
Equity securities
Mutual funds
Other
Total assets
Liabilities:
Contingent consideration
in Active Markets Other Observable Unobservable
for Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
$ —
3,974
2,225
1,903
1,339
$ 9,441
$ 61,958
—
—
—
50
$ 62,008
$ —
—
—
—
—
$ —
Total
$ 61,958
3,974
2,225
1,903
1,389
$ 71,449
$ —
$ —
$ 1,184
$ 1,184
Quoted Prices
Significant
Significant
As of October 31, 2013
in Active Markets Other Observable Unobservable
for Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
$ —
1,470
1,940
1,529
—
$ 4,939
$ 52,655
—
—
—
46
$ 52,701
$ —
—
—
—
—
$ —
Total
$ 52,655
1,470
1,940
1,529
46
$ 57,640
$ —
$ —
$ 29,310
$ 29,310
The Company maintains two non-qualified deferred compensation plans. The assets of 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 and valued using a market approach. Certain other assets of the LCP represent investments
in money market funds that are classified within Level 1. The assets of the Company’s other deferred compensation plan are principally
invested in equity securities, mutual funds and money market deposit accounts that are classified within Level 1. The assets of both plans
are held within irrevocable trusts and classified within other assets in the Company’s Consolidated Balance Sheets.
4 6 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2013, the Company may have been obligated to pay contingent
consideration of up to $20.0 million had the acquired entity met certain earnings objectives during the last three months of the calendar
year of acquisition and may be obligated to pay contingent consideration of up to $30.0 million should the acquired entity meet certain
earnings objectives during each of the next two calendar years (2014 and 2015). In December 2013, the acquired entity incurred unan-
ticipated costs associated with certain contracts for which revenue is recognized on the percentage-of-completion method and as a result,
did not meet its calendar 2013 related earnings objectives. Accordingly, the $7.0 million contingent consideration accrued as of October
31, 2013 was recorded as a reduction to selling, general and administrative expenses (“SG&A”) in the Company’s Consolidated Statement
of Operations in the first quarter of fiscal 2014. The estimated fair value of the contingent consideration for the calendar 2014 and 2015
earnings period was $1.2 million as of October 31, 2014 compared to $13.7 million as of October 31, 2013. The $12.5 million decrease
in the fair value of the contingent consideration is principally attributed to revised earnings estimates that reflect less favorable projected
market conditions for certain of the space products it produces and was recorded as a reduction to SG&A expenses. Additionally, the
aforementioned conditions resulted in the Company concluding it had a triggering event requiring assessment of impairment of the
subsidiary’s intangible assets during fiscal 2014. Please see below for further information pertaining to the measurement and recognition
of impairment losses associated with the intangible assets of this subsidiary.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2012, the Company may be obligated to pay contingent con-
sideration of up to $10.6 million in aggregate should the acquired entity meet certain earnings objectives during each of the next three
years following the second anniversary date of the acquisition. The $8.6 million estimated fair value of the contingent consideration as of
October 31, 2013 was recorded as a reduction to SG&A expenses in the Company’s Consolidated Statement of Operations during fiscal
2014. The decrease in the fair value of the contingent consideration is principally attributed to revised earnings estimates that reflect
less favorable market conditions for certain of the defense products it produces. Additionally, the aforementioned conditions resulted in
the Company concluding it had a triggering event requiring assessment of impairment of the subsidiary’s intangible assets during fiscal
2014. Please see below for further information pertaining to the measurement and recognition of impairment losses associated with the
intangible assets of this subsidiary.
The estimated fair values of the contingent consideration arrangements described above are classified within Level 3 and were
determined using a probability-based scenario analysis approach. Under this method, a set of discrete potential future subsidiary
earnings was determined using internal estimates based on various revenue growth rate assumptions for each scenario. A probability
of likelihood was assigned to each discrete potential future earnings estimate and the resultant contingent consideration was calculated.
The resulting probability-weighted contingent consideration amounts were discounted using a weighted average discount rate reflecting
the credit risk of a market participant. Changes in either the revenue growth rates, related earnings or the discount rate could result in
a material change to the amount of contingent consideration accrued and such changes will be recorded in the Company’s consolidated
statements of operations.
The Level 3 inputs used to derive the estimated fair values of the contingent consideration as of October 31, 2014 are as follows:
Compound annual revenue growth rate range
Weighted average discount rate
Fiscal 2013
Acquisition
Fiscal 2012
Acquisition
(7%) - 20%
2.6%
(8%) - 26%
3.0%
Changes in the Company’s assets and liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) for
the fiscal years ended October 31, 2014 and 2013 are as follows (in thousands):
Balances as of October 31, 2012
Contingent consideration related to acquisition
Payment of contingent consideration
Decrease in accrued contingent consideration
Total realized gains
Sales
Balances as of October 31, 2013
Decrease in accrued contingent consideration
Balances as of October 31, 2014
Assets
Liabilities
$ 538
—
—
—
48
(586)
—
—
$ —
$ 10,897
20,654
(601)
(1,640)
—
—
29,310
(28,126)
$ 1,184
The Company did not have any transfers between Level 1 and Level 2 fair value measurements during fiscal 2014 and 2013.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, trade accounts payable and accrued
expenses and other current liabilities approximate fair value as of October 31, 2014 due to the relatively short maturity of the respective
instruments. The carrying value of long-term debt approximates fair value due to its variable interest rates.
H E I C O C O R P O R A T I O N / 4 7
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
During fiscal 2014, certain customer relationships, non-amortizing trade names and intellectual property within the ETG were
measured at fair value on a nonrecurring basis, resulting in the recognition of impairment losses aggregating $15.0 million.
The fair values of the Company’s nonfinancial assets and liabilities that were measured at fair value on a nonrecurring basis, which
are classified within Level 3, and the related impairment losses recognized in fiscal 2014 are as follows (in thousands):
Assets:
Customer relationships
Non-amortizing trade names
Intellectual property
Impairment of intangible assets
Carrying
Amount
Impairment
Loss
Fair Value
(Level 3)
$ 19,366
10,000
2,302
($ 11,200)
(1,900)
(1,900)
($ 15,000)
$ 8,166
8,100
402
The fair values of such customer relationships, non-amortizing trade names and intellectual property were determined using
variations of the income approach which apply an asset-specific discount rate to a forecast of asset-specific cash flows. These methods
utilize certain significant unobservable inputs categorized as Level 3. The Level 3 inputs used to derive the estimated fair values of the
customer relationships, non-amortizing trade names and intellectual property during fiscal 2014 are as follows:
Valuation method
Discount rate
Annual attrition rate
Royalty rate
NOTE 8. SHAREHOLDERS’ EQUITY
Preferred Stock Purchase Rights Plan
Customer
Relationships
Non-Amortizing
Trade Names
Intellectual
Property
Excess Earnings
15.0% - 19.0%
25.0% - 30.0%
N/A
Relief from Royalty
14.0% - 18.0%
N/A
1.0% - 2.5%
Relief from Royalty
19.0%
20.0%
6.0%
The Company’s Board of Directors adopted, as of November 2, 2003, a Shareholder Rights Agreement (the “2003 Plan”). Pursuant
to the 2003 Plan, the Board declared a dividend of one preferred share purchase right for each outstanding share of Common Stock and
Class A Common Stock (with the preferred share purchase rights collectively as the “Rights”). The Rights trade with the common stock
and are not exercisable or transferable apart from the Common Stock and Class A Common Stock until after a person or group either
acquires 15% or more of the outstanding common stock or commences or announces an intention to commence a tender offer for 15% or
more of the outstanding common stock.
The Rights expired on November 2, 2013. The Rights had certain anti-takeover effects and, therefore, would have caused substantial
dilution to a person or group who attempted to acquire the Company on terms not approved by the Company’s Board of Directors or
who acquired 15% or more of the outstanding common stock without approval of the Company’s Board of Directors. The Rights would
not have interfered with any merger or other business combination that was approved by the Board since they may have been 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 had obtained beneficial
ownership of 15% or more of the outstanding common stock or until a person commenced or announced an intention to commence
a tender offer for 15% or more of the outstanding common stock. The 2003 Plan also contained 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 otherwise. In the event of liquidation, after
payment of debts and other liabilities of the Company, the remaining assets of the Company will be distributable ratably among the
holders of all classes of common stock.
Stock Splits
In September 2013 and March 2012, the Company’s Board of Directors declared a 5-for-4 stock split on both classes of the Com-
pany’s common stock. The stock splits were effected as of October 23, 2013 and April 25, 2012, respectively, in the form of a 25% stock
dividend distributed to shareholders of record as of October 11, 2013 and April 13, 2012, respectively. All applicable share and per share
information has been adjusted retrospectively to give effect to the 5-for-4 stock splits.
4 8 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Share Repurchases
In 1990, the Company’s Board of Directors authorized a share repurchase program, which allows the Company to repurchase
Company shares in the open market or in privately negotiated transactions at the Company’s discretion, subject to certain restrictions in-
cluded in the Company’s revolving credit agreement. As of October 31, 2014, the maximum number of shares that may yet be purchased
under this program was 2,501,813 of either or both of the Company’s Class A Common Stock and the Company’s Common Stock. The
repurchase program does not have a fixed termination date. During fiscal 2014, 2013 and 2012, the Company did not repurchase any
shares of Company common stock under this program.
During fiscal 2014, the Company repurchased an aggregate 6,833 shares of Class A Common Stock at a total cost of approximately
$.3 million. The shares purchased represent shares tendered as payment of employee withholding taxes due upon the issuance of a share-
based award. During fiscal 2013, the Company repurchased an aggregate 36,354 shares of Common Stock at a total cost of $1.3 million
and an aggregate 39,965 shares of Class A Common Stock at a total cost of $1.1 million. During fiscal 2012, the Company repurchased
an aggregate 3,808 shares of Common Stock at a total cost of approximately $.1 million and an aggregate 7,510 shares of Class A
Common Stock at a total cost of $.2 million. The transactions in fiscal 2013 and 2012 occurred as settlement for employee taxes due
pertaining to exercises of non-qualified stock options. The shares purchased in fiscal 2014, 2013 and 2012 did not impact the number of
shares authorized for future purchase under the Company’s share repurchase program and are reflected as redemptions of common stock
related to share-based compensation in the Company’s Consolidated Statements of Shareholders’ Equity and the Company’s Consolidat-
ed Statements of Cash Flows.
Special and Extraordinary Cash Dividends
In January 2014, the Company paid a special and extraordinary $.35 per share cash dividend on both classes of HEICO’s common
stock as well as its regular semi-annual $.06 per share cash dividend. In December 2012, the Company paid a special and extraordinary
$1.712 per share cash dividend on both classes of HEICO’s common stock as well as a regular semi-annual $.048 per share cash dividend
that was accelerated from January 2013. The dividends, which aggregated $27.2 million in fiscal 2014 and $116.6 million in fiscal 2013,
were principally funded from borrowings under the Company’s revolving credit facility.
Noncontrolling Interests
Consistent with the Company’s past practice of increasing its ownership in certain non-wholly-owned subsidiaries, on February
14, 2014, HEICO Corporation acquired the 20% noncontrolling interest held by LHT in four of the Company’s existing subsidiaries
principally operating in the specialty products and distribution businesses within HEICO Aerospace (the “Transaction”). Pursuant to
the Transaction, HEICO Aerospace paid dividends proportional to the ownership (80%/20%) to HEICO and LHT, and HEICO trans-
ferred the businesses to HEICO Flight Support Corp. HEICO did not record any gain or loss in connection with the Transaction. LHT’s
dividend of $67.4 million was paid in cash, principally using proceeds from the Company’s revolving credit facility. LHT remains a 20%
owner in HEICO Aerospace, a leading producer of PMA parts and component repair and overhaul services.
During fiscal 2014, the Put Right held by the noncontrolling interest holders in one of the Company’s subsidiaries expired, resulting
in a reclassification of the Redemption Amount from redeemable noncontrolling interests (temporary equity) to noncontrolling interests
(permanent equity). See Note 11, Redeemable Noncontrolling Interests, for additional information.
NOTE 9. SHARE-BASED COMPENSATION
The Company currently maintains one share-based compensation plan, the HEICO Corporation 2012 Incentive Compensation Plan
(“2012 Plan”), under which it may grant various forms of share-based compensation awards including, but not limited to, stock options,
restricted stock, restricted stock awards and stock appreciation rights. The 2012 Plan became effective in March 2012, the same time
the Company’s 2002 Stock Option Plan (“2002 Plan”) and its remaining 2.0 million unissued shares expired. Also, in March 2012, the
Company made a decision to no longer issue options under its Non-Qualified Stock Option Plan (“NQSOP”) under which less than .1
million remaining unissued shares were cancelled. Options outstanding under the 2002 Plan and NQSOP may be exercised pursuant to
their terms. The total number of shares approved by the shareholders of the Company for the 2012 Plan is 2.7 million plus any options
outstanding under the 2002 Plan and NQSOP as of the 2012 Plan’s effective date and that are subsequently forfeited or expire. A total
of 4.9 million shares of the Company’s common stock are reserved for issuance to employees, directors, officers and consultants as of
October 31, 2014, including 3.3 million shares currently under option and 1.6 million shares available for future grants.
Stock options granted pursuant to the 2012 Plan may be designated as Common Stock and/or Class A Common Stock in such pro-
portions as shall be determined by the Board of Directors or the Stock Option Plan Committee at its sole discretion. The exercise price
per share of a stock option granted under the 2012 Plan may not be less than the fair market value of the designated class of Company
common stock as of the date of grant and stock option grants vest ratably over a period specified as of the date of grant (generally five
years) and expire ten years after the date of grant. Options issued under the 2012 Plan may be designated as incentive stock options or
non-qualified stock options, but only employees are eligible to receive incentive stock options. The 2012 Plan will terminate no later than
the tenth anniversary of its effective date.
H E I C O C O R P O R A T I O N / 4 9
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Information concerning share-based activity for each of the last three fiscal years ended October 31 is as follows (in thousands,
except per share data):
Shares Under Option
Outstanding as of October 31, 2011
Shares approved by the Shareholders for the 2012
Incentive Compensation Plan
Granted
Cancelled unissued shares under the NQSOP
Expired unissued shares under the 2002 Plan
Exercised
Outstanding as of October 31, 2012
Granted
Exercised
Outstanding as of October 31, 2013
Granted
Stock award issuance
Exercised
Outstanding as of October 31, 2014
Shares Available
For Grant
2,083
2,656
(323)
(23)
(2,004)
—
2,389
(549)
—
1,840
(161)
(62)
—
1,617
Shares
2,893
—
323
—
—
(317)
2,899
549
(306)
3,142
161
—
(39)
3,264
Weighted Average
Exercise Price
$ 14.50
$
—
$ 24.97
—
$
—
$
$ 3.22
$ 16.90
$ 35.74
$ 3.78
$ 21.48
$ 43.37
$
—
$ 18.36
$ 22.59
Information concerning stock options outstanding (all of which are vested or expected to vest) and stock options exercisable by class
of common stock as of October 31, 2014 is as follows (in thousands, except per share and contractual life data):
Common Stock
Class A Common Stock
Options Outstanding
Number
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
Aggregate
Intrinsic
Value
1,484
1,780
3,264
$ 21.14
$ 23.80
$ 22.59
5.4
6.6
6.1
$ 49,119
39,113
$ 88,232
Options Exercisable
Number
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
Aggregate
Intrinsic
Value
Common Stock
Class A Common Stock
1,181
854
2,035
$ 18.32
$ 16.48
$ 17.55
Information concerning stock options exercised is as follows (in thousands):
Year ended October 31,
Cash proceeds from stock option exercises
Tax benefit realized from stock option exercises
Intrinsic value of stock option exercises
2014
$ 708
93
929
5.0
5.2
5.1
2013
$ 463
5,191
8,033
$ 42,425
24,997
$ 67,422
2012
$
833
13,164
7,008
Net income attributable to HEICO for the fiscal years ended October 31, 2014, 2013 and 2012 includes compensation expense
of $6.2 million, $5.1 million and $3.9 million, respectively, and an income tax benefit of $2.4 million, $2.0 million and $1.5 million,
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,
2014, there was $14.5 million of pre-tax unrecognized compensation expense related to nonvested stock options, which is expected to
be recognized over a weighted average period of approximately 3.2 years. The total fair value of stock options that vested in fiscal 2014,
2013 and 2012 was $5.9 million, $4.5 million and $3.6 million, respectively. If there were a change in control of the Company, all of the
unvested options outstanding as of October 31, 2014 would become immediately exercisable.
For the fiscal years ended October 31, 2014, 2013 and 2012, the excess tax benefit resulting from tax deductions in excess of the
cumulative compensation cost recognized for stock options exercised was $.1 million, $5.1 million and $12.1 million, respectively, and is
presented as a financing activity in the Company’s Consolidated Statements of Cash Flows.
5 0 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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 fiscal years ended October 31, 2014, 2013 and 2012:
Expected stock price volatility
Risk-free interest rate
Dividend yield
Forfeiture rate
Expected option life (years)
Weighted average fair value
2014
Class A
Common
Stock
38.04%
2.06%
.38%
.00%
7
$ 17.23
2013
Class A
Common
Stock
38.40%
1.85%
.33%
.00%
7
$ 14.29
Common
Stock
39.94%
2.02%
.24%
.00%
9
$ 20.24
2012
Class A
Common
Stock
40.11%
1.19%
.32%
.00%
7
$ 10.20
In fiscal 2013, the Company granted restricted shares in the common stock of one of its subsidiaries representing approximately 1%
of the equity of the subsidiary. The shares cliff vest in fiscal 2018. Net income attributable to HEICO includes compensation expense of
$.2 million in fiscal 2014 and less than $.1 million in fiscal 2013 related to unvested restricted shares. As of October 31, 2014, there was
$.7 million of pre-tax unrecognized compensation expense related to the unvested restricted shares, which is expected to be recognized
over the next 3.2 years.
In fiscal 2014, the Company issued 24,982 shares of Class A Common Stock in lieu of cash to satisfy an employee bonus award,
which was accrued in fiscal 2013. Pursuant to the terms of the 2012 Plan, this stock award reduced the share reserve for issuance under
the 2012 Plan by 62,455 shares.
NOTE 10. EMPLOYEE RETIREMENT PLANS
The HEICO Savings and Investment Plan (the “401(k) Plan”) is a qualified defined contribution retirement 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 Compen-
sation for the Elective Deferral Contribution period. The 401(k) Plan also provides that the Company may make additional Employer
Contributions. Employer Contributions may be contributed in the form of the Company’s common stock or cash, as determined by the
Company. Employer Contributions awarded in the form of Company common stock are valued based on the fair value of the underlying
shares as of the effective date of contribution. Employer Contributions may be diversified by a participant into any of the participant-di-
rected investment options of the 401(k) Plan; however, Employee Contributions may not be invested in Company common stock.
Participants receive 100% vesting of Employee Contributions and cash dividends received on Company common stock. Vesting
in Employer Contributions is based on a participant’s number of years of vesting service. Employer Contributions to the 401(k) Plan
charged to income in fiscal 2014, 2013 and 2012 totaled $6.3 million, $3.2 million and $3.0 million, respectively, and were made through
the issuance of new shares of Company common stock and the use of forfeited shares within the 401(k) Plan.
In fiscal 2012, the Company’s Board of Directors authorized 187,500 shares of the Company’s Common Stock and 187,500 shares
of the Company’s Class A Common Stock be reserved and made available for issuance under the 401(k) Plan. Information concerning
share-based activity pertaining to the 401(k) Plan for each of the last three fiscal years ended October 31 is as follows (in thousands):
Shares available for issuance as of October 31, 2011
Shares registered for issuance to the 401(k) Plan
Issuance of common stock to 401(k) Plan
Shares available for issuance as of October 31, 2012
Issuance of common stock to 401(k) Plan
Shares available for issuance as of October 31, 2013
Issuance of common stock to 401(k) Plan
Shares available for issuance as of October 31, 2014
Common
Stock
Class A
Common
Stock
—
187
(17)
170
(45)
125
(57)
68
—
187
(17)
170
(45)
125
(57)
68
H E I C O C O R P O R A T I O N / 5 1
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
In connection with a fiscal 2013 acquisition, the Company assumed a frozen qualified defined benefit pension plan (the “Plan”).
The Plan’s benefits are based on employee compensation and years of service. However, since the Plan was closed to new participants
effective December 31, 2004, the accrued benefit for Plan participants was fixed as of the date of acquisition and therefore the Plan’s
accumulated benefit obligation is equal to the projected benefit obligation. The acquired projected benefit obligation and plan assets
were recorded at fair value as of the acquisition date.
Changes in the Plan’s projected benefit obligation and plan assets during fiscal 2013 subsequent to the acquisition and for the fiscal
year ended October 31, 2014 are as follows (in thousands):
Change in projected benefit obligation:
Acquired projected benefit obligation
Actuarial gain
Interest cost
Benefits paid
Projected benefit obligation as of October 31, 2013
Actuarial loss
Interest cost
Benefits paid
Projected benefit obligation as of October 31, 2014
Change in plan assets:
Acquired plan assets
Actual return on plan assets
Benefits paid
Fair value of plan assets as of October 31, 2013
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets as of October 31, 2014
Funded status as of October 31, 2013
Funded status as of October 31, 2014
$ 14,539
(1,165)
236
(397)
13,213
930
610
(938)
$ 13,815
$ 11,674
120
(397)
11,397
764
136
(938)
$ 11,359
($ 1,816)
($ 2,456)
The $2.5 million and $1.8 million difference between the projected benefit obligation and fair value of plan assets as of October
31, 2014 and October 31, 2013, respectively, are included in other long-term liabilities within the Company’s Consolidated Balance
Sheets. Additionally, the Plan experienced a $.9 million net actuarial loss and $1.0 million net actuarial gain during fiscal 2014 and 2013,
respectively, that were recognized in other comprehensive income (where they are reported net of ($.3) million and $.4 million of tax,
respectively). As of October 31, 2014, $.1 million represents the total actuarial gain in accumulated other comprehensive income that
have yet to be recognized as a component of net periodic pension income. The Company does not expect to recognize any of the amount
within accumulated other comprehensive income as of October 31, 2014 as a component of net periodic pension income during fiscal 2015.
Weighted average assumptions used to determine the projected benefit obligation as of October 31, 2014 and October 31, 2013 and
net pension income for the fiscal year ended October 31, 2014 and October 31, 2013 are as follows:
Discount rate
Expected return on plan assets
Projected Benefit Obligation
2014
4.20%
N/A
2013
4.79%
N/A
Net Pension Income
2014
2013
4.79%
6.75%
3.99%
6.75%
The discount rate was determined using the results of a bond yield curve model based on a portfolio of high-quality bonds matching
expected Plan benefit payments. The expected return on Plan assets was based upon the current and expected target asset allocation and
investment return estimates for the Plan’s equity and fixed income securities. In establishing this assumption, the Company considers
many factors including both the historical rate of return and projected inflation-adjusted real rate of return on the Plan’s various asset
classes and the expected working lifetime for Plan participants.
5 2 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Components of net pension income for the fiscal years ended October 31, 2014 and October 31, 2013 that were recorded within the
Company’s Consolidated Statements of Operations are as follows (in thousands):
Year ended October 31,
Expected return on plan assets
Interest cost
Net pension income
2014
$ 739
610
$ 129
2013
$ 320
236
$ 84
The Company anticipates making contributions of $.1 million to the Plan during fiscal 2015. Estimated future benefit payments to
be made during each of the next five fiscal years and in aggregate during the succeeding five fiscal years are as follows (in thousands):
Year ending October 31,
2015
2016
2017
2018
2019
2020-2024
$ 921
904
897
868
895
4,244
The fair value of the Plan’s assets are set forth by level within the fair value hierarchy in the following tables (in thousands):
Quoted Prices
Significant
Significant
As of October 31, 2014
in Active Markets Other Observable Unobservable
for Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Equity securities
Fixed income securities
Money market funds and cash
$ 5,678
5,563
118
$ 11,359
$ —
—
—
$ —
$ —
—
—
$ —
Quoted Prices
Significant
Significant
As of October 31, 2013
in Active Markets Other Observable Unobservable
for Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Equity securities
Fixed income securities
Money market funds and cash
$ 2,212
9,060
125
$ 11,397
$ —
—
—
$ —
$ —
—
—
$ —
Total
$ 5,678
5,563
118
$ 11,359
Total
$ 2,212
9,060
125
$ 11,397
Equity securities consist of investments in common stocks, mutual funds and exchange traded funds. Fixed income securities
consist of investments in mutual funds.
The Plan’s actual and targeted asset allocations by investment category are as follows:
As of October 31,
2014
2013
Equity securities
Fixed income securities
Money market funds and cash
Actual
Target
Actual
Target
50%
49%
1%
100%
50%
50%
—%
100%
19%
80%
1%
100%
20%
80%
—%
100%
During fiscal 2014, the Company modified the Plan’s asset allocation policy from that which was established prior to the acquisition.
The Company’s objective is to maximize long-term investment return while maintaining an acceptable level of risk that is accomplished
through broad diversification of the Plan’s assets.
H E I C O C O R P O R A T I O N / 5 3
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
NOTE 11. REDEEMABLE NONCONTROLLING INTERESTS
The holders of equity interests in certain of the Company’s subsidiaries have rights (“Put Rights”) that may be exercised on varying
dates causing the Company to purchase their equity interests through fiscal 2022. 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 their equity interests (the
“Redemption Amount”) be at fair value or at a formula that management intended to reasonably approximate fair value based solely on
a multiple of future earnings over a measurement period. As of October 31, 2014, management’s estimate of the aggregate Redemption
Amount of all Put Rights that the Company would be required to pay is approximately $40.0 million. The actual Redemption Amount
will likely be different. The aggregate Redemption Amount of all Put Rights was determined using probability adjusted internal estimates
of future earnings of the Company’s subsidiaries with Put Rights while considering the actual or earliest exercise date, the measurement
period and any applicable fair value adjustments. The portion of the estimated Redemption Amount as of October 31, 2014 redeemable
at fair value is approximately $27.7 million and the portion redeemable based solely on a multiple of future earnings is approximately
$12.3 million.
A summary of the put and call rights associated with the redeemable noncontrolling interests in certain of the Company’s subsidiar-
ies and a description of any transactions involving redeemable noncontrolling interests during fiscal 2014, 2013 and 2012 is as follows:
The Company acquired an 80.1% interest in a subsidiary through the ETG in fiscal 2004. As part of the purchase agreement, the
noncontrolling interest holders had the right to cause the Company to purchase their interests over a five-year period. During fiscal
2014, the noncontrolling interest holders’ Put Right expired, resulting in a reclassification of the Redemption Amount from redeemable
noncontrolling interests (temporary equity) to noncontrolling interests (permanent equity). Furthermore, the Company has the right to
purchase the noncontrolling 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, the
noncontrolling interest holders have the right to cause the Company to purchase their interests over a four-year period beginning
in fiscal 2007 or thereafter. Certain noncontrolling interest holders exercised their option during prior years, which resulted in the
Company increasing its ownership interest in the subsidiary to 95.9% effective fiscal 2011.
Pursuant to the purchase agreement related to the acquisition of a 51% interest in a subsidiary by the FSG in fiscal 2006, certain
noncontrolling interest holders exercised their option to cause the Company to purchase an aggregate 29% interest, which was completed
in fiscal 2011. During fiscal 2012, the remaining noncontrolling interest holder exercised their option to cause the Company to purchase
the remaining 20% interest, of which 6.7% was acquired effective February 2012 and 13.3% was acquired effective December 2012.
During fiscal 2014, the Company paid a purchase price adjustment for the portion of the redeemable noncontrolling interests acquired in
December 2012 that was based on the acquired entity’s actual fiscal 2013 earnings.
The Company acquired an 80.1% interest in a subsidiary through the FSG in fiscal 2006. As part of the purchase agreement, the
Company has the right to purchase the noncontrolling interests over a four-year period and the noncontrolling interest holders have the
right to cause the Company to purchase the same equity interests over the same period.
The Company acquired an 80.1% interest in a subsidiary through the FSG in fiscal 2008 and acquired an additional 2.2% interest
in fiscal 2010, which increased the Company’s ownership interest to 82.3%. Pursuant to the original purchase agreement as amended
in fiscal 2012, the Company has the right to purchase the remaining noncontrolling interests over a five-year period beginning in fiscal
2016, or sooner under certain conditions, and the noncontrolling interest holders have the right to cause the Company to purchase the
same equity interests over the same period.
The Company acquired an 82.5% interest in a subsidiary through the ETG in fiscal 2009. As part of the purchase agreement, the
Company has the right to purchase the noncontrolling interests in a lump sum transaction and the noncontrolling interest holder has the
right to cause the Company to purchase the same equity interests over the same period.
The Company acquired an 80.1% interest in a subsidiary through the FSG in fiscal 2011. As part of the purchase agreement, the
Company has the right to purchase the noncontrolling interests over a two-year period beginning in fiscal 2015, or sooner under certain
conditions, and the noncontrolling interest holders have the right to cause the Company to purchase the same equity interests over the
same period.
During fiscal 2012, one of the subsidiaries of the ETG formed a new subsidiary which acquired certain assets and liabilities of two
businesses in exchange for shares aggregating 22% of its equity interest, valued at $.4 million. The noncontrolling interest holders have
the right to cause the Company to purchase their equity interests over a two-year period beginning in fiscal 2017.
The Company acquired an 84% interest in a subsidiary through the FSG in fiscal 2012. As part of the purchase agreement, the
Company has the right to purchase the noncontrolling interests over a four-year period beginning in fiscal 2018, or sooner under certain
conditions, and the noncontrolling interest holders have the right to cause the Company to purchase the same equity interests over the
same period.
5 4 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Company acquired an 80.1% interest in a subsidiary through the FSG in fiscal 2012. As part of the purchase agreement, the
Company has the right to purchase the noncontrolling interests over a four-year period beginning in fiscal 2019, or sooner under certain
conditions, and the noncontrolling interest holder has the right to cause the Company to purchase the same equity interests over the
same period.
The purchase prices of the redeemable noncontrolling interests acquired in fiscal 2014 and 2012 were paid using cash provided by
operating activities. The purchase price of the redeemable noncontrolling interests acquired in fiscal 2013 was paid using proceeds from
the Company’s revolving credit facility. The aggregate cost of the redeemable noncontrolling interests acquired was $1.2 million, $16.6
million and $7.6 million in fiscal 2014, 2013 and 2012, respectively.
NOTE 12. NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS
The computation of basic and diluted net income per share attributable to HEICO shareholders is as follows (in thousands, except
per share data):
Year ended October 31,
2014
2013
2012
Numerator:
Net income attributable to HEICO
Adjustments to redemption amount of redeemable
noncontrolling interests (see Note 1)
Net income attributable to HEICO, as adjusted
Denominator:
Weighted average common shares outstanding - basic
Effect of dilutive stock options
Weighted average common shares outstanding - diluted
Net income per share attributable to HEICO shareholders:
Basic
Diluted
$ 121,293
$ 102,396
$ 85,147
—
$ 121,293
—
$ 102,396
13
$ 85,160
66,463
990
67,453
66,298
684
66,982
65,861
763
66,624
$
$
1.82
1.80
$
$
1.54
1.53
$
$
1.29
1.28
Anti-dilutive stock options excluded
430
754
888
NOTE 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)
Net sales:
2014
2013
Gross profit:
2014
2013
Net income from consolidated operations:
2014
2013
Net income attributable to HEICO:
2014
2013
Net income per share attributable to HEICO:
Basic:
2014
2013
Diluted:
2014
2013
First
Quarter
$ 266,826
$ 216,490
$ 92,117
$ 77,589
$ 32,562
$ 24,984
$ 27,455
$ 19,958
$
$
$
$
.41
.30
.41
.30
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 282,232
$ 237,708
$ 99,922
$ 89,448
$ 32,780
$ 29,046
$ 28,367
$ 23,700
$
$
$
$
.43
.36
.42
.35
$ 291,030
$ 267,133
$ 103,327
$ 97,540
$ 37,352
$ 34,768
$ 33,366
$ 28,947
$
$
$
$
.50
.44
.49
.43
$ 292,223
$ 287,426
$ 102,946
$ 106,604
$ 36,078
$ 35,763
$ 32,105
$ 29,791
$
$
$
$
.48
.45
.48
.44
H E I C O C O R P O R A T I O N / 5 5
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
During the fourth quarter of fiscal 2014, the Company recorded a reduction in accrued contingent consideration related to a fiscal
2012 acquisition that was partially offset by impairment losses related to the write-down of certain intangible assets at the acquired
business resulting in an increase in net income attributable to HEICO of approximately $1.7 million, or $.03 per basic and diluted share.
During the third quarter of fiscal 2014, the Company recorded a reduction in accrued contingent consideration related to a fiscal
2013 acquisition that was partially offset by impairment losses related to the write-down of certain intangible assets and lower than
expected operating income at the acquired business resulting in an increase in net income attributable to HEICO of approximately $3.4
million, or $.05 per basic and diluted share.
During the first quarter of fiscal 2014, the Company recorded a reduction in accrued contingent consideration related to a fiscal
2013 acquisition that was partially offset by lower than expected operating income at the acquired business resulting in an increase in net
income attributable to HEICO of approximately $2.6 million, or $.04 per basic and diluted share.
During the third quarter of fiscal 2013, the Company filed its fiscal 2012 U.S. federal and state tax returns. As a result, the Company
recognized a benefit, which increased net income attributable to HEICO by approximately $.8 million, or $.01 per basic and diluted
share, net of expenses, from higher research and development tax credits.
During the first quarter of fiscal 2013, the Company recognized an income tax credit for qualified research and development
activities for the last ten months of fiscal 2012 upon the retroactive extension of the U.S. federal research and development tax credit
in January 2013 to cover a two-year period from January 1, 2012 to December 31, 2013. The tax credit, net of expenses, increased net
income attributable to HEICO by $1.0 million, or $.01 per basic and diluted share.
Due to changes in the average number of common shares outstanding, net income per share attributable to HEICO 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 HEICO Flight
Support Corp. and their collective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic and
its subsidiaries. The FSG designs, manufactures, repairs, overhauls 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 and is a leading manufacturer of advanced niche
components and complex composite assemblies for commercial aviation, defense and space applications. The ETG designs and manu-
factures electronic, microwave, and electro-optical equipment and components, three-dimensional microelectronic and stacked memory
products, high-speed interface products, high voltage interconnection devices, high voltage advanced power electronics products, power
conversion products, underwater locator beacons, traveling wave tube amplifiers, harsh environment electronic connectors and other
interconnect products, and RF and microwave amplifiers, transmitters, receivers and satellite microwave modules, units and integrated
subsystems primarily for the aviation, defense, space, medical, telecommunications and electronics 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. Management evaluates segment performance based on segment operating income.
5 6 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Information on the Company’s two operating segments, the FSG and the ETG, for each of the last three fiscal years ended October
31 is as follows (in thousands):
Year ended October 31, 2014:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
Year ended October 31, 2013:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
Year ended October 31, 2012:
Net sales
Depreciation and amortization
Operating income
Capital expenditures
Total assets
Segment
FSG
ETG
Other,
Primarily
Corporate and
Intersegment
Consolidated
Totals
$ 762,801
19,843
136,480
9,437
676,824
$ 665,148
14,614
122,058
10,190
679,839
$ 570,325
10,451
103,943
7,045
487,188
$ 379,404
27,106
88,914
6,327
703,144
$ 350,033
21,392
83,063
7,748
759,807
$ 331,598
19,365
77,438
7,248
636,660
($ 9,894)
808
(22,006)
646
109,246
($ 6,424)
784
(21,531)
390
93,369
($ 4,576)
840
(18,087)
969
68,998
$ 1,132,311
47,757
203,388
16,410
1,489,214
$ 1,008,757
36,790
183,590
18,328
1,533,015
$ 897,347
30,656
163,294
15,262
1,192,846
Major Customer and Geographic Information
The Company markets its products and services in approximately 100 countries. The following table summarizes the Company’s
net sales to customers located in the United States and to those in other countries for each of the last three fiscal years ended October 31
(in thousands). Net sales are attributed to countries based on the location of the customer. Net sales to any one customer or originating
from any one country did not account for 10% or more of the Company’s consolidated net sales during any of the last three fiscal years.
The following table also summarizes the Company’s long-lived assets held within and outside of the United States as of October 31 of the
last three fiscal years (in thousands). Long-lived assets consist of net property, plant and equipment.
Net sales:
United States of America
Other countries
Total net sales
Long-lived assets:
United States of America
Other countries
Total long-lived assets
2014
2013
2012
$ 754,616
377,695
$ 1,132,311
$ 654,096
354,661
$ 1,008,757
$
$
84,116
9,749
93,865
$
$
87,247
10,490
97,737
$ 596,922
300,425
$ 897,347
$ 70,380
10,138
$ 80,518
H E I C O C O R P O R A T I O N / 5 7
HEICO CORPORATION AND SUBSIDIARIES
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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.
Future minimum payments under non-cancelable operating leases for the next five fiscal years and thereafter are estimated to be as
follows (in thousands):
Year ending October 31,
2015
2016
2017
2018
2019
Thereafter
Total minimum lease commitments
$ 9,787
8,830
6,704
3,239
1,458
5,903
$ 35,921
Total rent expense charged to operations for operating leases in fiscal 2014, 2013 and 2012 amounted to $11.2 million, $9.8 million
and $7.9 million, respectively.
Guarantees
As of October 31, 2014, the Company has arranged for standby letters of credit aggregating $2.3 million, which are supported by
its revolving credit facility. One letter of credit in the amount of $1.5 million is to satisfy the security requirement of the Company’s
insurance company for potential workers’ compensation claims and the remainder pertain to performance guarantees related to
customer contracts entered into by certain of the Company’s subsidiaries.
Product Warranty
Changes in the Company’s product warranty liability in fiscal 2014 and 2013 are as follows (in thousands):
Year ended October 31,
Balances as of beginning of year
Accruals for warranties
Acquired warranty liabilities
Warranty claims settled
Balances as of end of year
Litigation
2014
$ 3,233
3,005
—
(2,159)
$ 4,079
2013
$ 2,571
1,308
556
(1,202)
$ 3,233
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
The following table presents supplemental cash flow information for fiscal 2014, 2013 and 2012 (in thousands):
Year ended October 31,
Cash paid for interest
Cash paid for income taxes
Cash received from income tax refunds
Property, plant and equipment acquired through capital lease obligations
2014
$ 5,550
72,723
(395)
131
2013
$ 3,514
62,631
(33)
—
2012
$ 2,420
43,470
(1,555)
295
5 8 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES
H E I C O C O R P O R A T I O N
M A N A G E M E N T ’ S A N N U A L R E P O R T O N I N T E R N A L
A N D S U B S I D I A R I E S
C O N T R O L O V E R F I N A N C I A L R E P O R T I N G
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 (1992). Based on its
assessment, management concluded that the Company’s internal control over financial reporting is effective as of October 31, 2014.
Deloitte & Touche LLP, an independent registered public accounting firm, audited the Company’s consolidated financial statements
included in this Annual Report for the year ended October 31, 2014. A copy of their report is included in this Annual Report. Deloitte &
Touche LLP has issued their attestation report on management’s internal control over financial reporting, which is set forth below.
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
E X E C U T I V E O F F I C E R C E R T I F I C A T I O N S
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, 2014, the required certifications of its Chief Executive Officer (CEO) and Chief Financial Officer under Section
302 of the Sarbanes-Oxley Act of 2002 regarding the quality of its public disclosures. HEICO Corporation’s CEO also has submitted to
the New York Stock Exchange (NYSE) following the March 2014 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.
H E I C O C O R P O R A T I O N / 5 9
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C
A C C O U N T I N G F I R M
To the Board of Directors and Shareholders of
HEICO Corporation
Hollywood, Florida
We have audited the accompanying consolidated balance sheets of HEICO Corporation and subsidiaries (the “Company”) as of October
31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows
for each of the three years in the period ended October 31, 2014. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of HEICO Corporation
and subsidiaries as of October 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the
period ended October 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of October 31, 2014, based on the criteria established in Internal Control - Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 18, 2014
expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
December 18, 2014
6 0 / H E I C O C O R P O R A T I O N
HEICO CORPORATION AND SUBSIDIARIES R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C
A C C O U N T I N G F I R M
To the Board of Directors and Shareholders of
HEICO Corporation
Hollywood, Florida
We have audited the internal control over financial reporting of HEICO Corporation and subsidiaries (the “Company”) as of October
31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
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 Company maintained, in all material respects, effective internal control over financial reporting as of October 31,
2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended October 31, 2014 of the Company and our report dated December 18, 2014
expressed an unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
December 18, 2014
H E I C O C O R P O R A T I O N / 6 1
HEICO CORPORATION AND SUBSIDIARIES M A R K E T F O R C O M P A N Y ’ S C O M M O N E Q U I T Y A N D
R E L A T E D S T O C K H O L D E R M A T T E R S
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.
In September 2013, the Company’s Board of Directors declared a 5-for-4 stock split on both classes of the Company’s common stock.
The stock split was effected as of October 23, 2013 in the form of a 25% stock dividend distributed to shareholders of record as of October
11, 2013. All applicable share and per share information has been adjusted retrospectively to give effect to the 5-for-4 stock split.
Fiscal 2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2014:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Class A Common Stock
Common Stock
High
Low
High
Low
Cash Dividends
Per Share
$ 28.46
29.17
32.34
42.04
$ 44.33
48.90
43.40
46.73
$ 23.84
25.77
26.84
31.48
$ 36.77
37.11
38.25
39.46
$ 38.12
37.84
45.96
56.09
$ 62.30
65.04
57.69
54.62
$ 29.88
32.61
33.82
45.54
$ 51.44
50.29
48.54
46.03
$ 1.760
—
.056
—
$ .410
—
.060
—
As of December 16, 2014, there were 399 holders of record of our Class A Common Stock and 396 holders of record of our
Common Stock.
In addition, as of December 16, 2014, there were approximately 5,100 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 5,900 holders of both classes of common stock.
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 NYSE Composite Index and the Dow Jones U.S. Aerospace Index for the five-year
period from October 31, 2009 through October 31, 2014. The NYSE Composite Index measures the performance of all common stocks
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 and spacecrafts 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
$440
$400
$360
$320
$280
$240
$200
$160
$120
$80
$40
0
2009
2010
2011
2012
2013
2014
2009
HEICO Common Stock
HEICO Class A Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
6 2 / H E I C O C O R P O R A T I O N
$ 100.00
100.00
100.00
100.00
Cumulative Total Return as of October 31,
2010
$ 164.12
151.03
111.48
136.69
2011
2012
$ 235.50
200.43
112.23
146.77
$ 199.97
194.95
121.99
157.84
2013
$ 364.20
333.51
148.52
242.66
2014
$ 371.71
395.91
160.92
248.88
HEICO CORPORATION AND SUBSIDIARIES
M A R K E T F O R C O M P A N Y ’ S C O M M O N E Q U I T Y A N D
R E L A T E D S T O C K H O L D E R M A T T E R S
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 above. 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 Twenty-Four Year Cumulative Total Return
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
$12,000
$11,000
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
90 91
92
93
94 95
96
97
98
99 00 01 02 03 04 05 06 07 08 09
10
11
12
13
14
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
$
$
$
Cumulative Total Return as of October 31,
1990
1991
1992
1993
1994
1995
100.00
100.00
100.00
$ 141.49
130.31
130.67
$ 158.35
138.76
122.00
$ 173.88
156.09
158.36
$ 123.41
155.68
176.11
$
263.25
186.32
252.00
1996
1997
1998
1999
2000
2001
430.02
225.37
341.65
$ 1,008.31
289.55
376.36
$ 1,448.99
326.98
378.66
$ 1,051.61
376.40
295.99
$ 809.50
400.81
418.32
$ 1,045.86
328.78
333.32
2002
2003
2004
2005
2006
2007
670.39
284.59
343.88
$ 1,067.42
339.15
393.19
$ 1,366.57
380.91
478.49
$ 1,674.40
423.05
579.77
$ 2,846.48
499.42
757.97
$ 4,208.54
586.87
1,000.84
2008
2009
2010
2011
2012
2013
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
HEICO Common Stock
NYSE Composite Index
Dow Jones U.S. Aerospace Index
$ 2,872.01
344.96
602.66
2014
$ 11,416.51
617.23
1,687.41
$ 2,984.13
383.57
678.00
$ 4,722.20
427.61
926.75
$ 6,557.88
430.46
995.11
$ 5,900.20
467.91
1,070.15
$ 10,457.14
569.69
1,645.24
H E I C O C O R P O R A T I O N / 6 3
HEICO CORPORATION AND SUBSIDIARIES
O F F I C E R S A N D S E N I O R L E A D E R S H I P
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.
Nadim Bakhache
President,
EMD Technologies Incorporated
Keith Bandolik
President,
Switchcraft, Inc. and Conxall
Vaughn Barnes
President,
HEICO Specialty Products Group and
Thermal Structures, Inc.
Paul Belisle
Vice President and General Manager,
Turbine Kinetics, Inc.
Jeffrey S. Biederwolf
Senior Vice President,
HEICO Repair Group
Gregory S. Braselton
Vice President and General Manager,
Action Research Corporation
Russ Carlson
Vice President of New Product -
Business Development,
HEICO Parts Group
Vladimir Cervera
Vice President and General Manager -
Structures,
HEICO Component Repair Group – Miami
William Cockerell
President and Founder,
Ramona Research, Inc.
Barry Cohen
President and Founder,
Prime Air, LLC
Ian D. Crawford
President and Founder,
Analog Modules, Inc.
Alexandre de Gunten
Business Development Officer,
HEICO Aerospace Corporation
Sjuk de Vries
Chief Executive Officer and Founder,
Aeroworks International Holdings, B.V.
Andrew J. Feeley
Vice President and General Manager,
CSI Aerospace, Inc.
Jerry Goldlust
President and Founder,
HVT Group, Inc. and
Dielectric Sciences, Inc.
6 4 / H E I C O C O R P O R A T I O N
Leon Gonzalez
Vice President and General Manager,
Sunshine Avionics LLC
William S. Harlow
Vice President - Acquisitions,
HEICO Corporation
Clarence Hightower
President,
Reinhold Industries, Inc.
Walter Howard
Vice President and General Manager,
Aero Design, Inc.
John F. Hunter
Senior Vice President,
HEICO Parts Group
Tung Hyunh
President and Co-Founder,
Lumina Power, Inc.
Thomas S. Irwin
Senior Executive Vice President,
HEICO Corporation
Elizabeth R. Letendre
Corporate Secretary,
HEICO Corporation
Jack Lewis
Vice President and General Manager,
Jet Avion Corporation
Omar Lloret
Vice President and General Manager -
Accessories,
HEICO Component Repair Group – Miami
David A. Lowry
President and Co-Founder,
Engineering Design Team, Inc.
Carlos L. Macau, Jr.
Executive Vice President,
Chief Financial Officer and Treasurer,
HEICO Corporation
Patrick Markham
Vice President - Technical Services,
HEICO Parts Group
Pierre Maurice
President and Co-Founder,
3D Plus, SAS
Steve McHugh
Chief Operating Officer,
Electronic Technologies Group and
President and Co-Founder,
Santa Barbara Infrared, Inc. and
IRCameras, LLC
Robert J. McKenna
President,
Leader Tech, Inc.
Eric A. Mendelson
Co-President,
HEICO Corporation
Victor H. Mendelson
Co-President,
HEICO Corporation
Luis J. Morell
President,
HEICO Parts Group and
HEICO Repair Group
Michael Navon
President and Founder,
Blue Aerospace LLC
Joseph W. Pallot
General Counsel,
HEICO Corporation
Anish V. Patel
President,
Radiant Power Corp. and
Dukane Seacom, Inc.
Jeffrey Perkins
Vice President and General Manager,
Seal Dynamics – Tampa
James L. Reum
Executive Vice President (Emeritus),
HEICO Aerospace Holdings Corp.
Rex Reum
Vice President and General Manager,
Jetseal, Inc.
Thomas L. Ricketts
Chief Executive Officer 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
Chief Executive Officer and Co-Founder,
VPT, Inc.
Mark Shahriary
Chief Executive Officer,
Lucix Corporation
Val R. Shelley
Vice President - Strategy,
HEICO Corporation
Gary Spaulding
Chief Operating Officer,
dB Control Corp.
David J. Susser
President,
HEICO Distribution Group and
Seal Dynamics LLC
Gregg Tuttle
Vice President and General Manager,
Future Aviation, Inc.
Steven M. Walker
Chief Accounting Officer and
Assistant Treasurer,
HEICO Corporation
Nicholas “Tony” Wright
Vice President and General Manager -
Avionics,
HEICO Repair Group
HEICO CORPORATION AND SUBSIDIARIES F I N A N C I A L H I G H L I G H T S
B O A R D O F D I R E C T O R S
Year ended October 31, (1)
(in thousands, except per share data)
Operating Data:
Net sales
Operating income
Interest expense
Net income attributable to HEICO
Weighted average number of common shares outstanding: (2)
Basic
Diluted
Per Share Data: (2)
Net income per share attributable to HEICO shareholders:
Basic
Diluted
Cash dividends per share (2)
Balance Sheet Data (as of October 31):
Total assets
Total debt (including current portion)
Redeemable noncontrolling interests
Total shareholders’ equity
2012
2013
2014
$ 897,347
163,294
2,432
85,147
$ 1,008,757
183,590
3,717
102,396 (3)
$ 1,132,311
203,388
5,441
121,293 (4)
65,861
66,624
66,298
66,982
66,463
67,453
$
1.29
1.28
.086
$
$
1.54 (3)
1.53 (3)
1.816
1.82 (4)
1.80 (4)
.470
$ 1,192,846
131,820
67,166
719,759
$ 1,533,015
377,515
59,218
723,235
$ 1,489,214
329,109
39,966
774,619
(1) Results include the results of acquisitions from each respective effective date.
(2) All share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock splits effected in October 2013 and April 2012.
(3) Includes the aggregate tax benefit from an income tax credit for qualified research and development activities for the last ten months of fiscal 2012 recognized in fiscal
2013 upon the retroactive extension in January 2013 of the U.S. research and development tax credit and higher research and development tax credits recognized upon
the filing of HEICO’s fiscal 2012 U.S. federal and state tax returns, which, net of expenses, increased net income attributable to HEICO by $1.8 million, or $.03 per
basic and diluted share.
(4) Operating income was increased by a $28.1 million reduction in accrued contingent consideration related to a fiscal 2013 and a fiscal 2012 acquisition within the
Electronic Technologies Group (“ETG”), partially offset by $15.0 million in impairment losses related to the write-down of certain intangible assets at the fiscal 2013
and fiscal 2012 acquisitions to their estimated fair values as well as lower than expected operating income at the fiscal 2013 acquired business, which in aggregate
increased net income attributable to HEICO by $10.2 million, or $.15 per basic and diluted share. The reduction in the value of contingent consideration and $13.1
million of the impairment losses were recorded as a component of selling, general and administrative expenses, while the remaining impairment losses of $1.9 million
were recorded as a component of cost of sales.
F O R W A R D - L O O K I N G S T A T E M E N T S
Certain statements in this report constitute forward-looking statements, which are subject to risks, uncertainties and contingencies.
HEICO’s actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of fac-
tors including, but not limited to: lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which
could cause lower demand for our goods and services; product development or 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; product development difficulties, which could increase our product development costs and delay sales; our ability
to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest and income tax rates and
economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which
could negatively impact our costs and revenues; and defense budget cuts, which could reduce our defense-related revenue. 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 statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.
THOMAS M. CULLIGAN
retired Sr. Vice President and
CEO of Raytheon International,
The Raytheon Company
ADOLFO HENRIQUES
Chairman and CEO,
Gibraltar Private Bank and Trust
SAMUEL L. HIGGINBOTTOM
retired Chairman, President and
Chief Executive Officer,
Rolls-Royce, Inc.
Thomas M. Culligan
Adolfo Henriques
MARK H. HILDEBRANDT
Samuel L. Higginbottom
Mark H. Hildebrandt
Managing Member and Partner,
Waldman, Trigoboff, Hildebrandt,
Marx & Calnan, P.A.
WOLFGANG MAYRHUBER
Chairman of the Supervisory Board,
Deutsche Lufthansa AG
Chairman of the Supervisory Board,
Infineon Technologies 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
JULIE NEITZEL
Partner,
WE Family Offices
DR. ALAN SCHRIESHEIM
retired Director,
Argonne National Laboratory
FRANK J. SCHWITTER
retired Partner,
Arthur Andersen LLP
Wolfgang Mayrhuber
Eric A. Mendelson
Laurans A. Mendelson
Victor H. Mendelson
Julie Neitzel
Dr. Alan Schriesheim
Frank J. Schwitter
HEICO Corporation
Corporate Offices
3000 Taft Street
Hollywood, FL 33021
Telephone: 954-987-4000
Facsimile: 954-987-8228
www.heico.com
Subsidiaries
Flight Support Group
Action Research Corporation
Aero Design, Inc.
Aeroworks International Holdings, B.V.
Aircraft Technology, Inc.
Blue Aerospace LLC
CSI Aerospace, Inc.
DEC Technologies, Inc.
Future Aviation, Inc.
HEICO Aerospace Corporation
HEICO Aerospace Holdings Corp.
HEICO Aerospace Parts Corp.
HEICO Component Repair Group - Miami
HEICO Flight Support Corp.
HEICO Parts Group
HEICO Repair Group
Inertial Airline Services, Inc.
Jet Avion Corporation
Jetseal, Inc.
LPI Corporation
McClain International, Inc.
Niacc-Avitech Technologies, Inc.
Prime Air, LLC and Prime Air Europe
Reinhold Industries, Inc.
Seal Dynamics LLC
Sunshine Avionics LLC
Thermal Structures, Inc.
Turbine Kinetics, Inc.
Electronic Technologies Group
3D-Plus, SAS
Analog Modules, Inc.
Connectronics Corp. and Wiremax
dB Control Corp.
Dukane Seacom, Inc.
EMD Technologies Incorporated
Engineering Design Team, Inc.
HVT Group, Inc.
Dielectric Sciences, Inc.
Essex X-Ray & Medical Equipment LTD
Leader Tech, Inc.
Lucix Corporation
Lumina Power, Inc.
Radiant Power Corp.
Ramona Research, Inc.
Santa Barbara Infrared, Inc.
Sierra Microwave Technology, LLC
Switchcraft, Inc. and Conxall
VPT, Inc.
Registrar & Transfer Agent
Computershare Investor Services
P.O. BOX 30170
College Station, TX 77842-3170
Telephone: 800-307-3056
www.computershare.com/investor
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 2014, 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 on Friday,
March 20, 2015 at 10:00 a.m.
at the JW Marriott Miami
1109 Brickell Avenue
Miami, FL 33131
Telephone: 305-329-3500
Shareholder Information
Elizabeth R. Letendre
Corporate Secretary
HEICO Corporation
3000 Taft Street
Hollywood, FL 33021
Telephone: 954-987-4000
Facsimile: 954-987-8228
eletendre@heico.com
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