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, 2000
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 7, 2000:
Title of Class Shares Outstanding
Common Stock, $.01 par value 8,418,052
Class A Common Stock, $.01 par value 7,349,885
<PAGE>
HEICO CORPORATION
INDEX
Page No.
Part I. Financial Information:
Consolidated Condensed Balance Sheets as of
January 31, 2000 (unaudited) and October 31, 1999 2
Consolidated Condensed Statements of Operations (unaudited)
for the three months ended January 31, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows (unaudited)
for the three months ended January 31, 2000 and 1999 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 15
Item 6. Exhibits 15
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<PAGE>
PART I. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JANUARY 31, 2000 OCTOBER 31, 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,367,000 $ 6,031,000
Accounts receivable, net 38,362,000 35,326,000
Inventories 46,672,000 45,172,000
Prepaid expenses and other current assets 3,745,000 2,527,000
Deferred income taxes 1,681,000 1,534,000
------------- -------------
Total current assets 95,827,000 90,590,000
Property, plant and equipment less accumulated depreciation
of $18,647,000 and $18,588,000, respectively 29,502,000 28,336,000
Intangible assets less accumulated amortization of
$7,654,000 and $5,911,000, respectively 142,042,000 143,557,000
Unexpended bond proceeds 283,000 280,000
Long-term investments 2,337,000 3,231,000
Deferred income taxes 1,174,000 1,366,000
Other assets 6,406,000 5,803,000
------------- -------------
Total assets $ 277,571,000 $ 273,163,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 510,000 $ 551,000
Trade accounts payable 10,611,000 11,070,000
Accrued expenses and other current liabilities 15,861,000 15,299,000
Income taxes payable 596,000 392,000
------------- -------------
Total current liabilities 27,578,000 27,312,000
Long-term debt, net of current maturities 70,865,000 72,950,000
Other non-current liabilities 3,558,000 3,590,000
------------- -------------
Total liabilities 102,001,000 103,852,000
------------- -------------
Minority interest in consolidated subsidiary 30,973,000 30,022,000
------------- -------------
Commitments and contingencies (Note 10)
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 -
8,417,270 and 8,408,821 shares, respectively 84,000 84,000
Class A Common Stock, $.01 par value;
Authorized - 30,000,000 shares; Issued and
outstanding - 7,349,329 and 7,334,750 shares,
respectively 73,000 73,000
Capital in excess of par value 92,780,000 91,094,000
Accumulated other comprehensive loss (2,785,000) (2,235,000)
Retained earnings 55,896,000 52,280,000
------------- -------------
146,048,000 141,296,000
Less: Note receivable from employee savings and
investment plan (1,451,000) (2,007,000)
------------- -------------
Total shareholders' equity 144,597,000 139,289,000
------------- -------------
Total liabilities and shareholders' equity $ 277,571,000 $ 273,163,000
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 47,940,000 $ 28,211,000
------------ ------------
Operating costs and expenses:
Cost of sales 30,082,000 16,528,000
Selling, general and administrative expenses 8,770,000 4,906,000
------------ ------------
Total operating costs and expenses 38,852,000 21,434,000
------------ ------------
Operating income 9,088,000 6,777,000
Interest expense (1,218,000) (596,000)
Interest and other income 210,000 226,000
------------ ------------
Income before income taxes
and minority interest 8,080,000 6,407,000
Income tax expense 3,154,000 2,307,000
------------ ------------
Income before minority interest 4,926,000 4,100,000
Minority interest 911,000 897,000
------------ ------------
Net income $ 4,015,000 $ 3,203,000
============ ============
Net income per share:
Basic $ .25 $ .26
============ ============
Diluted $ .22 $ .21
============ ============
Weighted average number of
common shares outstanding:
Basic 15,753,652 12,515,352
============ ============
Diluted 18,192,709 15,531,650
============ ============
Cash dividends per share $ .025 $ .025
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,015,000 $ 3,203,000
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,219,000 1,232,000
Deferred income taxes 389,000 (314,000)
Minority interest in consolidated subsidiary 911,000 897,000
Change in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable (3,626,000) 1,097,000
(Increase) in inventories (1,505,000) (1,571,000)
(Increase) in prepaid expenses and
other current assets (634,000) (725,000)
(Increase) in unexpended bond proceeds (72,000) (71,000)
Increase (decrease) in trade payables, accrued
expenses and other current liabilities 1,892,000 (1,496,000)
Increase in income taxes payable 204,000 434,000
Other 313,000 (48,000)
------------ ------------
Net cash provided by operating activities 4,106,000 2,638,000
------------ ------------
Cash flows from investing activities:
Acquisitions and related costs, net of cash acquired (1,279,000) (14,234,000)
Capital expenditures (1,944,000) (4,109,000)
Net purchases of available-for-sale investments -- (3,504,000)
Other (717,000) (132,000)
------------ ------------
Net cash (used in) investing activities (3,940,000) (21,979,000)
------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt:
Proceeds from revolving credit facility 1,000,000 16,000,000
Bond reimbursement proceeds -- 432,000
Principal payments on long-term debt (3,126,000) (99,000)
Proceeds from the exercise of stock options 100,000 232,000
Tax benefit on stock option exercises 1,675,000 1,610,000
Repurchases of common stock (105,000) (127,000)
Cash dividends paid (394,000) (315,000)
Additional minority interest investment 20,000 2,827,000
------------ ------------
Net cash (used in) provided by financing activities (830,000) 20,560,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (664,000) 1,219,000
Cash and cash equivalents at beginning of year 6,031,000 8,609,000
------------ ------------
Cash and cash equivalents at end of period $ 5,367,000 $ 9,828,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
January 31, 2000
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, 1999. 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, 2000 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. Accounts receivable are composed of the following:
JANUARY 31, 2000 OCTOBER 31, 1999
---------------- ----------------
Accounts receivable $ 39,054,000 $ 36,047,000
Less allowance for doubtful accounts (692,000) (721,000)
------------ ------------
Accounts receivable, net $ 38,362,000 $ 35,326,000
============ ============
Revenue amounts set forth in the accompanying Consolidated Condensed Statements
of Operations do not include any material amounts in excess of billings related
to long-term contracts.
3. Inventories are comprised of the following:
JANUARY 31, 2000 OCTOBER 31, 1999
---------------- ----------------
Finished products $ 16,216 ,000 $ 15,401,000
Work in process 13,990,000 12,801,000
Materials, parts, assemblies and supplies 16,466,000 16,970,000
------------- ------------
Total inventories $ 46,672,000 $ 45,172,000
============= ============
Inventories related to long-term contracts were not significant as of January
31, 2000 and October 31, 1999.
4. Long-term debt consists of:
<TABLE>
<CAPTION>
JANUARY 31, 2000 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
Borrowings under revolving credit facility $ 64,000,000 $ 66,000,000
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 Refunding Bonds - Series 1988 1,980,000 1,980,000
Equipment loans 1,400,000 1,526,000
------------ ------------
71,375,000 73,501,000
Less current maturities (510,000) (551,000)
------------ ------------
$ 70,865,000 $ 72,950,000
============ ============
</TABLE>
-5-
<PAGE>
Pursuant to the Company's $120 million revolving credit facility (Credit
Facility), funds are available for funding acquisitions, working capital and
general corporate requirements on a revolving basis through July 2002. The
weighted average interest rate was approximately 7.0% and 6.4% at January 31,
2000 and October 31, 1999, respectively.
The industrial development revenue bonds represent bonds issued by Broward
County, Florida in 1988 (Series 1988 bonds), and bonds issued by Manatee County,
Florida in 1997 (Series 1997A and Series 1997C bonds).
Unexpended proceeds of the Series 1997A and 1997C bonds of $283,000 and $280,000
as of January 31, 2000 and October 31, 1999, respectively, including investment
earnings, were held by the trustee and were available for future qualified
expenditures. The Series 1997A and 1997C bonds interest rates were 3.5% and 3.8%
at January 31, 2000 and October 31, 1999, respectively.
The Series 1988 bonds interest rates were 3.4% at January 31, 2000 and October
31, 1999.
Equipment loans had interest rates ranging from 8.5% to 9.0% at January 31, 2000
and October 31, 1999.
5. Long-term investments consist of equity securities with an aggregate cost of
$6,858,000 as of January 31, 2000 and October 31, 1999. These investments are
classified as available-for-sale and stated at a fair value of $2,337,000 and
$3,231,000 as of January 31, 2000 and October 31, 1999, respectively. The gross
unrealized losses were $4,521,000 and $3,627,000 as of January 31, 2000 and
October 31, 1999, respectively. Unrealized gains and losses, net of deferred
taxes, are reflected as a component of comprehensive income (see Note 9). There
were no realized gains or losses during fiscal 1999 and through the first three
months of fiscal 2000. The investments are classified as long-term to correspond
with management's intentions to hold the investments a minimum of one year.
6. Research and development expenses for the first three months of fiscal 2000
and 1999, which are included as a component of cost of sales, totaled
approximately $600,000 and $300,000, respectively in each of the three-month
periods. The expenses for the first three months of 2000 and 1999 are net of
$1.4 million and $1.7 million, 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, 2000 and
1999 were $3.1 million and $2.3 million, respectively, and are recorded as a
component of accrued expenses and other current liabilities in the consolidated
condensed balance sheets.
7. The Company's effective tax rate increased from 36.0% in the first quarter
1999 to 39.0% in the first quarter 2000 primarily due to increased state taxes
and non-deductible goodwill resulting from acquisitions.
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<PAGE>
8. Information on operating segments for the three months ended January 31, 2000
and 1999 for the Flight Support Group (FSG) and the Electronics and Ground
Support Group (EGSG) are as follows:
<TABLE>
<CAPTION>
SEGMENTS
---------------------------
OTHER,
PRIMARILY CONSOLIDATED
FSG EGSG CORPORATE TOTALS
----------- ----------- ----------- -----------
FOR THE QUARTER ENDED JANUARY 31, 2000:
---------------------------------------
<S> <C> <C> <C> <C>
Net sales $28,195,000 $19,745,000 $ -- $47,940,000
Depreciation and amortization 1,603,000 565,000 51,000 2,219,000
Operating income 7,902,000 2,531,000 (1,345,000) 9,088,000
Capital expenditures 1,800,000 143,000 1,000 1,944,000
FOR THE QUARTER ENDED JANUARY 31, 1999:
---------------------------------------
Net sales $20,768,000 $ 7,443,000 $ -- $28,211,000
Depreciation and amortization 1,041,000 146,000 45,000 1,232,000
Operating income 7,507,000 463,000 (1,193,000) 6,777,000
Capital expenditures 3,398,000 707,000 4,000 4,109,000
</TABLE>
9. The Company's comprehensive income consists of:
THREE MONTHS ENDED JANUARY 31,
----------------------------
2000 1999
----------- -----------
Net income $ 4,015,000 $ 3,203,000
Other comprehensive (loss) income:
Unrealized holding (loss) gain
on investments (894,000) 1,477,000
Tax benefit (expense) 344,000 (550,000)
----------- -----------
Comprehensive income $ 3,465,000 $ 4,130,000
=========== ===========
Accumulated other comprehensive loss as of January 31, 2000 and October 31, 1999
includes unrealized (loss) on investments as follows:
ACCUMULATED OTHER
COMPREHENSIVE LOSS
------------------
Balance, October 31, 1998 $(1,142,000)
Unrealized holding (loss) on investments,
net of tax benefit of $721,000 (1,093,000)
-----------
Balance, October 31, 1999 (2,235,000)
Unrealized holding (loss) on investments,
net of tax benefit of $344,000 (550,000)
-----------
Balance, January 31, 2000 $(2,785,000)
===========
10. In November 1989, HEICO Aerospace Corporation and Jet Avion Corporation were
named defendants in a complaint filed by United Technologies Corporation (UTC)
in the United States District Court for the Southern District of Florida. All
counts of UTC's complaint that were not previously withdrawn by UTC have been
dismissed by the court. UTC has appealed the dismissal. 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
-7-
<PAGE>
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.
The Company has counterclaims against UTC for, among other things, malicious
prosecution, trade disparagement, tortious interference and unfair competition.
The Company is seeking compensatory and punitive damages in amounts to be
determined at trial. UTC filed an answer denying the counterclaims. No trial
date is currently set.
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 condensed
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). In June
1999, the Travelers lawsuit was dismissed by the federal courtbased on a lack of
jurisdiction. Travelers has appealed the dismissal. 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 believes that it has significant counterclaims against Travelers 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. No provision for gain or loss, if any, has
been made in the consolidated condensed financial statements.
The Company is involved in various other legal actions arising in the normal
course of business. Based upon the amounts sought by the plaintiffs in these
actions, management is of the opinion that the outcome of these other matters
will not have a significant effect on the Company's consolidated condensed
financial statements.
In January 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 has filed a protest
requesting an appeal of 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. The outcome of this matter is uncertain;
accordingly, no provision for additional taxes, if any, has been made in the
consolidated condensed financial statements.
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<PAGE>
11. In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company will
adopt SFAS 133 beginning November 1, 2000. The Company has not yet quantified
the impact of adopting SFAS 133 on the Company's consolidated financial
statements.
12. In February 2000, the Company, through a subsidiary, acquired selected
assets of the former Air-A-Plane Corporation for cash. The purchase price was
not significant to the Company's consolidated financial statements.
13. In February 2000, the Company entered into an interest rate swap with a bank
pursuant to which it exchanged floating rate interest based on three-month LIBOR
on a notional principal amount of $30 million for a fixed rate payment
obligation of 6.57% for a two-year period ending February 1, 2002. The fixing of
the interest rate for this period offsets the Company's exposure to the
uncertainty of floating interest rates on a portion of indebtness under the
Credit Facility (see Note 4). The differential paid or received on the interest
rate swap will be recognized as an adjustment to interest expense. The bank has
the option to call the swap one year after the effective date.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our results of operations during the current period and the same period in the
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.
Our Flight Support Group (FSG) consists of HEICO Aerospace Holdings Corp. and
its subsidiaries; HEICO Aerospace Corporation, Jet Avion Corporation (Jet
Avion), LPI Industries Corporation (LPI), Aircraft Technology, Inc. (ATI),
Northwings Accessories Corp. (Northwings), McClain International, Inc.
(McClain), Associated Composite, Inc. (ACI), Rogers-Dierks, Inc. (Rogers-Dierks)
acquired December 1998, Air Radio & Instruments Corp. (Air Radio) acquired May
1999, Turbine Kinetics, Inc. (Turbine) acquired June 1999, and Thermal
Structures, Inc. (Thermal) acquired June 1999.
Our Electronics & Ground Support Group (EGSG) consists of HEICO Aviation
Products Corp. and its subsidiaries; Trilectron Industries, Inc. (Trilectron),
Radiant Power Corp. (Radiant) acquired January 1999, Leader Tech, Inc. (Leader
Tech) acquired May 1999, and Santa Barbara Infrared, Inc. (SBIR) acquired
September 1999.
In February 2000, the Company, through a subsidiary, acquired selected assets of
the former Air-A-Plane Corporation for cash. The purchase price was not
significant to the Company's consolidated financial statements.
In February 2000, the Company entered into an interest rate swap with a bank
pursuant to which it exchanged floating rate interest based on three-month LIBOR
on a notional principal amount of $30 million for a fixed rate payment
obligation of 6.57% for a two-year period ending February 1, 2002. The fixing of
the interest rate for this period offsets the Company's exposure to the
uncertainty of floating interest rates on a portion of indebtedness under the
Credit Facility. The differential paid or received on the interest rate swap
will be recognized as an adjustment to interest expense. The bank has the option
to call the swap one year after the effective date.
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth net sales by operating
segment and the percentage of net sales represented by the respective items in
the Company's Consolidated Condensed Statements of Operations.
-10-
<PAGE>
THREE MONTHS ENDED JANUARY 31,
------------------------
2000 1999
--------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales:
FSG $ 28,195 $ 20,768
EGSG 19,745 7,443
--------- ---------
$ 47,940 $ 28,211
========= =========
Net sales 100.0% 100.0%
Gross profit 37.3% 41.4%
Selling, general and administrative expenses 18.3% 17.4%
Operating income 19.0% 24.0%
Interest expense 2.5% 2.1%
Interest and other income .4% .8%
Income tax expense 6.6% 8.2%
Minority interest 1.9% 3.2%
Net income 8.4% 11.4%
COMPARISON OF FIRST QUARTER 2000 TO FIRST QUARTER 1999
NET SALES
Net sales for the first quarter 2000 totaled $47.9 million, up 70% when compared
to the first quarter 1999 net sales of $28.2 million.
The increase in first quarter 2000 sales reflects an increase of $7.4 million (a
36% increase) to $28.2 million in revenues from the FSG and an increase of $12.3
million (a 165% increase) to $19.7 million in revenues from the EGSG. The FSG
sales increase represents revenues of $4.7 million from newly-acquired
businesses (Air Radio and Thermal). The balance of $2.7 million reflects
increases in sales of new products and services, including newly developed and
acquired FAA-approved jet engine replacement parts, and increased demand for
engine component and accessory overhaul services. The EGSG sales increase
reflects $6.2 million from internal growth and $6.1 from acquired businesses
(Radiant, Leader Tech and SBIR). The internal growth is primarily attributed to
sales of new products and increased market penetration.
GROSS PROFITS AND OPERATING EXPENSES
The Company's gross profit margins averaged 37.3% for the first quarter 2000 as
compared to 41.4% for the first quarter 1999. This decrease reflects lower
margins within the FSG contributed by certain acquired businesses, softness in
replacement parts demand resulting in certain facilities operating at lower
capacities, less favorable product mix, and the benefit realized in fiscal 1999
from favorable pricing under certain contracts. Cost of sales amounts for the
first quarter 2000 and first quarter 1999 include approximately $600,000 and
$300,000 of new product and development expenses, respectively. These amounts
are net of $1.4 million and $1.7 million received from Lufthansa in the first
quarter of 2000 and 1999, respectively. Pursuant to the research and development
agreement with Lufthansa, a total of $3.1 million remained available to
reimburse new product and development expenses. Accordingly, total new product
development expense is likely to increase by approximately $2 million for the
full fiscal 2000. Lower gross margins in the FSG were partially offset by
increased margins in the EGSG resulting primarily from higher gross profit
margins contributed by the acquired businesses.
-11-
<PAGE>
Selling, general and administrative (SG&A) expenses increased $3.9 million to
$8.8 million for the first quarter 2000 from $4.9 million for the first quarter
1999. The increase results primarily from the inclusion of SG&A expenses of
acquired companies, including additional goodwill amortization and increases in
both operating segments related to internal sales growth. As a percentage of net
sales, SG&A expenses increased to 18.3% for the first quarter 2000 compared to
17.4% for the first quarter 1999 primarily resulting from higher selling costs
in the FSG associated with expanding product lines.
OPERATING INCOME
Operating income increased $2.3 million to $9.1 million (a 34% increase) for the
first quarter 2000 from $6.8 million for the first quarter 1999. The increase in
operating income reflects an increase of $400,000 (a 5% increase) from $7.5
million to $7.9 million in the Company's FSG and an increase of $2.1 million (a
447% increase) from $463,000 to $2.5 million in the Company's EGSG. The
increases in operating income were due primarily to increases in sales and gross
profits in the FSG and EGSG discussed above.
As a percentage of net sales, operating income decreased from 24% in the first
quarter 1999 to 19% in the first quarter 2000 primarily reflecting lower margins
within the FSG and the increase in SG&A expenses as a percentage of net sales
discussed above. The FSG's operating income as a percentage of net sales
declined from 36% in the first quarter 1999 to 28% in the first quarter 2000 due
to lower gross profit margins and higher selling costs discussed above. The
EGSG's operating income as a percentage of net sales improved from 6% in the
first quarter 1999 to 13% in the first quarter 2000. This improvement reflects
increased gross margins contributed by acquired businesses.
INTEREST EXPENSE
Interest expense increased $622,000 to $1,218,000 from the first quarter 1999 to
the first quarter 2000. 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
in fiscal 1999.
INTEREST AND OTHER INCOME
Interest and other income decreased $16,000 to $210,000 from the first quarter
1999 to the first quarter 2000 due principally to the decrease in invested funds
used for acquisitions in fiscal 1999.
MINORITY INTEREST
Minority interest represents the 20% minority interest held by Lufthansa which
increased from the first quarter 1999 to the first quarter of 2000 due to higher
net income of the FSG.
-12-
<PAGE>
NET INCOME
The Company's net income totaled $4.0 million, or $.22 per diluted share, in the
first quarter 2000, improving 25% from net income of $3.2 million, or $.21 per
diluted share, in the first quarter 1999. The percentage increase in net income
exceeded the percentage increase in earnings per share due to an increase in
common stock shares outstanding resulting from the offering of 3.0 million
shares of Class A Common Stock during the second quarter of fiscal 1999.
The improvement in net income for the first quarter 2000 over the first quarter
1999 is primarily attributable to the increased operating income discussed
above. The increase was partially offset by the aforementioned higher interest
costs and increase in minority interest, as well as an increase in the Company's
effective tax rate. The Company's effective tax rate increased from 36.0% in the
first quarter 1999 to 39.0% in the first quarter 2000 primarily due to increased
state taxes and non-deductible goodwill resulting from acquisitions.
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.
Principal uses of cash by the Company include payments of interest and principal
on debt, acquisitions, capital expenditures and increases in working capital.
The Company believes that operating cash flow 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 $4.1 million for the first three
months of 2000, principally reflecting net income of $4.0 million, adjustments
for depreciation and amortization and minority interest of $2.2 million and $.9
million, respectively, offset by an increase in net operating assets of $3.4
million. The increase in net operating assets primarily resulted from an
increase in inventories to meet increased sales orders and an increase in
accounts receivable resulting from extended payment terms under certain EGSG
contracts.
-13-
<PAGE>
INVESTING ACTIVITIES
The principal cash used in investing activities in the first three months of
2000 was cash used for capital expenditures, which totaled $1.9 million
primarily representing the construction of a new facility and purchases of
machinery and equipment, and payments for acquisitions and related costs
totaling $1.3 million.
FINANCING ACTIVITIES
The Company's principal financing activities during the first three months of
2000 included a net repayment of $2 million on the Company's Credit Facility. In
addition, the Company received $1.7 million in tax benefits related to stock
option exercises and paid dividends of $.4 million during the period.
NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company will
adopt SFAS 133 beginning November 1, 2000. The Company has not yet quantified
the impact of adopting SFAS 133 on the Company's consolidated financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The primary market risk to which the Company has exposure is interest rate risk.
Changes in interest rates can affect the Company's net income and cash flows. In
order to manage interest rate risk, in February 2000, the Company entered into
an interest rate swap with a bank pursuant to which it exchanged floating rate
interest based on three-month LIBOR on a notional principal amount of $30
million for a fixed rate payment obligation of 6.57% for a two-year period
ending February 1, 2002. This allows the Company to reduce the effects (positive
or negative) of interest rate changes on operations. This financial instrument
carries a number of risks, including a risk of non-performance on the part of
the counterparty and a risk that the financial instrument will not function as
expected. This risk is mitigated by entering into the agreement with a financial
institution with investment grade credit rating.
-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) There were no reports filed on Form 8-K during the three
months ended January 31, 2000.
-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, 2000 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> OCT-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 5,367,000
<SECURITIES> 0
<RECEIVABLES> 39,054,000
<ALLOWANCES> (692,000)
<INVENTORY> 46,672,000
<CURRENT-ASSETS> 95,827,000
<PP&E> 48,149,000
<DEPRECIATION> (18,647,000)
<TOTAL-ASSETS> 277,571,000
<CURRENT-LIABILITIES> 27,578,000
<BONDS> 5,975,000
0
0
<COMMON> 157,000
<OTHER-SE> 144,440,000
<TOTAL-LIABILITY-AND-EQUITY> 277,571,000
<SALES> 47,940,000
<TOTAL-REVENUES> 47,940,000
<CGS> 30,082,000
<TOTAL-COSTS> 30,082,000
<OTHER-EXPENSES> 8,770,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,218,000
<INCOME-PRETAX> 8,080,000
<INCOME-TAX> 3,154,000
<INCOME-CONTINUING> 4,015,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,015,000
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.22
</TABLE>
