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 JANUARY 31, 1999
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 March 2, 1999:
Title of Class Shares Outstanding
Common Stock, $.01 par value 8,465,660
Class A Common Stock, $.01 par value 7,131,522
<PAGE>
HEICO CORPORATION
INDEX
Page No.
Part I. Financial information:
Consolidated Condensed Balance Sheets as of
January 31, 1999 (unaudited) and October 31, 1998 2
Consolidated Condensed Statements of Operations (unaudited)
for the three months ended January 31, 1999 and 1998 3
Consolidated Condensed Statements of Cash Flows (unaudited)
for the three months ended January 31, 1999 and 1998 4
Notes to Consolidated Condensed Financial Statements (unaudited) 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information:
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
JANUARY 31, OCTOBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,828,000 $ 8,609,000
Short-term investments 6,482,000 2,051,000
Accounts receivable, net 19,235,000 19,422,000
Inventories 26,910,000 24,327,000
Prepaid expenses and other current assets 2,501,000 1,768,000
Deferred income taxes 1,659,000 2,010,000
------------ ------------
Total current assets 66,615,000 58,187,000
------------ ------------
Property, plant and equipment 34,961,000 30,823,000
Less accumulated depreciation (16,411,000) (16,028,000)
------------ ------------
Property, plant and equipment, net 18,550,000 14,795,000
------------ ------------
Intangible assets less accumulated amortization of
$1,681,000 and $1,186,000, respectively 67,267,000 53,964,000
------------ ------------
Unexpended bond proceeds 1,860,000 2,252,000
------------ ------------
Deferred income taxes 1,160,000 495,000
------------ ------------
Other assets 4,286,000 3,368,000
------------ ------------
Total assets $159,738,000 $133,061,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 399,000 $ 377,000
Trade accounts payable 6,950,000 6,158,000
Accrued expenses and other current liabilities 9,498,000 10,401,000
Income taxes payable 1,098,000 664,000
------------ ------------
Total current liabilities 17,945,000 17,600,000
------------ ------------
Long-term debt, net of current maturities 46,110,000 30,143,000
------------ ------------
Other non-current liabilities 3,915,000 2,819,000
------------ ------------
Total liabilities 67,970,000 50,562,000
------------ ------------
Minority interest in consolidated subsidiary 18,616,000 14,892,000
------------ ------------
Commitments and contingencies (Notes 2, 6 and 9)
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 and outstanding -
8,464,025 and 8,323,036 shares, respectively 84,000 83,000
Class A Common Stock, $.01 par value;
Authorized - 30,000,000 shares; Issued and
outstanding - 4,136,572 and 4,140,404 shares,
respectively 41,000 41,000
Capital in excess of par value 36,203,000 34,474,000
Accumulated other comprehensive income (215,000) (1,142,000)
Retained earnings 39,537,000 36,649,000
------------ ------------
75,650,000 70,105,000
Less: Note receivable from employee savings and
investment plan (2,498,000) (2,498,000)
------------ ------------
Total shareholders' equity 73,152,000 67,607,000
------------ ------------
Total liabilities and shareholders' equity $159,738,000 $133,061,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
THREE MONTHS ENDED JANUARY 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 28,211,000 $ 19,783,000
------------ ------------
Operating costs and expenses:
Cost of sales 16,528,000 12,479,000
Selling, general and administrative expenses 4,906,000 3,483,000
------------ ------------
Total operating costs and expenses 21,434,000 15,962,000
------------ ------------
Operating income 6,777,000 3,821,000
Interest expense (596,000) (129,000)
Interest and other income 226,000 514,000
------------ ------------
Income before income taxes
and minority interest 6,407,000 4,206,000
Income tax expense 2,307,000 1,406,000
------------ ------------
Income before minority interest 4,100,000 2,800,000
Minority interest 897,000 518,000
------------ ------------
Net income $ 3,203,000 $ 2,282,000
============ ============
Net income per share:
Basic $ .26 $ .18
============ ============
Diluted $ .21 $ .15
============ ============
Weighted average number of common shares outstanding:
Basic 12,515,352 12,434,066
============ ============
Diluted 15,531,650 15,309,776
============ ============
Cash dividends per share $ .025 $ .025
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
THREE MONTHS ENDED
JANUARY 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,203,000 $ 2,282,000
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,232,000 589,000
Deferred income taxes (314,000) (289,000)
Deferred financing costs (36,000) (21,000)
Minority interest in consolidated subsidiary 897,000 518,000
Change in assets and liabilities:
Decrease in accounts receivable 1,097,000 259,000
(Increase) in inventories (1,571,000) (2,227,000)
(Increase) in prepaid expenses and
other current assets (725,000) (224,000)
(Increase) in unexpended bond proceeds (71,000) --
(Decrease) increase in trade payables, accrued
expenses and other current liabilities (1,496,000) 618,000
Increase in income taxes payable 434,000 961,000
Other (12,000) (58,000)
------------ ------------
Net cash provided by operating activities 2,638,000 2,408,000
------------ ------------
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (14,234,000) --
Net change in short-term investments (3,504,000) --
Purchases of property, plant and equipment (4,109,000) (717,000)
Payment received from employee savings and
investment plan note receivable -- 444,000
Other (132,000) (331,000)
------------ ------------
Net cash (used in) investing activities (21,979,000) (604,000)
------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt:
Proceeds from revolving credit facility 16,000,000 --
Bond reimbursement proceeds 432,000 509,000
Other -- 94,000
Proceeds from the exercise of stock options 1,842,000 38,000
Repurchases of common stock (127,000) --
Principle payments on long-term debt (99,000) (106,000)
Cash dividends paid (315,000) (316,000)
Additional minority interest investment 2,827,000 --
------------ ------------
Net cash provided by financing activities 20,560,000 219,000
------------ ------------
Net increase in cash and cash equivalents 1,219,000 2,023,000
Cash and cash equivalents at beginning of year 8,609,000 24,199,000
------------ ------------
Cash and cash equivalents at end of period $ 9,828,000 $ 26,222,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
For The Quarter Ended January 31, 1999
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 for the year ended October 31, 1998. 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, statements of
operations and cash flows for such interim periods presented. The results of
operations for the three months ended January 31, 1999 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. Effective December 4, 1998, the Company, through a subsidiary, acquired
substantially all of the assets of Rogers-Dierks, Inc. (Rogers-Dierks). In
consideration of this acquisition, the Company paid $14.1 million in cash at the
closing, and committed to pay $1.1 million in deferred payments over the next
two years. The source of the purchase price was proceeds from the Company's $120
million revolving credit facility. Subject to meeting certain earnings
objectives, the former shareholders' of Rogers-Dierks could receive additional
consideration of up to $7.3 million payable in cash or shares of the Company's
Class A Common Stock. The purchase price will be adjusted based on the final
determination of the actual net worth of the net assets acquired as of December
4, 1998 as well as any contingent consideration paid. This acquisition has been
accounted for using the purchase method of accounting and the results of
operations of Rogers-Dierks were included in the Company's results effective
December 4, 1998. Had Rogers-Dierks been acquired as of the beginning of fiscal
1998, the pro forma consolidated results would not have been materially
different from the reported results.
Rogers-Dierks formerly designed and manufactured FAA-approved, factory-new jet
engine replacement parts for sale to commercial airlines. The Company has
continued to use the acquired assets for the same purposes as formerly used by
Rogers-Dierks.
Subsequent to the closing of the transaction, Lufthansa Technik AG (Lufthansa)
made an additional investment of approximately $3 million in HEICO Aerospace
Holding Corp. (HEICO Aerospace) representing 20% of the initial cash
consideration.
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3. Short-term investments consist of equity securities with an aggregate cost of
$6,819,000 and $3,864,000 as of January 31, 1999 and October 31, 1998,
respectively. These investments are classified as available-for-sale and stated
at a fair value of $6,482,000 and $2,051,000 as of January 31, 1999 and October
31, 1998, respectively. The gross unrealized losses were $337,000 and $1,813,000
as of January 31, 1999 and October 31, 1998, respectively. 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 $288,000 in fiscal 1998
and zero in the first quarter 1999. There were no realized losses during these
periods.
4. Accounts receivable are composed of the following:
<TABLE>
<CAPTION>
JANUARY 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Accounts receivable $19,557,000 $19,681,000
Less allowance for doubtful accounts (322,000) (259,000)
----------- -----------
Accounts receivable, net $19,235,000 $19,422,000
=========== ===========
</TABLE>
Revenue amounts set forth in the accompanying Consolidated Condensed Statements
of Operations do not include any material amounts in excess of billings relating
to long-term contracts.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Finished products $10,814,000 $ 9,306,000
Work in process 6,745,000 5,213,000
Materials, parts, assemblies and supplies 9,351,000 9,808,000
----------- -----------
Total inventories $26,910,000 $24,327,000
=========== ===========
</TABLE>
Inventories related to long-term contracts were not significant as of January
31, 1999 and October 31, 1998.
5. Long-term debt consists of:
<TABLE>
<CAPTION>
JANUARY 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Borrowings under revolving credit facility $36,000,000 $20,000,000
Industrial Development Revenue
Bonds - Series 1997A 3,000,000 3,000,000
Industrial Development Revenue
Bonds - Series 1997C 995,000 995,000
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. 1,034,000 1,045,000
----------- -----------
46,509,000 30,520,000
Less current maturities (399,000) (377,000)
----------- -----------
$46,110,000 $30,143,000
=========== ===========
</TABLE>
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In July 1998, the Company entered into a $120 million revolving credit facility
(Credit Facility) with a bank syndicate. Funds are available for funding
acquisitions, working capital and general corporate requirements on a revolving
basis through July 2001. At January 31, 1999, the Company had a total of $36
million borrowed under the Credit Facility at a weighted average interest rate
of approximately 6.00%.
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 January 31, 1999, unexpended proceeds of the Series 1997A and 1997C bonds
of $374,000, including investment earnings, are held by the trustee and are
available for future qualified expenditures. The Series 1997A and 1997C bonds
bear interest at 2.95% as of January 31, 1999.
As of January 31, 1999, unexpended proceeds of the Series 1996 bonds of
$1,486,000, 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 January 31, 1999, at 2.90% and 2.65%, respectively.
Equipment loans bear interest at rates ranging from 8.25% to 8.75% as of January
31, 1999.
6. On January 22, 1999, the Company received notice of a proposed adjustment
pursuant to an examination by the Internal Revenue Service of the Company's
fiscal 1995 and 1996 tax returns, disallowing the utilization of a $4.6 million
capital loss carryforward to offset the gain recognized by the Company in
connection with the sale of its health care operations in July 1996. The Company
disputes such proposed adjustment, which would result in additional taxes of
approximately $1.8 million on the gain on the sale of the discontinued health
care operations.
7. Research and development expenses for the first three months of fiscal 1999
and 1998 totaled $300,000 in each of the three month periods. The expenses for
the first three months of 1999 and 1998 are net of $1.7 million and $600,000,
respectively, received from Lufthansa pursuant to a research and development
cooperation agreement entered into on October 30, 1997. Amounts received from
Lufthansa and not used as of January 31, 1999 and 1998 were $2.3 million and
$1.4 million, respectively, and are recorded as a component of accrued expenses
and other current liabilities in the consolidated condensed balance sheets.
8. Effective November 1, 1998, the Company adopted 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.
The Company's comprehensive income for the first quarter 1999 and 1998 consists
of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income $3,203,000 $2,282,000
Other comprehensive income
Unrealized holding gain on
investments, net of tax of $550,000 927,000 --
---------- ----------
Comprehensive income $4,130,000 $2,282,000
=========== ==========
</TABLE>
Accumulated other comprehensive income as of January 31, 1999 and October 31,
1998 includes unrealized gain (loss) on investments as follows:
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
--------------------
<S> <C>
Balance, October 31, 1997 $ --
Unrealized holding (loss) on investments,
net of tax benefit of $671,000 (1,142,000)
-----------
Balance, October 31, 1998 (1,142,000)
Unrealized holding gain on investments,
net of tax of $550,000 927,000
-----------
Balance, January 31, 1999 $ (215,000)
===========
</TABLE>
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9. In November 1989, HEICO Aerospace Corporation and Jet Avion were named
defendants in a complaint filed by United Technologies Corporation (UTC) in the
United States District Court for the Southern District of Florida. As of January
27, 1998, all counts of UTC's complaint that were not previously withdrawn by
UTC have been dismissed by the court. The complaint, as amended in fiscal 1995,
alleged infringement of a patent, misappropriation of trade secrets and unfair
competition relating to certain jet engine parts and coatings sold by Jet Avion
in competition with Pratt & Whitney, a division of UTC. UTC sought approximately
$8 million in damages for the patent infringement and approximately $30 million
in damages for the misappropriation of trade secrets and unfair competition
claims. The aggregate damages referred to in the preceding sentence did not
exceed approximately $30 million because a portion of the misappropriation and
unfair competition damages duplicate the patent infringement damages. UTC also
sought, among other things, pre-judgment interest and treble damages.
In July and November 1995, the Company filed its answers to UTC's complaint
denying the allegations. In addition, the Company filed counterclaims against
UTC for, among other things, malicious prosecution, trade disparagement,
tortious interference, unfair competition and antitrust violations. The Company
is seeking treble, compensatory and punitive damages in amounts to be determined
at trial. UTC filed an answer denying the counterclaims. A number of motions
remain pending and no trial date is currently set.
In August 1997, a Motion for Summary Judgment filed by the Company on a portion
of the lawsuit was granted by the United States District Court Judge. The
Summary Judgment dismissed UTC's claims for misappropriation of trade secrets
and unfair competition, finding that Florida's statute of limitations bars such
claims. In September 1997, UTC served a Motion for Reconsideration of the
Court's Motion for Summary Judgment. In October 1997, UTC's Motion for
Reconsideration was denied.
On January 28, 1998, a Motion for Summary Judgment filed by the Company on the
sole remaining count in UTC's complaint (for patent infringement) was granted by
the United States District Court Judge. The Summary Judgment dismissed UTC's
remaining claim, finding that HEICO Aerospace Corporation and Jet Avion did not
infringe UTC's patent.
As a result of these rulings, the only claims currently pending are the
Company's counterclaims against UTC. UTC may challenge these rulings in further
court proceedings. The Company intends to vigorously pursue its counterclaims.
The ultimate outcome of this litigation is not certain at this time and no
provision for gain or loss, if any, has been made in the consolidated financial
statements.
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 Travelers Casualty and Surety Co. (Travelers). The
complaint seeks reimbursement of legal fees and costs totaling in excess of $15
million paid by Travelers in defending the Company in the above referenced
litigation with UTC. In addition, Travelers seeks a declaratory judgement that
the Company did not and does not have insurance coverage under certain insurance
policies with Travelers and accordingly, that Travelers did not have and does
not have a duty to defend or indemnify the Company under such policies. Also
named as defendants in Travelers' lawsuit are UTC and one of the law firms
representing the Company in the UTC litigation.
The Company intends to vigorously defend Travelers' claim and believes that it
has significant counterclaims for damages. After taking into consideration legal
counsel's evaluation of Travelers' claim, management is of the opinion that the
outcome of the Travelers litigation will not have a significant adverse effect
on the Company's consolidated financial statements.
The Company is involved in various other legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that the outcome of these other
matters will not have a significant effect on the Company's consolidated
financial statements.
10. Effective February 4, 1999, the Company, through its subsidiary Radiant
Power Corp., acquired the assets of the Radiant Power product line from Derlan,
Inc. In consideration of this acquisition, the Company paid $6.5 million in
cash. The source of the purchase price was proceeds from the Company's Credit
Facility. The purchase price will be adjusted based on the final determination
of the actual net worth of the net assets acquired as of the effective date. The
acquisition is being accounted for using the purchase method of accounting and
the results of operations of Radiant Power Corp. will be included in the
Company's results effective February 4, 1999 and will be included in the
Company's Electronics and Ground Support operations. The Radiant Power product
line includes back-up power supplies and battery packs for a variety of
commercial aircraft applications.
In February and March 1999, the Company completed, through a public offering,
the issuance of an aggregate of 2,994,050 shares of Class A Common Stock,
including over-allotment options granted to the underwriters. The net proceeds
of the offering to the Company approximated $56 million. A portion of the
proceeds of the offering were used to repay $42.5 million outstanding under the
Company's Credit Facility. The remaining proceeds will be used for working
capital and general corporate purposes, including possible acquisitions.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our results of operations during the current period and prior fiscal year have
been affected by a number of significant transactions. This discussion of our
financial condition and results of operations should be read in conjunction with
our Consolidated Condensed Financial Statements and Notes thereto included
herein. For further information regarding the acquisitions discussed below, see
Notes 2 and 10 to our Condensed Consolidated Financial Statements. These
acquisitions have been accounted for using the purchase method of accounting and
are included in the Company's results of operations from the date of
acquisition.
As of December 4, 1998, through our Flight Support Group, we acquired
Rogers-Dierks for approximately $14.1 million in cash and approximately $1.1
million in deferred payments over the next two years, with additional
consideration of up to approximately $7.3 million payable in cash or shares of
our Class A Common Stock.
Effective February 4, 1999, through our Electronics & Ground Support Group
(formerly referred to as the Ground Support Group), we acquired the assets of
the Radiant Power product line from Derlan, Inc. for $6.5 million in cash. The
Radiant Power product line includes back-up power supplies and battery packs for
a variety of commercial aircraft applications.
In February and March 1999, we completed, through a public offering, the
issuance of an aggregate of 2,994,050 shares of Class A Common Stock resulting
in net proceeds to the Company of approximately $56 million. A portion of the
proceeds of the offering were used to repay $42.5 million outstanding under our
Credit Facility. The remaining proceeds will be used for working capital and
general corporate purposes, including possible acquisitions.
-9-
<PAGE>
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth net sales by product
and the percentage of net sales represented by the respective items in the
Company's Consolidated Condensed Statements of Operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
---------------------------------
1999 1998
------- -------
(Dollar amounts in thousands)
<S> <C> <C>
Net sales
Flight Support $20,768 $13,930
Electronics & Ground Support 7,443 5,853
------- -------
$28,211 $19,783
======= =======
Net sales 100.0% 100.0%
Gross profit 41.4% 36.9%
Selling, general and administrative expenses 17.4% 17.6%
Operating income 24.0% 19.3%
Interest expense 2.1% .7%
Interest and other income .8% 2.6%
Income tax expense 8.2% 7.1%
Minority interest 3.2% 2.6%
Net income 11.4% 11.5%
</TABLE>
COMPARISON OF FIRST QUARTER 1999 TO FIRST QUARTER 1998
NET SALES
Net sales for the first quarter 1999 totaled $28.2 million, up 43% when compared
to the first quarter 1998 net sales of $19.8 million.
The increase in first quarter 1999 sales reflects an increase of $6.8 million (a
49% increase) to $20.8 million from the Company's Flight Support products and
services. This increase includes sales of McClain International, Inc. (McClain),
Associated Composite, Inc. (Associated) and Rogers-Dierks (each acquired during
the period July to December 1998) aggregating $4.3 million, with the balance
reflecting increased sales volumes of jet engine replacement parts to the
Company's commercial airline industry customers. The net sales increase also
reflects an increase of $1.6 million (a 27% increase) to $7.4 million in
revenues from the Company's Electronics & Ground Support products principally
due to sales of new products and increased market penetration.
GROSS PROFITS AND OPERATING EXPENSES
The Company's gross profit margins averaged 41.4% for the first quarter 1999 as
compared to 36.9% for the first quarter 1998. This increase reflects an
improvement in gross margins in the Flight Support operations resulting from
higher gross profit margins contributed by the newly-acquired McClain and
Rogers-Dierks operations as well as higher margins reflecting new products,
customer mix and cost controls.
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<PAGE>
Selling, general and administrative ("SG&A") expenses were $4.9 million for the
first quarter 1999 and $3.5 million for the first quarter 1998. The increase
results from the inclusion of SG&A expenses of McClain, Associated and
Rogers-Dierks, including additional goodwill amortization, and higher general
corporate expenses. As a percentage of net sales, SG&A expenses declined to
17.4% for the first quarter 1999 from 17.6% for the first quarter 1998
reflecting continuing efforts to control costs while increasing revenues.
OPERATING INCOME
Operating income increased $3.0 million to $6.8 million (a 77% increase) for the
first quarter 1999 from $3.8 million for the first quarter 1998. The improvement
in operating income was due primarily to increases in sales and gross profits of
the Flight Support and Electronics & Ground Support operations discussed above.
INTEREST EXPENSE
Interest expense increased $467,000 to $596,000 from the first quarter 1998 to
the first quarter 1999. The increase was principally due to increased
outstanding debt balances during the period related to borrowings on the
Company's Credit Facility used principally to finance the Company's
acquisitions.
INTEREST AND OTHER INCOME
Interest and other income decreased $288,000 to $226,000 from the first quarter
1998 to the first quarter 1999 due principally to the decrease in invested funds
used for the acquisition of McClain in July 1998.
INCOME TAX EXPENSE
The Company's effective tax rate increased to 36% for the first quarter 1999
from 33.5% for the first quarter 1998 due principally to a decrease in benefits
from export sales and a reduction in tax-free investments.
MINORITY INTEREST
Minority interest represents the 20% minority interest held by Lufthansa which
increased from the first quarter 1999 to the first quarter of 1998 due to higher
net income of the Flight Support Group.
NET INCOME
The Company's net income totaled $3.2 million, or $.21 per diluted share, in the
first quarter 1999, improving 40% from net income of $2.3 million, or $.15 per
diluted share, in the first quarter 1998.
-11-
<PAGE>
The improvement in net income for the first quarter 1999 over the first quarter
1998 is primarily attributable to the increased sales and operating income
partially offset by higher interest costs, the increase in minority interest in
earnings of the Flight Support Group and the increase in the effective tax rate
discussed above.
INFLATION
The Company has generally experienced increases in its costs of labor, materials
and services consistent with overall rates of inflation. The impact of such
increases on the Company's net income has been generally minimized by efforts to
lower costs through manufacturing efficiencies and cost reductions.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash primarily from operating activities and financing
activities, including borrowings under long-term credit agreements and proceeds
from the issuance of industrial development revenue bonds.
Principal uses of cash by the Company will include payments of interest and
principal on debt, capital expenditures, increases in working capital and
acquisitions.
The Company believes that operating cash flow, proceeds from the Class A Common
Stock offering and available borrowings under the Company's Credit Facility will
be sufficient to fund cash requirements for the foreseeable future.
OPERATING ACTIVITIES
The Company's cash flow from operations was $2.6 million for the first quarter
1999, principally reflecting net income of $3.2 million, adjustments for
depreciation and amortization of $1.2 million, an increase in inventories of
$1.6 million to meet increased sales orders, a decrease in receivables of $1.1
million due to timing of collections and a decrease in trade payables and other
current liabilities aggregating $1.5 million primarily as a result of the timing
of payments due for such liabilities.
INVESTING ACTIVITIES
The principal cash used in investing activities in the first quarter 1999 was
cash used in the acquisition of Rogers-Dierks totaling $14.2 million. Purchases
of property, plant and equipment totaled $4.1 million, including $2.7 million by
Northwings Accessories Corp. (Northwings) to purchase a facility which will
enable Northwings and Associated to operate from one location. The Company also
purchased short-term investments totalling $2.9 million.
-12-
<PAGE>
FINANCING ACTIVITIES
The Company's principal financing activities during the first quarter 1999
included proceeds of long-term debt of $16.4 million, including $16.0 million
from the Company's Credit Facility primarily to fund business acquisitions. In
addition, the Company received $2.8 million from Lufthansa representing its
additional minority interest investment required to maintain its 20% equity
position in the Flight Support Group due to the acquisition of Rogers-Dierks and
$1.8 million from the exercise of stock options during the first quarter 1999.
IMPACT OF THE YEAR 2000
Many older computer software programs refer to years in terms of their final two
digits only. Such programs may interpret the year 2000 to mean the year 1900
instead. If not corrected, those programs could cause date-related transaction
failures.
We developed a compliance assurance process to address this concern. A project
team has performed a detailed assessment of all internal computer systems and,
as discussed below, is developing and implementing plans to correct the
problems. We expect these projects to be successfully completed during 1999.
Year 2000 problems could affect our research and development, production,
distribution, financial, administrative and communication operations. Systems
critical to our business which have been identified as non-Year 2000 compliant
are either being replaced or corrected through programming modifications. In
addition, the project team is looking at Year 2000 readiness from other aspects
of our business, including customer order-taking, manufacturing, raw materials
supply and plant process equipment. Our goal is to have our remediated and
replaced systems operational by June 1999 to allow time for testing and
verification. In addition to our in-house efforts, we have asked vendors, major
customers, service suppliers, communications providers and banks whose systems
failures potentially could have a significant impact on our operations to verify
their Year 2000 readiness.
As part of our compliance process we are developing a contingency plan for those
areas that are critical to the Company's business. These plans will be designed
to mitigate serious disruptions to our business flow beyond the end of 1999, and
will operate independently of our external providers' Year 2000 compliance. The
major drive for contingency planning will be in the first half of 1999, with the
expectation that our business groups will have plans in place by June 1999.
Based on our current plans and efforts to date, we do not anticipate that Year
2000 problems will have a material effect on our results of operations or
financial condition.
External and internal costs specifically associated with modifying internal use
software for Year 2000 compliance are expensed as incurred. To date, we have
spent less than $100,000 on this project. Costs to be incurred in the remainder
of 1999 to fix Year 2000 problems are estimated at less than $100,000. Such
costs do not include normal system upgrades and replacements. We do not expect
the costs relating to Year 2000 remediation to have a material effect on our
results of operations or financial condition.
-13-
<PAGE>
The above expectations are subject to uncertainties. For example, if we are
unsuccessful in identifying or fixing all Year 2000 problems in our critical
operations, or if we are affected by the inability of suppliers or major
customers to continue operations due to such a problem, our results of
operations or financial condition could be materially impacted.
The total costs that we incur in connection with the Year 2000 problems will be
influenced by our ability to successfully identify Year 2000 systems' flaws, the
nature and amount of programming required to fix the affected programs, the
related labor and/or consulting costs for such remediation, and the ability of
third parties with whom we have business relationships to successfully address
their own Year 2000 concerns. These and other unforeseen factors could have a
material adverse effect on our results of operations or financial conditions.
NEW ACCOUNTING STANDARDS
Effective November 1, 1998, the Company adopted 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.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in previously reported litigation
involving the Company and its subsidiaries.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company dated December 8, 1998
and amended January 15, 1999, reported under Item 2, "Acquisition or
Disposition of Assets," relating to the purchase of substantially all
of the assets of Rogers-Dierks, Inc.
-15-
<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)
MARCH 15, 1999 BY /s/ THOMAS S. IRWIN
-------------- -----------------------------------
Date Thomas S. Irwin, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 9,828,000
<SECURITIES> 6,482,000
<RECEIVABLES> 19,557,000
<ALLOWANCES> (322,000)
<INVENTORY> 26,910,000
<CURRENT-ASSETS> 66,615,000
<PP&E> 34,961,000
<DEPRECIATION> (16,411,000)
<TOTAL-ASSETS> 159,738,000
<CURRENT-LIABILITIES> 17,945,000
<BONDS> 9,475,000
0
0
<COMMON> 125,000
<OTHER-SE> 73,027,000
<TOTAL-LIABILITY-AND-EQUITY> 159,738,000
<SALES> 28,211,000
<TOTAL-REVENUES> 28,211,000
<CGS> 16,528,000
<TOTAL-COSTS> 21,434,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 596,000
<INCOME-PRETAX> 6,407,000
<INCOME-TAX> 2,307,000
<INCOME-CONTINUING> 3,203,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,203,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .21
</TABLE>
