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, 1997 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 the registrant's common stock, $.01 par value, is 5,347,778 shares as of May 31, 1997.
HEICO CORPORATION INDEX PAGE NO. -------- Part I. Financial information: Consolidated Condensed Balance Sheets as of April 30, 1997 and October 31, 1996............................ 3 Consolidated Condensed Statements of Operations for the six and three months ended April 30, 1997 and 1996..................... 4 Consolidated Condensed Statements of Cash Flows for the six months ended April 30, 1997 and 1996....................... 5 Notes to Consolidated Condensed Financial Statements............. 6 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 9 Part II. Other Information: Item 1. Legal Proceedings....................................... 12 Item 4. Submission of Matters to a Vote of Security Holders..... 12 Item 6. Exhibits and Reports on Form 8-K........................ 12 -2-
<TABLE> <CAPTION> PART I. FINANCIAL INFORMATION HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS ASSETS APRIL 30, OCTOBER 31, 1997 1996 ------------ ------------ (Unaudited) <S> <C> <C> Current assets: Cash and cash equivalents $ 10,371,000 $ 11,025,000 Accounts receivable, net 7,747,000 7,879,000 Inventories 18,261,000 15,277,000 Prepaid expenses and other current assets 1,478,000 874,000 Deferred income taxes 2,243,000 2,058,000 ------------ ------------ Total current assets 40,100,000 37,113,000 ------------ ------------ Note receivable 10,000,000 10,000,000 ------------ ------------ Property, plant and equipment 21,420,000 19,599,000 Less accumulated depreciation (13,835,000) (13,754,000) ------------ ------------ Property, plant and equipment, net 7,585,000 5,845,000 ------------ ------------ Intangible assets less accumulated amortization of $954,000 in 1997 and $805,000 in 1996 4,712,000 4,756,000 ------------ ------------ Unexpended bond proceeds 5,330,000 2,649,000 ------------ ------------ Other assets 2,683,000 1,473,000 ------------ ------------ Total assets $ 70,410,000 $ 61,836,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 376,000 $ 494,000 Trade accounts payable 4,565,000 4,803,000 Accrued expenses and other current liabilities 6,539,000 5,903,000 Income taxes payable -- 665,000 ------------ ------------ Total current liabilities 11,480,000 11,865,000 ------------ ------------ Long-term debt 10,106,000 6,022,000 ------------ ------------ Deferred income taxes 1,087,000 1,137,000 ------------ ------------ Other non-current liabilities 2,111,000 1,324,000 ------------ ------------ Commitments and contingencies Shareholders' equity: Preferred stock, par value $.01 per share; Authorized - 10,000,000 shares issuable in series; 50,000 designated as Series A Junior Participating Preferred Stock, none issued -- -- Common stock, $.01 par value; Authorized - 20,000,000 shares; Issued - 5,338,098 shares in 1997 and 5,275,551 shares in 1996 53,000 53,000 Capital in excess of par value 31,690,000 30,881,000 Retained earnings 16,825,000 13,893,000 ------------ ------------ 48,568,000 44,827,000 Less: Note receivable from employee savings and investment plan (2,942,000) (3,339,000) ------------ ------------ Total shareholders' equity 45,626,000 41,488,000 ------------ ------------ Total liabilities and shareholders' equity $ 70,410,000 $ 61,836,000 ============ ============ </TABLE> SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -3-
<TABLE> <CAPTION> HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30, ------------------------------ ------------------------------ 1997 1996 1997 1996 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 27,819,000 $ 14,920,000 $ 13,552,000 $ 7,942,000 ------------ ------------ ------------ ------------ Operating costs and expenses: Cost of sales 18,542,000 9,882,000 9,016,000 5,226,000 Selling, general and administrative expenses 5,164,000 3,452,000 2,457,000 1,855,000 ------------ ------------ ------------ ------------ Total operating costs and expenses 23,706,000 13,334,000 11,473,000 7,081,000 ------------ ------------ ------------ ------------ Income from operations 4,113,000 1,586,000 2,079,000 861,000 Interest expense (178,000) (87,000) (95,000) (36,000) Interest and other income 827,000 358,000 430,000 165,000 ------------ ------------ ------------ ------------ Income from continuing operations before income taxes 4,762,000 1,857,000 2,414,000 990,000 Income tax expense 1,528,000 632,000 774,000 343,000 ------------ ------------ ------------ ------------ Net income from continuing operations 3,234,000 1,225,000 1,640,000 647,000 Net income from discontinued operations -- 727,000 -- 435,000 ------------ ------------ ------------ ------------ Net income $ 3,234,000 $ 1,952,000 $ 1,640,000 $ 1,082,000 ============ ============ ============ ============ Net income per share: From continuing operations $ .51 $ .21 $ .26 $ .11 From discontinued health care operations -- .13 -- .07 ------------ ------------ ------------ ------------ Net income per share $ .51 $ .34 $ .26 $ .18 ============ ============ ============ ============ Weighted average number of common and common equivalent shares outstanding 6,331,680 5,708,631 6,387,702 5,829,248 ============ ============ ============ ============ Cash dividends per share $ .05 $ .041 -- -- ============ ============ ============ ============ </TABLE> SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -4-
<TABLE> <CAPTION> HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED SIX MONTHS ENDED APRIL 30, ------------------------------ 1997 1996 ------------ ------------ <S> <C> <C> Cash flows from operating activities: Net income $ 3,234,000 $ 1,952,000 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 764,000 1,286,000 (Income) loss from unconsolidated partnerships -- (327,000) Minority interest in consolidated partnerships -- 228,000 Deferred income taxes (235,000) (495,000) Deferred financing costs (144,000) -- Change in assets and liabilities: Decrease (increase) in accounts receivable 40,000 (608,000) (Increase) in inventories (2,984,000) (843,000) (Increase) in prepaid expenses and other current assets (604,000) (181,000) Increase in trade payables, accrued expenses and other current liabilities 400,000 800,000 (Decrease) increase in income taxes payable (665,000) 439,000 Increase in other non-current liabilities 140,000 123,000 Other (80,000) -- ------------ ------------ Net cash (used in) provided by operating activities (134,000) 2,374,000 ------------ ------------ Cash flows from investing activities: Maturity of short-term investments -- 2,939,000 Purchases of property, plant and equipment (2,325,000) (639,000) Acquisitions: Contingent note payments -- (783,000) Other -- -- Distributions from unconsolidated partnerships -- 109,000 Distributions to minority interests -- (216,000) Payments for deferred organization costs -- (486,000) Payment received from employee savings and investment plan note receivable 396,000 353,000 Other (363,000) 93,000 ------------ ------------ Net cash (used in) provided by investing activities (2,292,000) 1,320,000 ------------ ------------ Cash flows from financing activities: Proceeds from the issuance of long-term debt: Reimbursements from unexpended bond proceeds 1,375,000 -- Other 210,000 302,000 Proceeds from the exercise of stock options 788,000 1,262,000 Payments on long-term debt and capital leases (320,000) (581,000) Cash dividends paid (282,000) (224,000) Other 1,000 -- ------------ ------------ Net cash provided by financing activities 1,772,000 759,000 ------------ ------------ Net (decrease) increase in cash and cash equivalents (654,000) 4,453,000 Cash and cash equivalents at beginning of year 11,025,000 4,664,000 ------------ ------------ Cash and cash equivalents at end of period $ 10,371,000 $ 9,117,000 ============ ============ </TABLE> SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -5-
HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED April 30, 1997 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, 1996. 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, 1997 are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. Accounts receivable are composed of the following: <TABLE> <CAPTION> APRIL 30, 1997 OCTOBER 31, 1996 -------------- ---------------- <S> <C> <C> Accounts receivable............................ $ 7,744,000 $ 7,882,000 Net costs and estimated earnings in excess of billings on uncompleted contracts......... 265,000 265,000 Less allowance for doubtful accounts........... (262,000) (268,000) -------------- ---------------- Accounts receivable, net....................... $ 7,747,000 $ 7,879,000 ============== ================ Inventories are comprised of the following: APRIL 30, 1997 OCTOBER 31, 1996 -------------- ---------------- Finished products.............................. $ 4,174,000 $ 4,428,000 Work in process................................ 7,220,000 5,845,000 Materials, parts, assemblies and supplies...... 6,867,000 5,004,000 -------------- ---------------- Total inventories.............................. $ 18,261,000 $ 15,277,000 ============== ================ </TABLE> Inventories related to long-term contracts aggregated approximately $328,000 as of April 30, 1997 and $628,000 as of October 31, 1996. 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. -6-
<TABLE> <CAPTION> 3. Long-term debt consists of: APRIL 30, 1997 OCTOBER 31, 1996 -------------- ---------------- <S> <C> <C> Industrial Development Revenue Bonds - Series 1997A......................... $ 3,000,000 --- Industrial Development Revenue Bonds - Series 1997B......................... 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 Term loan borrowing under revolving credit facility.............................. 158,000 317,000 Equipment loans................................ 844,000 719,000 ------------- ---------------- 10,482,000 6,516,000 Less current maturities........................ (376,000) (494,000) ------------- ---------------- $ 10,106,000 $ 6,022,000 ============= ================ </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 1997B bonds). The Series 1997A and 1997B bonds were issued in the amounts of $3,000,000 and $1,000,000, respectively, for the purpose of constructing and purchasing equipment for a new facility in Palmetto, Florida. As of April 30, 1997, the Company has been reimbursed $80,000 for such expenditures, and the balance of the unexpended bond proceeds of $3,920,000 is held by the trustee and is available for future qualified expenditures. The Series 1997A and 1997B bonds are due March 2017 and bear interest at variable rates calculated weekly (4.70% and 5.65%, respectively, at April 30, 1997). The 1997A and 1997B bonds are secured by a letter of credit expiring in March 2004 and a mortgage on the related properties pledged as collateral. The letter of credit requires annual sinking fund payments with a fair market value of $200,000 beginning in March 1998. The Series 1988 and Series 1996 bonds bear interest as of April 30, 1997, at 4.60% and 4.70%, respectively. As of April 30, 1997, unexpended proceeds of the Series 1996 bonds of $1,410,000 are held by the trustee and is available for future qualified expenditures. In February 1997, the Company's equipment loan facility was extended through December 1997. In addition, the amendment, among other things, increased the amount of available funds to $2,000,000. -7-
The term loan borrowings and equipment loans bear interest as of April 30, 1997 at 8.75% and 9.00% respectively. 4. The fiscal 1996 net income from discontinued operations represents the Company's former subsidiary, MediTek Health Corporation, which was sold in the third quarter of fiscal 1996 at a gain of $5,264,000 (89 cents per share). 5. Net income per share is calculated on the basis of the weighted average number of common shares outstanding during each period plus common share equivalents arising from the assumed exercise of stock options, if dilutive, and has been adjusted for the effect of any stock dividends and stock splits. 6. Supplemental disclosures of cash flow information for the six months ended April 30, 1997 and 1996 are as follows: Cash paid for interest was $178,000 and $137,000 in 1997 and 1996, respectively. Cash paid for income taxes was $2,654,000 and $1,228,000 in 1997 and 1996, respectively. 7. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 established a fair value based method of accounting for stock options. Entities may elect to either adopt the measurement criteria of the statement for accounting purposes, thereby recognizing an amount in results of operations on a prospective basis, or disclose the pro forma effects of the new measurement criteria in Notes to Consolidated Financial Statements. The Company intends to adopt the pro forma disclosure features of SFAS No. 123, which are effective for fiscal year 1997. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 changes the method in which earnings per share will be determined and is effective for financial statements for periods ending after December 15, 1997. The Company has not determined the effect, if any, of SFAS No. 128 on its earnings per share. -8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the six months ended April 30, 1997 and 1996 RESULTS OF OPERATIONS Fiscal 1997 second quarter net income of $1,640,000 ($.26 per share) increased 153% over fiscal 1996 second quarter net income from continuing operations of $647,000 ($.11 per share) and net income in the first half of fiscal 1997 of $3,234,000 ($.51 per share) increased 164% over net income from continuing operations of $1,225,000 ($.21 per share) in the first half of fiscal 1996. For the second quarter of fiscal 1997, net sales totaled $13,552,000, representing a 71% increase over net sales from continuing operations of $7,942,000 in the second quarter of fiscal 1996. In the first half of fiscal 1997, net sales rose 86% to $27,819,000, up from net sales from continuing operations of $14,920,000 in the first half of last year. The improved fiscal 1997 earnings are primarily attributable to increased sales and gross margins discussed below as well as the addition of the newly acquired Ground Support operations. Net sales of the Company's Flight Support operations increased 15% in the second quarter of fiscal 1997 as compared to the same period of fiscal 1996 and rose 20% in the first half of fiscal 1997 versus the first half of fiscal 1996. The increases from fiscal 1996 to 1997 are principally due to increased sales volumes of jet engine replacement parts to the Company's commercial airline customers. Net sales of the Company's Ground Support operations totaled $4,456,000 for the second quarter of fiscal 1997 and $9,937,000 in the first half of fiscal 1997, all of which represented sales of Trilectron Industries, Inc. (Trilectron), a business acquired in September 1996. The Company's Flight Support operations had a backlog which totaled approximately $23 million as of April 30, 1997 and April 30, 1996, and approximately $14 million as of October 31, 1996. The current backlog increased from October 31, 1996 principally due to certain customers entering into longer term contracts which replaced shorter term purchase orders. Substantially all of this backlog of orders is expected to be delivered within twelve months. -9-
The Company's Ground Support operations had a backlog totalling $13 million at April 30, 1997. This is an 18% increase over the October 31, 1996 backlog balance of $11 million and is principally due to receipt of a contract approximating $4 million in the first quarter of fiscal 1997 covering deliveries expected to begin in fiscal 1997 and continue into fiscal 1998. The Company's gross profit margins for the second quarter of fiscal 1997 averaged 33.5% as compared to gross profit margins averaging 34.2% in the same period of fiscal 1996. Gross profit margins averaged 33.3% in the first half of fiscal 1997, which approximated the 33.8% average gross profit margins in the first half of fiscal 1996. These reflect an improvement in gross margins in the Flight Support operations, partially offset by inclusion of the newly-acquired Ground Support operations. Sales of ground support equipment generally carry lower profit margins than those of the Company's Flight Support operations. The improvement in margins in the Flight Support operations reflects volume increases in sales of higher margin products and manufacturing cost efficiencies. Selling, general and administrative (SG&A) expenses in the second quarter and the first half of fiscal 1997 increased $602,000 and $1,712,000, respectively, over amounts in the second quarter and the first half of fiscal 1996. The increase from fiscal 1996 is due principally to increased selling expenses by the Flight Support operations and the SG&A expenses of Trilectron. As a percentage of sales, however, SG&A expenses improved to 18.1% of consolidated net sales in the second quarter and 18.6% of consolidated net sales in the first half of fiscal 1997, down from 23.4% and 23.1% in the comparable three-month and six-month periods of fiscal 1996. Income from operations, which totaled $2,079,000 for the second quarter of fiscal 1997 and $4,113,000 for the first six months of fiscal 1997, increased $1,218,000 and $2,527,000 respectively, over the same three-month and six-month periods of last year. These increases reflect the increase in sales and gross margins of Flight Support operations and the addition of the Ground Support operations as discussed above. Interest and other income in the second quarter and the first half of fiscal 1997 increased $265,000 and $469,000, respectively, over the same periods in fiscal 1996. These increases are principally due to interest income on the convertible note received from the sale of MediTek in July 1996 and higher cash balances available for investment. The Company's effective tax rate totaled 32.1% for the first half of fiscal 1997 and 34.0% in the first half of fiscal 1996. -10-
The decrease in the Company's effective tax rate is principally due to the tax benefit received from an increase in foreign sales. LIQUIDITY AND CAPITAL RESOURCES During the first six months of fiscal 1997, net cash used in operating activities was $134,000, reflecting net income of $3.2 million offset primarily by increases in inventories of $3.0 million required to meet increased sales and faster customer delivery requirements and a decrease in Federal and state income taxes attributable to estimated tax payments made. The Company's principal investing activities during the first six months of fiscal 1997 were purchases of property, plant and equipment of $2,325,000 including $1,191,000 related to the Series 1996 industrial development revenue bond project. The Company's principal financing activities during the first half of fiscal 1997 were $1,585,000 in proceeds of long-term debt including $1,295,000 in reimbursements for qualified expenditures from above referenced Series 1996 industrial development revenue bonds and $788,000 representing the receipt of funds from the exercise of stock options. As discussed in Note 3 to the Consolidated Condensed Financial Statements contained herein, industrial development revenue bonds in the amount of $4,000,000 were issued by Manatee County, Florida, to be used to construct and equip a new Trilectron manufacturing facility in Palmetto, Florida. As of April 30, 1997, unexpended bond proceeds of $3,920,000 were available for qualified expenditures of the Trilectron facility and unexpended bond proceeds of $1,410,000 were available for qualified expenditures of the Series 1996 industrial development revenue bond project of HEICO Aerospace. The revolving portion of the Company's $7,000,000 credit facility, which was to expire in April 1997, was renewed by mutual agreement until June 30, 1997. In addition, amounts available under the Company's equipment loan facility (See Note 3 to the Consolidated Condensed Financial Statements) were increased to $2,000,000 and extended to December 1997. There have been no other material changes in the liquidity or the capital resources of the Company since the end of fiscal 1996. -11-
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders held on March 18, 1997, the Company's shareholders elected nine directors and approved a proposal to amend the 1993 Stock Option Plan (the "Plan") to increase the number of shares issuable pursuant to the Plan. The number of votes cast for and withheld for each nominee for directors were as follows: DIRECTOR FOR WITHHELD -------- --------- -------- Jacob T. Carwile 4,592,600 432,169 Samuel L. Higginbottom 4,590,872 433,897 Paul F. Manieri 4,592,298 432,471 Eric A. Mendelson 4,545,795 478,974 Laurans A. Mendelson 4,592,787 431,982 Victor H. Mendelson 4,545,795 478,974 Albert Morrison, Jr. 4,592,787 431,982 Dr. Alan Schriesheim 4,592,460 432,309 Guy C. Shafer 4,590,822 433,947 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: 4,228,335; Against: 691,008; and Abstain: 91,126. There were 14,300 broker non-votes with respect to this matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Loan Agreement, dated as of March 1, 1997, between Trilectron Industries, Inc., and Manatee County, Florida (excluding referenced exhibits). -12-
(a) Exhibits (continued) 10.2 Letter of Credit and Reimbursement Agreement, dated as of March 1, 1997, between Trilectron Industries, Inc., and First Union National Bank of Florida (excluding referenced exhibits). 10.3 Second Loan Modification Agreement, dated February 27, 1997, between HEICO Corporation and Eagle National Bank of Miami. 11 Computation of earnings per share. 27 Financial Data Schedule. (b) There were no reports on Form 8-K filed during the three months ended April 30, 1997. -13-
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 6, 1997 BY /s/THOMAS S. IRWIN ------------ ------------------------------- Date Thomas S. Irwin, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -14-
EXHIBIT INDEX EXHIBIT PAGE - ------- ---- 10.1 Loan Agreement, dated as of March 1, 1997, between Trilectron Industries, Inc., and Manatee County, Florida (excluding referenced exhibits). 10.2 Letter of Credit and Reimbursement Agreement, dated as of March 1, 1997, between Trilectron Industries, Inc., and First Union National Bank of Florida (excluding referenced exhibits). 10.3 Second Loan Modification Agreement, dated February 27, 1997, between HEICO Corporation and Eagle National Bank of Miami. 11 Computation of earnings per share. 27 Financial Data Schedule (for SEC use only)