UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998
OR
( )TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4604
HEICO CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0341002
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3000 TAFT STREET, HOLLYWOOD, FLORIDA 33021
(Address of principal executive offices) (Zip Code)
(954) 987-6101
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the Registrant's classes of common
stock as of May 31, 1998:
Title of Class Shares Outstanding
Common Stock, $.01 par value 8,381,759
Class A Common Stock, $.01 par value 4,189,903
<PAGE>
HEICO CORPORATION
INDEX
PAGE NO.
--------
Part I. Financial information:
Consolidated Condensed Balance Sheets as of
April 30, 1998 (unaudited) and October 31, 1997................. 2
Consolidated Condensed Statements of Operations (unaudited) for
the six months and three months ended April 30, 1998 and 1997... 3
Consolidated Condensed Statements of Cash Flows (unaudited) for
the six months ended April 30, 1998 and 1997.................... 4
Notes to Consolidated Condensed Financial Statements (unaudited).. 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
Part II. Other Information:
Item 1. Legal Proceedings....................................... 13
Item 4. Submission of Matters to a Vote of Security Holders..... 13
Item 6. Exhibits and Reports on Form 8-K........................ 14
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1997
--------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $21,774,000 $24,199,000
Short-term investments 5,108,000 --
Accounts receivable, net 15,027,000 12,560,000
Inventories 23,068,000 18,359,000
Prepaid expenses and other current assets 2,309,000 1,500,000
Deferred income taxes 1,215,000 1,098,000
----------- -----------
Total current assets 68,501,000 57,716,000
----------- -----------
Property, plant and equipment 24,886,000 23,363,000
Less accumulated depreciation (15,212,000) (14,820,000)
----------- -----------
Property, plant and equipment, net 9,674,000 8,543,000
----------- -----------
Intangible assets less accumulated amortization of
$1,512,000 in 1998 and $1,186,000 in 1997 13,070,000 13,258,000
----------- -----------
Unexpended bond proceeds 4,617,000 5,437,000
----------- -----------
Deferred income taxes 331,000 857,000
----------- -----------
Other assets 3,394,000 2,828,000
----------- -----------
Total assets $99,587,000 $88,639,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 377,000 $ 342,000
Trade accounts payable 6,434,000 4,180,000
Accrued expenses and other current liabilities 9,150,000 6,680,000
Income taxes payable 893,000 1,383,000
----------- -----------
Total current liabilities 16,854,000 12,585,000
----------- -----------
Long-term debt and capital leases 10,333,000 10,458,000
----------- -----------
Deferred income taxes -- 463,000
----------- -----------
Other non-current liabilities 2,932,000 2,414,000
----------- -----------
Total liabilities 30,119,000 25,920,000
----------- -----------
Minority interest in consolidated subsidiary 4,375,000 3,273,000
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.01 per share;
Authorized - 10,000,000 shares issuable
in series; 200,000 designated as
Series A Junior Participating Preferred
Stock, none issued -- --
Common stock, $.01 par value; Authorized -
30,000,000 shares; Issued - 8,380,180 shares
in 1998 and 8,283,493 shares in 1997 84,000 83,000
Class A Common Stock, $.01 par value;
Authorized - 30,000,000 shares; Issued -
4,189,249 in 1998 and 4,141,747 in 1997 42,000 41,000
Capital in excess of par value 35,910,000 35,492,000
Unrealized gain on investments 379,000 --
Retained earnings 31,176,000 26,772,000
----------- -----------
67,591,000 62,388,000
Less: Note receivable from employee savings and
investment plan (2,498,000) (2,942,000)
----------- -----------
Total shareholders' equity 65,093,000 59,446,000
----------- -----------
Total liabilities and shareholders' equity $99,587,000 $88,639,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-2-
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
-------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $42,456,000 $27,819,000 $22,673,000 $13,552,000
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of sales 26,996,000 18,542,000 14,517,000 9,016,000
Selling, general and administrative expenses 7,481,000 5,164,000 3,998,000 2,457,000
----------- ----------- ----------- -----------
Total operating costs and expenses 34,477,000 23,706,000 18,515,000 11,473,000
----------- ----------- ----------- -----------
Income from operations 7,979,000 4,113,000 4,158,000 2,079,000
Interest expense (253,000) (178,000) (124,000) (95,000)
Interest and other income 1,099,000 827,000 585,000 430,000
----------- ----------- ----------- -----------
Income before income taxes
and minority interest 8,825,000 4,762,000 4,619,000 2,414,000
Income tax expense 2,990,000 1,528,000 1,584,000 774,000
----------- ----------- ----------- -----------
Net income before minority interest 5,835,000 3,234,000 3,035,000 1,640,000
Minority interest 1,102,000 -- 584,000 --
----------- ----------- ----------- -----------
Net income $ 4,733,000 $ 3,234,000 $ 2,451,000 $ 1,640,000
=========== =========== =========== ===========
Net income per share:
Basic $ .38 $ .27 $ .20 $ .14
===== ===== ===== =====
Diluted $ .31 $ .23 $ .16 $ .11
===== ===== ===== =====
Weighted average number of
common shares outstanding
Basic 12,452,808 11,946,305 12,471,549 11,997,504
=========== ========== =========== ===========
Diluted 15,509,149 14,246,282 15,708,522 14,372,330
=========== ========== =========== ===========
Cash dividends per share $.025 $.022
===== =====
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-3-
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,733,000 $3,234,000
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,099,000 764,000
Deferred income taxes (291,000) (235,000)
Deferred financing costs (25,000) (144,000)
Minority interest in consolidated subsidiary 1,102,000 --
Change in assets and liabilities:
(Increase) decrease in accounts receivable (2,467,000) 40,000
(Increase) in inventories (4,709,000) (2,984,000)
(Increase) in prepaid expenses and other
current assets (809,000) (604,000)
Increase in trade payables, accrued
expenses and other current liabilities 4,724,000 400,000
(Decrease) in income taxes payable (490,000) (665,000)
Increase in other non-current liabilities -- 140,000
Other (138,000) (80,000)
----------- -----------
Net cash provided by (used in) operating activities 2,729,000 (134,000)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,916,000) (2,325,000)
Net purchases of short-term investments (4,492,000) --
Payment received from employee savings and
investment plan note receivable 444,000 396,000
Other (72,000) (363,000)
----------- -----------
Net cash (used in) investing activities (6,036,000) (2,292,000)
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt:
Reimbursements from unexpended bond proceeds 931,000 1,375,000
Other 94,000 210,000
Proceeds from the exercise of stock options 420,000 788,000
Payments on long-term debt and capital leases (234,000) (320,000)
Cash dividends paid (329,000) (282,000)
Other -- 1,000
----------- -----------
Net cash provided by financing activities 882,000 1,772,000
----------- -----------
Net (decrease) in cash and cash equivalents (2,425,000) (654,000)
Cash and cash equivalents at beginning of year 24,199,000 11,025,000
----------- -----------
Cash and cash equivalents at end of period $21,774,000 $10,371,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-4-
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
April 30, 1998
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes normally included in annual
consolidated financial statements and should be read in conjunction with the
financial statements and notes thereto included in the Company's latest Annual
Report on Form 10-K/A Amendment No. 1 for the year ended October 31, 1997. In
the opinion of management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the consolidated condensed
balance sheets and consolidated condensed statements of operations and cash flow
for such interim periods presented. The results of operations for the six months
ended April 30, 1998 are not necessarily indicative of the results which may be
expected for the entire fiscal year.
2. Short-term investments consist of equity securities. These investments are
classified as available-for-sale and stated at fair value. All short-term
investments held are summarized below:
APRIL 30, 1998
------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
Equity securities $4,492,000 $616,000 $5,108,000
========== ======== ==== ==========
There were no short-term investments during the year ended October 31, 1997.
Unrealized gains and losses, net of deferred taxes, are reflected as an
adjustment to shareholders' equity. Gross realized gains on sales of securities
classified as available-for-sale, using the average cost method, were $115,000
for the three-month and six-month periods ended April 30, 1998. There were no
realized losses during these periods.
3. Accounts receivable are composed of the following:
<TABLE>
<CAPTION>
APRIL 30, 1998 OCTOBER 31, 1997
------------------ ----------------
<S> <C> <C>
Accounts receivable............................ $ 15,358,000 $ 12,922,000
Less allowance for doubtful accounts........... (331,000) (362,000)
------------------ ----------------
Accounts receivable, net....................... $ 15,027,000 $ 12,560,000
================== ================
</TABLE>
Inventories are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, 1998 OCTOBER 31, 1997
------------------ ----------------
<S> <C> <C>
Finished products.............................. $ 7,362,000 $ 4,329,000
Work in process................................ 8,157,000 7,359,000
Materials, parts, assemblies and supplies...... 7,549,000 6,671,000
------------------ ----------------
Total inventories.............................. $ 23,068,000 $ 18,359,000
================== ================
</TABLE>
Inventories related to long-term contracts were not significant as of April 30,
1998 and October 31, 1997.
The accompanying consolidated condensed financial statements do not include any
material revenue amounts in excess of billings or any material billings in
excess of costs and profits related to long-term contracts.
-5-
<PAGE>
4. Long-term debt consists of:
<TABLE>
<CAPTION>
APRIL 30, 1998 OCTOBER 31, 1997
------------------ ----------------
<S> <C> <C>
Industrial Development Revenue
Bonds - Series 1997A......................... $ 3,000,000 $ 3,000,000
Industrial Development Revenue
Bonds - Series 1997C......................... 995,000 1,000,000
Industrial Development Revenue
Bonds - Series 1996.......................... 3,500,000 3,500,000
Industrial Development Revenue
Refunding Bonds - Series 1988................ 1,980,000 1,980,000
Equipment loans................................ 1,149,000 1,320,000
Capital leases................................. 86,000 --
------------------ ----------------
10,710,000 10,800,000
Less current maturities........................ (377,000) (342,000)
------------------ ----------------
$ 10,333,000 $ 10,458,000
================== ================
</TABLE>
The industrial development revenue bonds represent bonds issued by
Broward County, Florida in 1996 (Series 1996 bonds) and in 1988 (Series 1988
bonds), and bonds issued by Manatee County, Florida in 1997 (Series 1997A and
Series 1997C bonds).
As of April 30, 1998, unexpended proceeds of the Series 1997A and 1997C
bonds of $3,192,000, including investment earnings, are held by the trustee and
are available for future qualified expenditures. The Series 1997A and 1997C
bonds bear interest at 4.25% at April 30, 1998.
As of April 30, 1998, unexpended proceeds of the Series 1996 bonds of
$1,425,000, including investment earnings, are held by the trustee and are
available for future qualified expenditures. The Series 1996 and Series 1988
bonds bear interest as of April 30, 1998, at 4.30% and 4.15%, respectively.
Equipment loans bear interest at rates ranging from 8.50% to 9.00% as
of April 30, 1998.
Included in property, plant and equipment in the accompanying balance
sheets is an asset held under a capital lease as summarized below:
<TABLE>
<CAPTION>
APRIL 30, 1998 OCTOBER 31, 1997
-------------- ----------------
<S> <C> <C>
Machinery and equipment (lease expires
in 2000; interest rate of 14.3%) $141,000 ---
Less accumulated amortization (65,000) ---
--------- ---------
Assets under capital lease, net $ 76,000 ---
========= =========
</TABLE>
-6-
<PAGE>
In March 1998, the Company's $7 million revolving credit facility was
extended to June 30, 1998.
5. On March 20, 1998, the Company's Board of Directors declared a stock dividend
payable in newly-authorized Class A Common Stock. The 50% dividend was paid on
April 23, 1998, to shareholders of record on April 9, 1998. All net income per
share, dividend per share, stock options and common shares outstanding
information has been adjusted for the effect of any stock dividends and stock
splits. As of April 30, 1998, the Company has outstanding 8,380,180 shares of
$.01 par value per share Common Stock and options to purchase 2,585,345 shares
of Common Stock. Each share of Common Stock is entitled to one vote per share.
As of April 30, 1998, the Company has 4,189,249 outstanding shares of Class A
Common Stock and 1,292,703 options outstanding to purchase Class A Common Stock.
Each share of Class A Common Stock is entitled to a 1/10 vote per share. Holders
of the Company's Common Stock and Class A Common Stock are entitled to receive
when, as and if declared by the Board of Directors dividends and other
distributions payable in cash, property, stock, or otherwise. In the event of
liquidation, after payment of debts and other liabilities of the Company, and
after making provision for the holders of preferred stock, if any, the remaining
assets of the Company will be distributable ratably among the holders of all
classes of common stock. Stock options outstanding for the Company's Common
Stock and Class A Common Stock had an average exercise price of $5.13 at April
30, 1998. The term of each option is determined by the Stock Option Committee
but shall never exceed ten years. Since the end of fiscal year 1997, 97,014
shares of Common Stock and 27,206 shares of Class A Common Stock were issued
upon exercise of stock options.
6. Research and development expenses for the first half of fiscal 1998 and 1997
totaled $555,000 and $1,310,000, respectively. The expenses for the first six
months of 1998 are net of $1,459,000 received from Lufthansa Technik AG
(Lufthansa) pursuant to a research and development cooperation agreement entered
into on October 30, 1997.
7. Basic net income per share is calculated on the basis of the weighted average
number of shares outstanding during the period, excluding dilution. Diluted net
income per share is computed on the basis of the weighted average number of
shares outstanding during the period plus common share equivalents arising from
the assumed exercise of stock options, if dilutive. Per share information for
fiscal 1997 has been restated in accordance with Statement of Financial
Accounting Standard No. 128, "Earnings Per Share."
8. In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Adoption of this statement will not impact
the Company's consolidated financial position, results of operations or cash
flows, and any effect will be limited to the form and content of its disclosure.
-7-
<PAGE>
9. Supplemental disclosures of cash flow information for the six months ended
April 30, 1998 and 1997 are as follows:
Cash paid for interest was $253,000 and $178,000 in 1998 and 1997,
respectively. Cash paid for income taxes was $3,333,000 and $2,654,000 in 1998
and 1997, respectively.
10. In May 1998, the Company and its HEICO Aerospace Corporation and Jet Avion
Corporation subsidiaries were served with a lawsuit by Travelers Casualty &
Surety Co., f/k/a The Aetna Casualty and Surety Co. (Aetna). The complaint seeks
reimbursement of legal fees and costs totaling in excess of $14 million paid by
Aetna in defending the Company in litigation with United Technologies Corp.
(UTC), which was filed in November 1989. (See Note 13 to the Consolidated
Condensed Financial Statements of the Company's Form 10-K/A Amendment No. 1 for
the fiscal year ended October 31, 1997 for a discussion of the UTC litigation).
In addition, Aetna seeks a declaratory judgement that the Company did not and
does not have insurance coverage under certain insurance policies with Aetna and
accordingly, that Aetna did not have and does not have a duty to defend or
indemnify the Company under such policies. Also named as defendants in Aetna's
lawsuit are UTC and one of the law firms representing the Company in the UTC
litigation.
During fiscal 1997 and 1998, Summary Judgements dismissing UTC's remaining
claims against the Company were issued by the United States District Court
Judge. As a result of these rulings, the only claims currently pending in the
UTC litigation are the Company's counterclaims against UTC. UTC may challenge
these rulings in further court proceedings.
The Company intends to vigorously defend Aetna's claim and believes that it has
significant counterclaims for damages. After taking into consideration legal
counsel's evaluation of Aetna's claim, management is of the opinion that the
outcome of the Aetna litigation will not have a significant adverse effect on
the Company's consolidated financial statements.
11. In May 1998, the Company reached agreements to acquire control of
Teleflex-Lionel-Dupont (TLD), a French company that manufactures ground support
equipment and niche aeronautical products for commercial and military aircraft.
The agreements were reached with certain shareholders of TLD and certain
shareholders of Compagnie de Gestion Industrielle et Financiere (GIFI), which
owns approximately 42 percent of TLD's outstanding shares. Under terms of the
agreements, the Company will acquire a controlling interest in GIFI and a direct
interest of approximately 12 percent of TLD, giving the Company effective voting
control of TLD, in exchange for shares of the Company's Class A Common Stock. In
the year ended December 31, 1997, TLD reported operating revenues of $146
million and net income of $3.4 million.
These transactions are subject to certain U.S. and French regulatory approvals
and various other closing conditions that must be satisfied by July 31, 1998.
-8-
<PAGE>
Following the acquisition of the above referenced interests, the Company will
offer to acquire the shares held by TLD's minority shareholders by the exchange
of seven shares of the Company's Class A Common Stock for each ten shares of TLD
stock. This exchange is also subject to various regulatory approvals.
Upon completion of both steps, shareholders of TLD and GIFI would receive an
aggregate of approximately 2,250,000 shares of the Company's Class A Common
Stock valued at approximately $63 million. While the Company expects to complete
both of these steps, no assurance can be given that the Company will complete
either the acquisition of the controlling interest in TLD or the acquisition of
the stock held by TLD's minority shareholders.
12. In June 1998, the Company reached an agreement to acquire substantially all
of the assets and certain liabilities of PTM International, Inc. (PTM), a Miami,
FL-based, privately held company that designs and manufactures FAA-approved jet
engine replacement components. The agreement provides for the payment of
approximately $15 million in cash at closing and payments of up to $5 million if
PTM meets certain earnings targets over the first two years. In the year ended
December 31, 1997, PTM reported revenues of approximately $5 million and pre-tax
income, before shareholder withdrawals, of approximately $2 million.
The acquisition is subject to the completion of satisfactory due diligence by
the Company and other customary closing conditions. While the Company expects to
complete the transaction by August 31, 1998, no assurance can be given that the
Company will complete the acquisition of PTM.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the six months ended April 30, 1998 and 1997
RESULTS OF OPERATIONS
Fiscal 1998 second quarter net income of $2,451,000 ($.16 per share) increased
49% over fiscal 1997 second quarter net income of $1,640,000 ($.11 per share)
and net income in the first half of fiscal 1998 of $4,733,000 ($.31 per share)
increased 46% over net income of $3,234,000 ($.23 per share) in the first half
of fiscal 1997.
For the second quarter of fiscal 1998, net sales totaled $22,673,000,
representing a 67% increase over net sales of $13,552,000 in the second quarter
of fiscal 1997. In the first half of fiscal 1998, net sales rose 53% to
$42,456,000, up from net sales of $27,819,000 in the first half of last year.
The improved fiscal 1998 earnings are primarily attributable to increased sales
as discussed below.
Net sales of the Company's Flight Support operations totaled $15,404,000 in the
second quarter of fiscal 1998, a 69% increase over fiscal 1997 second quarter
net sales of $9,096,000. Net sales in the first half of fiscal 1998 rose 64% to
$29,334,000 as compared to net sales of $17,882,000 in the same period in fiscal
1997. The increase in net sales of Flight Support operations in fiscal 1998 is
principally due to increased sales volumes of jet engine replacement parts to
the Company's commercial airline industry customers and the inclusion of sales
of Northwings Accessories Corp. (Northwings), a business acquired in September
1997.
Net sales of the Company's Ground Support operations totaled $7,268,000 in the
second quarter of fiscal 1998, an increase of 63% as compared to second quarter
net sales of $4,456,000 in fiscal 1997. Net sales in the first half of fiscal
1998 increased 32% to $13,121,000 from $9,937,000 in the first half of fiscal
1997. The increase principally reflects increased demand for the Company's
products, as well as sales of new products.
The Company's Flight Support operations had a backlog of approximately $31
million as of April 30, 1998, $24 million as of October 31, 1997 and $23 million
as of April 30, 1997. This backlog includes approximately $21 million as of
April 30, 1998, $17 million as of October 31, 1997 and $16 million as of April
30, 1997 representing forecasted shipments over the next twelve months for
certain contracts of the Flight Support operations pursuant to which customers
provide estimated annual usage. The increase in the Flight Support operations'
backlog reflects the aforementioned sales volume increase.
-10-
<PAGE>
The Company's Ground Support operations had a backlog of approximately $10
million at April 30, 1998, $12 million at October 31, 1997 and $13 million at
April 30, 1997. This decrease principally reflects shipments related to a $4
million contract received in the first half of 1997.
Substantially all of the backlog of orders is expected to be delivered within
the next twelve months.
The Company's gross profit margins for the second quarter of fiscal 1998
averaged 36.0% as compared to gross profit margins averaging 33.5% in the same
period of fiscal 1997. Gross profit margins averaged 36.4% in the first half of
fiscal 1998, which increased over the 33.3% average gross profit margins in the
first half of fiscal 1997. These increases reflect improvements in gross margins
in the Flight Support operations, partially offset by lower margins due to
product mix within Ground Support operations. The improvement in margins in the
Flight Support operations reflects a margin increase due to the reimbursement of
research and development costs from Lufthansa (see Note 5 to Consolidated
Condensed Financial Statements) and the higher gross profit margins of the
newly-acquired Northwings' operations.
Selling, general and administrative (SG&A) expenses in the second quarter and
the first half of fiscal 1998 increased $1,541,000 and $2,317,000, respectively,
over amounts in the second quarter and the first half of fiscal 1997. The
increase from fiscal 1997 is due principally to the SG&A expenses of Northwings.
As a percentage of sales, however, SG&A expenses declined to 17.6% of
consolidated net sales in both the second quarter and the first half of fiscal
1998, down from 18.1% and 18.6% in the comparable three-month and six-month
periods of fiscal 1997.
Income from operations, which totaled $3,549,000 for the second quarter of
fiscal 1998 and $7,370,000 for the first six months of fiscal 1998, increased
$1,470,000 and $3,257,000 respectively, over the same three-month and six-month
periods of last year. These increases are principally attributable to the
increase in sales and gross margins of the Flight Support operations and the
acquisition of Northwings as discussed above.
Interest and other income in the second quarter and the first half of fiscal
1998 increased $214,000 and $331,000, respectively, over the same periods in
fiscal 1997. These increases are principally due to interest income on the
unexpended proceeds of industrial development revenue bonds and the investment
of cash received from the sale of a 20% minority interest in a consolidated
subsidiary to Lufthansa in October 1997.
The Company's effective tax rate totaled 33.9% for the first half of fiscal 1998
and 32.1% in the first half of fiscal 1997. The increase is primarily
attributable to non-deductible amortization of goodwill related to the
acquisition of Northwings.
-11-
<PAGE>
The minority interest in the second quarter and the first half of fiscal 1998 of
$584,000 and $1,102,000, respectively, represents the aforementioned 20%
minority interest held by Lufthansa in a consolidated subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1998, net cash provided by operating
activities totaled $2,729,000 reflecting primarily higher net income before
minority interest.
The Company's principal investing activities during the first half of fiscal
1998 were purchases of short-term investments of $4 million (See Note 2 to
Consolidated Condensed Financial Statements), and purchases of property, plant
and equipment of $2 million principally related to industrial revenue bond
projects.
The Company's principal financing activities during the first half of fiscal
1998 were $.9 million in proceeds of long-term debt primarily representing
reimbursements for qualified expenditures from unexpended proceeds of industrial
revenue bonds.
There have been no other material changes in the liquidity or the capital
resources of the Company since the end of fiscal 1997.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1998, the Company and its HEICO Aerospace Corporation and Jet
Avion Corporation subsidiaries were served with a lawsuit by Travelers
Casualty & Surety Co., f/k/a The Aetna Casualty and Surety Co. (Aetna).
The complaint seeks reimbursement of legal fees and costs totaling in
excess of $14 million paid by Aetna in defending the Company in
litigation with United Technologies Corp. (UTC), which was filed in
November 1989. (See Item 3 to the Company's Form 10- K/A Amendment No.
1 for the fiscal year ended October 31, 1997 for a discussion of the
UTC litigation). In addition, Aetna seeks a declaratory judgement that
the Company did not and does not have insurance coverage under certain
insurance policies with Aetna and accordingly, that Aetna did not have
and does not have a duty to defend or indemnify the Company under such
policies. Also named as defendants in Aetna's lawsuit are UTC and one
of the law firms representing the Company in the UTC litigation.
During fiscal 1997 and 1998, Summary Judgements dismissing UTC's
remaining claims against the Company were issued by the United States
District Court Judge. As a result of these rulings, the only claims
currently pending in the UTC litigation are the Company's counterclaims
against UTC. UTC may challenge these rulings in further court
proceedings.
The Company intends to vigorously defend Aetna's claim and believes
that it has significant counterclaims for damages. After taking into
consideration legal counsel's evaluation of Aetna's claim, management
is of the opinion that the outcome of the Aetna litigation will not
have a significant adverse effect on the Company's consolidated
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on March 17, 1998, the
Company's shareholders elected nine directors; approved a proposal to
amend the 1993 Stock Option Plan (the Plan) to increase the number of
shares issuable pursuant to the Plan; approved a proposal to amend the
Company's Articles of Incorporation to increase the number of
authorized shares of common stock; and approved a proposal to issue a
new class of common stock (Class A Common Stock).
-13-
<PAGE>
The number of votes cast for and withheld for each nominee for
directors were as follows:
Director FOR WITHHELD
--- --------
Jacob T. Carwile 7,744,216 37,140
Samuel L. Higginbottom 7,735,395 45,961
Paul F. Manieri 7,735,155 46,201
Eric A. Mendelson 7,743,671 37,685
Laurans A. Mendelson 7,743,155 38,201
Victor H. Mendelson 7,743,611 37,745
Albert Morrison, Jr. 7,744,775 36,581
Dr. Alan Schriesheim 7,743,976 37,380
Guy C. Shafer 7,737,129 44,227
The number of votes cast for and against the proposal to amend
the Plan, as well as the number of abstentions, were as
follows: For: 7,261,881; Against: 452,947; and Abstain:
39,438. There were 1,842,102 broker non-votes with respect to
this matter.
The number of votes cast for and against the proposal to
increase the number of authorized shares of common stock, as
well as the number of abstentions, were as follows: For:
7,583,498; Against: 124,888; and Abstain: 45,880. There
were 1,842,102 broker non-votes with respect to this matter.
The number of votes cast for and against the proposal to issue
a new class of common stock (Class A Common Stock), as well as
the number of abstentions, were as follows: For: 7,113,108;
Against: 540,800; and Abstain: 100,358. There were
1,842,102 broker non-votes with respect to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment of Articles of Incorporation of
the Registrant, dated March 17, 1998 are incorporated
by reference to Exhibit 3.4 to Form S- 3 dated March
23, 1998.
11 Computation of earnings per share.
(b) There were no reports on Form 8-K filed during the three
months ended April 30, 1998.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HEICO CORPORATION
(Registrant)
JUNE 4, 1998 BY /S/THOMAS S. IRWIN
- ------------------------ --------------------------------------------
Date Thomas S. Irwin, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
-15-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Computation of earnings per share
27 Financial Data Schedule
Exhibit 11
HEICO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
BASIC DILUTED BASIC DILUTED
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Six months ended April 30:
Weighted average number of common
shares outstanding 12,452,808 12,452,808 11,946,305 11,946,305
Common Stock equivalents arising from
dilutive stock options (1) -- 3,056,341 -- 2,299,977
---------- ---------- ---------- ----------
12,452,808 15,509,149 11,946,305 14,246,282
========== ========== ========== ==========
Net income per share $ .38 $ .31 $ .27 $ .23
===== ===== ===== =====
Three months ended April 30:
Weighted average number of common
shares outstanding 12,471,549 12,471,549 11,997,504 11,997,504
Common Stock equivalents arising from
dilutive stock options (1) -- 3,236,973 -- 2,374,826
---------- ---------- ---------- ----------
12,471,549 15,708,522 11,997,504 14,372,330
========== ========== ========== ==========
Net income per share $ .20 $ .16 $ .14 $ .11
===== ===== ===== =====
</TABLE>
- ----------
(1) Computed under the "treasury stock" method using the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<CASH> 21,774,000
<SECURITIES> 5,108,000
<RECEIVABLES> 15,358,000
<ALLOWANCES> (331,000)
<INVENTORY> 12,068,000
<CURRENT-ASSETS> 68,501,000
<PP&E> 24,886,000
<DEPRECIATION> (15,212,000)
<TOTAL-ASSETS> 99,587,000
<CURRENT-LIABILITIES> 16,854,000
<BONDS> 10,333,000
0
0
<COMMON> 126,000
<OTHER-SE> 64,967,000
<TOTAL-LIABILITY-AND-EQUITY> 99,587,000
<SALES> 42,456,000
<TOTAL-REVENUES> 42,456,000
<CGS> 26,996,000
<TOTAL-COSTS> 26,996,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253,000
<INCOME-PRETAX> 8,825,000
<INCOME-TAX> 2,990,000
<INCOME-CONTINUING> 4,733,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,733,000
<EPS-PRIMARY> .38
<EPS-DILUTED> .31
</TABLE>
